Capex Data
The E&P 2008 capital budget is $1.7 billion, with roughly $500 million allocated to growth. Onshore will continue to receive the highest allocation of exploration and development capital with approximately $580 million targeted towards highly repeatable drilling projects. Texas Gulf Coast will spend $385 million, with a significant portion of the capital targeted to developing properties acquired in 2007. Gulf of Mexico spending is planned at $235 million, with lower activity following the expected downsizing of operations. Internationally, El Paso will spend $310 million, with the majority of capital devoted to the development of the Pinauna and Bia projects. The company will complete its seismic evaluation in Egypt, and is expected to drill two exploration wells in the second half of 2008.
Future Plans
El Paso has maintained a prospect inventory that will support approximately five years of drilling activity, based on current drilling levels. This inventory provides a risked resource potential of 3.3 trillion cubic feet equivalent (Tcfe), which includes 0.7 Tcfe of proved undeveloped reserves.
For capital allocation purposes, El Paso is investing capital assuming a constant $6.00 per MMBtu natural gas price (Henry Hub) and a $48.00 oil price (WTI). The company will drill approximately 650 gross wells, with 540 of those in the Onshore division, which is characterized by long-lived, repeatable programs.
El Paso expects its exploration and production operations to produce between 800 and 860 million cubic feet equivalent per day (MMcfe/d), including its proportionate share of production in Four Star Oil & Gas Company (Four Star). Production at Four Star is expected to be between 60 MMcfe/d to 65 MMcfe/d in 2007. At the midpoint, this total represents a 4-percent increase over 2006 production levels. Cash operating costs are expected to range between $1.68 and $2.00 per thousand cubic feet equivalent (Mcfe) with unit DD&A costs at $2.50 to $2.75 per Mcfe. As reported earlier, the company ended the year with approximately 2.637 trillion cubic feet equivalent (Tcfe) of reserves, including 222 billion cubic feet equivalent (Bcfe) related to its proportionate interests in Four Star.
Through price risk management activities, El Paso has established an average floor price of $7.69 per MMBtu on 223 Bcf and an average ceiling price of $11.48 per MMBtu on 133 Bcf of 2007 natural gas production. The floor volumes represent approximately 89 percent of the company's estimated domestic natural gas production for the year, including Four Star, and provide solid support for El Paso's 2007 plan.
In 2006, El Paso's Marketing segment continued to reduce its earnings volatility through the expiration and divestiture of legacy trading positions. In 2007, significant demand charges related to capacity payments on the Alliance pipeline will roll off and the segment has substantially eliminated its commodity price exposure.