Anadarko Petroleum Corp. officials offered no comment to rumors that the huge independent may be for sale, but a report Friday in a London publication suggested that Royal Dutch/Shell Group may be considering a $10 billion bid for the company. Shell has played bridesmaid in attempts for the past few years to capture other gas-rich North American independents, but none were as large or as formidable as the world-class producer.

Anadarko CEO Robert Allison, who presided over a conference call with analysts Friday morning, neither confirmed nor denied whether there was any truth to the rumors that the company is for sale, or whether it might consider an offer. Instead, the 64-year-old CEO offered “no comment on any sale prospects.”

Anadarko is ranked the eighth largest natural gas producer in North America and currently is the 11th largest publicly traded oil and gas producer in the world, with assets of $18 billion. It was 232 on the Fortune 500 list in 2002. Last year, the independent produced 197 MMboe, and its year-end proved reserves were 2.33 billion boe.

Rumors concerning major changes at Anadarko have grown in recent days, following announcements to lay off about 10% of its workforce — all with its exploration and production (E&P), as well as a decision to shutter some onshore U.S. rigs. In an unsubstantiated report Friday by the London-based Evening Standard’s This is London, Shell was cited as a possible Anadarko suitor. “It is understood Anadarko has retained investment bank Credit Suisse First Boston to try to put a deal together,” the report said. “The unusual choice of adviser for a U.S. company suggests it has its sights on a European oil major.”

The report noted that speculation about Shell came after the oil major shelved a share buyback program in mid-July, a sign that it may be trying to put cash together for an acquisition. Also named in the London report was Agip, the exploration and production division of Italy’s Eni, as well as Exxon Mobil Corp. Shell apparently has continued its search for a gas-rich producer in North America, after losing out in attempts on several deals, including an aggressive bid two years ago to buy Barrett Resources (see NGI, March 12, 2001). Shell offered no comment to the Anadarko rumors.

The company held a one hour conference call on Friday, ostensibly to discuss its strong quarterly earnings, which were up 26% over the same period a year ago. However, following an upbeat presentation by Allison, most of the analysts calls referred to last week’s announcements.

On Thursday Anadarko announced it would cut 100 exploration and production (E&P) staff positions — including several senior executives — and close its offices in Midland and Amarillo, TX, which will eliminate more than 15%, or $100 million, in total overhead costs. Cost reductions were made in two basic areas, personnel and corporate, the company said. Nearly 400 positions were cut from full-time and contract employees, and personnel cuts represent about 50% of the savings. Another $50 million in cuts would include across-the-board reductions in general overhead, closing the Texas offices and then consolidating office space at the company’s headquarters in The Woodlands, which is north of Houston.

One-time costs will be approximately $40 million, or $25 million after taxes. These costs will be charged to income as specific liabilities are incurred. It is estimated that $35 million, or $22 million after taxes, will be reflected in third quarter results. The personnel cuts will bring Anadarko’s full-time worldwide employment to 3,400. The affected employees were already notified, and most layoffs took immediate effect. Of the 400 positions eliminated, approximately 70% were from departments supporting the company’s E&P efforts and 30% percent were in E&P itself.

Several executive officers also elected to retire with the initiative, including Mike Cochran, senior vice president, Strategy and Planning; Bruce Stover, senior vice president, Worldwide Business Development; and Paul Taylor, vice president, Investor Relations. However, Bill Sullivan, executive vice president, Exploration and Production, and Rex Alman, senior vice president, Algeria, chose to resign.

“There’s a tremendous amount of work left to do…a heck of a lot of work,” Allison said of the changes. He called the cost cutting announcement “very painful to go through but vital to our position.” Among other things, the cutbacks will allow the E&P team to report directly to him. “People responsible for getting the job done now have a direct link, and that saves overhead.” And, the CEO noted that the cost cutting efforts have not ended. “We are looking for additional areas. This is no means the last you’ll hear on the subject.”

Allison also detailed why the company decided to shut down some of its onshore U.S. rigs, saying there had been “huge misconceptions,” which had “nothing to do with the economics or the depth of drilling.” He said “the fact is, our onshore U.S. drilling program has been front loaded all year. By mid-year, we had already spent 70% of our U.S. costs. Clearly, we haven’t cut back, but we are committed to paying down debt. It’s that simple.”

Although speculation had the rig cutbacks as high as 30, Allison said the onshore rig count overall would only drop by eight, and in Canada, four rigs were being ramped up in preparation for winter drilling. As of Friday, Anadarko has 81 operated and nonoperated rigs working in North America, he said, and 10-15 onshore U.S. rigs may be shuttered in the short term.

Rumors about poor drilling prospects were “hogwash….we have thousands of identified but not budgeted prospects. They are robust at today’s prices or they wouldn’t be in the portfolio to begin with. It chaps me when I hear such nonsense. How can people print things that they know are absolutely wrong?,” he asked, referring to analysts who have speculated that Anadarko’s prospects are dwindling. “We can do better than we’ve done in recent years,” and the latest news is “more of a tweak than a shift” in policy. And, he hinted that Anadarko may be looking for more acquisitions.

Anadarko watchers have seen some big news come out of the company so far this year. Three days after an upbeat analyst conference last spring, Anadarko’s well respected president and CEO John Seitz “elected to resign” (see NGI, March 31). Allison then stepped back into the CEO role, but at the time it was only considered a temporary fix by analysts. Allison had earlier held the chairman and CEO roles at Anadarko between 1986 and 2001.

Following Seitz’s resignation, analyst Irene Haas, who covers Anadarko for Sanders Morris Harris, predicted that changes in the company would be forthcoming, especially because Allison was then 64, and Haas thought the company had a mandatory retirement age of 65. “Anadarko will have to find a CEO either internally [or] externally, or else the company could be put up for sale as a third option,” Haas said. However, Anadarko spokeswoman Teresa Wong said that while Anadarko’s board of directors has a mandatory retirement age of 70, there is no such limit on the chairman and CEO roles. .”

Anadarko reported quarterly net income increased to $301 million ($1.20 per share diluted) on revenues of $1.28 billion, compared with $239 million (93 cents) on $1 billion in revenues for 2Q02. Several charges, not included in earlier guidance, included $13 million ($9 million after taxes) for oil and gas property impairments and $29 million ($19 million after taxes) in derivative losses. Earnings gains also were partly offset by lower sales volumes, which followed last year’s divestitures of Canadian heavy oil properties and some operational issues in the Gulf of Mexico and Qatar during the second quarter.

Sales volumes totaled 48 MMboe, or 527,000 boe/d, up almost 6% sequentially, but down from the same period a year ago, when sales volumes were 50 MMboe or 546,000 boe/d. Natural gas volumes totaled 1.74 Bcf/d, compared with 1.71 Bcf/d in the first quarter of this year, but down from 2Q02’s 1.79 Bcf/d. Anadarko’s realized average natural gas price was $4.54/Mcf, compared with $3.05/Mcf a year ago.

Anadarko’s 2003 estimates now assume an average New York Mercantile Exchange natural gas price estimate of $4.75/Mcf for the third quarter, and $4.85/Mcf for the remainder of the year, with a full-year average of $5.40. To determine realized prices, Anadarko used these estimates, plus or minus an expected price differential for each of the company’s major producing areas, and any adjustment for hedge positions. Oil and gas sales volumes are expected to total 49 MMboe in the third quarter, and full-year sales volumes are expected to be 192 MMboe.

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