Anadarko deal boosts investor confidence in face of large liabilities

HOUSTON – Anadarko Petroleum’s deal to sell its stake in a Chinese offshore oil field should ease investors’ fears about its environmental liabilities that could reach billions of dollars, analysts said Tuesday.

It’s a $1.1 billion boost to Anadarko’s cash pile that — coupled with other multibillion-dollar sales — could cushion it against one of the largest environmental enforcement awards in history.

A federal bankruptcy judge ruled late last year that Anadarko unit Kerr-McGee owes up to $14 billion for spinning off a chemical business loaded with old environmental liabilities and little liquidity.

Investors – who had expected a much smaller sum – erased billions from Anadarko’s market value overnight, but jettisoning assets like its interest in China’s state-owned Bohai Bay field could temper the backlash.

“It gives them more financial flexibility so they can move on,” said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. After the proceeds arrive in Anadarko’s bank, he added, the company will have built an $8 billion wall against the judgment — and it has more to sell.

Besides, it’s no great loss for Anadarko. Its stake in the offshore field, 125 miles south of Beijing, produced 11,000 barrels per day last year, about 1 percent of the company’s annual haul, regulatory filings show. For a $42 billion oil company, an asset that size doesn’t “move the needle” or impress Wall Street,  but Hong Kong buyer Brightoil Petroleum paid a fair price for it, analysts say.

Like Anadarko’s small foothold in Brazil — another position the company is likely to sell – the value of Chinese offshore oil assets are not reflected in its stock price, said Amir Arif, an analyst at Stifel in Washington D.C.

“They didn’t see enough running room to grow,” Arif said. “Those assets are worth monetizing.”

And the deal, announced late Monday, isn’t irregular: It easily fits the Woodlands-based oil producer’s business approach, said John Christiansen, a spokesman for Anadarko.

“We probably manage our portfolio more actively than most companies,” he said. “We are constantly high-grading and moving assets.”

It’s a sale Anadarko had talked about before the large judgment was handed down in December, and it’s unlikely that it’s a sign of Anadarko’s fears over the potential liabilities, said James Sullivan, an analyst with Alembic Global Advisors in New York.

Yet shareholders added $1 billion back to Anadarko’s market value Tuesday, a day after the deal was announced.

Anadarko has said it may appeal the ruling and has already pushed back. The company said it used the presiding Manhattan bankruptcy judge’s own framework to determine it should only have to pay between $850 million and $1.8 billion to titanium producer Tronox, the company that Kerr-McGee had spun off in 2005.

Anadarko had bought Kerr-McGee for $18 billion in 2006, a few years after it had passed on buying the Oklahoma-based oil producer because of its large environmental liabilities, according to court documents. Stamford, Conn.-based Tronox sued Anadarko and its subsidiary and filed for bankruptcy in 2009, leading to years of court battles.

The multibillion-dollar judgment against the company left shareholders eager to see the company bulk up its balance sheet.

Sullivan said Anadarko may also reduce its stake in a Houston-based midstream holding company, Western Gas Partners. Its offshore oil production in the Gulf of Mexico and natural gas deposits in Mozambique are much higher priority, he added.

The Chinese offshore assets were originally part of Kerr-McGee’s portfolio, and “have always represented a non-core interest to the company,” analysts with Houston investment banking and research firm Simmons & Co. wrote Tuesday.

The company may be “extremely well capitalized,” the analysts wrote, but the extra cash it adds to Anadarko’s balance sheet should comfort investors.

Anadarko shares closed up $1.92 in Tuesday at $83.46 on the New York Stock Exchange.


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