A lot of jittery investors these days appear to be buying into market fears that commodity prices and oil and gas stocks are ready to tank. But many savvy energy analysts aren't in that number, and based on the surge in their total capital spending so far this year-including upstream spending-neither are independent producers. According to Wayne Andrews, managing director and senior E&P analyst for Raymond James & Associates in Houston, total capital spending in first-half 2006 by the 48 E&P companies in his coverage universe increased 39%, to $32 billion, from the like 2005 period. This consisted of $20.6 billion for E&D (exploration and development)-representing 64% of total outlays and a jump of 35% versus the first six months of 2005-$9.2 billion for property acquisitions and $2.2 billion for stock buybacks. "Our updated forecast for full-year 2006 is for E&D budgets to total $43.1 billion, implying a growth of 26% over 2005 exploration and development spending and 10% more than initial budgets for 2006," says Andrews. This projected $43.1 billion in 2006 E&D spending is nearly triple the $15.4 billion that his producer universe budgeted for 2002 and, given the analyst's aggregate $51.2-billion cash-flow forecast for 2006, leaves plenty of room for acquisitions and/or stock buybacks. With capex spending on the rise, E&P investment strategy reflects a continuing sense of optimism about industry fundamentals, particularly the strong outlook for cash flow, the market seer contends. For more on this, see the October issue of Oil and Gas Investor. For a subscription, call 713-260-6441.

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