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Vol. 12, No. 5 Week of February 04, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Anadarko continues to pare down assets

Company raises $8 billion from property divestitures, with more sales to come, more debt to repay from major acquisitions

Ray Tyson

For Petroleum News

Anadarko Petroleum is orchestrating a property sales spree that so far has netted after-tax $8 billion to pay down a hefty $24.3 billion debt the big Houston-based exploration and production independent incurred from the acquisitions of fellow E&P independents Kerr-McGee and Western Gas Resources.

Since the Kerr-McGee-Western Gas deals were announced last June, Anadarko has raised around $10.9 billion pre-tax on at least eight separate property transactions. The $10.9 billion in pre-tax sale revenues equates to roughly $8 billion after Anadarko pays its taxes.

“This figure puts us near the low end of our $10 billion to $15 billion (after-tax) range of our goal,” Anadarko spokeswoman Teresa Wong told Petroleum News on Jan. 29.

Anadarko properties sold to date are situated in Canada, the U.S. northern Rockies, Texas, Louisiana and the Gulf of Mexico. Other candidates for divestiture include non-exploration properties in Qatar and Venezuela. However, Anadarko is not expected to sell any of its Alaska properties under the company’s current divestiture program.

Anadarko’s total proven reserves after the property divestitures are expected to be the equivalent of 2.5 billion barrels of oil, up from around 2.4 billion barrels at the start of 2006.

“Our divestiture program will enable us to concentrate on … areas where we are confident we can deliver strong, predictable growth for years to come,” Anadarko chief executive Jim Hackett said in a prepared statement.

Anadarko’s 2006 third-quarter revenues, which reflect the acquisitions of Kerr-McGee and Western Gas, rocketed to $3.498 billion from $1.525 billion in the 2005 third quarter. Net income rose to $1.461 billion from $598 million. Anadarko is scheduled to release its 2006 fourth-quarter earning results on Feb. 6.

2007 spending expected to be $4-$4.2 billion

The new Anadarko expects to spend between $4 billion and $4.2 billion on projects in 2007, down from about $4.9 billion to $5.1 billion in 2006. The company indicated it would boost capital spending after getting its balance sheet in order and sees some “good free cash flow.”

Anadarko borrowed $22.5 billion in August to buy Kerr-McGee and Western Gas, in a deal that elevated Anadarko to the premier independent producer in the Gulf of Mexico based on the $16.4 billion acquisition of Kerr-McGee alone. Anadarko has said it wants to reduce its total debt to around $12 billion by year-end 2007.

As of Feb. 1, five of the eight properties sold by Anadarko involved individual transactions of more than pre-tax $1 billion, including $4.24 billion Anadarko received from the sale of its Canadian subsidiary to Canadian Natural Resources.

Thus far the company’s largest single divestiture, Anadarko Canada, had proved reserves of roughly 262 million barrels of oil equivalent at year-end 2005. At June 30, 2006, the effective date of the sale, Anadarko’s Canadian subsidiary produced about 340 million cubic feet of gas equivalent per day, 85 percent of which was natural gas.

Anadarko also agreed to divest its remaining Canadian Arctic frontier interests through an exchange of assets with Chevron USA and Chevron Canada.

Specifically, Anadarko swapped its interests in the Mackenzie Delta, Beaufort Sea and Yukon areas in return for an incremental 12.5 percent working interest in seven deepwater Gulf of Mexico blocks encompassing the Tonga discovery. The deal increased Anadarko’s stake in Tonga to 37.5 percent from 25 percent. Separately, Chevron agreed to “enhanced terms” for Anadarko within the companies’ announced West Texas exploration joint venture.

Latest sales in Montana, N.D., Wyoming, West Texas

Anadarko’s most recent property sale, announced Jan. 25, totaled pre-tax $410 million, with Anadarko agreeing to sell its interests in the Williston basin of eastern Montana and western North Dakota to Fort Worth, Texas-based E&P independent Encore Acquisition. On Jan. 17, Anadarko agreed to sell its interests in the Elk Basin and Gooseberry area, primarily located in Park County, Wyo., to Encore for $400 million.

Seven days before announcing the Williston basin deal and just one day after announcing the Elk Basin-Gooseberry transaction, Anadarko entered into a “joint-venture” agreement with Houston-based E&P independent Apache.

