Friday, July 23, 2010

Why we Chose Anadarko over BP as a Rebound Play (APC; BP)

Just as in horse racing, if you have a match race between Secretariat and Hoof Hearted, the call isn't too tough.
With APC we caught the bounce off the double bottom at $35-and-change June 30, bailed at $47.38 on July 14. The stock is trading at $48.55 today.
Here's a major piece from Bloomberg:
BP Spill Tars Hackett’s Anadarko Deepwater Drilling Success 

James T. Hackett, chief executive officer of Anadarko Petroleum Corp., thought he was making a routine decision when he decided to buy a 25 percent share of BP Plc’s Macondo well last December.
Anadarko was already a partner with BP in the nearby Pompano platform, which would pump the oil to shore, so developing a new field nearby made good economic sense. The well looked relatively simple, and Hackett said he had no reason to doubt the capabilities of BP, one of the world’s most experienced deepwater drillers.

“This is something that, with any kind of reasonable practices, should have been able to be drilled without a problem,” he said in an interview at Houston’s River Oaks Country Club.
But in the oil industry, even the easy jobs are high risk. On April 20, the Deepwater Horizon rig drilling the well was rocked by an explosion and later sank in the Gulf of Mexico. Suddenly, everything changed for Anadarko, Bloomberg Businessweek reports in its July 26 issue.

Under Hackett, the company had grown from a laggard to a star among medium-sized oil and gas players. His strategy: super-charging Anadarko’s reliable oil and gas production on the U.S. mainland with successful wildcat exploration in the deep waters of the Gulf of Mexico, and off West Africa and Brazil. That appetite for risk turned Anadarko into one of the premier oil exploration companies.

Growth Plans
Now Anadarko’s ambitious growth plans and perhaps its existence are threatened. Unless it can find a way out, its share of cleanup costs, fines, and victims’ claims could easily add up to billions of dollars. Analysts said obligations that large are likely to put a crimp on the investment capital needed to meet Hackett’s 7 percent to 9 percent annual production growth targets.

Anadarko, based in The Woodlands, Texas, has a market value of about $23 billion, down more than $13 billion since April 20, and had $3.7 billion in cash as of March 31. Some estimates put total spill-related costs at as much as $60 billion, meaning Anadarko’s share would be $15 billion, assuming it had to pay 25 percent. That sort of tab “would grind the whole company pretty much to a halt for a while,” says Philip Dodge, an analyst at Tuohy Brothers.

Anadarko’s predicament could turn into a watershed event for the oil and gas business. Exploration companies drilling in U.S. waters and elsewhere have assumed their drilling expertise minimized risks. Instead, it has become clear since the well blowout and subsequent spill that BP and its partners face huge liabilities they never anticipated.

West Africa
Companies such as Anadarko have fueled the push into frontier areas from the deepwater of the Gulf of Mexico to offshore West Africa, where Anadarko owns 23.5 percent of the massive Jubilee discovery, estimated to hold as much as a billion barrels of oil. If the consequences of the Gulf spill end up endangering Anadarko’s financial health, however, that could scare away other independent oil companies from pursuing the kind of lucrative-but-risky drilling that led to the BP spill.

Hackett said he still believes deepwater drilling can be done safely. After staying mum for two months, he lashed out on June 18, blaming the accident on BP’s lapses. He said the oil giant’s actions “likely represent gross negligence or willful misconduct.” Anadarko also has refused to pay a charge of $272 million that BP has billed the company for its share of the cleanup costs. The spill had nothing to do with Anadarko, Hackett said, and was “caused by bad decisions on the rig floor and bad adherence to technical advice.”...MUCH MORE
We had the list of postings in our exit post "Anadarko Petroleum Faces High Hurdle in Proving BP Was “Grossly Negligent”" (APC) . It has a chart and everything.