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Anadarko Petroleum Corp. (NYSE:APC)

Q2 2009 Earnings Call

August 04, 2009 10:00 am ET

Executives

Jim Hackett - Chairman, President and CEO

Bob Daniels - SVP

Charles Meloy - SVP

Robert K. Reeves - SVP, General Counsel and CAO

Al Walker - COO

Analysts

Ben Dell - Bernstein

Subash Chandra - Jefferies

Tom Gardner - Simmons & Company

Doug Leggate - Howard Weil

Brian Singer - Goldman Sachs

David Heikkinen - Tudor Pickering Holt

David Tameron - Wachovia

Joe Allman - JPMorgan

Robert Christensen - Buckingham Research group

Sunil Jagwani - Catapult

Phil Corbett - RBS

Operator

Good day ladies and gentlemen, and welcome to the Second Quarter 2009 Anadarko Petroleum Corporation Earnings Call. My name is Gerry and I'll be you coordinator today.

At this time all participants are in a listen only mode. We will be facilitating a question and answer session towards the end of the conference. If you'd like to queue up for a question in advance you may press star one at any time, if you do require assistance during the call, press star followed by a zero, and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to now turn the presentation over to Mr John Colglazier Vice President of Investor Relations, sir you may proceed.

John Colglazier

Thank you Gerry. Good morning, everyone. And thanks for Joining us today for Anadarko second quarter 2009 conference call. Joining me on the call today are Jim Hackett, our Chairman and CEO, and other executives who will be available to answer your questions later in the call.

As we do each quarter, we have posted additional information in our operations report that is available on our website. Before I turn the call over to Jim, I'll remind you that this presentation contains our best and reasonable estimates and information.

However, a number of factors could cause actual results to differ materially from what we discussed. You should read our full disclosure on forward-looking statements in our presentation slides, our latest 10-K, other filings and prerelease for the risk factors associated with our business.

In addition, we'll reference certain non-GAAP measures, so be sure to see the reconciliations in our earnings release and on our website. We encourage you to read the cautionary note to US Investors contained in the presentation slides for the call. And with that, let me turn the call over to Jim Hackett.

Jim Hackett

Thanks John. Good morning everyone. As you saw, we reported a great second quarter demonstrating the strength of our operations and to Anadarko's differentiating exploration. Among other successes for the quarter, we set a record for sales volumes, significantly reduced our lease operating expenses, prudently managed our capital spending, announced a new deepwater Gulf of Mexico discovery in June, and an another one last week, and we strengthened our balance sheet.

Total sales volumes for the quarter came in at 56 million barrels of oil equivalent. This is 4 million barrels of oil equivalent above the mid-point of the guidance we provided last quarter and a 4% increase over the first quarter. Contributing to this record performance were higher volumes in the Rockies, a run rate of approximately 890 million cubic feet per day at independence hub, and higher NGL recoveries partly due to the new cryogenic unit at the Chipeta plant in Utah.

When we announced our first quarter results in May, we mentioned our focus on driving down costs to better align them with the current commodity price environment. And we made a lot of progress in that front as highlighted in last night's news release. We significantly improved lease operating expense to $4.26 per BOE, almost a full dollar below the low end of our prior guidance.

This achievement represents a 12% per BOE sequential improvement over the first quarter of this year, and an 18% improvement over the second quarter of 2008. In addition to the LOE per BOE gains during the quarter, Anadarko also achieved record drilling efficiencies across our asset areas. In the Southern region, drilling records were achieved on 27% of the wells drilled during the quarter. And in the Rockies region the Wattenberg field accomplished a 50% reduction in cycle times allowing us to run fewer rigs and still drill 32 more wells in the first half of 2009, versus the first six months of 2008.

This is a testament to the innovation, dedication of our operating organization, which made excellent strides improving the cost structure of our company. With these efficiencies, we have been able to reallocate our capital, such that approximately 25% of total capital expenditures are now dedicated to building upon the success for worldwide exploration program.

Last week, we announced the veto discovery in Mississippi Canyon block 984, which encountered more than 250 net feet of oil pay in Miocene sands. We target prospects with greater than 100 million barrels of oil equivalent resources, and we are very excited about these initial results on veto and look forward to working with our partners to determine the timing of an appraisal well.

We operate the veto well with a 20% working interest. In June, we also announced a discovery at the Samurai Prospect located in Green Canyon block 432, about 12 miles north of our Marco Polo platform. The Samurai well encountered more than a 120 net feet of oil pay in several stands. And we expect an appraisal well to be drilled within the next year.

