Anadarko Petroleum Corp.’s future growth opportunities lie mostly in the three Ds – the Delaware Basin in the Permian, the Denver-Julesberg (DJ) Basin, and the deepwater Gulf of Mexico, officials said during the company’s earnings conference call Tuesday.
In the Delaware Basin, the company has accelerated activity with the addition of two drilling rigs, said R.A. Walker, Anadarko’s chairman, president and chief executive officer, during the call. The company has made great strides to enhance the economics in this play, including further cost reduction and enhanced completion design. This has increased the estimated ultimate recovery of these wells to more than one million barrels of oil equivalent (MMboe) per well; these wells also enjoy a high oil cut, Walker stated. Anadarko estimates its Wolfcamp A assets to contain net resources of more than two billion boe and more than 7,000 drilling locations in the Wolfcamp A alone.
During the third quarter, Anadarko also added two rigs to its DJ Basin operations in Colorado. The company’s successful focus on efficiency and savings there will allow it to reinvest capital to drill 90 more wells and complete 50 additional wells in the DJ Basin. As a result, Anadarko’s DJ Basin operations will produce 5 MMboe of additional production, well above expectations, Walker said. Anadarko estimates its DJ Basin assets to contain net resources of more than 1.5 billion boe and more than 4,000 drilling locations.
The company plans to add an eighth and ninth rig in the Delaware Basin and the third and fourth rigs in the DJ Basin by year-end, Walker told analysts during the conference call.
In the deepwater Gulf, the Lucius field continues to outperform expectations, with over 100,000 barrels per day (bpd). Production from Lucius, along with production from new development wells at the K2 and Caesar-Tonga fields, have boosted Anadarko’s year-over-year oil volumes by 10,000 bpd to 65,000 bpd. Walker said the company’s closure of Freeport-McMoRan’s Gulf assets will double Anadarko’s Gulf of Mexico production to approximately 160,000 barrels of oil equivalent per day. Eighty-five percent of that production is oil, Walker noted.
Right now, the company is focused on exploring the potential of its Wolfcamp A assets. In the Wolfcamp, the company is now utilizing completions of 2,500 psi and experimenting with sand and water rates. Walker said Anadarko considers the Wolfcamp to be the largest prize, but believes that other plays such as Avalon and Bone Springs will ultimately contribute to Anadarko’s bottom line over time.
Anadarko plans to deploy potential proceeds from asset sales it has closed or will close – including an anticipated $1 billion in proceeds from selling its East Texas operations – into its Delaware, DJ and deepwater Gulf assets. That order of investment will not change even if the company acquires additional cash, Walker said.
The company anticipates exceptional rates of return from its investment strategy with oil prices at current or slightly higher levels. Due to the quality of its oil assets in these plays, Anadarko officials believe the company’s future lies in oil, not natural gas. For the past year and a half, the company has been moving towards oil and liquid-focused opportunities, and expects growth mostly in its oil production from the remainder of the decade.
“As we like to remind people, if we happen to be wrong and natural gas prices go up, it makes the DJ and Delaware basins worth even more,” Walker commented. On natural gas, Walker said he doesn’t mind being wrong, but believes that natural gas prices would have to approach $6/thousand cubic feet before it would displace Anadarko’s interest in investing in oil.
While the company will primarily focus on the three Ds, Anadarko will continue to acquire exploration opportunities that can move the needle on the company’s performance, such as its 16 million acres offshore Colombia. The company also has had exploration success offshore the Ivory Coast, but needs a better understanding of the play’s commerciality before deciding on development, Walker stated.
Next year, Anadarko expects to start drilling its first development well at the Constellation discovery in the deepwater Gulf. Anadarko, in a separate transaction, used its infrastructure position to acquire a 33 percent working interest and operatorship of the Constellation, formerly known as BP plc’s Hopkins discovery. Constellation will be tied back to the Constitution spar, according to Anadarko’s third quarter 2016 operations report. BP holds the remaining two-thirds interest in Constellation. Anadarko expects production wells at Constellation, a Pliocene play, to produce 15,000 bpd.
The company reported Monday a bigger-than-anticipated third-quarter loss due to low oil prices.
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