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Executives

Robert G. Gwin - Chief Financial Officer and Senior Vice President of Finance

A. Scott Moore - Vice President of Marketing

John M. Colglazier - Vice President of Investor Relations & Communications

R. A. Walker - President and Chief Operating Officer

Robert K. Reeves - Chief Administrative Officer, Senior Vice President and General Counsel

James T. Hackett - Executive Chairman, Chief Executive Officer and Chairman of Executive Committee

Robert P. Daniels - Senior Vice President of Worldwide Exploration

Charles A. Meloy - Senior Vice President of Worldwide Operations

Analysts

Robert L. Christensen - Buckingham Research Group, Inc.

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

John P. Herrlin - Societe Generale Cross Asset Research

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Phil Corbett - RBS Research

Scott M. Wilmoth - Simmons & Company International, Research Division

Scott Hanold - RBC Capital Markets, LLC, Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Jason Gilbert - Goldman Sachs Group Inc., Research Division

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Anadarko Petroleum (APC) Q3 2011 Earnings Call November 1, 2011 10:00 AM ET

Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2011 Anadarko Petroleum Corporation Earnings Conference Call. My name is Jeff and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. John Colglazier, and you have the floor, sir.

John M. Colglazier

Thanks, Jeff. Good morning, everyone. I'm glad you could join us today for Anadarko's third quarter conference call. Today's presentation contains our best and most reasonable estimates and information. However, a number of factors could cause results to differ materially from what we discuss today.

You should read our full disclosure on forward-looking statements available on our presentation slides, our latest 10-K, and other filings and press releases 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 U.S. investors contained in the presentation slides for this call, and as we do each quarter, we've included additional information in our quarterly operations report and 10-Q, which are both available on our website.

With that, I'll turn the call over to Jim Hackett, our Chairman and CEO, who'll be joined by other members of management to answer questions later in the call. Jim?

James T. Hackett

Thanks, John. Good morning, everyone. The positive operating results of the third quarter, in addition to recent news including the expanded recoverable resource base in Mozambique, continue to reinforce our confidence in the strength of the company's portfolio. We recently replaced the significant financial risks associated with the Macondo event behind us, allowing our stakeholders to focus upon the tremendous value embedded in Anadarko's assets, some of which we will discuss in today's call.

We continued to achieve strong operating results during the quarter. Total sales volumes were at the high end of guidance of 61 million barrels of oil equivalent and included a 10% increase in liquid sales volumes over the third quarter of 2010. This increase in higher-margin liquids contributed to free cash flow of $576 million.

Our deepwater exploration and appraisal programs delivered a 75% success rate during the quarter, with significant discoveries in appraisals in Ghana and Mozambique. Our U.S. onshore shale plays delivered extraordinary growth of more than 160% relative to where we were at this time last year. And We're looking forward to further expand this opportunity set in the liquids-rich portion of the Utica Shale play in Ohio, where we recently began joint activity on our 300,000 gross acres.

We continue to direct much of our near-term capital spending toward liquids-rich areas of our asset base. We achieved a 10% increase in liquid sales volumes relative to the third quarter of 2010. These results were highlighted by a 30% year-over-year increase in oil sales volumes from the U.S. onshore properties.

We also benefited from excellent price realizations as approximately 70% of our crude volumes are based on Brent-equivalent indices. This generated a $10 per barrel premium to WTI on our oil volumes. With regard to NGLs, the price picture is similarly positive as we realize an increase from 50% of equivalent-index crude to 62% of WTI oil pricing on our NGL volumes.

The Rockies region contributed meaningfully to the company's third quarter growth and surpassed the production milestone of more than 300 thousand barrels of oil equivalent per day, which is an 11% increase over last year's third quarter. This growth was highlighted by the Wattenberg field in Colorado, which delivered record sales volumes, including a 36% increase in liquids volumes over the third quarter of 2010, largely driven by the success of our expanded horizontal drilling program.

During the quarter, we drilled 12 horizontal wells targeting the Niobrara/Codell with excellent results. As one example, the Dolph well achieved a 24-hour daily flow rate of more than 1,100 barrels of oil plus almost 2.5 million cubic feet of gas. Based on the positive results of this program and its projected growth, we've been aggressively expanding our midstream processing and gathering infrastructure throughout the basin. The horizontal Niobrara program holds tremendous potential and is primarily located in an acreage that is economically advantaged due to our ownership of the mineral rights throughout the land grant. In a couple of weeks, we plan to share a more detailed look at this program and the value proposition it offers for our investors.

