Anadarko hits pay in Gulf of Mexico, closes FMOG acquisition

HOUSTON -- Anadarko Petroleum has closed its acquisition of Freeport-McMoRan Oil & Gas's deepwater Gulf of Mexico assets. The Woodlands, Texas-based company has also reported success with its Warrior wildcat well and its Phobos appraisal well in the Gulf.

With the closure of the Freeport-McMoRan deal, Anadarko doubled its ownership in the deepwater Lucius development to approximately 49%. The transaction, which is effective as of Aug. 1, 2016, includes three operated deepwater facilities, bringing Anadarko's total operated facilities to 10. The deal will also doubles the company’s Gulf of Mexico production to more than 160,000 boed (net).

"As a result of closing this transaction, Anadarko now operates the largest number of floating production facilities in the deepwater Gulf of Mexico, which provides a competitive advantage to leverage this infrastructure into attractive new investment opportunities," said Anadarko Chairman, President and CEO Al Walker. "This region continues to play a key role in our portfolio by contributing to our higher-margin oil growth profile, while generating substantial future free cash flow to accelerate the growth of our world-class U.S. onshore assets in the Delaware and DJ basins. The expanded portfolio of deepwater facilities provides numerous hub-and-spoke opportunities that can generate rates of return of better than 50% at today's prices."

At the time the acquisition was announced, Anadarko indicated the acquired assets would generate substantial free cash flow over time, which would facilitate increased investment in the U.S. onshore and position the company to deliver a five-year compounded oil growth rate of 10% to 12% in a $50 to $60 oil-price environment.

In anticipation of closing the acquisition, Anadarko added two rigs in each of its Delaware and DJ basin positions early in the fourth quarter. Going forward, the company plans to further increase activity in each area, with expectations of ending the first quarter of 2017 with 14 operated rigs in the Delaware basin and six operated rigs in the DJ basin. This compares to seven operated rigs and one operated rig in each of these basins, respectively, at the end of the third-quarter 2016. The company's new investments in these basins generate rates of return of 35% to more than 60% at today's prices.

"As a result of our large and well-located acreage positions, improving cost structure, midstream infrastructure advantages, and commodity-price outlook, we now believe we have the ability to deliver a five-year compounded annual oil growth rate of 12% to 14%, while investing within expected cash inflows," said Walker.

Further highlighting the value of Anadarko's deepwater Gulf of Mexico tieback and exploration program, the company announced its Warrior exploration well encountered more than 210 net ft of oil pay in multiple high-quality Miocene-aged reservoirs.

The Warrior discovery lies about 3 miles from the Anadarko-operated K2 field and is expected to be tied back to its Marco Polo production facility. Anadarko is the operator at Warrior with a 65% working interest. Other partners include Ecopetrol (20%) and Mitsubishi Corporation Exploration Co., Ltd. (15%).

At the company’s Phobos appraisal well, which lies about 12 miles south of the Anadarko-operated Lucius facility, the company has already encountered more than 90 net ft of high-quality oil pay in a Pliocene-aged reservoir similar to the nearby Lucius field. This secondary accumulation was present in the Phobos discovery well and will be evaluated for tieback to the Lucius facility. Meanwhile, drilling is ongoing toward the primary objective in the Wilcox formation. Anadarko has a 100% working interest at Phobos.

At Heidelberg field, the fifth production well currently being drilled has encountered the reservoir sand with more than 150 net ft of oil pay to date. The well will be completed immediately following drilling operations and is expected to be brought on production early next year.

"The successes to date at Warrior and Phobos further demonstrate the value of our assets in the deepwater Gulf of Mexico and our tieback strategy. It also illustrates why we have tremendous confidence in the potential of our '3 Ds'—the Deepwater, Delaware and DJ—to drive growth and value for many years to come," added Walker. "We look forward to providing further details on these successful developments and other results during the first quarter of next year."