Two Resources for Energy Insights

Colder weather means more demand for natural gas and heating oil, supporting stronger natural gas and distillate prices. In turn, that should be constructive for the energy equity markets.

It should be noted that not all meteorologists share the bullishness of Chesapeake's forecasters. In fact, popular consensus suggests that the El Nino conditions should actually create another moderate winter. However, the El Nino impact looks like it will be too late and too weak to really have a meaningful effect.

If correct, the Chesapeake forecast should bode well for natural-gas drilling activity, mitigating concerns that exploration and development activity will slow and put pressure on rig utilization, rates and driller profits. While data this week from Patterson-UTI Energy(PTEN Quote) provide some anecdotal evidence that drilling activity may be moderating, it's far too early to suggest any trends from the data. That said, I'll watch carefully in December and January to measure activity in the beginning of 2007.

Capital Budgets

Another key barometer of future activity is exploration companies' announcements of spending plans into the New Year. While budget announcements are only beginning, the first big announcement appears pretty bullish.

Chevron(CVX Quote) announced that its 2007 capital budget will increase more than 20% compared with current-year levels. The major indicated that it has a number of capital-intensive projects on the books and that it intends to step up exploration efforts in the coming year.

While Chevron also announced an acceleration in its stock-buyback plan, the company's decision to boost its capital budget is an early sign that the majors may be ramping up their quest to grow both reserves and longer-term production.

Not all majors are bullish. In its announcement late Thursday, ConocoPhillips (COP Quote) announced a decrease in its 2007 capital spending, partly a result of a big investment in Russia's Lukoil last year. However, Conoco management admits the proposed 2007 budget is not enough to sustain its current level of production growth, something many investors may find disappointing.

It will be important to watch for further clues from the majors like ExxonMobil (XOM Quote) and Royal Dutch (RDSA Quote) as they provide guidance for 2007 spending.

In addition, Anadarko's(APC Quote) meeting with analysts next week should provide insight into the thinking of large independents when it comes to 2007 spending. That should be a key data point for exploration-and-production investors. Anadarko is also likely to talk about its need for additional drilling services, which could provide early insight into the demand for energy services through year-end.

December is indeed an important month for energy investors. Watching early signs of the future will allow investors to build a wish list for early investing presents for the New Year.