Anadarko Petroleum Management Discusses Q2 2013 Results - Earnings Call Transcript

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Anadarko Petroleum (APC) Q2 2013 Earnings Call July 30, 2013 9:00 AM ET

Executives

John M. Colglazier - Vice President of Investor Relations & Communications

R. A. Walker - Chairman, Chief Executive Officer, President and Member of Executive Committee

Charles A. Meloy - Executive Vice President of U.S. Onshore Exploration and Production

Robert K. Reeves - Chief Administrative Officer, Chief Compliance Officer, Executive Vice President and General Counsel

A. Scott Moore - Vice President of Marketing

Robert P. Daniels - Executive Vice President of International and Deepwater Exploration

Robert G. Gwin - Chief Financial Officer and Executive Vice President of Finance

James J. Kleckner - Executive Vice President of International and Deepwater Operations

Analysts

Subash Chandra - Jefferies LLC, Research Division

Matthew Portillo - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

David W. Kistler - Simmons & Company International, Research Division

John T. Malone - Mizuho Securities USA Inc., Research Division

Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division

John P. Herrlin - Societe Generale Cross Asset Research

David Heikkinen

Brad Carpenter - Wells Fargo Securities, LLC, Research Division

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Arun Jayaram - Crédit Suisse AG, Research Division

Operator

Good morning, everyone. My name is Sarah, and I'll be your conference operator today. At this time, I'd like to welcome you all to the Q2 Anadarko Petroleum Corporation Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to our host, Mr. John Colglazier. You may begin your conference.

John M. Colglazier

Thank you, Sarah. Good morning, everyone. We're glad you could join us today for Anadarko's Second Quarter 2013 Conference Call. Today's presentation includes forward-looking statements and certain non-GAAP financial measures. A number of factors could cause results to differ materially from what we discuss today. We encourage you to read our full disclosure on forward-looking statements and the GAAP reconciliations located on our website and attached to yesterday's earnings release. Also on our website, we provided a comprehensive summary of our global activities in our quarterly operations report. In a moment, I'll turn the call over to Al Walker, who will discuss the company's activity and second quarter results. Al will be joined by our executive team, who will be available to answer questions later in the call.

With that, Al?

R. A. Walker

Thanks, John, and good morning. We're very pleased to discuss the results of yet another strong quarter and to update you on a number of recent developments. Every aspect of our portfolio continues to deliver. As you saw on the earnings release and can dig into further in the operations report, during the second quarter, we increased oil volumes from our U.S. onshore assets by 20,000 barrels per day over the second quarter of last year. We reached milestones at 4 high-impact, short- to medium-term oil projects, successfully drilled 5 more deepwater discoveries and, again, achieved excellent operating results while generating substantial adjusted free cash flow.

I want to begin by highlighting the continued outstanding performance in our U.S. onshore assets, including the Wattenberg Horizontal and Eagleford Shale programs. Collectively, these 2 programs generated more than 90,000 net barrels per day of liquid sales volume during the quarter compared to 63,000 barrels per day in the second quarter of 2012. That's an impressive increase of more than 45% year-over-year. It's important to note that as we continue to accelerate activity in these high-growth liquids programs, we're very focused on safely driving operating efficiencies into every segment of our business. These improvements are enhancing project returns and are discussed in detail in the quarterly operations report posted on our website.

As anticipated and previously communicated, during the quarter, we had steep growth in our Wattenberg Horizontal program that led to higher line pressures on the field as production outpaced processing capacity, which temporarily shut-in approximately 1,300 low-rate legacy gas wells while maximizing growth from our horizontal program. Volumes from these shut-in wells should be restored during the third quarter and we expect to add up to 25,000 barrels per day of additional production by year end as new compression and processing capacity comes online.

It's critically important to continue to expand our infrastructure and takeaway capacity for our growth areas, as we've been doing over the years very successfully. We made a lot of progress on this front during the quarter, including the recent startup of our 200 million cubic feet per day Brasada natural gas processing plant in the Eagleford. This facility and other Midstream projects, which we and our affiliate, Western Gas, have underway, are designed to ensure future takeaway capacity to keep pace with our production growth. This has been central to our drilling and economic success in the Eagleford as takeaway has been an industry challenge that our company has done a great job managing. Beyond the outstanding performance of our significant growth plays, we've had some very strong early results with the Wolfcamp test in the Delaware Basin of West Texas. We're accelerating drilling activity across our 600,000 gross acre position following encouraging results and the production rates from our 2 initial wells each demonstrating IPUs of more than 1,000 barrels per day with high cuts of oil and liquids. This could become a very exciting and new growth area for us in future years if this play develops as the early results support.

As detailed in our ops report, we've made significant progress in several of our large-scale international and deepwater oil projects during the quarter. These sanction projects at the El Merk, Lucius, Heidelberg and TEN provide line-of-sight visibility to significant, high-margin oil and cash flow growth in the near to intermediate term. In addition, the carried-interest agreements we've entered into at Lucius and Heidelberg have materially enhanced our projected rates of return for each of these developments while reducing our capital intensity.

On the exploration front, the 5 new discoveries drilled during the quarter were pretty impressive, by any means, and our success there and optionality it provides our portfolio is equally impressive. Anadarko continued to achieve industry-leading 70% success rate with our deepwater exploration and appraisal drilling so far in 2013. These 3 discoveries announced in yesterday's press release, Raptor, Yucatan, Espadarte, along with Phobos and Orca, previously announced are very meaningful and indicative of our ability to continue to add to our inventory through the drill bit. For the remainder of the year, we have planned a very active deepwater exploration and appraisal program and look forward to sharing those results in future earnings updates each quarter.

On the operating side, our results continue to show significant earnings growth, strong cash flow generation and an improving balance sheet, all of which were consistent with the results we have guided investors to for some time. Of note, our net-debt-to-adjusted-capitalization ratio has improved to approximately 29% from 34% at the end of last year. We're very proud of these results achieved during the second quarter, including the sales volume growth through the first 6 months of the year.

Looking ahead to the balance of the year, we've increased the midpoint of our annual sales volume guidance by 1 million barrels per BOE. This increase, in spite of a modest reduction in our full year U.S. sales volumes expectations which were a result of the completion delay at Caesar/Tonga in the Gulf of Mexico, are continuing to do the types of things we expect. We believe that the well will be online by year end, fully contributing to 2014 oil production volumes. As we've stated previously, we're focused on accelerating the conversion of our capital-efficient U.S. onshore resources, achieving peer-leading production growth per net debt-adjusted share and adding to that being an extremely attractive growth stock. We want to actively manage our portfolio to optimize the resource inventory we have and reduce our capital intensity. And we want to continue to deliver the exceptional exploration results which we have been achieving historically for higher future growth and optionality.

We believe by accomplishing all of these, we will meet or exceed the objectives we communicated to you in February this year and we continue to believe that 2013 will be an exceptional year for Anadarko.

At this time, our executive committee and I will be happy to answer your questions. Thank you.

Earnings Call Part 2:

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