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Anadarko Petroleum (APC) Q3 2017 Earnings Conference Call Transcript

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Anadarko Petroleum (NYSE: APC)
Q3 2017 Earnings Conference Call
Nov. 1, 2017, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Anadarko Petroleum Corporation Third Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Robin Fielder. Please go ahead.

Robin Fielder -- Vice President, Investor Relations

Good morning everyone. We're glad you could join us today for Anadarko's Q3 2017 Conference Call. I'd like to remind you that today's presentation includes forward-looking statements and certain non-GAAP financial measures. We believe our expectations are based on reasonable assumptions.

However, a number of factors could cause results to differ materially from what we discuss. We encourage you to read our full disclosure on forward-looking statements in our SEC filings and the GAAP reconciliations located on our website and attached to yesterday's earnings release. Additionally, we have provided detail on the third quarter operations report in our website. At this time, I'll turn the call over to Al Walker for some opening remarks.

Al Walker -- Chief Executive Officer, President and Chairman

Thanks, Robin, and good morning. You have likely read our third quarter earnings release and operations report, and we look forward to answering your questions in a few minutes. Before we turn to Q&A, I'd like to spend some time discussing a few items: our approach to capital allocation, the benefits of a material scalable asset footprint and some comments on our objectives and expectations for the coming year. As an early voice on the subject of capital efficiency, we are pleased it appears to have gained traction with many of our investors.

Financial discipline has been a foundational principle for Anadarko for more than a decade and has served us well as we manage the volatility of the market environment. We have always allocated capital seeking to maximize value on a per debt adjusted share basis. Those of you that had followed us over the last decade, I'm we called our focus on per debt adjusted share metrics in previous investor presentations and conversations. As you may recall, early 2015 and into 2016, we made it very clear that we are going to focus on and I quote, "preserving value and flexibility rather than chasing growth in a lower-return environment." We significantly pulled back our activity, reduced our cash cost and begin the process of refocusing our portfolio on higher-margin scalable oil assets with growth as an output, not an objective.

Our capital allocation process was also used to guide our efforts to reposition the portfolio over the past two years. We sold lower-margin assets that did not compete for capital, which strengthened our liquidity and high graded our opportunities, producing the oil-levered, higher-return material and scalable asset profile we have today. To illustrate this point, today, over half of our sales volume is oil and more than 70% is liquids resulting in a 34% margin improvement year-over-year. In September, using a portion of the cash balance we built, we announced the share repurchase program for approximately 10% of the outstanding shares and will complete the first $1 billion of the $2.5 billion program this year.

We intend to complete the remainder of the repurchase program during 2018. This month, we will be recommending to our board a 2018 capital budget for its consideration along with certain changes to our compensation program, directly reflecting our historical approach to capital allocation and debt adjusted returns. We expect to be discussing our 2018 budget and other matters later in November, which is earlier than in previous years. We appreciate the many conversations we've had with investors in recent months to engage in a dialogue about how to best measure and incentivize performance in the sector with strong transparency and comparability.

We recognized with two methods of accounting and disparate applications of capitalizing versus expensing certain items combined with other differences, this is a challenging process for companies and investors. We think this has been a constructive communications process and believe the resulting approach should have very good comparability without a lot of noise from adjustments. You should expect us to continue to maintain our focus in capital efficiency, financial discipline and cash returns to shareholders in the years ahead, and we hope it will be rewarded. We expect our capital investments in 2018, not including Weston gas as separate budget, will be inside of discretionary cash flow from operations in a 50 by three world, with meaningful free cash flow from our upstream business.

Our current asset footprint provides us a great deal of confidence to deliver these results. We believe the changes that we made to our portfolio have positioned us to deliver results across cycles and to be industry-leading in today's challenging and volatile operating environment. You can expect we will continue to direct high percentage of our capital investments toward the Delaware, DJ and Deepwater Gulf of Mexico due to the attractive economics they produce. We often get asked the question when will Anadarko be in full development mode in the Delaware, given our recent focus has been on capturing offers across the majority of our position in Reese and Loving Counties.

Frankly, in addition to focusing our joint activity and capturing operatorship, our investment one of the broadest and most integrated infrastructure positions in the basin, which is an important and critical factor in successful long-term development program. Our comprehensive buildout plan includes blocking F acreage to improve economics with longer laterals and utilizing our templates back to redesign, which has proven so successful in the DJ. Going tankless is much more cost-effective over the longer term, significantly reduces submissions and includes safety by reducing number of trucks on the road. Building this network correctly requires material capital commitments in the short term, which we are making in 2017 and 2018.

With the expansive position we have in the Delaware Basin, we are implementing a phased approach where we expect to see incremental oil volumes toward the back half of 2018, facilitated by the anticipated start-up of the first two regional oil-trading facilities. The integrated development approach is all about announcing value and returns rather than focusing on near-term growth. And today's infrastructure investment will be levered across multiple producing zones over many years which continues to improve returns over time. These are the kinds of investment that will continue to drive Anadarko's competitive advantage in the years ahead.

Through the increased application of technology, we expect to further improve breakevens across the portfolio in order to manage oil price volatility and improve profitability. To that end, even in the face of unprecedented hurricanes in the gulf during the quarter, the three Ds delivered attractive growth. Looking ahead, we feel we're on target to hit our exit rates for this year from the three Ds as they form the foundation for our 2018 program and profitability.As we continue to work to achieve operational excellence, we will remain focused on our key tenets of efficient capital allocation, thoughtful portfolio management and financial discipline to appropriately balance value and growth.We look forward to sharing more with you about our 2018 plans in the coming weeks. With that, we'll open up the lines for your questions.

Questions and Answers

Operator

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time we will pause momentarily to assemble our roster.

