Among the bigger oil exploration companies in the United States, Anadarko Petroleum (NYSE:APC) is an exception.

A malady affecting big oil companies
The international oil companies, or IOCs as they are better known, have been struggling lately with declining production volumes and increased expenditures. This is despite the overall exploration and production industry witnessing remarkable success since 2006. All across the globe, new oil and gas fields have been discovered with exploration and production companies adding new reserves and expanding operations.

Unfortunately, in this regard, the bigger exploration and production companies in the U.S. have been laggards. A classic case in point is ExxonMobil (NYSE:XOM) whose gigantic legacy assets around the world are producing lesser and lesser oil. This has resulted in increased capital expenditures for the company without any meaningful addition to reserves.

The key to building reserves: ultra-deepwater
Most of the large oil and gas discoveries in the last five years have taken place in the deepwater and ultra-deepwater space. It's no surprise that the biggest beneficiary among the big oil companies has been Brazil's state-owned Petrobras (NYSE:PBR). The new frontier in the pre-salt Santos Basin has helped this national oil company increase its reserves substantially. Petrobras now expects these reserves to add 1 million barrels a day to production by 2017. 

The Texas-based Anadarko, however, seems to have got its strategy right. Without losing focus on the existing projects in its portfolio, the company maintained its exploration efforts in the deep waters of the Gulf of Mexico with some very positive results.

APC Chart

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We shall see why this should immensely help the company in the long run. But before that, we'll take a peek into Anadarko's second-quarter results reported earlier this week.

An impressive second quarter? Not exactly...
Revenue stood at $3.5 billion -- up almost 9% from last year's second quarter. Net income boiled down to $929 million compared to a $89 million loss last year that was primarily due to impairment of unproved reserves worth $844 million. While sales from natural gas improved a whopping 89% thanks to higher natural gas prices this year, liquids sales (oil and natural gas liquids) fell 10%. Again, price dynamics played a role with average crude oil prices lower than those last year. While overall sales did improve, I would want to see a lesser dependence on the volatility of oil and gas prices.

Total sales volumes stood at 750,000 barrels of oil equivalent per day, up 1% from last year. Total liquids production fell 3%, which is disappointing. Onshore domestic production was pretty impressive with the Wattenberg field sales volumes increasing 37% to 60,000 barrels per day. Close behind, the Eagle Ford Shale play yielded 32,000 barrels per day -- a solid 62% growth over last year's volumes.

In all, U.S. sales volumes -- which constituted 91% of total sales -- increased by 20,000 barrels per day. While this is directionally a good indicator, these shale plays aren't the cheapest source of oil. Profitability margins may take a hit in the long run. That's why you must pay attention to management's efforts to explore the deepwater space which should be beneficial in the long run.

...however, deepwater comes to the rescue
Anadarko's five deepwater discoveries last quarter in the Gulf of Mexico and Mozambique should look interesting to value investors. The reason why you should be interested in the deepwater space is because profitability margins are much more attractive.

The Yucatan and Raptor discoveries in the Gulf of Mexico have encountered 120 and 150 net feet of oil pay, respectively, which is awesome by industry standards. The Yucatan discovery is close to the Anadarko-operated Shenandoah discovery and the Coronado discovery in which the company owns an interest. Recently, during the appraisal of the Shenandoah discovery, the company had encountered 1,000 feet of net oil pay, which is huge and is why management is expecting a solid discovery in the Yucatan as more appraisal wells are drilled.

A Foolish bottom line
From a long-term perspective, the overall economics makes more sense in deepwater drilling. Anadarko seems to be on the right track in making profitability count.

Fool contributor Isac Simon has no position in any stocks mentioned. The Motley Fool recommends Petroleo Brasileiro S.A. (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.