We operate Samurai with a 33% working interest. The drill ship that we used to drill the Samurai discovery the Belford Dolphin is now on location in West Africa to drill the Venus prospect off the coast of Sierra Leone. The Venus well is one of more than 30 identified prospects in lease on our West Africa acreage position targeting stratigraphic traps in Cretaceous trend.

It has geological and seismic characteristics similar to giant Jubilee field offshore Ghana. Another of these Cretaceous sand is South Korea Lahou, offshore Cote d’Ivoire, which we expect to drill we expect to drill after Venus is TDed. From Cote d’Ivoire we then plan to mobilize the rig to mobilize to Mozambique to commence that drilling program later this year. Since our last update in May, we've significantly expanded our acreage position throughout the Cretaceous trend offshore West Africa.

Anadarko now holds interest in almost 8 million acres across 10 blocks, including the recent firm in offshore in Cote d’Ivoire. We will operate seven of the blocks and the vast majority of the prospects currently identified within this emerging play. Our average working interest across the play is approximately 40%. In Ghana, we expect to continue an active program with appraisal wells planned at Tweneboa, Mahogany-4, and Mahogany-D. The Mahogany-4 well will test the eastern extent of the Jubilee complex and the Mahogany Deep and Tweneboa appraisal wells will further evaluate discoveries announced earlier this year.

We anticipate following these wells with additional exploration test at TOO in Guinea. All three located offshore Ghana. In addition to these identified opportunities offshore West Africa, we remain active with our pre salt drilling program offshore Brazil. On the BMC-30 block where we previously announced the pre-salt Wahoo discovery, this quarter we plan to conduct drill stem tests and an exploration appraisal well at Wahoo-2 testing multiple objectives.

The well is located about five miles north of the original discovery well and we operate the block with a 30% working interest. We also plan to participate in drilling the Itaipu prospect on BMC-3 2, where we hold a 33% working interest. Itaipu directly offsets Petrobras's large [deepwater] development that has been reported to hold about 2 billion barrels of oil equivalent in the pre salt.

On shore in the United States, we continue to manage capital carefully, while reallocating some funding toward an expanded Marcella shale program. We are increasingly encouraged about the potential of this play from our results to date. We drilled our first operated horizontal well, participated in none operating partner in six other horizontal tests, and held interest in three completions during the quarter.

We'll continue to prudently ramp up activity, and anticipate having three to four operated rigs and 8 to 10 non-operated rigs running in the play by the end of 2009. The early success from our Marcellus activities indicates this play possesses some of the most compelling economics in our onshore portfolio.

We are seeing initial production rates of between 4 and 8 million cubic feet per day and estimated ultimate recoveries of between 3 and 6 BCF per well. Also pointing a 10% pretax rate of return achievable at 9X prices as low as $2.50 per million BTUs. In the Rockies, as mentioned earlier, we completed construction of the second train at Chipeta plant in Utah.

This cryogenic unit has increased gross NGL recoveries from 205,000 barrels per day to approximately 12,000 barrels per day. In our Wattenberg field work has completed on the White Cliff's oil pipeline to Cushing, Oklahoma where we are delivering 10,000 barrels per day from this new access to markets for our Wattenberg liquids. As a result we anticipate better price realizations of at least $8 per barrel as well as additional cost saving and operational efficiencies.

Changing gears, we continue to advance our three mega project developments. In Ghana, we conducted a successful drill stem test on the Mahogany discovery well, and it tested approximately 21,000 barrels of oil and 25 MCF of associated gas per day, with results suggesting good reservoir connectivity.

In July, the Canadian government approved the jubilee Phase I plan of development and unitization agreement. And the project remains on track with its accelerated Phase I development schedule anticipated to deliver first oil in late 2010. In a deepwater Gulf of Mexico platform modifications began in the second quarter in our constitution bar as work continues on the Caesar Tonga development.

Preparations are underway to drill two development wells in the area during the third quarter, and we expect the project to remain on schedule to deliver first volumes in early 2011. At El Merk and Algeria, construction and contract work is moving along very well, and we expect to achieve first oil in late 2011.

There is additional information on our second quarter activities and our operations report available on our website. These highlights demonstrate that we have built a portfolio with a robust inventory of opportunities that is capable of delivering significant value to our stakeholders. We believe that executing an final exploration program, a mega project developments through the market environment will add significant value on our company.

