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Executives

John Colglazier - Investor Relations

Jim Hackett - Chairman, President and CEO

Bob Daniels - SVP, Worldwide Exploration

Chuck Meloy - SVP, Worldwide Operations

Al Walker - Chief Operating Officer

Bob Gwin - Senior Vice President, Finance and CFO

Analysts

Ellen K. Hannan - Weeden & Company

Doug Leggate - Banc of America/Merrill Lynch

David Heikkinen - Tudor Pickering Holt

Brian Singer - Goldman Sachs

David Kistler - Simmons

David Tameron - Wells Fargo

Subash Chandra - Jefferies & Company

Brad Beago - Treaty Oak

Anadarko Petroleum Corp. (APC) F4Q09 Earnings Call February 2, 2010 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Fourth Quarter Anadarko Petroleum Corporations Earnings Conference Call. My name is Jeri, and Ill be your coordinator today. At this time, all participants are in a listen-only mode. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to Mr. John Colglazier. Sir, please proceed.

John Colglazier

Thanks, Jeri. Good morning, everyone. And Im glad you could join us today for Anadarkos fourth quarter and year-end 2009 conference call. Please note that during todays call, we will only be addressing our 2009 results. We anticipate providing our 2010 capital plan and guidance once we receive board approval in a few weeks and will provide a more in-depth overview at our March 2nd Investor Conference in New York.

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. Also, there is additional information posted on our website in our fourth quarter operations report.

Before I turn the call over to Jim, Ill remind you that this presentation contains our best and most reasonable estimates and information. However, a number of factors could cause actual results to differ materially from what we discuss. You should read our full disclosure on forward-looking statements in our presentation slides, our latest 10-K, other filings and press releases for the risk factors associated with our business.

In addition, well 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 notes to U.S. investors contained in the presentation slides for this call.

With that, let me turn the call over to Jim Hackett.

Jim Hackett

Thanks, John. Good morning, everyone. In 2009, Anadarko delivered some of the strongest operational results in the companys history and we view these results demonstrate the viability of Anadarkos strategy and the capabilities of its people and portfolio.

In addition, we think, weve set the stage for continued success in 2010 and beyond. Specifically for the year, we delivered record sales volumes of 220 million barrels of oil equivalent, a 7% increase from 206 million barrels of oil equivalent previous year, nearly three times the growth rate of our guidance at the beginning of the year, all while spending about $1 billion less on near-term projects than we did in 2008.

We significantly improved our operating costs by reducing lease operating expense per BOE by more than 20% year-over-year. We added 314 million barrels of oil equivalent of proved reserves before the effects of price revisions and divestures, with costs incurred of about $4.7 billion.

Using the common definition of finding and development costs in the investment community, this calculates to a very competitive rate of less than $15 per barrel of oil equivalent.

Our deepwater exploration program delivered extraordinary results in 2009, with nine announced discoveries and an overall success rate of 50%. These discoveries coupled with the positive results from our follow-up appraisal activity provide confidence that we can deliver future material production and reserve additions from our growing list of mega projects.

For the three mega projects weve already sanctioned, we continue to make good progress, moving them closer to first production both on schedule and within budget. We expect Jubilee in Ghana to start producing late this year and the three projects combined should add about 50,000 barrels of oil equivalent per day net to Anadarko by 2012.

Concurrently, our partners in the Marcellus, Haynesville, Eagleford and Pearsall shale programs, solidifies our view that these assets will play an expanded roll in our long-dated organic growth.

As I stated earlier, full year production for 2009 totaled a record 220 million barrels of oil equivalent. This was about 10 million barrels of oil equivalent higher than the midpoint of the original guidance that we provided at the beginning of 2009.

And again, the 7% year-over-year growth in sales volumes was accomplished while spending about 35% less on near-term projects year-over-year for a highly efficient capital yield.

Our sales volumes benefited from 14% year-over-year growth in the Rockies, steady performance in the southern region and improved run times in the Gulf of Mexico. We also continue to capture additional value and enhanced margins by focusing on areas of our portfolio that offer higher liquids yields, such as the Wattenberg field.

Weve expanded these opportunities already this year as demonstrated by our recently announced transaction with TXCO that will add about 80,000 net acres to our existing 180,000 net acreage position in Maverick Basin.

We like the results were seeing in the Eagleford shale with its high liquids yield and felt this was a compelling opportunity. We also gained almost a full years benefit from the cryogenic expansion at the Chipeta processing plant in the Greater Natural Buttes area, which added more liquids to our product stream.