Moving to the Greater Natural Buttes area of Utah, we continued to set daily and monthly production records during the quarter. Net sales volumes in this period were 36% higher than the third quarter of 2010. Construction is advancing on schedule for a major plant expansion that will increase our cryogenic processing capacity in this area to about 500 million cubic feet per day, resulting in an incremental gross recovery of about 15,000 barrels per day of NGLs.

In the Southern and Appalachian region, we continued to rapidly increase production to drive efficiencies in our drilling and completion cycle times. In the Eagleford Shale, we're running 10 rigs and production has grown by more than 120% over the third quarter of 2010. Our exit rate at the end of the third quarter was approximately 66,000 barrels of oil equivalent per day of gross production, which is a 47% increase over the exit rate in the prior quarter. We remain focused on continuing to improve price realizations with enhanced access to Gulf coast markets for our liquids and expanded transportation options for produced natural gas. These efforts have bolstered our rates of return in the field, which already exceeded 100%.

In Pennsylvania, we achieved sales volume growth year-over-year of approximately 300% from the Marcellus Shale. We continued to expand gathering and processing capacity, and our exit rate in the third quarter surpassed 600 million cubic feet per day of gross sales volumes, which is up more than 30% sequentially from the prior quarter.

Our West Texas Permian oil price nearly tripled in liquids volumes relative to the third quarter of 2010. During the quarter, Anadarko participated in 15 total Bone Spring and Avalon Shale wells as we continued to test our position in these emerging growth plays.

Transitioning to our mega projects, our teams have continued to make good progress during the quarter. The Jubilee Field offshore Ghana was a significant contributor to the company's 27% growth in international oil volumes over the prior year. All Phase 1 wells have been drilled, and current oil production from Jubilee is in excess of 85,000 barrels per day. The operator's resource estimate of Jubilee remains unchanged, although some mechanical issues related to completion techniques will require a sidetrack of one of the producing wells and downhole remediation in certain other wells. Once these completion issues have been resolved, production is expected to ramp toward facility capacity. Additionally, 8 production and injection wells are expected to commence drilling in 2012 as part of the planned Phase 1a program.

In Algeria, a construction of the El Merk project is 83% complete and remains on target to begin production of significant oil volumes near the end of 2012.

In the Gulf of Mexico, we continue to advance the Caesar/Tonga mega project. During the quarter, a riser solution was selected, and we expect to deliver first production by midyear 2012.

During the quarter, we also announced a unitization agreement for our operated Lucius development in the Gulf of Mexico. Construction is underway in the truss spar production facility, which will have a capacity of more than 80,000 barrels of oil and 450 million cubic feet of gas per day. We remain on track to sanction Lucius prior to year end with production expected in 2014. Plus, we expect to continue our exploitation program near Lucius with the anticipated spud of the Spartacus exploration prospect around the first of the year.

In Mozambique, we continued to expand one of the company's largest ever hydrocarbon discoveries. We announced that our first appraisal well of the Windjammer Barquentine and Lagosta complex was successful, as the Barquentine-2 well encountered 230 feet of net natural gas pay. Subsequent to quarter end, we also announced the Camarão well that discovered new zones and included a successful appraisal that confirmed connectivity with the Windjammer and Lagosta discoveries while spanning a distance of more than 15 miles.

Based upon our 5 successful penetrations in the complex to date, the static pressure connectivity and the numerous cores that have been collected and analyzed, we have a high level of confidence that our acreage offshore Mozambique holds in excess of 10 trillion cubic feet of recoverable natural gas. And we fully expect our current recoverable resource base to increase as we continue the significant exploration and appraisal work ahead of us, including the evaluation of 2 newly acquired 3D seismic data sets and expanded prospect opportunities.

To accelerate our program, which includes reservoir testing and up to 7 exploration and appraisal wells over the next 12 months, we're mobilizing the Deepwater Millennium to become our second drillship working in Mozambique. The enormous scale of this resource, already validated by 5 penetrations covering an area spanning more than 115 square miles, led us to increase our initial LNG development plans to include a minimum of 2 "5 million tonne per annum" trains with the flexibility to expand even further. Once this initial infrastructure is constructed, it is expected to provide economies of scale that can generate significant cost savings for each incremental train. It's an exciting project for the government and people of Mozambique and our partnership. Our integrated project team is continuing to work with the government to certify reserves and reach a final investment decision in 2013.

In West Africa, our exploration and appraisal programs also continue to deliver differentiating success. In Ghana, our partnership announced a light oil discovery at the Akasa-1 prospect in the West Cape Three Points Block. We're also currently drilling the Teak-3 well in the same block and with continued success, this area has the potential to anchor another development on the block.

