Energen (NYSE:EGN) is one of the many exploration and production companies looking to increase the share of crude oil and liquids in its production stream. The company made progress on this goal during the first quarter of 2012 with the development of several plays in the Permian Basin.

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

First Quarter of 2012
Energen reported total production of 5.8 million barrels of oil equivalent (BOE) during the first quarter of 2012, with approximately 34% of this production composed of crude oil and natural gas liquids. The percentage of crude oil and liquids in the production stream is increasing fairly rapidly and is expected to average 48% in 2012.

Permian Basin
It is targeting a number of formations in the Permian Basin as it looks to increase oil and liquids development. The company's main focus is on the Bone Spring and Wolfberry plays.

SEE: A Guide To Investing In Oil Markets

In the Midland Basin, Energen is concentrating on vertical development of the Wolfberry play at depths between 7,500 and 10,500 feet. The company plans to drill 170 net wells here in 2012, and is assessing the acreage for horizontal development of other formations. The company estimates that the average Wolfberry well will have oil and liquids content of 88%.

Bone Spring
It is also working on the Third Bone Spring Sands formation in the Delaware Basin, and plans to drill 43 net wells in 2012 on its acreage in West Texas. Wells here have an estimated liquids content of 78%.

SEE: What Determines Oil Prices?

Capital Spending
Energen raised the company's 2012 capital budget to $950 million, up from the previous estimate of $890 million. The company will spend approximately 95% of these funds on development of properties in the Permian Basin.

In 2013, its preliminary budget calls for spending of $855 million, with 85% allocated to various parts of the Permian.

SEE: Oil And Gas Industry Primer

Contrarian Opinion
Although many exploration and production companies are developing the Bone Spring formation, there is some disagreement as to the future potential of this play. IHS (NYSE:IHS) recently released a report entitled the "IHS Herold Bone Spring Regional Play Assessment" and contends that the geological complexity of this play may provide "limited upside" to many operators that are active here.

IHS singled out Concho Resources (NYSE:CXO) as the operator that has achieved the most success in the Bone Spring play. This is due primarily to the location of its properties in New Mexico, according to IHS.

IHS was also positive on the Avalon or Leonard Shale, which is under development by EOG Resources (NYSE:EOG) and other operators in New Mexico. The company said that this shale has the most consistent results and future down spacing potential.

The Bottom Line
Energen has settled on the Permian Basin to achieve its strategic goal of boosting its crude oil and liquids production. The company is working on a number of prolific plays in this basin.

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

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  3. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  8. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  9. Economics

    Will Silver Recover in 2016? (SLV, GLD, JJC)

    The end of the silver downtrend is likely to coincide with similar recoveries in gold, iron and copper.
  10. Stock Analysis

    The Top 5 Silver Penny Stocks for 2016 (LODE,AG)

    Learn about five of the top silver penny stocks and why investors may want to consider adding them to their investment portfolios in 2016.
  1. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  2. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>
Trading Center