Anadarko Petroleum Corp. executives said Tuesday they expect the company to end 2007 with $12 billion in net debt, which is a steep climb down from the $26 billion of net debt Anadarko had in the third quarter following its acquisition of Kerr-McGee Corp. and Western Gas Resources (see Daily GPI, June 26).

That steep debt reduction will be achieved without the issuance of new equity, according to Anadarko CFO Al Walker. And that means that Anadarko's string of asset divestitures will continue as it has since the acquisition of Kerr-McGee and Western.

To date the company has announced agreements to sell assets for gross proceeds of about $6.5 billion, $5.5 billion after tax. After-tax proceeds from sales yet to come are expected to total $5-9 billion.

Anadarko told analysts at a meeting Tuesday that it is marketing its Venezuelan assets, production sites in Qatar, as well as some onshore properties in the United States and part of its K2 Gulf of Mexico development (K2 and K2 North). Onshore in the U.S., Anadarko is marketing the Golden Trend properties in western Oklahoma, its West Texas enhanced oil recovery operations, noncore oil-producing properties in the Williston Basin, properties in the Vernon Field in Louisiana, as well as holdings in the Central Chalk in Texas. Sale of Texas and Louisiana assets could be announced by the end of the month.

The market for assets sold to date has been stronger than expected, Walker told attendees at the conference, and expectations are that assets to be sold will draw higher prices than originally thought.

The new Anadarko will be a company more focused on the United States. The Rockies will hold about 41% of company reserves. The southern region will hold 26%; international and frontier will account for 18% of reserves, and the deepwater Gulf of Mexico will have 15% of reserves. The reserves are broken down as follows:

Walker told the analysts that the company's acquisition of Kerr-McGee and Western went "very, very quickly," so Anadarko didn't have much time to examine asset rationalization before the deals closed. In at least one recent divestiture, the sale of Anadarko Canada Corp. to Canadian Natural Resources Ltd. (see Daily GPI, Nov. 3; June 29), the timing and speed of the deal was a virtue.

Anadarko completed the deal before the Canadian government announced plans to tax the distributions of Royalty Trusts (see Daily GPI, Nov. 2), news that would have reduced the price Anadarko likely would have realized for the Canadian assets. "I can't tell you we saw the tax law changes in Canada coming... In some cases moving quickly did help. We feel very fortunate that we got this closed in the time that we did."

The combined decline rate on assets being divested by Anadarko is about 15.5%, Walker said, and the combined decline rate on assets the company is keeping is something less than 10%.

Going forward the new Anadarko will have "an extremely large" midstream business, Walker said. While he said that Anadarko is in the exploration and production business, not the midstream business, he emphasized that the midstream assets are critical for the support that they lend to upstream activities. "It's real important that we continue to control them."

Walker said it is highly likely Anadarko will be creating a master limited partnership (MLP) to hold at least some of the midstream assets. He said Anadarko believes the midstream assets could be nine to 12 times more valuable outside of the E&P company. He added that Anadarko has a 10-year inventory of midstream assets that could be dropped down to an MLP.

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