Anadarko Petroleum (NYSE:APC) (a 1.3% position) is an independent oil and gas exploration and production (E&P) company, one of three held in the Fund. The company’s stock price has been negatively impacted in 2017 by a gas leak that caused a fatal explosion. While tragic, this incident did not materially impact our long-term investment outlook for the company. Recent meetings with company management affirmed our belief that Anadarko remains an attractive investment over our three- to five-year investment horizon.
As a leading global explorer with strong operational capabilities, Anadarko has a record of success in generating high returns on capital over energy price cycles. In the coming years, we believe the key differentiators for E&Ps will be a company’s asset quality and its ability to develop those assets, particularly large-scale unconventional resources. Anadarko is well positioned to manage these challenges. For example, in the DJ Basin in Colorado, Anadarko systematically developed all of the needed infrastructure to execute its plan, which allowed the company to achieve growth targets at competitive costs; Anadarko is now applying the same approach of systematic field and infrastructure development to the Permian Basin.
The company’s conservative management team has an excellent track record of disciplined capital allocation. In addition, Anadarko continues to invest substantially in exploration, which it sees as the means to create upside opportunity for the company. This focus on exploration differentiates Anadarko from its peers and will likely create value across business cycles. After considering the company’s risks, opportunities, and valuation, we added to Anadarko during the first half of 2017.
From Dodge & Cox Stock Funds second quarter 2017 shareholder letter.
