Anadarko Waiting on Better Margins

Anadarko Q2 Report
Anadarko Q2 Report

Anadarko released its second quarter financials this week, announcing a 73% decrease in profits over last year and a reluctance to pinpoint when they will return to growth mode.

Related: Anadarko Reduces 2015 Spending by 30%

During a conference call on Wednesday, CEO Al Walker expressed the caution felt by many in the industry as crude prices continue to fluctuate. Margins remain low for the company as costs outstrip service providers' ability to cut prices.

The uncertainty is particularly acute around operations in the shale plays, including the Eagle Ford. Walker was hesitant to commit to a timeline for moving back into a growth mode in the shale plays, saying that they do multi-year planning and can’t make predictions based on quarterly results.

shale plays “deplete 50% to 80% in the first year, so there we have to be very confident of the margin environment that we’re moving into, because we’re not going to be able to capture that on the back side of the well, since so much of the production will have occurred. So that’s why I’m a little hesitant and cautious about exactly when we’ll see this company in particular and industry more broadly be encouraged to go back into a growth mode.
— Anadarko CEO, Al Walker

Anadarko is one of the Eagle Ford’s largest producers, with roughly 388,000 gross acres in Dimmit, LaSalle, Maverick and Webb Counties.

Second Quarter Highlights

  • Drilling efficiencies improved in the Eagle Ford
  • Company will do new testing in the upper and middle Eagle Ford
  • Expects to achieve its objective of drilling more than 200 wells this year
  • Increased year-over-year oil sales volumes by 42,000 barrels per day
  • Achieved large-scale project milestones in the Gulf of Mexico and Mozambique
  • Announced deepwater exploration success in a frontier basin offshore Colombia
  • Announced more than $1.7 billion of monetizations year to date

 

Anadarko Reduces 2015 Spending by 30%

Anadarko Eagle Ford Shale Map
Anadarko Eagle Ford Shale Map

Anadarko released its initial capital expectations for 2015 that includes a 30% spending cut from last year and plans to reduce its Eagle Ford rig count.

Read more about Anadarko in the Eagle Ford

During 2014, Anadarko increased total sales volumes by 16%, generated $150 million in free cash flow, grew its production base by 11%, and posted a reserve replacement ratio of 161%. The company also reported average sales volumes increased by more than 90,000 BOEs per day over 2013.

Our operational performance in 2014 was outstanding and Anadarko’s employees delivered a tremendous year across the board. Our U.S. onshore operations were nothing short of incredible, led by the Wattenberg field and the Eagle Ford shale resulting in full year volumes growth of 16%.
— CEO, R.A. Walker

As Anadarko moves into 2015, they are making strategic and crucial decisions to remain strong. "In the current market," said Walker, "we believe it is prudent to reduce capital investments and position the company for the future, rather than to pursue year-over-year growth.”

  • Anticipates approximately 5% oil sales-volume growth
  • Improved 2015 liquids product mix of approximately 50%
  • Net resources of more than 1 billion BOE in the Wolfcamp Shale
  • More than $700 million of asset monetizations to date in 2015
  • Reduce our short-cycle U.S. onshore rig activity by 40 percent
  • Defer approximately 125 onshore well completions.

Anadarko considers the Eagle Ford to be one of the strongest parts of its portfolio and reported making more than 20 percent rates of return in this activity in 2014. The company expects production to continue to rise in the Eagle Ford even exceeding the 250,000 BOE per day in 2014. Due to low oil prices, they will reduce running rigs by half. The company plans to drill another 200 wells but will defer the completion on many until prices stabilize.

 

Anadarko's Eagle Ford Well Costs Down Below $6 Million

Anadarko Eagle Ford Acreage Map
Anadarko Eagle Ford Acreage Map

Anadarko's Eagle Ford production is up 55% from one year ago to 42,200 boe/d. Liquids volumes account for 28,000 b/d of production and grew even faster at a rate of 60% over the past year.

Anadarko drilled 70 Eagle Ford wells in the quarter with an average of eight rigs working. Drilling times continue to fall and many of the company's wells are now drilled in less than 10 days. Completion costs are coming down as well and the company is spending an average of $5.5-6 million per well.

Charles Meloy, Senior VP, stated "We are in the middle of doing tie-ins to the Brasada plant, and so we will have quite a bit of downtime associated in our Eagle Ford production area as we tie in the Brasada plant and the associated facilities in the field."

The company is bringing 200 mmcf/d of processing capacity online in the second quarter. The Brasada Plant is just south of Cotulla in La Salle County, TX, and will be completed in late May or early June. Anadarko has spent $100 million to build the plant and will increase its liquids yield even more when the plant comes online.

Read the full first quarter press release at anadarko.com

SM Energy Expects Eagle Ford Condensate Discount - Interruptible Gathering

SM Energy Operated Eagle Ford Acreage Map
SM Energy Operated Eagle Ford Acreage Map

SM Energy expects its Eagle Ford condensate production will realize a long-term average discount of $7-8 to NYMEX prices. Oil production in the region averaged price realizations of 101% and 103% of WTI in the fourth quarter of 2012 and first quarter of 2013, respectively.

SM Energy's operated Eagle Ford production grew 15% over the fourth quarter to 51,800 boe/d. That represents 74% growth over the first quarter of 2012. The company's non-operated position (Anadarko operated) grew 3% in the quarter to an average of 16,000 net boe/d.

SM Energy's Eagle Ford Gathering Will Be Interruptible

The company's operated production has regularly exceeded 300 mmcfd in March and April of 2013. Firm transportation agreements are currently in place for 300 mmcfd and the company is confident there is adequate gathering infrastructure in place. Additional firm capacity will be online mid-year 2013 and the company believes current infrastructure will allow for growth in the interim.

SM ran five drilling rigs in the quarter and completed 28 wells. Anadarko ran nine rigs.

Expanding East Texas Woodbine & Eagle Ford Acreage

The company now has approximately 150,000 net acres prospective for the Woodbine and Eagle Ford in Walker, San Jacinto, Polk, and Washington counties. Watch for well test results in the second half of the year.

Read the full press release at sm-energy.com

SM Energy Increases Eagle Ford Reserves Estimate - Downspacing

SM Energy Operated Eagle Ford Acreage Map
SM Energy Operated Eagle Ford Acreage Map

SM Energy has increased its estimate of net recoverable resources in the Eagle Ford by 500 bcfe to 5.8 Tcfe. SM still only has 2 years of drilling booked as proved reserves. The company attributes the increase in reserves to better EURs (4.5 Bcfe per well) and expectations for tighter well spacing in portions of the play. Briscoe Ranch will be developed on 52-acre spacing compared to guidance of 72-acres per well previously.

The company completed 77 operated wells in 2012. At year-end, SM had 154 wells producing and 29 wells waiting to be brought online. Operated production grew to 271.3 mmcfed in the fourth quarter and non-operated production grew to 15,500 boe/d (93 mmcfed). That's growth of more than 10% over the third quarter of 2012.

SM is currently running 5 rigs and 2 frac spreads in the play. In it's non-operated position, SM expects Anadarko will drop down to 8 rigs in 2013, but believes the number of well completions will hold steady due to efficiency gains in drilling.

SM Energy operates 145,000 net acres in the Eagle Ford. Leases on 4,000 acres prospective for dry gas at Apache Ranch were allowed to expire in 2012.

Read the full press release at sme.com