Anadarko Petroleum Corp. Houston, plans to sell properties representing 15% of its yearend 2003 proved reserves and 25% of its current oil and gas production, with after-tax proceeds expected to exceed $2.5 billion.
The refocused corporate strategy is expected to deliver higher returns on investments and 5-9% annual production growth. Anadarko said its 2004 production growth target remains 1-4%.
The restructured company will be positioned to deliver stronger growth and improved cash margins through 2009 and beyond, along with an improved balance sheet, Anadarko Pres. and CEO James Hackett told reporters June 9.
The company actively reviewed its asset base for 5 months, Hackett said. Late last year, he joined Anadarko from Devon Energy Corp., Oklahoma City, where he was president and chief operating officer (OGJ, Dec. 15, 2003, p. 33).
Anadarko plans to use asset sale proceeds to reduce net debt on its balance sheet and to repurchase stock. The board has authorized the eventual repurchase of up to $2 billion of Anadarko stock. Initially, the company plans to use asset sale proceeds for $1.4 billion in debt reduction and $1.1 billion for share buybacks.
Hackett declined to specify a targeted debt to capitalization ratio, saying only that it would be "significantly less" than the existing 36%. Some jobs will be impacted as a result of the divestitures, but Hackett said that it was too early to say how many jobs might be eliminated. Anadarko has 3,400 employees.
Regarding its revamped operating strategy, Hackett said Anadarko is changing not what the company does, but rather where and how it allocates resources.
"We are retaining our commitment to exploration and development, especially in the areas of high-potential exploration and unconventional resource identification and commercialization," he said.
Anadarko's growth areas currently include the Gulf of Mexico deepwater, Algeria, and Qatar. Assets targeted for sale primarily are in the US, Canada, and Oman.
"The best time to fix your roof is when the sun is shining, and it's shining on our industry right now, with recent property sales going at record prices," he said. "This is not an effort to raise capital or reduce debt; we are already producing significant free cash flow at current prices."
Schedules for data rooms and deadlines vary, depending on the property involved.
Targeted divestitures
Most of the anticipated asset sales are expected to close by Dec. 31, with the rest to be finalized by the end of first quarter 2005. Properties identified for divestiture are estimated to include 325-350 million boe of proved reserves and 115,000-125,000 boe/d of production volumes.
Most of the properties to be divested are in the shallow Gulf of Mexico, Western Canadian Sedimentary Basin, and the US Midcontinent.
"We are exiting the shelf, but not the deepwater or the deep shelf," he said, emphasizing that Anadarko will remain "one of the largest independents leading in exploration in the US and overseas."
Sales in the US will include most central Oklahoma enhanced oil recovery properties, the deep Hugoton basin fields, fields in the Texas Panhandle, the Wyoming-Utah Overthrust, southeastern Colorado, various Permian basin fields, and other miscellaneous properties.
In Canada, Anadarko plans to sell various central Alberta fields, various northeastern British Columbia fields, southeastern Saskatchewan fields, and miscellaneous southern Alberta fields.
Anadarko has put about 40% of its Canadian properties up for sale, Hackett said.
"There is a very hot market there right now," he added. The assets targeted for divestiture "don't fit our model going forward. I think Canada can be three times as big as it is today (for Anadarko) if we make the right moves."
Reaction
Jason Gammel, analyst with Prudential Equity Group LLC, called Anadarko's plans "very positive."
"However, the proof will be in the details. If the company is able to execute, it should deliver higher free cash flow, higher and more visible production growth, and a stronger balance sheet," he said.
Moody's Investor Service affirmed Anadarko's Baa1 long-term and Prime-2 commercial paper ratings with a stable outlook following the company's announcement.
"Anadarko can achieve these plans, in particular the asset sales and front-loaded debt reduction, and then move forward with a rebalanced—albeit reduced—reserve and production profile and sustained lower financial leverage," said John Diaz, Moody's managing director, corporate finance group, New York.
On a proforma basis, Moody's calculated that Anadarko should be able to reduce financial leverage from a yearend 2003 level of $2.93 total debt/boe (unadjusted) to within a targeted area of $2.50/boe for proved reserves, a level consistent with Anadarko's existing debt ratings.
"Longer term, after 2007-08, Anadarko's challenge will be to find new reserves opportunities outside of its core maturing North American basins to sustain future production and cash flow growth," Diaz said.
Fitch Ratings Ltd. affirmed Anadarko's senior unsecured debt BBB+, its unsecured bank facility BBB+, its preferred stock BBB, and its commercial paper F2. The affirmation affects $5 billion in publicly traded debt securities, and the rating outlook for Anadarko is stable, Fitch said.
Share repurchase
The board has authorized Anadarko to repurchase up to $2 billion in shares from time to time, depending on market conditions. Shares may be repurchased either in the open market or through privately negotiated transactions.
Anadarko plans to buy most of the authorized amount in shares within 12 months as divestiture proceeds and excess cash flow are realized.
