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How Oil Companies Plan to Spend Their Cash in 2012

By Aimee Duffy - Updated Apr 6, 2017 at 5:03PM

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Natural gas liquids and liquefied natural gas projects hog next year's cash.

If the capital expenditure budgets of major oil and gas players are any indication, 2012 will be the year of natural gas liquids and liquefied natural gas. Though only a few companies have publicized their specific plans so far, analysts expect them to be indicative of a trend at large. A look at ConocoPhillips (NYSE: COP), Chevron (NYSE: CVX), and Marathon Oil (NYSE: MRO) can clue us in on what Big Oil aims to do next year.

2012 is shaping up to be a big year for ConocoPhillips. The company plans to split into two companies and spend $14 billion of its $15.5 billion capital budget on oil and natural gas exploration and production. Eight percent of that budget will be directed at the refining spinoff, Phillips66.

The company will focus the rest of the money on developing three oil and natural gas liquid rich plays: Eagle Ford, Permian Basin, and the Bakken shale. The company will also spend money developing the Barnett shale, an area traditionally rich in methane.

ConocoPhillips is dedicating 60% of its capital budget to North American operations, but it is also directing funds abroad, specifically to an LNG project in Australia. The company plans to direct cash to its coalbed methane-to-LNG joint venture with Australia Pacific LNG and Sinopec (NYSE: SHI). Sinopec is expected to begin taking deliveries of LNG from the ConocoPhillips operated LNG export facility in 2015.

The company plans to spend $32.7 billion on cap ex next year. Much of that money is headed down under for two major LNG projects in Australia, the Gorgon and Wheatstone LNG projects. Gorgon is much farther along in development, entering its third year of construction, and Chevron expects to bring product to domestic and international markets by 2014. Wheatstone is entering its first year of construction, and has found partners in Shell (NYSE: RDS-A) and Apache (NYSE: APA). Both facilities are located in Western Australia.

Chevron plans to hit peak LNG spending in 2012 and 2013 and expects to begin to reap the benefits of those investments when Gorgon comes online in 2014.

Marathon Oil
Though Marathon is nowhere near as large as the two companies above; its cap ex budget conforms with the trend of pursuing natural gas liquids. Nearly half of Marathon's $4.82 billion budget will be dedicated to its operations in the Eagle Ford shale. The Texas shale play has become a hot spot for oil and gas producers lately, because it contains more oil and natural gas liquids than the Barnett shale, another Texas play that produces mostly dry gas.

Foolish Takeaway
Natural gas, in one form or the other, is clearly the focus for many exploration and production outfits, but there are other ways to play the trend as well. Interested Fools should consider oil field service companies, pipeline MLPs, and what Motley Fool analysts are calling the "One Stock to Own Before the Nat Gas Act Becomes Law."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Chevron Corporation Stock Quote
Chevron Corporation
$115.14 (2.71%) $3.04
ConocoPhillips Stock Quote
$71.26 (2.98%) $2.06
Marathon Oil Corporation Stock Quote
Marathon Oil Corporation
$15.58 (3.04%) $0.46
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
$43.87 (5.48%) $2.28
Apache Corporation Stock Quote
Apache Corporation
$26.18 (3.68%) $0.93
Sinopec Shanghai Petrochemical Company Limited Stock Quote
Sinopec Shanghai Petrochemical Company Limited
$23.60 (2.43%) $0.56

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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