Last week, Texas-based independent oil and natural gas explorer Anadarko (APC) announced one of its largest oil discoveries in the Gulf of Mexico. Immediately following the press release, shares of the company, as well as the well’s co-owners ConocoPhillips (COP) and Marathon Oil Corp. (MRO), rallied, prompting many analysts to redraw their estimates for Anadarko. Many have noted that this discovery may very well be a “game changer” for the popular explorer [for more commodity news and analysis subscribe to our free newsletter].
A “Bottomless” Discovery
In its press release, Anadarko Sr. Vice President of Deepwater and International Exploration stated that “The successful Shenandoah-2 well marks one of Anadarko’s largest oil discoveries in the Gulf of Mexico, with more than 1,000 net feet of oil pay and reservoir rock and fluid properties of much higher quality than previously encountered by industry in Lower Tertiary discoveries”. The company also noted that it did not encounter oil-water contact after drilling down 31,405 feet below the ocean floor, meaning that thus far the well is essentially “bottomless.” Analysts currently estimate that the field may produce 700 million barrels of oil, more than twice original projections
The find has the potential to be a “giant” project according to Anadarko, citing that additional wells will likely be drilled in the area to determine the extent of the resources in place [see How Big Oil Is Drilling For Cheap].
As such, investors and analysts alike were quick to respond to the news; analysts at UBS recently raised their price target on the stock to $105 from $102 and adjusted the estimated net asset value.
What to Watch
In addition to keeping a close eye on the well’s operator, investors should also pay close attention to the project’s co-owners. ConocoPhillips (COP) has a 30% working interest, Cobalt International Energy L.P (CIE) holds a 20% working interest, while Venari Resources LLC and Marathon Oil Company (MRO) each hold a 10% working interest [see USA Oil Reserves: The World's Largest?].
Currently, Anadarko’s stock is up nearly 10% year-to-date, with its P/E ratio and EPS coming in at 18.19 and 4.74, respectively (data as of March 20, 2013).
Disclosure: No positions at time of writing.