Anadarko Petroleum Announces Second-Quarter Earnings
Posted: 31 July 2003
- Annual production volumes of 192 million boe reaffirmed
- $300m in anticipated debt reduction
- Cutting $100m in annual overhead & other costs
Anadarko Petroleum Corporation announced second quarter 2003 net
income available to common shareholders of $301 million, or $1.20
per share (diluted), on revenues of $1.28 billion.
For the same period in 2002, the company earned $239 million, or
93 cents per share (diluted), on revenues of $1 billion.
Cash flow from operating activities totaled $710 million in the
second quarter of 2003, compared with $543 million in the same period
in 2002. Cash flow from operations before changes in assets and
liabilities totaled $774 million in the second quarter of 2003 compared
to $561 million during the same quarter last year.
The company's second quarter earnings include the effect of several
items that were not included in the second quarter guidance. These
amounts primarily relate to impairments of oil and gas properties
of $13 million ($9 million after taxes) and accounting for derivative
losses of $29 million ($19 million after taxes).
Year-over-year increases in earnings and cash flow were due to
higher commodity prices. The gains were partly offset by lower sales
volumes of oil and gas, mainly due to the 2002 divestitures of Canadian
heavy oil properties and operational issues in the Gulf of Mexico
and Qatar during the second quarter.
"Commodity prices were strong in the second quarter and we
showed good production growth compared to the first quarter,"
said Robert J. Allison, Jr., Anadarko Chairman, President and CEO.
"Going forward, we've announced an aggressive plan to cut
costs that I believe sets Anadarko on a road of improved financial
discipline and increased shareholder value," Allison added.
"We're taking a hard look at every dollar we spend and where
we spend it. This increased focus will allow us to be more efficient
at reinvesting capital and managing the portfolio, which should
give us better margins and returns. Anadarko is a financially strong
company with excellent growth opportunities. We've grown dramatically
in the past decade with a balanced strategy of exploration and development
drilling, supplemented with tactical property acquisitions. Now,
we're building on this strategy with several financial initiatives
— such as cutting overhead and planned debt reduction —
all of which should improve our ability to build shareholder value
with our core business strategies."
Sales volumes totaled 48 million barrels of oil equivalent (BOE)
during the second quarter of 2003, or 527,000 BOE per day, up nearly
6 percent from the first quarter of 2003. In the second quarter
of 2002, sales volumes were 50 million BOE, or 546,000 BOE per day.
"We saw strong growth in gas production compared with the
first quarter from several areas, including the Vernon and Bossier
plays in the Lower 48, from the Gulf of Mexico and Canada,"
Allison said.
"Quarter-to-quarter growth in oil production came mainly from
increases in the Ourhoud field in Algeria, Venezuela and in the
Gulf of Mexico."
Natural gas volumes in the second quarter of 2003 were 1.74 billion
cubic feet (Bcf) per day, compared with 1.71 Bcf per day in the
first quarter of 2003. Gas sales in the second quarter of 2002 totaled
1.79 Bcf per day.
Anadarko's realised average natural gas price in the second quarter
of 2003 was $4.54 per thousand cubic feet (Mcf), compared with $3.05
per Mcf in the same period in 2002.
Oil production in the second quarter of 2003 was 190,000 barrels
a day, up from 173,000 barrels a day in the first quarter of 2003.
Oil sales in the second quarter of 2002 totaled 205,000 barrels
per day. The company's realised oil price averaged $25.41 per barrel
in the second quarter of this year, compared with $22.57 per barrel
in the second quarter of 2002.
SECOND-QUARTER 2003 OPERATING HIGHLIGHTS
Onshore, the company drilled a potentially significant gas well
in the deep Woodbine play in Texas. The Blackstone Minerals A-249
well had encouraging shows of natural gas. Well testing is scheduled
to begin in the third quarter. Anadarko holds a 100 percent working
interest in this well.
Gross production from the Vernon play in North Louisiana increased
from an average 120 million cubic feet (MMcf) of gas per day in
the first quarter to 180 MMcf per day currently following a step-up
in development drilling. Eight Vernon wells with initial production
of more than 10 MMcf per day each were completed during the quarter.
