One day after Anadarko Petroleum Corp. President and CEO John Seitz resigned unexpectedly from his positions, analysts were scratching their heads looking for an explanation. The news came as a shock because it coincided with an energetic and optimistic investor webcast earlier in the month, which was met with positive reactions from some notable analysts.

Anadarko made the announcement early last week that Seitz “elected to resign” over what appeared to be poor stock performance. Seitz took over the reins as president in April 1999 and added CEO to his title in January 2002. In the wake of the news, the Houston-based producer’s stock dropped below $44 Wednesday. Anadarko’s stock had been $47.90/share at the start of 2003, $56/share a year ago and above the $70 level in 2001.

Sanders Morris Harris analyst Irene Haas said her reaction to the resignation was one of “shock,” noting that she did not believe it was planned.

“You certainly don’t have a very successful analyst meeting, then three days later have your top CEO resign,” she said. “I believe John Seitz is very well respected and very well liked in the oil patch and on Wall Street also, so I don’t believe there was any wrongdoing or conflicts of interest. I think it has been a succession plan that did not work out ultimately,” she said, noting that there might have been a “clash of perhaps style” or strategy.

Last Thursday (March 20), Anadarko management said that 2003 and 2004 are going to be “exciting times” for the company as past exploration efforts finally come to fruition. Holding an all-day webcast for analysts (see Daily GPI, March 24), the company said that in addition to shifting focus to the development side of the business, the company also is realigning resources to concentrate on its U.S. onshore plays.

“What you will see today is a program for 2003 and 2004 that is based on heavy spending over the last three or four years,” Seitz said in the webcast. “We are getting ready to harvest, to drill the wells from those seismic and leasehold expenditures beginning in 2003. That is why we are pretty excited about this year. It is going to be a very significant year for Anadarko; it’s going to be another breakout year.

“We are not the company we were when I came to work for Anadarko in 1977. We have a broader, more diverse portfolio than ever.”

Anadarko, which is one of the largest independent oil and natural gas producers in the United States, believes its current stock is “severely undervalued.” Anadarko spokeswoman Teresa Wong said. The company currently has 79 rigs operating worldwide and has 20 million acres of onshore lands.

“The board of directors was concerned about Anadarko’s stock price performance, and John elected to resign,” Wong added.

Seitz, a 25-year veteran of Anadarko, had been brought in to succeed Robert J. Allison Jr., 64. “Seitz did not have an employment contract with Anadarko,” Wong said, when asked if he received a severance package.

Allison, Anadarko’s current chairman, was named president and CEO in the wake of Seitz’s resignation. Allison served as CEO of Anadarko from 1986 to 2001 and has served as Chairman of the Board since Anadarko became an independent company in 1986.

Haas pointed out that Allison stepping back in as CEO of the company can only act as a temporary fix because Anadarko currently has a mandatory retirement age of 65. “Anadarko will have to find a CEO either internally, externally, or else the company could be up for sale as a third option,” she said.

“I really felt like three years after the UPR [Union Pacific Resources] merger they finally had all of the bits and pieces together and were ready to drill,” Haas said. “The morale was good, the troop was excited, and all of that good momentum” gets halted by this. “I don’t think [the resignation] would make a whole lot of sense, short of the succession plan did not go well.”

Prior to the company announcing Seitz’s resignation Tuesday afternoon, Friedman Billings Ramsey raised its investment rating for the company from “market perform” to “outperform.” Sanders Morris Harris also upgraded the company from “buy” to “strong buy.” Following news of the resignation, analysts continued the trend. Wednesday morning, Raymond James & Associates upgraded the company from “outperform” to “strong buy.”

Standard & Poor’s Ratings Services (S&P) chimed in Wednesday, stating that the resignation of Seitz and his replacement by Allison would not affect its ratings and outlook on Anadarko (BBB+/Stable/A-2).

“To Standard & Poor’s knowledge, Mr. Seitz’s resignation is not a result of accounting or other irregularities,” S&P analyst Bruce Schwartz said in a note. “Mr. Seitz’s resignation will not precipitate a change in either business strategy or financial philosophy; the most important strategy is to apply free cash flow (after capital expenditures), that could be between $300 million and $700 million in 2003, toward debt reduction.

“Nevertheless, Mr. Seitz’s resignation reportedly has been linked to Anadarko’s disappointing share price performance; if Anadarko were to implement strategies to enhance shareholder value at the expense of credit quality, Standard & Poor’s would then re-examine Anadarko’s ratings and outlook.”

On the possibility of an Anadarko sale, Haas said in this current market cycle there “does not appear to be a lot of natural buyers for the larger independent E&Ps.”

Going forward, Haas said the company can still exceed expectations this year because its capital plan is set and a plan is in place. However, “in the near term, they probably have to address the whole succession issue, that wasn’t much of one until this happened,” she said.

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