The first question will come from Evan Calio of Morgan Stanley. Please go ahead.

Evan Calio -- Morgan Stanley -- Analyst

Yeah, good morning, guys.

Al Walker -- Chief Executive Officer, President and Chairman

Good morning.

Evan Calio -- Morgan Stanley -- Analyst

You discussed your approach to capital allocation and discipline in your opening comments and you elected to return more cash to shareholders recently with the buyback. Given the shift, what are your thoughts on tempering the 15% longer-term growth rate in favor of returning a greater portion of cash flow to investors? Or what are your thoughts on that topic?

Al Walker -- Chief Executive Officer, President and Chairman

Well, that's an understandable question. The 15% CAGR, I think you're referring to that you put out earlier, as you well know, is driven off of the 5-year assumption up $50 for WTI. We also have been particularly focus as we look at that on returns and capital discipline as a part of it and when we announced our capital plan once our board's approved, that plan I think you can understand a little more at that time the details around it. Consequently, I think at this juncture talking about the compounded at all growth is as important as making sure we give you the type of returns in the $50 world this budget we believe if ratified will provide.

So growth, at this point, is really going to be, as I said earlier, an output, not an input.

Evan Calio -- Morgan Stanley -- Analyst

So when you're kind of approaching potentially addressing that number you're starting off with a cash return threshold or percentage amount on the commodity price and building up from there? Is that at least the process we should think.

Al Walker -- Chief Executive Officer, President and Chairman

We're not using cash return per se. It's certainly one of the variables. I think that's a multivariable equation, of which that would be one of the components.

Evan Calio -- Morgan Stanley -- Analyst

A second if I could. You guys continue to turn fewer wells in both the DJ and the Delaware, and the Delaware rig count peaked in the quarter in the operatorship capture mode. But when should we expect that that building backlog to be drawn down and how do you draw it? So should we expect rigs to drop off into 2018 or adding completion crews? Any thoughts there backlogs exiting the year at over 100 wells in the Delaware?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

This is Danny Brown. I'll try to fill that. We have seen is as we had gone through the operatorship a consequence of that is building up a drilled well inventories, as you're noting. We should see that start to pull down, actually even toward the back half -- back end of this year.

So through the fourth quarter, I think you should anticipate seeing a pretty significant increase of wells delivered to steal even in this quarter as we finish out some of the infrastructure. Al mentioned in his opening comments that, that we're building to fairly substantial regional oil-trading facilities as a build up the overall infrastructure backbone throughout the basin. That's going to allow 2018 to continue to draw down of that inventory as you will through next year. So anticipate seeing that starting next quarter and then continuing on into 2018.

Evan Calio -- Morgan Stanley -- Analyst

Great. Okay. And with the DJ, same question relates to that build?

Al Walker -- Chief Executive Officer, President and Chairman

Yes. So we anticipate the same. We should be in a position where we start to more evenly balance in the DJ the drilled wells, the wells that we're drilling and delivering on a quarterly basis versus the wells that we're completing and ultimately, delivering to sales. Now we have seen some increase in drilled well inventory.

We shouldn't see any more increase from where we are now. We should draw that down slightly. The newer completions that you likely noted that's delivering significantly higher production than we had in the past is putting us in a scenario where we need to stay a little bit further away between the drilling rigs and completions crews. So there's going to be some sort that I would say lingering additional drill well inventory, but that should be stable in our -- of moving forward we should see sort of similar delivery from a drilled well to wells going to sales from here on out.

Evan Calio -- Morgan Stanley -- Analyst

Great. Thanks, guys. Looking forward to December.

Al Walker -- Chief Executive Officer, President and Chairman

Thank you.

Operator

The next question will come from Doug Leggate of Bank of America. Please go ahead.

Doug Leggate -- Bank of America -- Analyst

Thanks. Good morning, everybody. Thanks for taking my questions. I'll just -- a quick follow-up to Evan.

The November book is posted as well as your operations report, and it still shows a 15% CAGR. So I assume that that's not changing.

Al Walker -- Chief Executive Officer, President and Chairman

To your question, specifically, Doug, I think when we roll out our capital plan, we'll give you more clarity about what that looks like. If you recall, 15% CAGR was premised earlier in the year when we looked at a $50 oil in a $3 gas world and that was over a 5-year period. So as we're thinking about our capital plans for '18, I think the most important thing this morning is that it will be all of our capital planning and budget will be inside of discretionary cash flow next year, again premised on the 50 by 3. And consequently, I think you'll see in a few weeks our views around some of the things of this morning and we have a chance we're going to be a little bit more vague on but I don't think you should think of the 15% compounded annual growth as an input number be an output number.

Doug Leggate -- Bank of America -- Analyst

Got it. I'm hoping that doesn't really qualify as a question so the root of my question is really the oil isn't 50. It's 55, and Brent is about 60. So I'm curious what your priority on the allocation of incremental cash flow be on the 15 3Ds.

Al Walker -- Chief Executive Officer, President and Chairman

Okay. Well, Bob and I tag team you on that one. Certainly, at this point, we have to manage to some kind of constant, and hopefully, we're conservative with that comps. And if you're right that it looks like of forward curve holds and will look like, we'll have more cash flows through the course of the year.

And Bob, with that, why don't address the question?

Bob Gwin -- Chief Financial Officer and Executive Vice President

I think -- I know you know this, just to make sure everyone does. We're levered to the price of oil by about every dollar is roughly $100 million of cash flow. And if we are providing clarity what things look like from a cash flow to spending 2018 at $50 oil, I think folks should expect that means if oil is $60 then we got $1 billion more free cash flow. That incremental price realization versus budget does not result in increased spending under the way we're looking at the world.

