Today’s new buy idea is a U.S. energy company that’s aggressively growing in a range of energy-related sectors, including exploration, production and transportation.
Anadarko Petroleum (APC)
from Porter Stansberry’s Investment Advisory
This month, we’re recommending oil and gas producer Anadarko Petroleum (NYSE: APC). Anadarko is one of the largest energy producers in the country, churning out an impressive 775,000 barrels of oil equivalent (BOE) per day in the third quarter of 2013. Domestically, Anadarko has 800,000 net acres spread around all the big onshore energy fields, including the Permian Basin and the Eagle Ford Shale in Texas, the Haynesville Shale in Louisiana and Texas, the Marcellus Shale in New York and Pennsylvania, and the Utica Shale in New York. Anadarko’s third-quarter updates from these fields were strong, particularly in the Permian and Eagle Ford.
APC’s management team has a reputation for making prudent allocation decisions and acquisitions that add value. ... We don’t feel the market fully appreciates this well-run energy behemoth. Currently, 76% of APC’s production comes from the continental U.S. and 60% of this production is natural gas. Ideally, investors prefer energy companies to be more geographically diversified and have less exposure to lower U.S. natural gas prices. So right now, the market essentially values APC as if it’s primarily a U.S. natural gas play. And with natural gas prices still depressed, that has held back Anadarko shares.
We believe the current production statistics obscure APC’s true potential. You see, Anadarko is building an impressive infrastructure network to export U.S. energy. And while it is not yet reflected in the production numbers, Anadarko has acquired enormous swaths of low-cost deepwater acreage all around the globe.
The explosion at BP’s Horizon oil rig in the Gulf of Mexico scared many production companies and led them to back off (or cancel entirely) their deepwater exploration. But Anadarko has moved full speed ahead. ... We like this strategy. Deepwater acreage can be had for a fraction of a similar-sized plot of land. But a barrel of “deepwater” oil sells for the exact same amount as a barrel that comes out of dry land. The main difference is the upfront capital costs — and Anadarko’s partners defray much of the upfront outlay. ...
When it comes down to it, Anadarko’s main business is producing oil and natural gas. And it’s among the best in the business. Anadarko’s management has consistently grown production, without diluting shareholders. From 2005 to today, the company increased its production per share from 0.81 BOE per share to 1.54 BOE per share. That’s nearly twice as much production in less than eight years. Furthermore, 1.54 BOE per share is the fourth-largest in the entire industry, 34% above the industry average.
More impressive, most of this growth came during a period when Anadarko cut its debt load in half – from nearly $28 billion to less than $14 billion. The current $14 billion is a reasonable amount of debt for a resource company the size of Anadarko. You’ve got to remember, this is a capital-intensive business. And as the payoff numbers demonstrate, management has shown commitment to managing debt carefully.
The company’s earnings before interest, tax, depreciation, and amortization (EBITDA) totaled $8.2 billion over the past four quarters, compared with $6.2 billion in 2012. From 2009-2011, EBITDA averaged around $5.5 billion. This EBITDA growth equates to more than 30% a year — versus just 18% growth for its peer group. ...
Action to take: Buy Anadarko Petroleum Co. (NYSE: APC) up to $100 a share. Hold the position with a 25% trailing stop.
Porter Stansberry, Porter Stansberry’s Investment Advisory, www.stansberryresearch.com, 888-261-2693, November 8, 2013