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Focus List Update And Noteworthy Portfolio Developments

By Roger S. Conrad on Feb. 9, 2017

Anadarko Petroleum Corp (NYSE: APC) posted solid fourth-quarter results, with production volumes coming in line with expectations, thanks to the acquisition of Freeport McMoRan’s (NYSE: FCX) producing assets in the Gulf of Mexico.

Last year, the exploration and production company completed about $4 billion worth of divestments and still has roughly $3.5 billion in proceeds headed its way in the first quarter, when the sales of noncore assets in the Marcellus Shale and the Eagle Ford Shale will close.

Management reiterated its guidance for Anadarko Petroleum’s annual oil output to grow at a compound annual rate of 12 to 14 percent over the next five years, assuming that West Texas Intermediate ranges between $50 and $60 per barrel.

With the company’s 2017 guidance call slated for March 8, management demurred from providing too much detail about how the company plans to deploy the roughly $6.7 billion worth of cash that will be on its balance sheet after its latest sales.

Management reiterated that the bulk of the company’s capital expenditures will focus on the Permian Basin and Niobrara Shale this year, followed by opportunities in the Gulf of Mexico. Any acquisitions—most likely bolt-on deals—would be made with an eye toward extending Anadarko Petroleum’s opportunity set in these plays. Blocking up acreage in the Permian Basin, for example, provides more running room for drilling longer laterals.

Anadarko Petroleum plans to target cash flow neutrality in the first half of the year and then decide whether to ramp up spending in the back half of the year, depending on market conditions.

When we added Anadarko Petroleum to the Model Portfolio in January 2016, our investment thesis centered on the company’s franchise assets, high-quality management team and ability to take market share in an environment where oil prices remain lower for longer.

All these qualities remain in play, though the stock has run up by more than 100 percent since then—one of the reasons that we highlighted the opportunity to take a partial profit off the table earlier this month.

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