Anadarko Reported Its Phobos Discovery in the Deepwater Gulf of Mexico

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Anadarko Petroleum (NYSE: APC) announced on April 27, that its Phobos-1 well in the deepwater Gulf of Mexico encountered about 250 net feet of high-quality oil play in Lower Tertiary-aged reservoirs.

The Phobos discovery, located in Sigsbee Escarpment block 39, was drilled to a total depth of 28,675 feet in approximately 8,500 feet of water, approximately 11 miles south of Anadarko's Lucius discovery, which is under development. Anadarko currently is incorporating the data from the Phobos well to determine future activities.

Source: Anadarko Petroleum Corporation

Anadarko's expertise and focused pursuit of large exploration targets in the Gulf of Mexico is one of the industry's safest and most successful deepwater explorers. Anadarko has discovered more than 30 fields in the deepwater Gulf of Mexico. About 90% of its current leads and prospects in the Gulf of Mexico are located in the Miocene and Lower Tertiary plays. The company is spending about 15% of its capital allocation in this area.

Source: Anadarko's Howard Weil AEC Presentation

"Our 2013 Gulf of Mexico exploration program is off to an outstanding start, as Phobos marks our third significant deepwater success this year," Anadarko Sr. Vice President International and Deepwater Exploration Bob Daniels said. "Phobos is our first well in the previously untested Sigsbee Escarpment area of the Gulf of Mexico and successfully tested a significant four-way structure in the Lower Tertiary. Phobos' close proximity to our Lucius project is expected to further enhance the economics of this potential future development".

Source: Anadarko's Howard Weil AEC Presentation

Anadarko is the operator of the Phobos discovery with a 30% working interest. Anadarko owns an average 64% working interest in 479 blocks in the Gulf of Mexico. The company operates seven active floating platforms, holds interests in 34 producing fields, and is in the process of delineating and developing six additional fields in the area. During 2012, the company continued an active deepwater exploration and appraisal program in the Gulf of Mexico and is continuing to take advantage of existing infrastructure to accelerate development activities at reduced cost.

As for its Lucius asset, according to its 2012 annual report, the company drilled a successful development well, confirming and extending the Lucius field along its western flank in December 2012. During 2013, the company plans to drill four additional development wells and begin completion operations. First production from Lucius is expected in 2014 and adding Phobos into the mix, Anadarko will consolidate a solid position in the area.

The Gulf of Mexico region achieved sales volumes of more than 118,000 Boe/d (barrels of oil equivalent per day) during the first quarter of 2013. Moreover, sales are expected to increase by 10% during the year.

Source: Anadarko's Howard Weil AEC Presentation

Anadarko increased its exploration, appraisal and development drilling activity, surpassing pre-moratorium levels. For the current year, the appraisal has a 70% success rate. Four operated and two non-operated rigs are currently active.

As of April 23, 37 semi-submersibles and drillships are under contract in the deepwater Gulf of Mexico, according to RigLogix. Royal DutchShell (NYSE: RDS-A) has seven deepwater rigs under contract, currently the highest number of rigs in the area. From the seven rigs, four are mobile offshore drilling units under contract, operating across the deepwater Gulf of Mexico. The region accounts for approximately 55% of Shell’s oil and gas production in the USA.

The company owns an interest in more than 423 licensed blocks in the area, of which 116 are producing on a unit, or are undergoing field development. Shell also operates ten manned platforms and numerous subsea systems with an average production of about 225 thousand boe/d (Shell's share).

BP (NYSE: BP) operates seven facilities (Marlin, Horn Mountain, Na Kika, Holstein, Mad Dog, Atlantis and Thunder Horse) and has the second largest number of deepwater rigs under contract with six. Furthermore, it has equity interest in five partner operated facilities (Diana Hoover, Mars, Ursa, Ram Powell and Great White). The BP operated Mardi Gras transportation system consists of five major oil and gas pipelines, designed to serve fields in the Mississippi Canyon (Na Kika, Thunder Horse) and Southern Green Canyon (Holstein, Mad Dog, Atlantis) areas.

Source: BP

BP has three major operated projects currently under development in the Gulf of Mexico, Galapagos, Na Kika Phase 3 and Mad Dog Phase 2. In addition, the company has equity interest in the Mars B development.
BP began its operations in the area since the mid 1980s
.

Finally, Chevron (NYSE: CVX) counts five rigs under contract in the Gulf of Mexico. Average net daily production in 2012 was 105,000 barrels of crude oil, 74 Mcf (million cubic feet) of natural gas and 8,000 barrels of NGLs, primarily from the Tahiti and Blind Faith fields and the Perdido Regional Development. Net daily production at the 58% owned and operated Tahiti Field averaged 43,000 barrels of crude oil, 17 Mcf of natural gas and 3,000 barrels of NGLs. The second development phase, Tahiti 2, is designed to increase production to more than 100,000 barrels of crude oil per day. According to Chevron, ramp-up production on the $2.3 billion project is expected in the third quarter of 2013.

Source: Chevron

Chevron's interest in the Perdido development ranges from 33.3% to 60%. Total daily production in 2012 averaged 63,000 barrels of crude oil (24,000 net), 75 Mcf of natural gas (29 million net) and 7,000 barrels of NGLs (3,000 net). As more wells are completed, total daily production is expected to stabilize and average about 100,000 Boe in 2013.

Finally, regarding Chevron's exploration program, the company announced in March 2013, a discovery at the Coronado prospect in Walker Ridge. The well is approximately 190 miles off the Louisiana coast in more than 6,127 feet of water. Additional work will be needed to determine the extent of the resources.

Bottom line

At the end of 2012, Anadarko had approximately 2.56 billion barrels-equivalent of proved reserves, making it one of the world's largest independent exploration and production companies, reaffirming its leadership in the oil industry. This discovery adds to the Gulf of Mexico's great assets for the company, increasing the overall potential of natural gas production. Currently, Anadarko counts four rigs under contract.
 
I believe that Anadarko's current play in the Gulf of Mexico will be profitable to the company's overall crude production for the next few years. Sales volumes increased 11% year-over-year for the first quarter of 2013 with 71 Mmboe of crude, according to its quarter financial release. Furthermore, adding the oil production initiated at El Merk in Algeria along with the advancing projects of Lucius, Heidelberg, TEN and Mozambique LNG, Anadarko is well positioned to see its production increase, as well as its profit.
 
Source: Anadarko's Howard Weil AEC Presentation
 
To add to its appealing portfolio, the company has a strong balance sheet, having $759 million of adjusted free cash flow. Its long-term debt to equity ratio is better than its industry average of 72.08 with 64.78. However, some competitors have better ratios than Anadarko. To explain the higher ratio of Anadarko, the company has invested massive amounts in its exploration and development program and the results are better than expected.
 
Investors interested to add a long position in a well managed portfolio of crude and gas should seriously consider Anadarko. I like its growth potential and considering its good fundamentals, Anadarko is quite appealing.
 


Stephan Dube has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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