Vol. 9, No. 34 Week of August 22, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Anadarko’s entry into LNG viewed as necessary step for gas producers

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Acquisition of Canada’s Access Northeast Energy would give Houston-based Independent home for future gas production from Algeria and Qatar

Ray Tyson

Petroleum News Houston Correspondent

U.S.-based Anadarko Petroleum, in the midst of restructuring itself to correct earlier corporate shortcomings, is now venturing into territory unfamiliar to most exploration and production independents, the liquefied natural gas business.

However, Anadarko’s announced move to acquire Canada’s Access Northeast Energy and its rights to build an LNG receiving terminal on the coast of Nova Scotia, should come as little surprise.

The deal would provide Anadarko with a home for its own future overseas natural gas production from Algeria and Qatar, while keeping the company on the leading edge of one of the fastest-growing segments in industry.

“This project can provide Anadarko a competitive advantage in international natural gas development,” Bob Daniels, Anadarko’s senior vice president of exploration and production, said Aug. 12.

Project pegged at $400 million

Terms of the deal were not disclosed. But the project itself reportedly would cost around $400 million, a tidy sum for even a large independent to cover by itself.

So, the company said it wants to bring in national oil companies or “other major entities” to help share expenses and “to facilitate the broader value chain of investment, with the primary purpose of using (LNG) re-gasification as a leveraging vehicle into new upstream natural gas opportunities and profitability.”

Anadarko already is an active explorer and producer in Algeria and Qatar. But participating in the commercialization of international natural gas resources “is becoming more necessary in the upstream industry,” Daniels said.

The demand for imported LNG continues to escalate, particularly with North American natural gas production on the decline. Already, some three dozen LNG receiving terminals have been proposed in the United States to take supply from Algeria, Qatar, Nigeria, Indonesia and Trinidad and Tobago.

To help fill the void, Anadarko said it is making “a concerted effort” to expand natural gas exploration in Algeria and Qatar, two of the world’s leading LNG exporting countries, as well as other unspecified producing areas.

Algeria most significant international venture

Anadarko’s most significant international exploration venture to date is in Algeria’s Sahara Desert, where the company holds interest in about 4 million gross acres and had booked proved reserves of 361 million barrels of oil, condensate and natural gas liquids at year-end 2003. Net production from the company’s properties totaled 19 million barrels of oil, or 10 percent of its worldwide sales volumes.

Since Anadarko began drilling in Algeria in 1991, it has discovered 15 fields containing more than 2 billion barrels of oil. Anadarko develops and produces the fields in association with Sonatrach, the national oil company of Algeria, and partners Maersk and Eni-Lasmo. Current production capacity is 530,000 barrels of oil per day.

Anadarko also has a position in three blocks covering about 700,000 acres in offshore Qatar. Block 12 contains the producing Al Rayyan oil field and Blocks 11 and 13 are exploration blocks.

Anadarko completed acquisition of 100 square mile of 3-D seismic program on Block 13 in late 2003 and was to process and interpret the information during the first half of 2004. Anadarko is the operator and majority interest holder on the block.

Additionally, a 740-mile 2-D seismic program was completed on Block 11 in early 2004 with results evaluated during the first half of the year. Anadarko owns a 49 percent working interest in this block, operated by Wintershall AG.

Anadarko acquired its position in Qatar through the acquisition of Gulfstream Resources Canada in 2001.

Terminal would target Northeast

To the company’s advantage, the proposed LNG receiving terminal in Nova Scotia, which would target the Northeastern United States, represents a short shipping distance from some of the world’s largest existing and planned LNG supply regions, including Algeria and Qatar. The project would have access to the nearby Maritimes & Northeast Pipeline, according to Anadarko.

To be located at Bear Head, Point Tupper on Cape Breton Island along the ice-free Strait of Canso, the terminal would be capable of processing up to 1 billion cubic feet of gas per day. Privately held Access Northeast Energy, whose sole project was the receiving terminal, was looking to begin operations in late 2007.

Also to Anadarko’s advantage, Access Northeast Energy just recently secured approval of an environmental assessment for the project, said to be the most critical consent needed from both the Canadian and provincial governments to proceed with construction. All remaining permits and approvals are expected by year-end, Anadarko said.

Moreover, Bear Head already has been designated as an industrial site, which includes fuel bunkering, marine terminals, and other heavy industrial or port activities.

“We have gained a potentially low-cost, low-risk entry into the LNG business,” Anadarko’s Daniels said. “Our interest in developing the Bear Head terminal is to allow us to do what we do well — explore for, develop and market valuable energy resources.”

Restructuring began last year

Anadarko actually began restructuring itself last year several months after then CEO John Seitz resigned under pressure from a board of directors seriously concerned about the company’s performance and lagging stock price. The company laid off about 10 percent of its workforce in an effort to save an annual $100 million, set out to reduce debt by $300 million and closed two offices in Texas.

Earlier this year the company set about selling more than $2.5 billion of high-cost oil and gas properties to pay down debt and to repurchase up to $2 billion of company stock.The property sales were expected to reduce Anadarko’s reserve base by 15 percent and its production by 25 percent, but also were expected to create a stronger foundation on which to grow the company. From the reduced asset base, Anadarko raised its projected annual production growth rate to a range of 5 to 9 percent from previous guidance of 3 to 7 percent.

Anadarko stock has improved to just under $56 per share, but it remains well below its 2000 peak of $76 per share.

Anadarko’s new strategy was to use profits from proven “foundation assets” onshore the United States and Canada to fuel “growth platforms” in the Gulf of Mexico, Algeria and Qatar.

Entering the LNG business “is consistent with Anadarko’s growth strategy moving forward,” Daniels said.

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