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Anadarko Considers Buying Properties, Stock to Boost Value

Citing the "stunning" drop in the net asset value (NAV) of U.S. exploration and production (E&P) companies, Anadarko Petroleum Corp. is considering ways to boost the company's value -- by either buying back stock or buying some assets -- the CEO said last week.

The share buybacks or acquisition opportunities would "unlock the value" of Anadarko's share price, CEO Jim Hackett told energy analysts during a quarterly earnings conference call. Anadarko's share price has fallen around 19% since the beginning of the year, and the company may use its solid balance sheet and free cash flow to bolster the sagging share price.

"There are a number of options we'll look at, giving focus on how to make sure we don't lose our investment grade rating," Hackett said. "We're working through the system. But the values for large cap [E&Ps] is stunning relative to the NAV."

Anadarko purchased Kerr-McGee Corp. and Western Gas Resources for $21 billion in 2006, and as it consolidated the massive set of assets, more than $12 billion of the properties were sold in 2007. This year Anadarko expects to return to production growth with a $4.9-5.1 billion capital budget, which is 25% higher than it was a year ago.

"We have a new asset footprint, and we've demonstrated its depth and flexibility as we overcame the production shut-in," Hackett said. "The Independence Hub shut-in was a month longer than we expected, and we still beat the volume guidance for the quarter. If we had resolved the issue in May, we would have been at the high end of our guidance for the quarter."

Even with the 50-day shut-in of the deepwater Independence Hub, which Anadarko operates, the Houston-based producer still produced 50 million boe in the quarter. The gas hub which was shut in over a period in May and June (see NGI, June 23), also was shut in earlier this month for what was to be a routine four-day maintenance check on the integrity of its bolts and flex joints, Hackett said. The anticipated Aug. 2 restart was delayed with the arrival of Tropical Storm Edouard, Hackett noted (see related story). The hub was to begin ramping up to pre-storm levels last weekend, he said.

Several key areas lifted Anadarko's U.S. production in 2Q2008: the tight gas play in the Uinta Basin, coalbed methane production from the Powder River Basin and the Gulf of Mexico (GOM).

"Momentum onshore affirms our production guidance of 207-212 million boe expected in 2008," said Hackett. Anadarko's 3Q2008 production is expected to be about 13% higher than for the same period a year ago, ranging from 51 million boe to 54 million boe.

Onshore U.S. spending will account for about half of Anadarko's 2008 capital budget; GOM projects will require a quarter of the spending. Full-year 2008 output is expected to be around 212 million boe, which would be in line with 2007 production.

To ensure that its growing Rockies production is moved to market, Hackett said Anadarko was doing what it could to back gas pipeline projects in the region.

An Anadarko subsidiary in May committed to 250 MMcf/d as a foundation shipper for the proposed Bison Pipeline Project, which would carry Powder River Basin gas supplies (see NGI, May 19). The company, he said, also agreed to make a binding commitment to El Paso Corp.'s proposed Ruby Pipeline LLC, which would carry gas from the Rockies to the West Coast (see related story). The CEO offered no details on the extent of Anadarko's commitment to the Ruby pipeline project, which as proposed would have an initial capacity of 1.3-1.5 Bcf/d.

"Together these pipelines will ensure a market for Rockies gas," said Hackett. "We feel pretty good about our takeaway capacity position to handle the basis differential...We see constraints going forward, which is why we signed up with Bison and Ruby and to ensure they are on time to get done as early as possible."

The Houston-based producer reported that net income dropped 98% from a year ago after asset sales lifted the year-ago quarter and hedging contracts for oil and natural gas fell in value. Reported net income fell to $23 million (5 cents/share) from $1.31 billion ($2.81) in 2Q2007. Excluding the hedging loss and the impairment and gains from asset sales, Anadarko earned $1.78/share, which was 1 cent above average Wall Street estimates.

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