Anadarko 4Q15 Earnings Call Notes

R. A. Walker – Chairman, President & Chief Executive Officer

Don’t find returns in this environment compelling

“Frankly, even with two of the best assets in North America, we don’t find the returns in this environment to be compelling. Therefore, we are choosing to fund a reduced program in the Wattenberg field and only a delineation and a lease preservation program in the Delaware Basin as we seek to preserve the shorter-cycle opportunities for a better day.”

Expecting that oil is not going to be at $30 for the rest of our life

“I think these other longer-dated projects we believe today are worthy of spending capital, expecting that oil is not going to be at $30 for the rest of our life. And at some point, when we make a decision to take either to sanction or FID any of these longer-dated projects, it will be an environment which we believe we can recommend to our board first that we make that investment. ”

We do think the environment will probably be protracted

“we do think the current environment that we’re in will probably be protracted. We have concerns of events here that really are well beyond our control. And consequently, until we see events stabilize and we see oil prices in particular take on a new supply-demand dynamic than it’s currently in the market or anticipated in the near future, we will continue to be a very cautious investor in this environment.”

Shale short cycle adds a dynamic that we’ve not had previously

“Typically, when you go into a down cycle, you come out of a down cycle with a pretty good price increase. We are a little concerned that this time, there is one dynamic we’ve never had previously and that is shale response and a short-cycle investment to a rising price environment has not been in the equation previously, and that will probably add to greater volatility in the coming years than we have certainly seen in the last five and I would even say in the last 30.”

We’re not in the revenue business we’re in the margin business

“we’re not really in the revenue business; we’re in the margin business. And so in this price environment, we have a dislocation between what it costs to either operate or drill wells versus the commodities that are being provided by the markets. So that dislocation, we believe, is going to continue. We don’t find the margins that we’re seeing today to be attractive for the reasons I’ve talked about this morning.”

Maintenance CapEx is about $1.8B

“today, the number that we think of this maintenance CapEx to keep volumes flat is about $1.8 billion, which is down substantially from prior years and I think very, very reflective of the outstanding work our employees have been able to achieve by reducing that breakeven.”

Hedging probably not attractive at these prices

“at $30 and $2, just to use big round numbers, I don’t think any company has got a motivation to hedge until it’s probably a negative cost of replacement. So I’m not sure we or anybody else would find ourselves motivated to lock in prices that are lower than the marginal cost in order to develop.”

Conventional resources are an asset in this environment

“one of the things that has probably been lost in the scheme of just exactly who we are and what we are, but I’ve tried I think almost every call to emphasize it, we are a mix of conventional and unconventional resources. And in 2016, you’re seeing the benefit of conventional assets coming into the production profile and that’s a very different opportunity set than a lot of other companies have.”

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

The ratings agencies are placing everyone under review

“David, great question. Obviously, everybody has seen that both agencies are taking down their price cases again. Moody’s placed essentially the entire sector on review. We’ve provided them some preliminary numbers. We’re going to continue to work with them in the coming weeks and coming out of our board meeting next week to make sure they have the most recent and updated information available.”

Assets we are selling are ones that would not get funded relative to other opportunities

“I think without going into detail, some of the assets that we are looking to monetize in the near term are producing assets. Some of them are not. And it’ll take greater shape as we announce them either at March 1 or between now and March 1. I think it’s fair to say that these assets generally share the characteristic of our asset sales in the past and that is that they have sound economics, but not economics that rise to the point that they would get funded relative to our other portfolio opportunities over virtually any commodity cycle.”

The dividend is higher than it needs to be right now

” I mean, the dividend, it is costing us about $550 million a year currently. Obviously, there are other things we could do with that cash in the current environment yielding, say, 3% with the movement in the stock price. That’s a bit higher than we would normally target for the dividend. Though we’ve got a board meeting next week and obviously the decisions around the dividend are solely theirs. We’ll be talking to them about the overall financial picture and the cash flows during the year and we’ll see, as we come out of that, where we are relative to the appropriate level of dividend. I certainly do not expect us to eliminate the dividend. That’s a question we’ve gotten in the past. I don’t think that’s an appropriate step, but the current yield is certainly higher than we would have targeted in a much higher stock price environment.”