As attractive hedging positions begin to roll off in 2012 and 2013 for exploration and production (E&P) companies, particularly for natural gas, energy analysts will be keyed in to which companies add new hedges and at what prices, according to Tudor, Pickering, Holt & Co. (TPH).

In a note to clients the TPH energy team also said it would be watching for “bigger” themes in E&P company 2012 outlooks, with capital expenditures (capex) and production “front and center.”

Investors are “clearly willing to pay for greater resource potential rather than focusing on resource conversion,” said the analysts. “Execution matters, and big wells help,” which will lead some operators to put more oil and natural gas assets on the market to allow them to focus more on specific unconventional plays where the economics are better.

There’s no “rocket science” in the analysis, said the analysts. With West Texas Intermediate (WTI) oil prices at $100/bbl or higher, Brent prices at around $110/bbl and natural gas “stuck in the $3.50/Mcf ballpark (and natgas cuts on the way).” Oily growth “is where you want to be.”

Most of the E&Ps — large to small — have converted or are in the process of converting their operations to more liquids output. A pure-play gas producer is becoming harder to find. “Looking at the macro environment: the current spread between WTI and natural gas at 25-plus to 1 and oil inventories actually don’t look too bad. So fundamentals and commodity prices are suggesting oil will continue to drive the bus in 2012.”

Under a preliminary forecast of the E&Ps it covers, TPH expects 2012 output to be about 44% weighted to liquids. This year liquids are expected to average about 42% of output, while in 2010 the group was 40% weighted to liquids.

Based on E&P plans outlined to date, TPH also is modeling capex for 2012 drilling to be 6% higher year/year “but amid extreme commodity price volatility, companies are generally reluctant to provide firm capex thoughts” for the coming year.

“Production in 2012 should see liquids grow as a percentage of overall production for E&P companies with some liquids exposure. However, in 3Q2011 natural gas production allowed a number of companies to beat production targets…If oil prices remain at current levels (or the strip continues to look favorable), 2012 could follow the path of 2011, with capex trending higher in the back half of the year (supported by higher margins).”

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