Independent oil explorer Anadarko Corp (NYSE:APC) is set to release its third quarter earnings on October 29. Oil and gas prices have been lower this quarter year-over-year so they could have an impact on revenues. However, we expect that to be offset by higher production volumes. Natural gas prices in the U.S. have been hit by the booming shale output, and earlier this year, the Henry Hub benchmark hit a 10-year low to reach below $2/MCF, although it has subsequently bounced back to about $3.40/MCF. Anadarko sells its gas mostly in the U.S. market so it stands to lose from lower gas prices. ((ConocoPhillips profit drops after spin-off, Financial Times))
Anadarko operates in three segments: oil & gas exploration and production, midstream, and marketing. Its asset portfolio includes positions in onshore resource plays in the Rocky Mountains region, the southern United States, and the Appalachian basin. The company is also an independent producer in the deepwater Gulf of Mexico and has production and exploration activities globally, including positions in high potential basins located in East and West Africa, Algeria, China, Alaska, and New Zealand.
Anadarko has significant reserves in the liquids-rich Eagleford region. It has increased its net resources in the region to more than 600 million barrels of oil equivalent (BOE). Of these, oil and natural gas liquids constitute 65%. Also, the company claims that its net resources in the Wattenberg region stand between 1-1.5 billion BOE. To put things in perspective, Anadarko’s overall output target for 2012 is 261-265 million BOE. 
Anadarko has also been successful in discovering huge gas reserves off the coast of Mozambique in the Rovuma basin. Recoverable gas reserves have been estimated anywhere between 30-60 trillion cubic feet. The significance of the region’s reserves was underlined in the battle fought between Royal Dutch Shell and Thailand’s PTT Exploration and Production for the control of Cove Energy. PTT eventually won and snapped up Cove for $1.9 billion. ((RPT-UPDATE 5-Thailand’s PTT gets Cove Energy after Shell drops bid, Reuters))
A huge challenge is to build facilities on land to turn the reserves into liquefied natural gas, which can then be shipped to markets. Anadarko plans to build two LNG plants in Cabo Delgado in the first phase, each capable of processing five million tonnes of gas a year. The first sale of this gas is expected to occur sometime in 2018. 
Anadarko has oil and natural gas production and development operations located in Algeria, Ghana, and China. The company also has exploration acreage in Ghana, Brazil, Liberia, Sierra Leone, Kenya, Cote d’Ivoire, New Zealand, Indonesia, and other countries. In Brazil, Anadarko has assets in the Campos Basin, where Wahoo and Itaipu are its biggest discoveries. Itaipu is believed to contain up to 300 million barrels of oil. However, it recently sold off its 30% stake in the ES-M-661 offshore block located in the Espirito Santo basin to Petrobras. We analyzed this deal in detail in an earlier article. You can read about it here.
Much of the company’s valuation is based on its recent discoveries in Mozambique, Ghana and the U.S. Gulf of Mexico (GoM). We expect Anadarko to ramp up output over the next several years as it begins production from these discoveries. Anadarko could also look to sell its stake in some of these discoveries to immediately monetize their potential. This would also help it pay off its debt. The company had a long-term debt of approximately $13 billion on its balance sheet on June 30, 2012.
We shall be interested in the production volumes and average realized prices of oil, gas and natural gas liquids. We will also be keen to hear Anadarko’s comments over its ongoing $25 billion lawsuit with Tronox over environmental liabilities. The company previously claimed that the negative sentiment around this case was affecting its stock price.
We recently revised our price estimate for Anadarko to $81, which is 25% ahead of the market price.Notes:
- Johnson Rice & Co LLC Energy Conference, Anadarko Investor Relations [↩]
- Mozambique: Anadarko Announces Yet Another Major Gas Discovery, All Africa [↩]