Anadarko 2Q16 Earnings Call Notes

Anadarko Petroleum (APC) R. A. Walker on Q2 2016 Results

Oil price recovery playing out as anticipated

“The cautious approach we outlined for oil price recovery at the beginning of 2015 has played out much as we anticipated. It now appears U.S. oil supply peaked at around 9.6 million barrels per day. And we expect it to bottom out around 8 million barrels per day, all the while with global demand now exceeding expectations.”

Encouraged that a sustained $60 oil price environment is likely to emerge

Given this dynamic, I am now encouraged that a sustained $60 oil price environment is likely to emerge as we move into 2017. This price level should provide the necessary cash margins and resulting cash cycle improvements to encourage us to accelerate activity and achieve strong returns. In this scenario we would evaluate redeploying some of the incremental proceeds from asset sales towards our highest quality U.S. onshore assets later this year.”

We see a window to better oil prices. We anticipated this hleg down

“for the first time since January of 2015 I think we see a window to better oil prices. And I foreshadowed this a little bit at the Wells [Fargo] conference a few months ago when I made the comments there that we anticipated we’d have a leg down as the market tried to absorb the 3 million barrels associated with disruptions from Venezuela, Nigeria, and Canada. And as the market went through that congestion, we were going to see the leg down that we’re seeing right now. And I think once we get that behind us – to use an economics term, ceteris paribus – we think we’re looking at a sustained $60 oil price environment for next year.”

Demand is going to put pressure on prices

“But I think if you think about it as a demand function that improves annually at the cliff of 1.2 million to 1.3 million barrels a day, you can see pretty quickly that in an expanding demand relative to supply, the demand’s going to move up the curve. And the intersection that creates P will put pressure on prices to move up to a level of around $60 a barrel.”

ingredients are there for $60 oil

“So I’m not going to go beyond $60. But I think clearly in our estimation the ingredients are there for a recovery to sustain $60 price environment for next year. And I’ve probably been as big a bear around oil price expectations as anyone since early 2015. And I think with this, if we continue to see the characteristics I just laid out continue to be prevalent in the market, that will be a great indication to us as for what we want to do.”

Forward curve isnt the indicator that it used to be

“Looking at the forward curve, I think you know as well as I do, that’s a little fragile. And as you look out further, particularly in light of our – the world we live in today and the lack of real – the lack of players in the market for the forward curve, it looks flat for a reason. Because we don’t have the same participants in the curve today that we had five years or certainly 10 years ago. So the curve itself probably is not going to be as much of an indicator of activity as the other things I just made reference to.”

Don’t see a lot of service price inflation at $43 oil

“David, I may very well be wrong, but I don’t see from, call it $43 today to $60, a lot of service cost price inflation. I do think as we approach $60, we will start to see it, depending upon the activity in the principal basins that would be driving our U.S. oil price – or U.S. production.”

Its a demand recovery not a supply recovery

“I still see the demand side, using IEA as the basis for that, with having 1 million to 2 million – maybe 1.2 million to 1.4 million barrels per annum of additional demand. It will be a demand recovery, not a supply recovery. And it’s really the basis of that demand expansion or the large and increasing portion of the pie that I think will give us some comfort around how that actually will be sustained.”

Robert G. Gwin – Executive Vice President-Finance & Chief Financial Officer

Transactions are being made but a lot of small ones

“Okay. Thanks. Charles, it’s really a market today where we are buying and selling, but in a lot of small transactions. So it’s things that are small enough they generally don’t get reported. The ones that we’re summarizing in our asset divestor program are generally our larger transactions. Or in some cases like even recently in the Permian, where we saw some acreage that we had in the portfolio. Felt like we wouldn’t get to that acreage for quite a while. And that it didn’t necessarily fit as well relative to our development plans. And so we saw it as a unique opportunity to sell something.”