With that objective in mind we raised $1.3 billion of equity in May, and the fact that our stock traded inside of the delusion factor demonstrated that it was well received and that our stakeholders understand it was the right thing to do to build future value. We also took additional steps during the quarter to enhance our financial flexibility and liquidity. In early June, we issued $900 million of senior notes consisting of five, 10 and 30 year tranches.

Pricing on these securities was very attractive relative to where our bonds were trading in the secondary mark at the time, and we used the proceeds of the offering to retire the mainly $968 million of 2009 debt maturities. At quarter end, we had $3.5 billion of cash on hand, and no scheduled debt maturities until 2011. We continue to manage our cost to capital and beginning late last year we entered into a series of forward starting treasury swaps for plan 2011 and 2012 debt refinancing.

We established these swaps, when treasury yields fell to unprecedented lows late last year. The subsequent expected increase in rates enabled us to monetize cash gains of approximately $550 million this quarter. It was through a process of resetting the rates on the positions, while maintaining protection from material increases in treasury rates prior to the 2011, '12 refinancing.

For the summer months of June, July, and August we expanded our commodity hedge program to include additional fixed price natural gas swaps at an average price of $4.18 which when combined with our existing three way costless collars for 2009 provides us with price protection on approximately 80% of our anticipated natural gas volumes over this time period.

These swaps have been in the money thus far. We also substantially increased our 2010 derivative positions for both natural gas and crude oil using costless, three-way collars. For natural gas, we have protected more than 75% of our anticipated 2010 volumes with middle floor of about $5.60 and an upper ceiling of about $8.25.

For crude oil, we have protected about 50% of our anticipated volumes in 2010 with a middle floor of about $62 and a ceiling of approximately $84. Our current derivative position including basis swaps and firm transportation is attached to last night's earnings news release.

For the quarter, we reported a net loss of $0.47 per diluted share with items effecting comparability that are broken out in the tables attached to last night's news release. In total, these items reduced our net loss by $0.09 per diluted share. Discretionary cash flow from continuing operations totaled approximately $1.55 billion, benefiting from the cash generated by the previously mentioned treasury rate swap resets and the ability to use our 2009 net operating loss as a carry back to prior periods.

Looking ahead, we are increasing the mid-point of our sales volume guidance for the full year by 2.5 million barrels of oil equivalent. As we have done in the past we are providing a risk operating profile for Q3 and Q4 that accounts for scheduled maintenance and potential hurricane related down time.

For example, we expect independence hub to be running at reduced rates throughout the remainder of this quarter, as we plan to perform some scheduled maintenance on the allocation separators. The performance of the company is people are the basis for much excitement today.

The portfolio we've created is truly generated in the value we always believed that it could, even in a challenging, financial, commodity environment. We expect sales volumes to be at least 3% higher than 2008, and we expect to spend about 30% less on our near term projects in 2009, relative to the previous year. Our employees are maintaining a tight focus on controlling costs and improving efficiencies, as you can see from the strong operating results that include record production, significantly reduced costs, fixed announced deepwater discoveries and a strong deep inventory of world class exploration and appraisal activities to test this year and beyond.

Whether it's offshore Sierra Leone, Cote d'Ivoire, Ghana, Brazil, Mozambique, South East Asia, The Gulf of Mexico or onshore in the US, we have substantial option value and superior upside to grow our company. At this time, we are joined by the executive team and we look forward to taking your questions. So, Gerry, if you could open up the lines?

Question-and-Answer-Session

Operator

(Operator instructions). First question comes from the line of Ben Dell with Bernstein. Please proceed.

Ben Dell - Bernstein

I guess my first question really, I wanted to focus on Sierra Leone in Liberia, on the Venus well do you have a rough estimate of the pre drill that you are using and for the expected reserves? And I guess my follow-up question to that is what are the biggest risks factors on the well, is it source still or reservoir?

Bob Daniels

Okay, Ben. This is Bob Daniels. I guess the best way to put the Venus prospect is, it's the same order of magnitude scale of what jubilee was when we did the pre drill on it. Aerially, the reservoir thickness that we anticipate over there, the trap configuration, it's all the same. So you know it's that same order of magnitude of a target.

Our biggest risk over there is probably going to be timing of hydrocarbon generation and migration into it. We know we have got the source rock up there, it's just going to be when did it generate and what phase did it generate, and did it migrate effectively into this banned complex we've identified.

Ben Dell - Bernstein

Okay, great. My second question was really around the cost base. Obviously with US service suppliers and drillers basically generating no earnings, how much additional downside do you believe there is to day rates and service cost as you put pressure on the suppliers right now? Are they pushing back, they are already earning very little?