Doug Leggate -- Bank of America -- Analyst

Okay. My follow-up, hopefully, a quick one. You guys pick a fairly sizable write-off, historical write-off I guess in addition to warrior and full boss Côte d'Ivoire is not one of them and just wondering if you could square as we do thoughts as to why those particular projects no longer compete for capital and what that says about the role of exploration in the portfolio.

Al Walker -- Chief Executive Officer, President and Chairman

The role of exploration, let me that one first. Today, we're still very involved with exploration the Gulf of Mexico a region tieback to existing infrastructure. I don't see that changing. There'll be certain things will continue to want to progress for option value the next decade, Colombia being one of those.

But as we looked at the commercial characteristics of the things that we did take charge for this quarter, it was our assessment that we just didn't feel that the commercial quality there was sufficient in order to attract capital, and that's what resulted in our actions.

Doug Leggate -- Bank of America -- Analyst

The spawn and the related assets, are they held for sale? I mean, could they still realize volumes or disposal, Al? Or is it good enough completely?

Al Walker -- Chief Executive Officer, President and Chairman

That's a question, at this point, we're still looking at what we want to do with the government, so I can't answer you specifically. There's some things that we're considering. I think at this point, the way I would look at that is we're not anticipating nor would we expect to put additional capital toward it.

Doug Leggate -- Bank of America -- Analyst

Thanks, guys.

Al Walker -- Chief Executive Officer, President and Chairman

Thank you.

Operator

The next question comes from Paul Sankey of Wolfe research. Please go ahead.

Paul Sankey -- Wolfe Research -- Analyst

Hi, good morning.

Al Walker -- Chief Executive Officer, President and Chairman

Good morning.

Paul Sankey -- Wolfe Research -- Analyst

Again, I appreciate that you're working toward the December call, but you just mentioned that the outputs -- the growth target is more of an output of the various measures that you use, and then it's not specifically cash returns per se. I guess what you're saying is that it's a combination of things. Can you just again talk more about that combination and how you're hoping to fit them together into an outlook, which I think was sort of signaled with a buyback to an extent? And can you talk a bit more about what that buyback did -- was intended to signal?

Al Walker -- Chief Executive Officer, President and Chairman

Yes. What we're trying to do right now. And Bob, I'll ask if you like to talk a little bit about the corporate development side of the equation. But we didn't see things in the market that we thought were a better use in the cash.

We thought buying back our stock was a particularly good use of cash. And Bob and I are both in different settings we talked about the fact if we were to buy back stock, it'd be something of this magnitude where it would be around 10% so we permanently change the capital structure. If we were in a world we were talking about earlier we had additional $1 billion of free cash flow next year, we'll continue to look at ways to most efficiently return that. I don't think you could anticipate at this point -- you shouldn't anticipate at this point.

That would mean additional capital spending on our part so I think the best I could answer you, Paul, to get into our situation where we have a whole lot more cash than we anticipate today, we'll look for different ways beyond share buybacks in order to bring some of that cash back to the shareholders.

Paul Sankey -- Wolfe Research -- Analyst

Great. Could you just talk about debt levels? Because those remain somewhat relatively elevated if we look at the biggest ways names, whether or not how hard was it to decide whether to pay down debt or to buyback stock?

Bob Gwin -- Chief Financial Officer and Executive Vice President

This is Bob. It wasn't very difficult at this stage to decide between stock and debt because we buy back debt at a premium, and we felt we were buying back stock at a significant discount. I think though it's fair to say that as you move forward you got to consider the entire capital structure as a potential use of proceeds for free cash flow. Because certainly, we understand that the debt structure of the company has an impact beyond benefiting shareholders from a return on equity standpoint, it certainly has an impact sometimes in the way you trade across cycles.

And so it's -- debt reductions are certainly on the table at free cash flow in the future, but leverage is not a concern to us in an absolute sense because of our liquidity position and the fact that we have very few near-term maturities. We've got a $900 million slug coming up in 2019, and that's about it over the course of the next several years. So it's an area that we consider, but it's not something that we'd say is on the shortlist today. But we still got a material cash position after the share buyback is completed.

And as I mentioned, we expect to be inside of cash flow. And hopefully, with any improvement in the commodity, which I think is a certainly a possibility with some recent changes we've seen in the market and with what sounds like a sector that's much more focused on capital discipline, we might see some free cash flow, and we can focus more significantly on returns to shareholders. And obviously, if we pay down debt, that benefits the shareholders directly from an economic standpoint.

Al Walker -- Chief Executive Officer, President and Chairman

Paul, what I'd add to that is, I think today, what we're trying to do is position the company to do well on a world that's 45 to 60. We don't anticipate us a state environment above 60, and we see enough reasons to be concerned that if the current OPEC and non-OPEC nations were to change their posture on what they're doing with supply that we could find ourselves for some period of time running back down to around 45. So we kind of think about that as the range that we want to operate in if we're in a period where to our earlier comments about throwing off an extra $1 billion of free cash flow, then we'll address that. All the reasons we talked about earlier if we find ourselves back into a $45 world because this production finds its way back into the market and the market comes oversupplied again, we want to be prepared for that.

Bob Gwin -- Chief Financial Officer and Executive Vice President

Gret. Thank you. Thank you for the additional time that you guys give for Q&A, I appreciate that. Thank you.

Al Walker -- Chief Executive Officer, President and Chairman

You bet.

Operator

The next question will come from Arun Jayaram from JPMorgan. Please go ahead.

Arun Jayaram -- JPMorgan Chase -- Analyst

Bob, I was wondering if you could go through the mechanics of the buyback you have on accelerated share repurchase programs. I was wondering if you can get to but the mechanics of that. We did note looking at your Q that the share count is down a little bit. So just trying to understand perhaps how much of the buyback has been executed at this point.