Turning back to Colorado, the Wattenberg production field contains about 40% liquids and also serves as a good segue to talk about our continued improvements and drilling efficiencies. We drilled nearly as many wells in 2009 as we did in 2008 in this field, with essentially half the rig count.

Our improved cycle time and cost savings were also achieved in other operating rigs. In the southern region about 30% of the wells drilled set cycle time records in the fourth quarter. More specifically, we set records in the Carthage, Chalk, Bone Spring and Marcellus shale areas.

Our exploration teams delivered a phenomenal result in 2009 by discovering approximately 360 million barrels of oil equivalent of net risk resources, more than 50% higher than our original estimates that we shared with you at our March Investor Conference in 2009.

We announced nine deepwater discoveries in some of the hottest exploration areas in the world, including the pre-salt in Brazil, Cretaceous fan play in West Africa and the subsalt Gulf of Mexico.

Two of these nine discoveries were announced during the fourth quarter. They were Lucius and Anadarko operated Pliocene and Miocene discovery in the deepwater Gulf of Mexico.

The discovery well encountered more than 200 net feet of pay. Weve since drilled an up-dip sidetrack appraisal well, which we announced last week that had almost 600 net feet of oil pay and very strong reservoir characteristics.

The second major discovery in the quarter occurred at the pre-salt Itaipu prospect offshore Brazil in blocked BMC-32, where we have a 33% working interest. The well encountered more than 90 feet of net pay in a high quality carbonate reservoir. And a recent successful sidetrack is estimated to have added another 60 feet to this pay count. Itaipu, like our neighboring Wahoo discovery appears to cover a very wide aerial extent.

The remaining seven announced deepwater discoveries were Heidelberg, Shenandoah, Samurai and Vito in the Gulf of Mexico; Tweneboa and Mahogany Deep offshore Ghana and Venus in Sierra Leone, which was the first deepwater well ever drilled in the Liberian basin.

We are currently drilling the first of four consecutive deepwater wells offshore Mozambique. The currently drilling Rovuma Basin prospect is called Windjammer. Upon completion, we plan to move the rig to drill the deepwater Collier prospect, about 50 miles south-southeast of the Windjammer well. We operate both with a 43% working interest.

Offshore Ghana will continue to be very active and plan to spud the Dahoma exploration prospect soon. This lies to the southeast of the Jubilee unit boundary in the West Cape Three Points Block.

The success weve achieved in exploration has led to significant appraisal activity, which we then plan to transition into development projects. Offshore West Africa, our appraisal drilling activities confirmed the extent of the productive area of Jubilee field south and east of the current unit boundary.

In Brazil, the Wahoo #2 well gives us confidence that this area has all the ingredients to become one of our next mega projects. The Wahoo #2 well encountered more than 90 feet of net pay and high quality sands and the recently completed sidetrack of this well brought the total closer to 135 net feet of pay. The results confirmed the extension of the Wahoo field 5 miles to the north and down-dip in the discovery well in block BMC-30 in the Campos Basin. We operate the block with a 30% working interest.

After were finished sidetracking Wahoo #2, we plan to perform drillstem tests at both Wahoo and Wahoo #2 before drilling at Wahoo south exploration prospect later this year on the same block.

Just in the past two weeks, weve announced two additional successful appraisal wells. The first off the coast of Ghana was the Tweneboa-2 well, which encountered more than 105 net feet of hydrocarbon pay, including about 56 net feet of oil pay. By drilling this well 4 miles south and down-dip of the original discovery well, we confirmed our pre-drill expectations of finding significant oil accumulation with a large aerial extent.

The second was at Lucius sidetrack well in the Gulf of Mexico in Keathley Canyon block 875 that I mentioned earlier. This is a major discovery where we have a 50% working interest. We plan to be in the area later this year doing one or two additional appraisal wells and will be working with our partners on potential development options.

As I mentioned, we also continue to advance our current mega projects on time and on budgets. In Ghana the Jubilee Phase 1 development is on track to achieve first oil later this year. The FPSO conversion work is almost complete and the vessel is expected to leave the yard in Singapore sometime in the second quarter.

