Anadarko May Take Biggest Hit From Gulf Oil Spill
Anadarko may take bigger hit than BP over oil spill
F. Carter Smith/Bloomberg
Anadarko CEO James Hacket.
Anadarko CEO James Hacket. Photographer: F. Carter Smith/Bloomberg
May 13 (Bloomberg) -- BP Plc is battling a Gulf of Mexico oil spill, is a defendant in more than 100 lawsuits and is testifying before Congress about what caused an April 20 rig explosion and fire. Anadarko Petroleum Corp., which owns a 25 percent stake in London-based BP's Macondo well, may be taking the bigger financial hit. Bloomberg's Erik Schatzker reports. (Source: Bloomberg)
BP Plc is battling a Gulf of Mexico oil spill, is a defendant in more than 100 lawsuits and is testifying before Congress about what caused an April 20 rig explosion and fire. Anadarko Petroleum Corp. may be taking the bigger financial hit.
Anadarko owns a 25 percent stake in London-based BP’s Macondo well, where the April 20 rig disaster killed 11 people and set off leaks spewing an estimated 5,000 barrels of oil a day into the sea. Anadarko, based near Houston, had no say in how the well was drilled.
“They were basically the passenger and somebody else was doing the driving, so the car crashed,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. “What we see here is that Anadarko got hurt more than the driver.”
Pound for pound, Anadarko may have to pay more than BP. ING Bank NV estimated that costs of the spill may reach $7.8 billion. Anadarko may have to pay as much as 25 percent of those expenses, which would be almost $2 billion, if ING’s forecast proves accurate. BP, which owns 65 percent of Macondo and is project operator, is 29 times the size of Anadarko by revenue and almost eight times as big based on reserves available for future production.
Anadarko has dropped 22 percent in New York trading since the April 20 blast aboard the Deepwater Horizon rig, tumbling from first to third among independent U.S. oil companies by market value. BP has fallen 16 percent. Japan’s Mitsui & Co., which has a 10 percent stake in Macondo and is five times Anadarko’s size by revenue, is down 8.7 percent.
Insurance Coverage
Anadarko, which bought its stake in the well last year, said last week that it has insurance coverage of about $177.5 million on Macondo and deductibles of about $15 million. BP said today that it has spent $450 million on the spill response.
Insurance may cover Anadarko for two or three months, said John Lutz, an analyst who helps oversee about $6.8 billion in assets, including 140,000 Anadarko shares, at Frost Investment Advisors in San Antonio.
“Above and beyond that, they’re on the hook, and I think it’s safe to assume it’s going to be considerably higher than that,” Lutz said.
Anadarko may not be responsible for a 25 percent share of all costs if it’s found that negligence by other companies caused the blast, said Lutz, who added that it would take five or 10 years for the impact to be known.
‘All Together Responsible’
“The position by the injured parties will be that the owners are all together responsible,” said James Garner, a New Orleans lawyer whose firm represents Louisiana businesses that are being affected by the spill. “We’ll let the courts sort out in what portion.”
Independent U.S. oil producers typically focus on onshore and shallow-water projects with relatively little risk. Oklahoma City-based Devon Energy Corp., the nation’s second-biggest independent oil and natural-gas producer, reported a success rate of “almost 100 percent” on the 454 wells it drilled in the first quarter.
Anadarko, which incurred $780 million in so-called dry-hole costs last year, is funding deep-water discoveries from Africa to Brazil. The company plans capital spending this year of $5.3 billion to $5.6 billion.
Chief Executive Officer Jim Hackett said the oil spill won’t change his strategy.
Staying the Course
“We will remain focused on managing through this event, and based on what we know today, we are not currently making any major changes or interruptions to our capital-spending programs or strategic objectives,” Hackett told investors on a May 4 conference call.
Anadarko ended the first quarter with about $3.7 billion in cash, according to a company filing. The full amount of the company’s $1.3 billion revolving credit agreement was available for borrowing.
If necessary, Anadarko could reduce its spending or sell assets, Chief Financial Officer Robert Gwin said on the call.
“They will clearly have less capital available for their programs,” said Philip Dodge, an analyst at Tuohy Brothers in New York. “It’s possibly going to be something that they can accommodate, or if this goes on for a long period of time, it’s going to hold them back.”
Costs to Climb
Anadarko said insurance premiums may increase. Lutz said regulatory changes resulting from the spill may push exploration costs higher.
There’s also lost production. At 5,000 barrels a day, the leaks are dumping almost $400,000 a day worth of crude into the Gulf. BP spokesman Jon Pack said it’s still possible there will be oil produced in the area. The reservoir may have held about 50 million barrels of crude, he said.
For now, Anadarko is assisting BP until the leaks are stopped and questions are answered. “We want answers as much as anyone,” company spokesman John Christiansen said.
Oppenheimer’s Gheit, who cut his rating of Anadarko shares to “market perform,” said he still considers the company a “premier” oil explorer.
Anadarko rose 89 cents, or 1.6 percent, to $57.85 as of today’s 4 p.m. close of New York Stock Exchange composite trading. BP and Mitsui gained 1.1 percent and 2.5 percent, respectively.
“The company lost almost one quarter of its market value in 20 days,” he said. “That’s real punishment.”
To contact the reporter on this story: Edward Klump in Houston at eklump@bloomberg.net.
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