El Paso Corp.’s exploration and production (E&P) unit may have downsized in the past few years, but its U.S. focus on natural gas shales and select coalbed methane (CBM) plays is beginning to bear fruit, executives said Thursday.

The Houston-based company’s executive team unveiled plans to fund $4.1 billion in capital development in 2010, with most of the money set aside for domestic gas pipeline projects (see Daily GPI, Dec. 11). Only a quarter of the money, around $1.1 billion, will be for E&P, but it will be spent wisely, E&P chief Brent Smolik said.

“We’re allocating our capital to the most economical and repeatable programs: Haynesville, Eagle Ford and Altamont,” an oil play, Smolik said. So far, so good. He estimated that around 39% of El Paso’s total inventory helped grow the reserves base this year.

“Our U.S. production is going to exceed the original guidance we had for the year by about 25,000 Mcf/d to 30,000 Mcf/d,” Smolik told analysts. “We’ve significantly progressed our shale program and found ways to grow our inventory and our proved reserves this year…It’s the same strategy that we’ve used for the past three years and it’s starting to pay off.”

At the end of 2008 El Paso’s total gas and oil reserves totaled around 2.4 Tcfe, and “we think that will be somewhere around 2.6 to 2.7 Tcfe when we finish our reserve work for this year,” he said.

El Paso revamped its E&P program and today its top prospects include two CBM plays: the Pierre Field in the Raton Basin and a leasehold in the Black Warrior Basin of Alabama. In addition, development is under way in the Bossier/Cotton Valley tight gas play in East Texas, the Haynesville Shale in northwestern Louisiana and in the Eagle Ford Shale in South Texas where El Paso has 132,000 net acres, Smolik said.

“Our capital has shifted from to the Central and Western divisions with the shift to unconventional resources,” he said. While unconventional plays accounted for 57% of development this year, they will account for almost 70% in 2010. The Altamont project and some global prospects are oily, but the company is still “mostly gas-focused and over 85% of our program is still gas.”

With the drop in gas prices, the E&P chief said El Paso continues to upgrade its portfolio and focus on the most economical plays. More upgrading of the portfolio is expected to continue.

“We’ve seen savings this year in capital and operating expenses of about $45 million, and that’s partially as a result of our reorganizational effort,” Smolik said. The company has migrated “to the onshore part of our Gulf Coast division” where it’s now focusing on the emerging Eagle Ford Shale in South Texas.

“Eagle Ford is obviously a very large resource for us and it appears profitable but we’re still very early in the play,” said Smolik. “Like our approach in Haynesville, if we have success early on, we have the ability to ramp that program up.”

For 2010 most of the E&P budget will target the Haynesville Shale in both Louisiana and East Texas. El Paso plans to spend $248 million across the region in the coming year and plans to spud 10 wells gross.

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