At Caesar–Tonga in the Gulf of Mexico development activities continued during the fourth quarter, as we drilled the third of four planned Phase 1 producers. One of these wells, Green Canyon 683 number 1 sidetrack 2 encountered about 400 net feet of pay, some 1,200 feet up-dip from the original Caesar discovery well. Construction and insulation work at our host facility, the Constitution spar, is progressing well and the project remains on track to deliver first production in the first half of 2011.

In Algeria, at El Merk, we drilled three wells during the fourth quarter and this major project also remains on schedule with first oil expected in late 2011. Weve also made good progress and achieved positive results in our shale plays. We continue to develop our fairway positions and ramp up production in the Marcellus, Haynesville, Eagleford and Pearsall Shales.

On a gross basis, we are currently producing more than 75 million cubic feet per day and about 1,000 barrels per day with another 50 wells awaiting completion.

In addition to acquiring the Eagleford acreage I mentioned earlier, weve also enhanced our acreage in the Marcellus shale by adding about 35,000 net acres to our prior net position of about 315,000 acres.

Turning to the financials during the fourth quarter, we reported earnings of about $0.46 per diluted share. As with previous quarters, we provided a breakout in the earnings release of certain items affecting comparability, which increased fourth quarter net income by about $0.42 per share. Discretionary cash flow totaled approximately $869 million for the quarter and more than $4.36 billion for the full year.

Our balance sheet remains strong with substantial liquidity. We ended the year with more than $3.5 billion of cash on hand, reduced our net debt to capital ratio to approximately 31% from about 34% at year-end 2008 and maintained access to our undrawn $1.3 billion committed credit facility.

Our capital expenditures were in line with full year guidance when adjusting for our decision to purchase the Anadarko corporate headquarters building in Houston in the fourth quarter for approximately $215 million rather than renew a less economically advantaged lease.

We exceeded our 2009 G&A guidance for a good reason. Our employees and portfolio delivered an outstanding year, as Ive already highlighted. These accomplishments contributed to the creation of an additional $13.5 billion of market capitalization for our shareholders during 2009 and $6.5 billion of incremental value relative to the average of our peer group.

By delivering this relative outperformance, our non-officer employees qualified to receive a prescribed supplemental bonus plan. This plan has a very high hurdle and this is the first time that the companys total shareholder return has warranted rewards of this magnitude. Im proud of the teams performance in surpassing this hurdle.

This non-officer program accounted for the vast majority of our increased G&A. However, our all employee annual incentive plan accrual was also increased to reflect the successful attainment of cost savings initiatives, enhanced margins, production records and reserve additions above targeted levels.

Going forward, we fully expect G&A to return to less than $4 per barrel of oil equivalent, except for exceptional performance years.

Turning to reserves. As stated in the earnings release, we added approximately 314 million barrels of oil equivalent of proved reserves during 2009, before the effect of price revisions and divestures, equating to a production replacement ratio of approximately 140%.

In line with most of our peers, we chose not to report probables and possibles and reported only proved reserves this year. Utilization and the new average price rules did have some effect, reflected by the 39 million barrels of negative price provisions that we had, due to the approximate 33% drop in market gas prices period-to-period. Other than that, there was a minimal impact on our reserve bookings.

With the first year of implementation we felt approaching this in a more conservative manner was the best way to go. It is interesting to note that if we were able to use year-end prices, our reserves would have increased an incremental 63 million barrels of oil equivalent from the estimated 2.3 billion barrels of oil equivalent of total year-end proved reserves.

As of year-end 2009, about 75 -- 70% of our proved reserves were developed and 30% undeveloped, the same percentage of undeveloped reserves as last year. The product mix also transitioned more towards liquids during the year. At year-end, an estimated 44% of our proved reserves were liquids, compared to 40% in the prior year.

2009 set the foundation for a lot of positive events in the future and we look forward to providing with more detail about our 2010 plan once it receives board approval. And well shed more light on our outlook for this year and well into the future at our March 2nd Investor Conference in New York.

With that, Im joined by our executive team and were happy to take your questions. So Jeri, if youre ready, we can open up the lines.

Question-and-Answer Session

Operator

(Operator Instructions) And your first question comes from the line of Ellen K. Hannan of Weeden & Company. Please proceed.

Ellen K. Hannan - Weeden & Company

Yeah. Good morning. Thank you. I had a question on your increase in your acreage position in the Marcellus, if you could talk about where that is relative to your JV with Chesapeake or your other acreage, that kind of thing?

