Anadarko 3Q16 Earnings Call Notes

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Anadarko Petroleum (APC) Q3 2016 Results
R. A. Walker

Price conducive to completing drilled but not completed wells

“s we move through this, we’re moving into a higher price environment. We think fundamentally oil should continue to see improvement in the quarters ahead. As a result, you’ll see us continue to work more to a, I’ll call it a working inventory level of drilled but uncompleteds. Not an abnormal level of that, because I think as each of the people on this call I know quite well, we have an ongoing sort of like working capital position with respect to drilled uncompleted locations. So it’s not like they’ll be completely eliminated. But I think given the price environment that we see ourselves in today and projected in the coming quarters, we’ll convert more as appropriate of that current inventory into completions. But it’s not a marked change. I think it’s just what we’ve been trying to say through the course of the year that we will at the appropriate time start to convert our drilled uncompleted locations into opportunities for production. ”

$46, $47 oil shouldn’t change investment strategy

“You know, Brian, I don’t think it will really affect the principal investing strategies that we’re talking about this morning. I don’t mean to sound like a broken record, but it’s going to be Delaware, DJ and Deepwater Gulf of Mexico that’s going to take on the lion’s share our capital. And let’s call it a fairly static or ceteris paribus environment for operating conditions. So consequently, our ability to put more capital to work either through cash flow or through cash on hand – we have a lot of flexibility. I’m real proud of what Bob Gwin and what our corporate development folks working with our asset teams have been able to accomplish with the monetizations we’ve achieved to date and things that we hope to do in the future.”

Not out drilling opportunities in the gulf

“In the Gulf today, given the price environment that we’re in, if we don’t have tie back to existing infrastructure, we’re not out trying to drill opportunities that require greenfield development as a result. So that may be where the two are a little bit different because we’re dealing with a much higher cost per well. Typically, we’re in a pre-salt environment with the exploration opportunities, whereas in many cases internationally, we’re post salt where the cost to drill a well is substantially less, and so therefore, if we’re successful, the development drilling associated with any development opportunity is a little more economically positive from the standpoint of the price environment. ”

You should start to see production rising next year

“as we stand up more rigs and we bring more wells online, you’re going to see that turn again and you should start seeing our oil production go up. It may not be by year-end or even first quarter, but I think we would anticipate next year to reverse that trend and you’ll see the oil production start rising again.”

I’ve been a natural gas bear for a while

“Well you know, I’ve been a natural gas bear for quite a while. I think we always thought that gas would find its way up around $3 and it would find a ceiling there. And to a large extent, that’s been correct. I mean we’ve always believed around $3, that there was just an impediment from a demand standpoint for now. But I think it also was a reason a lot of people in January, when we talked about selling our natural gas properties, and people kind of looked at me cross-eyed that we would actually have a market for it. And there’s been a lot of very successful private equity people that have taken a view on natural gas and have done quite well with it. I think for a company like ours, that has the assets that we do and our access to oil and liquids that we do, consequently, it’s not really in our best interest to pursue natural gas. It doesn’t give us the same wellhead margin. It doesn’t give us the same ability to have scalability. And the returns, coupled with the scalability, just always tilt in the favor of the DJ and the Delaware for us. John, I just have to say, I don’t mind being wrong. But I think our view is that it would take natural gas to approach $6 before it would probably displace our interest investing in oil. And I don’t see that happening.”