Anadarko Petroleum 4Q16 Earnings Call Notes

RA Walker

Oil could average $60 in 2017

“From a global perspective, we’re beginning to see some encouraging demand improvements and supportive supply actions. And I continue to feel strongly that we have very good chance to see an average WTI oil price in 2017 of $60. When you combine our cash position with improving cash flows, we expect to be in an advantageous position to fund growth in both the Delaware and the DJ as well as the deepwater.”

Allocating to the DJ and Delaware

“As you look at us today, to be somewhat repetitive, I think the Delaware, the DJ, and the deepwater Gulf of Mexico, in that order of priority, will receive capital. As I mentioned in my prepared remarks, we have built a very attractive cash position, which we believe will allow us to execute on the development plans we have for the two primarily – the two onshore assets rather. And I think while we are very proud of them, I’m not sure there are any other assets onshore that are any better than the DJ and the Delaware to be allocating capital to.”

Doing a lot of planning for 2018, 19

“I will say, whether it’s the deepwater or it’s the onshore, 2017 is a year in which we’re doing a lot of things to prepare ourselves for 2018 and 2019. And that’s one thing as we come out of a trough, we just can’t immediately turn on a dime and expect that we’re going to go back to where we were before we went through the period of the last two years where the industry in general spent a lot less capital and had a lot less activity. ”

You’re not going to get a tremendous supply response until 2018, 19

“The only thing that I would say that’s a little surprising to me would have been that, if you recall, I thought domestic oil production in the U.S. would probably bounce off 8 million barrels a day, and we actually bounced a little higher than that. But I think – I use our own company as a bit of an analogy for this comment. I don’t think even with the rigs that are all starting to stand up, particularly in the Permian, and if you look even at what ExxonMobil has said about it this week, you couple that together, and it’s not like in 2017 you’re going to see a tremendous supply response that will dwarf the improving demand. I think that’s really more something to look at in 2018 and 2019. And it’s a little fuzzier when you look into the crystal ball at that point.”

Anadarko 3Q16 Earnings Call Notes

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.”

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.”

Anadarko 1Q16 Earnings Call Notes

Anadarko Petroleum (APC) R. A. Walker on Q1 2016

Things feel better than they did 90 days ago

“I think it almost goes without saying that things feel better today than they did 90 days ago, both for our industry and for investors. The very fragile energy capital markets we’ve seen for most of the first quarter appear to be stabilizing, the outlook for commodity prices are improving and I think for industry our operating environment is definitely strengthening. ”

You’re better off buying from a good operator so you don’t inherit legacy problems

“I think the fact that we’ve been a good, prudent operator for a long time, we’re a brand name, if you want to call it that, in our space, when we choose to redeploy capital by exiting a particular property, you’re not taking on problems that you might with a smaller, less well-known company. And that to-date has inured to our benefit, as you’ve seen a very successful effort in the last two years to monetize properties into what I think anyone would describe as a very difficult environment.”

Seeing private equity firms who believe that natural gas is a better place to invest than oil

” If you’ll recall, both in March as well as when we reported our fourth quarter and prior-year results in January, we said at that time, and still believe, that depending upon the private equity firm, there are firms that have a very fundamental view that natural gas is a better place to invest than oil. They look at the activation costs of liquids and oil versus what they think is a fairly good market for natural gas and a good market for those folks, as I listen to them, as they feel very good about ability of natural gas to run to $3 or more from where we are today.”

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

Seen an improvement in asset prices with the environment

“Charles, the only thing I’d add is that the economics you asked about is that Al’s comments on the improving environment is we’ve seen that read-through, I think in particular, yes, on the gas side. We’ve mentioned that a number of the assets that we’re focused on considering the sale of today are gassy. And with the improvement of the forward curve, we’ve seen some strengthening in the interest for those assets. And it doesn’t take a whole lot of improvement on the price side to get some materially better economics at the asset level.”

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.”

Anadarko 3Q15 Earnings Call Notes

Reduced per well costs at Wolfcamp by 4m per well and could cut another 2m

“At our Wolfcamp oil play, this year alone we’ve reduced our per well costs by $4 million, to $7.5 million, with direct line of sight to another $1.5 million to as much as $2 million per well in expected savings at a time we choose to pursue growth and migrate towards pad drilling across the field.”

Planning for the worst hoping for the best. Maybe a little more pessimistic than the forward curve

“we don’t have any better crystal ball than anybody else on what prices are going to be in 2016 and 2017. And our approach is plan for the worst and hope for the best. Consequently, we have a fairly low expectation, not much different than the forward curve, maybe even a little more pessimistic than that in terms of how we might plan for capital.”

Trying to decide how to allocate capital

“like all of our companies in our sector right now are trying to decide how we want to allocate capital next year, looking into very, at best, fuzzy picture of what that’s going to look like.”

