Anadarko (APC) has been making headway in its oil and gas plays. In the first quarter alone, the company brought in earnings of $2.16 billion and hasn't stopped its forward progress. The company is among the largest independent oil and natural gas exploration and production companies in the world, with 2.54 billion barrels of oil equivalent (BBOE) of proved reserves at the end of 2011.
As with BP (BP) and ConocoPhillips (COP), Anadarko is looking to not only find greater oil plays, but to diversify in its exploration and production products. With joint venture plays and smart global moves, this company is one that I believe to be a solid buy for a long term holding. The company's strength in finding liquids makes it one to hang onto. Operations Summary Sales volumes in the first quarter alone rose to a record 704,000 BOE/d or 64 million BOE, averaging approximately 221,000 barrels of oil (BOPD), 80,000 barrels of natural gas liquids, and 2.4 billion cubic feet of natural gas per day.
The company recently announced that it has made a natural gas discovery in its Golfinho discovery well Offshore Area 1 of Mozambique's Rovuma Basin. The well encountered a total of more than 193 net feet (59 net meters) of natural gas play in two high-quality Oligocene fan systems and was drilled at a depth of 14,885 feet (4,537 meters) in 3,370 feet (1,027 meters) of water. This discovery is expected to add 7 to 20 Tcf of recoverable resources over a period of time. Anadarko partners with five other companies in Offshore Area 1 of Mozambique and has a working interest of 36.5%. Cofounders include Mitsui E&P Mozambique Area 1, Limited, with 20% ownership, Empresa Nacional de Hidrocarbonetos, ep (15%), BPRL Ventures Mozambique B.V. (10%), Videocon Mozambique Rovuma 1 Limited (10%), and Cove Energy Mozambique Rovuma Offshore, Ltd. (8.5%).
But the company cannot rely solely on natural gas plays. According to the Energy Information Administration (EIA), the Weekly Natural Gas Storage Report shows that stockpiles held in underground storage in the lower 48 states rose by 62 billion cubic feet (BCF) for the week ended June 1, 2012, above the guidance range (of 53-57 Bcf gain). The increase was lower than both last year's build of 81 Bcf and the 5-year (2007-2011) average addition of 99 Bcf for the reported week, thereby lowering the surplus relative to the benchmarks.
The increased supply has pressured natural gas prices during the past year or so, as production from shale has overwhelmed demand. Hence natural gas prices have dropped approximately 54% from 2011 peak of $4.92 per million Btu (MMBtu) in June to the current level of around $2.25, with prices hitting a 10-year low of $1.82 during late April. The volatility of natural gas pricing and reserves affects Anadarko, but also other businesses of natural gas-weighted companies and related support plays like Chesapeake Energy (CHK), Devon Energy (DVN), Encana (ECA), Nabors Industries (NBR), Helmerich & Payne (HP), Patterson-UTI Energy (PTEN), and Halliburton (HAL).
The natural gas lull is one of the reasons why Anadarko keeps searching, and finding, great oil plays. In Côte d'Ivoire off the Ivory Coast where Anadarko holds a 40% working interest in the CI-103 block, the company made a light oil discovery. The Paon-1X exploration was drilled at a total depth of approximately 16,700 feet (5,090 meters) and encountered about 7,195 feet (2,193 meters) of water when it reached 100 net feet (31 meters) of light oil in Turonian-aged reservoirs.
The company has been actively performing exploration activities in this region after some success in offshore Ghana, with both Ntomme-2A and Enyenra-4A appraisal wells encountering oil. Anadarko, along with its partners Tullow Oil plc as operator with a 45% working interest, and Société Nationale d'Opérations Pétrolières de Côte d'Ivoire holding the remaining 15% interest in the block, plan on temporarily suspending the Paon 1X well to use it later in appraisal and development operations. The partnership has also successfully located hydrocarbon in the Jupiter-1 prospect in offshore Sierra Leone. The company also recently announced that a well at the former Lowry Bombing Range produced the equivalent of 200 barrels of oil a day in its first month.
There have been some snags along the way for Anadarko lately such as the payment of $4 billion to BP relating to the Deepwater Horizon incident, and the Algerian tax dispute resulting in about $2.6 billion to Anadarko's favor. However the company still comes out smelling like roses each time without a dint in investor reaction. The company recently settled its $102 million dispute over the termination of a drilling rig lease. This dispute involved Anadarko terminating an oil rig lease with Noble Corporation (NE) during a drilling moratorium after the 2010 Gulf of Mexico oil spill. Anadarko sued Noble, asking the court to rule the contract was "lawfully terminated" because the moratorium should be considered an act of God, or "force majeure," that prevented use of the Noble Amos Runner rig as of May 28. These and other minor speed bumps never slow the company down from its pursuit of successful production activities.
From the Rocky Mountains region, to the southern United States, and the Appalachian basin, to East and West Africa, Algeria, China, Alaska, and New Zealand, the company is seeking positive results. According to Chairman and CEO Jim Hackett in a first quarter results statement, ""Anadarko delivered record operating results, generated more than $130 million of free cash flow and successfully appraised discoveries in Mozambique, the Gulf of Mexico and Ghana during the first quarter of 2012.
The operating results were highlighted by record sales volumes, a year-over-year increase of 27,000 barrels per day from our liquids-rich U.S. onshore growth properties, and the startup of oil production at Caesar/Tonga in the Gulf of Mexico." The company expects to see an increase in cash flow reserves as capital to be used for future exploration and production projects. The company reported first quarter 2012 earnings of $0.92 per share, exceeding last year's first quarter results by 27.78%. It reported annual 2011 earnings of $3.37 per share. The company had first quarter 2012 revenues of $3.45 billion, 10.21% below the prior year's first quarter results, and had revenues for the full year 2011 of $13.97 billion, 27.16% above the prior year's results.
The financials along with the mapped out strategy for increased volumes of production in both oil from the Gulf of Mexico and natural gas in Africa creates a long-lasting prospect for success for Anadarko.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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