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Anadarko Onshore Fuels Record Sales Volumes

Anadarko Petroleum Corp., whose extensive Gulf of Mexico (GOM) operations were slammed by the deepwater drilling moratorium, dusted itself off in the first quarter and on Tuesday reported record sales volumes from its U.S. onshore and overseas operations.

Sales volumes were at the top end of the company's forecasts, jumping to 690,000 boe/d from 686,000 boe/d in the year-ago period, averaging 2.4 Bcf/d of natural gas, 212,000 b/d of oil and 76,000 b/d of natural gas liquids. Total sales were 42% weighted to liquids.

"Anadarko's operational performance was excellent and continues to demonstrate the quality of our portfolio," CEO Jim Hackett told financial analysts during a conference call.

Among other things, Anadarko clinched a long-awaited $1.6 billion joint venture in the Eagle Ford Shale with a unit of Korea National Oil Corp. (see Daily GPI, March 22) and acquired the Wattenberg Processing Plant in Colorado for $576 million (see Daily GPI, March 23). The company also reduced its lease operating expenses per unit by 13% sequentially, Hackett noted.

"Anadarko's record sales volumes benefited from the company's first oil lifting at the Jubilee field in Ghana [Africa], as well as continued production growth in the Eagle Ford and Marcellus shale plays," he said. "In the company's shale plays, average sales volumes in the Eagle Ford and Marcellus areas increased by about 30% and 82%, respectively, over the fourth quarter of 2010."

The Wattenberg plant, which processes natural gas, "is expected to improve field recoveries and allow for future expansion in the greater Denver-Julesburg Basin, where Anadarko continues an active program with seven rigs drilling directional wells in the Wattenberg field and three rigs drilling horizontal wells in the emerging Niobrara play," the CEO said.

In the Greater Natural Buttes field in the Uinta Basin of Utah Anadarko set a single-day record of 456 MMcf/d gross during the quarter. Overall sales were 15% higher year/year. Anadarko is the largest gas producer in the field.

Executives from Chevron Corp., among others, said last week they expect to be back to work in the GOM in the second half of the year. So does Anadarko.

"In the Gulf of Mexico we are encouraged by the movement in well permits," Hackett said. Anadarko is "optimistic we'll be able to receive permits during the second half of the year, as budgeted..."

But legal issues regarding the Macondo well blowout will linger; Anadarko held a one-quarter interest in the well, which was operated by BP plc (65%). A unit of Japan's Mitsui & Co. had a 10% interest.

Anadarko and Mitsui have filed a lawsuit against BP over economic losses suffered from the well blowout and oil spill because they claim BP broke the joint operating agreement (JOA). Anadarko and Mitsui have asked for a declaration that they aren't responsible for damages and cleanup costs.

In turn, BP has invoiced Anadarko $4.7 billion for spill-related costs, according to a regulatory filing by Anadarko on Monday. The company also has received a notice of dispute from BP requesting payment for all invoices related to the oil spill disaster. BP stated that the JOA requires the parties to first attempt dispute resolution through arbitration.

"With regard to the BP oil spill, Anadarko continues to stand by earlier statements...supported by all of the investigations," said Hackett. "We don't think we owe anything...We also know that investors would like us to consider some sort of approach that's a compromise..."

According to the CEO, if the dispute isn't resolved within a certain period, any of the parties could initiate arbitration proceedings.

"It's a complicated process with multiple parties in litigation...We might be interested in settling," said Hackett. "We understand where the stockholders are at...We feel strongly about this, but we are prepared to come to the table under the right circumstances...if that's the remedy in the contract."

The Macondo well JOA is not "totally clear" as to how the mediation would proceed. However, BP's notice of dispute may help to "resolve the disputes among us...After that time has expired, it will be up to the parties as to whether to invoke arbitration..."

Anadarko's hedging losses led net income in 1Q2011 to fall 70% to $216 million (43 cents/share) from $716 million ($1.43) in the year-ago period. Excluding the hedging losses, Anadarko earned 72 cents/share, well ahead of Wall Street's consensus estimate of 56 cents. Revenue rose almost 4% year/year to $3.25 billion.

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