In the adjacent Deepwater Tano Block, a successful appraisal well of Enyenra-3A confirmed a continuous light oil column of almost 1,200 feet. It indicated static pressure communication with the old discovery well located 4 miles updip and the Enyenra-2A appraisal well to the south. Also on the block, the partnership successfully flow tested 2 wells in the Tweneboa field. Both tests confirmed expectations, and we are now moving towards sanctioning of the Tweneboa/Enyenra complex in 2012.

Anadarko also spudded its first deepwater well in Liberian waters during the quarter as part of a 5-well program in the Liberian and Ivorian Basins. Once this well, Montserrado, is complete, the company plans to mobilize the rig to Sierra Leone and drill the Jupiter exploration prospect, followed by an appraisal of our previous Mercury discovery.

Another rig is also expected to arrive in Cote d'Ivoire during the fourth quarter to drill the Kosrou and Paon prospects.

Turning to Brazil and the Campos Basin, we are drilling the Itaipu-2 pre-salt appraisal well now and expect results soon. We also recently spud the Itauna-2 well, which is an appraisal to our previous Itauna post-salt discovery.

Now going to the Gulf of Mexico, progress continues with permitting and drilling plans, and we plan to participate in 6 wells through the end of the year. These include appraisals of Heidelberg and Vito; 3 exploration wells, Coronado, Cheyenne East and Kakuna; and a development well at Nansen.

Looking forward to 2012, we anticipate an active Gulf of Mexico program as well with plans to participate in 6 to 8 exploration and appraisal wells. We're also securing the necessary rigs to deliver upon this program as evidenced by the recently announced agreement on the ENSCO 8505.

Turning to the financial results for the quarter, we reported a net loss of $6.12 per diluted share, including the expenses associated with the Macondo settlement. Absent this expense and certain items that are typically excluded by the investment community, our net income would have been a positive $0.66 per diluted share. It's reconciled on Page 7 of last night's earnings release.

Discretionary cash flow, including a special $321 million tax benefit, totaled almost $1.9 billion for the quarter, which is $576 million higher than our capital expenditures. Our efforts last year to strengthen the balance sheet and to secure ample liquidity positioned us well to reach the settlement agreement with BP. As we've stated in our post-settlement news release, we plan to initially fund the payment with a combination of cash on hand, which amounted to about $3.5 billion at quarter's end, and by drawing down funds from our available $5 billion credit facility.

We also expect to receive net proceeds in excess of $163 million from our insurance providers. We then plan to repay the borrowings under the credit facility with a portion of the proceeds from a possible monetization of our Brazilian subsidiary.

Growing interest has been expressed in our Brazilian properties, and we have opened a data room. We would anticipate closing a potential sale in 2012, provided we receive pricing in terms that meet our objectives.

As we approach the end of the calendar year, we feel very good about the company's strong operational record. With the results achieved to date, we are raising the midpoint of our full year production guidance by 500,000 barrels. The new range is 245 to 248 million barrels of oil equivalent. With the efficiencies we've driven into our programs, we expect to deliver these volumes for less capital than originally projected. We've reduced the midpoint of our full year capital expectations by approximately $150 million. The new range, excluding expenditures related to Western Gas Partners, is $6.1 billion to $6.4 billion.

In summary, we've reduced the significant uncertainty for our stakeholders by putting the Macondo dispute with BP behind us. We're advancing several mega projects that are expected to come onstream in the next year or 2, and we're aggressively capturing value in what might be the largest development in our company's history with the Mozambique LNG project. We're in the midst of our most active ever offshore exploration and appraisal campaign that includes high potential prospects in West Africa, Mozambique, Brazil and the Gulf of Mexico. We're also continuing to ramp up sales volumes throughout our U.S. onshore liquids-rich resource base and have expanded our opportunities with a significant position in Ohio's Utica Shale.

With that, operator, let's take questions from the participants on the call.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs Group Inc., Research Division

Jim, when you look at the success that you've had in East Africa to date, can you talk to the opportunity you see in funding additional deepwater gas fields in East Africa and really around the world that can source LNG developments, and subject to success, your interest in becoming a bigger player in the LNG market beyond Mozambique?

James T. Hackett

Brian, thanks for the question. As you know, we have a 7-million-acre position in Kenya that we're very eager to get to, especially in light of activities in Mozambique and Tanzania -- or make it more interesting there. We also have new opportunities that we haven't been able to share with you yet, that I think would indicate that there still are additional prospects to pursue around the world. We are very confident about the future of Mozambique. And I do think that, that is a start of something that we will continue to pursue as a company.

