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“Fast Today, Feast Tomorrow” Is A Prevailing Theme For The Independents

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Three large independent E&Ps reported third quarter results this morning, shedding light on the current state of the oil market, and what companies are planning in the near and medium term future amid the low price environment. A ubiquitous theme of the conference calls was the focus on emerging leaner and stronger on the other side of this downturn. The strategies of these companies complement this objective. Put simply, “Fast today, feast tomorrow.”

In this post, we will focus on the key takeaways of Anadarko, Hess Corp, and Occidental’s quarterly results, with a particular focus on what these players see going forward.

Anadarko: “Our Goal Is To Become Better, Not Bigger”

Anadarko CEO Al Walker acknowledged the current state of the oil market this morning, and contextualized the company’s strategy accordingly: “Growth will not be rewarded in this environment…We will remain focused on building, preserving and creating value at this time…The value we are creating today will give us a foundation for future success.”

That being said, management said Anadarko isn’t “ignoring growth, but we’re getting ready for growth…What we’ve heard [from our shareholders] is that a focus on value preservation in the onshore, and value-building in other parts of our portfolio, will help us be positioned for a better commodity environment…This is the best approach today.”

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In the US onshore, Anadarko said it increased oil sales volumes by 11% Y/Y on a divestiture-adjusted basis. Walker said the company has been able to improve efficiency and productivity at its key US onshore assets, principally the Wattenberg shale in Colorado. Drilling costs were down approximately 15% and sales from the area increased by roughly 15% in 3Q.

Meanwhile, in Texas’s Delaware Basin Wolfcamp shale, Anadarko’s management team said on the call that increased efficiency in operations there is yielding production of almost 1 M/boepd per well. “This emerging oil play is beginning to contend with Wattenberg in terms of the most attractive economics in the company’s US onshore portfolio.” Anadarko has successfully reduced drilling costs in the Wolfcamp Shale to around $7.5 million per well with the expected ability to achieve further reductions of $1.5 million to $2 million per well with a future move to field-wide pad drilling.

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The management team said further during the Q&A portion of the call that, with regard to M&A activity, Anadarko’s “daily objective is to be a better company, not a bigger company.” However, the company will still evaluate opportunities, primarily on NAM onshore. “This is the area of asset acquisitions we would focus on,” the company said.

In 3Q, Anadarko’s sales volumes of crude oil, natural gas and NGLs totaled 73 M/boe. The company also updated its full-year 2015 sales-volume guidance to a range of 290 million to 292 M/boe, which excludes 2015 sales volumes associated with the divestitures of EOR, Bossier and Powder River Basin coalbed methane (CBM). Anadarko reported a 3Q loss of $2.24 billion, compared with a profit of about $1.1 billion this quarter last year.

Hess “Flexes” Down Portfolio

“We are going to flex our investment down in those areas where we can…And we have a lot of flexibility in both our onshore and offshore assets. We’re bringing the whole portfolio down in order to keep our balance sheet strong,” Bakken-focused Hess Corp said Wednesday morning on the earnings call.

The company is projecting capital spending in the range of $2.9 billion to $3.1 billion in 2016, down from the $4.1 billion it plans to spend in 2015- a 27% reduction. “Half of spending next year is not contributing to production,” rather investment will be allocated to preparing the company for the eventual rebound in prices, the management team said on the call.

enter image description hereHess Corp’s exploration portfolio

Hess expects O&G production of 330,000 to 350,000 boepd in 2016, versus 370,000 to 375,000 boepd forecast for this year. In 4Q15, Hess expects production of 360,000 boepd.

Hess plans to operate a 4-rig program in the Bakken next year, compared to 8.5 rigs in 2015. The company’s Bakken production is projected to be 95,000 boepd to 105,000 boepd in 2016. Hess operated 7 rigs in the Bakken in 3Q, down 1 from 2Q.

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In 3Q15, Hess’s net production from the Bakken increased about 31% to 113,000 boepd from the prior-year quarter due to continued drilling activities. The management team said on Wednesday morning’s call that the company brought 48 gross operated wells on production in the quarter bringing the YTD total to 185 wells. Drilling and completion costs per operated well averaged $5.3 million in 3Q15, down 26% from the year-ago quarter.

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Hess said average selling prices for crude dropped 53% from the prior year to $45.66/bbl. And selling prices for NGLs fell 76% to $7.17/bbl from $29.62 a barrel a year earlier. In total, Hess reported a loss of $279 million, from a profit of $1.01 billion, a year earlier.

“While it is prudent to plan for continued low oil prices in 2016, Hess is well positioned to benefit when oil prices recover,” Hess said.

OXY Bids Farewell To Williston

Occidental said Wednesday morning that it is selling assets in the Williston Basin and is considering divestiture options regarding its non-core assets in the MENA region (Bahrain, Iraq, Libya & Yemen). “This will result in improved operating cash flow, lower future capital commitments, lower G&A costs and better overall financial returns for our remaining asset base,” CEO Stephen Chazen said. Its core assets in the Middle East are located in Abd Dhabi, Qatar and Oman.

In Wednesday morning’s call, OXY identified as its goal the adjustment of its business to the current environment of low commodity prices…”We’ve taken aggressive action for a downturn that could last longer than many market participants expect.” In response to low oil prices, OXY reduced its drilling budget by 20% in 3Q to $1.2 billion.

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The company said it will focus on its core Permian Basin assets, where it has “low cost wells and high resource content.” OXY is the second-largest oil producer in Texas. In 3Q in the Permian, production exceeded expectations, with output at 116,000 boepd – representing a 6% increase from 2Q. Permian Resources year-over-year quarterly oil production grew 72% to 74,000 bpd. Occidental currently has 12 rigs operating in the Permian Basin.

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OXY’s O&G output dropped after the company spun off its West Coast holdings into a separate company late last year. California Resources Corp. is 19% owned by Occidental and has lost more than half its market value since it started trading publicly.

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In 3Q15, OXY said WTI and Brent marker prices were $46.43/bbl and $51.17/bbl, respectively, a more than 50% drop from a year earlier. Overall, the company reported a loss of $2.61 billion, compared with a profit of $1.21 billion a year earlier.

Total company capital expenditures in 3Q15 were $1.2 billion “and we expect our 4Q15 to be $1.1 to $1.2 billion.” Further, “Growth in operating cash flow should help us achieve our goal of being cash flow neutral after capital expenditures and dividends at ~$60 realized oil prices,” the management team said Wednesday morning.

In 4Q, OXY anticipates its Permian production to be in the 118,000 boepd range, and its total US domestic production to be between 310,000-320,000 boepd. With regard to its international operations, the company sees total volumes of 365,000-375,000 boepd in 4Q, which assumes ~60,000 boepd from Al Hosn, one of the largest natural gas fields in the Middle East. OXY holds a 40-percent participating interest in that project.

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