Anadarko Petroleum Corp. plans to spend more than half of its capital budget in 2011 in the U.S. onshore -- with most of the total in the Marcellus and Eagle Ford shales, CEO Jim Hackett said Thursday.
The company has budgeted $5.6-6 billion this year for capital expenditures, up from $5.17 billion in 2010. About 55% of the total worldwide spending is to be directed to U.S. development with 10% of total spending targeting the big shales.
"We've designed a portfolio that has produced record results in recent years, and generated significant momentum for continued performance in 2011 and well into the future," said Hackett during a conference call with investors. "In 2011 we expect to increase sales volumes to a range of 244 to 248 million boe, including a projected increase of about 10% in liquids volumes that deliver higher margins."
Anadarko President Al Walker said during the conference call that the company expects to complete an agreement within the next few days with an undisclosed partner to develop the Eagle Ford Shale. The management team at the Woodlands, TX-based independent last year hinted that adding a joint venture (JV) partner to help defray costs in the South Texas play was a possibility (see Daily GPI, July 8, 2010). Anadarko has a leasehold there that encompasses close to 400,000 gross acres.
"We're very pleased with this tentative agreement that we've reached and hope to have a definitive agreement to discuss with you in the coming weeks on the Eagle Ford," Walker said. Early last year the producer clinched a JV deal with Japan's Mitsui & Co. Ltd. worth an estimated $1.4 billion to help develop the Marcellus Shale (see Daily GPI, Feb. 17, 2010). The structure of that JV is one Anadarko prefers, said Walker.
The Mitsui JV allowed Mitsui E&P USA LLC to earn about 100,000 net acres in the Marcellus leasehold in exchange for funding 100% of 2010 development costs and 90% of the development costs after, with an estimated completion of the obligations by 2012. In addition, Mitsui has the opportunity to purchase a one-third stake in existing wells and new acreage acquisitions by reimbursing a proportionate share of Anadarko's prior expenditures, which in early 2010 were estimated to be $100 million.
A partner would help Anadarko double its drilling activity in the Eagle Ford, Walker said. Anadarko wants to double drilling activity in the play to more than 200 wells in 2011. Estimated ultimate recoveries (EUR) are on average producing more than 450,000 boe per well.
In the Marcellus Shale EURs are trending toward the higher end of the company's previous estimates of 4-6 Bcf/well. Ten rigs are scheduled to be in operation in the play this year; Anadarko also expects to participate in more than 250 wells.
"The Marcellus will continue to be the only domestic dry natural gas field where the company will be actively drilling, due to the play's proximity to premium natural gas markets that enhance the already robust economics," said Hackett.
More development spending is scheduled in several emerging onshore oil plays that include Bone Spring, Avalon Shale and Wolfcamp in the Permian Basin of West Texas; and the horizontal Niobrara Shale play, primarily within the company's land grant acreage in northeastern Colorado and southeastern Wyoming.
"This level of spending reflects the net benefit of our existing JV agreement in the Marcellus and also assumes the near-term completion of a similar agreement in the Eagle Ford," said Hackett. "During 2011 Anadarko plans to continue accelerating growth in the shale plays and, by the end of the year, expects shale production to account for approximately 10% of the company's total daily sales volumes."
Anadarko plans to spend about 15% of its 2011 capital budget to the ongoing development of its sanctioned mega projects, which include Caesar/Tonga in the Gulf of Mexico. Ramp up there is expected in 2012.
Consistent with previous years, one-quarter of the 2011 capital program is allocated to exploration. Nearly $1 billion is expected to be invested in drilling activities, with a focus on the company's worldwide offshore and deepwater programs, which include 25 exploration and/or appraisal wells this year.
"With 19 offshore discoveries in the last three years, and two already in 2011, our exploration program is a differentiating value enhancer for our shareholders," said the CEO. "We continue to be among the most active and successful deepwater explorers in the world, and together with our U.S. onshore exploration activities, we expect to discover and de-risk approximately 500 million boe of net resources as a result of our 2011 exploration program. In addition to finding new resources, we plan to continue advancing existing discoveries to development with very active appraisal programs in Mozambique, Ghana, Brazil, Sierra Leone and the Gulf of Mexico."
This year's capital spending plans are "projected to be well within anticipated cash flows, based on today's strip prices, and will enable us to accelerate our proved reserve additions with a reserve-replacement ratio of more than 150%," said Hackett. "Achieving these objectives will keep us on course to meet the five-year targets we established in March 2010, which include surpassing 3 billion boe of proved reserves by year-end 2014, and increasing sales volumes at a 7-9% five-year compounded annual growth rate."
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