Brian Singer - Goldman Sachs Group Inc., Research Division

And I guess, should we expect that you would take a more active role in the LNG market versus bringing in partners?

James T. Hackett

No, I think that even the way we set up the original partnership in Mozambique was reflective of the fact that this is a very complicated value chain. And while we want to capture the majority of the higher rent opportunities, we also see value in having partners who have market opportunities available to us, whether those partners are in U.S. joint ventures or they're in the actual partnership in the field itself. But I think in terms of our active participation in this business, which we started to look at and actually participate, as you may know, back in 2004 and 2005, that's one that we continue to want to become a bigger player.

Brian Singer - Goldman Sachs Group Inc., Research Division

And lastly, Jubilee, can you talk of the CapEx associated with the sidetrack and downhole remediation and what changes, if any, this suggests for development costs and the type of development wells you might drill to develop Enyenra?

Charles A. Meloy

Brian, this is Chuck. What we have going on in Jubilee is we drilled the 9 wells -- producing wells and 8 injectors. They've all been drilled and completed, and what we're doing with one of the wells is sidetracking it to see if we can get around, with some apparent completion, the mechanical-type problems at the bottom of the hole. The sidetracks are a fraction of what a new well costs. I don't have the exact numbers on the top of my head. But essentially, what we're doing is just drilling around the completion, and we're going to change the type of screen that we have on the well and see if we get a better completion. We've experienced additional drawdown as we've started completing these wells and producing these wells. And that's the remediation option that we have. We're also going to look at several other wells for different remediation opportunities.

Brian Singer - Goldman Sachs Group Inc., Research Division

And is there an impact that you would say in terms of development cost for Enyenra versus Jubilee? Or would you be kind of developing it differently?

Charles A. Meloy

I think we'll just use lessons we've learned from Ghana. It's the first of a basin -- first development in a basin and we've just learned a lot as we produced Phase 1. As you know, when we drilled all of these wells, they confirmed we had exactly the types of thicknesses and confirmed this world-class reservoir and it's just a matter of sorting out the mechanical issues in the wells.

Operator

Next question comes from the line of Scott Hanold with RBC Capital Markets.

Scott Hanold - RBC Capital Markets, LLC, Research Division

In Mozambique, obviously, you guys are pretty pumped up about that area. And with, I guess, Eni's discovery just to the east of you all, I mean, what does that say to the potential upside? And I mean, based on what you know now, can you tell if the reservoirs are interconnected? And how does that impact how you go forward with the development of this area?

Robert P. Daniels

Scott, this is Bob Daniels. The Eni was good news. Certainly, it wasn't a surprise to us. It was drilled about 300 meters off of our block line and about a mile from the Lagosta-1 discovery well. Our seismic data actually extends over that location so we were fairly confident they'd find something there, and it's good to prove it up and show that we have continuity down into there. It gives us a lot more confidence on all of the resources out there and our seismic interpretations. Every well that we've drilled out there, we've had very good seismic indications of sand and gas, and we've had 100% success with that model. And that means that not only the Lagosta-Barquentine-Windjammer complex, where we're actively appraising, but also in the future exploration work to the north, where we shot the new 3D. We see a lot more gas potential out here. When we talked about our 10 Tcf of recoverable resources, that's just an area that we've been appraising. And with the additional work that's going to go on through the end of this year and into 2012, we think that number has the potential to go up also, and that's just on our block.

Scott Hanold - RBC Capital Markets, LLC, Research Division

Okay. And with respect to sort of Eni's discovery and how you guys work going forward if this -- as this goes to development, I mean, what kind of relationship is there? What could we expect?

Robert P. Daniels

Well, we've worked with Eni many times before. We're partners with them in Algeria. So we have a good working relationship with them. Of course, they have the 1 well. We've got 5, and we're actively moving the project forward and we anticipate continuing to do that and keeping -- just working on progressing this project. It's always been built or planned to be expandable and to accommodate any gas that was found in the area, whether it was our equity volumes or somebody else's. And we will continue to work with the partnerships out there and with the government to find the best solution, but we are continuing to move it ahead.

James T. Hackett

And we're not interested in slowing it down because of somebody else's work.

Scott Hanold - RBC Capital Markets, LLC, Research Division

Okay, understood. And then just one last question. On the Niobrara, it sounds like in the next few weeks, you may provide some more information relative to your plans there. What are you all looking to accomplish by potentially monetization opportunities here? Are you looking to bring in a JV partner similar to what you did with Eagleford in the Marcellus? Or given the size of your position in the Niobrara, would you also be interested in just outright selling some? I mean, what is sort of the big plan here?

