Anadarko Petroleum Corp is engaged in the exploration and production of oil and natural gas. The Company's three operating segments are: Oil and gas exploration and production, Midstream and Marketing.
J.P. Morgan upgrades shares to Overweight from Underweight with a new $129 price target, up from $84, viewing the settlement as positive for the stock even following yesterday's 14.5% surge.
Raymond James raises its price target to $118 from $94, noting that APC's balance sheet is in great shape with more than enough liquidity to handle the settlement amount, not to mention its ownership of Western Gas shares valued at ~$9.8B.
Morgan Stanley lifts its price target to $115 from $110, seeing APC now free to unlock significant value potential through asset sales, share buybacks and/or accelerated growth.
Anadarko (APC +12.1%) confirms it has entered into a settlement with the plaintiffs in the Tronox (TROX +1.6%) case to resolve all claims against Kerr-McGee, agreeing to pay $5.15B to settle environmental claims left behind when it bought the company for $18B in 2005.
APC expects to record a gross tax benefit of ~$1.65B associated with the settlement, offset by ~$1.1B in uncertain tax positions, resulting in a net tax benefit of ~$550M.
The U.S. had initially sought $25B from APC to clean up 2,772 sites and compensate ~8,100 TROX claimants, and a court in December said APC could expect to pay damages as low as $5.2B and as high as $14.2B.
Worries over potential liabilities from the Tronox bankruptcy have burdened shares of Anadarko Petroleum (APC +1.5%) lately, but today’s news that APC had sold its Chinese subsidiary is favorably received by analysts.
Citigroup views the sale positively, particularly as it adds to APC's cash balance ahead of a potential settlement or ultimate judgment on Tronox; proceeds from the deal will be fully repatriated pack to the U.S. with the tax leakage likely below the 25% maximum rate in China and with minimal effect in the U.S.
Mizuho also believes APC is wise in marshaling excess capital; the firm also notes APC is netting ~$98K per flowing barrel, an attractive price vs. comparable Bohai Bay transactions (Briefing.com).
The EPS miss was driven by exploration expense that was $300M more than expected, but production was ahead of guidance, as oil, gas and NGL volumes all beat estimates, the firm says.
DD&A was significantly lower than forecast, and cash costs came in lower than expected; pricing was roughly in line on a blended basis, and NGL pricing was strong, with realizations of over $40/bbl.
However, J.P. Morgan finds APC’s handling of the Tronox liabilities curious, noting that its given range of probable losses do not include possible interest, attorneys’ fees or other costs, which could be material; in the case of a settlement, APC expects the payment would be substantially greater than the $850M accrual.
In a filing yesterday with U.S. Bankruptcy Court in Manhattan, APC challenged parts of a decision made last month that found it liable for $5B-$14.5B, subject to the calculation of how much APC is owed as a creditor in TROX's bankruptcy.
"The Court's approach... leads to incorrect conclusions for the calculation of damages and is contrary to [its] stated view that the purpose of the applicable law is 'remedial rather than punitive'," APC CEO Al Walker says.
Bonanza Creek Energy (BCEI +3.8%) is upgraded to Buy from Neutral and Hess (HES -0.7%) is cut to Neutral from Buy at Mizuho on valuation as part of the firm's broader sector outlook, which sees crude prices remaining above breakeven for key basins despite headwinds.
The firm expects further efficiency gains as key players in the Bakken (HES), Permian (APA, APC), Eagle Ford (MRO, APC) and DJ Basin (APC, NBL, PDCE, SYRG, BCEI) continue to hone skills; its top picks going into 2014 are APA, Kosmos (KOS) and, on the riskier side, APC.
With APA, the firm sees a continued turnaround to a leaner, shareholder-focused E&P with material catalysts; with KOS, a seasoned explorer with big drilling upside alongside cash flow generation; with APC, market caution until a Tronox damages number is revealed but rebounding given solid assets and liquidity.
Anadarko Petroleum (APC) almost certainly will appeal yesterday's court ruling against it in the Tronox litigation: "We vehemently disagree with the judge's [decision]... We fully expect to pursue every avenue available to us through the appellate process to protect the interests of our stakeholders, once a final judgment including damages has been rendered."
The severity of the ruling for APC will come down to damages: While the judge found that the trust is entitled to recover ~$14.17B, APC may be able to lower the figure by ~$9B for offsetting costs it may have incurred from the Tronox transaction.
Anadarko Petroleum (APC) -12.5% AH after a bankruptcy judge rules its Kerr-McGee unit acted improperly in the 2005 spinoff of Tronox (TROX) and should pay for environmental cleanup and to compensate people who claim damage from toxins.
The U.S. government had sought to recover $25B to clean ~2,700 polluted sites and compensate about ~8,100 tort claimants; a trust set up to pay plaintiffs calls for 88% of the judgment to go to trusts for cleanup, according to court papers, with the remainder going to toxin claimants.
The judge says APC and Kerr-McGee intended to “hinder and delay" when they transferred out and spun off oil and gas assets.
APC is targeting the Eagle Ford and Wattenberg basins and is building up its operations in the Permian-Delaware basin, having completed its first six Wolfcamp wells in west Texas.
APC is moving capital away from the Marcellus Shale to the Texas side of the Wolfcamp play in the Delaware basin, Alembic analyst James Sullivan says, adding that APC’s lack of specificity during the call on its drilling activity for the six wells could be driven by its future plans for more land purchases.
Energy stocks (XLE +1.9%) lead the way this session as West Texas crude tests $110, with tensions over Syria continuing to feed Middle East supply concerns; Syria concerns and Libyan export cuts are trumping the bearish influence from a surprise gain for U.S. crude supplies.