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Anadarko Divestitures Reveal Value of Asset Base, Say Analysts

January 30, 2007
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Since its blockbuster acquisitions of Kerr-McGee Corp. and Western Gas Resources Inc. (see Daily GPI, June 26, 2006), Anadarko Petroleum Corp. has been on a divestiture tear, cutting down acquisition debt through multiple asset sales. So far, the company's plan to end 2007 with $12 billion of debt is on track, according to analysts.

"Asset sales to date have lowered Anadarko's net debt to a manageable $15.8 billion, down from a post-acquisition high of $27 billion," wrote Friedman, Billings, Ramsey & Co. Inc. (FBR) analysts in a Monday note. "The company is quickly progressing toward its YE07 net debt target of $12 billion with further sales expected.

"The next milestones will be the [deepwater Gulf of Mexico] K2 and EGOM [eastern Gulf of Mexico Independence Hub] announcements in which we expect Anadarko to sell down its interest in the developments for $3.5 billion in gross proceeds. The company's current net debt/total capitalization ratio of 44% is down from 58% immediately after the acquisitions; we expect the ratio to drop to 36% by YE07."

Since the Kerr-McGee and Western transactions Anadarko has sold more than 500 MMboe through eight divestitures at a weighted-average price of $17.46/boe, the analysts wrote. "Incorporating the recent asset sales and debt reduction, we arrive at a current TEV [total enterprise value]/boe of $10.54, indicating that the company's reserves are valued by the stock market at a steep discount to the valuation verified by the asset sales.

Anadarko shares have been trading around $42 on the New York Stock Exchange, significantly less than their 52-week high of $56.98.

"We believe that the asset sale metric of $17.46/boe is evidence of significant value embedded within the company's asset base that continues to go unappreciated by the stock market. The downward trend in the TEV/boe metric over the last few months has been value accretive, especially when viewed in light of the prices that Anadarko has received for its assets."

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