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Anadarko Petroleum Corporation (APC): 13% Earnings Growth Per Year at a Fair Price

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Anadarko Petroleum Corporation (NYSE:APC) is one of the largest independent oil and gas exploration and production companies in the world, and the second-largest U.S. oil and gas explorer and producer. It has bright prospects for an expected 13% average annual growth rate in the next five years.

Great production, sales and EBITDA growth prospects

Anadarko Petroleum Corporation (NYSE:APC)’s sales were growing at a 10% annual CAGR rate since 2008, and the 2013 through 2014 sales estimates promise similar annual growth. Anadarko has excellent EBITDA growth prospects of 13% annually for the next five years. Of that, approximately 5% to 9% is expected to be achieved through higher production volume. The rest will have to be accomplished by a combination of improving profit margins and higher oil and gas prices. The company’s growth estimates are based on the price of West Texas Intermediate (WTI) crude oil of $90/barrel and natural gas of $3.50/Mcf (million cubic feet).

If the company really grows at such high annual rates, Anadarko Petroleum Corporation (NYSE:APC) will become the largest independent oil and gas company and its market cap will very probably overtake that of smaller major integrated oil and gas companies, such as ConocoPhillips (NYSE:COP) and Statoil ASA(ADR) (NYSE:STO).

Statoil ASA(ADR) (NYSE:STO) is unique in that is partly owned by the Norwegian government and has the majority of its reserves located in the Norwegian continental shelf. Statoil is quite the opposite of Anadarko Petroleum Corporation (NYSE:APC). It has an average of negative 1.3% EPS growth estimates for the upcoming five years. Its 7.0 trailing P/E is correspondingly low and Statoil ASA(ADR) (NYSE:STO) also pays a hefty dividend yielding 3.9%. The company tried to diversify its current North Sea production and exploration activities in the Gulf of Mexico and elsewhere, often through partnering with other large oil and gas players, such as Chevron Corporation (NYSE:CVX) and Exxon Mobil Corporation (NYSE:XOM).

In the independent oil and gas arena, EOG Resources Inc (NYSE:EOG) is comparable to Anadarko in many ways. It has an even more impressive annual earnings growth prospects for the next five years and also trades at a fair price. Together with ConocoPhillips (NYSE:COP), EOG is one of the two-largest producers in one of the fastest growing and most economical shale plays in the US, the Eagle Ford. All in all, approximately 94% of EOG’s proved reserves and 86% of production are located in the United States and Canada. This regional dependency is also one of the EOG Resources Inc (NYSE:EOG)’s main weaknesses.

However, while the growth in U.S. oil and gas production continues, the company will profit handsomely. EOG pays a dividend, however the yield is less than 1%; so EOG Resources Inc (NYSE:EOG) is definitely not a true dividend stock. Nor should it be, given its strong growth prospects and thus better options to utilize extra cash.

Anadarko is becoming increasingly balanced and diversified

Many investors view Anadarko Petroleum Corporation (NYSE:APC) as a U.S. company. While still largely true, Anadarko is rapidly becoming more diversified regionally as well as in terms of the contribution of various business streams to its bottom line. The majority of Anadarko’s current revenue and profits are still derived from its U.S. operations.

However, all projects in its rich pipeline of new endeavors are located in countries outside of the U.S., mainly off the coast of Mozambique in East Africa, China, West Africa and in North Africa. Anadarko still generates most of its profits from its upstream operations. However, it is becoming increasingly balanced between continental and offshore sources. Moreover, a small midstream unit further diversifies income streams.

Rapid growth of proved reserves and a rich project pipeline

Anadarko Petroleum Corporation (NYSE:APC) made the world’s two largest 2012 oil and gas discoveries off the coast of Mozambique. In total, the company added 434 million BOE of proved reserves, replacing 162% of its annual production, while having a strong pipeline of future projects that are expected to deliver addition sales of almost 200 million BOE per day by 2020.

Source: Company materials

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