Anadarko Sees Major Oil Recovery on Horizon
Anadarko CEO Robert J. Allison Jr. is not alone in predicting a
sustained oil market recovery now that OPEC has decided it can live
with a little less supply on the market. But unlike most of the
other optimistic soothsayers attending the Howard Weil Energy
Conference in New Orleans last week, Allison sees a major
turnaround ahead and much greater volatility than has been present
in market cycles of the past.
There's fixed supply at a time of steadily rising demand, said
Allison. "Who's going to add new supply?" he asked. "Not BP
Amoco-Arco-blank. They're too busy managing merger consolidation.
They have bigger fish and chips to fry." And it won't be the small
operators who are struggling just to stay in business right now, he
With oil demand growing 2 to 2.5% per year worldwide and
production flat or even in decline, a major price surge is in
store. Allison predicts oil prices will shoot well above $18/bbl in
a much "longer and stronger" market recovery than at the end of
previous cycles. The shock of the spending cutbacks and drilling
decline also should put quite a jolt in the market, triggering
significantly greater volatility than expected, he said.
Allison said Anadarko plans to focus on building around its core
assets this year, particularly those in the sub-salt play offshore
in the Gulf of Mexico. However, its acquisition options will be
limited by a capital spending program that has less than half of
the cash of its 1998 program, $410 million compared with $917
million last year.
"We're pleased that BP has worked its way through the A's and
passed by us," he said. It leaves Anadarko to take advantage of the
new opportunities created by the depressed market, in particular,
the lease openings available in the sub-salt. "It's great to stay
ahead of the competition. No one else is doing sub-salt like we are
right now," and Anadarko would like to keep it that way.
Stone Energy, another, albeit much smaller, independent producer
speaking last week at the Howard Weil conference, noted it's a
perfect time to buy up lease positions around core operations while
others are in need of cash. Look for a lot of "farmouts" this year
because many companies paid high prices on leases but currently are
struggling to find out how to make up those costs, said Stone
Energy President D. Peter Canty. "A lot of our competitors are
looking for cash flow to cover what's budgeted," he noted.
Other companies confirmed those observations. Several Rocky
Mountain region-based producers indicated they plan on divesting
non-core assets or deferring activities in the Gulf and
Midcontinent regions and will come back home to focus on core
Rockies' projects until the market settles and prices make a
sustained turn northward.
"We're concentrating on the drillbit and [focusing] on the
Rockies," said Basin Exploration CEO Michael S. Smith. "We're
de-emphasizing the Midcontinent and the Gulf and curtailing
international activity until oil prices recover."
William J. Barrett, CEO of Barrett Resources, noted his company
showed a 310% reserve replacement rate and 19% production growth in
the Rockies last year in contrast to much poorer results in other
operating areas. "That's why Barrett is focusing on the Rockies"
and putting other activities on the back burner.
Rocco Canonica, New Orleans