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Anadarko Petroleum Corp. (NYSE:APC) century bonds issued in 1996 are currently available on the secondary bond market. The lot size is 8 bonds with a minimum quantity of 1 bond offered. These bonds have traded between 6.48% and 6.613% yield in the past week.

Credit RatingPriceYield
Anadarko Pete Corp Nt 7.73% 2096, Opt Put 09/15/26@Par (cusip: 032511AJ6) call protectedBaa3/-*$118.176.53%
Anadarko Pete Corp Deb 7.25% 2096, Cond Call (cusip: 032511AK3) not call protectedBaa3/-*$122.995.88%

*Though S&P does rate Anadarko Petroleum, two secondary bond market profiles show no S&P rating on these particular bonds.

You may view a podcast from Standard & Poor's website regarding Anadarko Petroleum's credit outlook here. S&P states:

We continue to view Anadarko's business risk profile as strong...we view the company's financial risk as significant. With FFO (funds from operations) to debt below the norm for its rating category. Particularlly following the payout to BP plc (BP). We are holding off on raising the rating today given the uncertainly surrounding an ongoing law suit against the company, and the potential for a higher than expected settlement.

S&P upgraded Anadarko Petroleum's credit outlook from stable to positive:

We believe Anadarko is on track to substantially delever following its fourth-quarter $4 billion cash settlement with BP (A/Stable/A-1) regarding Macondo-related liabilities. The payment was funded with debt and cash on hand, and pushed Anadarko's funds from operations to debt ratio below 20% at year-end 2011.

The company's credit rating was upgraded by Moody's last year to Baa3. The 2011 annual report shows:

20112010200920082007
Sales Revenue$13.8B$10.8B$8.2B$14B$11.6B
Operating Income($1.8B)$1.7B$377M$5.6B$7.8B
Income (Loss) From Continuing Operations($2.5B)$821M($103M)$3.2B$3.7B
Net Income Attributable to Common Shares($2.6B)$761M($135M)$3.2B$3.7B

Total debt has gone up while total employees increased 9% from 2010 to 2011:

20112010200920082007
Total Debt$15.2B$13B$12.7B$12.3B$14.7
Number of Employees4,8004,4004,3004,3004,000

Annual sales of natural gas have increased steadily over the same period of time. Oil and condensate has remained flat:

Annual Sales Volume20112010200920082007
Natural Gas (billion cubic feet)852829809750698
Oil and Condensate (million barrels of oil per day)7974686779

The annual report details the $4 billion settlement with BP plc:

In October 2011, the Company and BP Exploration & Production Inc. entered into a settlement agreement, mutual releases, and agreement to indemnify, relating to the Deepwater Horizon events... the Company paid $4.0 billion and transferred its interest in the Macondo well and the Mississippi Canyon Block 252 lease (Lease) to BP, and BP accepted this consideration in full satisfaction of its claims against Anadarko for $6.1 billion of invoices issued through the settlement date as well as for potential reimbursements of subsequent costs incurred by BP related to the Deepwater Horizon events... In addition, BP fully indemnified Anadarko against all claims, causes of action, losses, costs, expenses, liabilities, damages, or judgments of any kind arising out of the Deepwater Horizon events

This settlement may have affected Anadarko Petroleum's current net income.

Niobrara Formation

The Denver Post reported on August 21, 2012 that Anadarko Petroleum is "set to spend about $1 billion this year on its Weld County operations."

Anadarko is one of the biggest operators in the Niobrara formation, a region of oil-shale development that stretches from south of Denver to the Wyoming.

In November 2011, Anadarko estimated that its Niobrara holdings, which are centered in Weld County, might hold 500 million to 1.5 billion barrels of oil.

Source: Colorado Energy News

As recently as May 31, 2012 Anadarko Petroleum struck a new small oil producing well in this region. However the amount of oil estimated in Niobrara is give or take 1 billion barrels of oil.

Natural Gas

The company's Midstream Group has 28 natural gas gathering sites that generate 3.8 million cubic feet a day. The commerical price of natural gas has declined in the past 2 years, according to the U.S. Energy Information Administration:

(click to enlarge)

Anadarko Petroleum Century Bond

Anadarko Petroleum Corp. stock has a small half percent annual dividend of $0.36 a share. Comparatively the company's century bond currently has a 6.5% yield. The 2096 Anadarko Petroleum bonds have an optional put, so holders may redeem them in 2026.

Therefore investors looking for a 14 year bond that is investment grade, with a 6.5% yield, may consider these. The drawbacks include the fact Anadarko Pete's net income has been inconsistent and is now negative. However considering the large settlement over the Deepwater Horizon fiasco Anadarko Petroleum may be able to recover.

Another drawback (or positive feature depending on your viewpoint) is the company's greater reliance on natural gas than oil. Large expenditures in the Niobrara formation are producing oil, however currently Anadarko is dependent on natural gas production.

A century bond (or group of ultra long term bonds) should not exceed 1% of a portfolio. However a century bond with a put feature in 2026 could be favorable (however still should be properly allocated as century bonds.) If investors consider using fixed income to further invest in income funds and inflation protected securities the overall yield could be raised.

Investors should consult a financial advisor and Adarko Petroleum's investor relations to determine if an investment is suitable for individual financial objectives. As with any company, credit rating is subject to review, upgrades and downgrades. In a worst case scenario a company could default on their bonds.

If you have any additional considerations regarding Anadarko Petroleum 2096 bonds please comment below.

Source: Anadarko Petroleum 2096 Bonds Yield 6.53%