Jim Hackett

What we've seen is that was substantial reduction in the cost, last year, we have had. It’s region or area-specific, license-specific, and my sense is that there is still some additional room to go in certain areas, but we are getting down to where, you know, the competitive nature of the basins are determining prices that we'll achieve. My suspicion is, we may could get another zero to 10% of reduction in certain areas, but other areas, particularly like the Gulf of Mexico, deepwater continue to show some strength.

Operator

Your next question comes from the line of Subash Chandra with Jefferies. Please proceed.

Subash Chandra - Jefferies

Two quick ones here. On the Eagle Ford, any comment on I guess almost the half dozen wells that have been drilled, how many of them have been producing length of time? How the wells might have held up? Second, on the cash balances on hand, you know pretty enormous what plans are with what? If there are further things you might do to you know sell down interests and raise more cash by year-end?

Unidentified Company Representative

Yes. Subash, I shall go ahead and start with the Eagle Ford. I guess the way to put a frame around the Eagle Ford right now that we are very encouraged about it but its real early we have got the six wells that you have mentioned. We have seen rates as high as six million equivalent, out of some of those horizontals. From the Eagle Ford we also have Pearshall zones that we are testing out there, we have announced 10 million a day but what we are seeing is that some of the infrastructure is not adequate to really get good long-term data on these things like the Pearshall well is way choked back because of the gathering system out there. We’re having to build that out, so we can get the information we need. To-date, right, now it’s encouraging, but we've got a ways to go to really know exactly what we've got.

Bob Gwin

On the cash balance, this is Bob Gwin. In this kind of an environment, in this kind of commodity price environment with these uncertainties certainly more cash is better than less. We have a fair number of commitments on the mega projects and with the exploration portfolio in the upcoming months. In addition, I guess on the much smaller side, if we saw something on a bolt-on basis in a certain field to enhance our economics or opportunities to build shareholder value, we'd look for it although we love our portfolio the way it is, and so those things will be kind of opportunistic.

Subash Chandra - Jefferies

Any further plans to raise cash between here and year-end on your asset disposals or working interest sales?

Unidentified Company Representative

No, no interest now. I think that's one of the reasons you saw the equity issuances because that certainly precluded our need to look at things such as that.

Subash Chandra - Jefferies

I'm sorry. One final one. If you had to estimate sort of what the next year, 18 months, offshore program CapEx might look like, what is the rough development number to work with?

Unidentified Company Representative

On the development side, we're using about a $130 million to $150 million a quarter. I think you are asking for the deepwater portfolio?

Subash Chandra - Jefferies

Correct.

Operator

Your next question comes from the line of Tom Gardner with Simmons & Company. Please proceed.

Tom Gardner - Simmons & Company

Thank you, operator. Hey, Bob, following up on Ben's question, based on your comments on the risk to Venus, would it be accurate to assume that a success at Venus would partially de-risk the (C105 block off of Cote d'Ivoire)?

Unidentified Company Representative

I think, the success anywhere along here is going to help with the 30 leads and prospects we have got identified. Of course, Jubilee de-risked a lot of it that proved up the petroleum system, that proved up the reservoir and the quality and the depositional systems that we’ve been identifying up and down this margin. We are at the other end of what we see as the play at Sierra Leone and any encouragement there is going to really de-risk and help out everything in between. So, I got to kill anything, but we are going to be learning a lot from this well.

Tom Gardner - Simmons & Company

That's good news. Jumping over the Gulf of Mexico, can you discuss the Vito and Samurai and the likelihood that either will be a tie back versus a standalone and what's the evaluation uplift, if you will, of one versus the other in a general sense?

Bob Daniels

Yeah, this is Bob again. On the Samurai, you know we are just 12 miles away from our Marco Polo platform there. We've got capacity and we have always planned on that being a tieback into that almost regardless of how big it was, just because of the capacity that we have.

On the Vito well, that one's could be very significant in size, but we do have partners there that have infrastructure around us that Marcellus shale has capacity. And so, we'll just have to kind of see how big that is, relative to what they have in the way of capacity on those. And distance cost due to the economics on it. But, there does seem to be some capacity around that if we wanted to explore that. Of course we will be appraising both of those. Probably early next year, first quarters for both of them is what we are looking at.

Tom Gardner - Simmons & Company

Great. One last question. Can you give us an update on the Algerian tax arbitration and how would you handle that from an accounting treatment assuming the arbitration goes your way?

