Oxy sees greater value from Permian Basin, US Gulf post-Anadarko acquisition

1 month ago DieselGasoil Comments Off on Oxy sees greater value from Permian Basin, US Gulf post-Anadarko acquisition
Highlights

Gulf of Mexico seen as ‘a keeper’: CFO

Mum on which, if any, Gulf assets may be sold

Already working on integration, plans for Gulf operation

Denver —
A major aim of Occidental Petroleum’s $57 billion acquisition of Anadarko Petroleum last week is continuing to push efficiencies and value per produced barrel across a larger acreage footprint, not only in the Permian Basin, but potentially from the Gulf of Mexico, a top Oxy executive said Monday.

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Oxy, which closed the acquisition last Thursday, saw Anadarko’s complementary acreage in the Permian Basin of West Texas as the chief acquisition driver — a place where it could lower costs and raise value, Cedric Burgher, Occidental’s chief financial officer, said at a keynote presentation at the Enercom Oil & Gas Conference.

But Anadarko’s Gulf of Mexico assets will likely also be a key region for a bigger Oxy, even though the company has not operated in that arena for a dozen years, Burgher said.

While declining to comment on whether some or any US Gulf operations may be part of the company’s expected $10 billion-$15 billion of divestitures in the next couple of years, he said in response to an S&P Global Platts question that Oxy thinks of the US Gulf as “a keeper.”

“It’s got some great assets,” Burgher said, although adding that “there are haves and have-nots in terms of capability.”

Oxy sold out of the US Gulf in 2007, but it discovered and helped build the Horn Mountain field, which it has now re-acquired from Anadarko.

The US Gulf will likely be another region, besides the Permian, for Oxy to squeeze out more efficiencies and value, he said.

OXY DRILLING DYNAMICS MAY IMPROVE US GULF OPERATION

The company has a proprietary, physics-based approach to well development that it calls Oxy Drilling Dynamics, which improves drilling rates, lowers well costs and reduces inefficient rig energy in its global operations. It has been tested in the Middle East with favorable results, and may be applied to the US Gulf, Burgher said.

“We reduced our drilling costs in the Middle East by 30% using Drilling Dynamics,” he said. “We think we can bring some of that technology to improve [operations in] the Gulf of Mexico.”

Oxy has spent the last few months getting to know Anadarko’s US Gulf team, and has been working in recent months on plans and integration of that operation, Burgher said.

Oxy’s presentation to investors at the time of its April 24 bid for Anadarko said the three-year outlook for US Gulf production was 140,000 boe/d, adding that operation had a rate of return and breakeven oil price “competitive with the best US onshore wells.”

Oxy has now set its sights on driving efficiencies from both the Permian and the US Gulf, as well as whittling down costs, Burgher said.

The company has not only identified $3.5 billion of annual synergies and capital expenditure reductions, including shaving $1.5 billion off the combined capital budgets of the two companies. It has also projected a more than 10% anticipated improvement in domestic drilling and completion costs, which does not include improved productivity through Oxy-Anadarko’s combined expertise.

EXPECT TO CAPTURE HALF OF SYNERGIES NEXT YEAR

“Half of those [synergies], we think we can capture in 2020, and in 2021 we’ll capture all of it,” he said.

Oxy’s breakeven oil price is projected in 2021 at $40/b WTI with a $3.9 billion sustaining capital budget. At more than $50/b WTI, production growth will be 5% and capex will be $6.6 billion, Burgher’s presentation slides showed. At less than $50/b WTI, production and capex will be “moderated” to stay within cash flow, the slides showed.

The Anadarko acquisition should enhance Occidental’s position as the largest oil and gas producer in the Permian Basin, with an estimated production of 533,000 boe/d.

Oxy’s Permian competitors use 26% to 28% more proppant — a sand-water mixture that holds open the fracture to allow greater flow of oil and gas to the surface. The lesser amount that the company uses results in a per-well savings of $500,000 each, the executive said.

As an example of how Oxy might improve Permian wells on Anadarko acreage, one of Burgher’s slides showed that the company saw a 220% improvement in 90-day cumulative oil production from its wells drilled from 2015 to 2019, and 22% alone from 2018 to 2019.

Over a longer period, Oxy saw a 147% improvement in 180-day cumulative oil production from 2015 to 2018, and 25% from 2017 to 2018.

“We’ve heard some operators have been plateauing” in their Permian wells’ performance, Burgher said. “We have not.”

— Starr Spencer, starr.spencer@spglobal.com

— Edited by Norazlina Jumaat, newsdesk@spglobal.com