Anadarko Divests in 2016 to Accelerate Activity in the Delaware and DJ Basins

Anadarko Divests in 2016 to Accelerate Activity in the Delaware and DJ Basins

On January 31, 2017, Anadarko Petroleum Corporation (NYSE: APC) announced its Q4 earnings as well as its full-year results for 2016. In 2016 Anadarko improved cost structure and advanced efficiency initiatives, resulting in a 50% reduction in capital investments relative to 2015.

Specific highlights of 2016 cited in the announcement included the following:

Value-Accretive Monetizations

In Q4 Anadarko signed agreements to divest assets in the Marcellus Shale ($1.24 billion) and the Eagle Ford Shale ($2.3 billion). Both transactions are expected to close by the end of the 1st quarter of 2017, subject to customary closing conditions. Total sales volumes associated with the closed and announced divestitures consisted of 65% natural gas in 2015.

Full-year 2016 proceeds from Anadarko’s monetization program exceed $4 billion. During Q4, the company closed the Carthage divestiture for more than $1 billion; other divested assets in 2016 include Elm Grove, Hearne, Hugoton, Ozona, Wamsutter, East Chalk, and certain assets in Adams County, Colorado.

(Source: Anadarko Fourth-Quarter Operations Report, January 2017)

Creating Value in the Gulf of Mexico

In December the company closed an immediately accretive acquisition of Freeport-McMoRan’s (FCX) deepwater Gulf of Mexico assets. This transaction doubled production from the Gulf of Mexico and is expected to generate free cash flow to accelerate investments in Anadarko’s assets in the Delaware and DJ basins. It also expanded Anadarko’s infrastructure position in the Gulf, increasing its portfolio of competitive tieback and exploration opportunities.

Reducing Costs Through Greater Efficiency

As a result of its ongoing efforts to reduce costs and improve efficiencies, Anadarko realized its lowest full-year lease operating expense (LOE) in the last 10 years, averaging less than $3/BOE for 2016.

Delaware Basin: Adding Drilling Rigs

In the Delaware Basin, the company achieved a spud-to-rig-release record of 12.3 days while driving down SLE well costs by about 11% over Q3 2016.

Anadarko added a ninth rig in December, finishing Q4 with nine operated and four non-operated rigs drilling in the Delaware. Two additional rigs were added in January 2017, bringing the total operated rig count to 11. The company currently expects to exit Q1 2017 with 14 operated rigs drilling in the area.

Three completion crews were working in the Delaware for the duration of Q4, with an average of two working throughout the year. The company turned 18 operated wells to sales during the quarter and 78 for the year.

Other highlights from the region include the following:

  • The company increased the average lateral length drilled per well to approximately 8,500 feet for a second consecutive quarter.
  • Drilling cost-per-foot improved to approximately $110 per foot, a 30% reduction year over year.
  • Well site facilities costs improved by approximately 30% per well year over year.

(Source: Anadarko Fourth-Quarter Operations Report, January 2017)

DJ Basin: Driving Down Operating Expenses

In the DJ Basin, Anadarko reduced its LOE per unit by 28% over 2015, reporting an average of $1.27/BOE for the year.

The company ended the year with five operated rigs in the DJ Basin, up from one rig in Q3 2016. Another rig was added in January 2017, bringing the total to six. One completion crew was added during Q4 2016, with two completion crews currently running in the area. Anadarko turned 27 wells to sales during Q4 and 207 for the full year 2016.

Other highlights from the region include the following:

  • Average SLE total well costs amounted to approximately $2.1 million during Q4, representing a reduction of more than 30% year over year.
  • Since 2013, Anadarko has reduced its LOE in the area by more than 50% on an annualized basis.
  • The company set new records for drilling cycle time and costs for long laterals in Q4 of 5.5 days and $680,000 respectively.

(Source: Anadarko Fourth-Quarter Operations Report, January 2017)

Strong Finish

Anadarko managed to finish strong in a challenging year for the oil and gas industry, with more than $4 billion in monetizations, its lowest full-year lease operating expense (LOE) in the last 10 years, and accelerated drilling activity in both the Delaware and DJ basins.

 

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