Anadarko Corp. (APC) announced that it was entering into a joint venture with an unnamed partner to develop its Lucius project in the Gulf of Mexico. The partner will gain 7.2% interest in the project in return for $556 million, which will be used to fund Anadarko’s share of development costs. Anadarko will maintain a 27.8% operating stake in the field. The partnership is an effective tool for Anadarko to reduce the risk associated with the deepwater development. The company plans to develop the field with equipment capable of producing 80,000 barrels of oil and 450 Mcf (million cubic feet) of natural gas. We have a $90 price estimate for Anadarko, which is at a 35% premium to its current market price. (Click here for our full analysis of Anadarko.)
The latest deal could emerge as a new pattern for Anadarko, which has assets in several deepwater regions in the world including the U.S. Gulf of Mexico, Brazil, and offshore Africa. The independent explorer could raise cash from such future deals to fund their development and to accelerate output levels. According to estimates quoted by the Wall Street Journal, Anadarko could receive as much as $135 billion as upfront payment on the Lucius deal. The deal is expected to close by the end of the quarter, when the name of the partner will be disclosed. Anadarko is looking to increase the capital efficiency in its investments through such deals. Upstream explorers have come under some constraints over the past quarter because of low natural gas prices in the U.S. and a drop in oil prices in the global markets.
According to the company, the Lucius development could unlock about 300 million barrels of oil equivalent in reserves. Production from the field is expected to begin in the second half of 2014. The deal indicates that Anadarko's stake in this project alone could exceed $2 billion in value. The deal also indicates that the company is looking to minimize its financial risks associated with such developments. We have incorporated production from the Lucius field and the other deepwater assets in our output forecasts for Anadarko.
Disclosure: No positions.