Analysts with Raymond James & Associates Inc. last week issued an updated exploration and production (E&P) capital expenditure (capex) survey, which indicates that spending should rise 25% this year over 2009. Many of the large caps in the survey, said the analysts, are positioned to ramp up onshore resource development, particularly the shales.

The Raymond James annual survey is comprised of 46 public independent E&P companies that supply about one-third of total U.S. natural gas and most of the supply growth, according to the analysts. Not included are major integrated producers or private producers.

For U.S. natural gas producers, spending is accelerating, but the foot is “not far from [the] brakes,” said the Raymond James team. “Over the past six months, we’ve noticed a notable shift in the allocation of capital among our gassy weighted producers (75% or more gas reserves). With gas prices in the gutter over the past year and the oil-gas ratio currently at 20 times, it’s not surprising that many E&P companies are spending more capital on ‘oily’ weighted projects in 2010.”

Natural gas liquids-rich plays that include Eagle Ford Shale, Granite Wash and Niobrara “are coming more into focus,” while traditional gas-weighted producers including Chesapeake Energy Corp. and EOG Resources Inc. have touted their expected liquids growth in 2010.

“As a whole, our gassy companies are increasing spending by 17% this year, led by Cimarex (up 137%), Petroquest (up 105%), Range Resources (up 76%) and Southwestern (up 56%),” said the analysts. “However, keep in mind that spending is still down 30% from the peak in 2008, and we believe it’s likely that some companies will be slashing budgets if gas continues to stay depressed.”

According to the survey, E&Ps in 2010 will spend:

“Not surprisingly, our oil-weighted producers (50% or more oil by reserves) are expected to increase spending the most in 2010,” said the analysts. “As a whole, our oily coverage is set to increase spending by almost 30% year/year, led by Brigham Exploration (almost 200% increase), Berry Petroleum (up 107%), Pioneer Natural Resources (up 103%) and Whiting Petroleum (up 70%). This spending is still down 12% from the peak in 2008.”

Raymond James E&P coverage alone spent nearly $32 billion less for E&D in 2009 than in 2008, noted the analysts. “To try and put that in perspective, that would be equivalent to the cost of drilling of almost 6,000 Eagle Ford wells or buying over 6,000,000 acres in the Marcellus [Shale]. As we start 2010, spending is set to rebound (albeit still over 20% lower than 2008 levels) due to a combination of improved shale play economics, hedging, drilling to hold acreage, improved balance sheets and higher oil prices.

“As a whole, our companies expect to increase spending almost 25% in 2010; however, with gas prices currently sub-$4/Mcf and the outlook not much better, we think many of our gassy producers are likely to trim budgets over the course of the year. As such, we think our coverage could reduce its capex by 5-10% over the course of 2010.”

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