Anadarko Petroleum Corp (APC): Diverse Portfolio of Worldwide Onshore and Offshore Assets
Jim Hackett, chairman and CEO, has said about the asset base: “In Algeria, a construction of the El Merk project is 83% complete and remains on target to begin production of significant oil volumes near the end of 2012. In the Gulf of Mexico, we continue to advance the Caesar/Tonga mega project. During the quarter, a riser solution was selected, and we expect to deliver first production by midyear 2012.”
Anadarko holds an interest in 38 million net acres, 8.4 million on which it owns mineral rights. In 2010, proved reserves totaled 2.4 billion boe, with net production of 643 thousand barrels of oil equivalent per day. Natural gas made up 59% of production and 56% of reserves.
With the acquisitions of Kerr-McGee and Western Gas Resources, the company intended to gain scale, diversify its portfolio and introduce more predictability into its results.
Today, Anadarko boasts a diverse portfolio of onshore and offshore assets throughout the world, with an attractive mix of producing and exploratory acreage that includes oil and natural gas.
Positives and Risks
The purchase of Kerr-McGee and Western boosted the company’s exploratory capabilities and deep water portfolio. It also provided low-risk and long-lived onshore reserves and production.
Anadarko's portfolio includes a mix of oil and gas, offshore and onshore, domestic and international, and near-term and longer-dated assets. Altogether, they should help mitigate project risk or potential swings in commodity prices and support considerable production and reserve growth.
Anadarko has a strong financial health with minimal upcoming debt maturities, $3.5 billion in cash on hand, and $5 billion in unused revolver capacity. As of year-end 2010, the firm's net debt/EBITDAX and EBITDAX/interest ratios were solid, at 1.2 and 8 times, respectively.
Anadarko may also suffer certain risks. The most important one is a substantial and long-term drop in oil and gas prices which may affect profits, slow development plans and reduce property value.
Anadarko is also undergoing legal actions which could materially affect its financial position. The company is involved in two proceedings: one related to the Deepwater Horizon disaster and the other a fraudulent conveyance case involving a now-bankrupt spin-off of Kerr-McGee. Additional risks include delays and cost overruns on Anadarko's long-dated deep-water projects, execution risk, and political instability in certain of the company's operating regions, and headwinds as to regulations that could delve into profitability.
Last quarter results
Total sales volumes were at the high end of guidance of 61 million barrels of oil equivalent and included a 10% increase in liquid sales volumes over the third quarter of 2010. This increase in higher-margin liquids contributed to free cash flow of $576 million.
“As we approach the end of the calendar year, we feel very good about the company's strong operational record. With the results achieved to date, we are raising the midpoint of our full year production guidance by 500,000 barrels. The new range is 245 to 248 million barrels of oil equivalent. With the efficiencies we've driven into our programs, we expect to deliver these volumes for less capital than originally projected. We've reduced the midpoint of our full year capital expectations by approximately $150 million,” added the CEO.
The fair value estimate is of $85 per share. In terms of oil prices increases, it is expected that they will move from $80 to $98 while gas price is expected to drop from $7.50 to $6.70.
Anadarko's potential Deepwater Horizon liability is forecast to be in a downward trend from $10 billion to $5 billion, or $10 per share. The fair value estimate implies a forward 2012 enterprise value/EBITDAX multiple of just over 6 times. This compares with an average forward multiple of 5.8 times over the last five years.
The company projections include 670 Mboe/d in 2011, 746 Mboe/d in 2012, and 813 Mboe/d in 2013, representing an 8% compound annual growth rate over 2010 levels.
Anadarko's domestic shale plays and sanctioned mega-projects are expected to boost most of its production growth. As regards Eagle Ford acreage, net production is forecast to grow from 22 Mboe/d in 2011 to 41 boe/d by 2013. Caesar/Tonga and El Merk would come online early next year. A 60 Mboe/d in production contribution from Anadarko's mega-projects is expected by 2013.
EBITDAX of $8.2 billion in 2011, $9.6 billion in 2012, and $10.8 billion in 2013 should be triggered by production growth and an enhanced pricing environment.
Higher oil and gas prices would encourage me to increase the fair value estimate, as would better-than-expected results in the firm's emerging Marcellus and Eagle Ford acreage and ongoing deep-water exploratory success.
Management & Stewardship
Anadarko is led by chairman and CEO Jim Hackett, who has been with the company since 2003. Hackett moved to acquire Kerr-McGee and Western Resources in 2006, which diversified Anadarko's operations and provided an attractive base of long-tailed assets from which to expand production and reserves.
Anadarko has focused on maximizing long-term per-share net asset value. Apart from the acquisitions that have involved an important outlay, Anadarko has generally maintained a conservative balance sheet, with almost no shareholder dilution. Management compensation packages appear reasonable and are closely tied to key operating and financial metrics. Collectively, the firm's top officers own less than 1% of common shares outstanding.