In exchange for pre-tax $1 billion, Anadarko agreed to sign over to Apache its control of 28 mature Permian basin oil fields in West Texas. During 2007, the fields are anticipated to produce a net 12,000 barrels of oil equivalent per day from about 3,950 wells within Anadarko’s 143,000 net acres. Nearly 90 percent of the properties are operated by Anadarko. And more than 70 percent of the production is oil, primarily produced through water-flooding.

Last December Anadarko agreed to sell its Vernon and Ansley field, located in Jackson Parish, La., to E&P independent Exco Resources for $1.6 billion.

“These fields have been great assets for the company,” Anadarko’s Hackett explained. “However, the fields have reached the stage in their development cycle where it makes sense for us to monetize them, reduce leverage and focus on other attractive opportunities in our portfolio.”

In mid-December, E&P independent Edge Petroleum boosted its holdings in the Chapman Ranch oil and gas properties in Nueces County, Texas, by acquiring the portion of the field owned by Anadarko. However, Anadarko did not say whether $26 million it collected on that transaction would be used to reduce debt.

Some Gulf properties sold last year

Last November saw Anadarko pedaling some of its more promising deepwater Gulf of Mexico oil discoveries to pay down its acquisition debt, including the company’s 25 percent stake in Knotty Head and 15 percent interest in Big Foot, plus its 15 percent interest in the Big Foot North prospect. For these plums Norway’s Statoil agreed to pay Anadarko pre-tax $901 million.

Later in November Anadarko announced it had agreed to sell its 100 percent owned Genghis Khan discovery, also located in the deepwater Gulf, to the owners of the adjacent Shenzi field for $1.35 billion. Shenzi owners consist of BHP Billiton and Hess.

Despite the sale of quality prospects to reduce debt, “Anadarko’s position in the deepwater Gulf of Mexico is very robust,” Anadarko’s Hackett said, noting that with nine field development projects already online, six exploration wells drilling and “a solid prospect inventory,” Anadarko’s future in the U.S. Gulf looked bright.

Last August Anadarko completed the sale of its Gulf of Mexico shelf subsidiary to E&P independent W&T Offshore for pre-tax $1 billion. Anadarko said then that it planned to use after-tax cash proceeds of about $750 million to reduce debt from the Kerr-McGee-Western Gas acquisitions.

“We expect that Anadarko’s post-divestiture portfolio will be more capital efficient, delivering growth with a lower cash flow reinvestment requirement,” Hackett said.

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Anadarko could cut 500 workers in the Houston-area as part of restructuring

Anadarko Petroleum could reduce its Houston-area workforce by an estimated 500 as the big exploration and production independent restructures itself following last year’s acquisitions of Kerr-McGee and Western Gas Resources, Anadarko spokeswoman Teresa Wong confirmed Feb. 1.

A reduction of 500 positions would represent about 10 percent of Anadarko’s global workforce of roughly 5,000. About 2,200 of those employees are located in Houston.

Thus far, Anadarko has raised after-tax $8 billion through various property sales in Canada, the U.S. Lower 48 and the Gulf of Mexico. The proceeds are being used to pay down a $24.3 billion debt stemming from the Kerr-McGee-Western Gas acquisitions.

“As we divest we will ultimately be left with a smaller portfolio, and will need to match the employee base to the asset base,” Wong said. The types of job to be eliminated are expected to include oilfield workers and engineers.

500 jobs an estimate

However, Wong emphasized that the elimination of 500 jobs related to the acquisitions is strictly an estimate Anadarko submitted to the Texas Workforce Commission.

“We do not know yet how many employees will be impacted,” she added. “We expect decisions to be made this month and next.”

However, she said Anadarko has “promised to go back” to the commission “and update them when we know more.”

Anadarko’s employment grew from 3,500 to between 5,500 and 6,000 following the acquisitions, but that number has since dropped to around 5,000, with many hired on by new owners.

Only a few individuals have been impacted so far, primarily at the senior management level, Wong said, adding that all former employees of Kerr-McGee and Western Gas are now Anadarko employees, “so there will not be a distinction to legacy company” when it comes to future layoffs.

—Ray Tyson