Anadarko Makes Another Big Splash

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Will Rogers said that when you find yourself in a hole, stop digging. That's often very sound advice, but the logic doesn't necessarily hold true in the oil and gas industry.

Last month, we noted Anadarko Petroleum's (NYSE: APC) Lucius discovery in the deepwater Gulf of Mexico. The initial well was drilled to a total depth of about 20,000 feet by the Ensco (NYSE: ESV) 8500 semisubmersible rig, and encountered about 200 net feet of productive reservoir. Anadarko didn't keep digging deeper, but it did decide to immediately drill another appraisal well about 0.6 miles to the south, to further delineate the discovery. Partners Mariner Energy (NYSE: ME) and Plains Exploration & Production (NYSE: PXP) have to be pleased with that decision.

The results of that "sidetrack" well, which reached roughly the same depth, were released yesterday, and they were absolutely stellar. The drill found roughly three times as much net oil pay, with an extra gas condensate trove to top it off. (Net pay speaks to reservoir thickness, and not barrels in place, but I would expect the three-to-one relationship to hold up in these circumstances). The initial well thus only hinted at the total prize in Keathley Canyon.

How much could Lucius be worth? Check out Mariner's trading yesterday for a hint. The company has a 16.67% stake in the property, and the shares were up 15.6% yesterday. That's $217 million of added share value. I take that as the market saying Lucius is worth $1.3 billion more than it was the day before.

Anadarko should be front and center on anyone's deepwater radar. Not only is the company hitting home runs here at home, but offshore Brazil and West Africa as well. Between Lucius and McMoRan Exploration's (NYSE: MMR) Davy Jones discovery, Plains has some interesting offshore projects, but the company appears to suffer from Devon Energy's (NYSE: DVN) former affliction of getting in over its head. As for Mariner, riding Anadarko's coattails on discoveries like Lucius and Heidelberg may be the best move this company has ever made.