Bob Gwin -- Chief Financial Officer and Executive Vice President

I'd happy to, Arun. None of the buybacks is reflected in many of the third quarter numbers. So third quarter numbers appear prior to the buyback. The reason for that is we entered into the share repurchase agreement, the accelerated agreement with an investment bank, early in October.

So it's a fourth-quarter dynamic. It will be completed during the fourth quarter under the terms of the contract that we entered into with that bank. And what we essentially do is give the bank $1 billion when we entered into the agreement. And the number of shares that they ultimately deliver to us is going to be determined on the achieved share price in the market.

And so what we negotiated was that over that period of time that they have to complete the repurchase, there will be an arithmetic average of the volume-weighted average price achieved over that period time. And we will -- and then our net price is the discount that we negotiated the bank to the volume weighted average price. That will determine the number of shares, which will be reported in the fourth quarter or in the fourth quarter numbers. And from an Anadarko perspective, that's why we can say with certainty the share repurchase will be concluded during the fourth quarter in its entirety.

And we don't know, we got some questions answer just in case we don't know the current status of exactly how many shares that back has been able to repurchase or how active they are in the market day to day because that's their book to manage over the course of the contract period, which expires later this year.

Arun Jayaram -- JPMorgan Chase -- Analyst

Great. Great. Al, my follow-up is just you highlighted the $2.5 billion buyback. How do you balance that versus opportunities that you may see perhaps in the Delaware Basin where, obviously, there's a big package on the market.

I think 30K an acre is not the right number. But if we saw something, if the market came down to 20 to 25, how do you balance an acquisition in the Delaware versus the buyback?

Al Walker -- Chief Executive Officer, President and Chairman

Understandable question, Arun. I think it really comes back to when we buy it, that full cycle use of cash, would it compete with something in the portfolio. So it's going to have to be a real attractive asset that has exceptionally good productivity and EUR so that's a full cycle acquisition and development would compete well for capital. I know Bob is in this market every day and look at this stuff a lot so let me let him elaborate.

Bob Gwin -- Chief Financial Officer and Executive Vice President

Yes. One thing I want to point out relative to your question is on the $2.5 billion, the incremental $1.5 billion we're going to execute on that anyway. So that incremental $1.5 billion isn't just relative to acquisition opportunities. We made the decision that we were going to buyback $2.5 billion outside of what we might choose to spend on acquisition if we see something that's attractively priced and fits our model.

So the incremental $1.5 billion we have every intent of completing. On the incremental cash that we have relative to your question, we haven't seen the acquisition market be attractive for us. That's not to criticize the decisions others have made, but we've got the big material footprint in the base. As Al points out, the economics are very attractive to us with the Midstream infrastructure position that Al talked about that we're building out this year and next.

We've got the ability to leverage some additional upstream assets if some are available and they're attractive to us in the full cycle rate of return basis that could be a use of an incremental cash but I wanted to point out that's beyond the aggregate $2.5 billion buyback, not in lieu of that.

Arun Jayaram -- JPMorgan Chase -- Analyst

That's great. Al, just to clarify, I believe you mentioned in the call that the 5-year outlook is based on $50 WTI. I believe it should be $55. Could you just clarify that?

Al Walker -- Chief Executive Officer, President and Chairman

Yes, that was a -- earlier in the year, we talked about it at $50. And you're correct in terms of the number.

Arun Jayaram -- JPMorgan Chase -- Analyst

Okay. Thanks a lot.

Operator

The next question will come from Ryan Todd of Deutsche Bank. Please go ahead.

Ryan Todd -- Deutsche Bank -- Analyst

Okay. Thanks. Maybe first off, a question -- kind of a follow-up question of international and offshore exploration business. As you look back over the stretch over the past few years, other than probably a shift in strategy toward more infrastructure-led efforts going forward, what have you learned over the past couple of years? And how will that change possibly the way you do business going forward and how you allocate capital on that business, strategies? And how much capital do you think you need to deploy kind of on a run rate basis in exploration to make it worthwhile and value-accretive to the company.

Al Walker -- Chief Executive Officer, President and Chairman

Well, I think exploration, as you think about it in years ahead, is largely going to be in the Gulf of Mexico where we're tying back to existing infrastructure. And Mitch just talk for a minute about what you been able to do about Horn Mountain to give you an example of why that's attractive to us and why it competes well for capital versus the Delaware that you might think is at the top of the food chain for attracting capital because Horn Mountain was production facility we picked up from Freeport-McMoRan along with the prospect of development and exploration potential around it. So Mitch, if you would?

Mitch Ingram -- Executive Vice President, International and Deepwater Operations

Just in Horn Mountain, we've had two wells seen in the operations report producing 16,000 barrels a day and successfully taken on SS05 just around 80 days. And it's producing 8,000 barrels per day just into one zone. So we're really excited about that and see progress in the second zone coming through the next few months. In addition to that, I mentioned all the opportunities around for Horn Mountain, we're anticipating in 2018 we'll have around 5 wells in the plan to tie back into that.

That's a mix of development wells next and exploration wells. We're excited about the opportunity around Horn Mountain, and we'll see that coming soon in 2018.

Al Walker -- Chief Executive Officer, President and Chairman

And Ryan, I'd be remiss if I didn't also point out, I mean, exploration for us is not just Deepwater Gulf of Mexico, but it's also onshore U.S. Lower 48. And they're, like many of our competitors, we're always looking for other opportunities to do things organically and to put new place together where the three cost is substantially lower in some of the more popular place that we're all familiar with these days so U.S. onshore as well as U.S.

Gulf of Mexico I think will be areas that will still be active there's a big role for exploration to play. And I mentioned earlier that we'll continue to look at the opportunities we have in Colombia, which will be probably late next year or early '19 before we drill the first well there. So consequently, it still has a role. I just wouldn't say it's been a historical the role of.

