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Investment Overview for Anadarko (NYSE:APC)
Below are key drivers for Anadarko which present opportunities for upside or downside to the current Trefis price estimate for Anadarko.
- Average Crude Oil Sales Price: Anadarko's stock price is highly sensitive to crude oil prices as the company derives more than 60% of its value, by our estimates, from the sale of these products. We believe that the recent decline in oil prices could sustain for a longer period amid slower demand growth and the diminishing price-controlling power of the OPEC. According to our estimates, annual average crude oil prices (Brent) could bottom out around $80-85 per barrel by 2017 and rise back to a $100 per barrel by 2020. However, if oil prices remain depressed for longer than what we currently expect and increase only to around $90 per barrel by the end of our forecast period, there could be almost 10% downside to our current price estimate for Anadarko.
- Crude Oil Sales Volume: Anadarko's crude oil sales volume has grown sharply from just around 68 million barrels in 2009 to 91 million barrels in 2013, implying a CAGR of almost 8%. Almost all of this growth in the company's crude oil sales volume has come from its operations in the Wattenberg field and other tight oil plays in the U.S. We currently forecast Anadarko's crude oil sales volume to grow at a decreasing rate to around 166 million barrels by the end of our forecast period. However, if the company is not able to ramp up its crude oil production at the projected rate and it increases to just around 140 million barrels by the end of the Trefis forecast period, there could be a 10% downside to our current price estimate for Anadarko. On the other hand, if the company is able grow its crude oil sales volume to 185 million barrels over the same period, there could be a 10% upside to our current price estimate for Anadarko.
Anadarko Petroleum Corporation is among the largest independent oil and gas exploration and production companies in the world, with more than 2.79 billion barrels of oil equivalent (BOE) of proved reserves as of December 31, 2013. The company has a small interest in marketing and trading of energy products. Anadarko's production and development operations are located primarily in United States, Algeria and Ghana. The company also has exploration acreage in Brazil, Cote d’Ivoire, China, Liberia, Sierra Leone, Mozambique, Indonesia and other countries.
The company's most valuable business is the production of crude oil and condensates. Its second most valuable business is the production of natural gas.
1.9 trillion cubic feet of natural gas sales at an average price of $4.35 per thousand cubic feet
Natural gas production and sales is a major source of value for Anadarko. This is due to the large level of sales and expected growth in output in the U.S. and in international markets. We estimate that the company will be able to sell nearly 1.9 trillion cubic feet of natural gas at an average price of around $4.35 per thousand cubic feet in the next two years.
Over 260 million barrels of crude oil sales at an average price of $83 per barrel
The company has significant crude oil producing capacity and is looking to increase liquids production in the U.S. to offset lower natural gas prices as a result of which we estimate that it will be able to sell around 260 million barrels of crude oil and condensates at an average price of around $83 per barrel in the next two years.
Anadarko derives all of its natural gas production from the U.S., where a supply glut has led to severely depressed domestic natural gas prices by international standards. Therefore, despite lower finding, development and lifting costs per barrel of oil equivalent (BOE) of natural gas, the production of liquids (crude oil and natural gas liquids) has become a far more lucrative source of revenue for upstream oil and gas companies in the U.S.
In 2013, Anadarko sold liquids at an average price of around $84.5 per barrel, compared to just around $21 realized per BOE of natural gas. Therefore, the company has been increasing its focus on liquids production to drive margin growth. As a result, the proportion of liquids in Anadarko’s total sales volume has increased from 38.6% in 2009 to 43.5% in 2013. Going forward, we expect the company’s sales volume-mix to improve further with liquids making over 45% of its total hydrocarbon production in the next couple of years.
Increasing proportion of Wattenberg sales
The contribution of Anadarko’s Wattenberg operations to its total sales volume has grown from around 9.4% in 2010 to 22.3% during the third quarter of 2014. Going forward, the company expects to grow its hydrocarbon sales volume from the Wattenberg field at around 3-4 times the company’s total sales volume growth target of 5-7% CAGR. Therefore, the weight of Wattenberg production in Anadarko’s total sales portfolio is expected to increase, which would exert downward pressure on its total unit operating costs and thereby help partially offset the impact of lower crude prices on its margins in the short to medium term.
It is estimated that a large part of the world's oil reserves have already been discovered. Recent statistics have indicated that global consumption has been outpacing reserve additions. Peak oil is a commonly used term to describe the point at which world oil output will reach a maximum and decline afterward.
However, many institutions such as the International Energy Agency (IEA) believe that oil production will not peak in the near future, although the IEA warns that non-OPEC production may have already hit a peak. Many governments across the world are promoting alternative energy measures to ensure that supply is able to keep pace with demand.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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