And also in terms of you mentioned you were running three rigs in the area in the fourth quarter and you planned to increase that through 2010. Are we talking a doubling, a tripling, a rig a week and can you give a little bit of color on that?

Bob Daniels

Yeah, Ellen. Excuse me, this is Bob Daniels. On the acreage position, its intermixed in our overall acreage position that weve already established, so we didnt step out of that. Part of it is in our JV with Chesapeake and part of it was through a lease sale that the state held. But that combination just picked up a nice swathe of acreage at infilled to the position we already have that we like a lot. So it took us up to about 715,000 gross acres through there.

We have talked about adding rigs through the year, I think were going to try to ramp up to about six, five to seven running through next year at this point and that would not be a rig a week, but a staged plan of bringing those rigs in to start exploring the activity out there. We like exploring the area out there, we like what were seeing with our activity to date.

Weve got a couple wells, now that we operated, we announced that were over 7 million a day, were drilling our first well in Lycoming County and testing it right now, and we like the results of that, what were seeing in the way of rates and pressures. So everything seems to be working well in the Marcellus and were real pleased to be able to pick up some additional acreage in there.

Ellen K. Hannan - Weeden & Company

Great. Thanks very much.

Operator

And your next question comes from the line of Doug Leggate with Merrill Lynch. Please proceed.

Doug Leggate - Banc of America/Merrill Lynch

Thanks. Good morning, everybody. Couple of things, Jim. I guess starting off with Itaipu, is there any update you can give us on whether or not you guys will be able or would be interested in taking over operatorship of that, or any issues really surrounding the sale thats going on, how that might impact development?

Jim Hackett

Doug, I think as weve mentioned before, that were happy with our position in Brazil, we like where our working interest is. Weve got tons of running room. We dont see in the cards today participating in the divestitures related to that block. And therefore, I think its unlikely well get operatorship because that would require us to buy interest and were not terribly interested in doing that even though we love the prospect.

What we think will happen, though, is we think good value will be achieved for our partner there and I think it will give everyone more confidence about what the position is worth actually to our shareholders as well.

Doug Leggate - Banc of America/Merrill Lynch

Okay, okay. My only follow-up, obviously, youve got your Analyst Day coming up, so Im guessing we might get some of this then. But youre talking now obviously 60,000 barrels a day from the three mega projects that youve got running right now. But obviously the queue is getting quite long in terms of potential developments.

Can you give us some idea as to how youre thinking about prioritizing the multiple discoveries that youve got, in terms of Brazil, obviously, it was stated in your press release as being a potential mega project. But where does, if you could just kind of give us a rundown as to what you see as the next three or four major developments as you firm up your reserve estimates in these projects?

Jim Hackett

Yeah. I think what youll see is much more of that, as you mentioned in the investor conference, where well actually kind of tell you, hopefully tell you some suggested timeframes for some of these. But we want to make sure on a few of these that we have all the right appraisal activity, all the right science done before we come to you and say were ready to sanction this thing tomorrow.

So we dont want to start giving dates out until were absolutely sure what that timeline would be, I think you should take some confidence from the fact that when we decide to do something, we tend to get it done on time and within budget and part of that is, making sure that we do the right upfront science. As you may know, thats why Ghana was a little bit slower going because we wanted to make sure all of that science was done and now were of courses on the cusp of that.

The big issue for I think for all of us is, you know, kind of have you got the capital and have you got the people to execute these things and the way that these discoveries are occurring gives us a lot of confidence that the phasing in of these projects for new sanctioning are going to work out really well with regard to the capital flows that we have in the existing mega projects, where those will start dropping down significantly by the time well start to ramp some of these others up. And that looks good from both a production perspective for our investors but also looks good from a project management and capital spending perspective.

So its a general kind of overview, we dont see ourselves at this point in a position where we have challenges that are overly daunting and of course, as you can, readily realize this is high cotton in terms of even thinking about this issue. So weve got plenty to go have fun with and deliver value from.

Doug Leggate - Banc of America/Merrill Lynch

All right. Ill leave it there, Jim. Thanks very much.

Operator

And your next question comes from the line of David Heikkinen from Tudor Pickering Holt. Please proceed.

David Heikkinen - Tudor Pickering Holt

Good morning. Had a question for you just following up on the Marcellus, that was your operated rig count. Do you have an indication as far as non-operated rig count in the Marcellus?