There’s $100B in capital that’s been raised to invest in the sector

“I think, like most people, we still see this extraordinarily large amount of private equity that’s been raised. And most people seem to gravitate around $100 billion as the number that’s been raised and prepared to be committed to the sector over the next couple of years for investment if the right opportunities present themselves.”

We’re getting outbid by private equity backed teams in purchasing properties

“unlike the public markets, where you have a little bit different dynamic at work, where we see ourselves today trying to bid on properties in markets where we have interest, we are being pretty consistently outbid. And most oftentimes, we’re being outbid by private equity-backed management teams. And so I’m not sure I’d call that a seller’s market quite like I did previously, but I would say it’s a healthy bid-ask in terms of exactly what’s happening with properties when they come into the market and the receptivity they’re getting.”

There may be 95 management teams out there with PE backing

“there are a number of management teams, the number that I’ve heard most recently is maybe as many as 95 of them out there that have private equity backing, that haven’t deployed capital yet in the market. And the types of assets that we’ve been selling, both earlier this year, the three EOR, East Texas and CBM that we’ve announced, we’re in a size range that’s a sweet spot for those types of buyers.”

The buyside has rewarded capital efficiency

“My early read on, say, the first nine or so months of this year is we’ve seen the buy side reward capital efficiency probably better than they historically have…those companies that have good wellhead margins that are being able to improve those margins through the cost efficiencies, like we’ve been talking about this morning, that are on top of that good allocators of capital, I do believe in the I’ll call it the intermediate term that we probably will see the market, the buy side reward companies that can achieve that.”

Growth doesn’t maximize value

“Onshore in the U.S. everybody’s going to drill their Tier 1. They’re going to focus on producing that Tier 1 and then they’re going to redeploy the capital into their next best assets. And frankly that’s not the way to maximize, in our opinion, that’s not the way to maximize value unless your shareholders are really telling you that growth matters more than value and what we’ve heard and what we continue to believe in is that value preservation on the onshore and value building in the other parts of our portfolio to be positioned for a more constructive commodity price environment is the right way to approach it today.”

Miscellaneous Notes Week of 9.17

Stronger than expected turnout at Credit Suisse Basic Materials conference

John McNulty – Credit Suisse Analyst (From Dow Presentation Transcript)

“Okay. If you all take your seats we’ll get on with the presentation for today. Yesterday was a big day for us actually for what it’s worth, those keeping track, I mean, the rooms are certainly more full than we’ve seen them actually. We are – attendance was up about 45% for our first day, yesterday. So apologize if there are logistical issues, because it’s a bigger crowd than even we had expected, but it’s a nice problem to have.” –Credit Suisse (Investment Bank)

Sirius’ CEO was bullish on car sales

Jim Meyer – CEO Sirius XM

“I spend a lot of time with the senior executives in the automotive industry and all of them along with me are pretty confident that what the next six or 12 months looks like in auto sales. And we see them continuing strong.” –Sirius XM (Satellite Radio)

40% of millenials do not have a TV and 20% say they are considering cutting it

Lowell McAdam – Chairman and Chief Executive Officer

“40% of millennials do not and have never had a TV in their home and another 20% have said they have got it, but they don’t use it that much and they are considering cutting it.” –Verizon (Telecom)

Verizon doesn’t think Apple’s installment plan is a threat to them

Lowell McAdam – Chairman and Chief Executive Officer

“They love to have people stay on iPhones forever. And if I look at it from our perspective, from a cash flow perspective, it is – it’s a relatively positive, marginally positive I guess. So, it’s not a threat. It’s similar. I think about it the way I think about bring-your-own-device, which we have been doing for quite a while. Apple today is a very small piece of our distribution. So, it’s not going to shift the way we do business in anyway. And right now, it doesn’t look like a threat to us.” –Verizon (Telecom)

Fifth Third echoed that credit remains benign

Tayfun Tuzun – Chief Financial Officer

“We are operating at very low levels of charge-offs in historical terms and ongoing quarterly improvement every year in charge-offs will be difficult to achieve, but nevertheless credit should generally remained benign.” –Fifth Third (Bank)

You have to optimize your business to perform well over the course of a whole cycle

“If there is one lesson that we as managers have learned during the crisis it’s the importance of relentless focus on through the cycle performance. Business models created for the present part of the business cycle that are not grounded in long-term fundamental value creation will outperform for a period of time, but will not increase the value for shareholders who have longer time horizons, as they are now sustainable.” –Fifth Third (Bank)

Sustainability is the key focus

“I wish I could tell you that it is possible to tailor our strategy in a very timely manner to every turn of the business cycle, but it is not. Therefore sustainability has to be the key focus. Our top goal is to perform well throughout the full cycle.” –Fifth Third (Bank)

