Several of North America’s largest producers unveiled their 2004 budgets last week, including ChevronTexaco Corp., ConocoPhillips, Burlington Resources Inc., Pioneer Natural Resources Co. and Nexen Inc. The budgets are a mixed bag, but all have set aside a solid chunk of cash for upstream exploration and natural gas projects, both domestically and overseas.

ChevronTexaco Corp. is setting aside 75% of next year’s budget on upstream exploration, production and global gas-related projects, including $1.9 billion to be spent in the United States, the company said Wednesday. Worldwide, the oil major has allocated $8.5 billion for capital and exploratory spending in 2004.

CEO Dave O’Reilly said the spending plan is designed to support ChevronTexaco’s focus on “high-return upstream growth projects” and to “commercialize our company’s large natural gas resource base.”

The San Ramon, CA-based company’s exploration and production spending program will focus on “projects that represent the best economic opportunities,” said Peter Robertson, vice chairman. Robertson said the upstream program builds on a string of exploration successes over the last two years and includes continued investment in impact exploration opportunities in deepwater Gulf of Mexico and West Africa, as well as prospective areas outside those regions.

Major 2004 spending, designed for longer-term projects, will be designated for Nigeria and Angola, Venezuela and the Gulf of Mexico (GOM). In the GOM, the company is continuing to appraise and engineer its deepwater discoveries, including the Tahiti project, which is slated for ramp up in 2007.

Robertson said the 2004 program also includes “significant” spending to commercialize the company’s international natural gas resource base, including the construction of additional liquefied natural gas (LNG) facilities. The upstream portion of global gas-related investments in 2004 is estimated at $400 million, out of a company-wide total of $500 million.

The global gas investments will go toward ChevronTexaco’s Gorgon project in Australia as well as projects in Angola and Nigeria. In the United States and Mexico, ChevronTexaco plans to continue two proposed LNG import and regasification terminals, one recently permitted (Port Pelican in the GOM) and the other in Baja California, Mexico. Those Baja permits are “aggressively being sought,” the company said.

About $1.4 billion, or 16% of total spending, is targeted for global downstream. Refining and marketing investments are estimated at about $400 million in the United States and $600 million internationally. Another $400 million is budgeted primarily for supply and transportation projects, including pipelines to support expanded upstream production.

Investments are expected to total about $200 million in chemicals and about $150 million in power and related businesses. Another $300 million is targeted for energy technology, information technology and facilities.

ConocoPhillips approved a $6.9 billion capital budget for next year, with 78% allocated toward exploration and production (E&P), 19% for refining and marketing and the rest toward emerging businesses. About $2 billion total is earmarked for North American and Latin American projects.

“Maintaining a 2004 cash capital budget essentially equal to 2003 is part of our disciplined approach toward improving returns on capital employed,” said CEO Jim Mulva. “This capital program will enable us to maintain safe and reliable operations, develop our existing legacy projects, and provide growth opportunities for the future.”

E&P’s 2004 budget is approximately $4.5 billion, excluding capitalized interest and minority interest related to the company’s Bayu-Undan project in the Timor Sea. E&P expects to spend $1.3 billion to develop projects in the Asia-Pacific region. Most of these funds will go toward its Bayu-Undan liquids and gas recycling project in the Timor Sea, oil and gas reserves in the offshore Block B and onshore South Sumatra blocks in Indonesia and the second phase of Bohai Bay in China.

Another $1 billion of the E&P budget is allocated toward projects in Europe and Africa. Projects include expansion of the company’s legacy positions in both the United Kingdom and Norwegian sectors of the North Sea.

The company allocated roughly $0.9 billion to develop projects in the Lower 48 and Latin America. The focus in these regions will be on the continued development of the Magnolia field in the deepwater Gulf of Mexico, completion of the heavy-oil upgrader associated with the Hamaca project in Venezuela and development of the Corocoro field offshore Venezuela.

Conoco also plans to spend approximately $0.6 billion for its Alaska operations. Most of the capital spending will fund Prudhoe Bay, Kuparuk and western North Slope operations, as well as construction of Endeavour Class tankers to transport Alaska North Slope crude oil. In Canada, E&P capital expenditures are expected to be about $0.4 billion, with a focus on Syncrude expansion, Surmont heavy oil development and Mackenzie Delta gas development.

E&P estimates another $0.4 billion will be spent on projects in the Middle East, Russia and the Caspian region. Projects include the Kashagan field and the Baku-Tbilisi-Ceyhan pipeline in the Caspian region, and the Qatargas 3 liquefied natural gas facility in Qatar.

Houston-based Burlington Resources will spend about $1.5 billion in 2004, about the same as this year, and will fund all of it internally. The 2004 budget excludes potential acquisitions, which are currently projected at $228 million this year.

