Anadarko Petroleum Corp. (NYSE: APC) says it’s in the final stages of securing a 70% operatorship stake in the Delaware Basin acreage that, until this month, it shared in a joint venture (JV) with Royal Dutch Shell Plc (NYSE: RDS.A).
The JV expired on July 12, though Anadarko completed all of the well proposals required to advance toward securing operatorship on about 70% of the shared acreage. Joint-operating agreements were established in all areas where operatorship has been defined, Anadarko said.
Shell executives said in February they would look to consolidate operatorship of the assets as they renegotiated a five-year-old JV agreement with Anadarko.
During a July 24 earnings call, Al Walker, chairman, president and CEO of Anadarko, said the company is finalizing operatorship of its former area of mutual interest (AMI) with Shell, “which should provide much greater control over the pace of future development.”
Anadarko will spend the rest of 2017 evaluating the position as it transitions from appraisal to development. The company also said July 24 that it would be reducing its capex by about 7%.
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Walker added that as the company moves into new development it has been active with its leasehold, swapping “about 30,000 acres” with parties in the area to improve EURs with longer laterals.
Shell and Anadarko entered into the JV agreement in 2012 when the supermajor purchased acreage in the Permian.
With Anadarko near the final stages of securing its operatorship stake, Scott Hanold, an analyst at RBC Capital Markets, said he anticipates third-quarter 2017 activity will “revolve mostly around ‘tying-up-loose-ends’ related to recent well AFEs (authorization for expenditures) prior to the July 12 deadline. Development mode remains on track for fourth-quarter 2017.”
Charles Robertson II, an analyst at Cowen & Co., expressed some puzzlement over Anadarko’s progress with gaining operatorship of JV areas, particularly in light of the company completing all well proposals required to advance its operatorship on the JV acreage.
“What happened to the Shell Delaware JV?” Robertson wrote in his report. “The company's working interest remains unchanged; average working interest throughout the acreage is approximately 40% APC [and] 60% RDS,” Robertson said. “With higher operatorship, APC plans to pick up production to achieve its previously stated 50,000 barrels per day oil production guidance in the Delaware. The company averaged 15 rigs through [the second quarter] and is currently running 16 rigs.”
While Anadarko and Shell’s JV has ended, the two companies continue to work together, Walker said.
“We are both looking for ways to make one and one add up to more than two,” he said. “I don’t see any reason we won’t continue to work in a collaborative way to try to improve both of our operations.”
It also remains unclear what Anadarko has planned for its significant stockpile of cash, which increased to more than $6 billion in the quarter after realizing asset sale proceeds of $600 million, said David Tameron, senior analyst at Wells Fargo Securities.
Robertson said that the company may use cash for acquiring non-consent working interest and additional bolt-on acreage in the Delaware.
“Anadarko has stated that it gets outbid in bid rooms and does not want to overpay,” Robertson said. “The company is willing to use cash to fund its midstream infrastructure build out in the Delaware while upstream spend will likely be governed by cash flows.”
Darren Barbee can be reached at dbarbee@hartenergy.com.
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