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Anadarko to Tread Cautiously Until Prices, Economy Strengthen

Promising results onshore, especially in the Marcellus Shale and in the Maverick Basin, combined with robust activity in the U.S. offshore, will keep Anadarko Petroleum Corp. poised to strike once the economy and natural gas prices gain strength. But until then the company plans to tread cautiously, CEO Jim Hackett said Thursday.

The Houston-based independent reported a net loss in 1Q2009 of $331 million (minus 73 cents/share), compared with year-ago profit of $286 million (60 cents). Excluding one-time adjustments, the loss from continuing operations was 53 cents/share, compared with profits a year ago of $1.28/share. Revenue slumped 46% to $1.6 billion.

"Our portfolio yielded very good operating results during the quarter; however, we continue to face a challenging period until we see better alignment between costs and commodity prices," Hackett told financial analysts during a conference call. "We prudently scaled back our near-term capital spending and still improved sales volumes by approximately 2 MMboe from the fourth quarter of 2008. Toward the end of the second quarter we expect to resume production of approximately 30,000 boe/d net currently shut-in due to the lingering effects of hurricane-related outages to downstream infrastructure in the Gulf of Mexico [GOM]. We remain on track to achieve our 2009 production target of between 208 MMboe and 212 MMboe."

Anadarko's exploration success across the globe was "outstanding," Hackett said. "We announced four high-impact discoveries during the quarter: the Heidelberg and Shenandoah prospects in the deepwater Gulf of Mexico and the Tweneboa and Mahogany Deep prospects in West Africa. Additionally, we achieved important milestones in the development of our three mega projects, enabling us to effectively manage costs and maintain schedules for first production."

In the deepwater GOM, preparations are under way to launch development drilling at the company's Caesar/Tonga complex, with first production anticipated in early 2011. The Independence Hub, which Anadarko operates for gas producers in the deepwater, had throughput on average of 900 MMcf/d in 1Q2009, and strong performance is continuing this quarter. The hub was designed to process up to 1 Bcf/d from satellite fields.

Anadarko's 1Q2009 sales volumes for gas, crude oil and natural gas liquids (NGL) were up from a year earlier to total 54 MMboe, or 600,000 boe/d. Gas sales volumes averaged 2.3 Bcf/d. Oil sales averaged 174,000 b/d and NGL volumes averaged 40,000 b/d.

Stronger production year/year was driven by higher volumes in the Rockies, which had a 6% increase in output. In addition, improved frac spreads resulted in additional NGL recovery "in multiple areas," said the CEO.

"Volumes exceeded expectations even while steps were taken to reduce capital spending in light of the commodity environment," said Hackett. Capital spending was at the low end of guidance at $.1 billion for the quarter.

To manage through the current economy, Anadarko has reduced drilling activity in the U.S. onshore by dropping all of its market-based rigs and terminating some rig contracts. Hackett disclosed during the call that Anadarko paid $25 million to terminate onshore rig contracts in 1Q2009. The Anadarko-operated Lower 48 rig fleet was cut 60% in three months -- down to 23 at the end of 1Q2009 from 58 at year-end 2008.

However, operations chief Bob Daniels told analysts that Anadarko likely will add at least one rig this year to its promising Marcellus Shale leasehold. The company, he said, is encouraged by results from other onshore plays in the Haynesville Shale in Louisiana and from the Maverick Basin in South Texas.

Anadarko's first Marcellus horizontal well was brought on line flowing more than 6 MMcf/d; a second horizontal was completed with an initial production rate of 7.6 MMcf/d. Initial test rates in the Maverick Basin, where the Eagleford Shale is located, were 6 MMcfe/d. The Pearsall Shale, also in the Maverick Basin, had a well that tested at 10 MMcf/d, Daniels said.

"We have one rig in the Marcellus, but we may ramp up to three or four by year end," Daniels said. "Clearly, a multi Tcf number is there [in the Maverick Basin], without a doubt. We're still trying to answer the economics. Drill costs need to come down, and we need to monitor how the wells perform...We like what we're seeing. There's a huge resource potential, now it's mainly making it all work."

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