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Analyst Blog

On Oct 25, 2013 we upgraded oil and gas operator Anadarko Petroleum Corp.’s (APC - Analyst Report) long-term recommendation to Outperform from Neutral based on the company’s high reserve potential from the Permian and Utica assets as well as its explorations in Algeria where estimates suggest reserves will double in the next seven to ten years. At the moment, it retains a Zacks Rank #3 (Hold).

Why the Upgrade?

The emergence of modern fracking technology has allowed companies like Anadarko to efficiently extract oil and gas from resource-rich shale plays. The company has capitalized well on the current shale boom in the U.S. The Permian play with an estimated resource potential of over one billion barrels of oil will offer attractive growth opportunities for Anadarko.

The Caeser/Tonga block in the Gulf of Mexico ("GoM") is also set to come online this year accentuating Anadarko’s sales momentum. With three new discoveries under its belt, the company is poised to benefit from the GoM play.

In addition, the government gave a go ahead to its exploration venture in Ghana which will drive production in the years ahead. Anadarko’s liquefied natural gas project in Mozambique is expected to be another key highlight in the coming years.

The company’s cash balance of $4.5 billion as of Jun 30, 2013 will effectively finance its ongoing growth projects. Anadarko’s multiple oil and gas ventures will also allow the company to reward its shareholders.

Other Stocks to Consider

Other stocks in the exploration and production field that are currently performing well include Matador Resources Company (MTDR - Snapshot Report), Northern Oil and Gas, Inc. (NOG - Snapshot Report) and VOC Energy Trust (VOC - Snapshot Report). All these companies carry a Zacks #1 Rank (Strong Buy).

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