Anadarko in Mozambique: Safety and Stability Promise Reliable Returns

Jaiyant is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Of all the oil and gas companies that I follow, Anadarko (NYSE: APC) is truly one of the most remarkable companies around. I find the company particularly attractive because of its business in Mozambique, which continues to grow, improve or become profitable with each passing day. Mozambique has already proven to be a major source of LNG and much of the discovery was made by Anadarko. Currently, Anadarko works with Enersis (NYSE: ENI) in Mozambique on a number of fronts, including drilling, discovery and exploration. In this article, I shall discuss why Anadarko is one of the safest bets to invest in, in the coming months.

Anadarko’s rating restated favorably

Anadarko has been consistently rated favorably when it comes to stock analysts. TheStreet recently restated its 'buy' rating with a score of B-. Credit Suisse raised its target price for Anadarko's shares from $99 to $109 in the last week of March. Analysts at Raymond James have given Anadarko an 'outperform' rating. Besides these major analysts, most energy investors that I speak to always speak very highly about Anadarko and its future. The secret to the company's success lies in Mozambique.

Anadarko’s business in Mozambique is booming

Anadarko operates the Offshore Area 1 at the deepwater Rovuma Basin, covering an area of almost 2.6 million acres. The area is estimated to hold almost 30 Tcf of natural gas. In May 2012, Anadarko made another discovery at the Golfinho complex, where it estimates it shall be able to retrieve more than 35 Tcf of natural gas. The Mozambican government has consistently encouraged Enersis to work with Anadarko. Together, Eni and Anadarko have cooperated on a number of fronts including technology, drilling, infrastructure and information. Working with Eni has helped Anadarko greatly to further its business in Mozambique. Anadarko has now sought to sell 10% of its stake. 

Oil Indian Ltd and ONGC Videsh Ltd, two Indian companies have made a joint offer of $5 billion for two stakes of 10% each in Rovuma basin. Meanwhile, Anadarko has held talks with ExxonMobil (NYSE: XOM) and Royal Dutch Shell (NYSE: RDS-A). It is not clear how much ExxonMobil and Royal Dutch Shell have agreed to pay for the 10% stake in Rovuma, but I surmise both companies will now increase their initial offerings as they wouldn't want to lose a piece of the Mozambican pie.

Exxon wants a piece of the Mozambican pie

ExxonMobil probably is one of the most adventurous of all the oil companies, with ongoing operations in some of the most troubled regions of the world. ExxonMobil was chastised by Iraq's central government for continuing to deal with Kurdistan, an autonomous region of Iraq, where ExxonMobil has signed multiple deals without explicit permission from Iraq. Exxon's risky business continues in Russia as well, where the deals and agreements are subjected to precarious moods within the Kremlin. The risk continues to hold its sway in Nigeria as well, where ExxonMobil has often encountered a number of security related threats. Without a doubt, buying the 10% stake in Mozambique from Anadarko will help Exxon to bolster its oil business in a business-friendly country. In return, Anadarko's investors will gain from the money that Exxon will invest in further exploration, drilling and shipping of LNG from Mozambique.

Royal Dutch Shell’s Mozambican dreams

Royal Dutch Shell on the other hand has been unsuccessful in getting a piece of Mozambican pie. Last year, it lost several attempts to bid for major oilfields in Mozambique and lost to Britain's Cove Energy. it is no wonder then that it wants to buy the 10% stake in Mozambique from Anadarko. Being one of the most successful and largest oil companies in the world, Shell continues to explore and drill in some of the riskiest places on earth, just like ExxonMobil. Shell has continued to drill in Basra, Southern Iraq but has refrained from venturing deep into Kurdistan so that it doesn’t anger Iraq. Meanwhile, Shell also has had difficulties in Nigeria, where its pipelines were damaged by militants trying to steal crude oil. With these risks in mind, Shell would greatly benefit to have a Mozambican portfolio, should it win the bidding.

Bottom line

Now that it is clear that Anadarko’s major business is concentrated in business-friendly countries like Mozambique, Kenya and the U.S., rather than the volatile and dangerous Middle East, I advise those interested to invest in Anadarko for its stability, growth and performance. Going forward, Anadarko will only continue to make more profits thanks to lucrative deals with Japan and other Asian countries, which have shown interest in its Mozambican LNG. 


Jaiyant Cavale has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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