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Anadarko picks up historic Wyoming field, plans to use enhanced recovery methods Company says its Alaska commitment still strong despite postponement of 2002 oil exploration well on North Slope; 2004 busy drilling season Allen Baker PNA Contributing Writer
Anadarko Petroleum Corp. is spending $265 million for a mature – if not senior citizen — oil field in the Powder River Basin and some other properties with the purchase of Howell Corp., announced Oct.1.
The twist is, the company has also locked in a contract to buy carbon dioxide from the LaBarge gas field and plans to build a 125-mile pipeline to bring the CO2 to the Powder River Basin for enhanced oil recovery.
Between the pipeline and the other costs associated with the EOR effort, Anadarko expects to invest $200 million more in the Salt Creek field over the next couple of years.
$13.50 cash margins But the result will be booking reserves at about $2.50 a barrel, and producing the oil with cash margins of $13.50 a barrel, according to the company, based on $21-a-barrrel oil.
That’s a standout investment, say Anadarko executives. They figure Anadarko can use its expertise in enhanced recovery, honed at the North Slope’s Alpine and other fields, as it adds miscible injection to the Salt Creek field north of Casper, a field Anadarko President John Seitz calls “one of the largest remaining enhanced oil recovery opportunities in the Lower 48.”
Alaska commitment strong The investment doesn’t detract from Anadarko’s commitment to Alaska, the company says.
“Anadarko has made a major long-term commitment to exploration and development in Alaska, by assembling a huge land position and conducting annual seismic programs. In our case, the fact that we’re not drilling more wells this particular winter is more of a timing issue than a reflection of our interest in and our future commitment to Alaska,” Anadarko spokeswoman
Anne P. Vincent told PNA Oct. 2 when asked about the single exploratory well that Anadarko had planned to drill but recently postponed drilling until the winter of 2003-2004.
Anadarko is participating in two wells with ConocoPhillips this winter, as well as development wells at the Alpine field, she said. The company also will be drilling two methane hydrate wells in the central Arctic as part of a project for the U.S. Department of Energy.
“We still have a lot of seismic to evaluate before we drill another operated exploration well. Our expectation is that by the winter of 2004 we’ll have several high-quality prospects ready to drill – in the (Brooks Range) foothills, NPR-A and the central North Slope,” Vincent says. Just how the company goes ahead will depend to some extent on the outcome of the proposed gas pipeline, she notes. (Anadarko is one of the North Slope’s gas explorers and, as such, has expressed concern about getting access to a gasline owned by the three ANS gas owners, BP, ExxonMobil and ConocoPhillips.)
$2.5 billion budget While some other companies are scaling back on exploration spending, Anadarko has budgeted an overall total of about $2.5 billion for capital investments in 2003. The Alaska portion of that hasn’t been determined yet, Vincent said. Anadarko invested about $118 million in Alaska for 2002, $85 million for 2001 and $98 million for 2000.
Reallocating assets John Seitz, Anadarko’s president, said in a teleconference that the new acquisition basically represents reallocating money from lower-margin heavy oil properties in Canada to Wyoming. And Anadarko may have other cards to play in the Cowboy State.
Company geologists hit on the idea as they were researching Rocky Mountain prospects and evaluating the acreage obtained through the purchase of Union Pacific Resources, which included old land grants that came with the building of railroads across the West in the 19th century.
Old oil field Howell’s Salt Creek field, not far from the Teapot Dome, was discovered by Standard Oil in the early 1900s and had 1.7 billion barrels of original oil in place. It began producing in 1922 and was operated by Amoco before Howell took it over.
Howell’s working interest is very near 100 percent, Seitz said.
The Salt Creek output dwindled over the years to the current rate of about 5,300 barrels a day under water flood.
But Anadarko’s geologists think they can use miscible carbon dioxide injection to push that daily rate to 40,000 barrels.
Carbon dioxide deal In conjunction with the Howell acquisition, Anadarko spent $3 million for an exclusive deal to market carbon dioxide from the LaBarge gas field in southwestern Wyoming in the Powder River Basin, and obtained a price for the carbon dioxide that’s about half the current price range of 50 to 70 cents per thousand cubic feet, Anadarko executives say.
The planned $27 million pipeline would carry 250 million cubic feet of CO2 gas daily, about double the amount Anadarko figures will be needed for enhanced recovery at Salt Creek.
Other Powder River fields also could benefit from enhanced recovery, Seitz said. With the Howell purchase, Anadarko is also getting the Elk Basin field north of Cody on the Wyoming-Montana border.
Cash deal Anadarko will use cash for the Howell purchase, expected to close late this year or early in 2003. Both companies’ boards voted unanimously to approve the deal.
Anadarko has commitments from holders of about 40 percent of the Howell stock to vote in favor of the takeover, which gives Howell shareholders about a 50 percent premium over the share price before the deal was announced, and more than double what it was bringing a year ago.
Recycling $200 million Anadarko calls the deal a recycling of about $200 million from the sale of Canadian heavy oil properties.
Standard & Poor’s Ratings Services said its outlook for Anadarko debt would remain unchanged.
“Essentially, we are swapping heavy oil properties for Howell’s high-quality, light sweet crude, nearly doubling our cash margins per barrel while adding strong growth potential,” Seitz said .
The Canadian properties produced about 20,000 barrels a day of heavy oil, which company officials say had a margin of $7 a barrel “in a good month.”
Howell’s total production amounts to about 12,000 barrels of oil equivalent daily, with about 88 percent of that oil. Anadarko expects to book 50 million BOE of proved reserves at the close of the transaction.
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