THE WOODLANDS Oct 28, 2015 (Thomson StreetEvents) -- Edited Transcript of Anadarko Petroleum Corp earnings conference call or presentation Wednesday, October 28, 2015 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John Colglazier Anadarko Petroleum Corp - VP of IR & Communications * Al Walker Anadarko Petroleum Corp - Chairman, President & CEO * Bob Gwin Anadarko Petroleum Corp - EVP of Finance and CFO * Bob Daniels Anadarko Petroleum Corp - EVP of International and Deepwater Exploration * Darrell Hollek Anadarko Petroleum Corp - EVP US Onshore Exploration & Production * Unidentified Company Representative Anadarko Petroleum Corp * Jim Hackett Anadarko Petroleum Corp - Chairman & CEO ================================================================================ Conference Call Participants ================================================================================ * Evan Calio Morgan Stanley - Analyst * Doug Leggate BofA Merrill Lynch - Analyst * Brian Singer Goldman Sachs - Analyst * David Tameron Wells Fargo Securities, LLC - Analyst * Bob Brackett Sanford C. Bernstein & Co. - Analyst * Subash Chandra Guggenheim Securities - Analyst * Scott Hanold RBC Capital Markets - Analyst * John Herrlin Societe Generale - Analyst * Charles Meade Johnson Rice & Company - Analyst * Ryan Todd Deutsche Bank - Analyst * Dave Kistler Simmons & Company International - Analyst * Edward Westlake Credit Suisse - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to the third quarter 2015 Anadarko earnings conference call. (Operator Instructions) Please also note, today's event is being recorded. I would now like to turn the conference over to John Colglazier. Please go ahead, sir. -------------------------------------------------------------------------------- John Colglazier, Anadarko Petroleum Corp - VP of IR & Communications [2] -------------------------------------------------------------------------------- Thank you, Rocco. Good morning, everyone. We're glad you could join us today for Anadarko's third quarter 2015 conference call. I would like to remind you that today's presentation does include 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. We encourage you to read our full disclosure on forward-looking statements, and the GAAP reconciliations located on our website and attached to yesterday's earnings release. Additionally, we have provided additional detail in our quarterly ops report on our website. At this time, I'll turn the call over to Al Walker, and we'll open the lines in a few minutes for Q&A with Al and our executive team following his remarks. Al? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thanks, John, and good morning. As we've said throughout the year in this period of lower commodity prices, our focus is on building and preserving value rather than on growth. And we're accomplishing what we set out to do. I can't say enough about the efforts of our employees this year, the tremendous operational successes they have achieved, and how these actions have made Anadarko a better Company. We're enhancing our oil head margins by reducing costs and improving operating efficiencies. We have increased oil sales volumes by more than 42,000 barrels per day to date, over 2014 on a divestiture-adjusted basis and continued to improve our liquids product mix. In addition to improving our cost structure by working with our service providers and vendors, we're also making permanent process enhancements. And optimizing our operations in a manner that is sustainable over the longer term. Along these lines, I want to highlight a couple of assets that really illustrate how we are sustaining our business and improving it every day. If you remember last quarter, we discussed the exceptional efficiency gains achieved in the Wattenberg field by doubling the number of wells per rig line versus the prior year. Believe it or not, we're safely making further improvements sequentially, by reducing cycle times during the quarter by almost 20% and cost per foot by almost 15%. Since last year, our organization has further reduced our costs by nearly $70 per foot drilled on each well. That's a savings of almost $1 million per well as a result of our enhanced well bore design. Plus, because of the work our Company has done, the Delaware Basin is gaining ground on the success we enjoy in the Wattenberg field as one of the most attractive and economic plays in our onshore portfolio, and one of the best in our industry. Even though we're not choosing to chase growth at this time on our 650,000 gross acre position, the work we're doing is laying the foundation for the future. And 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. An expected savings at a time we choose to pursue growth and migrate towards pad drilling across the field. For the past several years, we've focused on being financially disciplined. And we entered 2015 with a mindset of maintaining the strength of our balance sheet by aligning capital investments with anticipated cash inflows. This approach has served our stake holders exceptionally well in the current environment. The delta between our capital investments and discretionary cash flow totals $730 million, which includes $405 million of less capital. So we've covered the difference several times over by monetizing nearly $2 billion of assets this year. In addition, we're continuing to demonstrate our commitment to financial discipline by lowering the high end of our 2015 capital guidance by an additional $100 million, as well as lowering our LOE guidance. At this time, like many companies, we're evaluating 2016. At Anadarko, our program will be similar to our mindset in 2015, and that's investing within our cash inflows. This approach is expected to result in lower CapEx and sales volumes that are relatively flat year-over-year on a divestiture-adjusted basis. Given the challenging supply and demand fundamentals and continued uncertainty around sustainably higher oil prices, you can expect us to see continued investment in higher percentage longer-cycle opportunities. Such as, exploration where we achieved some very encouraging early results offshore Colombia. As well as success delineating our activities at Shenandoah, and advancing our mega projects like Heidelberg, where we've cleared all the major construction and installation hurdles and are now are on an accelerated time line for first oil. Consistent with our 2015 approach to capital allocation, we'll continue to invest fewer dollars in short cycle US onshore activities. This approach reflects our conviction that growth will not be rewarded in this environment, and focusing on preserving and building value is more appropriate at this time. Looking ahead, we'll remain focused on creating value by enhancing our well head margins, and moderating our base decline. Improving cost efficiencies, maintaining an active exploration program, and pursuing ongoing monetizations like we have done in prior years. The value we are creating today will give us the foundation for future success. And when we see value pursuing growth, we'll be prepared to accelerate activity. So with that, why don't we open it up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question is from Evan Calio of Morgan Stanley. Please go ahead. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [2] -------------------------------------------------------------------------------- Good morning, guys. Let me start off by just following up on your evolving thoughts on the 2016 budget, given the commodity price deterioration and the deterioration or the lack of access in the MLP space since the last call. Can you provide color on commodity pricing scenarios? Is there a maximum amount spend, and how does that relate to -- or your thoughts on forward asset sales and accessing the MLP markets? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Well, let me start by just saying we don't have any better crystal ball than anybody else on what prices are going to be in 2016 and 2017. 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. As it relates to asset sales, I think going back to January of this year when we talked about not pursuing growth, maybe a little bit earlier than most. And that we would continue to execute a plan that included portfolio management and the sale of assets. We still believe that will be something we will do in 2016. And I think the comments that we continue to make around wanting to be cash-neutral with our CapEx will hold the day. I think we've done a pretty darn good job of that since 2007, and I can't see 2016 being a different page in our playbook. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [4] -------------------------------------------------------------------------------- So a similar size on an asset disposal program going forward is your thought within that, living within cash flow inclusive of asset sales? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [5] -------------------------------------------------------------------------------- Well, I'm making the comment that we'll live within cash. If you look at this year and you think about my prepared comments, and how I highlighted the fact that this year we've exceeded what we believe to be our cash inflows with outflows. That speaks to the fact that we do think it's very important to make sure that we're financially disciplined. And that we continue to look for opportunities to sell assets where we think they are either non-core or the market sees a value in them greater than we do. I think we've done -- as I said, we've done a pretty good job of that since 2007. So it's not just all of a sudden we're waking up and trying to do that in 2016. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [6] -------------------------------------------------------------------------------- Great, that makes sense. And a second question, if I could. Any guidance on 2016 maintenance CapEx, or spend to stay flat? Which is likely lower due to efficiencies, dock drawdowns as well as your offshore startups? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [7] -------------------------------------------------------------------------------- Well, I think the number that we've been using recently is probably still an appropriate number, and that's about $2.7 billion in terms of that maintenance number you're looking for. And that is still a function of lots of things that are assumptions in that, including commodity prices and service costs. So I would call that a good place holder number, but I don't think there's a lot of precision around it. And I'm not sure anybody could give you a lot of precision at any time when there's as much volatility in the market as there is. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [8] -------------------------------------------------------------------------------- That's fair. I guess lastly, on -- congrats on another Shenandoah appraisal. Could you discuss how the results compare to pre-drill expectations or comments on reservoir quality, and go-forward plans? I'll leave it at that. Thanks. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [9] -------------------------------------------------------------------------------- Thanks, Evan, for the congratulations. The team did a really good job on that, and we're real pleased with it. We got 622 feet of pay. What we ended up doing was we tested up to the north with trying to find out where the basin edge was, and the first well established where the basin edge was. Then we came in and drilled to the south with a side track, and got the 622 feet of pay. It was all oil, we encountered no water in that. The reservoir quality in the initial assessment looks pretty -- well it looks comparable to everything else we've found out there. So very good reservoir quality. We're still in the early stages of that evaluation. We're in the process of getting a core, so we just kicked off and we're going to do a bypass core just right next to this well. And that's to establish the reservoir quality in the oil column, which will roll directly into our development planning. So it's very important to get that core, and we're just in the process of it. That's going to give us a much better handle on all the fluid properties, all the reservoir properties. But we pushed the most known oil down about 400 feet. As I've mentioned, we didn't establish an oil water contact here, so that tells us there's more down below us. And we're looking at what the forward plan is after this bypass core, as to what else we're going to need to turn over to the planning team for the development planning. But we're very encouraged with what we saw, and it was well within the range of expectation of what we had put out there. -------------------------------------------------------------------------------- Evan Calio, Morgan Stanley - Analyst [10] -------------------------------------------------------------------------------- Thanks, guys. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- And our next question comes from Doug Leggate of Bank of America. Please go ahead. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [12] -------------------------------------------------------------------------------- Thanks, guys. Good morning. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [13] -------------------------------------------------------------------------------- Good morning, Doug. See if I got your last name right. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [14] -------------------------------------------------------------------------------- Yes, I thought you were going to comment on my voice. I sound a little Husky this morning. Guys, on the capital allocation for next year, so I get the living within cash flow. But given the very strong performance you seem to be having in the Delaware, how should we think about how you are allocating capital to your core plays? And could you maybe just touch on where you're not spending capital, what the implications are for potentially there's some large asset sales that are likely (inaudible - microphone inaccessible) this quarter? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [15] -------------------------------------------------------------------------------- Well, Doug, as you can appreciate, we, like all of the companies in our sector right now, are trying to decide how we want to allocate capital next year. Looking into a very, at best, fuzzy picture of what that's going to look like. I think as you think about our Company, our two principal onshore assets in the DJ Basin and the Delaware Basin is where a majority, if not almost all, of our onshore capital will be spent. If you think about how we allocate capital between short, intermediate, and long. Probably somewhere around the 40% allocation level will go into short, and a large percentage of that 40% will go into those two asset plays as a percentage of whatever the budget turns out to be. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [16] -------------------------------------------------------------------------------- To Evan's point, would it be fair to think about asset monetizations as basically funding the non-productive capital? Is that as one of the levers you have? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [17] -------------------------------------------------------------------------------- It could. I think asset sales in any given year for us, and certainly 2015 is a good example. I'm not sure we had a lot of people that agreed with us back in January when we made the comments we made then about not pursuing growth. And continue to be active with portfolio management, and that we would sell properties under a certain environment that looked pretty challenging. And yet we did. So I think as we think about how we want to recycle capital and reinvest it, there will be assets that we look at that we would prefer to take and recycle that capital into things that have better trajectory around growth and returns. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [18] -------------------------------------------------------------------------------- Okay. Thank you. Just two quick follow ups, if I may. The first one is, I think yourself and Bob, but perhaps on the (inaudible) to be around, Bob and yourself. Put the cap [amongst the pigeons] a little bit earlier this year by alluding to Anadarko possibly looking at acquisitions. I wonder if you could give us your thoughts on that. And my final one is on Paon, just a comment on those additional that blocks that you got. Does that say anything about where you think the extent of the Paon discovery moves next, given that you added those two blocks in Cote d'Ivoire? And I'll leave it there. Thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [19] -------------------------------------------------------------------------------- Okay. Well, I hope you feel better. You do sound like you're not 100%. And I'll ask Bob Daniels, if he would, to address your Paon question. On the M&A, I'll stay with the comment that we always make. And that is, our objective every day is to be a better company, not necessarily a bigger company. But if in an effort to get better, we have situations that would cause us to get bigger, we'll certainly evaluate those. And the areas onshore that we have, I made comments just a few minutes ago about where we want to see ourselves spending our capital. Whether it's cash or cash flow, I think those are the areas of asset acquisitions that we would focus on. And, Bob, if you want to handle Paon. -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corp - EVP of International and Deepwater Exploration [20] -------------------------------------------------------------------------------- Doug, on Paon, we picked up one block, not two. We ended up with the 527 block as a new block. And that fit in between the CI 103, where Paon is located, and the 528 and 529 blocks we already had acquired. And so we have a contiguous four-block area out there. The reason we picked up 527 was twofold. One, it looked like there was a potential that the Paon accumulation could spill into 527. Not in a huge way, but we certainly didn't want to have somebody else get into our business there. And then we shot a 3D that covered the entire area earlier, and 527 was part of that 3D. And when we looked at the prospectivity, 528, 529 and then the new 527, we could see that that also came up onto the new block. And so we went to the government. We were able to negotiate for 527, and put that into the portfolio. It makes for a better position out there, a stronger position, that we control. And so we have both the Paon appraisal work that's going to go on as soon as we're done in Colombia. And then we have exploratory drilling that we're planning in the three exploratory blocks, 27, 28, 29, probably starting next year. We'll see how that all ends up with the budget issues. But right now, that's the plan. We like the area out there. The Paon is -- we're going to learn a lot from the DST that we're going to do out there with the number 5 well, and then we'll be looking at getting some exploratory wells drilled. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [21] -------------------------------------------------------------------------------- All right. Bob, just a quick follow-up. The 90% working interest, I'm assuming that's not your long-term plan. -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corp - EVP of International and Deepwater Exploration [22] -------------------------------------------------------------------------------- No, we've got 90% working interest in the three exploratory blocks. And we just opened a [day to room], we were waiting for the 527 block to be finalized so that we could then put the whole package together. So those will be all put together as a package. -------------------------------------------------------------------------------- Doug Leggate, BofA Merrill Lynch - Analyst [23] -------------------------------------------------------------------------------- Great stuff. Thanks very much, everybody. -------------------------------------------------------------------------------- Bob Daniels, Anadarko Petroleum Corp - EVP of International and Deepwater Exploration [24] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- And our next question comes from Brian Singer of Goldman Sachs. Please go ahead. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [26] -------------------------------------------------------------------------------- Thanks. Good morning. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [27] -------------------------------------------------------------------------------- Morning, Brian. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [28] -------------------------------------------------------------------------------- Can you talk to how your backlog of drilled and uncompleted wells in the oily plays, as well as the curtailed volumes and the gassy plays play into your capital allocation for 2016? Should we expect these to be deployed to help you improve cash flow without drilling, or are there some minimum drilling requirements to maintain efficiencies where you would wait until price has improved more dramatically before bringing that backlog on? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [29] -------------------------------------------------------------------------------- Brian, this is Darrell. If you look at what we're calling our [eye ducts] today, the intentionally deferred uncompleted wells, we got a lot of flexibility around that. To date, we've got about 200 of these. Largely in Wattenberg, but really in our big three assets, if you will, is where they all reside. And I think you can look at that as flexibility as we go into 2016. We obviously have the option to stand up completion rigs here in -- or completion crews here in the fourth quarter. But with commodity being what it is, I'm not sure that's going to be our best move forward. But I think if you look at 2016, for sure, as we look to pull back capital, these are going to be very efficient opportunities for us to maintain our volumes while spending less capital. So I think you can look at it as a huge lever for our 2016 program. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [30] -------------------------------------------------------------------------------- That's great. Thanks. And my follow-up is on the offshore. Can you characterize the cost structure you see now for development projects? Both as you think about the rates of return from Shenandoah, I know that's still well in the future. But also in Mozambique, what oil or LNG price do you need now versus say a year ago? -------------------------------------------------------------------------------- Unidentified Company Representative, Anadarko Petroleum Corp [31] -------------------------------------------------------------------------------- We're seeing cost reductions across the board offshore. Obviously, the ultra deep water drill ship market has come down significantly. But we're also seeing a lot of the services supported on the rig side as well, wire line, pumping services, mud and cementing operations. That being said, though, they probably haven't approached the commodity price reduction. So we're having to, when we look at our offshore developments, look at larger, more prolific reservoirs as Shenandoah is. It has a very high oil column, and we'll be testing deliverability of these oil columns to see what type of flow rates we have. So we aren't going to be able to offset the commodity prices completely. But what we'll look at are higher flow rate completions, and try to work the cost structure down on the offshore marine development systems as well. We've brought in new 6 generation rigs, and the initial results on those wells are very, very encouraging as far as reducing our cycle time to drill. So we're seeing some cost improvements, that not so much equate to service reductions, but efficiencies in drill times. Some of our recent wells in Heidelberg that hit record costs for us of less than $100 million to drill. That's not the completion costs, but the drill costs. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [32] -------------------------------------------------------------------------------- That's great. That's helpful. Any Mozambique update as part of that? -------------------------------------------------------------------------------- Unidentified Company Representative, Anadarko Petroleum Corp [33] -------------------------------------------------------------------------------- Well, the LNG markets are affected as the oil markets as well. I would say this, as the Mozambique project progresses, we're hitting the market with procurement regarding the subsea equipment, the infrastructure, the offshore pipe water laid vessels, to put everything in place for the offshore development. And then the onshore development for liquefaction, we've already gone to feet tender. And those costs are coming in better than the original costs that we had, primarily due to the competition in the marketplace right now. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [34] -------------------------------------------------------------------------------- Brian, this is Al. I know you very likely know this, and so I don't mean to repeat something I know that you're well aware of. But just in case others are not. We believe that our cost of providing gas into a market there, that if we're not the lowest cost producer, we're certainly one of the lowest cost producers in the world. In how we bring that Mozambique LNG into the market at the back end of this decade. And I think that gives us a tremendous advantage in terms of how this project will move forward. And why, when we've been most recently in front of the utilities in Japan, why they see this as a very attractive place for offtake agreements in a market that's pretty crowded today. They just see the potential for multiple trains beyond the first two, and recognize the benefit of being a foundational buyer. -------------------------------------------------------------------------------- Brian Singer, Goldman Sachs - Analyst [35] -------------------------------------------------------------------------------- Thank you very much. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [36] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [37] -------------------------------------------------------------------------------- And our next question comes from David Tameron of Wells Fargo. Please go ahead. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [38] -------------------------------------------------------------------------------- Morning. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [39] -------------------------------------------------------------------------------- Morning, David. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [40] -------------------------------------------------------------------------------- Al, you talked a little bit about M&A. But can you talk about just the current bid ask spread? I think it was a year ago when you came out and said it's a seller's market. Can you talk about how that's changed over the last three months, if you're seeing any movement there? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [41] -------------------------------------------------------------------------------- I think Bob Gwin and I can tackle that one with you. I'll give you my thoughts, and he can give you his thoughts. And if he disagrees with me, he can do that, too. 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. So 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 often times 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 receptively they are giving. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [42] -------------------------------------------------------------------------------- David, this is Bob. I agree with Al. It's pretty clear that there are a number of management teams that 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. I agree with Al. It's not the seller's market that it was earlier this year. Where we saw that on things we bid on, we might be getting outbid to the tune of 2X, and had had substantial success selling into it. But we believe that there's still a supply and demand fundamental around these kinds of assets that in 2016. For the right assets and the ones that we're looking at that likely wouldn't receive funding in our portfolio over the next several years, but still have really nice return characteristics associated with them. We feel like it's going to be solid enough to be able to execute a program, and it's the reason it's part of our planning going into 2016. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [43] -------------------------------------------------------------------------------- Okay. That's helpful. And then, Al, let me go a little philosophical on you. I hear what you're saying about returns, and I know in theory, that's the right thing to do for a company. And I know that's what the markets should reward. But as you know, over your career, growth has been rewarded rather than returns. How do you think about -- I know you guys do what's right for Anadarko, but I'm just trying to balance those two in my head if I start thinking about -- let's look out to 2017, 2018. How do you think about that? Because calling for a change in shareholder behaviors seems to be a difficult thing to do. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [44] -------------------------------------------------------------------------------- Well, it's a fair question and a fair comment. I would say historically, the observation has a lot of accuracy. 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. As we move into potentially a longer period of lower prices, I think the efficiency will still be something that gets rewarded, and capital allocation around that efficiency will as well. So I think as you look at companies like ourselves, and we're not unique, but both companies that have good well head 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, and I'll call it, the intermediate term, that we probably will see the market, the buy side reward, companies that can achieve that. And if you go back to the company that was created out of three companies in 2006 and since 2007, I think this Company and this management organization has done a really good job of allocating capital. It's one of the things that while we've had anything but a stable market to sell into, or have had anything but a stable situation with respect to how we had to manage through two very difficult situations with [Trunox] and McCondo. The allocation of capital became I really believe one of the things that allowed us to get through that. When you coupled it with what the employees were able to achieve with all of the allocation and decision-making and being able to move capital around and doing things in the field efficiently. So David, I do believe we're probably entering into a period that maybe is a little different than the historical norm, and I think we saw a little bit of that in 2008 and 2009. But if you go back a couple more down cycles and look at it, your comment is fair. It's typically been a market that rewards growth and even in a period where you don't have well head margins, growth seems to be the mantra. I'm not seeing as much of that personally today. I would be interested to know if Bob who works his hand in glove with the capital markets as much as anybody in our organization, if you see it any different. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [45] -------------------------------------------------------------------------------- I don't see it differently in the current environment. You asked I think as far out, David, say 2018. And one of the things that we're focused on with capital allocation, the reason we're focused in, as Al mentioned earlier, in the onshore, the Wattenberg and the Delaware. Is that these are assets that have tremendous intrinsic growth potential. So we remain in a position where we could dial up the rig count and dial up the completions fairly quickly. And even for a company our size, we feel we have the ability to deliver material growth. Combining that type of onshore growth with the mega projects that we're bringing on in 2016 and on the back side of that, Mozambique. So it's not a matter of we're ignoring growth. We're remaining ready for growth. We just think that the better allocation of capital today is to focus on building that longer-term value, and not accelerating growth, selling your best assets into a relatively lower margin environment. Everybody's going to drill onshore in the US, everybody's going to drill their tier 1. But they are 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. -------------------------------------------------------------------------------- David Tameron, Wells Fargo Securities, LLC - Analyst [46] -------------------------------------------------------------------------------- Okay. Thanks for the thorough answer. I'll keep it at two. Thanks, guys. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [47] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [48] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [49] -------------------------------------------------------------------------------- And our next question comes from Bob Brackett of Sanford C Bernstein. Please go ahead. -------------------------------------------------------------------------------- Bob Brackett, Sanford C. Bernstein & Co. - Analyst [50] -------------------------------------------------------------------------------- Question on the divestitures. How do you think about the minimum price you would take for an asset? Is it strip pricing? Is it what you're carrying the asset at? How do you think through that? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [51] -------------------------------------------------------------------------------- There's no real fundamental rule. Obviously, we have a pretty good view of what we think the asset is worth at a variety of different price environments. And if -- and at some of those price environments, some of these assets theoretically could get funded in the future if the capital budget materially expands. But you know when you see it, when you see a bid that you start to look at what pro forward price expectations you would need to achieve in order to have it attract capital. It makes it pretty straightforward to decide that it's better to go ahead and sell it today. And obviously, you know that the tax implications matter. And whether or not we've got somewhere to go redeploy that capital matters. We're not selling assets for the sake of selling them, but look at what we did this year. With EOR and dry gas in East Texas, EOR that hadn't free cash flowed in a number of years, dry gas in East Texas where we hadn't run a rig in a number of years, and coalbed methane, which really requires a materially higher gas price to warrant capital in our portfolio. Selling those assets and redeploying an intermediate and long cycle assets that build our inventory and our optionality and our growth for the future to us is a clear positive trade. And so with those types of assets, we weren't necessarily trying to achieve absolute top dollar. We were trying to achieve something that we felt was worth more in the portfolio, and helped us to increase our NAV of the Company by making that trade of divesting today and reinvesting in the future. So it's multidimensional. It's asset-specific and it's use of proceeds around the assets that on an after-tax basis we receive. -------------------------------------------------------------------------------- Bob Brackett, Sanford C. Bernstein & Co. - Analyst [52] -------------------------------------------------------------------------------- Great. Thanks for that. Quick follow-up on Latin America, two thoughts there. One, any color on Colombia? The other, you had an offset operator in Guyana have a pretty sizable discovery. Is there any read across to your Guyana activities? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [53] -------------------------------------------------------------------------------- Yes, this is Bob. And on the Colombia, we had the Kronos well that we announced as the uphold section last quarter as a discovery, and then we went on down to the downhole section. We did encounter some hydrocarbons there, non commercial type things. We encountered a lot more sand than what we had seen in the shallower section. We had good evidence of the thermogenic hydrocarbons in the lower section, but we still have a lot of work to do. This is the southernmost well that we're probably going to drill in our acreage position, which is 16 million acres in the deep water. We're drilling now 100 miles away on the same [forte] area, and then we've got the coal blocks up to the north that we're shooting seismic on. So when you look at it, we're 3 to 350 miles from north to south out here. This is a huge area we have to evaluate. We need to take what we learn in the Kronos area, the [Kalisoo] well, what we're seeing on the seismic data and put it all together. But right now, we're still really excited about Colombia, and look forward to drilling more wells there next year. When you talk about Guyana, you're talking about the Exxon discovery. Offshore Guyana, it looks to be a nice discovery. I would say the read-through to it, so as the petroleum system works out there, and it works in a fairly good, positive way. Our block is located to the north and west of theirs, Outboard. And the main thing that we have going on in Guyana right now is, if you remember several years ago, we were doing some drop core work as part of our overall commitment out there. And the Venezuelan Navy showed up and escorted our ship over to Venezuela. So we're working with the government of Guyana, and encouraging them to work with Venezuela to get this border issue settled. We felt like we were significantly inside the established border when this happened. And so we're waiting to see how that all plays out, and we'll watch, of course, what's going on at the Exxon appraisal program to see how it spills over potentially into our block. -------------------------------------------------------------------------------- Bob Brackett, Sanford C. Bernstein & Co. - Analyst [54] -------------------------------------------------------------------------------- Great, thanks. -------------------------------------------------------------------------------- Operator [55] -------------------------------------------------------------------------------- And our next question comes from Subash Chandra of Guggenheim Securities. Please go ahead. -------------------------------------------------------------------------------- Subash Chandra, Guggenheim Securities - Analyst [56] -------------------------------------------------------------------------------- Mozambique, back to the point on the breakeven costs, I think, what is that number that you're forecasting? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [57] -------------------------------------------------------------------------------- Well, Subash, I'm not aware that we've ever given that number out, and largely because we don't have the final numbers from our feed contractors. So I think that's probably a to-be-determined number for us. I think the only comments we've provided to date is that we believe that we can now build a two-train, 12 million-ton per annum facility for what we originally thought was a two-train, 10 million-ton per annum facility. And our ability to continue to improve what will be cost-associated with that development in this environment should go down. So consequently, I think those are the factors that -- it's really difficult to tell you what a breakeven is and not one that today that we could even begin to estimate. -------------------------------------------------------------------------------- Subash Chandra, Guggenheim Securities - Analyst [58] -------------------------------------------------------------------------------- Okay. We'll wait on that, then. The other thing is to interpret I guess the duct commentary, is it fair to interpret that that the ducts, th intentional ducts, have a very high chance of being completed, regardless of the commodity price environment? And that it would be offset by perhaps the rig count going lower between now and year end? So the number of wells are still in line, but the ducts, just because they are pre expensed, half pre expensed or whatever, get the preferential completion schedule? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [59] -------------------------------------------------------------------------------- Subash, this is Darrell. Yes, I would look at it that way. As we look at it today, we're pulling down some of our rig inventory now and we'll continue to do that in 2016, and it will be largely to the benefit of completing these ducts. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [60] -------------------------------------------------------------------------------- They are not really half pre expensed, though. The drilling cost is maybe 25% of the total well cost. So it's still 75% of the capital associated with the completion. So the -- there's not a lot -- there's not nearly as much subcapital waiting on completion as you might otherwise expect. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [61] -------------------------------------------------------------------------------- I think one of the other big benefits that people don't recognize with these ducts. If you look back at some of the savings we've achieved this year in our completions, to have completed these wells earlier in the year when our cost structure was much higher, would have actually hurt those economics. We really see some benefits now in the really completing these wells a year later in some cases, because it's going to continue to push our costs down, if you will, and improve our economics on these wells. -------------------------------------------------------------------------------- Subash Chandra, Guggenheim Securities - Analyst [62] -------------------------------------------------------------------------------- Okay. And a final one for me, so the service companies are now pretty broadly complaining about that they are operating at negative cash flows. Do you agree with that? And the takeaway being, where, at what price do you think the inflation kicks back in? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [63] -------------------------------------------------------------------------------- Boy, I'm not really sure that's a question for us, to be honest, Subash. You would have to really talk to the service companies, because it's not something we really monitor and track. And how they operate their business and what their breakeven cash costs are, we couldn't begin to estimate. -------------------------------------------------------------------------------- Subash Chandra, Guggenheim Securities - Analyst [64] -------------------------------------------------------------------------------- Fair. If I could just put it another way, do you see any more deflation occurring? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [65] -------------------------------------------------------------------------------- Well, again, this is Darrell. I will tell you we continue to see decreases in that price structure. I won't say as significant as what we saw earlier in the year, but there's still a lot of competition out there and a lot of pressure to get the costs down. And so we are seeing the benefit of that, we're continuing to. -------------------------------------------------------------------------------- Subash Chandra, Guggenheim Securities - Analyst [66] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Operator [67] -------------------------------------------------------------------------------- And our next question comes from Scott Hanold of RBC. Please go ahead. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [68] -------------------------------------------------------------------------------- Thanks, appreciate it. Just a quick follow-up question. You obviously addressed plans for the duct going into next year, but what would it take for you guys to actually reinvigorate drilling? I know it's obviously a bearish outlook at this point in time is the right way to think of it, but what makes you change your mindset? What price (inaudible - microphone inaccessible) makes you feel good? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [69] -------------------------------------------------------------------------------- Well, Scott, I'll go back to the comment I made in January. And until we see service costs sync up to a price environment for the commodities that causes us to feel like growth can be achieved and sustained, and then in turn will be rewarded. We're not prepared to estimate what that is, because we don't know exactly where the service costs are going to end up and certainly we're no better than picking the volatility associated with oil and natural gas than anybody else. When you think about oil and natural gas and natural gas liquids. And the headwind that we as industry are finding ourselves in with respect to all three of those, we're nowhere close to it today. And the comment I made in January I think is still apropos. We need to see a substantially different commodity price environment than we have today, combined with a substantially different cost environment. Now, some of those costs have come in. And we're starting to understand better what we think will be the right margin to go back to work in a growth environment that the industry would reward. But we don't see anything close to that in the near term, with the type of commodity outlook you can see through the respective strips for how those commodities are traded. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [70] -------------------------------------------------------------------------------- Appreciate that. If you look at -- as I think the industry entered into 2015, it looked like the service cost environment probably reflected the $90 oil environment. Where do you think that is today? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [71] -------------------------------------------------------------------------------- Well, I think when we were at $90, call it, $4, the service costs that we've seen contract to date that created a margin at that time. We haven't seen that type of service cost contraction to get us back to a $90 and $4. If you're a successful efforts company, call it, EBITDAX per BOE, and I'm not sure that we could in fact see that margin restored just through service costs alone. It's going to take an improvement in the price per BOE. Whether it's gas or oil or natural gas liquids, that if you went through the arithmetic, I think you would find that we're going to need to see a lot more from both of the principal commodities than we've got today. And then it becomes very basin-specific, then transportation costs associated with getting that to the market. So there's really not a generic answer from our perspective. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [72] -------------------------------------------------------------------------------- Thanks. One last question on Mozambique. You'd discussed it a little bit about that already in the call. But coming into this year, I think the idea was to think from the project by year end. Where do you see that occurring now, and what are the implications on the CapEx that would have been allocated in 2016 to the project? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [73] -------------------------------------------------------------------------------- Nothing really new has developed that's caused us any concerns. I think we continue to believe that ultimately this process is somewhat controlled, and in the hands of the government. We can do all that we can do, and I think we're seeing the current administration working very hard in its first year to advance all the things contractually they need to advance. We've been very pleased with the way in which the [Newcy] administration has addressed each of the things that we've brought before them. It seems like there's good partner alignment. And while we're the first to say it was a better price environment for LNG when oil was $100, you still have benefits here. By the comments I made earlier about being a low cost producer, that I think gives us an advantage with our offtake agreements with the principally east Asian buyers. So in general, it's still pretty good. I think the benefit of what you've got with us is you've got a company, as we look out into 2016, that can be even less capital intensive with respect to maintaining our sales volumes in 2016 versus 2015. And still has the capital invested in the intermediate and long-cycle things that we think creates a lot of value for investors long-term. And I think that optionality and flexibility in our portfolio is really one of those things that we certainly think distinguishes us from others. And I've heard that from investors as well. And then you just have to allocate the capital correctly between your opportunities. -------------------------------------------------------------------------------- Scott Hanold, RBC Capital Markets - Analyst [74] -------------------------------------------------------------------------------- Okay. Thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [75] -------------------------------------------------------------------------------- You bet. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- And our next question comes from John Herrlin of Societe Generale. Please go ahead. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [77] -------------------------------------------------------------------------------- Hello. Thank you. Two quick ones for me. With the Delaware, you bought some checker-boarded acreage. How hard is it to procure it these days? And also, going forward when prices normalize, how quickly would it take for you to get to a pad mode? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [78] -------------------------------------------------------------------------------- John, this is Al. We do have a checker-boarded position issue, as you correctly identified. And it is not an easy land situation to manage, because it's very fractured in the Delaware Basin beyond the checker-boarding that we have already. And as we try to block up in that area, it's really a difficult thing to do. That's why making acquisitions where we think they are accretive and are attractive help us in that blocking approach. And I think the type of returns we would want to see from the Delaware would need to start to approach what we've got today in the DJ. In order to feel like going into a development mode created value for our shareholders. And we're not quite there, because we don't have the benefit of the mineral interests underneath the working interests in the Delaware like we do the DJ Basin. And yet from everything we've seen, and I'll ask Darrell to elaborate. But from everything we're seeing, we're seeing really productive wells. That's why we took the EURs up. We believe once we go into pad drilling, we can drive down the costs further. And I made reference to the fact that I think we've got another $1.5 million to $2 million per well to be able to drive down once that works. But it's really almost the sustainability of a higher oil price than just getting to a higher oil price. You have to believe that once you get there, it's sustainable. These pop-ups and pop-downs that we're seeing and the volatility associated with how oil's moving around, is largely what's giving us a lot of pause and hesitation. Darrell, please. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [79] -------------------------------------------------------------------------------- I think the only thing I would add to that is once we can get to that more of a stable commodity price, if you will, the upside of Delaware just continues to get a whole lot better. It seems like every time we do a lookback on our existing wells, we're seeing additional EURs. So we're extremely encouraged there. We talk about approaching a million BOEs. In some cases, we think we're well over a million. But as a whole, think the important thing is, is across the entire acreage position as we've continued to drill there, we're seeing the EURs move up. So we're really encouraged, it's still early in the life. We're hopeful that this will only continue to get better. So as we see commodity pick up, we're ready to go. I think getting into a pad drilling effort that will be huge for us, because we will see a lot of synergies like we have in our previous shale plays. And so we're waiting for that day we can start standing up more rigs. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [80] -------------------------------------------------------------------------------- John, can I add one more thing to that? As we think about the success we've had in the DJ Basin with our approach to the infrastructure there in the way in which we want to manage our midstream and evacuation risk. We're doing the same thing in the Delaware. And we probably actually have the benefit of having an even more aggressive approach to the midstream than what we're trying to attempt with the Delaware. Simply because these Wolfcamp benches are just really incredibly prolific at this point as we understand them better. And I know there are a lot of companies that always feel like they have got really good assets. But boy, I'll stack up the DJ and the Delaware Basin as an asset play in this environment with anything anybody's got in their portfolio. They are really resilient, and they actually do have, to Darrell's point, tremendous running room when you're ready to go to growth. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [81] -------------------------------------------------------------------------------- Great. Thanks. My next one's on the deep water. You've accelerated Heidelberg, and you're only tying in three wells. Is this going to be the new mantra, not tie in all the wells, but just get enough to get cash flow up and going? Or what's the strategy there? And then lastly, in the Cote d'Ivoire, will you make an announcement in the first quarter of once you run the interference tests at Paon? -------------------------------------------------------------------------------- Jim Hackett, Anadarko Petroleum Corp - Chairman & CEO [82] -------------------------------------------------------------------------------- This is Jim. I'll address the discussion on Heidelberg, and then let Bob talk about the expiration in Cote d'Ivoire. Heidelberg, the timing on the wells is really due to the drilling and the completion plans that we have set. I wouldn't say that having three wells, and a partial well completion would be our mantra going forward, it's simply the timing. Our project team has made incredible progress here in the last I would say six months. The Gulf of Mexico has had difficult loop currents, and they were successful in placing the hole in the top sides. And the commissioning work ongoing for the top sides is in process. And as they have advanced that ahead of schedule, we've pulled the start date up a few months early. So it's just a timing issue on when the wells will be completed and then brought online across the facility. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [83] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [84] -------------------------------------------------------------------------------- John, on Paon, we'll announce the results of whenever quarter it's done. We probably won't even start that process until early in the new year, maybe very, very late December. So whether we get it done in the first quarter or the second quarter, we'll be releasing it once we have that information. -------------------------------------------------------------------------------- John Herrlin, Societe Generale - Analyst [85] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [86] -------------------------------------------------------------------------------- Thanks, John. -------------------------------------------------------------------------------- Operator [87] -------------------------------------------------------------------------------- And our next question comes from Charles A Meade of Johnson Rice. Please go ahead. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [88] -------------------------------------------------------------------------------- Good morning, Al, and to the rest of your team there. If I could go back to one of -- a comment you made in your prepared comments. You mentioned that you think in 2016, you foresee flat volumes versus 2015 on the divestiture-adjusted basis, if I heard that correctly. Could you decompose that a bit by product and geography? And particularly, I'm thinking about one of the big pieces is the tailwind I think you're going to have from your Gulf of Mexico developments on the oil side. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [89] -------------------------------------------------------------------------------- Yes. You did reference the comment correctly. And we do see ourselves being cash-neutral to our CapEx as we go into next year on our preliminary thoughts. Now we've not taken a plan yet to our Board for approval. So these are very early ideas on our part. And you can anticipate, given that we haven't run a dry rig or a rig for dry gas in over two years, that our percentage of oil will continue to increase in our mix. You've seen that through the course of this year. And you saw the increase year over year for the quarter of 24,000 barrels per day of greater oil. I think you should anticipate oil will continue to be a bigger percentage of our overall mix in 2016, even if the capital on a year-over-year basis is likely down unless commodity prices do something that I don't anticipate. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [90] -------------------------------------------------------------------------------- Got it. And any comments on geographies? In particular, it looks like US onshore oil is where we're seeing strength, although I know in Algeria we had that weather-delayed tanker lifting. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [91] -------------------------------------------------------------------------------- Yes, I think we'll probably be in a position, as we usually are in early March, with our analyst conference to be able to give you the granularity you're looking for once we have a budget approved by our Board. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [92] -------------------------------------------------------------------------------- Thank you on that, Al. Then perhaps dovetailing to that, the cycle times in the Wattenberg. I have to say I'm not surprised that they are improving. But the magnitude is a little surprising, especially given that we're nine months into a downturn. And I'm wondering if you could talk a bit more about what's going on there? And what the prospects are for that to perhaps continue either in the Wattenberg or in other parts of your [launched] portfolio? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [93] -------------------------------------------------------------------------------- Well, the short answer is, Darrell is really good. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [94] -------------------------------------------------------------------------------- I had already assumed that. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [95] -------------------------------------------------------------------------------- And let me give you the longer version then, Charles. The redesign was probably the biggest thing we did out there. And so right now, we're working on a rate of penetration there in some of our nonproductive time to continuously improve on what we're doing there on the drilling side. I think the other part of that equation is early on as we change some of this design, we didn't have it going across all of our rig fleet. And today, we do. And so you're seeing the benefit of that across the whole fleet out there. And so that's a part of that improvement as well. As far as going forward, I think the opportunity probably rests with both our completions and even some of the facility costs that we have in front of us. We're working on a central stabilizer system right now, which essentially allows us to put less equipment on some of our well sites today. So I see that there's going to be a future opportunity to get that DC&E cost down in the Wattenberg. -------------------------------------------------------------------------------- Charles Meade, Johnson Rice & Company - Analyst [96] -------------------------------------------------------------------------------- That's helpful, Darrell. Thanks for your comments. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [97] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Operator [98] -------------------------------------------------------------------------------- And our next question comes from Ryan Todd of Deutsche Bank. Please go ahead. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [99] -------------------------------------------------------------------------------- Great, thanks. Good morning, gentlemen. Maybe if I could follow up. You discussed a little bit in terms of the Permian. But can you talk a bit about how you're managing both the resource delineation and the infrastructure buildout during this, I guess, we can consider it a downtime? And how that will position you for acceleration when the commodity allows it? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [100] -------------------------------------------------------------------------------- Well, again, this is Darrell. Right now, we're not in a development mode. So we're continuously -- you got a couple things going on. We're holding acreage in some cases where the leases require it, but in other cases, we're still testing. Again, where there's multiple benches out here, although we generally talk about one bench within the Wolfcamp A. But there's other benches here to be tested, along with the completion styles we're using. And so we're varying both the water and sand components here, just to better understand how do you get these EURs up. And so part of the discussion earlier on the increased EURs, we do think we're better understanding what completions are working out here. And so again, it's not a hodgepodge. But we're going across a huge acreage position to better understand what we have. So that when commodity does turn and we go into development mode, we'll probably start where a large part of our infrastructure is. But we'll know where some of the better places are. But as we recognize it right now, really across the entire acreage, we really think most of this is all tier 1. And so we're pretty excited about all the results we're getting in. But to another point on the infrastructure side, we continue to build that out. Although we've slowed down some of our drilling activities, we have not slowed down our buildout of the infrastructure. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [101] -------------------------------------------------------------------------------- Great. So I would assume that as the commodity turns, you should have plenty of running room with few, if any, bottlenecks on the infrastructure side to be able to ramp materially. Is that --? -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [102] -------------------------------------------------------------------------------- No, I think that is fair. Once things go into a pad drilling format, if you will, we'll likely start very near the infrastructure that's out there. So that we ought to be up and running and see the benefits on the production side pretty quickly. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [103] -------------------------------------------------------------------------------- Great, thanks. Then maybe if I could quick one quick follow-up, and you may not have anything to add on Shenandoah. But post the recent appraisal well, any additional thoughts on resource range there at Shenandoah. And on timing of FID, do you -- and maybe it's too early to tell without seeing the core, but do you know -- do you have an idea whether you think you need one more appraisal well prior to FID, or is this all that you'll need at this point? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [104] -------------------------------------------------------------------------------- Yes, on the resource range, we're right where we thought. We always do a probabilistic resource range. We're still in that range with the results of the well. We still haven't established to water contact over here, so you still have uncertainties associated with that. As to FID and whether or not we need additional wells, I think those discussions are ongoing. But I think we also need to get all the data in and really incorporate that into our thinking as to, okay, what do we have here for sure, what do we now have uncertainties around, and what does that mean for additional activities? So it's too early to say on whether there needs to be an additional well. And the FID would come after that -- or the predevelopment work leading to an FID is ongoing, but that would come after we've got all the data that we need. -------------------------------------------------------------------------------- Ryan Todd, Deutsche Bank - Analyst [105] -------------------------------------------------------------------------------- Great. Thanks a lot. I'll leave it there. -------------------------------------------------------------------------------- Operator [106] -------------------------------------------------------------------------------- And our next question comes from Dave Kistler of Simmons & Company. Please go ahead. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [107] -------------------------------------------------------------------------------- Morning, guys. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [108] -------------------------------------------------------------------------------- Morning. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [109] -------------------------------------------------------------------------------- I'm looking at the 2015 CapEx guidance and thinking about this next quarter. The last couple quarters you've come in below the low end of guidance. You talk about your duct inventory that you have. Can you help frame up where the CapEx is relative to your thoughts on ducts at year end? And whether that's factored into the CapEx number? And likewise, how that looks on the [opposite]-- side? -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [110] -------------------------------------------------------------------------------- Dave, we always give a risk to operational profile for our objectives here. And what we've done for the fourth quarter, we think we've included in our capital guidance the flexibility to add the additional completion crews to start working down the ducts, as indicated in the table in our ops report. And the volumes reflect status quo. So it's the -- we've covered ourselves both ways. And I think you'll be pleased with the outcome. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [111] -------------------------------------------------------------------------------- Okay. Appreciate that. So conservative in nature there. One of the comments you made on maintenance CapEx, I just want to tie that up a little bit. Keeping it the same at $2.7 billion, but you're seeing better performance in terms of base declines. Looks like costs continue to come down slightly, and efficiencies continue to go up. I would suspect that would bias that number a little lower. Am I getting ahead of myself? Is there something else that would be keeping that flat versus the improvement that we've seen? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [112] -------------------------------------------------------------------------------- No, Dave. I think you're seeing it correctly. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [113] -------------------------------------------------------------------------------- Okay. Appreciate that. And then just finally, on the base decline part of things. Can you talk a bit about what the big drivers of those improvements have been? And how you see that moving forward? -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [114] -------------------------------------------------------------------------------- Well, you're talking about on the volume side in some of our big assets? -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [115] -------------------------------------------------------------------------------- Exactly. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [116] -------------------------------------------------------------------------------- Right now, I would say there's upside in looking forward. Because again, with the EUR improvement, especially in Delaware, that should give us upside going forward. And these are some of the results we're seeing now. And so as we continue to do these lookbacks, hopefully we got additional upside to that. But again, remember, Delaware's relatively new and we're drilling this thing across the field. So we're pretty encouraged. So I think there's going to be a lot of little things out there to help us. So there's probably nothing I can point to specifically. -------------------------------------------------------------------------------- Dave Kistler, Simmons & Company International - Analyst [117] -------------------------------------------------------------------------------- Okay. I appreciate the color. Thanks so much, guys. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [118] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [119] -------------------------------------------------------------------------------- And our final question comes from Edward Westlake of Credit Suisse. Please go ahead. -------------------------------------------------------------------------------- Edward Westlake, Credit Suisse - Analyst [120] -------------------------------------------------------------------------------- Thanks. Thanks very much for your time. I lost 10 questions. Just two very short ones. Spacing in the Wattenberg, I know you were doing tests. Just an update there. And then spacing in the Delaware, I guess it's a little early. You've got the Wolfcamp, then you've got the Bone Springs. And obviously, there are other sections. But maybe just a reminder of what spacing assumptions you're using today, and where you see those going. -------------------------------------------------------------------------------- Darrell Hollek, Anadarko Petroleum Corp - EVP US Onshore Exploration & Production [121] -------------------------------------------------------------------------------- This is Darrell. I would start with Wattenberg. We were sort of between the Codell and Niobrara, we were 12 to 14 wells per section. Now our norm is more 16. But I can tell you we're looking at some tests this coming year from 20 to 30 wells per section. And we'll see what the results there are. But we're feeling pretty good that we probably, from a section standpoint, we think there's more to be recovered. As we continue to get our well costs down, we think there's more opportunity to increase that density. And so we're feeling pretty good about that we'll end up adding to that as opposed to where we are today. If you look at Delaware, we're probably on 600-foot spacings, based on what we know today. But I continue to make the point, this is early. So the more oil we see in these sections and that we can recover that too may go -- may be increased. And a lot of that's just going to be driven by our drilling and completion costs. So as we get those costs down economically, we probably can afford to put more in a section if we're seeing those recoveries go up. So it's a little earlier there. But Wattenberg, for sure, we're seeing that density go up right now. -------------------------------------------------------------------------------- Edward Westlake, Credit Suisse - Analyst [122] -------------------------------------------------------------------------------- And then just on expiration, very final question. You've laid out a lot of work that you have to do on your existing discoveries. But in terms of wildcats next year, maybe just talk through the main ones that still get into the program. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [123] -------------------------------------------------------------------------------- We have finalized the plans for next year, but there will be several in the Gulf of Mexico. We'll probably have wildcats in Colombia and also over in Cote d'Ivoire, and beyond that, we're still working the planning. -------------------------------------------------------------------------------- Edward Westlake, Credit Suisse - Analyst [124] -------------------------------------------------------------------------------- Okay. Thanks very much. I look forward to the update. -------------------------------------------------------------------------------- Bob Gwin, Anadarko Petroleum Corp - EVP of Finance and CFO [125] -------------------------------------------------------------------------------- Thanks. -------------------------------------------------------------------------------- Operator [126] -------------------------------------------------------------------------------- This concludes our question and answer session. I would like to turn the conference back over to Mr. Colglazier and the rest of the team for and final remarks. -------------------------------------------------------------------------------- Al Walker, Anadarko Petroleum Corp - Chairman, President & CEO [127] -------------------------------------------------------------------------------- Well, this is Al. Let me just say, we all recognize that this (inaudible) are challenging times, not just for companies, but for investors and for the broader investment community. And we really appreciate the support we're seeing from investors, and appreciate the support we're seeing from analysts that follow us. You guys do a great job. Thank you. I know it's difficult right now to do your job, it's difficult to do our job. But I'll just leave you with this. You can anticipate that our employees will go to work every day working as hard as they can to create as much value as they can, given the market conditions that we're in. I think what we've achieved so far this year reflects that determination and hard work. And you have our pledge as employees at Anadarko that we will come to work every day trying to create as much value as we can during a very challenging environment. So with that, I hope everybody has a good day and a good week and thank you for joining us. -------------------------------------------------------------------------------- Operator [128] -------------------------------------------------------------------------------- And thank you, sir. Today's conference has now concluded. We thank you all for attending today's presentation. You may now disconnect your lines.
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