Necessity has been the mother of invention in driving more efficiency in the oil industry

Bob Gwin – Executive Vice President-Finance and Chief Financial Officer

“necessity being the mother of invention that, I think, is largely true across industry. Very proud of our folks driving efficiencies, working very hard to drive down costs, increase in our oil production everything operationally has gotten better. Now that obviously for a macro perspective, continues to put pressure on commodity prices as we see the resiliency of U.S. production. But our view is that we’re going to see that – we’re starting to see it roll over a bit and that – in this era of prices with this double dip and without a real strong outlook on the underlying commodity, we see that the need to continue to focus on cost and the need to continue to focus on driving returns” –Anadarko (E&P)

The focus is on returns, not growth

“The focus right now is not on growth, it’s on returns. We don’t look at growth as being a deliverable that’s going to be valued by the market or by our shareholders, rather growth will be – the growth rate will come out of the capital allocation work that we do” –Anadarko (E&P)

HCA thinks of itself as the preferred healthcare provider in the markets they operate

Bill Rutherford – Chief Financial Officer

“we want to be the preferred healthcare provider in the markets that we operate and we create what we think is a high value integrated delivery system. It’s anchored by our hospital network, supported by outpatient centers, ambulatory surgery centers, we have 120 surgery centers, outpatient imaging, physician clinics, we employ close to 4,000 physicians in our marketplace, freestanding EDs and urgent cares. So, we deploy access points in the marketplace. So, there are multiple ways patients can access the HCA network in multiple service dynamics. And then we develop deep service line capability generally organized around patient conditions in cardiology, in women’s services things or orthopedics, oncology, neurosciences, emergency room and we developed deep service line capability.” –HCA (Hospitals)

We may get more medicaid expansion post 2016 when it’s not so politically charged

“I don’t see much movement until post-2016 election, once we have someone else as President and the office maybe Medicaid expansion becomes something that’s more state-driven rather than considered Obama Care.” –HCA (Hospitals)

An exchange enrollee is worth much more than medicaid

“the one thing you do have to remember as Bill pointed out, our significant benefits have come through the insurance exchange. I mean if you just look at the pricing differential on what you get on an exchange enrollee versus a Medicaid enrollee it’s three times on an exchange. So remember if we get one exchange to three Medicaid, we benefit substantially more.” –HCA (Hospitals)

Union Pacific is optimistic that ex-energy volumes look not too bad

Rob Knight – CFO

“And as we look at the macro, it actually sort of — I think it speaks to what we’re seeing at the macro level, clearly the energy related activities are a drag on our volumes right now. But the rest of our business volumes are ever so slightly and we’re very cautious, we’re not getting exuberant here, but are on the positive side of the volume trends. We’re watching very carefully, things like our intermodal business. Our intermodal is roughly half international, half domestic. If you look at our third quarter numbers, our international is down about 7%, our domestics flattish, and what we’re seeing in our international space and our intermodal world is a cautiousness, as people are cautious not to build inventories too high.”

“We think the peak season that we would normally experience is a couple of weeks still in front of us, so we would hope to see some improvement in that space, if that holds. While we don’t think it’s going to be a rocket ship kind of peak. We do expect it’s going to build, but there is clearly some cautiousness in the space with people not wanting to overbuild inventories and I guess [indiscernible] away we would feel about the macro economy cautious, steady as she goes, things are positive when you separate all the energy challenges we have.” –Union Pacific (Railroad)

Twitter is full steam ahead under Jack Dorsey

Anthony Noto – Chief Financial Officer

” we’re focused on what we control which is executing on the business, we haven’t missed a step since the transition to Jack, we’ve been full steam ahead.” –Twitter (Social Media)

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. “

Anadarko Petroleum 1Q15 Earnings Call Notes

Teams doing well cutting costs and growing volumes in a difficult environment. Able to raise production guidance

“In both fields, new horizontal well performance was outstanding, and the benefits we’re getting from lower service costs, we’re seeing significantly improved economics. The asset teams are also doing a great job of realizing additional volumes by moderating our base production decline. As a result, we’ve invested less than expected in the quarter and we’ve delivered sales volumes that surpass the high end of our guidance. All told, the efficiency gains, outstanding well performance, cost savings, and reduced downtime enabled us to increase our full year sales volume guidance by 5 million BOE, and to reduce our initial capital spending expectations”

I’ve always thought we’re pushing the later innings of productivity improvement, but these guys are proving me wrong

“Well, there’s a good chance that – as we’ve done for years now, is we’ll continue to improve these things. We’re testing some additional processes that make our drilling faster and more efficient in Wattenberg as well the Eagle Ford. So, I would think that you’ll continue to see these. The rate of change is always dependent upon our creativity and execution, and we’re going to work really hard on those, to make sure that we can do the best job we possibly can. So, I foresee it continuing. I’ve always thought we’re pushing toward the later innings, but these guys have continued to prove me wrong. So I’m excited about how things are going.”

