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Morningstar | Occidental Formally Enters the Bidding for Anadarko

Anadarko Petroleum has spent much of the past couple years streamlining its portfolio to focus on promising assets in what the company terms its three D’s: the Delaware and DJ basins onshore, and deepwater operations in the Gulf of Mexico. Through a combination of asset sales and purchases, Anadarko has pushed its production mix toward oil and away from gas to improve margins. We expect a liquids production mix of roughly 75% in 2020 versus less than half in 2014. Gas-heavy asset sales have led to a substantial cash position, which should give the company some measure of insurance against near-term commodity price volatility.In the Delaware, Anadarko is amid the transition from appraisal to development, with substantial production growth on the horizon. The company has identified 10,000 horizontal drilling locations within its acreage, which should support a five-year oil production CAGR of nearly 20% in the basin. In the DJ, Anadarko’s economics benefit from its ownership of mineral rights over a substantial portion of its acreage, limiting royalties paid. The company’s drilling plan in the DJ is not as aggressive as that in the Delaware, but we expect solid production growth, with the DJ remaining Anadarko’s largest producing region. In the Gulf of Mexico, lower commodity prices have forced the company to focus primarily on tieback opportunities that rely on existing infrastructure and produce superior economics to greenfield expansion. This portfolio of opportunities has increased significantly following the purchase of assets from Freeport-McMoRan and should allow Anadarko to keep its Gulf of Mexico production flat for several years.Outside of its core assets, Anadarko owns oil and gas production in Algeria and Ghana, and continues to put exploratory money toward an LNG project in Mozambique. In addition to its upstream assets, Anadarko controls a sizable midstream portfolio that primarily focuses on its production in the Delaware and DJ basins through its Western Gas subsidiaries.In April 2019, Chevron announced a deal to acquire Anadarko at a premium to our stand-alone fair value estimate. Shortly after, Occidental offered an even higher price.