UPDATE: Anadarko To Cut Costs, Limit Acquisition Activity
March 10 2009 - 4:58PM
Dow Jones News
Anadarko Petroleum Corp. (APC) said Tuesday that it expects to
cut costs and limit acquisitions to boost shareholder value and
cope with the downturn in energy prices.
Industry watchers have widely speculated about the growing
potential for an uptick in mergers and acquisitions in the energy
sector because of the decline in commodity prices that is making
assets cheaper. Oil and natural gas prices have plunged about 70%
and 75%, respectively, from peaks hit last summer.
During an investor conference, Jim Hackett, chairman and chief
executive of the independent oil and natural gas producer, said
Anadarko would invest in its existing assets rather than make big
acquisitions - even if slumping commodity prices recover.
"We are not going to make major acquisitions," Hackett told
investors, adding that the company would first choose to invest
internally or make small acquisitions that "make sense for us."
The price declines have prompted large independent energy
companies that explore for and produce oil and natural gas, such as
Anadarko, Chesapeake Energy Corp. (CHK) and Devon Energy Corp.
(DVN), to rein in drilling activity and trim production forecasts
to shore up cash.
"The balance sheets of all the biggest companies are going to be
challenged to do major acquisitions with cash," Hackett said.
Despite the decline in commodity prices, Anadarko doesn't plan
on cutting its work force.
"We want to maintain our existing staff for the inevitable
recovery of commodity prices," Hackett said.
Meanwhile, Anadarko is aggressively working to reduce service
costs, improve drilling efficiencies and boost profitability. The
company's break-even natural gas price across a sampling of its gas
assets, which stood at about $5 per thousand cubic feet in fourth
quarter of 2008, has dropped.
"We have lowered our break-even price by $1.00 to $1.50 almost
across the board," Chuck Meloy, senior vice president of Anadarko's
worldwide operations, said during the conference, adding that costs
would likely fall further if natural gas prices stay at current
levels.
Hackett told investors that he was disappointed with the Obama
administration and its plan to increase taxes for oil and natural
gas producers.
"I think it is remarkable that an administration that argues for
energy security would penalize its domestic champions," Hackett
said.
The Obama administration has proposed charges of at least $31.5
billion over 10 years on oil and gas companies, reflecting the
repeal of tax breaks for domestic production and new charges on oil
and gas production from the Gulf of Mexico.
-By Jason Womack, Dow Jones Newswires; 713-547-9201;
jason.womack@dowjones.com