Anadarko Petroleum's New Basin Discovery Strengthens Confidence in Management

On the strength of favorable exploration results and in the context of a rising stock market, buy-recommended Anadarko Petroleum (APC) has appreciated beyond a McDep Ratio of 1.0 where stock price matched Net Present Value (NPV) of $59 a share. The potential for increasing NPV and the momentum of the market justify continued buy interest, in our opinion. Yet, investors overweight in APC might rebalance toward lower McDep Ratio recommendations.

Today the company announced that the Venus well drilled offshore Sierra Leone is an oil discovery. Though it is too soon to declare commerciality, Anadarko technologists are excited about the value of the information obtained. The well confirms the promise of the Liberian Basin where Anadarko has 6 large acreage blocks (see slide from management presentation below). Referring to the general area as a Cretaceous Fan Play last month, APC now refines its disclosures to map a separate Liberian Basin and Ivorian Basin. The latter has the billion barrel Jubilee field under development by APC and partners. In the two basins the company has about a 40% share in some 30 leads to potential discoveries.

It is too early for us to be more specific on the value of possible discoveries. Thus today’s increase in stock price seems to reflect an increase in confidence in management’s ability and in global economic growth rather than any readily identifiable value in the thrilling new basin discovery.

Originally published on September 16, 2009.

Comments

[Mad Hedge Fund Trader]

odr I received another scratchy, crackling cell phone call from my drilling buddy in the Texas natural gas fields today. You could almost hear the dust on the line. The doubling of prices in the last month is totally bogus, and is nothing more than a short covering rally ahead of the seasonally strong run up to winter. Storage facilities are completely full, and while the production cutbacks have been substantial, they are still not enough. Some companies, like Chesapeake (CHK), are even suicidally boosting production in a desperate attempt to offset falling prices with jacked up volumes, at everyone else’s expense. This is all setting up a fabulous short selling opportunity, possible in early December, once the winter draws are priced in. There is still a huge risk that production will overwhelm storage as more new unconventional shale and tight gas deposits are brought on line, leading to another collapse in prices. A retest of the September lows is a gimme, and the $1 handle is still a possibility. So those of you who were nimble enough to bite a hunk out of the recent pop in CH4, better use any strength to cash in positions. I’d love to get more out of my friend, but I don’t think my aged, arthritic back could take another three hours driving down washboard roads in a beat up pickup truck with no springs.

2009 Oct 20 12:50 PM

[Nadia Kageff]

Thanks for the info. You funny guy.

2009 Oct 20 03:49 PM