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Wattenberg Oil, Marcellus Gas Lift Anadarko Onshore Output

Strong liquids and oil growth from the Greater Wattenberg Field in Colorado, and stronger-than-expected natural gas output from the Marcellus Shale, contributed to record volumes in the first quarter by Anadarko Petroleum Corp.

The Houston-based operator, which explores for oil and gas worldwide, has most of its spending earmarked for the United States, from the deepwater of the Gulf of Mexico to onshore fields in the Rockies, the Midcontinent and in the Northeast.

Average daily volumes in the United States totaled 793,000 boe/d in 1Q2013, versus year-ago output of 704,000 boe/d. Daily gas sales volumes also were higher, averaging 2.69 Bcf/d from 2.42 Bcf/d a year earlier. U.S. crude oil and condensate sales averaged 159,000 b/d, up from 138,000 b/d, and natural gas liquids (NGL) volumes increased to average 88,000 b/d from 80,000 b/d.

"Our U.S. onshore plays are major contributors to the company's strong first quarter performance, achieving record sales of 555,000 boe/d, representing a 16% growth versus 1Q2012, and this was against the headwind of ethane rejection, which took away more than 10,000 b/d of production," CEO Al Walker told analysts during an earnings conference call.

"The Wattenberg field continues to be a top performer. Our sales volumes were enhanced by liquids increase of 45% year-over-year. To accelerate value, we tripled the number of horizontal wells drilled in the first quarter 2013, and we expect to increase this over the course of next year and this year. This asset enjoys the strongest return on capital characteristics on our portfolio with an expected rate of return exceeding 100%."

Nearly all of Anadarko's drilling today is focused in the U.S. onshore, where 42 operated rigs are working in the Lower 48 states, the same level as at the end of 2012. In the GOM, three rigs also are operating, as well as five overseas.

Nowhere was oil production growth more evident than in the Wattenberg, where output reached 113,000 boe/d from year-ago volumes of 81,000. With some tweaking of its drilling techniques, spud-to-rig-release cycle times in the Wattenberg were cut to 10.8 days from 12.2 days in 4Q2012, Walker said. In addition, efficiencies are reducing costs; a water trunkline has been added to complete horizontal wells in the Wattenberg, which eliminated nearly 22,500 truck trips in the first quarter.

From January through March, the Rockies plays delivered record sales volumes of about 327,000 boe/d, up about 5% year/year, including a 38% jump in oil output. Anadarko averaged 17 rigs in the Rockies, and it drilled a total of 128 wells in the first three months, mostly in the Wattenberg, where 11 operated horizontal rigs were running, up from 10 in 4Q2012. More than 60,000 boe/d gross is now being produced in the play on 231 operated horizontal wells, with rates of return "in excess of 100%," said Meloy.

Anadarko's Southern and Appalachia business unit also was a big contributor. Total sales volumes for the unit averaged more than 237,000 boe/d, 36% higher than a year ago and 8% more than in the final three months of last year. Total liquids volumes jumped 34% year/year to almost 18,000 b/d.

No plans are in place to increase gas drilling this year until currently higher U.S. prices are "sustained," said onshore operations chief Chuck Meloy. However, even with no assistance, gas volumes continue to rise, in particular from the Marcellus, where volumes jumped 71% year/year to 427 MMcf/d from 250 MMcf/d.

"Our gas production has been steady to slightly up," said Meloy. "There are two or three good reasons for that. The first is just the Marcellus performance. If you look year-over-year, the growth has been phenomenal. Our sales are up about 71% from the prior year, and that's a combination of completing the wells we are drilling and unloading the backlog that was in our nonoperated position, and getting the infrastructure completed in that area.

"As all that has come together you have seen some very cost-efficient, low operating expense costs, and a really good margin for gas coming online as some of the lowest cost gas in America...Smaller other bits and pieces added up to a really good story for us."

One of the bits and pieces was an improved cycle time in the Marcellus, with spud-to-rig release reduced to 16.5 days from 18.5 days. Four rigs now are in operation. Anadarko in 1Q2013 spud 21 wells in the Marcellus on four operated rigs; 19 nonoperated wells also were ramped up.

Eagle Ford Shale volumes hit 42,000 boe/d in 1Q2013, a 55% increase from a year ago. Total liquids output reached 28,000 b/d, with 42% higher oil volumes.

"The Eagle Ford Shale is also delivering exceptional results," Walker said. "Total liquids for the quarter increased approximately 60% over the same period in 2012, and we are expanding our takeaway capacity with the 200 MMcf/d gas processing plant, which will increase our throughput and yields from the liquids and should come online in the second quarter."

The 200 MMcf/d Brasada cryogenic gas plant "remains on schedule" for startup by the end of June, Walker said.

Eight liquids- and oil-directed rigs today are running in the Eagle Ford, one less than at the end of last year. Seven rigs are up in East Texas/Haynesville, from five at year-end 2012. Five rigs also are working the Permian, up from four in the final three months of 2012.

Anadarko's net income totaled $460 million (91 cents/share) in 1Q2013, versus year-ago profits of $2.16 billion ($4.28/share). Adjusted for one-time items, net income was $547 million ($1.08), versus $475 million (92 cents). The one-time items in the latest period included $247 million in hedging losses and a $3 million charge for BP plc's Macondo well blowout; Anadarko was a minority partner in the well.

Revenues climbed to $3.89 billion from $3.45 billion, while operating income jumped to $2.6 billion from $745 million. Realized gas prices rose to $3.33/Mcf from $2.60, while crude oil prices were $97.32/bbl from $105.75. NGLs sold for $38.17/bbl, down from $47.09 a year ago.

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