And I think that was reflective when we talk about the three Ds or the capital allocations going and what we're trying to achieve with that. But there is another decade out there, and it's not too far off. And we want to make sure we do some things that provide us some option value for the future.

Ryan Todd -- Deutsche Bank -- Analyst

That's helpful. And maybe one on the U.S. onshore the DJ Basin, can you talk about some of the drivers of the strong performance you say in the DJ Basin in the quarter, what you're seeing on well performance relative to the historical type curve that you give whether that's enough confidence at this point that better performance would be reflected in a forward-looking guidance whenever you update this outlook?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

This is Danny again. Yes, we've been pleased with what we've seen in DJ, particularly with the new completion we employed in about 70 wells in that basin. We have several months of data now, and it shows that we get significant incremental performance through those -- through that completion technique with those wells. As we're able to get a little more data on that, we will certainly as you have seen us do historically, we will update our type curves and I think as you move forward and rollout our 2018 plans and put that new type curves for the various areas that we're working wouldn't surprise me if you see is update that one as well.

The performance increase has been substantial, and we couldn't be more pleased with what we're seeing.

Al Walker -- Chief Executive Officer, President and Chairman

Yes, Ryan. You've heard us and you've heard a lot of our competitors talking about the use of big data the use of artificial intelligence and particularly, machine learning. I think all of very early innings we probably talked a little less publicly about that and then some, but our ability to use data as a sector is very early innings in terms of just its application. I think we're all trying to either develop this on a proprietary basis or working joint ventures with people who are data mining and other sectors a lot.

So I'm pretty optimistic that our abilities and industry lower our breakevens will largely come in the future from technological advances in the applications of technology that we've not historical either used or used fully. A lot of this probably some surprise to you that sometimes I find it surprising to others is we have a lot of data. It's just we don't transmit that data on a broad frequency or a WiFi frequency that allows us to actually do something to that data on the back. And so while we all have a lot of data the ability to not only collect but transmit that data into a process that can actually use the data is one of the real encumbrances that I think we're all dealing with and trying to figure out how to best overcome.

Some of this is easy, and some of it is a little bit harder. But I do think the breakevens as a sector are downward on its pressures them to because of the way we're all going to use technology to its advantage.

Operator

The next question will come from Charles Meade of Johnson Rice. Please go ahead.

Charles Meade -- Johnson Rice -- Analyst

I wanted to ask a question about the transition in the Delaware Basin from the operator capture mode to the more developed mode. I think you've given us some pieces already, particularly talking about this mainstream system that's going to help up the volumes in the back half of '18. But other guideposts that you're thinking about that you could share with us that we could look at maybe in the first half of the year to gauge your progress on that?

Al Walker -- Chief Executive Officer, President and Chairman

You bet. I'm going to have Danny give you a little longer explanation, but I think we had been something I believe we do really well. I apologize if it sounds overly braggadocious, but it's not intended to be. But we learned and understood from our success in the DJ how to integrate upstream and midstream spending, so we're not drying a lot of falls weighing all pipelines to connect and cash flow to start.

In the Delaware, because we're dealing -- we're not just dealing with the hydrocarbon stream that's liquid and one is gas or multiple liquids, we're also dealing with a lot of water. And so our ability to actually move a lot of these various fluids and gas properties in a way that is sufficient and we're not sitting there with a bunch of front and capital to connect it or waiting for other capital connected or being dependent upon the third party to actually do that is part of that we believe will be an important are very integral part of our story as the Delaware gets developed out. These regional centers that we talked a little bit about are probably not as well understood and I think will actually come into play made the comments earlier, it's not just for now but it's for the future and the other zones out there that we see. So Danny, if you would?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

Yes. I appreciate that. Charles, I appreciate the question. As we look at 2018, I think really we're anticipating that's going to be a year of transition for us within the Delaware Basin.

And I'll say, in some ways, we could look at that from an infrastructure standpoint and in a drilling and completion standpoint. On the drilling and completion side, as you know, we spent most of 2017 working through our operator capture program. And we've got all those now out now and we have to continue and finalize the drilling and completion and ultimately deliver sales in all of those wells we work through the program. So that's going to take us into 2018, and I think you'll see us transition to move into more of a multi-pad development scenario toward the back half of the year as being our normal course of business as we work through that operatorship capture program.

You'll see us deliver some well pads, multi-well pads earlier in the year, but I really think that's going to be more of a phenomenon that you'll start to see us transition to toward the back half. From an infrastructure standpoint I would say, we are fully employing the learnings that we saw within the DJ Basin over into Delaware just as Al suggested in these regional oil-trading facilities are going to be a major piece of that when you think about that we are from a well level standpoint, we're moving away from atmosphere of tanks, we're moving away from combustors, we're moving away from flares, far fewer moving parts, far fewer trucks on the road, lower emissions, all which should drive frankly decreased risk for us and increased operational performance through that infrastructure system. So we think we've seen through our experience in the DJ Basin that these work really, really well, and that's what we're moving toward from an infrastructure perspective. So as those regional trading facilities come online as we move into 2018, sort of toward the middle of the year, you should see us start to flow these the wells that we've done through the operator capture program as well as other up for the multi-well pads that we'll be transitioning into.

So it's really going to form a backbone of how we develop that field and should deliver significant incremental you should see significant incremental delivery as we move through 2018 and particularly in the back half of 2018 as those systems get put in place.

Charles Meade -- Johnson Rice -- Analyst

That's helpful, Danny. And If I could give you one other question, Danny, perhaps this is best for simple question but hard to know. The 4% uplift you guys have seen with these new completions in the DJ, do you have a sense of how much of that is acceleration versus incremental EUR and if you don't know now do you have I guess when you might know?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

Yes. So I think that, clearly, we need to continue to see the data, but our feeling is that this is incrementally EUR where we're going to be increases the recovery factor we've seen in the areas that we're developing. But we haven't updated our type curve yet. We need to understand this longer.

