Last week, we saw Chevron (NYSE: CVX ) snap up Atlas Energy (Nasdaq: ATLS ) , a natural gas producer focused on the prolific Marcellus shale. I suggested that this purchase was a smart, opportunistic move, as the rest of the industry scrambles for onshore oil plays.
The acquisition should prove shrewd in time, but there may be another motivating factor guiding Chevron here: a suddenly constrained opportunity set in North America, given the permitting situation in the Gulf of Mexico.
As I've pointed out in recent weeks, uncertainty reigns when it comes to the outlook for offshore exploratory drilling. Whereas ExxonMobil (NYSE: XOM ) took the plunge with XTO Energy, and Royal Dutch Shell (NYSE: RDS-A ) made a major move of its own, Chevron had been one of the real holdouts when it came to onshore resource plays, focusing more on deepwater exploration around the world. Major delays in getting new wells approved by federal regulators could really throw a wrench in the company's outsized U.S. deepwater program. I wonder whether Chevron would be diving into the Marcellus today if the deepwater situation were not in disarray.
What got me thinking about this was a comment by Newfield Exploration (NYSE: NFX ) management yesterday, in announcing a 50,000-acre, $405 million Marcellus acquisition from EOG Resources (NYSE: EOG ) . Newfield, which entered the play through a partnership with Hess last year, said that it's deferring exploratory drilling in the deepwater Gulf of Mexico next year, thereby reallocating $70 million in spending from the Gulf to Appalachia.
This revelation by Newfield, one of the more active independents in the deepwater, indicates that it's possible we'll see a significant pullback in offshore exploratory budgets next year. Not all companies are holding back, however. Nexen (NYSE: NXY ) has committed to reigniting its exploratory program next year, with six wells planned. We'll need to keep an eye on other companies as they unveil their 2011 budgets.
The controversy surrounding hydraulic fracturing makes operating in the Marcellus no walk in the park, but compared with the dysfunctional regulatory scene in the Gulf of Mexico today, Pennsylvania looks like a quite palatable place to deploy capital. I can hardly blame Chevron or Newfield for making the move from choppy waters to solid ground.