Robert Reeves

Yeah, this Bobby Reeves. The arbitration is proceeding. It is not going to be a quick process. We are plotting down the path and it could be 18 months to two years before we see any kind of decision from an arbitration panel out to further.

Jim Hackett

And as far as the accounting treatment goes, Tom, until you actually reach resolution, we'll continue on with our current accounting treatment, which is where we record the excess profit and other production tax line, and bear in mind, on the residual effect as you drop that down, that is not deductible for federal tax purposes.

Operator

Your next question comes from the line of Doug Leggate with Howard Weil. You may proceed.

Doug Leggate - Howard Weil

Thank you. Good morning, guys. Couple of things from me. There's been a lot of moving parts I guess on your working interest in West Africa. Can you just kind of bring us up-to-date as to what working interest you would expect to drill some of the wells over the next few months?

And a related question, my understanding is that you might be trying to at least pursue an increased position in the South Deepwater Tano block with (inaudible). Can you maybe comment on that if indeed there is anything going on there?

Robert Reeves

I'll start first with the positions we have now. Of course you know the positions in Ghana with the two blocks there. In Sierra Leone, Venus well we are going to end up at about a 40% working interest. We had partners in there originally and then we brought additional partners in through swaps to get into additional acreage. South Grand Lahou will probably end up with about 50% in that well.

The additional Cote d'Ivoire block that's going to be 40% ultimately, that we are going to end up with and block 10 in Liberia we have 100% presently. We'll probably layoff some of that and the other three Liberian blocks we'll bring some smaller interest partners in as part of the swaps to expand our position. So really we are expanding, not just laying off interest and we'll end up with an average of 40% working interest across the entire play when you look at it, but what we have ended up with that 8 million acres right through the guts of it.

Doug Leggate - Howard Weil

All right. Any comments on the South Deepwater Tano block?

Robert Reeves

I guess the main thing is that was a bid round. We did bid on that block in the bid round and Anadarko was awarded it, and we have not had additional conversations with them about it.

Doug Leggate - Howard Weil

Okay, great. Thanks for that. The only follow-up I have is just jumping back to the lower 48 and the Eagle Ford. It seems there has been some comments from one of your partners this morning about changes to operator ship. Can you just maybe bring us up to date as to what your plans are now that you guys are kind of running the show? And whether or not we'd expect you to accelerate activity down in that region?

Bob Daniels

I don't think there is going to be any change to our plan. We did pickup an operated rig here a few months ago, I guess. We didn't have to do that but we saw enough encouragement we wanted to start that process. And we'll probably have a couple of rigs running out there to continue to evaluate the Eagle Ford and also to test the pierce Saul as we go on. I don't think there is a change. What we wanted to do is have the partnership earn the acreage, spend their money to test it, and meanwhile we saw enough encouragement we wanted to start learning ourselves, so we put a rig out there a little early.

Doug Leggate - Howard Weil

Okay, that’s great. If I could just one final one if I may I'll just jump into the Marcellus. You know you talked about in your prepared remarks, Jim about accelerating your activity levels towards the end of the year. What kind of rights of way do you have right now in terms of where you can take your volumes without running into any kind of infrastructure problems?

Jim Hackett

Hi, this is James. We have important, in a portion of our position up there in the AMI, but with private companies, Haynesville [shale only in] production and we have access to (inaudible) in the eastern portions of (inaudible) and we are obtaining that with primarily from the south and mostly along previously designated (inaudible) lines or gas. It's a process that we are going through. In the early stages of development and explorations what we have done is take advantage of those, but our locations is near infrastructure as possibly (inaudible) pipelines, et cetera as well as right-of-ways) with gathering system and roads.

Operator

Your next question comes from the line of Brian Singer with Goldman Sachs. Please proceed.

Brian Singer - Goldman Sachs

With regards to US natural gas, if we strip out the impact of pipeline maintenance and potential future hurricane disruptions, where do you see your gas production heading considering your current reduced activities in the Rockies offset by strong results you are seeing out of the Marcellus?

Jim Hackett

I'll address the first part of your question, which is the impact we are having in the Gulf of Mexico with the hub when we do have maintenance and that type of thing going on in the Gulf of Mexico that will affect our third quarter. Following the third quarter, we should see continued growth of our production profile, the Rockies assets are performing extremely well and almost to the assets, particularly given how casual (inaudible) they have become with our rig program. They will continue to see growth in Wattenberg, Greater Natural Buttes, Powder River basin, (inaudible). We think we'll continue to see growth there, and then if you add the Marcellus in the portfolios we anticipate coming in, we'll see substantial growth in Marcellus production. So overall, I would anticipate that it's up.

