Anadarko Petroleum 2Q15 Earnings Call Notes

Driven costs down by 35% and drilling the same number of wells with half the rigs

“More specifically, we’ve driven our drilling cost down in the Wattenberg field by almost 35% in the last six months and doubled our rig efficiency over the last year, drilling the same number of wells with half the rigs.”

Drilling wells for $1m a copy, completing and equipping for $3.5m

“If you listen to Al’s comments about our drilling performance, where we’ve now been able to get our well cost, at least the drilling portion, down to less than $1 million a copy. You look at the completions, they’ve done a really nice job there as well of getting our cost down. So for about $3.5 million now, we’re drill, completing and equipping these wells.”

Amazingly, it’s still a seller’s market for assets

“we’ve been reasonably unsuccessful, if I can use that as a term, in trying to buy things in the Delaware Basin where I think we have a cost advantage, we clearly through Western Gas have a processing advantage, and yet we see time and again, people coming in there and buying things at prices that surprise us. I will also say that we’ve been – we fought fairly aggressively on a couple of things and were bid or rather were outbid by 2X. So to Bob’s comment, it seems to be a seller’s market”

Going to have a lot of wells that are drilled but uncompleted

“because we have drilled the wells, we are going to have a significant uplift in what we would call the DUCs, the drilled but uncompleted. We went in last quarter saying we’d probably carry over 125 into next year and as we see it now, we’re probably going to do – carry over around 200, but I would say based on your comments, we do tend to be very flexible here. We’ll probably stand up at least one completion rig to complete some of the extra wells being drilled. ‘

Asset values are high, corporate values are low

“Asset values are high, corporate values are low, that would lead one to believe that the opportunities, the better opportunities may exist from a corporate standpoint. However, few corporate opportunities are actually perfect fits from a portfolio perspective, so you introduce execution risk and whether or not you’re making your company as efficient on a pro forma basis as it is going into a transaction.”

It’s tough to know what the majors are looking at

“You’re latter question on the majors, I don’t know, I mean, it’s hard to know what they’re thinking of and what they’re looking at. So we’re just trying to focus on the way we can build the best company and hopefully be as attractive to all our shareholders as possible.”

Our objective is to get better, not bigger

“I’ll go back to a comment I’ve made on prior calls. And that is, our objective is to get better not bigger, and if getting bigger allows us to get better then that’s okay, we like the position we’ve got, we like the assets we’re in, we like the exploration opportunities that we have in-house. If we see a company that has assets that are complementary, then I think that would cause us to take a harder look at them, but just buying somebody that’s distressed with assets that don’t fit the piece of the puzzle the way we see the puzzle looking, probably should be considered way outside the white stakes.”

We may outspend cash flow next year in Capex

“as we get some little bit better clarity on where we think what that cash flow number is going to look like in 2016. We’re going to be working with the board to decide whether it’s within cash flow or something in excess of it. Either way we expect that we’ll be able within cash flow plus asset sale proceeds. And so, therefore, we avoid putting any pressure on the balance sheet or adding any incremental financial risk to the company’s profile”

These are permanent improvements in drilling cost

“We still see some improvement from the service sector in terms of our abilities to improve margins. I think there is a lot of things we’ve done that are permanent, as it relates to the efficiencies that we’ve put in place. So it’s not just price reductions from various service vendors that in a different hydrocarbon price environment would come back to us as a higher price, these are actually sustainable improvements that will weather the storm of higher prices when we have those.”

We’re still waiting for a production decline in the US

“The last time we were on this call, we were at about 9.4 million barrels a day. I think as most of you know we’re at 9.7 million barrels today. That was one of the reasons we were being very cautious last quarter. We did not see the drop off occurring in the second quarter. At some point the lack of capital being deployed into assets in the U.S. will cause 9.7 million to decline. I think like others, we’ll continue to watch that in terms of understanding how to deploy capital, as simple as that. “