Anadarko’s Mozambique Find Could Add Upside to $88 Value

by Trefis Team
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Anadarko
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Anadarko Corp. (NYSE:APC) doubled its reserve estimates for natural gas in Offshore area 1 in Mozambique after encountering gas in one of its latest appraisal wells. [1]  The recoverable resource estimate was revised to 30 Trillion cubic feet (Tcf) of gas from an earlier figure of 15 Tcf. Buoyed by this success, the company plans to speed up its exploration effort by dedicating two rigs to accelerate the drilling process and to determine the exact size of the prospect. [2] The news is especially significant for Anadarko as the company had to abandon a Liberian prospect earlier this month after failing to discover any oil. [3] Offshore prospects in Africa are  being explored by other oil E&P players such as ConocoPhillips (NYSE:COP) as well.

We have an $88 price estimate for Anadarko, which is a 20% premium to its current market price.

Click here for our full analysis of Anadarko Corp.

Major discovery

CEO Jim Hackett remarked that the discovery could be counted among the most significant gas fields uncovered in the past decade. [2] The latest estimates indicate that this field holds more than a tenth of the total gas reserves in the U.S. in 2009. [4] Italian major Eni also made a discovery in offshore Mozambique in October which it estimated held around 22.5 Tcf. Anadarko holds a 36.6% working interest in the field and has 5 other partners in the exploration venture. Anadarko now plans to invest to start production in these fields and estimates suggest that the company could be spending more than $10billion to develop the field.

Anadarko plans to begin construction on the prospects by 2013 and to get the gas to market by 2018. [2] The company has plans to build a LNG development facility to convert the liquefy the gas produced from the location. Initial plans are to construct 2 trains in the facility which can later be extended to a total of  6.

Tapping LNG market

LNG demand from Asia is growing at a rapid pace, especially from emerging economies like China. LNG is looked as a cleaner alternative to coal-to-power industries. LNG demand has also increased in the wake of the nuclear disaster in Japan which has cast doubts over the safety of nuclear fuel.

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http://www.reuters.com/article/2011/11/09/anadarko-idUSL4E7M91A120111109
Notes:
  1. UPDATE 1-Anadarko raises gas estimate offshore Mozambique, Reuters []
  2. Anadarko doubles estimates for Mozambique find, FT [] [] []
  3. UPDATE 2-Anadarko Liberia well disappoints, shares fall, Reuters []
  4. International Energy Statistics, EIA []
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