Despite the negative impact on production this year from Anadarko Petroleum’s plan to sell $220 million in non-core oil and gas assets and another $100 million of low-margin, low-growth properties, CEO John Seitz reiterated the company’s forecast of 6% production growth next year and 10% production growth in 2004. Production this year is expected to be down 5.5% to 188 million boe. Production growth next year and in 2004 is expected to come mainly from fields in the Gulf of Mexico, Canada and Qatar.
Speaking at the 16th Annual Lehman Brothers CEO Energy Conference in New York last week, Seitz said the company plans to spend about $2.5 billion next year and $2.7 billion in 2004 funded from expected cash flow. “Both this budget and our 2004 estimate include significant exploration spending to fuel our future growth,” he said. “Given the current outlook for energy prices — combined with the exploration successes we’ve had and some major development projects that are under way — we expect to accelerate our production growth over the next couple of years.”
The company’s recent exploration successes in the Slave Point play in northeastern British Columbia and the Saddle Hills and Dawson areas of western Alberta will lead Canada’s production growth next year. Production capacity from the Al Rayyan field offshore Qatar is expected to increase significantly to 35,000 b/d gross as the result of a field expansion and redevelopment project scheduled for completion in the first quarter of 2003.
In the Gulf of Mexico, Anadarko expects increased production from the South Marsh Island Block 280/281 complex and the Hickory and Pardner subsalt fields.
The company and its partners announced a new deepwater subsalt discovery appraisal well Tuesday at K2 on Green Canyon Block 562, about 180 miles south of New Orleans. The K2 No. 2 well was spudded by Agip Petroleum in April in about 3,900 feet of water and encountered a total of 339 feet of oil pay in three sands in an untested fault block and reached target depth of 25,700 feet. The partner companies are planning additional appraisal drilling on the K2 field for 2003 and are evaluating development plans for K2 and considering options — including a separate structure or a tie-back to the Marco Polo hub. Initial results from the well indicate that commercial development is likely with first production as early as 2004.
“Anadarko’s strategy to chase the subsalt play in deepwater was the right move for stockholders,” said Seitz. “Our first deepwater discovery at Marco Polo is being developed, and we have several other deepwater prospects that will be drilled as we evaluate our deepwater subsalt exploration inventory.”
The K2 discovery is within six miles of the Marco Polo field — a discovery located at Green Canyon Block 608 that was announced in 2000. The Marco Polo platform is under construction and scheduled to be installed in the third quarter of 2003, with first production targeted for the first quarter of 2004. Four development wells have been drilled in 2002 with better-than-anticipated results. When completed, Marco Polo will be the deepest tension-leg platform in the world. Through an agreement, El Paso Energy Partners and Cal Dive International will construct and own the platform structure, and Anadarko will be the operator. Production capacity will be 100,000 b/d of oil and 250 MMcf/d of gas. Anadarko will have firm capacity of 50,000 b/d of oil and 150 MMcf/d of gas. The remainder of the platform capacity will be available to Anadarko or third parties that have activity in the area.
Anadarko currently owns an interest in about 375 blocks in the Gulf of Mexico, of which about 180 are in deep water. For the second quarter of 2002, net production from Anadarko’s Gulf of Mexico operations averaged 17,300 b/d of oil and 257 MMcf/d of gas.
“Most of our expected growth in 2004 would come from the Gulf of Mexico, Canada, the Lower 48 and Qatar,” Seitz said. The Marco Polo field will be a key development in the first quarter of 2004 as will the recent K2 discovery and the Tarantula discovery, which is scheduled for production by the first quarter of 2004. Continued drilling in the Slave Point, Saddle Hills and Dawson areas also is expected to drive Canadian production growth in 2004.
In the Lower 48, production increases are expected in 2004 from new discoveries and increased development activity in the Bossier play in East Texas, from Central Texas and from the Vernon area in North Louisiana; from the ramp-up of coalbed methane production and conventional gas production from the East Green River Basin in the Rockies; from tight gas plays in West Texas; and from enhanced oil recovery projects in West Texas and Wyoming. Overall U.S. onshore volumes, including Alaska, should increase in 2004.
Seitz said 2003 cash flow estimates are based on average Nymex prices of $25/bbl and $3.85/Mcf. For 2004, forecasts assume $23.50/bbl and $3.85/Mcf. “These prices are at or below current commodity market indications,” Seitz noted. “We are actively hedging to protect a portion of our cash flow.”
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