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Anadarko steps up development of K2 North Houston independent says K2 North and K2 might qualify as standalone project; increases capital spending to range of $2.8-3 billion Ray Tyson Petroleum News Houston Correspondent
Anadarko Petroleum has decided to accelerate development of its K2 North discovery on Green Canyon block 518 in the deepwater Gulf of Mexico, saying that most of an announced increase in its 2004 capital budget would be spent on the expanding field.
Anadarko significantly expanded its K2 North discovery when its No. 2 well encountered 165 feet of additional net oil pay. The current plan is to tie both K2 North and the K2 fields into the Marco Polo platform in 2005.
But company officials suggested July 30 that K2 North and K2 just might qualify as a standalone project with their own production facility.
If the next K2 North wells come in as predicted, “then we’ll have to scratch our heads a little bit and decide where we go with the next wells,” said Mark Pease, Anadarko’s senior vice president of exploration and development.
He said that while there is capacity for additional large volumes at Marco Polo, Anadarko just doesn’t know K2 North’s actual size. Anadarko has yet to discuss reserve estimates for the field.
“We’ll be drilling two more wells this year that certainly will give us a lot more information,” Pease said. “As to whether there would be a separate facility there, we just won’t know that until we know how big the field gets.” Marco Polo production began in July Anadarko began production in July from three wells at its Marco Polo field on Green Canyon block 608. The field is expected to reach peak daily production of 50,000 barrels of oil equivalent when all six wells are on line by early 2005.
There are currently five wells down at K2 North and K2, each capable of producing from 5,000 to 10,000 barrels of oil per day. That means the two fields could provide an average 25,000 barrels per day of production. Marco Polo was designed to handle 120,000 bpd, so there appears to be plenty of room to handle K2 North and K2. Marco Polo also could be expanded to process additional barrels, Pease said.
“With what we see right now, we’ll be taking those volumes to Marco Polo,” Pease said. “And we believe we’ll have them all tied in by the end of next year, with the number of well bores we have today.”
He said the economics of tying K2 and K2 North into the Marco Polo facility “are very strong, so it’ll have to be a lot bigger before we say we need another facility.”
Meanwhile, Anadarko said it expects to increase its capital spending for this year by 3 percent to a range of $2.8 billion to $3 billion, primarily to accelerate development of K2 North. Production target reduced However, Anadarko said continuing strong oil prices actually have forced the company to reduce its overall production target for 2004 by a million barrels in Venezuela and by 500,000 barrels in the Gulf of Mexico.
In the Gulf, the reduction is due to an expected loss of federal royalty relief on Marco Polo production, which likely will exceed the government’s $33.29 per barrel threshold. That means the government could take its royalty share of the oil for the nation’s Strategic Petroleum Reserve.
The loss in Venezuela is due primarily to contracts that are tied to oil prices, Anadarko indicated.
“Nonetheless, we are still confirming our production guidance growth while tightening the up side down by 3 percent,” said Jim Hackett, Anadarko’s chief executive officer.
For the second quarter of 2004, Anadarko reported oil production of 173,000 bpd compared to 190,000 bpd for the same period last year. The decrease in volumes was attributed to declines in South Louisiana and the Gulf of Mexico continental shelf, plus the timing of cargo liftings in Algeria.
North American natural gas sales volumes of 1.786 billion cubic feet per day rose slightly over second quarter 2003 volumes of 1.741 bcf per day. The increase was attributed primarily to drilling successes in the North Louisiana Vernon field and in West Texas. Second quarter income up from 2003 Despite the decline in oil production during the recent quarter, Anadarko posted net income of $405 million or $1.59 per share on revenues of $1.44 billion, compared to net income of $301 million or $1.20 per share on revenues of $1.25 billion in the year-ago period.
The company reported cash flow from operating activities of $880 million in the 2004 second quarter versus $710 million for the second quarter of 2003.
Anadarko said its previously announced property divestiture program is expected to generate after-tax proceeds of at least $2.5 billion and that major sales are expected to occur primarily in the next six months. The proceeds would be used to reduce debt and buy back shares of the company, Anadarko said.
“We have received several high-level calls indicating interest in all the properties, all the offshore property or all the onshore properties,” Hackett said. “There’s a lot of interest out there. We continue to see people pay robust prices for these kinds of properties.”
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