Anadarko's Bright Idea

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Since the commodity correction clipped the share price of, well, just about every company I follow, responses from the afflicted companies have been varied.

Australian iron ore miner Fortescue Metals has blamed short-sellers. XTO Energy (NYSE: XTO) has highlighted its hedging program to reassure everyone that the machine marches on. Anadarko Petroleum's (NYSE: APC) response is quite beautiful in its simplicity.

The independent oil and gas producer has announced a $5 billion share-repurchase program, to be carried out over the next three years. This course of action, which would knock out around 18% of outstanding shares, effectively says: "If you want to sell our stock, fine. We'll happily take those cheap shares off your hands." While buybacks won't always make you rich, this one has my full blessing.

Critically, Anadarko isn't taking out a second mortgage on the family farm to buy these shares. Purchases are to be funded out of free cash flow. Anadarko's position of strength contrasts markedly with that 2006 vintage of buybacks, in which companies like Office Depot (NYSE: ODP) hurt their balance sheets by picking up shares at lofty prices.

How does Anadarko find itself in this enviable position? It's a confluence of several factors. One, commodity prices, while not as high, are still high. Two, the company keeps lightening up by selling off non-core properties. That has brought in even more cash. Finally, while the company has some exciting offshore exploration programs, Anadarko largely sticks to what it knows best: domestic onshore resource plays. Deepwater plays notwithstanding, the company hasn't gotten out of its depth.

Along with EOG Resources (NYSE: EOG) and EnCana (NYSE: ECA), Anadarko is one of my favorite independents. The repurchase plan only further cements my faith in management's commitment to creating value.