Why Anadarko Is So Compelling

As you survey the energy exploration and production landscape and search for an almost exclusively U.S. operator that's oily and adept at steadily improving its operating efficiencies, you're liable to land on EOG Resources (NYSE: EOG  ) . If, however, you'd also like some offshore, international, and exploration exposure, you just might prefer Anadarko Petroleum (NYSE: APC  ) .

Like EOG, Anadarko is especially busy in a trio of key plays in the U.S. onshore. Like its Texas neighbor, it points to the Eagle Ford and Permian Basin among its key assets. But where EOG completes its trio with the Bakken, Anadarko substitutes Colorado's Wattenberg.

Similar approaches
Anadarko's CEO Al Walker told attendees at Barclay's recent energy conference that "... in our world, [the Eagle Ford] is a cornerstone asset and clearly one that we believe we're quite successful with." It was a statement that could just as easily have been uttered by EOG CEO Bill Thomas.

So could Walker's additional Eagle Ford comment that "What we've done here... is to bring 90% to 95% of our wells into production within 45 days of completion, which allows us to really take advantage of the fact that the wells are being drilled quicker with less cost and with EUR (estimated ultimate recovery) now averaging over 600,000 barrels."

In the Wattenberg, which is directly east of Boulder, Anadarko has about 4,000 wells with an average recoverability of about 350,000 barrels. About 300 of those wells were recently shut in due to the flooding that ravaged portions of the state. Somewhat surprisingly, Noble Energy (NYSE: NBL  ) , another major operator in the big play, maintains that it was unaffected.

Beyond its U.S. onshore operations -- which will command about 60% of its capital spending this year -- Anadarko is one of the major players in the deepwater Gulf of Mexico. As Donald MacLiver, a vice president of operations noted at a recent Raymond James conference, Anadarko has recorded some significant discoveries there. One, in fact, indicated more than 1,000 feet of high-quality oil play.

Ringing Africa
Internationally, three of the company's shining stars are its operations in Algeria, where it is the largest foreign producer, Ghana, and Mozambique. In Algeria, which is currently the African continent's most politically stable producing nation, the company is the largest foreign operator. It's currenly at work on three mega projects in the Sahara Desert, the Ourhoud, the HBNS, and El Merk.

In Ghana, the company is a participant in the offshore Jubilee oil field. Jubilee was discovered in 2007, and came online a brief three-and-a-half years later. On the other side of the continent, Anadarko and its partners have drilled a dozen or more deepwater wells offshore Mozambique, resulting in the discovery of 35 to 65+ trillion cubic feet of recoverable natural gas. The group is now moving forward with a commercial liquefied natural gas facility that will begin with four trains, each with a capacity of 5 million tons per year.

Funding through discoveries
Mozambique also represents an approach that has stood Anadarko in good stead as it attempts to continuously high-grade its portfolio and fund its operations. Last month, the company announced that it was selling a 10% interest in the offshore gas fields to ONGC Videsh, India's state-owned energy company for $2.64 billion. The funds from the monetization will go principally toward financing Anadarko's expanding U.S. onshore activities. During the past five years, as MacLiver noted, such divestments have raised about $30 billion for the company.

 Finally, there's exploration, to which I alluded above. MacLiver noted in his Raymond James presentation that the company intends to spend about 20% of its annual capital budget on exploration. That's probably not a bad idea, since, as he said, Anadarko's exploratory success rate during the past five years has been about 70%, approximately twice the industry norm.

Foolish takeaway
There are several ways to play the U.S.-based independent producers. We've already taken a look at the key differences between EOG Resources and Anadarko. Noble, like Anadarko operates in both the U.S. onshore, the Gulf of Mexico, and West Africa. Then there's Apache Corp. (NYSE: APA  ) , which adds activities in Canada, Australia, and the Egyptian desert to its domestic operations.

All are solid companies that are deserving of careful Foolish analysis. For my money, however, Anadarko has become attractive on the basis of its combined approach to asset high-grading and operations funding, its industry-leading exploration successes, and the locations of its overseas activities.

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