Jim Hackett

Yeah, David. Our understanding is that Chesapeake is going to be operating 10 to 12 rigs next year, in that area that were partners with them. It will go up and down, depending on how they utilize the rigs because they do have additional acreage beyond the area that were partners but thats our understanding through 2010.

David Heikkinen - Tudor Pickering Holt

Okay. And then theres been a lot of discussion in the Rockies around horizontal Niobrara and you guys are sitting on an acreage position that looks prospective. Can you talk at all about thoughts about horizontal Niobrara drilling?

Chuck Meloy

David, this is Chuck. Were very excited about our position, primarily on the strip as you mentioned. This play appears to be working its way into our strip acreage and really started on our strip acreage.

Were well positioned because of the strip and because of the activity that weve historically done in Wattenberg. So we have a good understanding of what it takes to drill these wells and how they produce and how to stimulate them and that type of thing. And were going to continue to watch the activity and expand our operations toward it.

David Heikkinen - Tudor Pickering Holt

And youve permitted some wells, have you drilled anything yet?

Chuck Meloy

Weve drilled some in Wattenberg proper.

David Heikkinen - Tudor Pickering Holt

Yeah. And then on the 360 million barrels of resource potential, and as you think about that scope and size, should we think about breaking that out at the analyst meeting between the prospects or is it going to stay kind of the big number tied to the multiple discoveries, just curious how youre going to detail that?

Jim Hackett

Yeah, David. I think were going to try to give more ranges on the individual discoveries with what we know and then youll get a pretty good handle as to how, what their contributions are into that 360 million barrels of resources found.

David Heikkinen - Tudor Pickering Holt

And then just finally, can you remind us when your board meeting is?

John Colglazier

Yes, sir. Its middle of February.

David Heikkinen - Tudor Pickering Holt

Okay. Thank you.

Operator

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

Brian Singer - Goldman Sachs

Thank you. Good morning.

Jim Hackett

Good morning, Brian.

Brian Singer - Goldman Sachs

Going back to the Marcellus, can you give us an update on infrastructure and permitting developments and just how you expect the Marcellus to play out from a production perspective in your central PA acreage, as well as, in the JV with Chesapeake?

Jim Hackett

Brian, as youre aware, its an area that has a number of large transmission lines that transect it from east to west primarily. And what were doing now is with our exploration program, as well as, the follow-on development is taking advantage of that infrastructure, drilling wells essentially along the pipeline corridor where it is built up in the Chesapeake, operated AMI portion and then down where were operating. And well continue to do that, thats the speediest way to first production.

And we anticipate just expanding off of those areas as we go forward, as well as, testing inside the acreage for quality and production rates and that type of thing in the interim.

Brian Singer - Goldman Sachs

And knowing what you know about timing to market and rates of return. do you see better opportunities in the central PA block or in the Chesapeake JV areas?

Jim Hackett

Both look to be very high quality, weve seen excellent results both in the Chesapeake, our portion of the Chesapeake operated and AMI’s, as well as the area that we operate in Lycoming, Centre, Clinton County. I think they both seem to have extraordinarily high quality rock and good deliverability.

Weve both seen wells that have come online in excess of 7 million a day, several of which has been facility constrained. So we see very good rock, as well as, good economics coming out of that area.

Brian Singer - Goldman Sachs

Great. Thanks. And lastly, its been a few months now since the Venus well boosted your confidence in 30 additional prospects between Venus and Jubilee. Can you speak to any learning since then and provide any more specifics on what your plans are in that area for 2010?

Bob Daniels

Yeah, Brian. Bob Daniels again. Weve learned a lot. I think Tweneboa is probably the biggest learning in that, when we drilled Tweneboa, the results for Tweneboa-1 werent that much different than what we saw at Venus 1. But with Tweneboa, we had a real high quality 3D data set that allowed us to tie that data into it and extrapolate away from the well bore and see that we had a very good thicker band section, lateral to us and we could go down-dip and test it and prove up a thicker sand section, better reservoir quality and get into the oil leg.

Venus is exactly the same, except we dont have the quality of the seismic data right now and thats why were reprocessing it. So we think when we get that data in, well be able to immediately tie the well bore in and see, we are in the best part of it or is there something lateral to it that needs to be appraised.

Additionally, the CI-105 well gave us a good indication on what we need to be doing to high grade the prospects. So what weve done now is gone back into our Liberian Basin data set, which is a new data set we acquired and high graded those prospects. We think well be back drilling in West Africa outside of Ghana later this year and drilling two to three additional wells, probably one in Sierra Leone, one in Liberia and maybe one down in CI, but well finalize that all up and were out discussing rig options right now.

