While the United States is blessed with a vast amount of productive oil and gas basins for exploration and production (E&P) companies to develop, in 2012 many operators are focusing a large part of their capital budget on a single play. These chosen plays by the industry typically produce crude oil or wet gas for the operator.

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

Single Play Dependence
In 2012, Rosetta Resources (Nasdaq:ROSE) plans to spend $640 million in capital and is putting 93% of this budget into the Eagle Ford Shale. This was a higher percentage than last year when the company spent 85% of its capital budget in this play.

It has been ramping up activity in the Eagle Ford Shale since 2010, and has rapidly increased production over the last two years. The company reported Eagle Ford Shale production of 27,400 barrels of oil equivalent (BOE) per day in the fourth quarter of 2011, up from 1,100 BOE per day in the first quarter of 2010.

It plans to operate up to five rigs in the Eagle Ford Shale in 2012 and complete 60 wells during the year. The company expects this level of development to increase production by 40% over 2011.

SEE: Oil And Gas Industry Primer

Abraxas Petroleum (Nasdaq:AXAS) has chosen to focus its energy and capital on the Bakken play. The company has set a $70 million capital budget for 2012, and will put approximately 77% of these funds into the development of this formation.

It has approximately 21,000 net acres under lease exposed to the Bakken and plans to operate its own development program here as well as participate in several non-operated wells.

PDC Energy (Nasdaq:PETD) is putting 85% of its $198 million development capital budget into the Wattenberg Field in Colorado in 2012. The company plans to drill more than two dozen horizontal wells here during the year, and will also conduct several hundred refracturing or recompletions on existing wells to stimulate additional production.

Larger operators usually have a more diversified development program that targets many different basins. Devon Energy (NYSE:DVN) plans to spend between $6.1 billion and $6.5 billion in exploration and development capital in 2012. This budget covers many different areas and includes $1.4 billion in the Permian Basin, $950 million in the Barnett Shale and $870 million in the Woodford Shale during the year.

SEE: What Determines Oil Prices?

Risk
When an operator concentrates its activities into a single play or geographical area, it typically raises the operational risk to the company. However, this risk is mitigated because most of the plays described above have already had large, proven areas. This lowers the geological risk associated with being dependent on a single play. Another mitigating factor is that these plays are all in the U.S., a stable area with little political risk to these companies and operations.

SEE: A Guide To Investing In Oil Markets

The Bottom Line
Many exploration and production companies have chosen to focus an overwhelming share of capital budgets on a single play, or region in 2012, as the industry attempts to harvest the abundant amount of crude oil resources present in the U.S.

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. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  5. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  6. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  8. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  9. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  10. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
RELATED TERMS
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!