Petroleum Development (Nasdaq:PETD) plans to spend most of the company's 2012 development capital budget in the Wattenberg Field of Colorado, generating double-digit production growth over 2011. The company will develop its properties in the field with both horizontal and vertical wells. (To know more about oil and gas, read Oil And Gas Industry Primer.)
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2012 Capital Budget
Petroleum Development has budgeted $284 million in capital expenditures in 2012, with $198 million designated for development projects across its oil and gas portfolio. The company estimates that 85% of these funds will be used in the Wattenberg Field of Colorado, where Petroleum Development plans to expand its horizontal Niobrara program. The company will also conduct refractions and recompletions of existing wells in the field.
The balance of the development budget will be used for developing properties in the Marcellus Shale and Utica Shale. Petroleum Development, which does business as PDC Energy, has also allocated $86 million for exploration activities and possible acquisitions in 2012.
PDC Energy estimates that this level of spending will lead to production in 2012 of 53 Bcfe, up 21% from 2011. This production will be approximately 33% crude oil and natural gas liquids.
PDC Energy has 74,100 net acres in the Wattenberg Field and drilled 16 horizontal wells here in 2011. The company plans to increase activity in its horizontal Niobrara program in 2012 and estimates it will drill approximately 25 wells here next year. PDC Energy also has a vertical development program here as well as refraction and recompletion opportunities.
PDC Energy has decided to exit the Permian Basin and announced the sale of the company's properties here to Concho Resources (NYSE:CXO) for $175 million. The company plans to use the funds to pay down the outstanding balance on its credit facility and fund the 2012 capital budget.
PDC Energy's position in the Permian Basin consisted of 12,800 net acres with production of 7.8 million cubic feet of natural gas equivalents per day. The company was fairly active here in 2011 and spent $64 million in capital, with a focus on the vertical development of the Wolfberry play.
The Utica Shale has inspired much attention from the industry as it looks for crude oil and liquid plays in the onshore United States. In September 2011, PDC Energy acquired acreage prospective for the Utica Shale in Ohio. The company has already drilled its first vertical well here and expects to drill two horizontal wells in 2012. PDC Energy is seeking a joint venture partner and is targeting a total position between 80,000 and 100,000 net acres.
Other operators that recently entered into joint ventures in the Utica Shale include Carrizo Oil & Gas (Nasdaq:CRZO), which signed an agreement with a private equity firm on 15,000 net acres. CONSOL Energy (NYSE:CNX) and Hess (NYSE:HES) are in a joint venture on a 200,000 net acre position and plan to operate two rigs here in 2012.
The Bottom Line
PDC Energy is using the Wattenberg Field in Colorado to generate short-term growth for the company and plans to spend heavily here in 2012. The company is also establishing a base in the Utica Shale to set up for long-term growth as well. (For additional reading, check out A Guide To Investing In Oil Markets.)
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.