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Anadarko Enamored of GOM Tiebacks, Pursuing More Monetizations

Although Anadarko Petroleum Corp. is "incredibly excited" about opportunities developing in the Denver-Julesburg (DJ) and Permian basins, the company said it is even more enamored of tiebacks in the Gulf of Mexico (GOM) and plans to devote future divestiture income there.

"A lot of our former peers in the GOM have made the decision to exit and focus their attention entirely on the shorter-cycle, higher-decline U.S. onshore business," CFO Bob Gwin said Tuesday. "The reason we've chosen to stay and to continue to invest is because we're good at it. We've made shareholders a lot of money over the course of the last several years in the GOM through our core skills."

Those skills, Gwin told attendees of the UBS Global Oil & Gas Conference in Austin, TX, include success in exploration, project management and technology. He summed up the company's history of allocating capital and monetizing assets in a mantra: "develop the best and divest the rest."

According to Gwin, Anadarko has more than 30 tieback opportunities in the GOM, with a gross estimated ultimate recovery rate of 20-25 million boe per well, and development costs calculated at less than $12/bbl. "We'll probably get to five to seven of them this year," he said, adding that the development costs are "comparable to what you would see onshore in our pad drilling opportunities. This competes for capital very effectively against onshore opportunities."

During its 1Q2016 earnings call, Anadarko said tiebacks were planned at Lucius, Caesar/Tonga and K2 (see Daily GPI, May 4). Appraisal activity would also be conducted at Shenandoah and Phobos. One exploration well is planned at the Warrior prospect, which if successful, could be a tieback to K2.

In February, Anadarko announced that it had reached agreements to sell its stake in three U.S. onshore projects for a combined $1.3 billion (see Shale DailyFeb. 25). The largest windfall came from the company's midstream partnership, WES, selling its 100% stake in Springfield Pipeline LLC for $750 million, whose sole asset is a 50.1% interest in the Maverick Basin system in South Texas.

Meanwhile, Anadarko sold its interests in East Chalk properties to Zarvona Energy LLC for $105 million, and sold soda ash and coal royalties to an undisclosed buyer for $420 million. All three sales closed in March.

Gwin said additional monetizations were under way, with a target of raising up to $3 billion total.

"We've got a number of assets that we've looked at that we don't think will receive funding, relative to our very attractive opportunities in the DJ Basin, the Delaware Basin, the Wolfcamp, as well as these tieback opportunities in the GOM," Gwin said, adding that the GOM "will be the place that we go to put our future capital primarily.

"Accordingly, some of these assets that have really good, solid return economics at strip, primarily gas assets, we think are probably better in someone else's portfolio. And we're probably better monetizing them, and redeploying the proceeds into first reducing debt and then to growing the company as we go forward."

The company plans to spend $2.6-2.8 billion on capital expenditures (capex) in 2016, about half of what it spent on capex in 2015 ($5.4 billion). Sales volumes for 2016 are projected to range from 282-286 million boe, a 3% decline from 292 million boe in 2015, while oil sales volumes are expected to remain flat -- from 306,000-311,000 b/d -- compared with 2015’s 312,000 b/d.

The capex range excludes Western Gas Partners LP (WES), Anadarko's midstream partnership, while the production figures exclude enhanced oil recovery, the Bossier Shale, coalbed methane and the former East Chalk properties in East Texas.

Anadarko has its capex budget broken down by short-, mid- and long-cash cycles, to address capital needs within a calendar year, a one-to-three year period and beyond, respectively. Its opportunities in the DJ Basin and its GOM tiebacks are on the short-cash ($1.5 billion) cycle, while the Delaware Basin and GOM appraisals are in the mid-cash ($500 million) range.

Anadarko had $3 billion cash on hand in 1Q2016, and holds $5 billion in revolving credit -- $3 billion in a five-year revolving credit facility and $2 billion in a 364-day facility. Gwin said the company used cash to retire about $750 million in debt maturing in 2017. Anadarko has no significant maturities until 2024.

"We feel pretty comfortable that our liquidity position gives us a lot of flexibility to manage the business through the course of the year," Gwin said. "By taking care of the near-term maturities, our maturities now are really not a concern for the next several years. Hopefully the concerns about our ability to address these nearer-term liquidity needs have now been put to bed."

Anadarko in 1Q2016 reported that average volumes worldwide totaled 827,000 boe/d, versus 934,000 boe/d a year ago. U.S. natural gas sales declined, averaging around 2.30 Bcf/d from 2.74 Bcf/d. Domestic oil/condensate sales fell slightly to 232,000 b/d from 237,000 b/d, while natural gas liquids sales dropped to 122,000 b/d from 136,000 b/d.

Anadarko's gas volumes included 2.00 Bcf/d from the U.S. onshore and152 MMcf/d from the GOM deepwater. It also produced 165,000 b/d of oil/condensate from the U.S. onshore, with the deepwater adding 53,000 b/d.

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