Barclays' newly introduced fair value estimate reflects the low multiples that are appropriate for short-lived Gulf of Mexico assets, a belief that E&P investors should value MLP assets at less than market prices for the MLP/GP and a modest multiple for Anadarko Petroleum Corporation's (NYSE:APC) onshore assets. APC appears to have benefited too much from investor excitement about U.S. light tight oil even though only ~ one-third of Q1 oil volumes were from the U.S. onshore. Barclays is downgrading the shares to UW and lowering its price target to $42 from $52.
About 65% of APCs Q1 U.S. onshore EBITDAX came from the DJ, where peer multiples are ~4.25x. Nearly 20% of estimated EBITDAX came from the Delaware, where APC (and partner) results lag. The firm used a multiple of 5.50x vs. a basin-weighted average of ~5.0x to reflect its expectation that results will improve. APC paid ~$2 billion last fall for roughly one-half of its DW production. Barclays believes APC got a very good price and it is valuing the assets at a premium to that implied by the purchase price.
The firm discounts the value of Mozambique (vs. the recent XOM transaction) to reflect risks to the success and timing of the APC development. The firm base case valuation assumes a 2024 on stream date; but Barclays has discounted the value of Area 4 to reflect a +/-50% probability that the project suffers delays and/or results in stranded gas in Mozambique. The sum of Ghana (KOS is Barclays' analogy), Algeria and global exploration accounts for 10-15% of estimated fair value.