Brian Singer - Goldman Sachs

That's helpful and actually some of your comments layered into my follow-up, which is when you think about the Rockies portfolio specifically can you talk about at current gas prices but also at current low service costs, where you are seeing well economics in places like the PRB, and Natural Buttes, and how we should think about your reduced activity, is that the result of low returns on current gas prices or is it a result of more having better opportunities within your global portfolio to spend capital?

Unidentified Company Representative

It's actually some of both. Each of our major assets in the Rockies are focused on the core areas. They have extremely good economics down to very low oil prices. They are aided to a large degree, if you take for instance in Wattenberg and Greater Natural Buttes with either the oil or the liquids (play).

We see pretty considerable uplifts to our lease backs, our net-backs at the lease, so we have had the economics are very good and that's where we reduced. We have concentrated our reduced drilling fleet in those core areas of each of those assets. In addition, it's competing now with our Marcellus position and Haynesville position, as well as the International activities that we have had. So, we have taken our capital, we have tried to be as efficient as we possibly can with it and take an advantage of the best opportunities we have.

Unidentified Analyst

For you to increase your rig count then, would you have to see substantially higher gas prices? Or I guess given the equity financing and all, where do your priorities lie when you think about if you have got an extra $100 million to spend? Does that definitively get spent in deepwater versus the Marcellus versus the Rockies?

Al Walker

Brian, this is Al Walker, I think what we would probably see as we would favor short cycle investment opportunities where we think we’ve got really good rates of return. Today, that would be both Marcellus and Wattenberg onshore.

Operator

Your next question comes from the line of David Heikkinen with Tudor Pickering Holt. Please proceed

David Heikkinen - Tudor Pickering Holt

I think there are a couple of things on the appraisal side in Ghana and then also Gulf of Mexico. Talked about Heidelberg appraisal, just wanted first on the Gulf of Mexico side at Heidelberg, when will you go back out and drill appraisal wells there?

Unidentified Company Representative

Right now, we have got it on the schedule for September, but there maybe a little bit of sliding on that based on the rig. We want to get back on that. We'd like to get it finished by the end of the year.

David Heikkinen - Tudor Pickering Holt

You hit both Vito and Samurai as first quarter 2010, anything else in the Gulf of Mexico that fits into the appraisal or do on the Asian side?

Unidentified Company Representative

Ultimately we need to get over to Shenandoah. We are waiting on some new data coming in there. Of course, I mentioned Vito, but we do want to get back over there very quickly actually because we just see a lot of potential on that prospect. We've got a lot of uptick room and we think that one could be very significant to us. So those will be early, Samurai will be in next year and then the Shenandoah will probably be later in the year as we get the data in.

David Heikkinen - Tudor Pickering Holt

On Vito 20% interest -- you made a discovery. So no way to really increase your interest now in that uptick side or just kind of expect to stick at 20% is a reasonable expectation.

Unidentified Company Representative

I would think, I mean with Shell and Statoil we've got what we've got.

David Heikkinen - Tudor Pickering Holt

On the Ghana side, appraisal drilling there, just kind of get my mind around rig activity, that’s for exploration versus appraisal and development drilling at Jubilee.

Unidentified Company Representative

The next three Ghana wells that we've got that we are going to be appraising would be Tweneboa 2, where we want to see what that really can be, because, we got to the edge of it on the first well, so this can be a real key well for us. Mahogany 4, which is going to take us out to the east, and then the Mahogany Deep, which we also think could have some fairly significant resources there but needs to be appraised. So those will be the next three. Then we've got the additional exploratory wells as Jim mentioned it will be in 2010. We've just got an awful lot of activity still to come there in Ghana.

David Heikkinen - Tudor Pickering Holt

And Tweneboa-2 really have a relatively small size. I mean, what step of upside could you identify kind of on a, as you de-risk the prospect with that well? I mean, what's the range of outcomes for that?

Al Walker

David, this is Al Walker. You know, I think the best way to answer that would be, you know, Polo operates that block and it’s been fairly communicative in terms of their views. And I think they see something upwards approaching 1 billion barrels as potential for the discovery.

David Heikkinen - Tudor Pickering Holt

And it’s up 50 million barrels on the low side, so just a wide range in between them.

Al Walker

We've only drilled one well.

David Heikkinen - Tudor Pickering Holt

Yeah I know. So, but those are completely separate on a resource standpoint and how you think about Jubilee and Tweneboa, I guess Mahogany and Tweneboa in the overall development. So this well could be a larger appraisal, as I think about the three that Bob just went through.