R. A. Walker

This is Al. Let me try to bifurcate your question a little bit and say that within the Wattenberg field or the Greater Wattenberg field, I think it's unlikely you'll see us joint venture that. As we look at the area outside the Greater Wattenberg field and we understand better the opportunity associated with the Niobrara as well as certain other opportunities with other sand packages as well as shales, we may find ourselves at some point to want to move forward with a joint venture there. But I think as we've done in the past and as we've had questions in the past asked about this, I mean, I just keep leaning on the fact that over the last 5 years, we've monetized over $25 billion in assets and when this one's right, if it is right, you can assure yourself that we'll move forward and try to do it there as well. But I think as it relates to the Greater Wattenberg area, it's unlikely given that's more of a development for us that you'll see us monetize that on a joint venture.

Scott Hanold - RBC Capital Markets, LLC, Research Division

Yes. And is it -- if I'm not mistaken, is it 1.25 million acres outside of Wattenberg? Or does that include Wattenberg?

James T. Hackett

That includes Wattenberg.

Scott Hanold - RBC Capital Markets, LLC, Research Division

And then what is Wattenberg, if you could remind me on that?

James T. Hackett

It's about 350,000 acres.

Operator

The next question comes from the line of Doug Leggate with Bank of America Merrill Lynch.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Just a couple of quick ones for me. The commentary in the operations report regarding Teak, should we now be thinking that Teak and, I guess, the Akasa well are now a firm third development? Can you just give us an update as to what you -- how you should consider that and what likely timing would be in terms of potential sanction? And I've got a quick follow-up, please.

Robert P. Daniels

Doug, this is Bob Daniels. Regarding Teak and Akasa, as I've told people, we're really working on the West Cape Three Points Block to see whether we can prove up enough volumes to lead to a sanction point. And it would probably be the end of next year that we would even get to that point. We still have a lot of work to do. We're on Teak-3 presently and expect to have results in not too distant future. Then we have to appraise Akasa and really figure out what we have there before we can decide, do we need a potential development on the West Cape Three Points Block outside of Jubilee?

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Well, Bob, is there any likelihood there are any updates on getting to the southern prospect through? You had the rig problems early this year.

Robert P. Daniels

The operator's in discussions with the government on that, and I have not heard an update beyond that the discussions are ongoing.

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

My follow-up is completely unrelated. I don't know if you can answer or not. But the Algerian situation, obviously, the arbitration was over in the middle of the year. Any update would be appreciated.

James T. Hackett

Doug, we're in the same position we were the last time we spoke publicly, which is that we're -- the arbitration panel is considering all the submissions that were made in July in testimony, and we still expect a decision by year end. The good news is, of course, that there's no value in the stock for -- in our view, for a potential settlement, which has huge value if it's in our favor. We still have discussions ongoing with the government, which would not surprise you. We still believe our position is strong. We'd love to come to a commercial settlement. We'll just have to see if the government can get there.

Operator

Our next question comes from the line of Scott Wilmoth with Simmons & Company.

Scott M. Wilmoth - Simmons & Company International, Research Division

Can we discuss strong NGL pricing for the third quarter? What kind of drove the uptick versus 2Q? And is greater than 60% of WTI sustainable going forward?

A. Scott Moore

This is Scott Moore. I would say 2 things. First of all, strength in petrochem demand, particularly in ethane, has improved prices relative to crude. You also need to remember that Mont Belvieu product prices tend to track waterborne crude more than domestic crude. So relative to WTI, NGLs have been strengthening.

Scott M. Wilmoth - Simmons & Company International, Research Division

Okay. And you guys announced a deal with Enterprise and Enbridge, I think a pipeline coming on in 2013. Should that give you increased exposure to Mont Belvieu longer term?

A. Scott Moore

That well, that's going to help us move or increase in East Rockies production and the kind of production down to Gulf coast pricing.

Scott M. Wilmoth - Simmons & Company International, Research Division

Okay, great. And jumping over to the Utica, what's your net acreage position? And kind of where is that acreage located within the play, whether it's oil, liquids window? And what are your plans for 2012 activity at this point?

