Highlight: individual company plans and price expectations

March 7, 2011
Many companies, flush with cash after posting hefty profits on last year's strong oil prices, are ready to boost spending in order to ramp up production.

Many companies, flush with cash after posting hefty profits on last year's strong oil prices, are ready to boost spending in order to ramp up production.

Chevron Corp. in December 2010 announced a $26 billion capital and exploratory spending program for this year. About 85% of the budget targets exploration and production projects, while 10% is for operations that manufacture, transport, and sell petroleum products, additives, and petrochemicals.

Chevron allocated $17.2 billion of its budget to upstream operations outside the US and $5.4 billion to projects within the US. Major capital investments include development of natural gas resources in Western Australia and development opportunities in the deepwater US Gulf of Mexico, Western Africa, and the Gulf of Thailand.

The company plans to spend $2.9 billion for downstream operations this year, including projects geared toward improving returns at refineries in Mississippi and California, Chevron said.

BP PLC, which also plans to boost exploration spending this year, announced that its worldwide organic capital expenditure for 2011 will be about $20 billion. In 2010, such outlays totaled $18.2 billion.

In addition to boosting exploration, BP plans to resume activity in the Gulf of Mexico this year, ramp up activity in Iraq, and increase the number of turnarounds at its refineries.

In November of last year, ConocoPhillips said it plans to sharply hike capital spending in the Southeast Texas Eagle Ford shale play in 2011. Investment was likely to be $1-1.5 billion in 2011, compared with $300 million in 2010. The 2011 amount is for drilling and completions, not to add acreage (OGJ, Nov. 29, 2010, Newsletter).

Hess Corp. announced a $5.6 billion 2011 capital and exploratory budget, nearly all targeted for exploration and production. Hess has allocated $3.1 billion for production, $1.6 billion for development, and $900 million for exploration. Only $85 million has been budgeted for marketing, refining, and corporate capital expenditures.

Shell announced last year that it could invest $40 billion in North America over the next 4 years to boost production by 40% from current levels. Shell's investment focus would be on heavy oil, onshore gas, deep water, and exploration.

Independent producers

Continental Resources Inc., Enid, Okla., announced in October 2010 that it had committed 91% of its $1.36 billion 2011 capital expenditures budget to drilling, workovers, and facilities to raise production. Of these drilling-related outlays, Continental said, 92% will be invested in the Bakken shale in North Dakota and Montana and in the Woodford shale in Oklahoma. These two plays are critical to Continental's growth over the next 5 years, the company said.

LINN Energy LLC, Houston, in December announced that its $480 million 2011 oil and gas capital program will focus on the high rate-of-return, liquids-focused drilling in the Granite Wash and Permian basin Wolfberry trend as well as on low-risk, low-cost projects.

About $120 million of LINN's 2011 capital program has been designated as maintenance capital. The company expects to drill more than 220 wells and complete more than 380 workover, recompletion, and optimization projects during 2011.

Price assumptions

The Barclays Capital E&P spending survey found that the average oil price on which companies based their 2011 budgets was about $77.32/bbl for West Texas Intermediate crude. This compares with a $70.16/bbl assumption used for 2010 budgets in December 2009. At midyear 2010, companies were basing budgets on an oil price of $73.56/bbl.

Budgets also reflect a natural gas price forecast of $4.27/Mcf, down 18% from the gas-price expectation a year earlier and an 8% decrease from expectations at midyear 2010. These are the lowest gas prices expected since 2004, with $4-6/Mcf as the range outside of which many producers would change budgets, Barclays said.

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