Morningstar | Big Week for Anadarko: Sale of Midstream Assets Announced and Prop 112 Fails in Colorado
We're slightly raising our Anadarko fair value estimate to $63 per share from $62 following the company's decision to sell its midstream assets to Western Gas for just over $4 billion. Anadarko will receive about $2 billion in cash and $2 billion in equity from Western Gas, which, in tandem, announced an MLP simplification transaction. Following the transaction, which is expected to close in the first quarter of 2019, Anadarko will own just under 60% of Western Gas, which will include Western's prior assets and the $4 billion basket of midstream assets moving from Anadarko to Western. We think Anadarko received a good price for the assets (largely composed of midstream properties in the Delaware and DJ basins), thus the small increase in our fair value estimate after accounting for the sale and the revised ownership structure.This has been a big week for Anadarko, which also saw Colorado Proposition 112 fail at the ballot box on Nov. 6. If the referendum had passed, it would have effectively shut down drilling operations in the state, rendering undeveloped leases worthless. Anadarko has a significant portion of its value (more than $20 per share) tied up in future drilling opportunities in Colorado's DJ basin. Though, as we expected, the ballot initiative failed. As such, the value we attribute to Anadarko's DJ leases is unchanged. Still, we'd highlight future drilling regulations as a driver of uncertainty for Anadarko and other shale operators.
Anadarko Petroleum is an independent exploration and production company. The company also participates in the hard-minerals business through royalty arrangements. The company's reporting segments are as follows: Exploration and Production, which is engaged in the exploration, development, production, and sale of oil, natural gas, and natural-gas liquids (NGLs) and in advancing its Mozambique liquefied natural gas project toward final investment decision; and WES Midstream and Other Midstream, in which these two segments engage in gathering, processing, treating, and transporting the company and third-party oil, natural-gas, and NGL production as well as gathering and disposal of produced water.
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