Anadarko Petroleum Corporation (NYSE:APC), the American oil exploration giant, announced yesterday that it has entered into an agreement with India’s Oil & Natural Gas Corporation Limited (NSE:ONGC) to sell a ten percent interest in the Mozambique offshore area.
Anadarko’s transaction of Mozambique Offshore Area 1
Anadarko Petroleum Corporation (NYSE:APC) is to remain the operator of Mozambique Offshore Area 1, with a working interest of 26.5 percent. The transaction is expected to close at the end of 2013 and is subject to approvals by the governments of Mozambique and India.
“Area 1 is operated by Anadarko Moçambique Area 1 Limitada (a wholly owned indirect subsidiary of Anadarko) and is located in Mozambique’s deepwater Rovuma Basin. The block contains the Prosperidade and Golfinho/Atum natural gas complexes that combined hold an estimated 35 to 65-plus trillion cubic feet (Tcf) of recoverable natural gas resources. In cooperation with the Government of Mozambique, Anadarko, its partners, and Eni (as the operator of the adjacent Area 4 block) continue to advance the development of an LNG park with first LNG cargoes expected in 2018,” explained Anadarko in its press release on Sunday.
This move is part of Anadarko Petroleum Corporation (NYSE:APC)’s strategy to strengthen its hold in the U.S. Anadarko gets 90.5% of its revenues from exploration and production activities across the globe. Currently, 74% of Anadarko’s revenues come from the U.S., while another 16% come from Algeria. Only about 9% of the company’s revenues come from other regions which include a small part from Mozambique. However, the inflow of cash is considered a positive move as the money can be reinvested in non-conventional oil plays in the United States.
Figure 1: Regional Composition of Anadarko’s Revenues
Anadarko on operation of area 1
“As the operator of Area 1, we are very pleased to have reached this agreement with Oil & Natural Gas Corporation Limited (NSE:ONGC), which values our pre-transaction interest at more than USD 9.6 billion. We expect to use the net proceeds from this transaction to further accelerate the short- and intermediate-term oil and liquids opportunities we have in the Wattenberg field, Eagleford Shale, Permian and Powder River basins, as well as the Gulf of Mexico and other evolving plays in our portfolio. Our objective with this allocation of capital will be to further increase our cash-flow growth with attractive wellhead margins, while providing additional value to our shareholders as evidenced by our recent dividend increase and continued portfolio-management activities,” says Anadarko Petroleum Corporation (NYSE:APC).
Figure 2: Market Price of Anadarko and Peers Compared to NYSE Composite Index
Consensus is placing the target price at USD $111.04 which is about 24% higher than the closing price of Friday, August 23, 2013. Anadarko, with current market capitalization of USD $45.143 billion, has an upward potential despite the drop it saw in both its revenues and income in the second quarter of 2013. We assert a Strong Buy rating for Anadarko based on consensus estimates.
Figure 3: Anadarko’s Historical Revenue and EPS (Revenue in million USD)