Anadarko Petroleum ( APC ) is focusing on its liquids business while prices are high for oil when many of its larger competitors like Exxon Mobil ( XOM ), Chevron ( CVX ), ConocoPhillips ( COP ) and BP ( BP ) are scrambling for natural gas assets and reporting declining liquids to gas output. Anadarko announced that it had boosted its production of liquids by 13% in Q2 and now comprise 43% of Anadarko's sales volumes helping the firm improve its revenue and margin outlook by tapping proven reserves and expanding aggressively offshore and overseas.
We have updated our price estimate for Anadarko to $85 which is almost a 10% premium over its current market price.
Liquids growth boosts revenues
While most energy majors such as Exxon Mobil, Chevron and BP reported a decline in the ratio of liquids to gas output, Anadarko managed to boost its liquids production to 297,000 b/d this quarter by focusing on liquid rich plays and other fields such as the Permian Basin where its liquids output more than doubled in comparison to the same period last year. Independent exploration firms had already signalled that in the present conditions, exploration for liquids was more attractive economically and the ratio of rigs drilling for gas to total rigs in the U.S. has seen a steady decline over the past year.
Overall, Anadarko expects to increase its production to 244-248 million barrels of energy equivalent for the year 2011 with large projects both within the U.S. as well as in international locations. It is also currently involved in 4 mega projects, 2 of which are located in the Gulf of Mexico to achieve its aim of 7-9% annual growth in production over the next 5 years.
Plan to expand aggressively in offshore
In order to meet its growth targets in production and to have a 150%+ reserve replacement, Anadarko is embarking on offshore exploration spread across the globe. It is looking to develop 7 wells in the Gulf of Mexico, 11 wells in Ghana and other countries in West Africa and 7 more wells spread over Brazil, Mozambique and China. Anadarko aims to boost its reserves to 3 billion BOE by 2014 which should sustain current levels of production for over 12 years.
Anadarko also announced that it will be developing the offshore Lucius fields with co-owner Exxon Mobil. The field which is expected to start production by 2014 will have a capacity to produce 80,000 barrels of oil and 450 mcf of natural gas providing a significant boost to the company's long term production goals.