Anadarko Slides After $2 Billion Freeport Deepwater Deal

  • Buy will generate $3 billion in five years for shale expansion
  • Deal raises Anadarko stake in Gulf project to 49 percent

Anadarko Petroleum Corp. fell after the oil and natural gas producer agreed to buy Gulf of Mexico assets from Freeport-McMoRan Inc. for $2 billion and said revenue from offshore wells will help accelerate onshore development.

Shares slid as much as 3.2 percent to $55.92, the most intraday since Aug. 31. The stock was down 2.3 percent to $56.48 at 9:57 a.m. in New York.

The deal doubles Anadarko’s existing stake in oil wells in the deepwater Lucius development to approximately 49 percent, adding the equivalent of about 80,000 net barrels of crude a day, the producer said Monday in a statement. 

Some investors may question Anadarko’s increasing exposure in the Deepwater Gulf at the expense of onshore assets, Pearce Hammond, an analyst at Piper Jaffray, said in a research note. "It will be interesting to see" how they "digest" the acquisition, he said.

The purchase is another sign that U.S. drillers that have survived two years of upheaval in oil prices are returning to deal-making. EOG Resources Inc. last week announced a $2.5 billion purchase to expand in the Delaware, one of the hottest areas for acquisitions. Apache Corp. followed with its own announcement that it had quietly amassed 350,000 acres in the region where it had found “massive” new quantities of oil and gas.

Investment Plan

The offshore assets will generate $3 billion of additional free cash flow over the next five years that will help boost production in West Texas’ Delaware Basin and the DJ Basin centered in Colorado, Anadarko said. The company is running under the assumption that the free cash flow will largely be deployed to U.S. onshore development, management said on a conference call to the discuss the deal.

The company will also continue to evaluate selling more assets. While it is still in the market for acquisition opportunities, Anadarko will not "chase" pricey assets, executives said on the call.

Anadarko, which had been cutting costs and selling assets to weather the price slump, now plans to boost capital spending to between $2.8 billion and $3 billion this year. That’s $200 million over its previous forecast in May. 

Growth Catalyst

The Gulf acquisition “is a catalyst for the company’s oil-growth objectives, with quality assets being acquired at an attractive price to create significant value,” Anadarko Chief Executive Officer Al Walker said in the statement.

To fund the deal, the producer is selling about 35.3 million common shares to raise about $1.9 billion in an offering it plans to close by the end of this week, according to a separate filing on Monday. A unit of JPMorgan Chase & Co. is acting as the sole underwriter for the offering, according to the producer.

The deal continues Phoenix-based Freeport’s efforts to unwind the oil and gas business it bought just before oil and gas prices began their downturn in 2014. In May, the mining company gave up on plans to spin the business off through an initial public offering. It’s announced plans to fold the once free-standing unit into its larger organization and cut a quarter of the workforce.

Activist investor Carl Icahn, who owns 7.8 percent of Freeport as of June 30, said the deal shows Freeport is making good on its goal of reducing leverage and cutting net debt by half. He "completely" endorsed CEO Richard Adkerson’s comments that Freeport is open to all strategic moves, whether that means selling assets or selling the company.

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