Morgan Stanley On Anadarko: Market Is Rewarding Unconventional Acquisitions

Anadarko Petroleum Corporation APC has bought assets in the Gulf of Mexico (GoM) for $2 billion in cash and decommissioning obligation. Morgan Stanley’s Evan Calio views this transaction as “highly accretive.”

Calio maintained an Overweight rating on the company, while raising the price target from $74 to $81.

Unconventional Acquisition

The analyst believes that the acquired assets in the Delaware and DJ basin could lead to 10-12 percent five-year oil CAGR on $50/bl, while mentioning that the market “favors shale yet also value accretion.”

“The market has rewarded unconventional asset acquisitions and values both unconventional assets and Tier 1 unconventional pure-play corporates at a relative and significant premium,” Calio mentioned.

The analyst explained that the premiums were most based on high capital efficiencies, shorter cycle times, lower risk and lower breakevens.

Accretion From The Acquisition

The current acquisition adds to Anadarko Petroleum’s exposure in an asset class that is out of favor at present, although Calio believes that the classification overlooks the quality of the asset, as well as the upside potential from expanding operated infrastructure and the inexpensive value.

Calio pointed out that “the recycled cash flows from the acquisition allow APC to accelerate growth and present value in the Delaware and DJ basins. The impact on activity is immediate, with APC adding 2 rigs in each of the two plays by year end, lifting its capex guidance for 2016 $0.2Bn to $2.8-3.0Bn.”

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