“During 2004 we expect to generate production growth at the upper end of our previously announced guidance range of 3-8% in annual average long-term growth,” said CEO Bobby S. Shackouls. “Meanwhile, the flat 2004 capital budget reflects our philosophy of maintaining consistent spending throughout commodity price cycles, rather than ramping activity up and down.”

Approximately 85% of Burlington’s 2004 capital budget is allocated for investments in North America, with the most to be spent in the Rockies fairway of the Lower 48 and Canada. This year, Burlington spent about 75% of its capital budget in North America. Another 15% will be spent on international projects, down from this year’s 25%, which Burlington attributed to the impending completion of several major projects.

Burlington also has increased the hedged volumes of future North American gas production. This month, Burlington has hedged additional volumes of expected future natural gas production, primarily for the 1Q2004. To date these actions have added approximately 310 MMcf/d of fixed-price contracts at a Henry Hub equivalent price of $6.57/Mcf. Total hedged volumes are currently 790 MMcf/d for the first quarter, with 187 MMcf/d hedged in the second quarter. Burlington’s full hedge position is available on the Hedging Schedule page of its web site at www.br-inc.com/docs/hedge.pdf.

Dallas-based producer Pioneer Natural Resources will spend up to $600 million in the new year to fund development and exploration activities, with most of the money focused on 400 wells onshore and offshore the United States. The natural gas producer, which is forecasting five-year average annual growth at 10%, also will begin a dividend program next year.

Pioneer’s dividend program, approved by the board of directors, will begin next year at 20 cents/share, payable in two semi-annual installments of 10 cents/share.

Flush with strong production results this year, Pioneer said Tuesday that 65% of its capital budget next year will be directed toward development activities and facilities, with the remainder allocated to exploration. Most of the money will be spent in the United States, with more than a third directed toward Gulf of Mexico deepwater development. Another third will be spent on its onshore U.S. assets, with another 2% in Alaska. The rest of the budget will be allocated for Argentina, Gabon, Canada, Tunisia and South Africa.

“Having identified and initiated development of the projects that are expected to drive our production growth into 2005, we can focus our attention on building long-term value and growth through the last half of the decade,” said CEO Scott Sheffield. He said the company would “strive to invest in only the highest-return projects.” Pioneer now has the flexibility to “choose among developing exploration successes,” he said, which would include acquiring more core assets, repurchasing common shares and reducing debt.

Fourth quarter production to date has “exceeded expectations,” and the company now expects to be “nearer the top end” of its announced range of 150-160 Mboe/d. Production for 2004 is expected to range between 65-73 MMboe, or 178-200 Mboe/d.

“The outlook for continued growth in 2005 is strong, considering that first production from several new projects is not expected until well into 2004,” Pioneer stated. By then, Pioneer will mark the first full year of production from the Devils Tower, Tomahawk and Raptor deepwater fields, and the company believes it will have a sufficient development inventory to support production growth in North America, Argentina and Tunisia. At a minimum, Pioneer currently expects production in 2005 to match 2004.

Because of its strengthened position, management also reiterated its commitment to reduce debt by a minimum of $100 million next year, and has established a targeted long-term range for debt to book capitalization of 37% to 43%. On Tuesday, Pioneer also closed a new $700 million five-year unsecured revolving senior credit facility, replacing its existing $575 million unsecured facility scheduled to mature in March 2005.

Calgary-based Nexen plans to invest C$1.8 billion in capital projects in 2004, an increase of C$245 million over 2003. Almost C$1.1 billion focuses on advancing major development programs and high quality exploration in four key basins, while C$590 million or 34% is directed toward sustaining production and cash flow from core oil and gas assets.

Nearly half of Nexen’s budgeted exploration capital will be invested in the Gulf of Mexico, where it plans to drill at least five exploration wells, including deepwater tests in the Green Canyon, Garden Banks and Eastern Gulf of Mexico areas, plus two Miocene gas prospects on the shelf.

“Our strategy is to grow in the deepwater Gulf of Mexico, offshore West Africa, in the Middle East, and Canada’s Athabasca oil sands where we can generate superior growth and returns,” said CEO Charlie Fischer. “We are moving forward in these areas with concrete development projects and high-quality exploration opportunities. Our investment in the deepwater Gulf is already delivering high-margin volumes at Aspen, with Gunnison to follow shortly.”

Approximately 45% of Nexen’s cash flow from core assets is being reinvested in those assets to deliver production between 255,000-275,000 boe/d next year. Production after royalties will average between 180,000-195,000 boe/d. The remaining 55% of cash flow will be invested in new growth projects, which will come on-stream in 2005 and beyond.

Nexen’s U.S. natural gas production is estimated to comprise 45% of total equivalent production in 2004, while its Canadian natural gas production is estimated to comprise 33%. In Western Canada, Nexen plans to focus on shallow gas, heavy oil and light oil as it transitions to new sources of production growth such as synthetic crude oil and coalbed methane.

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