Anadarko's Deepwater Gulf Purchase A Positive In Goldman's View

Goldman Sachs likes Anadarko Petroleum Corporation APC's move to acquire deepwater Gulf of Mexico assets from Freeport McMoRan Inc FCX. Analysts Matthew Reustle and Joyce Wu have an Outperform rating on the stock.

The Deal

The comments come a day after the company disclosed its agreement to buy the oil and gas assets for $2.0 billion. The company expects the transaction to close before the year ends.

The significant features of the deal are that it would generate about $3.0 billion incremental free cash flow apart from adding 80,000 net barrels of oil equivalent a day.

Related Link: Morgan Stanley On Anadarko: Market Is Rewarding Unconventional Acquisitions

Analyst Take, Rating Justification

In a research note to clients, the brokerage said, "We view APC's strategy to reinvest cash generation into onshore fields as a positive given the attractive full cycle economics of those basins. The equity and cash generation reduce the need for APC to issue additional debt or borrow on the credit facility to fund future drilling."

The analyst thinks that the planned acquisition is a positive one for bondholders as Anadarko would use equity route to buy cash generating assets. Goldman Sachs pointed out the EBITDA guidance of $1.3 billion for 2017 equating to a ~0.8x leverage drop whereas the brokerage expects 3.5x leverage at the end of next year.

The brokerage indicated that based on latest commodity strip prices, Anadarko could generate $4 billion at $60 per barrel and $2.75 per mcf from the Gulf of Mexico oil and gas assets.

Anadarko dipped $2.24, or 3.88 percent, to $55.55 in the pre-market trading on Tuesday following the announcement of 35.25 million shares offering. Mid-morning, the stock was just slightly down (0.54 percent) comparatively, trading at $57.49.

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