Gadfly: Anadarko Woke Up, and It Really Smells the Coffee
Right now, oil is actually around $55 to $60 a barrel, using West Texas Intermediate and Brent prices. Yet when CFO Robert Gwin addressed the implications of higher oil prices, he said investors shouldn't assume that extra cash flow -- roughly $100 million a year per buck-a-barrel -- would go into higher spending.
The implication, even if Anadarko didn't say it outright, is that its ambitious medium-term growth target is due an adjustment -- not merely in its level but in how it is presented relative to the company's next update on plans for spending and returns.
The other implication is that Anadarko isn't necessarily buying the recent rally in oil prices as portending further big gains. In Walker's words:
I think today what we're trying to do is position the company to do well in a world that's 45 to 60 [dollars per barrel]. We don't anticipate a sustained environment above 60.
This mirrors a wider reduction in oil price expectations since March:
Walker's price comments are, of course, an additional important signal of changed priorities. But he also said that the industry's better application of technology to drilling and completion would continue to put downward pressure on breakeven prices.
It's worth noting that later in the morning, rival Newfield Exploration Co. was also banging the drum for focusing on returns and living within its means at $50 oil. "We hear you ... The land grab is behind us," as CEO Lee Boothby put it. Importantly, Newfield emphasized this despite having actually turned in much stronger results and raising its production guidance for the year.
The shift in attitudes certainly looks real, and some of the more blue-sky predictions of long-term growth from shale producers may have to be reined in (Pioneer Natural Resources Co., which reports after the close on Wednesday, is one to watch in this regard).
Yet it would be presumptive to extrapolate from this that shale production is about to hit a wall, especially as OPEC's efforts to raise prices are -- as they did around this time last year -- providing further opportunities for U.S. E&P companies to lock in hedges. A more consolidated, tech-savvy shale industry with a sounder investment proposition could, in some ways, be an even more formidable obstacle to much higher oil prices over the medium term.
Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.
To contact the author of this story: Liam Denning in New York at ldenning1@bloomberg.net To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net.
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