CONSOL Energy (NYSE:CNX) plans to increase oil and gas capital spending in 2012 and will invest heavily in the development of the company's Marcellus Shale properties. (To know more about oil and gas, read Oil And Gas Industry Primer.)

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2012 Capital Budget
CONSOL Energy has established a $1.72 billion capital budget for 2012, up from $1.38 billion in 2011. The funds are set to be spent across the company's extensive coal and natural gas operations.

Natural Gas
CONSOL Energy has budgeted $755 million in capital for its natural gas operations, including $519 million for drilling and completion operations. The balance of the funds will be used to acquire more acreage and for equipment and infrastructure in various plays.

CONSOL Energy estimates that this level of spending will lead to natural gas production of 160 Bcfe in 2012, up 12% from 2011 expected production of 143 Bcfe. The company also has a multi-year plan of increasing production to 350 Bcfe in 2015.

Marcellus Shale
One area that CONSOL Energy is investing heavily in over the next few years is the Marcellus Shale, where the company is involved in a joint venture with Noble Energy (NYSE:NBL). The company plans to spend $575 million here in 2012, up from $427 million last year.

This investment in the Marcellus Shale will continue to ramp up through 2015, increasing from 122 gross wells in 2012, to 358 gross wells in 2015. The company will also shift development towards areas that produce natural gas liquids in the production stream and estimates that 33% of Marcellus Shale wells in 2012 will be drilled in these wet gas areas.

Production from the Marcellus Shale has moved up rapidly in 2011, with CONSOL Energy reporting gross production volumes of 500 million cubic feet per day in December 2011.

Utica Shale
Another play that CONSOL Energy is targeting in 2012 is the Utica Shale, where the company has a joint venture with Hess Corporation (NYSE:HES). The company will spend $50 million this year, enough to cover the cost of 22 gross wells. CONSOL Energy expects to drill these wells in the oil and wet gas windows of the Utica Shale.

CONSOL Energy plans to continue this development past 2012, and will drill an additional 186 gross wells into the Utica Shale through 2015.

Chesapeake Energy (NYSE:CHK) is the clear leader in the Utica Shale and just closed on a joint venture here with Total (NYSE:TOT). The company's recent wells here were reported with initial production rates ranging from 1,000 to 3,000 barrels of oil equivalent (BOE) per day.

Coal-bed Methane
CONSOL Energy plans to reduce spending on coal-bed methane development in 2012, budgeting $65 million for 86 net wells during the year. In 2011, the company spent $130 million on coal-bed methane development.

The Bottom Line
CONSOL Energy will boost capital spending in 2012 and is slowly becoming less of a coal company and more of a gas and oil company over time. This trend is being driven by substantial planned investment in the Marcellus and Utica Shale over the next few years. (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.

Tickers in this Article: HES, NBL, CHK, CNX

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