But I'll say we'll get in some cases three, four, five months of data and we're very encouraged by what we're seeing.

Charles Meade -- Johnson Rice -- Analyst

Thanks for that color.

Operator

The next question will come from Brian Singer of Goldman Sachs. Please go ahead.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning.

Al Walker -- Chief Executive Officer, President and Chairman

Good morning, Brian.

Brian Singer -- Goldman Sachs -- Analyst

First question is on the Gulf of Mexico. There are a few moving parts weather delays and some of the... from the appraisal drilling you highlighted. Can you talk to your broad goal of keeping production flat in the Gulf via tiebacks oil production that is. Any changes in the margin to your ability and interest in executing on that goal?

Al Walker -- Chief Executive Officer, President and Chairman

Yes, Brian. At this point, as you've seen over the last years we bought Freeport-McMoran properties and been able to use 10 producing facilities we have in the Gulf, our hope is that the GOM will be flat and it will be a cash flow provider to the two onshore activities we've been talking about, although the DJs provides positive cash flow today and only the Delaware is cash flow deficient. I think you just should be thinking of us in the near term as are going to hold it flat they think we have very attractive economics to drill out what we've got there it's not always big a decline as the onshore unconventionals are. And we feel like it's a really good leg of the tool for us for the reasons that we talked about a lot and don't see anything today to discourage it about it.

I hope that helps you little bit.

Brian Singer -- Goldman Sachs -- Analyst

It does. That's great. And that's flat with the kind of 130,000 barrels a day or so of where you expect your exit. Is that...

Al Walker -- Chief Executive Officer, President and Chairman

That's correct.

Brian Singer -- Goldman Sachs -- Analyst

Okay. Great. And then one of the other comments that you made I think it goes to some of the returns or corporate returns improvement as it relates to margins and then margins are on track to improve. It's easy for us to see the impact that asset sales have the change the production mix and the impact that has on price realizations, but can you talk about the scope for operating cost reductions per BOE and how much that might be due for mix shift from asset sales versus a same-store sales efficiency gains that remain at Anadarko?

Al Walker -- Chief Executive Officer, President and Chairman

Yes. I think you'll see some of this to a greater degree we talk about plans for next year. I'm glad we continue to do that month of November. a lot of interest in it.

Simple things like going from trucks to pipe, that's just a cost savings right there that's pretty substantial. Pretty easy to see but you've got to spend the money up front to move it off if you are just thinking about this only in a growth scenario. You just struck everything and you grow your volumes earner trucking long-term that's not going to be good for your margins and moving into a pipe that's good for both the environment because you get the trucks off the road and all that comes with that and also helps you with your costs. Another way to think about it is to the Delaware we really on the drilling single wells out there so our well costs as we moved pad development, again you're going to see the drilling cost and the completion costs come down as we move into that pad environment.

So those will be the two easiest things for me to point to. As I said and you heard me say many, many times, we're not in the revenue business. We're in the margin business and we do find ourselves oftentimes looked around by what the revenue want us because of the commodity, and we can't contract our costs fast enough, but we are mindful that we're in the margin business and that's why we look at all of our cash costs combined and think about it not just in one singular line like LOE or G&A. You've got to look at all the cash combined because everybody is got different methods of accounting or we had two methods of accounting and different policies and approaches on how we capitalize versus expense.

So if you all the cash cost together and think about it as a margin business I think we're... you're OK that, but we do recognizing a pretty good eye on it.

Brian Singer -- Goldman Sachs -- Analyst

Got it. And for Anadarko specifically, is the extent of the savings going to come more in looking at your LOE and how that could fall versus the 8.25 or so per BOE that I think you're at in Q3 or will come more in the CapEx capitalized upfront in terms of lower CapEx per BOE.

Al Walker -- Chief Executive Officer, President and Chairman

I think you're going to see -- I'm going to answer you this way. I think you really have to look at all of us on a total cash basis and not on a line item basis because some of our peers might capitalize 30%, 40% of their G&A. They may or may not capitalize their LOE. Some do, some don't everybody's got a little bit different approach to that and as a consequence, I think I would encourage people to look at the total cash cost rather than a line item specifically.

But I do think from a cash cost perspective for Anadarko, you would anticipate in the Delaware that we're going to be able to bring that down, and it will probably be most obvious for you if you're looking at it at LOE.

Brian Singer -- Goldman Sachs -- Analyst

Thank you.

Operator

The next question will come from Paul Grigel of Macquarie. Please go ahead.

Paul Grigel -- Macquarie -- Analyst

Hi, good morning. Al, going back to a comment on the incentives changes, will these changes will this changes in global short-term and long-term plans? And will that adjusted spend focus both of those plans?

Al Walker -- Chief Executive Officer, President and Chairman

Well, I think you should think about compensation I made comments opening remarks. And those of you that have been following us for a long time know you've seen in our materials of always thought about things on the debt-adjusted basis, simply because it was our early view on work that we did to that it had the highest our square to share price performance. And consequently, it was a metric that we focused on for that reason because it said a lot of things about the efficiency of how you're using your capital. We never chose to use it as a part of our comp program because it's kind of a complicated and clumsy discussion to have broadly defined with your employees because it sounds OK if you're talking to finance folks, but it's a mouthful if you're trying to explain it to somebody in the field.