Brian Singer - Goldman Sachs

Thank you very much.

Operator

(Operator Instructions) And your next question comes from the line of David Kistler from Simmons. Please proceed.

David Kistler - Simmons

Good morning, guys.

Jim Hackett

Good morning.

David Kistler - Simmons

Real quickly on Lucius, if you could talk a little bit about what youre thinking about for development options, I know youre still in the appraisal process but with other people have drilled right next door, is there a possibility of partnering to develop the play and then I believe you also have an interest in Phobos nearby. Would that be part of consideration for ultimate development?

Jim Hackett

Im going to give you the guy that wont get in front of his ski tips on this one, Chuck Malloy.

Chuck Meloy

Its an exciting opportunity for us. Were very excited about the type of rocks that weve found out in the area, around Lucius, outstanding permeability and porosity, some of the best weve seen in quite some time in the Gulf of Mexico.

Now, this is a little younger rock and so its better quality rock. We anticipate very high deliverability out of it. And so we plan on doing two wells now, one down-dip, one up, and we anticipate doing a lateral appraisal well later this year, as the rig availability allows us to do that.

Well take all that data in, learn from it and were currently evaluating the different, the different development options that we might have for the Lucius program, inclusive of working with our neighbors at Hadrian and they go from a range of subsea developments tied back to a host of standalone projects.

Were very excited about what Lucius means for Phobos on the exploration side and we hope to be drilling that in later this year or sometime next year and incorporate that into any development plan that we put together.

David Kistler - Simmons

And just thinking about it from a timing perspective and this is a bit of guesstimate but looks like youd have to probably build a spar for that or reuse a spar or are you guys looking at doing that at this point? Are we getting ahead of ourselves even discussing that?

Chuck Meloy

David, those are certainly the options, certainly in the list of options that we have.

David Kistler - Simmons

Okay. And then just shifting gears more to the domestic or onshore portion of the portfolio, in the past, you guys have been pretty good about dynamically adjusting the rig count among your portfolio, basically optimizing oil and gas.

Can you give us any kind of direction on how you think you might be doing that going forward? Is there, at least it appears a bias to liquids in the near-term, am I misreading that?

Al Walker

This is Al. Let me try and see if I can help a little bit and I will certainly talk more about this in March. But liquids and oil are clearly a part of the equation for us and I think with most of what youll see us do in 2010 onshore, we have a bias towards gas that has a liquids enhancement. Thats not to say that we wont drill things that dont have that and clearly Marcellus being one of those.

But as we look into our deepwater, we pretty much have an oil prospect inventory and that is one of the real advantages of our prospect inventory in deepwater, whether its in the U.S. or outside the U.S. And I think as you think about how our production profile could change over the next five years, we certainly have a bias in terms of price discovery in and around oil and believe that that will help us quite a bit over the next five years in achieving some things today that very few of our peers can do.

Now, in the Greater Natural Buttes area, as you recall, we brought on a cryo plant earlier this year, yield off of that is substantially better than the refrigeration plant we had there previously and as we potentially increase production in the coming years from the Greater Natural Buttes, you can anticipate seeing more cryo potentially being built by us as a part of that in order to improve the liquids yields from that gas.

David Kistler - Simmons

Great. Thats helpful, guys. Thank you.

Operator

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

David Tameron - Wells Fargo

Thank you and good morning. And couple questions reserves, can you talk about just a general mix, how much international, how much domestic of that 314? And the second part of that question, of the 360 thats, that you guys talk about as far as net resource potential, can you talk about what youve booked in like deepwater or Africa or Brazil that, give us some color there?

Bob Gwin

Sure, David. Its Bob Gwin. Internationally, we booked very little this year. We booked small amount at Jubilee, about 20 million barrels. The majority of the bookings were onshore, majority of those were in the Rockies, Greater Natural Buttes, Powder River Basin, Wattenberg, et cetera.

We did book some offshore U.S. but from an international -- none in Brazil, so from an international perspective and relative to the 360 million barrels of discovered resources this year, we did not proceed with any bookings on that front.

