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Anadarko Throttles Back, But Bolt-Ons in Onshore Possible

Anadarko Petroleum Corp. is throttling back across its operations in 2015, with no plans to chase any growth in the onshore or offshore, except for possibly chasing some distressed unconventional assets, CEO Al Walker said Tuesday.

The super independent, headquartered north of Houston in The Woodlands, has invested in large-scale projects over the past several years, mostly in the deepwater Gulf of Mexico (GOM) where it's become a top operator. Also a high priority is the U.S. onshore, where extraordinary growth in Colorado's Wattenberg field has led unconventional enterprises that also include exploration activity in the Permian Basin's Wolfcamp Shale and in the Eagle Ford Shale in South Texas.

That was 2014, when Anadarko spent close to $8.5 billion to explore and produce natural gas and oil. That number is going to be cut this year, but by how much remains a question. Executives continue to spin the numbers, with a final spend plan set for release in early March.

What Walker could say is that the reductions in spending mostly will be from the short-term investments, which means onshore, not in the deepwater. Unconventional drilling has a short-term horizon, unlike offshore developments that take years and billions to get up and running.

The producer now is working with oilfield service (OFS) vendors because costs have become too high relative to the returns on equity, Walker said.

"What we will do is put a little bit of a hold...a pause on the short-term cycle industry," he said. Service costs have to "sync up with wellhead economics."

North American OFS providers of all stripes are working with the industry as contracts are renegotiated (see Shale Daily, Feb. 2; Jan. 27; Jan. 20; Jan. 16). As service costs decline, however, the oil market still may not shift in Anadarko's favor, Walker admitted.

Despite a poorer commodity price outlook, the company doesn't plan to miss out on any distressed asset opportunities. Bolt-ons, not newfields, in some onshore areas would provide for the long-term, he told analysts.

"If assets come to the market in places where we consider ourselves active, we're going to be looking to add...Going into a new play completely is probably way down the list."

The operating performance in the final three months of 2014 was a "capstone to another terrific year for the company," Walker claimed, noting that results exceeded the midpoint of initial volume guidance by 38,000 boe/d. Anadarko organically added 503 million boe of proved reserves putting the year-end total at 2.86 billion boe, 69% proved developed. Reserves remain gas-weighted at 51%, with liquids the rest.

Average volumes jumped 6% in 4Q2014 to 854,000 boe/d, primarily from continued success in Wattenberg. Production in the U.S. onshore increased 14% year/year to 673,000 boe/d, including 2.37 MMcf/d of natural gas, 165,000 b/d crude/condensate and 113,000 b/d natural gas liquids (NGL). Deepwater GOM volumes contributed 179 MMcf/d, 47,000 b/d crude/condensate and 6,000 b/d NGL.

Proved reserves at the end of 2014 stood at 2,858 million boe, versus 2,792 million boe at the end of 2013. Proved developed reserves fell to 1,969 million boe from 2,003. Natural gas volumes in the final quarter totaled 2.55 Bcf/d, down 1.5%. Crude/condensate volumes were up 2.7%, while NGL volumes rose by 8.4% from a year earlier.

Realized prices for natural gas averaged $3.46/Mcf, flat from a year ago. Crude oil/condensate pricing averaged $7.167/bbl, down 27.8% year/year, while NGL prices fell 26.5% to average $29.63/bbl.

Capital expenditures declined slightly in 4Q2014 from a year earlier to $2.2 billion from $2.6 billion. Total costs and expenses jumped 17.1% in the latest period to $3.66 billion, primarily because of higher oil and gas transportation and exploration expenses.

Anadarko reported a net loss of $395 million (minus 78 cents/share) in 4Q2014, versus a net loss of $770 million (minus $1.53) in the year ago period. Bad derivatives bets cost the company $303 million, while property writedowns led to another $548 million. Tronox settlement charges added $22 million. Adjusted net income for the period was $187 million (37 cents/share), compared to year-ago earnings of $373 million (74 cents). Revenue fell 5% year/year to $3.18 billion.

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