Anadarko Petroleum Corp. will devote almost all of its exploration and production (E&P) budget toward oil and liquids-rich assets this year and pay far less on efforts to get natural gas out of the ground, the Houston-based super independent said last week.

“Anadarko’s deep portfolio provides the flexibility to allocate more than 90% of our 2012 E&P capital toward oil and liquids-rich assets, while dialing back U.S. onshore dry gas activity in the currently over-supplied North American natural gas market environment,” CEO Jim Hackett said at the company’s annual investors conference in The Woodlands, TX. “We expect this capital program to deliver full-year sales volumes in the range of 256-260 million boe, which takes into account both the effect of anticipated asset monetizations and reduced natural gas activity.”

Liquids sales volumes will make up about 45% of Anadarko’s total sales volumes this year, an increase of approximately 25,000 b/d over 2011, Hackett said.

“If you have the infrastructure, if you have the access to fractionation, if you have the access to the petrochemical markets directly, which we have in this company, the NGL [natural gas liquids] market should stay very strong for a long period and keep their historic with crude oil trading.

“Natural gas is the one that I think everybody feels a little more cautious about. We are in that camp as well…[but] we feel that beyond 2014 you get into very, very interesting territory for the purposes of exploiting our tremendous natural gas portfolio…we’re cautiously optimistic about natural gas in the long term and certainly from here are very constructive about it in the long term,” Hackett said.

In 2010 Anadarko laid out a strategic plan to surpass 3 billion boe of proved reserves by year-end 2014, and it remains on track to achieve that goal, according to COO Al Walker. “The thing that has changed is that the gas component of that three-in-five-year plan is a lot less,” he said.

Total 2012 capital expenditures (capex) are expected to be $6.6-6.9 billion, with 55% of that amount dedicated to U.S. onshore — with a focus on liquids-rich opportunities in the Wattenberg field, Eagle Ford Shale, Permian Basin and emerging liquids-rich East Texas area — 25% to international, 10% to the Gulf of Mexico (GOM) and 10% to midstream/other.

Anadarko announced first production at the Caesar/Tonga development in the Green Canyon area of the deepwater GOM. Production from Caesar/Tonga, which has an estimated resource base of 200-400 million boe, is expected to ramp up to about 45,000 boe/d from the three subsea wells, and a fourth development well is expected to be drilled and completed later this year, the company said. Anadarko operates the development with a 33.75% working interest. Co-owners include Statoil Gulf of Mexico LLC (23.55%), Shell Offshore Inc. (22.45%) and Chevron U.S.A. Inc. (20.25%).

Also in the GOM, Anadarko said it continues to make progress on the Lucius development, which is located in the Keathley Canyon area. “Fabrication of the 80,000 b/d, 450 MMcf/d truss spar is under way, and first production is expected in 2014,” the company said. Anadarko also expects to initiate front-end engineering and design work for the development of its Heidelberg discovery in anticipation of project sanctioning later this year.

And the company believes any further fallout from the Macondo well blowout in the deepwater GOM is “not a significant issue for us,” according to Robert Reeves, Anadarko’s general counsel.

Anadarko, which was a 25% owner of the doomed Macondo well, in October agreed to pay BP plc $4 billion to settle claims relating to the blowout and oil spill, saying it would no longer pursue claims of gross negligence against the oil major (see NGI, Oct. 24, 2011). Last month a federal judge ruled that BP and Anadarko are liable for civil penalties under the Clean Water Act for their roles in the blowout (see NGI, Feb. 27).

“The Clean Water Act fines and penalties, to the extent that there are any, were not covered by that settlement; they were not indemnified by BP,” Reeves said Tuesday. “At the same time, I think you’ve heard me say before that we don’t believe those risks are significant, primarily because fines and penalties under the Clean Water Act are primarily fault-based in determining what the final penalty should be, and Judge Barbier…has said on numerous occasions that Anadarko is not responsible for what happened that day out in the Gulf of Mexico.” Any further fine or penalty is likely to be “a reasonable fine, and not something outlandish as you may be hearing in the media against BP; BP was there that day. That’s the determination between the Department of Justice and BP. But with respect to Anadarko, it’s not a significant issue for us.”

Anadarko has doubled the number of identified drill sites in the Eagle Ford Shale in South Texas to about 4,000 and increased its estimated net resources in the field to more than 600 million boe. The company plans to run 10 operated rigs in the Eagle Ford and expand its midstream infrastructure this year to align with anticipated production growth. Anadarko has identified more than 450 drill sites with strong economics and an estimated 300 million boe of net resources in the Carthage area of East Texas, where it plans to operate six to eight rigs and drill approximately 75 wells this year.

In the Wattenberg field of northeastern Colorado, where the company has identified net resources of between 500 million and 1.5 billion boe in its Wattenberg HZ program, Anadarko plans to increase the number of operated rigs from six horizontal rigs currently to eight by the middle of this year. Anadarko is the largest producer in the Wattenberg.

“It’s clear what we want to do in this type of environment is put as much as we possibly can into the Wattenberg and Eagle Ford type of investments, and that’s what we’re doing,” said Senior Vice President Chuck Meloy, who runs worldwide operations for Anadarko. “We’re going to jam as much capital investment into those assets as is reasonable given the constraints of those assets, and then we work our way down the stack.”

Anadarko said it has increased average well recoveries in the Marcellus Shale to about 8 Bcf per well and has continued to improve efficiencies, resulting in a 30% reduction in drilling cycle times compared with 2010. Given current market conditions, the company expects the number of rigs (operated and nonoperated) in the play to decrease from 21 to 13 over the course of the year.

CFO Robert Gwin said Anadarko is considering a joint venture (JV) for some of its holdings in the Denver-Julesburg Basin and has an initial agreement for a JV for its Salt Creek enhanced oil recovery project.

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