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Anadarko Boosts U.S. Onshore Spending

March 8, 2010
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Financial analysts last week said all signs are pointing to Anadarko Petroleum Corp.'s ability to surpass 3 billion boe of proved reserves by year-end 2014.

The Woodlands, TX-based independent last week unveiled its 2010 capital program and near-term guidance through 2015 at an investor conference. Total 2010 capital spending is set at $5.3-5.6 billion, with 42% of the budget directed in U.S. operations, 28% in international projects, 18% in the Gulf of Mexico (GOM) and 12% on midstream and other ventures. Production is forecast to be 226-231 million boe this year, said CEO Jim Hackett.

"Building upon our base with the expected growth from our natural gas shale plays and oil-focused mega projects, we project that we can surpass 3 billion boe of proved reserves by year-end 2014, with an increased production compounded annual growth rate [CAGR] of 7-9% over the five-year period," he said. "We also remain focused on transitioning our world-class deepwater discoveries into the next generation of mega projects, with a target of six new mega projects on line by 2016."

Including expensed geology and geophysics, Anadarko will spend 36% of its 2010 budget on near-term projects, those expected to be completed over the next two years. Another 22% of the spending will go to mega projects, which include deepwater offshore projects. Another 20% of spending is for exploration and 12% will go to the midstream. The gas and oil shales alone will receive 12% of this year's spending. Last year Anadarko allocated about $1.8 billion to its near-term projects and increased sales volumes by about 7% relative to 2008.

This year the company has allocated around $2 billion to these near-term projects and expects to increase sales volumes by up to 5% over the 2009 total of 220 million boe.

Anadarko currently holds nearly 600,000 net acres in core positions in the Marcellus, Haynesville, Eagle Ford and Pearsall shale plays onshore in the United States, with an estimated 50 Tcfe of gross unrisked resources. This year Anadarko plans to allocate its spending to the areas "that have the potential to increase their production over a five-year period at a 60% CAGR."

The capital spending plan is in addition to the benefits of the recently announced joint venture agreement in the Marcellus Shale, under which an affiliate of Mitsui & Co. Ltd. is to carry Anadarko's development costs in 2010 (see NGI, Feb. 22).

Exploration spending this year will focus on Anadarko's worldwide deepwater program, which includes plans to drill about 30 high-impact exploration/appraisal wells. Up to 10 wells are to be drilled in the GOM.

"Given that at least 75% of the $1.1 billion allocated to exploration is directed to the drillbit, we expect to be one of the most active deepwater drillers in the world this year, testing up to 7 billion boe of gross unrisked resources," said Hackett.

"We are targeting approximately 400 million boe of net discovered resources in 2010, a 12% increase over our record 2009 results. At the same time, we are actively appraising several of our recent discoveries -- Wahoo in Brazil, Tweneboa in Ghana, and Lucius, Vito and Heidelberg in the Gulf of Mexico -- as we work to convert these resources to production and value."

Financial analysts said they were generally pleased with Anadarko's (APC) plans.

Rehan Rashid of FBR Capital Markets said conversations with the company's technical team at the analyst meeting "deepened our appreciation of the value of its exploration platform. We believe APC's high-impact domestic deepwater and international exploration prospect inventory is driven by a paradigm shift in thinking about exploration akin to the paradigm shift U.S. independent E&Ps went through over the last five years, relating to figuring out prospectivity of U.S. natural gas shales.

"By the end of 2012, APC will have drilled and tested about half of its 3.5 billion boe net risked exploratory portfolio," said Rashid. "We think the success rate will be high..."

Likewise, the Tudor, Pickering, Holt & Co. (TPH) team said, "Clearly the company has proven an ability to turn geologic concepts into cash flows, and the current program conservatively doubles reserves while growing cash flow 60%-plus over the next five years."

Anadarko has "great people focused on the details with great balance between oil and gas, domestic and international, growth and cash generation," the TPH analysts noted. "The company checked all the boxes with 2010-2015 plans clearly laid out...We walked into the meeting thinking 2009 was a great year for the company; we walked out believing 2009 wasn't an anomaly. 2009 is the standard and don't be surprised if the standard is raised going forward."

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