So while we thought about that from how we allocate capital, the compensation programs haven't gone that next step. Now I know you know this and it's pretty simple but if you don't issue stock and you don't issue debt, it's the same number at the end of the year relative to what we've been doing. So for a company other than buying Freeport-McMoran that's only issued stock in the last 10 years for that and we've actually not used debt even though we had at the payout unfortunately over $10 billion in two particular instances, I don't think the way we've compensated it for that issue or thought about that compensation issue is any different than if we've been running on a debt per share basis debt adjusted. So I hope that helps you little bit.

I think the comp program for us will reflect the things that we're hearing shareholders tell us on the use of how they want to see production and reserve growth measured using that per debt adjusted share basis. And I think there's a capital efficiency number that we intend to also talk about when we roll out our budget. So think of that as a trailer, and the movie out will be pretty good.

Paul Grigel -- Macquarie -- Analyst

Appreciate the additional color. And then as a follow-up, with the drilling focus on margins and returns and with some of the recent upside volatility within that $45 to $60 range that you've stated and even give up previous comment about managing top line revenue within that, what is the willingness to hedge? And has that changed as part of this clarification on the returns focus, return to capital that you guys have stated here?

Al Walker -- Chief Executive Officer, President and Chairman

Well, as you've seen in the supplemental information and the earnings release, we have some hedging activity or derivative activity associated with natural gas but not a great deal as it relates to oil. I'd say that's always a work in progress. Philosophically, we don't really like to be more than 50% hedged in either of the two principal commodities. So even if we found yourselves going to put some sort of price floor in this oil, we'd still find ourselves oftentimes not exceeding that 50% threshold if we went in and actually use a greater degree of derivative activity than you've seen to date.

Paul Grigel -- Macquarie -- Analyst

And is there a view that if you want to have a set return to shareholders each year, be that cash flow or on a percentage basis that, that hedging program could be added to that process in terms of creating certainty year after year?

Al Walker -- Chief Executive Officer, President and Chairman

That's an interesting comment. I think that might go into the category of would you hedge or drill a well, and I think the answer there is we don't. I appreciate hedging as a return of cash but I have to think through that a little bit more and in all fairness, Paul, I'm not sure if I was investor that I would want you to be hedging as a return of cash I don't want you to hedge in order to drill a well.

Paul Grigel -- Macquarie -- Analyst

It's certainly a debate between managing the manufacturing process and the balance sheet as well. But I appreciate that.

Al Walker -- Chief Executive Officer, President and Chairman

You bet. Thank you.

Operator

The next question will come from Mike Scialla of Stifel. Please go ahead.

Mike Scialla -- Stifel -- Analyst

Yes. Good morning, thanks. Al, you mentioned you are looking at other onshore opportunities. Just want to get your thoughts on Powder River Basin.

It looks like you've increased your permits there this year. Just wondering what we need to happen there for that to become part of the 2018 plan? Or does that mean more as a potential divestiture candidate at this point?

Al Walker -- Chief Executive Officer, President and Chairman

As it relates to 2018, I think you should expect that we'll continue to be a Delaware, DJ, Deepwater Gulf of Mexico spender of capital. We think we see clarity and good returns it's very economic. It's part of the things we've been messaging over the last years, what we're moving to away from dry gas. Whether it's things that we can do or might do more of in the margin, there's always things you're going to experiment with.

And I think the one thing we always had to be mindful of is we want to have material scalable asset that attracts capital. If we can't get to a material scalable footprint, then we're probably likely to sell it.

Mike Scialla -- Stifel -- Analyst

Got you. Okay. And then just wanted to get some comments on Mozambique. Looks like you're getting some good progress in there with SPAs being -- I wonder if you could give us more color on the line of sight FID there.

Al Walker -- Chief Executive Officer, President and Chairman

You bet. I'll have Mitch some additional comments but I've been very, very pleased with what Mitch and this organization has been able to do on the sales purchase agreement front those SPAs are coming together and very critical part of why and when would take FID but not by itself the only one but certainly a critical step. So Mitch, when you take this if you would?

Mitch Ingram -- Executive Vice President, International and Deepwater Operations

Just to give you a quick update. Obviously, the key element for us for some time is the Marine concessions approved. As indicated in the past, once you achieved that, we had anticipated some SPAs being gone through the approval process. You've now seen the first one in terms of PTT, and we're really pleased that's been done for a large volume of a large period of time, and that really starts to support our long-term development going forward for FID.

So as we've indicated in the office report we're aiming for just over 8 million [ tons]. And all those discussions are ongoing with the key buyers enable us to get there. In addition to that, we're engaged actively with project financing team, and they are fully engaged and willingness to provide support for all that. So once we've got all those in place in terms of SPAs, the volumes have indicated and project finance in place, then we'll be ready to take FID.

Mike Scialla -- Stifel -- Analyst

Got it. Thank you very much.

Operator

The next question comes from Michael McAllister of MUFG. Please go ahead.

Michael McAllister -- MUFG -- Analyst

Good morning, everyone. Thank you for taking my question. Looking at Slide 4, with the -- on your conference call slides in the buildout of the -- I guess, the dual treating facilities. That 120,000, that's by mid-2018?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

That's correct. That will be two regional training facilities, each for 60,000 barrels [inaudible]

Michael McAllister -- MUFG -- Analyst

Will that serve APC and partners production?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

That's correct.

Michael McAllister -- MUFG -- Analyst

Okay. And then similar note in the DJ Basin, the plant and the agreements to move gas, it looks about 1 BCF a day could be moved out of there by the end of 2019. Is that correct?

Danny Brown -- Executive Vice President, U.S. Onshore Operations

I'm not sure it. We'll come back to give you an answer on that one. I'm not sure of quite that much. Maybe about half of that.

Maybe yes, maybe 400 to 500 a day but it's not B a day.

Michael McAllister -- MUFG -- Analyst

Just on the top of as an expansion. I would assume you have the ability to move about 600 now. I guess what I'm trying to get to is it looks like you're setting up infrastructure-wise to double production in the DJ by the end of 2019.

