Anadarko's capex to outpace cash flows in 2H

OREANDA-NEWS. July 30, 2015. Anadarko's spending may outpace cash flows in the second half of the year, but a drop in costs in "nearly every expense category" is giving the independent confidence to raise its output guidance.

A "cocktail" of unconventional and conventional oil and gas assets, a steeper-than-expected fall in costs for drilling its shale acreage and improved efficiencies allowed the company to respond well to the weak oil market.

It also sees further room for improvement from oilfield service providers that will help improve margins, all factors prompting it to increase its output target by 6.7pc to 221,000-225,000 b/d, despite a double-dip in crude prices that has almost wiped out the second quarter recovery from near six-year lows.

"It's not just price reductions from various service vendors that in a different hydrocarbon price environment would come back to us as a higher price," chief executive Al Walker said at its second quarter earnings call. "These are sustainable improvements."

Rig efficiency has doubled over the last year, with the company "drilling the same number of wells with half the rigs," he said. The company is drilling more wells "with no belief that we are going to increase out capital plans beyond initial guidance through the balance of the year." Anadarko had set its 2015 capex guidance at \\$5.4bn-\\$5.8bn at the start of the year.

Anadarko's cash flow from operations were \\$1.37bn in the second quarter versus \\$2.43bn a year earlier. Against that, its capital expenditures (capex) in the second quarter was \\$1.4bn versus \\$2.4bn a year earlier.

"We would be very challenged to continue to be cash flow neutral like we were in the second quarter relative to capex and expect capex to probably slightly outpace cash flows through the balance of the year," Walker said.

For 2016 Anadarko is opting to wait and see what it expects cash flows will be before deciding whether to spend within that limit.

The company also didn't rule out more non-core asset sales, but Walker said the chance of it selling its share in the massive Mozambique liquefied natural gas project "approaches zero." The project has advanced with the selection of a consortium for the initial development of the onshore LNG park. The scope of the work includes two 6mn t/yr LNG trains, which is 20pc higher than the original plan with no change to estimated costs.

Anadarko yesterday announced raising its US oil output guidance for this year to 221,000-225,000 b/d, higher than the 207,000-211,000 b/d range given in its first-quarter earnings call in May. It is now able to drill a horizontal well at its Wattenberg acreage in Colorado for about \\$1mn, a drop of 70pc from the \\$3.4mn it gave in the first quarter. The \\$3.4mn figure was a decline from \\$4mn earlier.