Al Walker

David, this is Al. Ill add one thing, just as youre thinking about Anadarko in anticipation of our March meeting. We really have not been an active company to date with the booking of our shale plays, I think in the coming years, youll see shale increasingly be a part of our reserve bookings but for the most recent year, it was less than 1%, which probably is a little different than some others. And consequently as a change, the SEC bookings have allowed for more PUDs to brought into shale bookings in particular. You may see our PUD percentage increase without that necessarily sending you a negative signal.

David Tameron - Wells Fargo

Okay. And then I guess that would explain the PUD flat year-over-year, Al?

Al Walker

Yes.

David Tameron - Wells Fargo

All right. No. Thats good color. Thank you. Vito, any, Jim, any timing on, or Bob, whoever wants to answer it, any timing on Vito?

Jim Hackett

Yeah, David. I can tell you whats going on out there right now. You know, we brought a rig back to drill first a sidetrack to the original well to take a bypass core, that operation is complete. We were successful in getting the core that we want to get the rock properties. Then we kicked off to go up-dip and were in the process of drilling that well right now, should have results probably within a months time.

David Tameron - Wells Fargo

Okay. I assume those are going to be coming from Shell or is that going to be your announcement?

Jim Hackett

Shell is the operator of that, so they would be the one that would be talking about it.

David Tameron - Wells Fargo

All right. And then one more question. Obviously dont want to front run the analyst conference. But CapEx for 2010, can you give us a general, just some general ranges of kind of what youre thinking versus cash flow or kind of whats already out there, as far as youre committed?

Jim Hackett

What weve said publicly and Ill restate it is that, you should start with the high end of our guidance this year and therefore somewhere around that $4.5 billion level, but we important to note, at current strip prices and hedges, were going to generate, we think somewhere around $5.2 billion for this year.

And so weve got a real strong ability to fund the $1 billion in exploration and $1.2 billion of mega projects that weve got commitments on. And then it gives us a lot of flexibility to allocate to near-term growth opportunities. So well be sharing with you where we go from that initial starting point relative to growth and production. Thats what you should expect in March.

David Tameron - Wells Fargo

All right. And, yeah, thats helpful. Thanks.

Jim Hackett

Thank you.

Operator

And your next question comes from the line of Subash Chandra with Jefferies & Company. Please proceed.

Subash Chandra - Jefferies & Company

Hi. Good morning. Is there a PV 10 number with that reserve report?

Bob Gwin

Not at this time, Subash. That will be coming out when we issue the K later this month.

Subash Chandra - Jefferies & Company

Okay. Question on the Marcellus, how many wells are flowing into sales at this point and could you sort of describe your, the gathering capacity and sort of how you plan to stay ahead of it in 2010?

Chuck Meloy

We currently have around seven wells I believe flowing into sales that we operate and then Chesapeake has in the order of 20-ish that are now into sales, that are flowing into sales, and most of which are currently restricted facilities because were essentially running through old gathering systems by and large, that have restrictive capacity and we will soon be converting those to new lines and installing new gathering systems and that type of thing.

Subash Chandra - Jefferies & Company

Is there a goal you have in mind this year sort of what type of, what capacity gathering you would like to have in place?

Chuck Meloy

On a particular one, we hope to quicken the pace of our gathering system. Were dealing with the permitting processes and right of ways and that type of thing. So we continue to push that, we now understand the process to get it done and work mostly with all the regulators in Pennsylvania to expand more quickly our gathering system. And because were going to focus primarily around that current drill sites for additional wells, they will be tied in much quicker in the future.

Subash Chandra - Jefferies & Company

And final one for me, now that I guess, you got your arms around the gas shale and Eagleford or Rockies, you got your arms around those shales, is there an opportunity or is there a longer-term goal to pursue shales internationally and sort of use your international exposure to leapfrog onshore?

Bob Daniels

Yeah. Subash, its Bob Daniels. Of course, we look at that all the time because its one of the skill sets we have internally. We do see potential around the world in that type of play.

The real difficulty right now is the fiscal terms and the cost structure in these other more remote locations. You have to have a market to sell the gas into and you have to have infrastructure because these are kind of manufacturing type activities and you have to have fiscal terms from the state that are quite different than what they are used to.

And so theres a lot of work thats going to have to be done on all of those fronts to find an area that really works. But its one of those things we keep our eye on for the future but at this point, its not something that were actively pursuing and think that well be drilling wells in next year by any means.

Subash Chandra - Jefferies & Company

Okay. Great. Thank you.

Operator

And your next question comes from the line of Brad Beago with Treaty Oak. Please proceed.

