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Though Anadarko (NYSE: APC ) reported a fourth-quarter loss of $770 million, or $1.53 a share, down from a profit of $203 million, or $0.40 a share, in the year-earlier period, this was heavily affected by the company's decision to set aside $850 million to pay for claims related to the ongoing case involving its Kerr-McGee subsidiary.
On the plus side, Anadarko reported record oil and gas sales volumes last year, which reached an average of 781,000 barrels of oil equivalent, or BOE, per day, up 7% from the year earlier. Once again, the key driver of this output growth was the company's onshore U.S. portfolio. Let's take a closer look.
Strong onshore U.S. performance
Driven largely by strong output increases in Colorado's Wattenberg field and Texas' Eagle Ford, Anadarko delivered an impressive 25% year-over-year increase in onshore oil volumes for the full-year 2013.
The company's Wattenberg Horizontal program, where Anadarko commands a whopping 350,000 net acres in the core of the play, averaged more than 56,000 BOE per day in 2013, up by almost 34,000 BOE per day over the previous year.
This strong performance was driven by greater efficiencies resulting from its property exchange with Noble Energy (NYSE: NBL ) in October, in which the two companies exchanged 50,000 net acres in different parts of the play, as well as by an increase in Wattenberg crude oil export capacity. The exchange with Noble provided Anadarko with a more consolidated core acreage position that is better served by the company's existing infrastructure in the play, while the expansion of export capacity thanks to the start-up of the Plains Rail Terminal helped boost production toward the end of the year.
Meanwhile, Anadarko's Eagle Ford, East Texas/North Louisiana and Marcellus Shale assets also boosted full-year 2013 production by roughly 59,000 BOE per day. Sales volume growth for the Eagle Ford and for East Texas was particularly impressive, with 46% and 78% year-over-year increases, respectively.
Going forward, I expect Anadarko's Wattenberg and Eagle Ford assets to remain the strongest drivers of growth. In addition to these relatively low-risk, established plays, Anadarko's position in the Delaware Basin's Wolfcamp shale, where it has drilled 29 wells to date and is currently operating seven rigs, could also offer significant upside, given encouraging results from its six recently evaluated wells.
A number of other companies are also seeing tremendous initial success in the Wolfcamp shale, as well as in the broader Delaware Basin. Devon Energy (NYSE: DVN ) , for instance, brought online 26 Wolfcamp shale wells in the third quarter, which posted average 30-day IP rates of 400 BOE per day. With roughly 300,000 net prospective acres and 800 undrilled locations across the Wolfcamp, Devon has a potentially huge runway for growth in the play.
Similarly, Concho Resources (NYSE: CXO ) has seen great success in the horizontal Delaware Basin, with net third-quarter production from the play surging 111% year over year to average roughly 33,700 BOE per day. Of the company's 23 operating rigs as of the end of the third quarter, 16 were deployed in the Delaware Basin. With plans to allocate $1.4 billion of its $2.3 billion 2014 capital budget toward the Delaware Basin, Concho has a lot riding on the play.
But arguably the most successful Wolfcamp player so far is Pioneer Natural Resources' (NYSE: PXD ) . A third-quarter well drilled by the company posted the highest 24-hour peak IP rate for any interval in the Midland Basin to date. With more than 700,000 net Wolfcamp acres under its belt, the company expects to spend about a quarter of its 2014 budget on developing the play.
The bottom line
Once you look past its potential liabilities from the Tronox case, which I believe are already priced into the stock and could turn out to be much less than the markets expect, Anadarko's prospects look solid. In addition to its strong positions in the Wattenberg and the Eagle Ford, which feature extremely strong rates of return and 6,000 remaining drilling locations, the company also has a robust pipeline of projects in the Gulf of Mexico, Algeria, and Ghana, as well as promising exploratory prospects offshore Africa.
Given its 67% deepwater exploration/appraisal success rate, these projects could result in companywide production growth even higher than the 5%-7% CAGR the company is targeting through 2020. With shares trading at a little over 13 times forward earnings -- cheaper than many of its peers -- now could be a good entry point for value-minded investors.
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