APC : NYSE : US$83.67
Anadarko Petroleum is an oil and gas E&P company with global operations in countries including the United States, Algeria, Ghana and Mozambique. The company is headquartered in The Woodlands, TX.
All amounts in US$ unless otherwise noted.
Energy — Oil and Gas, Exploration and Production
FOUND LIABLE IN TRONOX SUIT; DAMAGES TO EXCEED FORECAST
We would BUY shares of APC on weakness in light of the company being
ruled liable in the Tronox suit. The decision comes as unwelcome news
as the estimated damages range from $5.15B to $14.17B. We had
believed that the case would be resolved for considerably less. While we
are lowering our price target, we believe APC has a first-rate asset base
and therefore we maintain our BUY rating.
Critically, APC/Kerr-McGee found guilty of intent: Plaintiffs claimed
that environmental liabilities were intentionally offloaded onto
Tronox at the time of its spin-off causing it to declare bankruptcy.
The judge ruled that was indeed the case.
Damages exceed what the market had discounted: We had said that
APC’s shares were being discounted ~$5/share to reflect the
possibility of a negative Tronox outcome. The given range of
damages equates to $10-$28/share. While this is not as large as the
$25B (or $50/sh) that the plaintiffs sought, it is materially above
what we believed the Street had been factoring in.
Final damage amount still TBD; APC can appeal: The defendants
will be allowed the opportunity to argue whether some amount of
the damages can be offset, hence the $9B range of estimates. We
would expect APC to appeal the ruling in any case.
We value APC using a 20% discounted NAV and a multiple of
EV/EBITDA. We are lowering our NAV by $19/share to reflect the
midpoint of the expected damages range. Also, we are now assigning a
4.5x EV/EBITDA multi