Investors Should Stick with Andarko Petroleum

| About: Anadarko Petroleum (APC)

Hold-rated Anadarko Petroleum (NYSE:APC) offers unlevered appreciation potential of 41% to estimated net present value (NPV) of $64 a share. On October 28, we reset NPV from $100 a share on the basis of a long-term oil price assumption of $75 a barrel, down from $100. Patience may be necessary as APC stock price remains below the 200-day average of $61.

Released last night, third quarter results displayed strength in unlevered cash flow (Ebitda) driven by crude oil and natural gas prices. Futures prices now look lower for the next four quarters. Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.

Asked on the quarterly call what he thought about prospective acquisitions, Chief Financial Officer Al Walker stated he would rather buy back Anadarko stock than acquire another company or an asset priced at a premium to APC. That is good rationale for investors to continue holding Anadarko stock with its attractive value concentrated 53% on North American natural gas.

Originally published on November 4, 2008.