Anadarko Slashes Capital Spending for 2017 as E&P Companies Face the Return of Low Oil Prices

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Researched by Industrial Info Resources (Sugar Land, Texas)--U.S. crude oil production has surged in 2017, with heavy activity in domestic shale plays following a spate of strong investments from leading exploration and production (E&P) companies. But such rapid growth often is a double-edged sword, and Anadarko Petroleum Corporation (NYSE:APC) (The Woodlands, Texas) felt the other side of the blade in second-quarter 2017: The E&P leader slashed $300 million from its capital budget for the year after it became clear that the production boom contributed to a global glut that has kept oil prices in the doldrums. Industrial Info is tracking more than $11.8 billion in active projects involving Anadarko.

The Oil & Gas Production Industry began 2017 with a burst of enthusiasm, as newly inducted U.S. President Donald Trump expressed support for expanded domestic production and the Organization for Petroleum Exporting Countries (OPEC) reduced its own production, in an effort to drive global oil prices higher. But the snake ate its own tail: Per-barrel prices inched up following OPEC's action; E&P companies, like Anadarko, seized the opportunity and boosted their capital budgets, to launch a slew of new drilling projects; the response to OPEC's action proved to be overly optimistic as prices stalled; and new the production from the U.S. and other non-OPEC countries only worsened the glut, bringing prices back down.

Anadarko posted a $415 million quarterly net loss, compared with a loss of $692 million in second-quarter 2016. But total sales grew 42% to $2.7 billion, as oil sales volumes jumped 12%. Looming over the results was an April 17 explosion in Firestone, Colorado, which leveled a house and killed two residents. The tragedy is believed to have been caused by a severed, leaking gas flowline that was connected to a well owned by Anadarko. The company already has shut down several thousand wells as part of an ongoing investigation, and executives acknowledged in a quarterly earnings-related press release that the tragedy likely will lead to more oversight from Colorado authorities in the future.

Much of the $300 million budget cut is related to international and deepwater exploration, which means one of Anadarko's largest projects to be stalled is unlikely to see movement in the near future: the proposed, $4 billion Shenandoah Offshore Platform in the Gulf of Mexico, a semi-submersible production platform that is designed for more than 80,000 barrels per day (BBL/d) of crude oil from the field. Anadarko is working toward a joint development agreement for the subsea production system with companies including BP plc (NYSE:BP) (London, England), Chevron Corporation (NYSE:CVX), ConocoPhillips (NYSE:COP) (Houston, Texas) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands). For more information, see Industrial Info's project report.

Anadarko's oil sales volumes from the Deepwater Gulf of Mexico averaged 113,000 barrels per day during the second quarter, following the completion of several planned upgrades and maintenance turnarounds. These include the Constitution Spar in the Gulf of Mexico's Green Canyon, where the company also has proposed a $160 million subsea tieback to the Constellation Field. Anadarko expects wells in the Constellation Field to produce around 15,000 barrels of oil equivalent per day. For more information, see Industrial Info's project report.

Among Anadarko's newer contributors in the Gulf is the Horn Mountain Deep discovery, the first well of which was brought online ahead of schedule and is now producing about 12,000 barrels per day. Industrial Info is tracking $15 million in dry tree jumpers and gas-lift casing pipeline additions at Horn Mountain, which are expected to be completed later this year. For more information, see Industrial Info's project report.

Despite the planned reduction in spending on international development, Anadarko is making strides on its proposed liquefied natural gas (LNG) project in Mozambique, completing many core components of the legal and contractual framework, according to the press release. The company's $200 million natural gas field program involves drilling about 16 wells in an area with an estimated lifetime production capacity of 20 trillion cubic feet, to feed a $7 billion LNG liquefaction plant in Palma, Mozambique.

The plant will feature a 6 million-ton-per-annum train with two storage tanks, each with a capacity of 180,000 cubic meters, and a condensate storage tank. Anadarko also is proposing a $250 million offloading Jetty and associated marine export facilities, located in a 30 square mile site on the Afungi Peninsula. Anadarko is hoping to secure long-term LNG offtake contracts as it continues toward a final investment decision. For more information, see Industrial Info's project reports on the natural gas field, LNG plant and jetty/export facilities.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.