Anadarko Petroleum: Avarice in Algiers

Estimated net present value [NPV] remains $75 a share for buy-recommended Anadarko
Petroleum (APC), despite downward revisions in reserves reported along with fourth quarter 2006 results on February 6.

Also, a new tax, on top of the high rate of take the government already receives, looks like avarice in Algiers, with little consideration for the company’s investment to help the North African country turn around its oil production. Fortunately, a leading resource position in the deep water Gulf of Mexico helps justify NPV that otherwise looks high compared to that indicated by a correlation with reserve life and cash flow for some thirty companies.

Prospects could become more appealing if natural gas for delivery over the next six years, priced currently at $7.63 a million Btu, resumes an uptrend by crossing above the 40-week average in the next few months. Just as price may change, property sales to reduce debt may change volumes and costs from projections we carry now. Below the 200-day average price signifying a stock currently out of favor, APC has a full unlevered weighting in our illustrative energy portfolio concentrated on real assets that promise a high return providing clean fuel for global growth.

Originally published on Feb. 7, 2007

APC 1-yr chart