Here's an old report:
Anadarko Petroleum (APC) is one of the world's largest independent oil and
gas exploration and production companies. In July 2000, the company
acquired Union Pacific Resources (UPR), in exchange for approximately 115
million APC common shares. At the time the acquisition was announced, the
companies stressed that the pending merger was not primarily intended to
achieve cost savings, but to merge complementary skills and assets that
could provide dramatic growth and profitability. APC's strengths were
traditionally in exploration, while UPR's strengths were in drilling and
completion technology. In addition, APC's reliance on production from
Algeria, which has political risks, was reduced. The acquisition was
accounted for using the purchase method of accounting.
At December 31, 2000 (1999), APC had 2,061 (991.0) million barrels of oil
equivalent (MMBOEs), consisting of 51% (58%) oil, condensate and natural
gas liquids (NGLs), and 49% (42%) natural gas. Approximately 56% of total
reserves at the end of 2000 were located in the U.S. onshore, primarily in
Texas, Louisiana, Alaska and the mid-continent and Rocky Mountain areas;
the remaining reserves were in the Gulf of Mexico (9%), Canada (10%), Algeria
(18%) and other international (7%). The company also owns and operates gas
gathering systems in its U.S. core operating area, and participates in
international exploration projects in Tunisia, the North Atlantic Ocean, and
selected other areas.
During 2000 (1999), production totaled 112 (50) MMBOEs, comprised 32% of
oil and condensate, 11% NGLs, and 57% natural gas. Average price
realizations were $26.49 ($16.83) per bbl. of oil and condensate, $21.70 ($13.40)
per bbl. of NGLs, and $4.13 ($2.08) per Mcf of gas.
During 2000 (1999), APC replaced 1,059% (213%) of total production with new
reserves, mainly reflecting the effects of the UPR acquisition. The average
worldwide finding costs in the five years ending with 2000 (1999) was $5.90
($3.53) per BOE.
Capital spending, which totaled $1,708 million and $680 million in 2000 and
1999, respectively, has been set at $3,000 million for 2001. The budget is
allocated to development (50%), exploration (29%), capitalized interest and
overhead (12%), and gas gathering and other (9%).
In March 2001, Anadarko acquired Canada-based Berkley Petroleum for
C$11.40 cash for each BKP share and the assumption of US$250 million of
debt, outbidding two prior offers for Berkley by Hunt Oil Co. With reserves
estimated at 95 MMBOE (70% gas), the acquisition accelerates APC's efforts
to expand its Canadian presence.
We expect the company's total production to climb 80% in 2001, aided by a
full year's inclusion of UPR. Key sources of production will include Hickory
and Tanzanite (Gulf of Mexico), Bossier (East Texas/Louisiana), Alaska,
Algeria and Venezuela. For the longer term, we are especially bullish on the
upside potential of APC's acreage positions in Alaska's North Slope and
Foothills, and in Canada's Mackenzie Delta. Costs for drilling services should
remain high, due to strong demand associated with high commodity prices.
APC is more exposed than its peers to such cost hikes, because a large
percentage of its proved reserves is classified as undeveloped, implying
significant expenditures to achieve commerciality. Overall, we look for
discretionary cash flow per share (DCFPS) to advance about 45%, to $15.
Valuation 30-APR-01
Year to date, the shares were recently down 6.3%, compared with the peer
group average decline of 1.8%, and were trading at 6.5X trailing DCFPS,
versus a historic average of 12X. Following the release of 2001 first quarter
earnings that were 27% above expectations, we recently upgraded the shares
to accumulate from hold. Longer term, APC can be expected to continue to
deliver above average reserve replacement and production and cash flow
growth, in part reflecting the company's significant exploration potential.
Although the recent $1 billion acquisition of Berkley Petroleum was expensive
on a per-barrel basis, we are bullish on the upside potential of that company's
Alberta Foothills and Northwest Territories acreage. We expect free cash
flow, which should total about $225 million this year, to be utilized to reduce
debt assumed in the Berkley acquisition. |
