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Analyst Blog

On Jun 13, 2014, the shares of Anadarko Petroleum Corp. (APC - Analyst Report) soared to its 52-week high of $109.42 on the back of substantial investments in asset development, service start-up of critical projects and attractive dividend payment. The surge in share price might also be attributed to the recent whispers of possible acquisition of the company by energy giant Exxon Mobil Corp. (XOM - Analyst Report). The share price finally closed at $109.37, up 26.2% from the year-ago closing price.

Anadarko’s assets are positioned in the prime U.S. oil and natural gas plays, which provide a stable growth trajectory. The company reported impressive earnings and revenue beat in the first quarter of 2014 thanks to increased contribution from its Wattenberg, Eagleford and Wolfcamp basins.

Meanwhile, the company’s non-core asset divestiture strategy has enabled Anadarko to focus on high-return properties and achieve capital efficiency. Solid production growth from the company’s onshore assets prompted it to offer a 50% hike in quarterly dividend to $0.27 per share, thus retaining shareholder’s confidence in the stock.

Going ahead, the company’s mammoth investments in various exploration assets will supplement its reserve portfolio. The company is making headways with its Lucius prospect in the offshore Gulf of Mexico which is on track for first oil in the latter half of 2014. Internationally, positive appraisal activities in the Mozambique Offshore Area 1 Block are also expected to offer encouraging reserve potential.

We believe these initiatives could help Anadarko attain its production target range of 5% to 7% for the next five years. With world energy needs expected to rise by 20.2% by 2020 from 2012 level, the company has an immense room for growth in the future.

Currently, Anadarko carries a Zacks Rank #3 (Hold). Other better-ranked exploration and production players include Encana Corp. (ECA - Analyst Report) and Athlon Energy Inc. (ATHL - Snapshot Report). Both these stocks hold a Zacks Rank #1 (Strong Buy).

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