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Anadarko Puts More Muscle into Wattenberg Field

Anadarko Petroleum Corp. has reduced its natural gas-operated rig count in the Marcellus Shale and in the Greater Natural Buttes of Utah to put more mechanical muscle into the oily Wattenberg field of Colorado, which is delivering the highest rates of return (ROR) in the U.S. onshore portfolio, said CEO Al Walker.

The Wattenberg horizontal (HZ) drilling program's ROR exceeds 100% at today's commodity prices, Walker told analysts during a quarterly earnings conference call last week.

"In the Wattenberg HZ program, the company is currently producing more than 28,000 gross boe/d from about 75 wells with about 75% of the wells producing from the Niobrara formation and the other 25% producing from the Codell formation.

"The company continues to achieve excellent results in its horizontal development program in both formations, with rates of return exceeding 100% at today's commodity prices."

U.S. exploration chief Chuck Meloy, who joined Walker on the call, said the Niobrara and Codell fields both "are performing extremely well. You've seen us increase our resource potential out there to 1-1.5 billion bbl."

Eight rigs are running across the Niobrara and the Codell, which "have very similar characteristics with regard to production profile on a boe basis," said Meloy. "One is a little more liquid-rich, [and] that's why we're drilling more Niobrara wells than Codell wells.

"But as we go into these areas and we want to develop, say, a section, we're doing our best to complete the development in the section, just sort of 'mow the grass' as to where we're going."

Anadarko is experiencing "explosive growth in virtually every one of our significant U.S. onshore plays," said Meloy. "It's just the great spot to be in. We're seeing records at Wattenberg, records in the Maverick production, Eagle Ford production. And we're having our Permian Basin also popping on records."

Meloy said "almost every one" of Anadarko's onshore fields doubled output in 2Q2012 from a year ago. Drilling efficiencies also gave the company a big boost. In the Eagle Ford Anadarko set a spud-to-rig-release cycle time record of 6.8 days in the quarter. The average cycle time for the period improved by 15% to 10.5 days relative to 12.4 days in 1Q2012.

In addition, drilling costs and drilling cycle times improved in the Marcellus Shale from the first three months of this year with costs down by 16% and cycle times improved to an average of 20 days/well from 22.5 days.

Also, the Greater Natural Buttes spud-to-rig-release cycle times for vertical Mesaverde wells dropped by 15% from 1Q2012 and by more than 20% from the 2011 average. The company also set a spud-to-release record of 2.75 days in 2Q2012.

Although efficiencies are better, dry gas drilling is not a priority until prices strengthen, said Meloy. One of the company's Marcellus wells in the Geneseo formation is producing up to 7 MMcf/d.

"It's early days. It's dry gas," said Meloy. "We'll put it in our portfolio and work it in. And I think the advantage it has is it's a little shallower, a little cheaper to develop. But we're not pushing that right now just because of the price utilization on gas matters."

To begin actively producing in the Marcellus he said gas prices per Mcf need to be "between $4 and $5."

Anadarko has a well backlog in the Marcellus of "around 200 wells," he said "and it's just getting clipped off on a steady pace. We've -- both us and our nonoperated partners -- have reduced the completion count or the completion crew count.

"And what we're seeing is just a general slowing of the process up there that's helping us manage our cost, get more efficiency out of the dollars we spend up there. And depending upon gas price and how those crews are operating, you could see 20 or 30 of those wells a quarter being put online..."

If gas prices "were to rebound, I think you'd see us accelerate that, and you can see the growth come again."

Anadarko expects to complete an evaluation of its Utica Shale leasehold in early 2013, said Meloy.

"Essentially, we're...still in our early phases of exploration. We have three wells on steady production. We're completing three wells, and we're drilling one right now. So we'll have a total of seven. There's a lot of activity around this. So we'll give a lot of information with regard to our land position...in 2013."

U.S. onshore and deepwater Gulf of Mexico (GOM) output helped Anadarko post record sales volumes in the second quarter, but profits plunged following a $978 million write-down related to low natural gas prices on coalbed methane properties.

Anadarko recorded a net loss of $380 million (minus 76 cents/share) in 2Q2012 after earning $544 million ($1.08) a year earlier. Revenue fell 12% from a year ago to $3.2 billion.

Oil sales volumes averaged 241,000 b/d in 2Q2012, which was 20,000 b/d higher than in 1Q2012. Natural gas liquids volumes averaged 77,000 b/d, while natural gas volumes averaged 2.54 Bcf/d.

In addition to its onshore gains, Anadarko benefited in the latest quarter from the first full three months of production at Caesar/Tonga in the GOM deepwater, which averaged 40,000 boe/d gross from three wells. A fourth well is scheduled to be spud in the third quarter.

"Caesar/Tonga is doing phenomenal," said Meloy. "We expect the wells to stay on peak for quite some time."

Exploration-wise in the GOM, Anadarko announced a successful sidetrack appraisal well at the Heidelberg field in the Green Canyon area, "advancing the project closer to sanction, which is expected in early 2013." In the Mississippi Canyon area, the third successful appraisal well of the Vito discovery encountered 620 net feet of oil pay, leading the partnership to increase estimated recoverable resources by more than one-third to more than 300 million boe from a previous estimate of 200 million boe-plus.

The Woodlands, TX-based independent raised its sales volume guidance for 2012 to 261-265 million boe, up from an earlier forecast of 258-262 million boe.

"We are committed to operating within cash flow and selectively accelerating the value of longer-dated projects, as we did at the Gulf of Mexico Lucius development and the Salt Creek field in Wyoming during the quarter," said Walker. "The execution of our strategy is expected to continue to deliver industry-leading operating performance and exploration success, offering very competitive value-creation opportunities."

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