With recent oil prices, most oil and gas companies should be showing somewhat impressive gains if they've been managed well. One that stands out as impressive based on some smart management moves is Anadarko Petroleum Corporation (APC). This company has had some deep water drilling success along with a very impressive sales volume. For first-quarter 2012, Anadarko had earnings of $2.16 billion, quite a jump from the $216 million in the year-ago quarter. In addition to a $4.4 billion settlement to the company's favor, this Texas company will see $2.6 billion coming in from recent joint venture plays. Though not quite up there with the big boys of ConocoPhillips (COP), BP and Exxon Mobil (XOM), the company is setting a foundation that will cause it to be knocking on the door of larger companies within the next five to 10 years. Anadarko is one of those companies I recommend based on what it is doing now for future gain, and currently I love the now for two reasons.
First, when looking at Anadarko, it is clear to see that the company is making headway in a lot of different locations. In the Ohio Utica shale play, the company is thrilled with one of the wells in Noble County that has delivered 12 million cubic feet of natural gas, and 9,500 barrels of crude oil and in just 20 days. Another two wells, both in Guernsey County, in two months produced a combined total of 20,000 barrels of oil and 37 million cubic feet of natural gas. Chesapeake Energy Corporation (CHK) is seeing success in the same region with one of its five wells producing more than 13,000 barrels of oil and 1.5 billion cubic feet of gas in 200 days.
Anadarko has become somewhat of an expert in the use of horizontal drilling. The company used this technology in the Eagle Ford shale oil field in Texas, and to unlock the liquid-rich resources in Wattenberg. The company has tested 11 wells and believes it can drill between 1,200 and 2,700 wells over time, ramping up Wattenberg's development by drilling 160 wells in 2012. One prime example of the company's success with drilling is the Dolph 27-1 well in the middle of the Wattenberg field. This one is 100% completely owned by Anadarko so the company pays for the operation as well as collects the revenue. This well has 600,000 barrels of estimated ultimate recovery. In addition to the Wattenberg play, there is also Eagle Ford of South Texas where the company increased its estimated net resources to more than 600 million BOE by doubling the number of drill sites to nearly 4,000. The company also plans to run ten operated rigs there and expand its midstream infrastructure. Anadarko doesn't stop there. The company is also finding success in play in the West Texas' Permian, the East Texas Horizontal play, and the Greater Natural Buttes play of eastern Colorado.
Another play is actually one from the past. In the Salt Creek field of central Wyoming, which was actually discovered in the 1880s, is showing signs of life after the introduction of carbon dioxide to force out the oil. Anadarko and Linn Energy LLC (LINE) have joined forces to produce about 1,600 barrels of oil per day in the first year, doubling production from the field by 2015. Anadarko has owned the Salt Creek field since 2002 and in 2004 began injecting the carbon dioxide into the field to increase production. The company is finding success outside of the U.S. as well; more than doubling its initial expectations in Africa, after discovering its largest gas find ever offshore Mozambique, where the company expects production to be between 256 to 260 million barrels of oil equivalent per day. The Rovuma field is said to hold 15 trillion-30 trillion cubic feet of recoverable gas and the company has experienced so much success there that it is building an LNG terminal in the area to supply gas to markets in Asia. The company manages other lucrative drilling sites offshore Ghana and Sierra Leone in West Africa.
With the price of natural gas still lingering around the bottom, Anadarko looks for smart moves on oil using its vast reserve of capital to make wise plays until the natural gas prices raise again. CEO Jim Hackett stated in earlier this year that he "expects natural gas prices to trade between $5 and $7 per thousand cubic feet by 2016 in the U.S." When this finally happens, Anadarko will be "in the money" releasing their natural gas reserves. The company is currently spending more of its capital on oil drilling and less on gas, but that is expected to change when gas prices move further north.
The second reason I love Anadarko is because of the cash. Anadarko continues to stash cash. As of March 21st, cash and cash equivalents were $2.95 billion versus $2.69 billion as of December 31, 2011, and long-term debt of the company was $15.4 billion versus $15.06 billion. Cash flow from operations in the first quarter 2012 was $1.89 billion versus $1.28 billion in the year-ago quarter. Capital expenditure during the quarter was $1.79 billion, increasing marginally from $1.58 billion incurred in the first quarter of 2011. According to the company's first quarter results statement, the company generated more than $130 million of free cash flow, and reported first quarter 2012 earnings of 0.92 per share, exceeding last year's first quarter results by 27.78%. The company had first-quarter revenue of $3.45 billion, 10.21% below the prior year's 1st quarter results. In addition, the company's The Board of Directors recently declared a quarterly cash dividend on the company's common stock of .09 cents per share.
Anadarko's cash reserves and multiple drilling plays is what make this company one to get on board with now. It is rare to find one with such depth and flexibility, both characteristics every investor should be looking for.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.