ndependent oil and gas producer Anadarko Petroleum Corporation (APC) has entered into a joint venture (:JV) with Linn Energy, LLC (LINE) to develop the Salt Creek field in Wyoming's Powder River Basin. The Powder River Basin is one of Anadarko's key coal-bed methane (CBM) areas. It spans 738,000 net acres and comprises more than 3,000 identified lower-risk drill sites.
Per the deal, Linn Energy will invest approximately $600 million over the next three to six years, out of which $400 million will be utilized for field development purposes and the remaining $200 million for interest payment.
Anadarko began the Salt Creek field development in 2004 and now Linn Energy will join as a partner in the carbon dioxide enhanced oil recovery development of the field. Linn will gain a 23% interest in Anadarko’s Salt Creek field assets.
The recent JV will enable the companies to generate an average of approximately 1,600 barrels of oil per day in the first year and subsequently scale up the production to 3,800 barrels of oil per day by 2016. In our view, the addition of pipelines and increase in storage capacity resulting from the contract will prove highly beneficial for Anadarko.
Anadarko has already invested $65 million per year, on an average, to develop various phases of the Salt Creek integrated enhanced oil recovery (:EOR) project. We expect Anadarko to continue with the development of its Rockies EOR assets at Monell. It is also likely to continue with the tertiary recovery operations at Salt Creek fields in Wyoming throughout 2012.
As of December 31, 2011, the company had an extensive review plan for its 728 proved undeveloped reserves (PUDs). The company plans to convert onshore U.S. PUDs to developed reserves within five years.
We believe that Anadarko is exploring opportunities not only in the U.S. but also internationally. The company’s capital expenditure is expected to be directed at international projects. For now, the investments are predominantly concentrated in Africa.
We view this as a positive because we expect the development activities, the addition of pipelines and an increase in storage capacity in offshore Mozambique, El Merk (Algeria) and Jubilee unit in West Africa, as well as explorations in offshore Ghana to act as positive catalysts for the company’s future growth.
An analysis of Anadarko’s profile makes it evident that the company is not only expanding its operations through domestic and international new field explorations, but also pursuing inorganic growth through strategic alliances. In fiscal 2011, Anadarko entered into a JV with Korea National Oil Corporation (:KNOC) worth $1.55 billion.
Through the agreement, the Korean state-owned company acquired a one-third interest in Anadarko’s Maverick Basin assets at the Eagle Ford shale, Texas, with about 80,000 net acres in Eagle Ford and 16,000 additional dry-gas acres in the Pearsall Shale in South Texas. Per the deal, KNOC will pay Anadarko's 2011 capital costs in the Maverick Basin.
Anadarko already has a strong footprint in the Powder River Basin. The JV with Linn Energy will help the company to leverage its position in the Basin, by providing financial support and developmental assistance. We expect that the two JVs will be incrementally positive for the company’s acreage enhancement.
The company currently has a Zacks #2 Rank, which translates into a short-term Buy rating.
Based in The Woodlands, Texas, Anadarko Petroleum Corporation is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and natural gas liquids.