Boosted by exceptional performance from horizontal drilling programs in the U.S. onshore, and in particular the Wattenberg Field in Colorado, Anadarko Petroleum Corp. broke records for liquids sales volumes in the third quarter. The Wattenberg’s production profile is “essentially straight up,” said an executive.
Quarterly sales volumes in total were above the high end of guidance at 68 million boe, or 739,000 boe/d, which was an increase year/year (y/y) of 79,000 boe/d. The company achieved better-than-expected record U.S. liquids sales volumes of 322,000 b/d, about 73% of which was oil.
Oil sales volumes averaging 234,000 b/d and natural gas liquids (NGL) output was about 88,000 b/d, equating to a 41,000 b/d increase in total liquids from a year ago. Natural gas volumes averaged close to 2.5 Bcf/d.
In total, Anadarko’s domestic oil and natural gas volumes y/y jumped to 60 million boe from 54 million boe, an increase of 80,000 boe/d from a year ago. Lower 48 output climbed to 49 million boe from 41 million boe, and Rockies production rose by 2 million boe to 30 million boe. In the Southern and Appalachian regions, production climbed to 19 million boe from 13 million boe. And in the Gulf of Mexico (GOM), production was slightly lower at 10 million boe from 11 million boe. Alaska output fell by half to 1 million boe from 2 million boe.
Strong operational results and continued cost reductions led the company to increase the 2012 sales volumes guidance by 3 million boe to 265-267 million boe, with no increase in capital spending, said CEO Al Walker during a conference call. “During the quarter, we delivered record liquids volumes of 322,000 b/d and safely reduced controllable costs on a per-unit basis in every category relative to the third quarter of last year.”
The record performance in the U.S. onshore was primarily attributed to growth in the Wattenberg Horizontal (HZ), Eagle Ford Shale, East Texas HZ, Greater Natural Buttes and Marcellus Shale plays. In these areas, sales volumes increased by 33% y/y and 8% sequentially. Liquids sales volumes were 24,000 b/d higher, an increase of 16% from 3Q2011.
Between June and September Anadarko’s Wattenberg HZ and the Eagle Ford Shale combined for an increase in production sequentially of more than 800,000 bbl of liquids sales volumes.
“The Wattenberg HZ program continued to deliver rates of return exceeding 100% and, due to the exceptional well performance in both the Niobrara and Codell formations coupled with identified down-spacing opportunities and longer laterals, the company increased the lower end of its estimated resource range by 500 million boe to a new range of 1-1.5 billion boe,” said Walker.
Wattenberg currently is producing more than 37,000 boe/d gross from about 115 wells, with three-quarters of the wells producing from the Niobrara Formation and the other 25% from the Codell formation, said Chuck Meloy, who runs the onshore exploration and production program. The company is running 10 operated rigs in the program and generating rates of return exceeding 100% in the current price environment.
“The big news there is that production continues to climb,” Meloy said of the Wattenberg. “We’ve had a tremendous growth rate…in both the Niobrara and Codell…We’ve got 10 rigs running now. The production profile is essentially straight up.”
Anadarko’s Rockies assets overall delivered total sales volumes of 325,000 boe/d, up 7% y/y, including a 19% increase in oil sales volumes. The results were achieved even though there was “significant downtime” from third-party NGL takeaway issues and ethane rejection in some producing areas. On average, Anadarko operated 19 rigs in the Rockies during the quarter and drilled a total of 186 wells.
Sales volumes in the company’s Southern & Appalachia region averaged 207,000 boe/d, a 44% increase y/y and a 7% sequential increase. The higher volumes were driven by “higher-margin, liquids-rich opportunities” in the Eagle Ford Shale, Permian Basin and East Texas/Haynesville areas. Total liquids sales volumes for the region grew by about 21,300 b/d, a 48% jump y/y, and 10,200 b/d, or 18% higher, than in 2Q2012.
In addition to breaking output records, Anadarko also managed to cut costs in the Marcellus Shale and Permian Basin.
In the Marcellus Shale, drilling and completion costs showed a 14% reduction y/y. Average completion costs in the Marcellus for the quarter were reduced by about $1.5 million per well. Additionally, the number of days on location for completion operations this year in the play has been reduced by about 40%. Anadarko also improved its spud-to-release time y/y in the Permian Basin’s Bone Spring by 18% and in the Avalon Shale by 11%, the company said.
The Woodlands, TX-based producer had 46 drilling rigs running in the U.S. onshore and one drilling in the GOM during 3Q2012. A year ago it had 53 total rigs, with two drilling in the GOM and 51 in the onshore.
Net profits in 3Q2012 fell to $121 million (24 cents/share) from $422 million (84 cents) in the year-ago period. One-time items, including settlement costs related to the Macondo well blowout ($4 million) and big derivatives losses ($456 million) cut profits by $466 million, or $301 million (60 cents/share) net year/year. Cash flow from operating activities was $2.229 billion, up from $1.466 billion in 3Q2011, while discretionary cash flow fell to $1.794 billion from $1.879 billion a year ago.
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