Did Anadarko Receive A Fair Price For Its Eagle Ford Assets?

The year 2016 was a comeback year for Anadarko Petroleum (NYSE:APC), as the oil and gas company recovered almost 42% of its stock price over the year backed by the rebound in commodity prices, and the acquisition of Deepwater Gulf of Mexico (GOM) assets during the year. In addition to this, the US-based company finalized two significant asset sales of more than $3.5 billion over the last one month, that have put the company on track to exceed its divestment plan of $5 billion. The two deals include the sale of Eagleford shale assets in South Texas for $2.3 billion to Sanchez Energy Corporation and Blackstone Group LP, and sale of its upstream and midstream assets in the Marcellus Shale to Alta Marcellus Development for a sum of $1.24 billion (For More Details Read: Anadarko Shifts Focus To High-Margin Basins By Divesting Non-Core Assets). In this note, we analyze if the company paid a fair price for these asset sales in comparison to recently closed deals in the region. 

Source: Google Finance

Eagleford Shale Assets

We begin by comparing the sale of Anadarko’s Eagleford assets with the latest asset sale by SM Energy and Sanchez Energy. In the table below, we summarize the economics of the three deals, and calculate the price per acre and price per barrel of oil received by each seller.

Although the size and the dynamics of the two deals may vary, on comparing the financials of the deals, we figure that Anadarko received a higher price of roughly $34,000 per flowing barrel of oil equivalent per day (BOED) for an ongoing production of 67,000 BOED compared to SM Energy that realized only around $29,000 per flowing BOED for an existing production of 27,000 BOED, a few days prior to Anadarko’s deal. However, Sanchez Energy, the company that has bought Anadarko’s Eagleford assets, sold off some of its own assets in the same region in October 2016, receiving over $58,000 per flowing BOED for a meager production of 3,100 BOED. This means that Anadarko has received significantly less than what Sanchez, the buyer of its assets, realized for similar assets a few months ago. However, the dynamics of the commodity markets have changed since the Sanchez deal, and Anadarko is receiving a higher price than the most recent deal, the SM Energy sale, in the region. Thus, it is fair to say that Anadarko realized a good price in terms of the existing production, even though it is not the best price for its current output.

However, when comparing the price per acre acquired of the deals, we see that Anadarko earned only around $15,000 per acre sold, though SM Energy obtained a higher price of $21,000 per acre sold. But, on comparing the Sanchez sale, which generated only $12,000 per acre, Anadarko seems to have done notably better than Sanchez. Hence, while it can be said that Anadarko’s acreage in the region was under-valued compared to SM Energy’s price, the deal managed to generate a higher price than Sanchez’s sale. Besides, the deal will facilitate the company’s plan of exiting the Eagle Ford Basin and will provide cash flows that will allow the company to concentrate on its priority basins – Delaware basin, DJ basin, and Deepwater GOM assets.

Marcellus Shale

Now, we compare Anadarko’s Marcellus Shale sale. Similar to the Eagle Ford Basin, the Marcellus region has also seen a surge in the merger and acquisition activity over the last few months. A few companies, such as EQT Corp. and Antero Resources, have done a number of small deals in the region. Based on the available data, we have collated the price per acre metrics of two other deals completed in the region.

The table below depicts that Anadarko received a price of $6,400 per acre of assets sold in the Marcellus region. In comparison, however, Trans Energy and a private party earned $10,000 and $12,000 per acre respectively for the sale of their acreage in the region in October of last year. This clearly indicates that Anadarko obtained a notably low price for its acreage, compared to these deals, in the Marcellus shale region.

Thus, even though we see that the Marcellus sale realized lower proceeds compared to similar deals in the region, the proceeds will augment the company’s plan to divest its non-core and unprofitable assets, and focus its finances and efforts at developing its three key assets, mentioned earlier.

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