Anadarko Doubles Down On The Deepwater Gulf, Citi Raises Price Target

Anadarko Petroleum Corporation APC announced a deal for the purchase of deepwater Gulf of Mexico assets for $2.0 billion in cash. The company is also accelerating its pace of activity in DJ and Delaware, Citi’s Robert S Morris said in a report. He maintained a Buy rating for Anadarko, while raising the price target from $65 to $68.

Deepwater Gulf

The deal to acquire deepwater Gulf of Mexico assets has an effective date of August 1, 2016. Therefore, including purchase price adjustments, the total payment by Anadarko when the deal closes at yearend is estimated at ~$1.7 billion, analyst Morris points out.

“However, Anadarko has allocated $300mm to materials & seismic which effectively displaces future capex while the present value of future abandonment liabilities is ~$500mm. Thus, the price tag based on total cash and liabilities is ~$2.5bn, or 2.2x 2017 EBITDAX, which is an attractive price,” Morris wrote.

Moreover, the total capex on these properties over the next five years is estimated at close to $1.5 billion, assuming Anadarko’s total deepwater Gulf production is flat over the next three years before beginning a gradual decline.

DJ, Delaware

“While still keeping spending within cash flow going forward, Anadarko now plans to add two rigs in each the DJ (to 3 total) and Delaware (to 8 total) Basins later this year,” the analyst stated. In keeping with this, management has raised its full-year capital budget from $2.6-$2.8 billion to $2.8-$3.0 billion.

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