Texas, the home of many oil and gas companies, has yet another hidden gem in energy company Anadarko Petroleum (APC). Anadarko is one of the world's largest independent oil and gas production and exploration companies, with a market cap of over $37 billion. With 2.3 billion barrels of proven reserves, this company is one in a constant state of seek-and-find and succeeding in bringing to market natural gas, natural gas liquids and market oil. I firmly believe that with its diversity of assets including coal, soda ash, and related products worldwide. This large, independent company is one worth investing in for the long term.
Anadarko has a large inventory of oil and gas prospects in the Gulf of Mexico, and plans to continue aggressive multi-well explorations in 2012. The company is targeting a number of different trends in the deepwater portion. The Gulf of Mexico region accounts for a significant portion of its oil and gas production, with the company reporting an average production of 110,000 BOE per day in the last quarter of 2011. The company reported total sales volume of 680,000 BOE per day for 2011. Additionally, Anadarko reported a successful exploration well at the Shenandoah prospect in 2009 in the Lower Tertiary in the Gulf of Mexico. While other companies such as Cobalt International Energy (CIE), ConocoPhillips (COP) and Marathon Oil (MRO) are involved in this field, Anadarko serves as operator, owning 30%. In 2012, the company is planning to drill an appraisal well at the Shenandoah prospect, as it aims to determine more potential in the area.
Like many of the smart oil and gas players, joint ventures provide an intelligent way to quickly bring to market both natural gas and oil, as well as to assist in diversifying holdings. Anadarko, along with Enterprise Products Partners LP (EPD) and DCP Midstream (DPM) recently announced an agreement, with each holding one-third interest, to design and construct a new natural gas liquids pipeline originating in the Denver-Julesburg Basin (DJ Basin) in Weld County, CO, and extending about 435 miles to Skellytown, TX. This should help producers in the Denver-Julesburg Basin, opening access to the largest market in the US: the Gulf Coast.
Another good play is in northeast Wyoming. The Powder River Basin is one of Anadarko's key coal-bed methane areas, spanning 738,000 net acres and comprising more than 3,000 identified lower-risk drill sites. This month, the company entered a joint venture with Linn Energy (LINE) to develop the Salt Creek field in Wyoming's Powder River Basin, first developed by Anadarko in 2004. Gaining a 23% interest in Anadarko's Salt Creek field assets, Linn Energy will now join as a partner in the carbon dioxide enhanced oil recovery development of the field. For 2012, this joint venture is expected to produce 1,600 barrels of oil per day gradually increasing to 3,800 barrels per day by year 2016.
While natural gas is not the most popular energy resource produced, great finds will help to enhance a company's bottom line when demand in the market increases. Anadarko is still exploring for the gas, just recently adding to its total of 30 trillion cubic feet of gas discovered off the coast of the East Africa in the waters of Mozambique. The company, along with Cove Energy (COV.L), and partners Mitsui (MITSY.PK) and Bharat Petroleum (BPCL.PO), helped to complete the 525 foot well.
There are various reasons why a company's lure for investors may wane, and a change in leadership is often one of them. Anadarko plans to make a change at the top next month, but this change should not ruffle any feathers. James Hackett, the company's current CEO, will become Executive Chairman until his retirement in 2013, and Al Walker, Anadarko's President and COO, will take his place. Walker has experience to carry on the aggressive strategy at the company. He has more than 30 years of experience in the energy industry and currently serves as a director of CenterPoint Energy and of Western Gas Holdings, a subsidiary of Anadarko, and has served as an Anadarko executive for six years.
Under the helm of Hackett, Anadarko's stock price has grown 368% since Hackett was named CEO in December 2003. I believe the transaction will be seamless because of Walker's experience with the company and the impact he has already made. Walker and Hackett have both been part of an executive team that pushed for new discoveries and increased production from a daily total of 525,000 barrels of oil equivalent in 2003 to 680,000 in 2011.
Hackett has been seen as a visionary, winning the 2012 World National Oil Companies Award for IOC Executive of the Year recently, and according to a Dow Jones newswire, Hackett stated in regards to controversial fracking:
There is no doubt that (disclosing chemicals in fracking) is something we have to do in order for people to trust us.
With Walker stepping up and Hackett still on the leadership team, Anadarko is sure to continue its innovative, aggressive strategy.
Another reason I believe Anadarko is a good investment is because management is always looking for ways to bring its product to market and stretches resources to do so. In 2012, the company is expected to spend the majority of its capital budget of $6.9 billion on exploration and development, with 55% to be used to develop properties onshore within the U.S., including Eagle Ford Shale, Permian Basin, East Texas, and the Wattenberg Field. The company is planning to spend 25% on international properties and 10% on deepwater explorations, while, like most other energy companies, reducing its natural gas drilling.
In February, Anadarko reported 4th quarter 2011 earnings of 85 cents per share, with annual 2011 earnings of $3.37 per share. The company also announced a quarterly cash dividend of $0.09 per share on the company's common shares last month. The company's annual sales growth for the past five years was 6.43%.
The company saw a gross profit margin of 58.4% with revenues for the full year 2011 of $13.97 billion, 27.16% above the prior year's results. For the last quarter, gross margin was 81.2%, 390 basis points better than the prior-year quarter and operating margin was 7.5%, 980 basis points worse than the prior-year quarter. Net margin was -9.3%, 1,350 basis points worse than the prior-year quarter. For this quarter, the average estimate for revenue is $3.29 billion, with the average EPS estimate is $0.62, and next year's average estimate for revenue is $13.29 billion, with the average EPS estimate is $3.11. While making and missing estimates is not the whole story, it is an important ingredient. Yet, with this sustainable growth, good management decisions, and smartly played joint ventures, Anadarko is a keeper.