Robert P. Daniels

Scott, Bob Daniels again. We got about 300,000 gross acres out there. We're not done yet. You can figure about 2/3 of that is our net position. But as I've said, we're continuing to pursue additional opportunities. We've got a rig on location, drilling presently our first horizontal. We've taken several cores from the Utica over this past year to get our science done. And next year, we're planning on more exploration wells, probably one rig through the rest of this year and moving up to 2 rigs earlier in the year to test that acreage position. We do think it's in the liquids-rich window of the Utica. That's what we were targeting, and we've been out there pursuing acreage for probably 1.5 years, putting this position together.

Operator

The next question comes from the line of Dave Tameron with Wells Fargo.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

A question, and whoever wants to take this. Mozambique, obviously, a big discovery. Companies are very excited about it. Wall Street's having a difficult time, I think, trying to value this and you start thinking about 2015 and gives you some production visibility, a big project visibility. But what -- how would you guys look at the right way to put a -- to try to peg a value to this? Can you give me any help there?

R. A. Walker

David, this is Al. I'm not sure that's an easy question by any means for anyone to answer and probably one that's going to be somewhat subject to some of the commercial terms that we're going to enter into between here and FID. I think we're pretty optimistic that we'll get the production tied to a very strong oil correlation. Most LNG projects moving into particularly the Asian market get somewhere between 80% and 90% of a benchmark crude for the gas price. So I think as we understand better the size of the opportunity there, we hope early next year to be in a little better position than we are today to describe exactly what that looks like once we get a few more appraisal wells drilled, as well as some testing done with some drillstem tests. That will give us a much better idea than I can describe for you today, some of what the potential value might be. I'm sure you've seen the Bloomberg article or Reuters that quoted the Cove CEO saying that we've got 40 Tcf on the block related to what we and Cove and others are in. I don't want to comment on that. I think that's an aggressive comment that he made, I believe, at an African conference. But I think between ourselves and Eni, we certainly feel like there's an awful lot of gas there. And I think probably early next year, we'll have a better idea of how to give you some sense for how that works back. But if you think about just exactly what we're looking at, today we're seeing we've got in excess of 10 Tcf. We have about a 35% working interest. You can kind of net that back a little bit and convert that to an oil and a price per barrel, and I'll let you do the arithmetic to the price per share.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. Yes, that gives me some framework, a better framework. So I appreciate that. And Al, while I got you, the 2012 CapEx, any -- I know you haven't given -- maybe you have give an official number that I'm just unaware of, but can you give us any range of the best way to think about that?

R. A. Walker

Yes, we've obviously got a lot of appraisal work to do in Mozambique and Ghana. And by the way, in Mozambique, while we may not be able to specify the value today and wouldn't try to until we get the reserves more finalized before our FID, it may only have halo effect for those that can't discount anything more than a year forward. It's a big, big deal for this company, and it's going to create a ton of value over time. So back to capital. We do think the capital will increase. The board will consider that in February, but it will still be aimed to trying to stay within cash flow with today's strip prices.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. So the best way to think about that strip, stay within cash flow numbers, slight uptick. Did I hear that right?

A. Scott Moore

Right.

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Okay. And one more question. In the Utica, can you talk about what kind of royalty you're paying on -- or 2-part question. You keep talking about what kind of royalty interest, what kind of terms you're getting on leases you're doing today. And then buried in the offshore report there's that CapEx number, and the other in the Southern region the last couple of quarters has ticked up. Is that Utica spend? And I know it's not all Utica spend, but is that Utica spend into the royalty interest piece on lease terms.

Robert P. Daniels

This is Bob. On the Utica royalty interest, we really don't comment on that. I think the best thing I can tell you is that our strategy in the U.S. onshore has been to get into these plays early, to get term on the lease and to get good royalty terms ahead of the rest of the industry. And we've been successful in this area doing that. So I think that we're very pleased with the position we've put together, the entry cost and the royalty position. And yes, that capital number does relate into the -- some of the land acquisition to put this position together.

Operator

Our next question comes from the line of Ross Payne with Wells Fargo.

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

My question relates to the recent announcement here from Cheniere to export natural gas, NGLs out of -- I mean, sorry, liquefied natural gas to BG. What are your overall thoughts on the U.S. exporting natural gas? How viable is that in the future? And what do you think the impact might be on natural gas prices here in the near future?

James T. Hackett

I think it's a reflection of the abundance of this cleaner burning fuel, and I think that it ought to be a message to our government and our society that other countries want this cleaner burning fuel, and the structural change that we think is inevitable in this country to be accelerated. That's basically all I can say.

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

Okay. Do you think it's going to be economically viable though going forward here?

