?Between year-end 2007 results and first-quarter 2008 results, 37 of the 40 E&P companies covered by the JPMorgan Securities research group reported a jump in their aggregate 2008 capex budgets by more than $5.4 billion.


Of this surge in upstream spending, 36% is attributable to Chesapeake Energy Corp. alone, which increased its 2008 capex budget by $1.95 billion on top of a previously announced $275 million increase for the year.


“Most E&Ps have indicated they intend to use their higher-than-expected cash flow to add additional rigs,” says Joseph Allman, an E&P analyst for JPMorgan Securities in Houston. As a result, total 2008 production guidance for the 37 independents reporting is up 228 million cubic feet per day from prior guidance.


Meanwhile, most of these operators—with the exception of Southwestern Energy Co., Range Resources Corp. and Chesapeake—have indicated that their service costs are either leveling off or rising.


“The (earlier) decline trend in oilfield-service costs was a major factor in our previous bullish position on the E&P group,” explains Allman. “We reasoned that, holding commodity prices flat, softening service costs and increasing field-level efficiencies would lead to higher cash margins and returns that drive (the E&P group’s) stock prices.”

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