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Anadarko Cuts Drilling Plan as Oil Explorers Bow to Slump


July 24, 2017

(Bloomberg) 

Anadarko Petroleum Corp. is cutting spending on drilling in another sign that low crude prices may finally be forcing a pullback in the U.S. shale boom.

The company, one of the largest oil and natural gas explorers in the U.S., is paring $300 million from its 2017 capital budget, lowering it to a range of $4.2 billion to $4.4 billion, according to a statement Monday. The Woodlands, Texas-based driller also lowered its production forecast for the year and announced a second-quarter loss that was wider than analysts expected.

Anadarko’s pullback followed an assessment earlier in the day from Halliburton Co., the top fracking-services provider, that U.S. shale drillers were “ tapping the brakes” on production, as oil prices remain stuck below $50 a barrel. The surge in U.S. output this year has stymied efforts by OPEC and other major oil exporters to unwind a supply glut that’s weighed on the crude market for three years.

“The current market conditions require lower capital intensity given the volatility of margins realized in this operating environment,” Anadarko Chief Executive Officer Al Walker said in the statement. “As such, we are reducing our level of investments.”

Anadarko shares slumped in after-hours trading, slipping 3.9 percent to $42.52 at 5:20 p.m. in New York.

The company lost $415 million, or 76 cents a share, in the second quarter, an improvement over the $692 million, $1.36-a-share, loss of a year earlier. A loss adjusted for one-time items of 77 cents fell short of the 33-cent average loss predicted by 29 analysts tracked by Bloomberg.

Signs of Discipline

An Anadarko cutback would be a sign of self-discipline that could “set the tone” for other U.S. explorers and producers, Seaport Global Securities LLC analyst Mike Kelly said in a research note last week. Such a move could “prove to be a major short-term catalyst for the E&P space given investor sentiment is as bearish as we’ve ever witnessed.”

Even before the earnings report, Anadarko shares had fallen 37 percent this year, almost triple the 14 percent drop for the Standard & Poor’s Energy Index, which tracks the U.S. oil industry. Investors have fretted about both the global oil-market slump and potential fallout from a fatal house explosion in Colorado that was linked to an abandoned natural-gas well owned by Anadarko. The company shut down 3,000 wells in the state for further inspection.

This year’s surge in U.S. drilling rigs is “showing signs of plateauing and customers are tapping on the brakes,” Halliburton Executive Chairman Dave Lesar told analysts on a conference call earlier Monday. The comment came just days after data from Baker Hughes, the oilfield service company, showed explorers cutting the number of U.S. rigs for the second time in four weeks.

Futures for West Texas Intermediate crude rose as much as 1.6 percent in New York trading Monday on the news from Halliburton as well as assurances from Saudi Arabia that it would further cut exports next month.

‘Biggest Problem’

Anadarko CEO Walker had acknowledged the potential need for a pullback at an investor conference last month, where he said investors’ willingness to fund even unprofitable shale drillers was “the biggest problem our industry faces.

“As long as investors continue to invest in companies with growth, with marginal wellhead economics, you’ll get more growth,” Walker said during the June 20 meeting. “You guys can help us help ourselves. It’s kind of like going to AA. We need a partner. We need somebody to sit through that class with us.”



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