With great sales volumes and a total commitment to uncovering new energy riches, Anadarko Petroleum (APC) is a company I believe to be one to buy now and hold for a long time. The company is finding new plays in the exploration of both oil and natural gas and is making headway in the production of both. When natural gas prices bounce back to a respectable level, Anadarko will increase revenues and profits making for a happy investor following.
With a market cap of $30.48 billion, the company is a fighter nipping at the heels of larger oil and gas companies such as BP (BP), ConocoPhillips (COP), Exxon Mobil (XOM), Chevron (CVX) and Total (TOT). Last year, driven by a 10% year-over-year increase in liquids volumes, Anadarko reported record sales volumes of 248 million BOE. The company is showing healthy signs of progress offshore Mozambique where it more than tripled the original recoverable resource estimate, and in the Wattenberg HZ in northeastern Colorado, the company has identified 500 million to 1.5 billion BOE of net resources. There are many more success stories which lead me to believe Anadarko is a company to buy now.
Mozambique seems to be where a lot of activity is paying out for Anadarko. A group led by the company has found as much as 60 trillion cubic feet of recoverable natural gas, or more than six times the U.K.'s existing reserves. Leading a partnership, Anadarko recently made a discovery off the shores of Mozambique that establishes a second major natural gas complex in the Rovuma basin in Offshore Area 1. Lying mainly in Offshore Area 1, Anadarko estimates that the new complex contains 10 to 30+ tcf of recoverable gas.
With the potential to form the foundation of a large liquid natural gas (LNG) development, the partnership will immediately begin a four-well appraisal program in the new complex. The partnership breaks down as follows: Anadarko is operator of Offshore Area 1 with a 36.5% working interest. Mitsui E&P Mozambique Area 1 Ltd. has 20%, Videocon Mozambique Rovuma 1 Ltd. 10%, BPRL Ventures Mozambique BV 10%, and Cove Energy Mozambique Rovuma Offshore Ltd. 8.5%. Empresa Nacional de Hidrocarbonetos ep's 15% interest is carried through the exploration phase.
Regarding this recent discovery, Anadarko's President and CEO Al Walker stated "With this latest discovery at Atum and a successful upcoming appraisal program, we believe the total estimated recoverable natural gas resource in Mozambique's Offshore Area 1 is between 30 and 60 tcf, and the current upside for total gas in place for the discovered reservoirs on the block is approaching 100 tcf. We still have additional exploration opportunities that could expand the resource potential further. A recoverable resource base of this scale supports our initial two-train development plans, as well as significant future expansions. Our current activity is focused on achieving reserve certification and a final investment decision in 2013, as the partnership works toward expected first sales of LNG in 2018."
Here in the U.S., the company has started construction on a natural gas processing plant in La Salle County, Texas, with plans to ramp up drilling in the Eagle Ford Shale. The facility, known as the Brasada Gas Plant will initially process 200 million cubic feet of natural gas liquids each day, handling as many as 400 million cubic feet per day. The plant, located on 156 acres about one mile south of Cotulla, will use a cryogenic process in which temperatures as low as minus 160 degrees will aid in separating various valuable components of natural gas, such as butane and propane, making it easier to be extracted and sold. Anadarko has approximately 400,000 gross acres in the Eagle Ford Shale in South Texas where it has identified more than 4,000 possible drilling sites.
The company gets by with a little help from its friends. In 2011, the company made a deal with Korea National Oil (KNOC) with plans to drill horizontal wells that target oil in the Eagle Ford. In the joint venture deal, Korea National earned a 33% interest in Anadarko's Maverick Basin assets for $1.55 billion and received 80,000 net acres in the liquids-rich Eagle Ford Shale oil play and 16,000 additional acres prospective for the deeper Pearsall Shale gas formation. Korea National also participates with Anadarko in its oil and gas gathering systems and facilities, giving the company the advantage of leverage where others its size might not have.
The company has been shining brightly out west. In Colorado, the company plans to spend $1 billion per year on the Niobrara formation, which involves the Colorado counties of Weld, Boulder, and Broomfield. Anadarko set a record for its quarterly sales from the Wattenberg field during the first quarter, averaging 80,100 boe/d. Sales volumes of liquids were up more than 40% compared with the same period last year. In Wattenberg, the company drilled 60 vertical wells using three operated rigs, ending the first quarter with 28 horizontal wells drilled targeting the Niobrara and Codell formations, and seven horizontal rigs active in the play. Currently the company produces from 36 horizontal wells in Wattenberg field, and plans to add three more horizontal rigs this year.
The company is financially sound. Year on year Anadarko had net income fall from a gain of $761 million to a loss of $2.6 billion despite a 27.16% increase in revenues from $11 billion to 14 billion. In 2011, the company reported a dividend of $0.36, equaling the previous year dividend. The company reported first quarter 2012 earnings of $0.92 per share, exceeding last year's first quarter results by 27.78%, and reported annual 2011 earnings of 3.37 per share. Anadarko had first quarter 2012 revenues of $3.45 billion, 10.21% below the prior year's first quarter results, but had revenues for the full year 2011 of $13.97 billion, 27.16% above the prior year's results.
Investing in Anadarko does not come without risks. Zacks Equity Research recently maintained its "Neutral" rating on the company. Anadarko investors must deal with the company's exposure to volatile oil and natural gas prices. Furthermore, since Anadarko operates both onshore and offshore, investors need to pay close attention to weather events such as Tropical Storm Debby, which recently had the company close down two of its Gulf of Mexico oil and gas operating platforms due to the storm. These events can greatly impact the company's bottom line, thus impacting the stock. Investors should also watch for higher operating costs, new regulatory hurdles, and political uncertainty in the countries where Anadarko has operations.
With the new Mozambique results as well as the company's commitment to its U.S. plays, Anadarko will continue to impress. This is a company that is obviously set to grow by leaps and bounds with both great oil and gas plays catapulting it to new heights, and smart profitable partnerships helping it to gain momentum.