We need higher sustained oil prices to really get back into growth mode. It’s a reservoir by reservoir basis though

“Everything’s got its own characteristics and own reservoir uniqueness. So, there’s not really a price point by which we would say, oh, we’re now back into a growth mode. I think what we would say is that we need to see higher oil prices than we have today. But most importantly, they need to be higher and they need to look – appear to us to be sustained.”

Higher prices could bring higher production than people are anticipating

“I think we still have some concerns that, as we achieve higher prices, we could see activity increase and prices, unfortunately, could suffer as a result of higher production than people are anticipating. So, we’re going to be a little careful in terms of adding to that production number. We – if we need to, we’ll continue to drill and add to inventory until we’re convinced that we’re actually going to get good rates of return at the wellhead with that capital on the margin.”

There’s a lot of capital waiting to go into our business

“in January at your conference, I think the outlook was pretty dire for what commodity prices, and oil in particular, could look like for the balance of the year. Prices are a little higher than I would’ve anticipated in January. We have an awful lot of capital sitting on the sidelines waiting to go into our industry. Whether it’s private equity, the public capital markets, or other forms of capital that – sound like the mushroom is starting to get over $100 billion waiting to go into our industry, broadly defined.’

We may have some opportunities we’d like to acquire, but it has to be a really good deal

“So it may be a situation where we’ve got a lot of capital chasing few early opportunities. So I’d say early on, where we have opportunities to add to assets where we’re active, in particular the Wattenberg, the Delaware basin or in the Eagle Ford. We would like to add to that where we think it makes good sense. But I also would caution that comment quickly to say, it’s got to be a deal that really makes a lot of sense to us, because otherwise we’re pretty happy with the inventory we’ve got, and opportunities have to look attractive on the margin, relative to the way in which we would feed capital into our current portfolio.”

Happy with the way a new administration in Mozambique is treating them

“And, as Jim made reference earlier, we’re quite pleased with the way this new administration has been working with us. We’ve made significant progress to date, and still have a few things to get done prior to getting that plan of development submitted.”

We’re still in a negative FC environment for most companies. We still don’t see service costs synched with the environment. There are some companies that are going to bet that prices will run up. We’re not going to be one of those companies

“I think what you’re seeing as an the industry, we’re still in a fairly negative free cash flow environment for most companies. That’s one of the reasons, I think, you should take from the comments from this morning. We’re fairly cautious because we don’t quite yet see service cost synced up to the environment that we’re in from a hydrocarbon price perspective.

Until we start to see more of that synchronization, we’re going to be pretty cautious. I think most of our industry will be fairly cautious. There probably will be some that made – decide to take a bet and thinks that prices are going to run up, and they’re going to get ahead of it with their operations. We won’t be one of those.”

Anadarko 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Cutting capex in line with peers

“I think it would be fair to say that you can anticipate once we have reviewed with our Board, received their concurrence that our capital plan for 2015 will be significantly lower than it was for 2014. And I think you can expect it will probably be in line with the type of reductions you have seen from our peers.”

Not going after growth in a low commodity price environment

“I mean we don’t really see the need to grow in an environment where we don’t have well head economics, purely for the simple purpose of having production growth as an objective.”

If we can push down service costs then 70 will be the new 90

” If we were fortunate enough to be able to find a [indiscernible] to save 20% reductions in service calls and you think about it being in a prior world at $90 per barrel and the economics they gave us at the well head, $70 could be the new $90 or $90 could be the new $70, however you want to look at it.

So we think that $70 gives you the same economics that $90 with the 20% reduction in service costs. I think that’s sort of the way our industry is going to have to look at things.’

This is going to be a new environment

“This is going to be a year of transition, to a different service costs that gets synced up with a different commodity environment. ‘

We’re in a U shaped recovery camp

“I think today we would concur with those that are in the camp that think we have a U shape. We’re not anticipating it being V shaped. ”

Got short term contracts

“Most of our contracts now are on a well-to-well basis and we’ve lowered our completion crews from 16 to 11 already and the predominance of the 11 work for us on kind of pad by pad basis. So we’re getting — we are in a really good spot to take full advantage of whatever the price concessions that we can get.”

Do have relationships with our service providers

“I would say, certainly the larger companies and we want to work with our service providers. We do have a partnership here that goes beyond the next quarter, or the quarter after that, but we will work hard to try to figure out ways to sync up to where if we have the types of service cost reductions that allow us to go back in and see capital at good rates of return we will. We won’t chase growth just for growth’s sake.”