Anadarko Rewards Investors by Keeping Focus Upstream
A major portion of Anadarko‘s (NYSE:APC) revenue comes from selling crude oil and condensates unlike some of its competitors like Exxon Mobil (NYSE:XOM), ConocoPhillips (NYSE:COP), BP (NYSE:BP), Chesapeake (NYSE:CHK) and Chevron (NYSE:CVX), which are more diversified. Anadarko has focused largely on upstream activities like the exploration and production of oil & gas rather than the refining and marketing of end products like gasoline, distillates and fuel oil. The majority of the large oil companies in the world are vertically integrated, but Anadarko has kept focus on its core strengths of exploration and production which has yielded handsome returns for investors in recent years.
Crude Oil and Condensates at a Glance
Crude oil and condensates constitutes about 47% of the $69.34 Trefis price estimate for Anadarko which is about 17% below the current market price. Below we look at the drivers of the crude oil and condensates division for Anadarko.
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The company explores for and produces crude oil and condensates and sells it to refiners, gatherers and marketers around the world. The company has a strong global presence with operations located in the United States and the Gulf of Mexico, as well as in Algeria, Brazil, China, Cote d’Ivoire, Ghana, Indonesia, Mozambique, Sierra Leone and other countries. Anadarko is among the largest independent oil / gas exploration and production companies in the world, with 2.4 billion barrels of oil equivalent (BOE) of proved reserves as of December 31, 2010. Anadarko also spends more than a billion dollars each year for exploration of new oil & gas reserves which can be matched by only a handful of players in the industry.
Key Drivers of Crude Oil and Condensates
1. Price of Crude Oil and Condensates
The average realized price of crude oil & condensates for Anadarko increased from $60 in 2006 to $96 in 2008 before declining to $59 in 2009 as the world faced one of the worse economic downturns in recent decades. The global economy has recovered and growing demand from emerging countries as well as political unrest in many oil producing countries is pushing prices towards new highs. The average realized prices for crude oil and condensates should remain elevated for the foreseeable future.
2. Crude Oil and Condensates Sale Volume
Anadarko’s sales of crude oil and condensates increased from 70 million barrels in 2006 to 79 million barrels in 2007 primarily due to an increase in sales volumes associated with the acquisitions made in 2006. Sales volumes decreased in 2008 because of the pipeline repair works in the Gulf of Mexico resulting from the 2008 hurricanes. In addition, production in Algeria declined due to plant maintenance.
High demand for petroleum products lifted the sales volume in 2010. Going forward, we expect the crude oil & condensates sales volume to increase modestly over the forecast period to reach 91 million barrels by the end of our forecast period.
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