James T. Hackett

I think it depends on the commercial terms. To capture the oil economics, you've got to be able to commit to long-term reserves and production. And I think that even on the spot basis today, you're seeing a big enough spread, where people may find it interesting, but I think it's got to still be underpinned by oil differentials. And that's going to be a decision each company has to make based on where that export facility is and where their reserves and production are relative to that export facility.

S. Ross Payne - Wells Fargo Securities, LLC, Research Division

Okay. And finally, Jim, if you can just kind of comment on any additional fines you guys are expecting as a part of the Macondo. I know you said it's not material, but when will we see a little bit more definition on that?

Robert K. Reeves

This is Bobby Reeves. I'm not sure that we have a clear timeline on what that might be. I can tell you that we have confidence that any fines, if any, would be minimal. And the reason we think that is because all of the government and private investigations have confirmed that we were not directly involved in the drilling of this well, and the court's rulings as well on various motions to dismiss and otherwise have all said that we were not directly involved and could not be held at fault for the drilling of this well. So as a result, the culpability factor under the Clean Water Act, we believe, will restrict any fines and penalties.

Operator

Our next question comes from the line of Bob Brackett with Bernstein Research.

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

I had a question on Brazil. The data room, is that a prelude to exit Brazil? Or is that a partial sale? What are your thoughts?

Robert G. Gwin

This is Bob Gwin. The data room is open, looking at all the assets in Brazil with theoretical sale of our Brazilian subsidiary. But certainly, we expect that there would be some nonconforming bids and that we'd have to evaluate those and look for the best go-forward path based on the value we see.

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

But at the right price, you'd exit Brazil.

Robert G. Gwin

We would at the right price and it's just subject to a whole lot of work that people are doing, especially around the 2 appraisal wells that are currently drilling. We want -- we're not looking for bids until early next year so that we can get the results of those appraisal wells into the data room and into people's analysis.

James T. Hackett

It's more a reflection of the value that certain areas have in the world, and we've done this before in other areas. We'd love -- we love what we have in Brazil. We think there's good upside there and we just -- it's a monetization opportunity that may make sense.

Operator

It looks like our next question comes from the line of Robert Christian (sic) [Christensen] with Buckingham Research.

Robert L. Christensen - Buckingham Research Group, Inc.

Yes, could you be a little more definitional, if you will, on Jubilee and the number of wells that need remediation? And what was, I guess, suboptimal in the completion on those wells?

Charles A. Meloy

Robert, this is Chuck. I think that's best left to the operator to give you that granularity on the exact well count and what the issue is. I think what we said earlier is we've seen some completion issues and mechanical issues associated with those completions and with regard to the drawdown on the wells. So the operator has been very careful not to pull them too hard. I think the great news is again that we see a world-class discovery. The reserves look fine. Production, although a little less than expected at full capacity, the FPSO is still running at 85,000 barrels a day, and at current prices that's getting bent -- Brent plus a little exceptional economics on that project. And we're excited, particularly with the number of discoveries that we're seeing around that field, that we can use all the lessons learned and the infrastructure that we've created to create tremendous value for our company.

Robert L. Christensen - Buckingham Research Group, Inc.

What about the capital that's required on this remediation? You didn't directly answer the first question there.

Charles A. Meloy

It's a sidetrack. It's a sidetrack of an existing well, and the sidetrack is a short sidetrack just to get around the completion. It's the first one we've done, so I don't have an exact capital number. Again, you can rely on the operator for that type of information.

Robert L. Christensen - Buckingham Research Group, Inc.

Yes, but then the capital related to the remediation of some wells. You didn't address that, Chuck. I guess you want us to go to the operator.

Charles A. Meloy

Yes, Robert. That's exactly right.

Robert L. Christensen - Buckingham Research Group, Inc.

What is the current depth of Montserrado as we speak?

Robert P. Daniels

Robert, this is Bob. We don't give the current depths but we're getting close, and we're going to have a lot of news flow coming up with Montserrado fairly imminent. Itaipu in Brazil, we should have results fairly soon, Teak-3 in Ghana and then also Barquentine-3 over in Mozambique. So you can see a lot of news flow over the next couple of weeks out of us.

Operator

The next question comes from the line of Phil Corbett with RBS.

Phil Corbett - RBS Research

Just 2 questions. Firstly, if I may just follow up the previous question on Jubilee. Chuck, are you saying that it's unlikely the field would get up to the 120,000 barrels a day plateau or peak rate out of the FPSO without remediation of the wells? And secondly, how comfortable are you in the financing position of some of your junior partners in your Mozambique licenses to carry that through, I guess, over the next couple of years?

