New Collaboration Will Boost This Oil & Gas Giant's Long-Term Value

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

Anadarko Petroleum’s (NYSE: APC) success in the past year can be partially attributed to its revenues from its operations in Mozambique. One of its major competitors in the country is Enersis (NYSE: ENI). Now, both companies will work together to explore and produce natural gas in Area 4 and Area 1 offshore of Mozambique. Below, I will discuss how Anadarko will increase its profitability and share value in the long-term by collaborating with Enersis in Mozambique.

The Deal

Anadarko and Eni have agreed to construct a huge liquefied natural gas plant, which will be the second largest in the world. The plant will produce 50 million tons of LNG per year. Anadarko CEO Al Walker revealed that the company will begin exporting LNG as early as 2018. Both Anadarko and Enersis will cooperate and construct the plant in northern Mozambique. The proposed location of Cabo Delgado province is already well known for its rich deposits of shale and natural gas. The project will also include two other companies, McDermott International (NYSE: MDR) and Allseas USA. These two companies will engage in engineering work and offshore facilities that need to be installed in order to explore and produce natural gas that can later on be liquefied.

Anadarko CEO Al Walker also revealed that his company and Enersis will work separately in different parts of the designated offshore locations, but will share information, cooperate and work together in order to hasten production and ward off competitors. Both companies have technical and logistic infrastructure will be very profitable in the long-term. The Mozambican government suggested that Anadarko and Enersis work together in order to compete with Tanzania, which, along with Kenya, is one of the most lucrative LNG destinations. The Mozambican government wants Anadarko to help the nation be the first East African nation to export LNG. Analysts at Simmons & Company reaffirmed that Anadarko will deliver LNG cargos by 2018, and that everything is going as expected.

Metrics

Anadarko's price to sales ratio is 2.84, and its price to book ratio is 1.87, which suggests that it is performing well when compared to its competitors. Both Anadarko and Enersis may sell some of their assets in order to offset deficits in expenditure. With a profit margin of 14% and operating margin of 9%, Anadarko is one of the most profitable energy companies on the market. It has operating cash flow of $4 billion and total cash of $2.5 billion. 

Competitors Focusing on Natural Gas

Competitors are making natural gas a priority in 2013. Chevron (NYSE: CVX) is buying a 50% stake in the Kitimat LNG project in British Columbia, Canada. The Kitimat LNG facility is expected to help Chevron export natural gas to Asian giants such as China, Korea and Japan. Apache (NYSE: APA) is busy promoting natural gas within the U.S. Apache has converted 400 field vehicles to operate on compressed natural gas. It has 20 CNG fueling stations across the U.S. McDermott, the other partner in the Mozambican deal, is a leading engineering and procurement company which is growing along with the LNG sector. The company is focusing on several offshore oil and gas projects worldwide.

Conclusion

Anadarko made the right decision to collaborate with Enersis. Anadarko will be able to maintain a positive relationship with the Mozambican government and Enersis in the long-term. This will help Anadarko to maintain and enhance its profitability in the natural gas sector in the long-term. Anadarko will continue to remain stable and profitable as demand for natural gas increases in emerging economies such as China, India, Russia, and Brazil.


jordobivona has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache. 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!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure