The exploration and production industry reported further cuts in spending on the development of dry natural gas properties, as capital continues to shift towards oil and liquids play in the United States and elsewhere.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

More Cuts
Ultra Petroleum
(NYSE:UPL) is active mostly in the Marcellus Shale in Pennsylvania and the Pinedale Field in Wyoming. The company's original capital budget called for $650 million in development spending on these two areas in 2012.

The new budget, which was updated in conjunction with first quarter of 2012 earnings, calls for $550 million in development spending in 2012, with a $50 million reduction in each area. The company cited "continued deterioration of natural gas prices" for the reduction in capital spending.

In 2011, Ultra Petroleum spent $1.3 billion in drilling capital, so the updated budget represents a large reduction from last year. The new capital budget is expected to generate from 2 to 6% annual growth in production for the company in 2012.

SEE: Oil And Gas Industry Primer

Southwestern Energy (NYSE:SWN) spent $573 million in capital during the first quarter of 2012, with approximately 93% of the funds directed to the company's exploration and production business. The company plans to spend about $2.1 billion for the full year and has decided to shift an additional $50 million of that budget towards the development of plays within the company's New Ventures portfolio.

These emerging plays all produce oil and other liquids and include the Lower Smackover Brown Dense formation and several others in the Denver Julesburg basin in Colorado.

Talisman Energy (NYSE:TLM) is one of the largest producers of natural gas in North America, with average production of 1.02 Bcf per day in the first quarter of 2012. The company's original budget, released in January 2012, called for spending of approximately $4 billion in 2012, down by $500 million from 2011. The reduction in capital spending by Talisman Energy came out of dry natural gas areas.

The latest spending plan reduces the capital budget to $3.6 billion for 2012, and cuts dry gas development spending even further. The company now plans to spend only $200 million on dry gas development for the rest of 2012.

Exxon Mobil (NYSE:XOM) is also shifting drilling activity away from natural gas development in the U.S., where the company is currently operating 61 rigs. Exxon Mobil has been shifting rigs to "liquids rich plays" in 2012, including the company's properties in the Bakken and Permian Basin.

SEE: What Determines Oil Prices?

The Bottom Line
The exploration and production industry implemented draconian cuts in spending on dry gas development in North America in 2011, and has continued to announce additional cuts in the first quarter of 2012. This capital discipline is needed to reduce future supply of natural gas, and should be welcomed by all investors.

SEE: A Guide To Investing In Oil Markets

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center