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The remaking of Anadarko Petroleum
Ray Tyson Petroleum News Houston Correspondent
Anadarko Petroleum, which last year saw its chief executive officer resign over the company’s sagging stock price, has made sweeping changes in the way it conducts business, including plans to sell more than $2.5 billion of high-cost oil and gas properties and to repurchase up to $2 billion of company stock.
The move would reduce Anadarko’s reserve base by 15 percent and its production by a hefty 25 percent, but also is 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.
Moreover, at mid-cycle oil and gas prices, Anadarko expects to generate $1.5 billion of unallocated cash flow over the next five years, which is expected to provide “some crucial flexibility” to deliver on its new goals.
“The end result is a company positioned to deliver stronger, highly visible growth and improved cash margins through 2009 and beyond, along with a substantially improved balance sheet,” James Hackett, Anadarko’s chief executive officer, said in a June 9 conference call with reporters.
Hackett said 2005 is expected to be above the high end of the new production range due to major development projects that begin this year and next. Moreover, he added, portfolio improvements are expected to lead to cash flow growth at a rate faster than production. Sales proceeds targeted to debt reduction, stock repurchases Anadarko intends to use the expected $2.5 billion in proceeds from property sales to reduce debt and to repurchase stock, he said. He said the board of directors has authorized the buy back of up to $2 billion of Anadarko common stock, which at roughly $50 per share still remains well below its 2000 peak of $76 per share.
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.
Anadarko’s new strategy largely entails using profits from proven “foundation assets” onshore U.S. and Canada to fuel “growth platforms” in the Gulf of Mexico, Algeria and Qatar.
“Production from our foundation assets is expected to provide enough cash to help fund both recurring corporate capital needs and the growth platforms,” Hackett said.
The majority of asset sales are expected to close by year-end, with the rest to be divested by the end of the first quarter of 2005. Properties identified for sale are estimated to include between 325 and 350 million barrels of oil equivalent of proved reserves and between 115,000 and 125,000 barrels per day of equivalent per day of production.
Most of the properties to be sold are located in the shallow-waters of the Gulf of Mexico, Western Canadian Sedimentary Basin and the Midcontinent region of the United States. Conventional continental shelf properties to go on block In the Gulf of Mexico, Anadarko said it intends to sell all of its “conventional” properties on the continental shelf, or those reserves and production located in the shallow, heavily exploited pay zones of the shelf. He said the company will now concentrate investment in more promising areas, specifically deepwater Gulf and deeper geological gas plays on the shelf.
Other U.S. properties targeted for sale include the majority of Anadarko’s interest in oil recovery fields in central Oklahoma, fields in the Hugoton basin of southwest Kansas and Oklahoma, West Panhandle fields in Texas, properties in Wyoming’s Overthrust region and in southeastern Colorado, various fields in the Permian Basin of New Mexico and Texas, as well as other unspecified onshore assets.
In Canada, Anadarko plans to sell fields in southern and central Alberta, northeast British Columbia and southeast Saskatchewan. Internationally, the company has targeted Oman and other “miscellaneous” properties.
“From a strategic perspective, the divestitures will enhance our ability to perform in the future,” Hackett said. “By removing properties that are difficult for Anadarko to grow and retaining those we can grow efficiently and that have more upside potential, we expect to be able to provide near-term growth and profitability while also generating enough cash flow to fund long-term growth.” Focus on managing costs He said Anadarko is specifically focused on managing costs, with renewed efforts to lower lease operating expenses per barrel of oil equivalent produced and to improve overall general and administrative expenses.
“Since the beginning of the year, we’ve been conducting a thorough review of the entire company to determine the best path forward,” he added. “Our review highlighted the fact that, despite the good quality of our assets, there were factors at work making it difficult to grow the company and maintain strong capital efficiency.”
Anadarko is not changing what the company does, but rather where and how resources are allocated, he said, adding that Anadarko’s new strategy “envisions steady financing” of capital projects regardless of oil and gas price volatility.
“We are retaining our commitment to exploration and development, especially in the areas of high-potential exploration and unconventional resource identification and commercialization,” he said. “We will strengthen our focus in those areas. However, we are changing which properties we choose to work, and how we’re going to manage them.”
Hackett said selling properties is not an effort by Anadarko to raise capital or to reduce debt, noting that the company already is generating significant free cash flow at current commodity prices.
“The best time to fix your roof is when the sun is shining, and it’s shining on our industry right now, with recent property sales going at record prices,” he said.
Anadarko said it hired Deutsche Bank to serve as its lead advisor to coordinate the overall asset divestiture program. Randall & Dewey was tapped to market the U.S. properties, while Waterous & Co. and Kobayashi Partners Ltd. will be handling the Canadian assets. In addition, Waterous will market international assets and Oil and Gas Journal Exchange will market southeastern Colorado.
Anadarko said it plans to repurchase stock depending on market conditions, but hopes to purchase a majority of the authorized $2 billion in shares within the next 12 months.
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