Al Walker

Yeah.

Operator

And your next question comes from the line of David Tameron with Wachovia. Please proceed.

David Tameron - Wachovia

Hi, only a few left. But can we talk about CapEx, if you look at your full year target that you guys threw out there you are trending under that. Any outlook on what CapEx looks like for the full year?

Al Walker

David, this is Al Walker. You know, currently our spending activities, where we operate, we have a pretty good sense for. I think the two areas both Marcellus and the Gulf of Mexico would non op. The activity there is a little more variable, and as a result it's not particularly easy for us to pinpoint that because we just don't know what the activity level's going be non op in both of those places. The major projects we continue to see the funding that we've talked about in the past. And I think you can continue to expect that our spending level in the Marcellus will be pretty significant as we have talked about today and in previous discussions.

David Tameron - Wachovia

Okay. And then, Al, if you look at compared to a year ago your CapEx, we'll call it efficiency today versus then. How is that shaping up, and any regions in particular jumping out?

Al Walker

Well, I mean, I think Jim made some comments to that in his prepared remarks. I think the cycle time that we are seeing in the Rockies has been probably the most impressive at Wattenberg, but that's not to take away from some of the stuff and we call it in our Southern region, where we are continuing to see record cycle drilling opportunities develop. And I continue to believe that the efficiency around our spend is going to be, we've still got some more to come there.

I think a lot of things that we hope to do in Marcellus' bar from what we have learned in the Rockies with to add drilling and planning for development ahead of actually drilling the [well]. So as we get into the Marcellus as an operator, those efficiencies that we have learned in the Rockies, we have worked pretty hard to kind of transfer that to this new play.

Operator

(Operator Instructions). Next question comes from the line of Joe Allman with JPMorgan. Please proceed.

Joe Allman - JPMorgan

What's the timetable on the decision at the Venus prospect?

Bob Daniels

The timetable on the decision? We are on the well now.

Joe Allman - JPMorgan

I understand. So how long is it going to take to get the TD and then come up with a decision on that one?

Bob Daniels

I'd say probably 45 days to get the barring problems, to get down, get logged, see what we have. They are not long wells out here.

Joe Allman - JPMorgan

Okay, great. Independent hubs, what's the key going forward over the next couple of years to keeping independent hubs full.

Charles Meloy

Joe this is Chuck. What we have going on is there is a number of work over's and additional wells we'll be drilling in and around the hub on existing fields, for example, we are going to drill a new Merganser side track. We have a Cheyenne east well we'll be drilling. We have just worked our way into a Callisto development, and we'll be starting all that as we move into the fall. And so, through that activity, we should be able to continue to push the hub at or near plateau for another six to eight months, and then see what else we can come up with to add on the back of that.

Joe Allman - JPMorgan

Okay. That's helpful. And then Chuck, what's the production capacity now? I mean, like is the production capacity well above the 900 to BCF a day or you think the wells are pretty much running flat out?

Charles Meloy

The hub has been performing right about 900 million a day. That's where it feels good. And we have had good run times and that type of thing. We push it much harder that than that, we start running into run time issues. And before now we have had quite a bit of excess capacity, that's why we have been able to extend this plateau for almost two years now. It's been online for over two years. We see that for a little while longer and then we'll need some of these additional activity that we talked about and they are all set up to start in the fall.

Operator

And your next question comes from the line of Robert Christensen with Buckingham Research group. Please proceed.

Robert Christensen - Buckingham Research group

Yes. What is your cost basis in the Marcellus Shale acreage? And how did you go about leasing it, when?

Bob Daniels

Bob Daniels now, both start into that. The average call spaces today for the acreage position we have is $300 an acre.

Al Walker

And just to get into where we started with as up 2005, is when we actually started leasing out the Marcellus. We had seen what happened in the Barnett, and we had a team that was looking for where is the next potential shale play. We also were looking for other additional plays and we think there is a whole bunch of additional potential along this acreage out in the Appalachians. So that's how we ended up getting into the position originally and then just continued building it. The other thing I'd say is the $300 an acre phenomenally low acreage price, we also got very good terms. We've got five year leases, five year kickers, good royalties on them because we were in there early.

Operator

The next question comes from the line of Phil Dodge with to you Tuohy Brothers Investments. Please proceed.

Phil Dodge - Tuohy Brothers Investments

Good morning. Thanks. On your comment about the maintenance at independence hub this quarter, what's the guidance on the throughput for the quarter? Can you provide us on that?