Brad Beago - Treaty Oak

Hi. Good morning, guys. Congratulations on a great year. I guess two questions, just one on the very short-term basis, looking at the difference between Q3, Q4 production, I know Independence Hub had a significant part of that.

I wonder if you could talk about the dynamics of that and without going through too much of what will be covered in the analyst call, how we could expect that to look in 10 in terms of what potentially could be added to the production mix there?

Chuck Meloy

Brad, this is Chuck. We gave guidance range of 53 to 54 million barrels for the quarter, came right in the middle of it. We anticipated a -- because we gave a very narrow range, we anticipated a number of events like some maintenance on, I have -- we did -- made reconfigurations on the platform (inaudible) weaker production.

We also had the understanding and the scheduling and timing of our liftings for our international activities, liftings in the international activities, and we baked that into our numbers. And so I dont see a significant change in our production profile going forward, its just the timing quarter-to-quarter of several of these activities.

Brad Beago - Treaty Oak

Okay. And then secondly, I guess more broadly, Jim, I understand you got to sit down with the President over the last couple of days. Wonder if you could kind of give us an overview of that, it looks like he didnt take the industrys advice in terms of changes to the tax cut or at least in his proposed budget?

Jim Hackett

I think theres some practicality with regard to what he just came out with, which is if you may recall, its a bit of a repeat of last year and they have got to have pay forwards that appeal to their constituency.

Im pretty sure it wont come out the way its been proposed, just like it didnt last year. I think the independents are in a good place with regard to arguing on IDCs, which is the biggest issue there by far. But particularly if we can get the administration to support natural gas, the two things that were notable that followed that meeting for whatever reasons is the mention of offshore oil and gas leasing in the State of the Union, but also his comments about we need to do more for natural gas in the GOP meeting that happened after the State of the Union, which is the first time that natural gas domestically was mentioned separately by the President.

And I might mention that we have some follow-up in that regard that is good from the messages that were delivered. So I think it was nothing but productive, the meeting, and I have some confidence that as we play offense with natural gas, we may be playing some defense too with the independents.

Brad Beago - Treaty Oak

Great. Well, thanks. Good job.

Jim Hackett

Thank you.

Operator

And you do have a follow-up question from the line of David Tameron with Wells Fargo. Please proceed.

David Tameron - Wells Fargo

Hi. And, yeah, quick follow-up. If I think about CapEx and, Al, from the comments you made about shales and then the comments that you guys did buckle out international. If I think about that 314 and back off kind of the Brazil or the Africa 20 million barrels and look at a 294 number, what would be the equivalent of CapEx to get to that 294, Im trying to figure out, is it 50% of the bookings or kind of on projects, mega projects in deepwater that wasnt booked or how can I think about that split?

John Colglazier

Yeah, Dave. This is Colglazier. I think, its really part of that capital efficient base that we talk about and I think weve been pretty vocal on that, that as you bifurcate our capital spending, knowing were going to spend $1 billion dollars on exploration, we spend $1 billion dollars on the megas, which accounts for the 20 that got broke [ph] that you mentioned.

You know, were down to less than $2 billion that we spent on near-term projects and thats where this, 290 million barrels plus, where were very proud of the less than $10 per barrel F&D that that affords us, I mean its pretty outstanding when you look at it on a comparative basis.

Jim Hackett

I think with the progress weve made, too, on the margin front with regard to LOE reductions, is that, youll see us having a better ability to try to convert our resource potential more quickly and of course, thats very attractive to us, youll have us paying a lot of attention to that.

David Tameron - Wells Fargo

Okay. Got it. Yeah. Thats good. Thank you.

Operator

And this does conclude the question-and-answer portion of todays conference. I would now like to turn the presentation over to Mr. Hackett for closing remarks. Sir, you may proceed.

Jim Hackett

Thanks, Jeri. Thanks everyone for participating. We are obviously very excited about this year and the coming years. And 2009 was, as someone mentioned on the phone, was an outstanding year for us. But I think the main thing from our standpoint is what it provides for look-forward kind of view and the ability to deliver continuing value as opposed to past value. So were really looking forward to seeing you at the Investor Conference in March in New York and sharing more of that with you. Have a great day. Thanks.

Operator

Thank you for your participation in todays conference. This does conclude the presentation. You may now disconnect. And have a great day.

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Source: Anadarko Petroleum Corp.F4Q09 Earnings Conference Call
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