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Shale's Role Grows Substantially in Anadarko Portfolio

The stature of Anadarko Petroleum Corp.'s shale operations in the United States grew substantially last year, the company said. Going forward, emphasis at home will continue to be on shales and liquids-rich production.

Anadarko's U.S. onshore operating areas generated a year-over-year increase in sales volumes of more than 11%, highlighted by growth of nearly 200% in shale plays and record volumes in the higher-margin, liquids-rich Wattenberg, Greater Natural Buttes and Bone Spring areas, the company said.

At year-end, shale plays accounted for more than 10% of the company's total sales volume, compared to less than 1% at the beginning of 2010, and represented about 5% of the company's total proved reserves.

"By continuing to focus capital investments on our liquids-rich opportunities, we achieved 10% year-over-year growth in liquids sales volumes, highlighted by production records in the Eagle Ford Shale, Wattenberg field, Greater Natural Buttes area, Bone Spring and certain other U.S. onshore resource plays," said CEO Jim Hackett.

Anadarko is the largest producer in the Wattenberg, where last year it acquired the Wattenberg Processing Plant (see Shale Daily, Nov. 16, 2011). "This acquisition, combined with Western Gas Partners LP's (WEP) acquisition of the Platte Valley Plant and WEP's ownership of the Fort Lupton Plant, along with other midstream assets, is enabling continued growth and value-enhancing opportunities within the Wattenberg field and greater Denver-Julesburg Basin," the company said Monday.

Anadarko is operating five horizontal rigs in the Wattenberg and two additional horizontal rigs that are evaluating liquids-rich opportunities in Wyoming's Powder River Basin.

During a conference call Tuesday with financial analysts, Hackett highlighted the substantial growth in the company's liquids production in the era of low dry gas prices. "For instance in the Wattenberg field...we achieved a 24% overall sales volume increase over the fourth quarter of 2010, with liquids from the field increasing at twice that rate, adding almost 13,000 b/d.

"Comparing year-over-year gross exit rates in the Eagle Ford Shale, we achieved an increase of approximately 50,000 b/d from our 10-rig program, representing 185% growth. We remain one of the largest producers in this highly economic area with a gross production exit rate of approximately 77,000 boe/d and with liquids comprising approximately 65% of the production stream."

Hackett told analysts: "We're not going to pursue production growth where we don't have good wellhead economics." That means continuing to shun dry gas drilling in favor of oil and liquids whenever and wherever possible.

Anadarko's full-year 2011 sales volumes of natural gas, crude oil and natural gas liquids (NGL) totaled a record 248 million boe, or 680,000 boe/d, which was an increase of 6% over full-year 2010 sales volumes of 235 million boe. Fourth-quarter 2011 sales volumes of natural gas, crude oil and NGLs totaled 63 million boe, or 683,000 boe/d, a 12% increase over the fourth quarter of 2010.

The company added 392 million boe of proved reserves in 2011 and incurred costs of $5.561 billion associated with exploration and development activities. Proved reserves at year-end 2011 totaled 2.54 billion boe, with 71% in the proved developed category and 29% categorized as proved undeveloped. At year-end, Anadarko's proved reserves were composed of 55% natural gas and 45% liquids.

Last year Anadarko enjoyed continuing improvement in drilling efficiencies. The company said it drilled 14 million feet in the U.S. onshore and completed 10,000 hydraulic fracture stages.

"In the Rockies region, 2011 saw record drilling cycle times and cost-per-foot improvements in all of the Rockies' asset areas," the company said. "In Greater Natural Buttes, a record was set during the quarter for drilling cycle time of 3.5 days from spud to rig release, a full-day improvement over the previous record."

For the first time, Anadarko was able to drill an Eagle Ford Shale well in less than eight days during the fourth quarter. It drilled about 40 Eagle Ford wells in less than 10 days last year, the company said.

The company's southern and Appalachia region set a record of 1,547 frack stages completed during the quarter. Hours per frack stage improved in the Eagle Ford Bone Spring and Marcellus Shale by 25%, 21% and 15%, respectively, the company said. "With these efficiency gains, the company was able to reduce the cost-per-stage by approximately 10% from the beginning of 2011 to the end of the year."

Anadarko reported a net loss of $358 million (minus 72 cents/share) for the quarter, including special items that reduced net income by $781 million ($1.57/share) after tax. The items included a $4 billion payment to BP plc to settle a dispute related to the Macondo well blowout in the Gulf of Mexico. The payment resulted in negative cash flow of $2.09 billion for the quarter. Discretionary cash flow for the quarter was $1.752 billion.

Annual results also were struck by the BP settlement and other special items. For the year the company reported a net loss of $2.65 billion (minus $5.32/share).

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