Anadarko Petroleum's CEO Discusses Q3 2013 Results - Earnings Call Transcript

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Anadarko Petroleum Corporation (APC) Q3 2013 Earnings Conference Call November 5, 2013 9:00 AM ET

Executives

John Colglazier - Vice President, Investor Relations & Communications

Al Walker - Chairman, Chief Executive Officer, President and Member of Executive Committee

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

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

A. Scott Moore - Vice President, Marketing

Robert Daniels - Executive Vice President, International and Deepwater Exploration

Robert Gwin - Chief Financial Officer and Executive Vice President, Finance

James Kleckner - Executive Vice President, International and Deepwater Operations

Analysts

Charles Meade - Johnson Rice

Scott Hanold - RBC Capital Markets

Matt Portillo - Tudor, Pickering, Holt

David Tameron - Wells Fargo

Peter Kissel - Howard Weil

Joe Magner - Macquarie Capital

Arun Jayaram - Credit Suisse

Brian Singer - Goldman Sachs

John Herrlin - Societe Generale

David Heikkinen - Heikkinen Energy Advisors

David Kistler - Simmons & Co

Operator

Good morning, everyone. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Anadarko Petroleum Corporation’s Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

I would now like to turn the conference over to our host for today John Colglazier, Vice President, Investor Relations and Communications. Please go ahead sir.

John Colglazier

Thank you, Stephanie. Good morning everyone. We are glad you could join us today for Anadarko’s third quarter 2013 conference call. And before we begin, I would like to introduce our newest member of Investor Relations team, Jeremy Smith who recently moved over from our Corporate Development team. Jeremy will take the place of Brian Cook who is rotated to another assignment within the company.

I would also like to remind you that 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. So we encourage you to read our full disclosure on forward-looking statements and the GAAP reconciliations located on our website and attached to last night’s earnings release. And I hope you have had time to review the comprehensive details in our 10-Q, our earnings release and the quarterly operations report, which are all available on the website.

At this time, I will turn the call over to Al Walker. And following his prepared remarks, we will open up the calls for questions with Al and our executive team. Al?

Al Walker

Thanks John and good morning. On this morning’s call, I would like to do several things. First, I would like to highlight the achievements in the quarter; second, discuss what our U.S. onshore organization has been accomplishing; and third, update you on the recent portfolio management achievements.

For the quarter, first we achieved record U.S. onshore sales volumes, which included a 25,000 barrel a day increase in liquids year-over-year while more than doubling our sales volume in the horizontal play in Wattenberg of the same period a year ago. All of this led to a very exciting quarter as it relates to our initial results in the emerging Wolfcamp shale play. Second, our successful achievements this year include advancements of both the Lucius and El Merk facilities, which are great examples of one of Anadarko’s core competencies, project management. The exceptional performance continuing to ramp at the El Merk facilities and associated fields gives us confidence in delivering high margin oil growth of more than 35% from this project in 2014.

Moving to the U.S. onshore, sales volume growth over the last three years has been both exceptional self-funded. Since 2010 our U.S. organization has worked to achieve sales volumes a 190,000 BOE per day while improving our product mix. We achieved this through directing capital, the areas that enabled us to double oil volumes from 50,000 barrels a day to approximately 100,000 barrels a day. During the same time period we achieved industry leading drilling and completion metric while lowering our per unit operating cost by 13% to just above $3 per BOE this year and firmly establishing a reputation as one of the lowest cost operators in the U.S.

Before discussing our portfolio of management progress I like to point out our continued 70% plus deep water exploration and praise the success rate which continues to differentiate Anadarko and create tremendous value. As for our (indiscernible) portfolio in 2013 we have announced or closed monetization’s totaling approximately $4 billion, the hallmark transaction being the announced $2.64 billion all cash Mozambique sell down was expected to close in the next few months. We have also consolidated positions and areas where we have debt and scale and can apply operating efficiencies to enhance returns. For example we closed the small acquisition in the Moxa [ph] area of Wyoming where we have operations and then the deepwater Gulf of Mexico we built an even stronger position in the emerging Shenandoah Basin.

