Anadarko Petroleum Corp. on Tuesday said quarterly natural gas and oil sales volumes benefited from "significant" growth in U.S. onshore plays, with the Rocky Mountain region delivering 10% growth and the Southern and Appalachian region, which includes the Marcellus and Eagle Ford shales, up 9% from year-ago levels.

Sales volumes of natural gas, crude oil and natural gas liquids (NGL) in 3Q2010 totaled 58 million boe, or 629,000 boe/d, which was at the upper end of guidance. Natural gas sales volumes averaged about 2.2 Bcf/d. Oil sales volumes averaged 192,000 b/d, and NGL sales volumes averaged 65,000 b/d. In total, liquids represented about 41% of total sales volumes for the quarter.

Through development activities to date in the Marcellus and Eagle Ford shale plays, Anadarko's acreage positions in these two fields hold a total of about 1.5 billion boe of net risked captured resources, CEO Jim Hackett said during a conference call.

"The positive results to date provide additional assurance that the company can attain a 60% compounded annual production growth rate over the next five years from these shale assets," Hackett said.

Once a gas-oriented producer in the U.S. onshore, Anadarko in the past year has lifted the liquids component of its production to 70% from less than 50% of total output, said the CEO.

"We have substantial onshore U.S. fields that are generating significant value and material growth to our portfolio," said Hackett. However, with prices more attractive for liquids, domestic natural gas output isn't expected to be much higher than today over the next two years, he said.

The company's shale plays, however, continue to hold a lot of gas potential, he told analysts. In the Marcellus Shale Anadarko has about 750,000 gross acres, which have a net risked captured resource potential of "more than 6 Tcf," he said.

"We are realizing consistent IPs [initial production rates] of more than 7 MMcf/d across our core position in north and central Pennsylvania," Hackett said. As more infrastructure comes online, "we're expecting to nearly double our takeaway capacity by the end of the year."

Another 400,000 gross acres are held by Anadarko in the Eagle Ford Shale, which has an estimated net risked potential of "more than 450 million boe," said the CEO. The South Texas play already has "gathering, takeaway, processing and water-handling capacity in place...We're running seven rigs and have plans to ramp up to nine in the first quarter [of 2011]."

Anadarko has 550,000 gross acres in Texas' Avalon Shale, which includes Bone Spring. Seven rigs now are running in the leasehold, both operated and nonoperated, and "we're achieving strong IPs in both plays," said Hackett. "At least" eight Avalon wells are expected to be completed by year's end.

Anadarko continues to look for a joint venture (JV) partner for its Eagle Ford leasehold, and it's also in early days to find a partner to help develop the Niobrara Shale, said COO Al Walker.

The Eagle Ford generates "exceptional rates of return," but if Anadarko is able to "get terms acceptable to us, and we continue to get a good rate of return, that's the motivator. It's as singular as that," he told analysts.

Anadarko is using its Marcellus JV "as a footprint" for future partnerships in the Eagle Ford and Niobrara plays, said the COO. Earlier this year an affiliate of Japanese trading giant Mitsui & Co. Ltd. agreed to pay $1.4 billion to acquire a nearly one-third stake (32.5%) in the Marcellus leasehold (see Daily GPI, Feb. 17).

Securing a JV partner for other shale plays is "not to take capital off the table," said Walker. "We're not talking about balance sheet improvement but improving our rate of return."

As to when a partnership may be announced, Walker said it could be any day. "I would tell you that today if someone meets our terms, we have enough data to support that. We're not looking for critical mass to promote it...and we're not looking to give it away...Terms are more important than timing."

With uncertainty about when the Gulf of Mexico (GOM) may return to pre-moratorium levels, Anadarko, which had planned to spend $1 billion in 2010 offshore, reversed some of its "longer-cycle" plans to reinvest in "mostly liquids" onshore plays, said Walker.

"We're mindful how longer-cycle stuff can be brought forward," he said. "As we move onshore from offshore, we're both enhancing the short-term cycle of investment and moving things with extremely good rates of return."

Activity in the GOM "remains limited," said Hackett. While the moratorium has been in place the company continued to advance some of its projects, including Caesar Tonga, which is expected to ramp up by the middle of 2011. Development of the Aleutian Project also moved forward.

"Lifting the moratorium was a positive step for the Gulf Coast and the region," said the CEO. However, "we, along with other deepwater operators, must have greater clarity in the regulatory process."

Anadarko is working with the Bureau of Ocean Energy Management, Regulation and Enforcement to secure some offshore drilling permits, which it hopes to see "toward the end of this year...in fact, maybe the next couple of weeks. We hope to be back to work early next year or late this year."

Anadarko reported a quarterly net loss of $26 million (minus 5 cents/share) from one-time charges that reduced profits by about $129 million (26 cents/share). Operating cash flow was $1.05 billion and discretionary cash flow totaled $1.274 billion.

"The portfolio continues to perform at a high level, enhancing our confidence in delivering upon the five-year objectives we presented in March, which include increasing production at a 7-9% compounded annual growth rate," Hackett said. "Our teams are meeting cost and completion targets for our three sanctioned mega projects, attaining critical mass and strong growth in our major shale plays, and carrying out a successful, high-impact exploration and appraisal program.

"As a result of this continuing strong performance, we are again increasing the midpoint of our 2010 full-year sales-volumes guidance, while lowering the midpoint of anticipated capital expenditures. Our employees have proven their ability to extract considerable value from our portfolio, while maintaining financial discipline."

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