Danny Brown -- Executive Vice President, U.S. Onshore Operations

Well, I think what you can think office it's going to add 400 million a day of incremental capacity over and above what we got now. I think we're anticipating it's going to serve our needs as you go for move forward into 2018, 2019 and into the future for the growth we're anticipating from that asset, really getting ahead of our upstream development activity, just like you see us do in Delaware, and just like we do with [inuadible]

Michael McAllister -- MUFG -- Analyst

Right. I'm trying to figure out what the capacity is going to be by the end of 2019 in both regions. And it looks as if you could triple production in Delaware. And in the DJ, it looks like you could double, infrastructure-wise.

I'm not saying that claiming that this is what you're going to do upstream-wise, but at least the facilities are there.

Danny Brown -- Executive Vice President, U.S. Onshore Operations

If you add that 400 I agree, you're getting total to 1 BCF of takeaway within the greater DJ area, and that's going to I think set us up for growth just as you're contemplating.

Michael McAllister -- MUFG -- Analyst

Okay. That's all I have.

Al Walker -- Chief Executive Officer, President and Chairman

I want to be sure before you get on you're only talking about the incremental 400 million from the two [inaudible], right?

Michael McAllister -- MUFG -- Analyst

Correct.

Al Walker -- Chief Executive Officer, President and Chairman

I think Danny has answered your question correctly. There's not the B a day coming in incrementally but a B in the aggregate.

Michael McAllister -- MUFG -- Analyst

Correct. No, I'm with you. Thank you.

Al Walker -- Chief Executive Officer, President and Chairman

All right.

Operator

The next question comes from Bob Brackett of Bernstein. Please go ahead

Bob Brackett -- Bernstein -- Analyst

Question on the 2018 plan potentially, can you think about what level of CapEx would keep production flat at the corporate level?

Bob Gwin -- Chief Financial Officer and Executive Vice President

It's Bob Gwin. I don't have that number for you directly. I mean, it's relatively low because, as Al points out, we're free cash weighing out of all the assets other than the Delaware. And so the capital is low capital-intensive assets North Africa, West Africa, very low capital intensive.

So if you solve -- we don't really solve for that because you might allocate capital inefficiently to try to keep it flat if that was a goal, so we just -- that's why I don't have an answer for you specifically. The money that's going into growth is going into the Delaware and the DJ, obviously. And there's some money going in the Gulf of Mexico to keep it flat. But for the most part, it's a free cash flow profile in asset.

And you never dialed it back to maintenance alone because that destroys future value in the only reason that future value and growth is to increase returns to shareholders in the future. So it's not the most efficient way to run the railroad.

Bob Brackett -- Bernstein -- Analyst

Well, follow-on, the deepwater rig schedule, you're going to see a rig sort of drop every year for the next several. Where will those rigs be allocated? Will they end up in the Deepwater GOM? Will one to end up drilling development wells in Mozambique? How do you think about allocating those Deepwater rigs?

Al Walker -- Chief Executive Officer, President and Chairman

I think for the most part today, our expectations they're all be in the GOM. Obviously, the well we're going to drill in Colombia is going to require us to do something just a little bit to change that rig to be able to drill in that depth of water. That might be one of the rigs we currently have in the Gulf of Mexico as we're in conversations with several people about that. But beyond that, I think we're looking at development drilling for FID or from post-FID in Mozambique, could probably pick up a market at that point.

Bob Brackett -- Bernstein -- Analyst

Got you. Thank you

Operator

The next question comes from Jeff Campbell of Tuohy Brothers. Please go ahead

Jeffrey Campbell -- Tuohy Brothers -- Analyst

A lot of good questions to ask. I'll just pick up one. It sounds like you were saying that but I just want to make sure conceptually do we think of gone as a free cash flow asset? And do you look at continuing to after the decision of that was made they do you consider continue to invest in the asset something analogous to drilling offset falls in the Gulf of Mexico in terms of the risk profile and what you expect to get from the investment?

Al Walker -- Chief Executive Officer, President and Chairman

Yes, the short answer to your question, Jeff, is yes. Ghana is an asset we think of as free cash flow. In fact, the only asset we think we have in the portfolio today that we would invest in not free cash flow is Delaware. Algeria and Ghana on the international are very free cash flowing.

There's things that we're going to do both with and the greater jubilee area that require some capital but not so much capital that we dismiss the comments made.

Jeffrey Campbell -- Tuohy Brothers -- Analyst

Okay. Great. That's helpful. Thanks, that's all I want to ask.

Al Walker -- Chief Executive Officer, President and Chairman

You bet.It's the top of the hour. I know it's a full day of earnings calls today. Appreciate those that chose to join ours this morning, and we look forward to seeing each of you hopefully in the coming weeks. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.

Duration: 62 minutes

Call participants:

Robin Fielder -- Vice President, Investor Relations

Al Walker -- Chief Executive Officer, President and Chairman

Evan Calio -- Morgan Stanley -- Analyst

Doug Leggate -- Bank of America -- Analyst

Bob Gwin -- Chief Financial Officer and Executive Vice President

Paul Sankey -- Wolfe Research -- Analyst

Arun Jayaram -- JPMorgan Chase -- Analyst

Ryan Todd -- Deutsche Bank -- Analyst

Mitch Ingram -- Executive Vice President, International and Deepwater Operations

Danny Brown -- Executive Vice President, U.S. Onshore Operations

Charles Meade -- Johnson Rice -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Paul Grigel -- Macquarie -- Analyst

Mike Scialla -- Stifel -- Analyst

Michael McAllister -- MUFG -- Analyst

Bob Brackett -- Bernstein -- Analyst

Jeffrey Campbell -- Tuohy Brothers -- Analyst

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