Rising oil prices and increased demand for oil and natural gas have set the ball rolling for exploration and production for the new year. With oil prices hovering around the $100-per-barrel mark, companies across the world have increased their focus on production. A recent survey by Barclay's Capital showed that major E&P companies have hiked their planned expenditures for 2012, hitting a cumulative figure of $600 billion. This indicates a feverish pitch in E&P activities in 2012 that should rake in moola for the companies and their investors. Read along and I will tell you where well-known energy companies are focusing their budgets in 2012.
2011 Capital and Exploratory Expenditures
2012 Estimated Budget (in billions)
|ExxonMobil (NYSE: XOM )||$33-$37||$33-$37||--|
|Chevron (NYSE: CVX )||$28.0||$32.7||17%|
|Royal Dutch Shell||$25-$27||$25-$27||--|
|Total (NYSE: TOT )||$20||$23||15%|
|BP (NYSE: BP )||$19||$20||7%|
|ConocoPhillips (NYSE: COP )||$12||$14||17%|
|Chesapeake (NYSE: CHK )||$5.0-$5.4||$5.4-$5.8||7%|
Company filings, Web sources.
We can see that four of the companies are exhibiting double-digit growth in their budget allocation. A huge portion of the budget is going to go into finding and developing natural gas reserves since the world's energy demand has been witnessing a shift toward it. The emergence of natural gas as the best alternative to the continually depleting oil reserves has pushed oil majors and minors to grab land in newly found unconventional reserves. This has also created enough opportunities for large-cap oil-field-services companies such as Schlumberger (NYSE: SLB ) , Baker Hughes, Halliburton (NYSE: HAL ) , and Weatherford, as the unconventional plays require lot of high-tech equipment and severe-site maintenance.
Now let's shed some light on the places the money will go. Projects witnessing increased capital spending are Chevron's Wheatstone and Gordon Australian liquefied natural gas (LNG) projects; the Australia Pacific LNG project, which is a joint venture of ConocoPhillips, Origin Energy, and Sinopec; and Exxon and Interoil's (NYSE: IOC ) Papua New Guinea projects. Apart from being rich in reserves, Australia and Papua New Guinea are well-located to serve Asia, with China and India acting as perfect markets. After the Fukushima Daiichi nuclear disaster in March, Japan has also become a target market for project operators in the region as natural gas is seen as safer than nuclear energy.
Other places drawing oil and services companies are the U.S. shale plays of Bakken, Barnett, Eagle Ford, Woodford and Marcellus. Among them, Bakken has experienced the highest growth in the past five years. According to the U.S. Geological Survey, there are 3.65 billion barrels of recoverable crude oil present in the Bakken. ExxonMobil has 410,000 net acres of leasehold and seven operating rigs in the Bakken. The company has also invested in the Woodford shale.
The oil sands of Canada are also attracting investments from both domestic and international players. The oil sands provide these players a good source of supplying crude oil to the U.S. If TransCanada gets approval for its Keystone XL pipeline, oil sands prospects will brighten up further.
A majority of these projects are scheduled to operate from 2014, with a few adding to production post-2017, and some as early as 2012.
High oil prices are one of the main drivers behind the increased capital spending of oil majors. With oil futures settling between $101 and $110 for WTI and Brent, respectively, oil and gas companies have increased efforts to produce more and cash in on the price rise.
The increased demand for natural gas is another driver persuading companies to add more natural gas assets to their project portfolios. Demand from emerging markets and shale discoveries in Latin America, apart from the proven reserves of the U.S., Qatar, Iraq, and Canada have given enough reasons for energy companies to invest.
Foolish bottom line
Rising oil prices and burgeoning natural gas demand stand to play a vital role in shaping the energy sector in 2012, and the increased budget of oil players seems worth spending. If you're looking for top energy plays to profit of the oil boom, check out The Motley Fool's "3 Stocks for $100 Oil." You can download this special report for free by clicking here.