Anadarko’s Stock Is Set To Run Once Gas Prices Recover
Gas prices in The U.S. saw a recovery as an EIA’s report showed that underground inventory levels rose showed a less than expected increase. Gas prices increased by 12% on the 14th of this month after the release of the storage report, sending the NYMEX price up to $2.46. [1] A recovery in natural gas prices follows lower exploration in pure gas plays in the U.S. after prices fell to their lowest level in the decade after a mild winter in the country. Higher gas prices will be a major positive for Anadarko Corp. (NYSE:APC), which has significant gas production operations in the U.S.
We have a $90 price estimate for Anaradko Corp., which is at a 40% premium to its current market price.
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Price recovery?
Gas prices in the U.S. dropped below $2 /MMBtu (Million British thermal units) because of excess storage levels after a mild winter and an oversupply of the commodity. Prices dropped because of fears that the country would run out of storage space for gas at existing production level and producers responded by turning to liquid rich plays.
The EIA report indicates that because of lower production and higher demand due to low gas prices, the amount of overproduction is declining. Underground storage levels in the country increased by 67 Billion Cubic Feet (BCF) last week, against an expected increase of 71-75 BCF. Underground inventory of gas rises in the summer and declines in winters with increased demand for heating.
Over the past year, low gas prices have pushed Anadarko to concentrate more on oil rich shale plays and oil production in international projects. However, its revenues from existing production are still dependent on gas prices in the U.S. Considerable uncertainty remains on how much time it will take for reduced exploration in gas plays to result in lower production levels. A 10% rise in our estimate for the price of natural gas can result in a 2.5% upside for Anadarko’s stock.
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Notes:- Natural Gas Prices Went Ballistic Today, Yahoo Finance [↩]