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US Onshore and GOM: How Could They Drive APC’s Growth in 2017?

PART:
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Part 8
US Onshore and GOM: How Could They Drive APC’s Growth in 2017? PART 8 OF 11

Anadarko Petroleum’s Operational Efficiencies

Anadarko’s production costs

Anadarko Petroleum (APC) noted in its 4Q16 earnings conference that it maintained its lease operating expenses below $3 per boe (barrels of oil equivalent) every quarter, resulting from its lower costs and higher volumes.

APC’s annual report noted that it reduced its cost structure by ~$800 million in 2016 compared to 2015 through a “dividend decrease and a workforce reduction program.”

Anadarko Petroleum’s Operational Efficiencies

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DJ Basin’s cost and operational efficiencies

The DJ Basin’s 2016 average drilling cost per foot fell ~14%. Its completion capital fell ~23% compared to 2015.

In 2016, operated well capital costs in the DJ Basin decreased to less than $2.5 million from ~$3.5 million in 2015 for short-lateral-equivalent well. This was driven by operational efficiencies and savings related to the supply chain.

Additionally, the spud-to-rig-release cycle time average in the DJ Basin decreased from 6.3 days in 2015 to 4.7 days in 2016.

Delaware Basin’s cost and operational efficiencies

In fiscal 2016, the average drilling cost per foot fell ~26% in the Delaware Basin. Its drilling cycle time fell 11% compared to 2015.

As a result of its increased focus in the DJ and Delaware Basins, the company expects to yield stronger margins. It anticipates that its margins could increase 25% between 2016 and 2017, driven by an increase in its oil composition from 40% in 2016 to 55% in 2017.

Management comments

Anadarko Petroleum’s (APC) EVP of operations, Darrell E. Hollek, noted during the 4Q16 earnings conference, “As we move to oil, there will be pressure on that LOE as well, but with that comes a much higher margin.”

Anadarko Petroleum’s CEO, R.A. Walker, noted in the 4Q16 earnings release, “We have a stronger balance sheet, an improved cost structure, and a more concentrated portfolio focused on higher-margin oil production provided by our leading positions in the Delaware and DJ basins and the deepwater Gulf of Mexico.

“These accomplishments, along with our monetization activities, the cash-generating capabilities of our international operations, a successful exploration program, and the acquisition of Freeport-McMoRan’s Gulf of Mexico properties, have created strong momentum going into 2017.”

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