In the Bossier play in East Texas, gross production increased from
an average 245 MMcf of gas a day in the first quarter to 300 MMcf
a day currently.
Anadarko and its partners drilled another successful appraisal
well at the K2 Gulf of Mexico deepwater discovery on Green Canyon
Block 562. Results from this subsalt well suggest the reserve potential
could be larger than originally estimated. The company also has
an exploration well under way at Green Canyon Block 518 immediately
north of the K2 field to test the possible northern extension of
the K2 field. Anadarko holds a 100 percent working interest in this
block.
Anadarko made its second natural gas discovery in the Eastern Gulf
of Mexico at the deepwater Atlas prospect on Lloyd Ridge Block 50.
The company is finalising plans to drill a delineation well at the
Jubilee discovery later this year. Anadarko holds a 100 percent
working interest in Atlas and Jubilee. In addition, Anadarko will
drill a new exploration prospect in the area this year.
In the Gulf of Mexico, Anadarko acquired shelf properties from
Amerada Hess with proved reserves of nearly 23 million BOE for $225
million. They are expected to add 2.4 million BOE to Anadarko's
2003 volumes. Existing production has been hedged through 2007.
This should generate cash margins after operating costs of at least
$21 per BOE.
CAPITAL BUDGET & DEBT REDUCTION
Based on current expectations for NYMEX prices of oil and gas, Anadarko
will maintain its 2003 capital budget of $2.7 billion and reduce
debt this year by $300 million. The $2.7 billion includes the previously
announced capital spending budget of $2.5 billion, plus the $225
million acquisition of producing properties in the Gulf of Mexico
in June.
PRODUCTION & EARNINGS GUIDANCE
"Anadarko's current production guidance remains 192 million
BOE for 2003, and we now expect production growth in 2004 to be
between 4 and 10 percent, assuming there are no OPEC constraints,"
Allison said. "With a greater focus on financial discipline
and capital allocation, we expect to set the capital expenditure
budget below cash flow expectations for 2004 also.
As a result of the lower spending, as well as more conservative
forecasting to allow for unexpected production interruptions, our
2004 volume target has been reduced from earlier estimates, but
still indicates a very competitive growth rate."
Anadarko expects to earn $285 million, or $1.13 per share (diluted)
for the third quarter of 2003, with expected cash flow from operating
activities of $755 million. Cash flow from operations before changes
in assets and liabilities for the third quarter of 2003 is expected
to be $730 million.(1) The expected average number of diluted shares
outstanding is 251 million.
For the full year, the company expects earnings of $1.3 billion,
or $5.17 per share (diluted) and cash flow from operating activities
of $2.9 billion. Cash flow from operations before changes in assets
and liabilities for the full year 2003 is expected to be $3.1 billion.(1)
The expected average number of diluted shares outstanding is 253
million.
"We've trimmed our estimates a little to reflect softening
NYMEX futures prices, particularly for natural gas, where the forward-month
strip has declined by over 20 percent over the last six weeks,"
Allison said.
PRICE ASSUMPTIONS
Anadarko's 2003 estimates now assume average NYMEX oil prices of
$29 per barrel for the third quarter, and $27.40 per barrel for
the remainder of the year, with a full-year average of $29.80 per
barrel. The company's NYMEX natural gas price estimate is $4.75
per Mcf for the third quarter, and $4.85 per Mcf for the remainder
of the year, with a full-year average of $5.40 per Mcf.
To determine realised prices, Anadarko used these estimates, plus
or minus an expected price differential for each of the company's
major producing areas, and any adjustment for hedge positions.
For 2003, Anadarko has hedged approximately 52 percent of its natural
gas production for the third quarter and 51 percent for the fourth
quarter. About 36 percent of Anadarko's oil production is hedged
in the second half of 2003.
The hedge positions are under both fixed-price transactions and
collared transactions, which use price ceilings and floors to help
ensure sales prices within a determined range.
VOLUME ASSUMPTIONS
Oil and gas sales volumes are expected to total 49 million BOE in
the third quarter. Full-year 2003 sales volumes are expected to
total 192 million BOE.
For more information see www.anadarko.com.
Posted by Richard Price,
Editor Pipeline Magazine
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