Anadarko Petroleum's Positives Outweigh Negatives

Potential appreciation to estimated Net Present Value [NPV] of $82 a share and beyond justifies investor interest in buy-recommended Anadarko Petroleum (APC). First quarter results reported after the market close on May 5 notched revenue gains ahead of our projections of three months ago. Meanwhile, projected volumes along with current futures prices promise a continuing high level of unlevered cash flow (Ebitda) before hedging.

Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV. NPV may soon be raised as oil and gas price trends point upward.

Finally, aside from hedging, the negative in the stock in our mind is the 50% escalated compensation for the general partner interest in a public offering of limited partner units announced on April 30. Though the size of the deal may be negligible, Anadarko shareholders don’t need to seek deceptive gains at the expense of long-term performance for partnership investors.

Originally published on May 6, 2008.

Comments

[thinking ahead:]

Why shouldn't APC do what every single NOC on earth is doing to APC and others? The energy business has changed, and everybody has to adjust. The LP's can vote with their feet. But I doubt many will.

2008 Jun 13 10:47 AM