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Anadarko’s Bob Allison fires back Independent’s finding, development costs could drop 25% Petroleum News
Big Houston independent Anadarko Petroleum, which had been under fire for its high cost structure and lagging production, now expects finding and development expenses for 2003 to average at the lower end of prior guidance of $7.50 to $8.50 per barrel of oil equivalent.
That announcement came Sept. 3 at a Lehman Brothers analysts’ meeting in New York and would be a substantial improvement over last year’s roughly $10 per barrel in finding and development costs. It also follows a major decision by Anadarko in July to cut $100 million in overhead by laying off 10 percent of its workforce and closing two offices.
Rumors that Anadarko might be positioning for a possible sale continue to circulate.
Still, Anadarko’s feisty chairman and chief executive officer, Robert Allison, defended Anadarko against its critics, telling analysts during a Web cast that the company’s strong balance sheet “flies in the face of recent reports” and the “unjustifiable negativity out there.”
In March, Allison replaced deposed Anadarko CEO John Seitz, who resigned under pressure from the board of directors because of the company’s sagging stock price.
“I’m not saying we haven’t had some real issues to deal with,” Allison told analysts. “But there is nothing wrong with our assets or people’s ability.” Discoveries in core areas Anadarko has identified more than 5,000 drilling locations in the United States alone, he said, adding that the company also has more than 500 million barrels in possible net reserves just on its current projects. And he said all of the projects are economic at “mid-cycle” commodity prices of $3.25 per million cubic feet of natural gas and $21 per barrel of oil.
Allison said that cutting $100 million in annual overhead “means we’re freeing up more money to invest in exploration and development that will add reserves and long-term value” for Anadarko shareholders.
“So far this year, we’ve had discoveries and development successes in each of our core areas: the Gulf of Mexico, U.S. onshore, Canada and Algeria,” Allison said. “We’re seeing better than expected success in our Bossier and Vernon plays in East Texas and North Louisiana, and in our enhanced oil recovery properties in Wyoming.”
Nevertheless, Anadarko’s 2003 second-quarter oil production fell to 190,000 barrels per day from 205,000 barrels per day in the prior year’s second quarter, while daily natural gas volumes dropped to 1.74 billion cubic feet compared to 1.79 billion cubic feet for the year earlier quarter. The company attributed the decline largely to property sales in 2002 and said it still would achieve an annual growth rate of 4 to 10 percent in the near future.
Allison told analysts the company would not only build reserves through the drill bit, but also would continue to add reserves and production through lower risk property acquisitions. “The best place to find oil and gas is where oil and gas exists,” he said. Well costs reduced On the issue of Anadarko’s lofty finding and development costs, he confessed that “we can do better than we’ve done in recent years.” But he said it was now largely a matter of “tweaking” or shifting Anadarko’s focus to higher return properties and recognizing that certain acquisitions can provide the company with as much upside potential as a discovery and at “much lower risk.”
“We expect to add huge reserves at very low finding costs over the next few years,” Allison said. “So we are going to do property acquisitions. Where (what) you allocate can have a big impact on finding and development costs.”
While the company expects finding and development expenses for 2003 to average at the low end of its $7.50 to $8.50 per barrel range, “with more success during the remaining part of this year, we may achieve even better numbers,” Allison said.
Anadarko has saved on drilling costs simply by “exchanging technologies” within its own company, Allison said. For example, he said, the cost of an Algerian well has been reduced from $4 million to $2 million by employing the same drill bit the company uses in Oklahoma.
“This reduces a lot the time to drill,” Allison said. The same technology has been exported to Canada where drilling time was reduced by 40 percent in one area, he said.
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