Anadarko Petroleum (NYSE:APC) is a company on the move. Management has enacted a number of strategic initiatives in recent weeks that will propel the company through 2014 and beyond. In particular, the company is making big moves in Asia to develop and enhance its presence in the emerging markets, where demand for oil and natural gas is surging.
Due to its huge investment in liquefied natural gas in its Mozambique operations, it's hard to believe Anadarko doesn't have an extremely bright future ahead. This represents a very positive catalyst that Anadarko management is excited about. And, Anadarko is still very much committed to U.S. production as well. Add it all up, and it's clear why investors should be just as excited as management.
Not just U.S. focused
Anadarko is based in the United States, has the bulk of its oil and gas operations here, and is devoting the majority of its 2014 capital budget on domestic drilling and development programs. 60% of the company's capital expenditures will be allocated toward onshore production in the United States. Of this, more than 80% of its U.S. onshore investments will be focused on oil and liquids-rich opportunities.
There are plenty of good reasons for this, primarily the surge in domestic oil and gas production in recent years. Oil and gas fields such as the Permian Basin, and Eagle Ford shale, are some of the premier areas of production in the United States. Not surprisingly, Anadarko along with its exploration and production peers such as Pioneer Natural Resources (NYSE:PXD) and Apache Corp. (NYSE:APA), are investing heavily in domestic oil and gas this year.
Pioneer Natural Resources operates 35 rigs in the Permian Basin, 24 of which are horizontal and 11 vertical. Pioneer's average production stands at 93,000 barrels of oil equivalents per day. Pioneer expects to allocate $3 billion to drilling capital this year, nearly three-quarters of which will be devoted to the Permian Basin.
Apache Corp. has more than doubled its Permian production as a percentage of total production over the past five years. Going forward, Apache expects overall growth of at least 15% in its North American liquids production. This will be driven by oil, due mostly to its Permian Basin exposure. Of its $8.5 billion in planned exploration and production capital expenditures this year, $2.6 billion, or 30%, will be allocated to the Permian Basin.
As a result, you'd naturally assume Anadarko Petroleum was turning its back on international expansion, but that's not at all the case. As it turns out, management is equally ambitious when it comes to growth across the world as it is domestically. To prove it, Anadarko recently announced long-term supply agreements for its liquefied natural gas project in Mozambique, which is expected to begin first shipments in 2018.
Anadarko's LNG operations are a major catalyst
This is a significant development, since Anadarko Petroleum CEO Al Walker has previously stated his belief that Mozambique will one day become the world's third-largest LNG exporter. Anadarko has drilled more than 20 deep-water wells in its Mozambique operations and has discovered an estimated 45 million-70 trillion cubic feet of recoverable natural gas.
The buyers are located across Asia, which is a critical growth opportunity for natural gas production. The U.S. Energy Information Administration states that natural gas is the fastest-growing fossil fuel around the world. The EIA reports that, in the three decades spanning 1980 and 2010, global consumption of natural gas has more than doubled. Consumption in North America actually saw the slowest regional growth, while Asia represented the second-highest regional growth rate by continent. Moreover, Asian demand rose more than eight-fold over the three-decade period.
The bottom line is that securing long-term supply agreements is a critical step in reaching first production. It will virtually ensure steady business and a likely payoff from the massive investments made in LNG. Anadarko is set up extremely well to serve the soaring demand for LNG out of Asia. Its share price jumped on the day of the announcement, which is an entirely justified market reaction. The company's Mozambique LNG project, in addition to continued investment in the United States, will fuel Anadarko's future for many years to come.