With Shenandoah Basin area you’ve heard us talk a lot about, a very large new area about more than doubling our efforts there, we have working interest in the Coronado discovery which increases our potential in the future.

We will also assume operatorship in the Coronado after the next appraisal well all of which gives us more control over what we think is a very exciting area. Portfolio achievements include recently announced deals such as the Wattenberg Property Exchange. This trade as you’ve heard from us adds tremendous value to the field by concentrating our operated acreage position and our liquids rich (indiscernible) of the field. We are also retained all of the 21,000 fee mineral acres in the land grab and this will benefit not only ourselves but our trade partners accelerated activity we believe in the near future as well as each well drilled provides Anadarko with before tax present value of that $2.5 million with no capital investment.

This is a tremendous value pick-up for Anadarko. We expect this trade to enable us to further improve our cost structure and enhance returns while leveraging infrastructure, avoiding the cost of expansions to the North-East. As you can see in the map it illustrates the key backbone elements of our infrastructure including oil, natural gas compression and water distribution assets.

These provide greater economies of scale and lower cost as well as avoiding CapEx more than ever before. As I mentioned we have more than doubled our sales volume from the Wattenberg Horizontal program over this time last year from 26,000 BOEs per day to 56,500 BOEs per day and we continue to generate rates of return in excess of a 100%.

This rapid expansion of the horizontal production has resulted in high line pressures limiting our near term ability to reach the overall productive capacities of the field. The impacts for the unprecedented floods that occurred in September have temporarily compounded the issue forcing us to shed in vertical wells and delaying our ability to move heavy equipment necessary to complete the planned infrastructure expansions. As we announced in October this is expected to impact our full year sales volumes by reducing the top-end of guidance by 2.5 million BOE.

While the storms in Colorado led to flooding of epic proportions it was matched by an equally impressive reaction to an engagement by our people. I could not be prouder of the men and women who responded to the flooding. Through their humanitarian efforts and strict adherence to environmental and safety practices our employees and contractors stepped up in a big way to help their communities and minimize any impacts. Looking ahead, we plan to utilize 13 rigs focused in our core areas of Wattenberg field and realize the benefit of the startups of the Lancaster plant and the Front Range pipeline early next year.

We’re also encouraged by the progress of the U.S. onshore exploration program and I particularly want to highlight the strong early results achieved in the Wolfcamp shale in the Delaware basin. We successfully evaluated six wells they are more than 15 miles apart, each having gross processed IP rates of between 1000 and 1600 BOE per day and just as important, with a 70% percent oil cut. The Wolfcamp formation is more than 1,500 feet thick across most of our 600,000 gross acres with multiple benches to test. In case, you are new to Anadarko, this time last year, we had no rigs running in the Wolfcamp. Now with six rigs, we are evaluating both the aerial and the vertical extent of this play. By the time we hold our investor conference early next year, we expect to be able to provide a resource range for the Wolfcamp and updated plans for other opportunities that are under evaluation.

From a financial perspective, our balance sheet remains strong and which was most recently reflected on Moody’s upgrade to a positive outlook. Our net to adjusted capitalization ratio at 30% is right in the middle of our targeted range. Should our sell down in Mozambique close is expected, this net debt to cap metric should move to the lower end of our targeted debt range at that time. Overall, we are delivering growth in value through the portfolio as we advance our strategy on multiple fronts. We are very pleased with the depth of our asset base and its ability to absorb the temporary weather-related impacts in the U.S. and still remain within our previously provided full year guidance range for both sale volumes and capital. You continue to see us carryout an active exploration program while focusing on value acceleration and resource conversion going forward.

And to that point, as previously announced, next year we planned to use a portion of net proceeds from the Mozambique transaction to bolster the short and intermediate term oil and liquids opportunities in the portfolio. Our objective with this capital development will be to further acceleration cash flow growth with attractive wellhead margins. And as you can see and expect, we will continue evaluate other steps to return incremental value to our shareholders. With that operator, would you please open the line for questions? Thank you.

Earnings Call Part 2:

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