Value investors that bought Anadarko Petroleum (APC) have proved that the old strategy of buying a good company facing one time losses can pay off. Media reports indicate that Anadarko posted a third quarter profit of 21¢ per share, or $121 million, proving that the company's core exploration business is good despite its losses from the Deepwater Horizon disaster.
Anadarko was able to increase production to 68 billion barrels of oil equivalent (BOE) in the third quarter. The company produced 61 billion BOE in the same period in 2011. So it is easy to see where those additional profits are coming from. These profits have enabled Anadarko to resume quarterly year-to-year revenue growth.
The year-to-year revenue growth figure of 4.16% on September 30 doesn't look that impressive unless you remember that the same figure for June 30th was 12.35%. Making these figures more impressive is that they are far better than some of Anadarko's competitors. Devon Energy's (DVN) last posted quarterly year-on-year (YOY) revenue growth figure was -20.53%, while Chesapeake Energy (CHK) posted -25.32%.
Anadarko has been able to buck industry trends, pay off huge losses related to Deepwater Horizon, and offer an earnings yield of 5.17%. As you can see below, Anadarko's earnings yield ratio has risen substantially in the past few months.
This case proves that taking a look at the big picture rather than the news of the moment can pay off for value investors. Anadarko is a perfect example of a really good company that got knocked down by a one-time event and got right back up again. Anadarko also shows why it is so important to look at the numbers rather than the news.
Anadarko faced around $3 billion in losses in a settlement with BP (BP) last year, but the last earnings statement indicated it had revenues of $13.84 billion. That meant it had the cash to easily cover those losses and keep on expanding its business. Anadarko generated $4.032 billion in cash from operations as of September 30th. That's below the nearly $6 billion it made in cash from operations in 2012, but as you can see, that number is going back up.
Anadarko is definitely one company to buy and hold because of its cash and its assets. Anadarko's oil and gas holdings are more impressive than its cash.
Anadarko has discovered between 17 and 30 trillion cubic feet (TCF) of recoverable natural gas in nine wells in the Prosperidade complex off of Mozambique alone. Anadarko hopes to begin sales of liquid natural gas (LNG) from Mozambique in 2018. Demand for LNG has been increasing because of plans to abandon nuclear power in Japan and Germany. Experts think those countries will have to burn more LNG to generate electricity when nuclear power plants shut down.
In addition to its deep water work, Anadarko has made some major plays in the mainland United States. The company estimates that its holdings in the Wattenberg oil and gas field in Colorado might hold 1.5 billion barrels of oil equivalent. Anadarko also holds more than 260,000 acres in the Marcellus Shale in North Central Pennsylvania.
Other future opportunities that Anadarko is looking into include the Taranaki and Canterbury Basins off of New Zealand. Anadarko has exploration rights for eight million acres off of the island nation, but it hasn't found gas or oil there yet. In addition to New Zealand, Anadarko is exploring off of Alaska, Algeria, China, Brazil, Kenya, Ghana, Liberia, Sierra Leone, Cote d'Ivoire (the Ivory Coast), and South Africa.
If you're looking for a long-term opportunity in oil and gas, Anadarko certainly fits the bill. The company has not only been able to quickly to return to profitability, but it seems to have tremendous prospects for the future. It is in a position to grow and take advantage of a rising demand for LNG. Both the big picture and the charts look really good for Anadarko.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.