Anadarko Readies For Major Gas Project In Utah With Expected Approval

Anadarko Corp. (NYSE:APC) is expected to win federal permission to drill over 3,700 wells in Eastern Utah, after a year long review of the proposal. ^[1] The Greater Natural Buttes project could add about 1 billion cubic feet (Bcf) a day of natural gas to Anadarko’s production in the U.S., boosting the company’s overall production from the region. The project has also won the approval of environmental groups in the region after Anadarko agreed to limit expansion into certain new areas. More importantly, the permit from the Department of Interior could signify more governmental support for shale exploration in the U.S., as energy policy becomes an important issue in the upcoming elections. Companies such as ConocoPhillips (NYSE:COP) also have significant operations in shale prospects across the U.S.

We have a $90.04 price estimate for Anadarko, which is at a 30% premium to its current market price.

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Production jump

The Greater Natural Buttes (GNB) project was first proposed in 2006 by an onshore exploration subsidiary of Anadarko. ^[1] According to the plan, more than 3,700 wells will be drilled in an 160,000 acre region, boosting the state well count in Utah by 50%. According to estimates, there are currently around 6,000 producing wells  in the state, of which 2,200 belong to Anadarko. In response to concerns raised by environmental groups, Anadarko has promised to use technology to reduce air emissions and use existing well pads to limit the impact of its operations on the local ecology. The company is also expected to win other approvals and permits over the next few weeks.

The Obama administration has said that it will support the development of shale reserves as long as the exploration is done in a safe manner. The shale industry has become an important source of employment in many states in the U.S., including Utah. With the administration being attacked for hampering industry growth, it could take a more lenient view toward new projects.

The approval for the new project in Utah comes on the back of gas prices falling below $2/ Million British thermal units (MBtus) and explorers cutting down on gas drilling. However, the GNB project is also expected to yield a significant amount of natural gas liquids, which have higher pricing than pure gas. ^[1] Analysts also expect gas prices to rise over the next few years. Anadarko plans to drill the wells for this project over the next 10 years.

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1. U.S. Poised to Approve Drilling Plan, WSJ [↩] [↩] [↩]