Charles A. Meloy

Phil, to answer your first question, we have all 9 wells now producing and we're roughly 85,000 barrels a day. And what we've seen, as I mentioned earlier, is some greater-than-anticipated drawdown on several of the wells. So they've been rate restricted so as not to damage the completions. As we've looked at this, the operator and the partnership has concluded that it's in the best interest of our development, is to go and see if we can remediate some of this drawdown. There's a lot of theories on what the actual cause of it is, but nonetheless, it's restricting our completions. And when shutting the wells, they go back to original pressures, so it's not depletion. It's not anything to do with the reservoir performance. It's all associated with the completion practices. And so that can be remediated and it's a matter of finding the right recipe to get it remediated. And that's what we're after and that's what we're attempting to do. In addition, as has always been the plan, we're into Phase 1a, which is additional 8 wells, to add additional producers and injectors to optimize the field development and make sure that we have full support for each and every producer with both water injection and gas injection. The plan is being executed just as it was anticipated. The initial rates are a little below our expectations but they're still averaging almost 10,000 barrels a day per well. So we have some extremely good wells, and we're just going through the growing pains of the first development in the new basin.

Phil Corbett - RBS Research

Can I just quickly follow up on that? Is it fair to say that once the remediation of those completions takes place, that you would expect the 120,000 barrels a day to be reached?

Charles A. Meloy

We're hopeful of that. We don't know what the outcome is going to be. It's something we're just now attempting. We have to keep that in mind. And again, we have the opportunity to add wells to keep pushing that thing up.

Operator

Our next question comes from the line of John Herrlin with Societe Generale.

John P. Herrlin - Societe Generale Cross Asset Research

Most things have been asked, but I was just curious with Caesar/Tonga. What is a Steel Lazy Wave Riser system? And how does it differ from what you were going to use before?

Charles A. Meloy

John, a Steel Lazy Riser system is a -- it's a large steel riser that has an S-wave in it with the buoyancy down near the seabed. If you look into our operation...

John P. Herrlin - Societe Generale Cross Asset Research

That's what you have in the picture, right?

Charles A. Meloy

Yes. That's exactly what it is and so it's supporting that riser near the touchdown to eliminate the fatigue issues associated with putting hard steel on the bottom. What we'd originally intended was a flexible riser, and with the new technology at these pressures and we were unable to sustain a test, so we went to this hard steel option. And I think it's -- we're in the process of mobilizing to get her installed early next year and on production by midyear.

Operator

[Operator Instructions] Up next, we have Jason Gilbert with Goldman Sachs.

Jason Gilbert - Goldman Sachs Group Inc., Research Division

Just a follow-up to Ross' question on Macondo. I just want to make sure I understood this. What's the potential impact to you of the multidistrict litigation that begins in February of next year?

Robert K. Reeves

Yes, this is Bobby Reeves again. I think the best way to get all the thoughts in there is for you to go look at Footnote 2 in our 10-Q that was filed yesterday. It really gives a complete picture of that. The easy thing to understand is we resolved our disputes with BP, and BP has agreed to indemnify us for Oil Pollution Act issues, for third party damages and related claims, as well as any natural resource damages. So by far, the vast majority of any potential claims against Anadarko, we have settled with BP and they have agreed to indemnify us for. And of course, remember we have corporate guarantees from BP Corp. North America and failing that, BP p.l.c. to back up those indemnities. So I think with that, I'll turn it back to you to take a look at the 10-Q, and if there's any questions our team can answer it. But I think that's a real good picture there.

Jason Gilbert - Goldman Sachs Group Inc., Research Division

Okay, I'll do that. And then second one, sort of on a different path. I was curious to your plans for the 45% of Western Gas that you own. Is this something that you expect to monetize over time? Is it a passive investment? Or is it -- do you view it as a financing source for dropping down assets?

Robert G. Gwin

No. This is Bob Gwin again. We're comfortable with the ownership position where we are currently. We would always expect to hold at least 33% of Western Gas, and you've seen us take units in Western Gas in various of their equity offerings over time because we think it's a good investment. So our equity stake has come down since IPO, but then it's gone back up at times. And I think you should expect us to continue to own somewhere in the range of 33% to 50% over time, dependent upon how much equity we want to buy in certain of these future offerings.

Operator

It looks like there are no questions. Go ahead, Mr. Hackett, if you'd like, for closing ranks.

James T. Hackett

Thank you, and thanks to everybody for participating today. We look forward to sharing additional detail about our horizontal Niobrara program, as well as the results of 4 of our deepwater exploration and appraisal wells in the next few weeks. Have a great day.

Operator

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect, and have a great day.

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