Anadarko Petroleum Corp. expects to cut capital spending 15% to $4-4.5 billion this year, but still expects to see production volumes rise to between 208 million boe and 212 million boe, up from 206 million boe in 2008, the company said last Wednesday.

While the Woodlands, TX-based independent will make “a significant reduction” in capital expenditures (capex), CEO Jim Hackett said Anadarko “will continually evaluate the economic conditions facing us and manage our spending to ensure that the capital we’re investing is increasing net asset value, and that we maintain a strong balance sheet and substantial liquidity. We believe the 2009 capital program is the right level of spending given the depth and quality of our portfolio.”

During a conference call with analysts, Hackett said Anadarko’s 2009 capital program allocates approximately 45% for U.S. onshore, 25% for international and frontier, 20% for deepwater Gulf of Mexico (GOM) and 10% for midstream and other areas.

Earlier this month Anadarko and its partners announced a “substantial” discovery at the deepwater GOM Heidelberg prospect, which is located in Green Canyon Block 859 (see NGI, Feb. 9). The company said the well encountered same-age sands and reservoir characteristics similar to those of its previously announced Caesar/Tonga discoveries. The Caesar prospect was discovered in 2006 in Green Canyon Block 683; the No. 1 well was drilled to a total depth of 29,721 feet (see NGI, May 22, 2006). The West Tonga prospect also is located in the deepwater of Green Canyon on Block 726.

Anadarko also is drilling the Shenandoah prospect, which is located in Walker Ridge Block 52 of the emerging Lower Tertiary trend. Anadarko operates Shenandoah with a 30% stake. In addition, an exploration well is set to spud by the end of March at the Samurai prospect, which is operated by Anadarko with a 33.33% interest. Samurai is located in Green Canyon Block 432.

The company also plans to continue pursuing the good results it has achieved with its Marcellus Shale acreage in Pennsylvania, Hackett said.

“Our first horizontal well tests around 4.5 Mcf/d and our second horizontal well 17 miles away demonstrates similar results,” Hackett said. “Along with our partners we plan to continue an active but prudently paced program in the Marcellus in 2009.”

Anadarko has laid down around 30% of its U.S. onshore rigs since the end of 2008 and is working with its service companies to reduce fees. “Material reductions” should be evident in the next two to three months, Hackett said.

Despite the lower capex budget and a variety of economic hurdles, Anadarko expects to increase production as much as 3% this year.

“We believe we were conservative in how we prepared our operating guidance…we do expect to see improvements that will reduce our LOE [lease operating expenses] and enhance our gas processing margin and the bottom line,” Hackett said.

“Even with reduced year-over-year capital expenditures, we expect to increase our total sales volumes in 2009, while overcoming the impact of OPEC cuts, the uncertainty of processing margins, and continued production shut-ins in the Gulf of Mexico from lingering third-party infrastructure issues related to the 2008 hurricanes,” he said. “With our ongoing onshore program and our mega-project developments, we also expect to increase reserves by organically replacing more than 120% of sales.”

The company ended 2008 with approximately $2.4 billion of cash on hand and retained the availability of an undrawn $1.3 billion revolving credit facility.

“We expect the cash flow from operations and a strong liquidity position will enable us to weather the challenges ahead and to meet our operational objectives in 2009,” Hackett said.

FBR Capital Markets on Wednesday reiterated its “outperform” rating and $50/share price target for Anadarko. “Going into a deflationary environment, we believe the longer-term view taken by [Anadarko] to build upon its strong exploration expertise will yield strong future rates of return,” FBR said.

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