THE WOODLANDS Feb 2, 2016 (Thomson StreetEvents) -- Edited Transcript of Anadarko Petroleum Corp earnings conference call or presentation Tuesday, February 2, 2016 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Colglazier Anadarko Petroleum Corporation - IR * Al Walker Anadarko Petroleum Corporation - President & CEO * Bob Gwin Anadarko Petroleum Corporation - EVP of Finance & CFO * Jim Kleckner Anadarko Petroleum Corporation - EVP of International & Deepwater Operations * Darrell Hollek Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production * Bob Daniels Anadarko Petroleum Corporation - EVP of International & Deepwater Exploration * Mitch Ingram Anadarko Petroleum Corporation - EVP of Global LNG * Scott Moore Anadarko Petroleum Corporation - VP of Worldwide Marketing ================================================================================ Conference Call Participants ================================================================================ * David Tameron Wells Fargo Securities, LLC - Analyst * Doug Leggate BofA Merrill Lynch - Analyst * Evan Calio Morgan Stanley - Analyst * Ed Westlake Credit Suisse - Analyst * John Herrlin Societe Generale - Analyst * Ryan Todd Deutsche Bank - Analyst * Charles Meade Johnson Rice & Company - Analyst * Scott Hanold RBC Capital Markets - Analyst * Bob Morris Citigroup - Analyst * Paul Sankey Wolfe Research - Analyst * David Heikkinen Heikkinen Energy Advisors - Analyst * Brian Singer Goldman Sachs - Analyst * Jeffrey Campbell Tuohy Brothers - Analyst * Harry Mateer Barclays Capital - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning and welcome to the fourth-quarter 2015 Anadarko Petroleum Corporation earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to John Colglazier. Please go ahead. -------------------------------------------------------------------------------- John Colglazier, Anadarko Petroleum Corporation - IR [2] -------------------------------------------------------------------------------- Thank you, Emily. Good morning, everyone. We're glad you could join us today for Anadarko's year-end 2015 conference call. I need to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. We believe that our expectations are based on reasonable assumptions; however, a number of factors could cause results to differ materially from what we discuss today. So I encourage you to read our full disclosure on forward looking statements and the GAAP reconciliations located on our website and attached to last night's earning release. Additionally, as we always do, we have provided more detail in the quarterly operations report on our website. I would like to take a moment and thank Robin Fielder for the contributions she has made to the IR team and her efforts over the 1.5 years. She is transitioning back to the operations group, and Shandell Szabo, a geologist with experience across the Company, is joining our team, and she is looking forward to taking your calls after the call today. At this time, I will turn the call over to Al Walker and we will open the lines in a few minutes for Q&A with Al and our executive team following his remarks. Al? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [3] -------------------------------------------------------------------------------- Thanks, John. I would also like to take a moment and just say, Shandell, welcome to the organization that John has built, and also introduce Mitch Ingram. Many of you know Mitch joined us in the fourth quarter of last year as EVP of LNG coming to us from BG Group, where he was an Executive Vice President of the technical aspects of the company, as well as a member of the executive committee. Mitch's background with BG includes many accomplishments; most noteworthy is the accomplishments he achieved associated with their Queensland Curtis LNG project. Additionally, I would like to say how proud I am of our employees who served and proved more than once through the challenges of last year just how great they were at navigating the uncertain price environment we anticipated as we entered 2015. Through their combined efforts, we outperformed our initial expectations by increasing our higher margin oil sales and volumes, while spending significantly less capital and improving our cost structure and enhancing efficiencies. We also closed $2 billion of monetizations. Additionally, during the year, we reduced our capital spending by almost 40% and oil prices fell by almost 50% over that time horizon. We organically replaced more than 130% of our production with reserve additions at a cost of about $14 per BOE. We also significantly increased the percentage of our reserves in the proved developed category to 80% at year-end 2015 compared to 69% at the end of 2014. These achievements position us well to manage through the market uncertainty and volatility we see in the coming years. As I mentioned in last night's news release, and later this month, we will recommend a capital program to our Board that reflects our view of 2016 and beyond. Our preliminary expectation is that APC will spend about $2.8 billion this year, which is roughly one-half of what we spent in 2015, and 70% less than our expenditures in 2014. As stated on other occasions, we will favor value preservation and allocating this capital, and as such, our short cycle US onshore investments will be impacted the most. 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. Even with these reductions, our total sales volumes across the Company are expected to only decline by 1% to 4% on a divestiture-adjusted basis, with lower margin gas volumes accounting for all of the decline. We expect to keep our divestiture-adjusted year-over-year oil sales volumes and the year-over-year Q4 exit rate oil production relatively flat. Given our materially lower capital plans for 2016, this is very noteworthy and a result of exceptional efforts by our employees. We plan to achieve this through starting the production of the Heidelberg spar much earlier than expected, continued outperformance at Lucius, the TEN complex in Ghana coming online as expected in Q3, and an increased focus on our GOM tie-back opportunities. Leveraging our infrastructure enables us to deliver these incredibly capital-efficient tie-back opportunities, which we believe generate rates of return of 30% to 100%, even at today's prices. We will also continue to seek innovative ways to monetize assets this year. We already have greater than $1 billion of monetization opportunities that are at very advanced stages with no current plans to monetize more of our ownership in WGP in this environment. As we have done historically, with great success, we plan to continue actively managing our portfolio this year and have other monetizations identified, which will be pursued through the course of the year. The quality of our balance sheet remains a key objective. For the flexibility provided by our reduced capital program, the ongoing benefits of an improved capital and cost structure, and our pathway to several near-term monetizations, we are very confident in our ability to maintain or decrease Anadarko's net debt levels this year while spending well inside of our cash inflows. We look forward to going into greater detail about our capital plans and expectations for 2016 on our March 1 call, which we look forward to doing as soon as possible, but March 1 will be here soon enough. During these times and more than ever, a company's culture, its employees, its track record, and its approach to value creation matter, and we believe these are all competitive advantages for Anadarko. With that, we will open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) David Cameron (sic), Wells Fargo. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [2] -------------------------------------------------------------------------------- Good morning. Al, you just addressed it there, but obviously the big concern in the market has been the ability to maintain investment-grade status, and that's caused a lot of noise in the share price. Any more detail you can give? It sounds like you've got $1 billion and what else -- can you give any other color around that? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [3] -------------------------------------------------------------------------------- Yes, David. We see the over $1 billion of monetizations doing a lot to address the question of how we're going to fund this year -- activities with cash. Bob has been spending most of the quarter to date with lots of different issues associated with the question you are asking, so I probably will, if you don't mind, defer that question to him. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [4] -------------------------------------------------------------------------------- David, great question. Obviously, everybody has seen that both agencies have taken down their price cases again. Moody's placed essentially the entire sector on review. We have 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. This is all part of normal course this time of year, although usually all that is done after our investor call. We would hope and expect that the agencies are going to apply their historic standards and their historic methodology in their current analysis. On that basis, if they do so, we believe that we are soundly investment grade and we will become even more so as we execute the 2016 plan and the monetizations beyond that initial $1 billion-plus that Al referred to. Obviously, there's a lot of folks that are talking to the agencies, a lot of rumors out there. We can't predict at this stage what we think their actions are going to be. We can only control the things we can control, but we believe that the plan that we have, easily identifiable and transparent, maintains an investment-grade rating with all three of the agencies and puts us in a position to continue to execute the plan and refinance the debt that's coming due later this year. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [5] -------------------------------------------------------------------------------- Okay. I have one follow-up. I'm going jump to ops and thanks for the color on that. If I think about short cycle, I think about the Gulf of Mexico, can you just tell me -- obviously, short cycle US production, but how do we think about Gulf of Mexico, start-up there, what volumes you are going to be adding there and I assume those are still -- with some of the tie-backs, those are still in the plans for 2016? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [6] -------------------------------------------------------------------------------- David, very understandable question, and you can appreciate that what we're trying to do today is paint the picture for more details that will come in March, but Jim could give you an example of a tie-back opportunity, just to give you some color around the black and white. -------------------------------------------------------------------------------- Jim Kleckner, Anadarko Petroleum Corporation - EVP of International & Deepwater Operations [7] -------------------------------------------------------------------------------- Yes, this is Jim. Let me just give you a brief overview of some of the fields that we have. We have fields that are close to infrastructure that we can tie back at relatively low cost. One of them is Caesar/Tonga and this deal field back to our Constitution spar. It has a ribbon-like structure with a lot of undeveloped reserves that, for relatively low costs, we're able to drill and complete and tie back quickly. Wells that produce upwards from 6,000 to 10,000 barrels a day. So Caesar/Tonga offers those tie back opportunities, and we have two wells, one has been drilled that is in the completion phase; the other one has been drilled and will be completing here into 2016, and bringing that on production here in the third quarter of 2016. So that's an example of some of the tie back opportunities we have that are relatively short cycle. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [8] -------------------------------------------------------------------------------- All right. Thanks. Appreciate all the answers. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [9] -------------------------------------------------------------------------------- Thank you David. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Doug Leggate, Bank of America. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [11] -------------------------------------------------------------------------------- Thanks. Good morning, Al. Good morning, everybody. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [12] -------------------------------------------------------------------------------- Good morning. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [13] -------------------------------------------------------------------------------- Al, you've -- the whole Anadarko investment case has been predicated over the years with the balance you've had in your portfolio between short cycle and long cycle projects. In this environment, how do you plan on pace or think about things like Shenandoah, Yeti, Paon, Mozambique, given the uncertainty in the oil price? How do you think about how you continue to execute on those and basically get market recognition for the value? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [14] -------------------------------------------------------------------------------- Well, Doug, as always, you ask really good questions, and I appreciate your question a lot. As we think about 2016 and taking the comment that's been made about trying to preserve value, when you consider -- I believe this year, we would estimate that our maintenance CapEx is going to be about two-thirds of what it was in the prior-year for maintaining volumes. You couple that with -- we anticipate our oil volumes being relatively flat through the year, that only the decline we see on a divestiture-adjusted basis coming from gas, we believe that at some point, when growth matters again, we are prepared to go back to growth. But by lowering that maintenance CapEx two-thirds, or two-thirds, rather, of what it was the prior year, that's pretty impressive in terms of being able to create that value preservation that we are looking for. 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. At some point, when we make a decision to take -- either to sanction or FID any of these longer-dated projects, it will be in an environment which we believe we can recommend to our Board first that we make that investment. So that's the confidence that I would have if I were an investor, that we will do that when it is appropriate. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [15] -------------------------------------------------------------------------------- I appreciate that, Al. I'm probably going to get in trouble with Mr. Colglazier for this one, but I'm going to have a go anyway. This is the first call you've had since the events of November. I know that there is obviously some issues around debt maturities and stuff like that, but perhaps some people think it's [weighing on the] balance sheet, but -- or on the share price. Our feedback is probably just as much about whether there is an active acquisition appetite at Anadarko. So I wonder if you can maybe just take a minute to just give us a explanation as to why you thought the Apache deal was attractive to Anadarko and put those concerns to rest maybe once and for all? I will leave it there. Thanks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [16] -------------------------------------------------------------------------------- Okay. I thought you were probably talking about the MLP meltdown in November. I didn't anticipate you were going to ask me about the other. Really the comments that we made back in November associated with the press release that day is about all I have to say on that matter. There really isn't anything else that I can add to it. In addition, we continue to make the comment -- I'll reaffirm it here -- the acquisitions that we are most interested in have to do with areas that we have focused areas of concentrated operations, be that in the DJ Basin or in the Delaware Basin, very competitive places in which to buy things, but those are the focus that we would have today. But I also believe that the things that we're trying to do to take 2016's environment and making the most out of it is probably the most important agenda at hand. Getting through this year, being able to keep our oil volumes flat on a divestiture-adjusted basis, the only reduction we see in volumes coming through gas properties that were not investing in, in this market. Those are the things we will do this year, while preserving the balance sheet and looking at it as a key objective for improving the quality where we can. Because I made the comment earlier, and I reaffirm it here, we believe we can maintain net debt at a level that it's at today, if not reduce it further, while still meeting the capital objectives that I laid out this morning. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [17] -------------------------------------------------------------------------------- I appreciate you answering the question. Thanks, Al. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [19] -------------------------------------------------------------------------------- Good morning, guys. Impressive cuts here. A follow-up on the monetization program, the $1 billion that you referenced. Are those producing assets and could you provide any color on the asset market and your confidence in the ability to execute in 2016? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [20] -------------------------------------------------------------------------------- Well, let me just say, at March 1, we will go into a lot more detail, but -- since all that reports into Bob, let me defer to him on that one. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [21] -------------------------------------------------------------------------------- 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. It will take greater shape as we announce them either at March 1 of between now and March 1. 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. So much like the assets that we sold last year in monetizing $2 billion, they are not things that are going to be material to the Company's future or the Company's growth or they may not be of a size that's material to a Company of our scale and our expectations for the future. So we've got a long list of them, but as Al mentioned, there are some that are near-term, higher probability that we feel very comfortable in executing, and when added to our discretionary cash flow, would exceed the $2.8 billion number that we talked about today. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [22] -------------------------------------------------------------------------------- That's great. Could you also provide some color on your DUC completion strategy assumed in this flattish production profile and a significantly lower CapEx? Are those assumed deferred, like your drilling program, or is there any change there as you think about 2016? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [23] -------------------------------------------------------------------------------- Evan, this is Darrell. As we look at our iDUCs, obviously, with reduced capital it's going to impact that some, and as Al spoke later, we looked at this from a portfolio standpoint, and as we look at the iDUCs, we fully anticipate we will not get through the existing iDUCs that we have in 2016, which really sets us up greats for 2017. So again, we will talk a little bit more about it in the March call, but it's just going to benefit 2017, but no, we will not get through our complete iDUC inventory. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [24] -------------------------------------------------------------------------------- Let me see if I could slip just one last one in here. You guys have correctly been more cautious on the commodity outlook since early 2015. Given your production resiliency and ability to do significantly more with less, and similar trends in the US, are you preparing for a down cycle that can last well into 2017 or can you share any of your macro outlooks, at least in regard to how you're setting up the Company right now? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [25] -------------------------------------------------------------------------------- Well, if I can take a minute and I will play Al and look through the looking glass, yes, we do think the current environment that we're in will probably 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 is currently in the market or anticipated in the near future, we will continue to be a very cautious investor in this environment. You're right. You go back to this call a year ago, we were very concerned that this was going to be much longer in its recovery period than it tends to -- or at that time, people tended to want to think might be the case. You also go back to prior periods in history -- some of us have been around the oil and gas of business a long time -- 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. That will probably add to greater volatility in the coming years than we're certainly seen in the last five, and I would even say in the last 30. We have just not seen shale and its short-term inventory and its ability to respond to prices in the same way we do now. I'm not trying to paint a picture that looks like North American natural gas because here we've got 94 million barrels a day of demand, being maybe over supplied maybe 1.5 million to 2 million barrels a day. That's a very different environment than natural gas in North America. So it could correct itself. But as prices move up and the intersection of supply and demand improves prices over time, it will largely come from a supply contraction in the near-term, not from a demand response. All of us, and most importantly, most economists have been very surprised at the very limited demand response we've seen by the lower petroleum product prices around the world. So it's for those reasons that we're taking again this year and into 2017 a very cautious approach. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [26] -------------------------------------------------------------------------------- Appreciate such. Thanks, guys. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [27] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [29] -------------------------------------------------------------------------------- These are probably two longer-term questions. Just in the Gulf of Mexico -- obviously Shenandoah, you've still got one more well you want to drill there --people are still saying, look, we are waiting and seeing to see how low things like facilities costs can go, but I would appreciate any update in terms of the prices you think would be required to get something like a Shenandoah or, say, a Yeti over the line? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [30] -------------------------------------------------------------------------------- Let me take part of that. Today, we are not drilling with a view that we would develop Shenandoah in a $30 price environment. You can probably frame the issues as that as we appraise, and Bob is going to walk you through where we see the next step on appraisal here. Taking a final investment decision or a sanctioning here is not something that will happen in 2016. If prices, when we do -- when we are looking at the commerciality of this particular development -- will be considered as a part of how we think about investing the capital in the development. The two are very separate. So I would like Bob to talk to you a little bit about what we're seeing from the appraisal perspective, but if you're concerned about us taking a sanctioning or a final investment decision in a $30 price environment for Shenandoah, I can put that one to bed pretty quickly. -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corporation - EVP of International & Deepwater Exploration [31] -------------------------------------------------------------------------------- Yes, this is Bob. We just finished the Shenandoah-4 appraisal well; it's located off to the west of our previous activities. We found over 620 feet of high-quality oil pay in that well. We're very pleased with it. We also were able to get about 550 feet of core. That's important for planning what that development could look like. So that's going to be analyzed, turned over to the reservoir engineers as they put together a scenario for how we might develop that. At the same time, we are looking at drilling Shenandoah-5. We think that's a well that's required. It is off to the east. It would between Shenandoah-3 and the original Shenandoah-1, up-dip of Shenandoah-3, which was a wet well that encountered very, very good sands, gave us a down-dip limit on the eastern side. So that well should spud here in this first quarter. We have high expectations for it, but we need to drill the well and see. That's what appraisal is all about. Meanwhile, the guys are taking all the information that we obtain from this, rolling it into conceptual planning as to what resources we may be able to recover, how much it might cost, those types of things. As Al said, we're a long way from sanction at this point. If Shenandoah-5 is successful, we may move even farther to the east with a Shenandoah-6, but of course that will be all dependant on what happens at Shenandoah-5. Yeti. We're pretty much done at Yeti with the assessment of it. We drilled the initial well, had success there in the middle Miocene. Good oil pay, good reservoirs. We went down dip with a sidetrack in the water so that we got a good handle on where the oil water contact would be. So we got a fairly good limit on that side of it. We then drilled the Yeti-3 well, which was really an exploratory well with a down-dip tail to get some information on Yeti, but we didn't think it was going to be a particularly good well from a hydrocarbon prospectivity in the original Yeti discovery. The upper zone that we were targeting had very good sands but it was wet, but we were then able to go down to the middle Miocene, get a core across that interval, so again, get the information that's needed for the teams to put together their development plan. This is going to be very nice tie-back into one of the existing nearby infrastructures. So the folks are working on that, but again, they've got a lot of work to do and then the commodity prices have to cooperate, along with service costs to make sure that, that's an economically viable project when we do decide to move forward with it. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [32] -------------------------------------------------------------------------------- Thanks. My second FID-related question is around Mozambique. It feels like you guys have been doing a lot of work and making a lot of progress. Maybe just a run-through of what Is need to be crossed and Ts dotted, or the other way around, to be ready to move forward with the project subject to market? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [33] -------------------------------------------------------------------------------- I'm going to ask Mitch Ingram, if he would not mind to give you an overview of where we are, but similar comment that I made as it relates to Shenandoah would be appropriate for Mozambique, in that we've got a lot of things that we and our partners and the government need to work on. With that, Mitch, why don't you, if you would, just give him a little bit of an overview? -------------------------------------------------------------------------------- Mitch Ingram, Anadarko Petroleum Corporation - EVP of Global LNG [34] -------------------------------------------------------------------------------- We continue to make progress with this project. At end of last year, we reached agreement with the government on a number of important issues to drive value certainty. In 2016, we hope to conclude our negotiations with the government on the key agreements, together known as legal and contractual framework. And we hope to make further progress with the customers and financiers who underpin the project. To make the decision on FID, all three elements are combined and these are linked, which will then provide a [certainty through] project and allow us to realize significant value. -------------------------------------------------------------------------------- Ed Westlake, Credit Suisse - Analyst [35] -------------------------------------------------------------------------------- Thanks very much. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [36] -------------------------------------------------------------------------------- Thanks, Ed. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- John Herrlin, Society Generale. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [38] -------------------------------------------------------------------------------- Two quick ones. Al, you talked about innovative financing regarding the monetizations. Can you be more specific? What's innovative? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [39] -------------------------------------------------------------------------------- We've done some things in the past, John, that were a little bit different than others, by the drill-to-earn things that we achieved, both onshore initially in the Marcellus, and later in the Eagle Ford, and then we took it into the deepwater and then into Mozambique. One of the things I take a lot of comfort in, well as a lot of pride, that Bob Gwin and our financial organization do a lot of things that are leading edge. I think we will find some innovative different ways to approach the land which we look at funding our capital needs. That's not to imply that we're going to get out ahead of things with stuff, but rather to be innovative, and I've always believed that one of the competing differentiators for Anadarko has been our ability to be ahead of the curve on finance. Bob, you're welcome to weigh in with any comments you would like in addition. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [40] -------------------------------------------------------------------------------- I don't have anything else. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [41] -------------------------------------------------------------------------------- Okay, that's fine. Next one for me. You said, Al, that we're going to be in a world with greater product price volatility, shorter cycles, et cetera. Does this mean going forward that you may contemplate reducing long-cycle business or perhaps taking more of a consortia approach going forward for things like deepwater plays? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [42] -------------------------------------------------------------------------------- I would say in the near-term, John, our focus on tie-backs could be part of that answer. Greenfield project development, unless we have a substantial estimated ultimate recovery from some of our exploration activities, do make it a little more challenging. One of the things we've done a good job of it as we have developed various things is being able to find a market to take the development component of our finding and development cost. Whether that market is always there will be a function of the economics. As we come out of the cycle, and we at some point will, and to what extent, we will find out, in the near-term as we come out of the cycle, we will move back to a higher [waiting] in our short-cycle inventory and move the waiting that we've moved the last couple of years into intermediate- and longer-cycle investing and shift that back to short. That in part will have something to do with what we believe will be attractive rates of return we can get from our short-cycle investing. The two of those would be taken together, but the volatility is something we, as people who have to look at this every day, is going to be a lot different the next five years, maybe 10 years than it certainly has been the last five or 10 years. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [43] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [44] -------------------------------------------------------------------------------- You bet. Thank you. -------------------------------------------------------------------------------- Operator [45] -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [46] -------------------------------------------------------------------------------- Great. Thanks. Good morning, gentlemen. Maybe if I could ask one. Can you talk a little bit about the utilization of your rigs over the next couple of years? You've got a number of rig under contract. You are obviously still drilling on -- doing appraisal work at Shenandoah. Can you talk about how you might use the rigs in terms of appraisal versus exploration over the next 12 to 18 months? -------------------------------------------------------------------------------- Jim Kleckner, Anadarko Petroleum Corporation - EVP of International & Deepwater Operations [47] -------------------------------------------------------------------------------- Ryan, this is Jim. Our rigs, the five that we have under contract right now, one is in Cote d'Ivoire, running an exploration program. We anticipate that rig to stay in CI and then return back to Colombia to follow-up on some exploration appraisal activity. The other four rigs are in the Gulf of Mexico, and they have various expiration date terms. So what we will do is utilize those rigs through contract on various appraisals and tie-back opportunities that we talked about earlier. Some of those are the Heidelberg field drill-out that we have continued to see positive results in, and of course had early first production on. And then in K2 infield well opportunities, which are another example of short-cycle tie-back like Caesar/Tonga. So we will keep the rigs busy there, as well as additional drilling in Lucius, as we see expansion opportunities there, and potentially Phase 2 expansion in Caesar/Tonga for additional reserve developments. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [48] -------------------------------------------------------------------------------- Great, thank you. And then maybe if I could ask on the dividend. How do you think about the dividend and its place in your cash spend in a constrained capital environment? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [49] -------------------------------------------------------------------------------- This is Bob. The dividend 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 will be talking to them about the overall financial picture and the cash flows during the year and we will see, as we come out 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. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [50] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Charles Meade, Johnson Rice. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [52] -------------------------------------------------------------------------------- Good morning, everyone. I was wondering if you could, perhaps Bob, could give us a narrative of what you've learned and seen in Colombia over the last -- with the Calasu well and over the last few months, and if what you saw with that well, with your modeling of the basin, and perhaps if you learned anything on the geochemistry side? -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corporation - EVP of International & Deepwater Exploration [53] -------------------------------------------------------------------------------- Yes, Charles. This is Bob. I talked about the Kronos well on our last call, where we found 130 to 230 feet of gas pay that looked to be by a biodegraded thermogenic oil based on the geochemistry. Everything that we've done the geochemical side is holding up with that type of an interpretation. The Kronos well was not as -- didn't have as well a developed sands as maybe we would've hoped, although the objective section does like it blooms out to the north in a much better area. We'll be testing at this year. As you move 100 miles to the north at Calasu, we are moving closer to what we look at the depot center, which is a Magdalena [fan] system. We are very peripheral to it at Kronos, but in the Calasu, we're getting into a much more proximal portion of it. We saw excellent sand development at Calasu. We had about 17 meters of gas pay in one of the sands. We're working the geochemistry on it to see. As we went deeper in the well, we seem to be getting evidence of heavier components, but we didn't have any significant accumulation to speak of as we went further down. And the temperature data seemed to confirm our interpretation. As we move from Kronos up towards Calasu, the overall basin gets warmer, but it's still a very cool basin. So that still speaks to the most likely generative phase being oil in the areas that we are looking. So we're encouraged by what we've seen. We've learned an awful lot. We are now stepping back and deciding what it means to us in the Grand Fuerte area. At the same time, we acquired a big 3D up in the Col area last year and we are doing Phase 2 this year, and what we're seeing up there is really exciting and is also, given the ties that we have from the previous two wells, when we take that up into the Col area, it gets us very excited about the prospectivity of the Col area. So Colombia's got a lot more to do. We've got a lot of good data and so we're rolling that in. We are over at Paon right now. We've got quite a bit of activity at Paon. It's going to take us into the second half of the year, but when we're done there, the rig will come back into Columbia and drill what we call our Purple Angel well, which will be testing the Fuerte area, and probably the Kronos appraisal is really what it's targeted, but it's got some exploratory components to it. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [54] -------------------------------------------------------------------------------- Got it. And that would be late 2016 it sounds like? -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corporation - EVP of International & Deepwater Exploration [55] -------------------------------------------------------------------------------- Yes. It's definitely second half of 2016. It depends on how good we do at Paon with the DSTs and that kind of activities. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [56] -------------------------------------------------------------------------------- Got it. Thank you for that detail, Bob. That adds a lot. I appreciate it. -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corporation - EVP of International & Deepwater Exploration [57] -------------------------------------------------------------------------------- You're welcome, Charles. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [58] -------------------------------------------------------------------------------- Al, if I could go back. This is -- a couple of people tried to take a crack at this already but I'd like to take one more shot. I was struck by one of the -- some of the word choice in your quote in the press release. Specifically it said, in 2016 greater market dislocation appears likely. Can you elaborate on what that dislocation is? My first instinct is that you are talking about commodity prices, but as I looked at it a second time, I thought maybe you could be talking about the dislocation between service costs and the commodity price or some other thing? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [59] -------------------------------------------------------------------------------- It's more the latter, to help you just a little bit there. If you go back and think about what it takes, we're not really in the revenue business. We are 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 market, so that dislocation is, we believe, going to continue. We don't find the margins that we are seeing today to be attractive for the reasons that I've talked about this morning. Indicative of how we have, over time, done things, our ability with a substantially reduce capital plan, 50% down from last year, 70% down from 2014, being able to maintain oil volumes flat year-over-year on a divestiture-adjusted basis, speaks to the quality of the portfolio that has a good mix of conventional and unconventional resources to lean on. But that market dislocation certainly gives us a pause for doing more than the capital spending that we've talked about for the year. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [60] -------------------------------------------------------------------------------- That's helpful, Al. Thanks a lot. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [61] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Scott Hanold, RBC. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [63] -------------------------------------------------------------------------------- Thanks and good morning, guys. If I could just maybe focus my questions on where do you think the market needs to be to think about spending more capital? One of the things you didn't highlight but I noticed on your updated investor presentation is that the [Wattenberg] economics look pretty compelling. IDUCs at $25 a barrel and new drills at $30 a barrel, but what price do you need see in the market sustainable to start think about accelerating activity? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [64] -------------------------------------------------------------------------------- As I have tried as best I can, which maybe isn't exactly to the question, we really can't answer that generically. Every asset today has different types of breakevens; every asset has a little bit different characteristics. If you think about our DJ basin position, with the mineral interests underlying it there, versus, say, the Delaware Basin, where we see ourselves in a very attractive yield stream associated with the hydrocarbons being produced there, we can't just pinpoint a number for you as easily as it probably sounds like we should be able to. If you think back to a year ago, when we were at a much higher price and we were having hesitation then -- we have seen our efficiencies improve. We've seen some costs continue to come down. You saw that most recently in the fourth quarter, and we will continue to find improvements around efficiencies. Again, we're in the margin business; we're not in the revenue business. So it really is when our margins return to a level that gives us a wellhead margin that creates an acceptable rate of return, asset by asset, that we will see ourselves going back into our various support opportunities with capital. Until then, we're going to stay in a value preservation mode. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [65] -------------------------------------------------------------------------------- Okay. Thanks. Understood. And you made a comment that maintenance capital is about two-thirds of what it was last year. Could you provide some color and context around that. In addition, in prior calls, you had mentioned your base decline is around 18% or so. Where does that stand as you look into 2016? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [66] -------------------------------------------------------------------------------- We've done some work on this, and I am going to ask John if he could, just to give you a little bit of additional information, but a lot of this, we anticipate -- we don't just anticipate -- we will go into greater detail on March 1. But today, the number that we think of as a maintenance CapEx to keep volumes flat, is about $1.8 billion, which is down substantially from prior years and very, very reflective of the outstanding work our employees have been able to achieve by reducing that breakeven. -------------------------------------------------------------------------------- John Colglazier, Anadarko Petroleum Corporation - IR [67] -------------------------------------------------------------------------------- Yes, Scott. It goes along with what your comments were on Wattenberg. Having those type of breakevens, having the flexibility we have there with the 120 iDUCs that we've built up. To Darrell's point, it doesn't appear we will utilize them all this year, but all that contributes, and especially taking into account what Jim Kleckner and his guys are doing in the Gulf of Mexico with the tie backs. I don't have to -- I'm not spending money this year to get Heidelberg. We already spent most of the money to get the volume from the TEN complex. Having a full year of Lucius that's outperforming expectations, all that blends into a much lower capital requirement to keep our volumes flat year-to-year. To Al's comment in his opening remarks, we expect to be down on a divestiture-adjusted basis plus or minus 1% to 4%, so it says even then that we are not spending even to the level to keep volumes flat. So having the flexibility to still focus on our longer-dated assets and keep the sustainability portion of the portfolio going is a pretty special thing and I am pretty proud of what we have been able to do. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [68] -------------------------------------------------------------------------------- Thanks. I appreciate the color, guys. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [69] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [70] -------------------------------------------------------------------------------- Bob Morris, Citi. -------------------------------------------------------------------------------- Bob Morris, Citigroup - Analyst [71] -------------------------------------------------------------------------------- My question was already answered. Thanks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [72] -------------------------------------------------------------------------------- Thanks, Bob. Sorry. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Paul Sankey, Wolfe. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [74] -------------------------------------------------------------------------------- Good morning. The big story of the quarter was the Apache story, which obviously had a big impact on your stock price. Could you just look back on that and address it again for us? I assume that you feel that the market perception of what happened there was erroneous and I just wondered if, with the with the benefit of hindsight, you could add any color? Thanks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [75] -------------------------------------------------------------------------------- Paul, you can fully appreciate. We said all we wanted to say and could say in early November in that press release. Some of the market activity in our sector had to do with a lot of factors and we were certainly a part of that, but those were external and separate and apart from the event you are making reference to. I know you're looking for additional comments for me, but we made all the comments we intend to make in that press release. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [76] -------------------------------------------------------------------------------- Understood. If we could totally change subject, how do you think about hedging now? Would you be more likely to hedge at a lower price -- higher than here, but at a lower level than you previously would have been, or are you more likely to simply allow the price to rally and take what the market gives you? Thanks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [77] -------------------------------------------------------------------------------- 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 costs in order to develop. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [78] -------------------------------------------------------------------------------- I understand that at this level. What I'm saying is, would you be more inclined to hedge, let's say, at $40 or $45, where previously we would've talked about $60? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [79] -------------------------------------------------------------------------------- It comes back to what kind of margin we get at the wellhead. If we are finding ourselves with an attractive wellhead margin that we want to be able to somewhat lock in for a short to intermediate period of time, that would be something that we would find worth spending some time on. Typically in the past, we've tried to approach every period with taking about one-half of the hydrocarbon price risk off the table, whether it is natural gas or oil. That philosophical view has not changed, but it really comes back to seeing something in the market that gives us that wellhead margin that's attractive to be able to use some derivatives to help us protect the price movements from. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [80] -------------------------------------------------------------------------------- Understood. Thank you. Then finally from me, it's been put to me that the price of oil, as you mentioned, is so low right now that actually completing DUCs is not economic. Is that fair? And I will leave it there. Thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [81] -------------------------------------------------------------------------------- In our case, what we see is it's really from a capital allocation perspective. The reason that Darrell is talking about the inventory of DUCs from the beginning of the year to the end of year is more reflective of our Heidelberg and TEN longer-term project coming into production, coupled with the tie-back opportunities that we see in the Gulf of Mexico actually having better rates of return. Again, it's just the ability to have a conventional and unconventional mix of resources allows us not to have to lean on assets in an environment that only do well in a short cycle environment. -------------------------------------------------------------------------------- Paul Sankey, Wolfe Research - Analyst [82] -------------------------------------------------------------------------------- Thank you very much. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [83] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [84] -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [85] -------------------------------------------------------------------------------- Good morning, guys. Al and Bob, was curious about your discussions with your investment-grade bond holders and how they see the rating agencies' potential moves impacting their ability to hold downgraded or non-investment grade debt in their portfolios? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [86] -------------------------------------------------------------------------------- You bet. Bob is much more capable of responding to your question than I am. I just want to say thank you. I noticed this morning you upgraded us, and that's appreciated. Bob? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [87] -------------------------------------------------------------------------------- Thanks, Al. Obviously, we talk to those bond holders. I am not in a position to comment on things they might've said about their ability or willingness to continue to hold the bonds. They need to -- those conversations are best held with the individuals. I will say that certain of them that I have spoken to are concerned about some of the approaches that Moody's in particular might take relative to their historic methodology. Conversations that they have held that cause them to believe that perhaps what traditionally were just subcomponents of Moody's methodology become overriding factors and that there is a political dynamic at work that is not necessarily linear relative to the last several years of an approach that we can all rely upon. That certainly appears to be affecting bond holders' comfort with the current situation. I don't believe that same dynamic exists with the views of how S&P is taking what I would call more of a traditional measured response to the commodity price environment, but those are all anecdotal types of things. We don't know that they come to pass, but they are the types of things that quite frankly I think our fixed income holders are concerned, and appropriately so. All we can really do in that type of an environment is manage as responsibly as we can, continue to do what we've done historically, focusing on the quality of the assets, the asset coverage. Obviously cash flows are impacted in the current environment, and that is a temporary dislocation even if it exists longer than a year. We've tried to and are continuing to manage the portfolio on what we believe is a long-term responsible basis to provide stability as an investment-grade Company to those fixed income investors that have relied upon the way that we have traditionally managed the business and the way the ratings agencies have traditionally established their premise. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [88] -------------------------------------------------------------------------------- David, as you can tell, Bob has no energy around that topic at all. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [89] -------------------------------------------------------------------------------- Not at all (laughter). We've heard the same kind of institutional disruption, particularly tied to Moody's, so that's helpful perspective. And then, I know that this is a sensitive topic, but your focus on the margins and the current price that the market is providing, how long at this activity level do you maintain current staffing levels and how do you think about the cycle of building the Company up and then where you are now versus of where your current G&A is? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [90] -------------------------------------------------------------------------------- You can probably appreciate, in what we believe is a protracted commodity environment, not only for this year but for the coming years, that we and I think every other company in our industry will take this opportunity to look at the environment, sync up its capital plans, its activity with its workforce needs. I don't think we're going to be any different than anyone else as we go through this period of unfortunate, as I said earlier, in a response to another question, market dislocation. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [91] -------------------------------------------------------------------------------- Okay. That's what I thought. And then, just very detailed, what oil volumes do you add at Heidelberg and TEN? I just want to get the numbers that you are expecting? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [92] -------------------------------------------------------------------------------- David, if you don't mind, we've got -- you're going to take away all the stuff we get to talk about in March if we answer your question (laughter). We will go into a lot of detail March 1. -------------------------------------------------------------------------------- David Heikkinen, Heikkinen Energy Advisors - Analyst [93] -------------------------------------------------------------------------------- All right. Thanks, guys. -------------------------------------------------------------------------------- Operator [94] -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [95] -------------------------------------------------------------------------------- Thank you. Good morning. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [96] -------------------------------------------------------------------------------- Good morning, Brian. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [97] -------------------------------------------------------------------------------- Wanted to ask on the minerals interest and your royalty interest land grants. I wanted to see if there's any change to how you're thinking about that strategically and your willingness to monetize that in any way in the context of creative monetization opportunities? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [98] -------------------------------------------------------------------------------- Brian, it is Bob. No, no change to our messaging over the last couple of quarters. In this kind of a commodity price environment, we actually have put out some numbers on what the royalty income looked like in this past year. It is obviously down pretty sharply year-over-year. It is highly correlated to prices. It's not the type of environment where we would seek to monetize the royalties around oil and gas. I will point out, though, that an exception to that rule is our hard minerals royalties. We own the largest natural soda ash reserves in the world and we have a fairly nice income stream around those assets that gives us -- where we have some flexibility. And that market, in particular, in contrast to our fossil fuel commodity prices, that market looks pretty good in today's environment. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [99] -------------------------------------------------------------------------------- I'll just say in response to a question John Herrlin asked earlier, I do think Bob Gwin and Al Richey have worked in a very innovative way in their approach to how they may be monetizing those assets in the near future. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [100] -------------------------------------------------------------------------------- Great, thanks. And then I just wanted to ask a follow-up question on the drilled and completed inventory. You mentioned you may not complete all of that this year. Can you be a little bit more specific on what you do expect to complete this year as part of the $2.8 billion budget? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [101] -------------------------------------------------------------------------------- If I can -- I know Darrell would love to answer your question, but if we answer your question -- I am going to back to what I said to David -- we're not going to have anything to talk to you about on March 1. The other thing is you have to appreciate, that is all rolled into the capital plan, which we're going to recommend to our Board. Until we have that plan approved by our Board, to get out in front of them would be inappropriate. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [102] -------------------------------------------------------------------------------- Great, thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [103] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [104] -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [105] -------------------------------------------------------------------------------- Good morning. Just to share my appreciation on all the macro commentary that you've made today. First question I wanted to ask is will you have any potential take or pay issues within the Wattenberg in 2016? We recently saw a deal where an operator transferred pipeline obligations from the Wattenberg to the Delaware Basin and some of the DJ pipeline operators have been hurt by declining volumes? -------------------------------------------------------------------------------- Scott Moore, Anadarko Petroleum Corporation - VP of Worldwide Marketing [106] -------------------------------------------------------------------------------- This is Scott Moore from Marketing. We maintain a flexible portfolio out of the DJ between our [round] pipeline commitments and we felt comfortable in our ability to keep them fully utilized. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [107] -------------------------------------------------------------------------------- Okay. Great. Thank you. You mentioned in the ops report some confidence that, that the Delaware Basin recoverable oil estimates will increase over time. I was just wondering -- this may be a March 1 rejection -- but can you add some color on what needs to take place to realize your expectations? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [108] -------------------------------------------------------------------------------- Okay. We will let Darrell answer that one. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [109] -------------------------------------------------------------------------------- We addressed this last quarter, but as we continue to do look-backs, and we'll touch on this again March 1, but as we continue to do look-backs, our EURs continue to climb, so we're getting a lot of confidence that not only over a small area, but the greater 230 million acres, [or] 1,000 acres that the EURs are only climbing. So we still have a lot of work to do as we go into the next year in terms of looking at all the different horizons, not only the Wolfcamp A and B, but Bone Springs 2 and 3, but at this point, we are nothing but encouraged. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [110] -------------------------------------------------------------------------------- So if I tried to paraphrase that briefly, it sounds like the core is expanding? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [111] -------------------------------------------------------------------------------- Yes it is. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [112] -------------------------------------------------------------------------------- Great, thank you. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corporation - EVP of US Onshore Exploration & Production [113] -------------------------------------------------------------------------------- That would be a fair assessment. -------------------------------------------------------------------------------- Jeffrey Campbell, Tuohy Brothers - Analyst [114] -------------------------------------------------------------------------------- Thank you. I appreciate it. -------------------------------------------------------------------------------- Operator [115] -------------------------------------------------------------------------------- Harry Mateer, Barclays. -------------------------------------------------------------------------------- Harry Mateer, Barclays Capital - Analyst [116] -------------------------------------------------------------------------------- Good morning. First, just returning to the credit ratings questions earlier. I know there's concern about the agency methodologies, which you guys don't control, but you're not only bystanders at the same time, so what I'm looking for is what are you prepared to do to protect those ratings? Are you prepared to raise capital if that's what the agencies need to see? Where do investment-grade ratings stand on the priority scale for you? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [117] -------------------------------------------------------------------------------- What was the end of the question, Harry? Where do the what? -------------------------------------------------------------------------------- Harry Mateer, Barclays Capital - Analyst [118] -------------------------------------------------------------------------------- Where do the ratings sit on the priority scale for you, overall? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corporation - EVP of Finance & CFO [119] -------------------------------------------------------------------------------- The ratings are a very high priority for us. We've said on several occasions that maintaining investment-grade ratings are important to us and very central to the way we want to operate our business model as an international exploration Company, as a Company that is leading a project selling LNG volumes around the world, et cetera. So it's very important to us. Certainly we've got a lot of flexibility before we -- in our opinion -- before we would need to raise capital in order to address concerns. One of the issues is, are the concerns reasonable and are they addressable by simple knobs that one could turn. We talked about the dividend earlier. We've talked about asset sales. We mentioned north of $1 billion in the near term that would more than fund, in addition to our discretionary cash flow, would more than fund the $2.8 billion budget. We've got a list of assets beyond that, that we are actively working and would expect to be able to execute during 2016. Things that, when Al talked about net debt staying flat or reducing, the big variable in reducing leverage there is execution against the asset sales. And if for some reason we needed to continue to reduce net debt and were not able to execute on asset sales, then you continue to work down your list of items that become a little more distasteful the further down the list you go, but are the types of things that we would have to consider whether or not to pursue relative to where the rating agencies -- where the rating from all three agencies are and whether steps are defined by those agencies that they would like to see if indeed they take action. So it is -- you're right, we're far more than bystanders. We're actively engaged in addressing this all very proactively. But we also want to make sure that we are doing things that are responsible relative to the true underlying risk and not -- and that true underlying risk isn't always captured in a particular agency's view of an action that they may take at a point in time. So we're just trying to take it all in balance and be responsible and iterative in our approach. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [120] -------------------------------------------------------------------------------- I've answered this question as well as Bob in a lot of others settings, and the variables that we have that are most controllable for the Management team here are: reducing a capital plan, which as of today, you can see our motivation there. By reducing our capital plan year-over-year 50%, 70% lower than it was in 2014. Also looking at continuing to do asset sales and monetizations, which we have a long and very successful track record of doing. And as the question was asked earlier, and Bob appropriately replied, as we look at the yield associated with our common stock at 3%, that's historically high for us. So we look forward to discussing that with our Board and I believe those are the most important variables in the near term that we can address. -------------------------------------------------------------------------------- Harry Mateer, Barclays Capital - Analyst [121] -------------------------------------------------------------------------------- Okay, thanks for that. And then on the upcoming maturity, you mentioned your plans to refinance it, but it looks like you're planning to spend or seeking approval to spend more than the $1.8 billion you indicated as maintenance capital. So my question is why not pull back on spending even more and then use asset sale proceeds or other sources of cash to pay down that maturity and actually delever instead of just looking to refinance it? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [122] -------------------------------------------------------------------------------- There's a lot of things that we will go into March 1 that probably today will feel a little hollow in terms of my response, just because I'm not prepared today to go into detail around things that we have not sought Board approval for and I think it's just appropriate that we wait and have that conversation with our Board first. But our business, as we see it today, philosophically, is about preservation. We do think there are things that we can invested in, in the intermediate and long cycle that in fact do just that. But at $2.8 million with a $1.8 billion maintenance number, our ability in this environment to hold oil volumes flat year-over-year on a divestiture-adjusted basis, and are only decline in actual volume coming from gas properties that we are not investing in, is a pretty good indication of what we feel like is the way in which we want to manage through a very difficult and challenging period, and yet have it be capital responsive to the environment that the hydrocarbon prices are giving us. If you allow yourself to continue to go completely into hibernation and things come out at some point from this cycle and you're not prepared to then take advantage of what you can do, then we have somewhat allowed ourselves to not maximize our equity return for the costs associated with the credit profile. Bob addressed beautifully exactly what we feel like we want to do in order to maintain the highest credit quality as possible, at the same time not stall out our equity story. -------------------------------------------------------------------------------- Harry Mateer, Barclays Capital - Analyst [123] -------------------------------------------------------------------------------- Okay. Thanks, guys. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [124] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [125] -------------------------------------------------------------------------------- This concludes our question-and-answer session. I would like to turn the conference back over to Al Walker for any closing remarks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corporation - President & CEO [126] -------------------------------------------------------------------------------- Thank you. Today you saw evidence that our Management team is committed to a much lower capital spend and than practically anyone anticipated. Also you have heard from us today -- we will go into greater detail on March 1 about how we get to that $1.8 billion of maintenance CapEx. I have talked repeatedly about our -- what we believe is a very attractive year-over-year sales volume that we are able to achieve. The only decline is coming from natural gas properties that we are not investing in. I also made a comment or two and I will just highlight it again, we have extremely good line-of-sight today for monetizations in excess of $1 billion, which we hope to be announcing between here and our March 1 conference call. We think that would and should address a lot of the concerns and questions that have been posed to us about how we intend to fund our activities in 2016. 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 almost every call to emphasize it, we are a mix of conventional and unconventional resources. In 2016, you are seeing the benefit of conventional assets coming into the production profile. That's a very different opportunity set than a lot of other companies have. That nice cocktail of mix between conventional and unconventional will continue to resonate. You'll see it in the way in which our performance plays out through the year. And I do think and I know a lot of companies talk about this -- I am going to say it again. We have an exceptional culture with great employees and a tremendous track record of achieving what we establish for the year as what we think we can achieve and want to achieve and typically go beyond that. So I don't think 2016 will be any different in that. It is definitely going to be a tough year, but the opportunities that we have are quite significant, and I also think the way in which we manage our capital, we manage our business, and we have a culture that can succeed in any environment will be quite important as we get through this year and in the years to come after this. So I appreciate the support we've seeing from a lot of investors through this very difficult period. Those of you that have hung in there with us, we greatly appreciated. Those of you that are new to the investment, we look forward to making sure that everybody feels that we are doing everything we possibly can. And with that, operator, we will call it a day and look forward to talking to everybody on March 1. Thank you. -------------------------------------------------------------------------------- Operator [127] -------------------------------------------------------------------------------- The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
|