Anadarko's New Fracking Methods Will Reward Investors
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It is never easy to convince communities and authorities that fracking methods many drilling companies use are entirely safe. Of course, these methods are not 100% safe, but most companies vote to use the best practices when it comes to fracking and drilling so that there is minimal contamination of water, air and soil. Chris Castilian, manager of government and community affairs for Anadarko (NYSE: APC), recently spoke about why companies must reveal in detail how fracking is done, what sort of chemicals are used in fracking fluids, and what their environmental consequences are.
He insisted that though oil companies are skeptical about revealing what their best practices are, it is in their own interest to be honest and transparent in the long run. What makes Anadarko different is that it has actively pursued a policy of transparency, even at the prospect of risking government regulations coming into play. With that in mind, Anadarko is at the forefront of transforming fracking methods and ensuring that nearby communities are not harmed.
Castilian noted that fracking fluids sometimes creep into soil or enter water. However, when chemicals that are used in these fluids are not toxic, damage to environment is minimal or non-existent. Most companies tend to overlook the importance of taking care of the environment and end up getting into legal troubles sooner or later. Anadarko is one of the few companies in the world that have been able to maintain a clean image in the face of growing oil spills, soil pollution, and fires. Anadarko has maintained a very transparent policy with regard to its fracking methods.
Newer technologies that the company has used and encouraged other companies to use involve certain liquids that break the rocks with less risks than older methods. Previously, explosives were used to break the rocks so that oil deposits could be drilled out. Such explosions not only caused significant air pollution, but also soil degradation, resulting in agricultural losses. Newer fracking methods avoid unnecessary chemical seepage into water bodies, which affect marine life and the health of people who live nearby.
Royal Dutch Shell (NYSE: RDS-A) was recently in trouble in Nigeria and Russia, and was asked by both the governments to clean up oil spills. Shell's pipelines were attacked and burst by rogues who stole crude oil. The resulting damage to nearby swamps was tremendous, and the company cleaned up much of the mess on its own. In Russia, Shell had to clean up the coast after oil spilled along 5 kilometers of Sakhalin's pristine coastline. The spill also made many residents in the area sick.
Similarly, Exxon Mobil (NYSE: XOM) has had to clean up in Nigeria when its pipelines burst and water was polluted. Exxon had to pay a lot of money in fines, and also spent more money to undo the damage that the accident caused to its image. However, Exxon has a better safety record than Shell or BP (NYSE: BP), both of which have been mired in pollution-related controversies.
Chevron was recently in trouble in Ecuador and Brazil, where environmental groups complained that fragile ecosystems were damaged because of the company's lackadaisical approach towards safe fracking methods. Eventually, Chevron had to pay millions of dollars in fine, and also spend lots of money while cleaning up oil spills.
Marathon Oil was asked to pay $170,000 by the Kentucky Natural Resources and Environmental Cabinet for a pipeline spill. It has also been ranked 51st in a list of corporations that contribute to air pollution. In 2003, Marathon was prosecuted for air permit violations, and the company still has a negative image when it comes to environment friendliness.
The only blotch on Anadarko's excellent environment record is the Deepwater Horizon Oil spill. Anadarko had a 25% working interest at the Macondo Prospect operated by BP. After the oil spill, BP asked Anadrako to pay $272 million towards cleaning up the Gulf waters. Anadarko has continuously argued that it was not responsible for the spill and that the spill was due to BP's gross negligence and willful misconduct. It is widely agreed that BP was responsible for the spill, but because Anadarko was part of the partnership, it invariably had to pay even if it was not at fault. It is experiences like these that have forced Anadarko to be very serious about its approach towards the environment.
Anadarko has a market cap of $34 billion and an enterprise value of $46 billion. It trades at $69 and is one of the largest independent oil companies in the world. The company has a profit margin of -9.91% and an operating margin of 10.96%, which make investors a little apprehensive. Nevertheless, the company has a cash flow of $3.27 billion and a very successful businesses in Mozambique and Ghana. These factors make Anadarko a very successful company, in spite of setbacks like the fines that it had to pay due to Deepwater Horizon. Anadarko has a strong presence in Alaska, China, Brazil and Indonesia, along with Mozambique and Ghana.
Meanwhile, Anadarko is drilling just north of Denver and is looking for new areas to explore and drill. In the meantime, the company has plans to ensure environmental safety, and has vowed to be exemplary in its approach towards staying clean and green. A company that pays attention to the environment and the health of people in its community always attracts positive press, respect, and confidence among investors. These factors make the company a very wise option to invest in for the short and long-term.
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