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EXPLORERS USA 2005: Anadarko restarts engine, eye on deepwater Big independent has yet to receive Wall Street recognition for major realignment last year; deepwater Gulf of Mexico key growth area Ray Tyson Petroleum News Houston Correspondent
Anadarko Petroleum, despite a major company realignment that may have confused investors and industry analysts, believes Wall Street failed to reward the company for its deepwater successes last year in the Gulf of Mexico.
Nevertheless, Anadarko conceded that “the transition made it more difficult for investors and analysts to chart our performance because of the major changes following the new strategy announcement in June,” James Hackett, Anadarko’s chief executive officer, said in early 2005 during an Anadarko conference call.
In June 2004 the Houston-based independent laid out a bold plan to repair its balance sheet, including the sale of non-core properties, buying back stock and reducing its debt load. Anadarko said the changes were necessary to sustain annual company growth of 5 to 9 percent.
Actually, things began changing at Anadarko more than a year before the June announcement when the company’s board of directors pressured then chief executive John Seitz into resigning in March 2003, supposedly over Anadarko’s lackluster performance in the stock market.
Before the company hired Hackett in late 2003, it began laying off employees, closed two offices in Texas and began lowering its debt. Also helped by the unprecedented run up in oil and gas prices, Anadarko’s share price and financial standing began improving.
The company ended 2004 with record earnings and successfully executed its plan, selling $3.3 billion in non-core properties, shedding $1.2 billion in long-term debt and repurchasing $2.5 billion of its own stock.
“These accomplishments helped to further position Anadarko to achieve sustainable profitable growth going forward,” Hackett said. He said Anadarko also ended 2004 with nearly $900 million of cash in the bank.
Again, Hackett sounded apologetic for the apparent confusion caused by the company’s “refocused strategy,” noting asset sales created a downward revision in production and that income also was affected by the added cost of implementing the strategy, such as early debt retirement.
“Even cash flow was difficult to follow because of cash taxes paid on the property sales,” he said. “And to top it all off, the true per share performance was hard to gauge because of the share buyback program and debt reduction. We knew the transition would be disruptive to the organization and a bit confusing to investors.”
He indicated that avoiding confusion was “a key reason” why Anadarko set out to complete the reorganization by year-end 2004 — “to get it behind us so 2005 could have a clear outlook. We exceeded our expectations, not just on timing but also on results. Anadarko is in solid financial condition and focusing its full attention on delivering excellent operating metrics in 2005 and beyond.”
Still, Hackett believes Anadarko did not receive the kind of recognition it deserved from Wall Street last year, despite the fact that Anadarko stock was on the mend by early 2005. In fact, by mid-March, company shares were trading at just over $81 per share or nearly 61 percent above the company’s 52-week low of $50.39 per share. 2004 saw initial production from Marco Polo Unquestionably, Anadarko made impressive advancements in the Gulf during 2004, including initial production from its Marco Polo field and accelerated development plans for satellite discoveries at nearby K2 and K2 North, plus additional discoveries in the Eastern Gulf and the sanction of Independence Hub, which will process Eastern Gulf gas from Anadarko fields, as well as other discoveries in the region.
“We believe the market has yet to give us credit for all the success we had in the deepwater during 2004,” Hackett said. “This will be a key piece of our growth program through 2008. And we are pursuing some very promising exploration targets that will be drilled in the deepwater Gulf this year and next.”
For one, Anadarko was to drill its Genghis Khan prospect located southeast of the Marco Polo production facility, which would handle Genghis Khan production in the event of a commercial discovery.
“This is on the western flank of another operator’s discovery, which reportedly had very good drilling success in 2004,” Hackett said. “As a result, we have a high level of confidence in the Genghis Khan prospect.”
In addition to Genghis Khan, the Knotty Head and Vrede prospects have been sanctioned for exploration drilling. Other prospects that could be drilled in 2005 include Pathfinder, Coronado, Armstrong and Grizzly. Anadarko looking for another Alaska partner Anadarko has said it plans to actively explore in all of North America’s high-potential areas, including the deepwater Gulf, the Texas and Louisiana basins, the U.S. Rockies, a variety of plays in western and northwestern Canada, and in Alaska’s North Slope and Brooks Range Foothills.
On Alaska’s North Slope Anadarko is targeting both oil and natural gas reserves and has one of the largest acreage positions in the state, with access to more than 5 million acres.
In a late 2004 interview, Anadarko Alaska spokesman Mark Hanley said the fact the company’s Alaska acreage was not included in the multi-billion dollar property divestiture program in North America alone should demonstrate that the big independent was not in an asset-cutting mode in Alaska.
Rather, Hanley said, Anadarko was in the process of putting together a multi-year exploration drilling program for its acreage outside the National Petroleum Reserve-Alaska where it is a joint venture partner with Pioneer Natural Resources and JV operator ConocoPhillips.
Anadarko was also looking for a partner to shoulder the cost of exploration work at its Jacob’s Ladder oil prospect. The 100 percent Anadarko-owned leases cover approximately 175,000 acres some 20 miles southeast of Prudhoe Bay.
“We’re working right now on partners and strategies and I would say the hope is to be able to start the (drilling) program the following winter (2005-2006), but we’ll see where that goes,” Hanley said in late 2004.
Both Hanley and Hackett have made it clear that the company intends to fulfill its drilling and operational obligations on acreage shared and operated by ConocoPhillips, Anadarko’s partner for more than a decade on the North Slope.
The companies are continuing to develop the Colville River unit, the farthest west development on the North Slope.
Alpine, the major field within the unit and the largest onshore oil discovery in the United States in the last 10 years, is producing at more than 100,000 barrels a day. The unit “is not only a commercial success, but a model for how oil and gas can be developed in extremely challenging, delicate environment with minimal impact and no damage,” Anadarko said in a recent report on its activities in Alaska.