Al Walker

I don't think we have actually given guidance specific for the hub. What we see is about a million barrels that will be lost this quarter associated with the hub maintenance quarter-over-quarter. We also have in our current year..

Phil Dodge - Tuohy Brothers Investments

Currently over the 900 normal?

Al Walker

Yeah the 900 normal, that's gross that the million barrels net. We also have in our guidance this quarter about 3 to 4 million barrels of hurricane-related down time and we never know how that's going to work out. Last year, of course we took almost an 8 million barrel hit (inaudible) took very little. It's hard to know but we have given what we anticipated sort of an average hurricane impact as part of our guidance.

Phil Dodge - Tuohy Brothers Investments

Okay. Then the other thing I had on the relatively good economics at Wattenburg, are you going to increase rig activity there as a result?

Unidentified Company Representative

What we intend to do is increase our fracing activity, not just with the big activity we have going on, but doing re-completions, as well as re-fracs, so we have the same effect as getting new wells, but with a lot lower cost and more capital efficient.

Operator

Your next question comes from the line of Sunil Jagwani with Catapult. Please proceed.

Sunil Jagwani - Catapult

Now that the plan has been approved by the government of Ghana, the plan of development, what's the timeline for potentially hearing about future phases in Ghana?

Unidentified Company Representative

What we anticipate in post production in the fourth quarter 2010. We would, we hope to raise it up fairly quickly. So, we’ll be getting reservoir data all day long. During that ramp-up period, we'll digest that information and then make a decision as to whether it needs a second phase or how we would incorporate a second phase whether there is a substantial (residual) or a second FPSO potentially or another production hub and some sort. It will take a little time to get the reservoir performance necessary to make that decision, but we certainly want to see how this reservoir responds to water injection, production, gas injection, et cetera, to make that call.

Sunil Jagwani - Catapult

You are saying that there is a chance that you may actually not have a second phase?

Unidentified Company Representative

No, we'll certainly have a second phase. But, what we do for it, we'll certainly see the second drilling phase and then the thing we'll be trying to decide and determine as well as design is what production facility performance we would have.

Sunil Jagwani - Catapult

I see and then just a quick follow-up. There has been some talk about potential farm-outs from Tello and Cote d'Ivoire, is that potentially of interest to Anadarko?

Unidentified Company Representative

Well, one of the blocks that we are talking about, CI-103 was a Tello block, which we took a position in exchange for a position in Sierra Leone and Liberia with Tello. Again that was diversifying with positions out there.

Operator

Your next question comes from the line Phil Corbett with RBS. Please proceed.

Phil Corbett - RBS

I got a couple of questions. I'll just go through them one by one. Just picking up on the last question, should I take that Tello have formed into the Venus prospect? Are you guys confirming that?

Unidentified Company Representative

Yes.

Phil Corbett - RBS

Secondly just in Liberia have you actually come up with any drill-ready prospects there? I'm just trying to get a feeling if there was good results on Venus, how would that impact your plans to drill in Liberia maybe next year or the year after?

Unidentified Company Representative

I would say we are very close to having drill-ready prospects although from an operations standpoint we have to go by that towards new country and making sure we had everything done there. We shot the 3D earlier this year, very large 3D we have the fast track volume in-house. We've got lead from the 2D and the early look at the 3D. We've got over 30 leads across the entire area a bunch of those are Liberia. The three blocks up by Sierra Leone.

The 3D shot, it's the fast track's in-house and we are working on that and so we do anticipate firming up numerous prospects in that acreage. If we have any encouragement here at Sierra Leone we will have plenty of opportunities and places to go next year in Liberia. Block 10, we just were awarded that.

We will be shooting 3D and on Block 10 next year so that will be a little bit farther behind, but the Venus well is not going to condemn this entire area no matter what. It's a huge area and so it’s Cost of Atlantic Ocean, I guess now that at the end different covenants, different source areas and so you really have to do your homework. It's not a direct lay down analogy.

Operator

Thus concludes the question-and-answer portion of your conference. I would now like to turn the conference over to Mr. Jim Hackett for closing remarks. Sir you may proceed.

Jim Hackett

I just want to thank everybody for the good questions and also want to thank our employees for a great quarter. We'll look forward to speaking to all of you at the end of the third quarter. We've got a lot in front of us. Hope you have a great day. Bye.

Operator

We appreciate your participation in today's conference. This concludes the presentation. You may now disconnect, and have a wonderful day.

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Source: Anadarko Petroleum Corp. Q2 2009 Earnings Call Transcript
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