Anadarko Petroleum, Noble Energy Offer Better Value Among Diversified Explorers

By On June 19, 2012 6:57 pm

Anadarko Petroleum Corp. (NYSE:APC : 65.8, 1.22) and Noble
Energy, Inc. (NYSE:NBL : 84.29, 1.46) could give better returns to investors at a
time when crude and macro economic factors has contributed to underperformance of
the exploration and production firms.
Both these companies have diversified onshore / offshore asset base, significant net
asset value (NAV) upside due to visible long­lead projects and exploration upside. They
could offset weakening natural gas liquids prices and weak crude demand and slowing
emerging market trends through their portfolio diversification.
Anadarko Petroleum has significantly underperformed about 1000 basis points relative
to the XLE index since March, primarily due to concerns over Tronox trial and Clean
Water Act fines.
Though the near­term performance is likely to continue to prove variable with market
expectations surrounding litigation risk, this performance belies a number of key
positives at the company over the past 3 months, including a significant resource
upgrade in Mozambique, and a positive settlement of the tax dispute with the Algerian
authorities that will boost 2013 earnings.
In addition, the underlying business as solid with a high­quality domestic business
executing a mix shift strategy with an international exploration effort that is pushing
into new frontiers such as Kenya and South Africa.
Anadarko is among the largest independent oil and natural gas exploration and
production companies in the world, with 2.54 billion barrels of oil equivalent of proved
reserves at year­end 2011. The company’s portfolio of assets encompasses key
positions in U.S. onshore shale and resource plays in the Rocky Mountains region, and
the Appalachian Basin. The company also is a premier deepwater producer in the Gulf
of Mexico and has production in Alaska, Algeria, and Ghana with additional exploration
opportunities in West Africa, Mozambique, Kenya, South Africa, New Zealand and


Meanwhile, Noble Energy could produce an uplift in production growth, per barrel
margins, and returns as its three major projects – Aseng, Galapagos and Tamar ­­
move into production over the coming 12­18 months. The main value driver for the
company continues to be the successful development of its Eastern Mediterranean
“With little change to our longer­term outlook we see this as an opportunity to add
exposure to a diversified global producer with leverage to exploration upside,”
Deutsche Bank analyst Stephen Richardson wrote in a note to clients.

A track record of prudent investment decisions and risk taking has positioned Noble
Energy extremely well to deliver on the significant project backlog while continuing to
push forward into frontier exploration to replenish the project backlog.
“We view NBL as one of the most disciplined capital allocators amongst the large­cap
E&P group,” Richardson noted.
The analyst adds that an important aspect of the Noble Energy story is the contracted
pricing associated with major projects underway in Israel and potential for more of
such projects dependent upon exploration success. This aspect of the portfolio isolates
the downside from commodity price due to the contracted revenues associated with
these gas projects.
Noble Energy, an S&P 500 company, is engaged in the production of crude oil and
natural gas in the U.S. and internationally. It had reserves of 1.2 billion barrels of oil
equivalent and assets totaling over $16 billion at year­end 2011. The company’s core
onshore operations are at the DJ Basin, and the Marcellus Shale, deepwater Gulf of
Mexico, and it has offshore operations in the Eastern Mediterranean and offshore West


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