Alpine, which has 430 million barrels of gross proved reserves, began producing in November 2000. Anadarko holds a 22 percent working interest in the unit.
Two satellite discoveries, Nanuq and Fjord, are expected to begin producing through the Alpine facility starting in 2006. Inks Foothills gas exploration JV On Feb. 22, 2005, Petro-Canada announced it had reached an agreement with Anadarko to jointly explore in the gas-prone Brooks Range Foothills with Anadarko as the operator of the joint venture.
The deal involves pooling more than 1.5 million acres of state and Arctic Slope Regional Corp. lease holdings, as well as pooling data and knowledge in the area. Prior to the joint venture, Petro-Canada had an interest in 430,000 acres in the Foothills.
“Petro-Canada and Anadarko hold a strong land position in the area, much of which is contiguous,” said Derek Evoy, Petro-Canada’s manager, North American Frontiers. “We also have a common view of the potential of the area.”
Asked what natural gas exploration plans the companies have, Petro-Canada spokeswoman Susan Braungart said, “We need to meet with our partner and make our joint plans before that can be determined.”
The announcement of the Foothills deal came on the heels of the Federal Energy Regulatory Commission issuing its open-season rule for the proposed gas pipeline from Alaska’s North Slope.
Anadarko had repeatedly expressed concern over the issue of access to a gas pipeline for North Slope explorers and was not in agreement with the level of access the North Slope producers were willing to assure explorers. (The producers — BP, ConocoPhillips and ExxonMobil — are the most likely to build and operate a North Slope gas line.)
Anadarko said it would hold off on any exploration in the Foothills until the access issue had been resolved and a final decision to build the pipeline was announced.
In early February 2005, FERC announced its open season rule, Order No. 2005, which Hanley said addressed “many of the concerns of explorers” and “encourages gas exploration.” Goal: Stand-alone production in NPR-A In the winter of 2004-05 the two wildcat wells being drilled by partners ConocoPhillips, Anadarko and Pioneer in NPR-A will be searching for reserves large enough to justify a stand-alone production facility in the area.
Robert Daniels, Anadarko’s senior vice president of exploration and production, said in a Jan. 28, 2005, conference call with analysts that the planned wildcats, to be drilled by operator ConocoPhillips on the Kokoda prospect, will be situated in a remote area of NPR-A and “a significant distance” west of the Alpine production facility.
“What we’re looking for there is a discovery large enough to support another stand-alone facility,” Daniels said. “So we’re moving far enough away that these won’t be satellites, most likely, into the Alpine.”
The partners built a 70-mile ice road leading to the Kokoda prospect.
ConocoPhillips’ Puviaq prospect, the western most well drilled in recent years in NPR-A, is west of Teshekpuk Lake. Kokoda is about halfway back to the edge of NPR-A from Puviaq and southwest of BP’s Trailblazer wells, which are now owned by ConocoPhillips (78 percent) and partner Anadarko (22 percent).
Daniels said the partners are specifically targeting the Jurassic, a huge geological formation that sweeps from the north of the Kuparuk River field west into NPR-A.
Alaska Division of Oil and Gas Director Mark Myers told Petroleum News in a 2004 interview that three Jurassic sandstones extend north of Kuparuk and all the way to the Alpine field and into NPR-A: “There are a series of three upper Jurassic-aged sandstones that are known to contain oil … staggering amounts of oil,” the Alpine, the Nuiqsut and the Nechelik.
The Alpine sandstone that forms the reservoir for the prolific Alpine field is the youngest of three major upper Jurassic sandstone rock bodies on the North Slope.
The challenge, Myers said, is hitting the right combination of oil quality and reservoir characteristics to find an oil accumulation that’s commercially viable.
Daniels characterized prospects in the Kokoda area as “very interesting … similar to what we’re pursuing and have had success with up there, both at Alpine and the satellite discoveries we have to date.” Onshore plays Exploration and development of unconventional plays onshore United States, such as coalbed methane and tight gas, represent another important piece of Anadarko’s growth strategy, Hackett said at the early 2005 conference call. For example, the company’s Vernon field tight gas play in northern Louisiana reached new production highs last year, increasing a hefty 75 percent from the previous year. At year-end 2004, the field was producing about 350 million cubic feet of gas per day compared to just 8 million cubic feet per day when Anadarko purchased the field five years earlier.
“And it keeps expanding,” Hackett said. “Drilling in the fourth quarter (of 2004) expanded significantly the boundaries to the south and to the west. “
Anadarko also plans to maintain a five-rig drilling program in the Bossier field and tight gas plays are beginning to emerge on other company acreage, Hackett said.
“We are confident that we can transfer skills from the Vernon, Bossier and Canadian Wild River areas to these new tight gas plays,” he said. “Our foundation assets keep cranking out excellent results. But it was a very challenging year because of the transition we undertook.” 2004 also saw international activity In addition to its North America ventures, Anadarko continues to chase international opportunities.
“We also are pursuing opportunities to put our deepwater exploration and development skills together in international waters,” Hackett said.
He noted that in 2004 Anadarko placed bids on two blocks offshore Sao Tome in West Africa and was awarded a 1 million acre shallow water exploration block in offshore Indonesia. Additionally, the company bought into a Canadian liquefied natural gas re-gasification project which, in part, should provide Anadarko with a home to handle its stranded natural gas reserves.
“Other areas to watch include Libya where we put in several bids for exploratory acreage,” Hackett said, reminding analysts that the company also remains active in Algeria, Venezuela and Qatar.
—Kay Cashman contributed to this article
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