Anadarko Petroleum (NYSE:APC) is a large, United States based, crude oil and natural gas exploration and production company. The firm markets, processes, produces, develops, and explores for crude oil, natural gas, and natural gas liquids. Most of Anadarko's revenues come from onshore United States as well as deepwater operations in Algeria and the Gulf of Mexico. Other deepwater operations include operations along both coasts of Africa, Brazil, China, Indonesia, and New Zealand. Proved oil and gas reserves were 2,560 million barrels of oil equivalent BOE in 2012 with a reserve mix of 46% liquids and 54% natural gas. Production was 268 BOE in 2012 which is an increase of 8% compared to the prior year. During 2013, Anadarko plans to spend about $5.5 billion on onshore capital expenditures in the United States. Major projects are planned for East Texas, Permian Basin, Eagle Ford Shale, and Wattenberg field. Due to low natural gas prices, Anadarko plans to reduce activities at Marcellus and Pinedale/Jonah to free-up resources for more profitable projects.
Anadarko's international production operations accounted for about 27% of total revenues and are located in China, Ghana and Algeria. Other international exploration operations are located in New Zealand, Kenya, Liberia, Sierra Leone, Indonesia, Mozambique and Brazil. In 2013, Anadarko plans to spend about $1 billion in capital expenditures on its international operations. Last year Anadarko made significant discoveries of oil in Ghana and natural gas in Mozambique. The natural gas discovery in Mozambique is very large with a base estimated at 35-65 trillion cubic feet equivalent.
We think that Anadarko is a good value at today's price. One thing that we like about Anadarko, at this time, is its focus on onshore United States crude oil to boost profits in the near term. We believe that these profits will be used to increase production, development, and exploration of Anadarko's assets to produce long term value for shareholders. Investments in the Gulf of Mexico and in Mozambique should be very profitable in the long run. Another thing that we like about Anadarko is that even though it is a major producer of natural gas it has remained profitable during this period of low natural gas prices. We can buy Anadarko mainly as an oil play with the added benefit of having exposure to the natural gas markets. In our opinion, natural gas prices have bottomed and will inevitably rise. When this happens, natural gas producers such as Anadarko will reap large profits. In sum, we can speculate on a significant increase in natural gas prices at low risk due to the strength of Anadarko's crude oil business.
We believe that Anadarko is a good value at $80.64/share for the following reasons:
- According to S&P, Anadarko has an inexpensive forward earnings multiple of 16.5 times 2013 earnings as well as a PEG ratio of 1.04.
- The average 12 month price target for Anadarko is $106.43/share
- Of the 30 analysts covering the stock, 27 give Anadarko a Buy/Strong Buy rating.
- S&P has a Buy rating on the stock (4 out of 5 Stars) and a 12 month price target of $94.00/share. We consider this to be a conservative price target that indicates that there is at least a 16.6% upside to Anadarko shares.
Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.