Houston-based Anadarko Petroleum Corp., the largest independent in North America, is following the lead of other energy companies, announcing last week it would reduce its capital spending this year $1 billion — down from the previously announced $3 billion — because of the downturn in the industry. The company also reduced its fourth quarter earnings forecast, saying it now expects to earn 25 cents a share; Thomson Financial/First Call analysts had predicted an average return of 36 cents.

“Overall, 2001 was a great year for Anadarko,” said CEO John N. Seitz, who was promoted to the top job just two weeks ago. “However, fourth quarter results will clearly reflect the downturn in the industry. In reaction to these changing market conditions, in July of 2001 we began slowing our drilling program, which impacted fourth quarter volumes and will affect 2002 financial and operating results. But the strategies we have in place should also grow shareholder value and enhance the company’s ability to achieve double-digit growth in production and reserves in the future.”

Seitz said, “it’s simply the wrong time in the commodity price cycle to build organic production growth. Instead, now is the time to buy back stock, build reserves and build our inventory of drilling locations to take advantage of the next up-turn in oil and gas prices. Anadarko has always acted with a view towards the long-term interest of our shareholders, and these actions are in line with that strategy.”

Among other things, Anadarko plans to continue to buy back its stock. “Flexibility is the common theme for our 2002 strategic plan,” said Seitz. “We have a proven record of success with exploration, and we have a great inventory of ready-to-drill locations. We could go shopping for oil and gas reserves among the billions of dollars of announced property sales on the market, but right now the best acquisition we see in the market is APC stock.”

Preliminary results for 2001 show that Anadarko will have record earnings, with full-year earnings of about $3.25 per share, or about $5.50 a share excluding the third quarter ceiling test write down. Annual production volumes for 2001 were up more than 75%, to 199 MMboe from 112 MMboe a year earlier. On a per-share basis, production rose about 30%. Anadarko also increased its proved reserves 10% with a reserve replacement ratio of more than 2-to-1. Finding costs of “slightly over $9/boe” were mostly because of reserve revisions and higher service costs.

Because of the downturn in the industry, Anadarko has budgeted about $500 million for domestic and international exploration, but spending may vary depending on actual commodity prices.

“Anadarko, which I would say is more active onshore than anyone else in terms of the rigs that they keep running and new prospects, has apparently had a major shift in policy that’s come down [in the last week],” said an independent landman operating in the Gulf Coast region of Louisiana. “Starting last week they drastically trimmed back all their crews in Louisiana and Texas. They probably put 300 independent landmen on the street.

“That’s a big deal,” he said. “They’ve in effect ceased leasing. Management may be [upset] about how drilling day rates haven’t come down. The active rig rate has really been falling over the past few months but day rates haven’t really come down. That would certainly be a motive — an attempt to send a shock to the drilling companies.

“I’ve been in the business for 23 years as a landman and conditions are worse than ever before. There’s no way that the market will absorb all of us.” Landmen, nearly all of whom are independent, are sent out by brokers to go out and buy up land for drilling companies.

“I think that it’s a very drastic move to really send a shock to the service markets,” the landman added. “Right now, it seems to be only Anadarko, but our industry is like any other — it’s a herd mentality. If every body looks at Anadarko when prices are so soft, what’s going to happen is others are going to reevaluate what they are doing to.” This is a long-term action that will have devastating consequences in terms of supply, he said.

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