Anadarko Petroleum Opens New Frontier in West Africa

Buy-recommended Anadarko Petroleum (APC) offers unlevered appreciation potential of 11% to a McDep Ratio of 1.0 where stock price would equal Net Present Value (NPV) of $59 a share. On July 14 we reduced NPV from $70 when we reduced estimated Present Value of North American Natural Gas by 20%. Released today, second quarter results exceeded our estimate for unlevered cash flow (Ebitda) from three months ago. Reduced operating expense raised cash flow margin to account for most of the positive surprise.

Oil surpasses natural gas to drive more than half of NPV in our valuation that capitalizes cash flow at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P). Not counted for much yet in NPV, a billion barrel discovery offshore Ghana has opened what management describes as a new frontier area. APC has a 40% interest in 10 million acres in the Cretaceous Fan play where it is currently drilling the Venus prospect, one of multiple targets in the billion barrel class.

Meanwhile, resources already proven may be rising in value with oil futures prices for the next six years, which crossed the 40-week average into an uptrend at the end of May.

Originally published on August 4, 2009.