Anadarko Petroleum: That Was Quick

It wasn’t that long ago (just over five months to be exact) that shares of Anadarko Petroleum (APC) plunged as potential damages for Tronox liabilities swelled. Now those shares are looking too pricey for Barclays following Anadarko’s big gain since resolving that dispute.

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Barclays’ Thomas Driscoll explains why Anadarko’s valuation has enough concerns for him to slash its rating to Equal Weight from Overweight:

We believe Anadarko Petroleum offers investors a better-than-average portfolio with attractive high-potential deepwater program and solid onshore assets, particularly the dominant position in the Niobrara and an exciting position in the emerging Delaware Basin. When you also consider the track record of solid deep water exploration success, the willingness to monetize assets, the large discovery in Mozambique and the $10-billion interest in GPM it is easy to understand investor enthusiasm. When we contrast Anadarko Petroleum’s delivery in comparison to several of its better positioned peers we find better value elsewhere in the group. We believe Continental Resources (CLR), EOG Resources (EOG) and Noble Energy (NBL) are all likely to grow twice as fast as Anadarko Petroleum – yet there is no appreciable premium in any of those shares. Debt-adjusted cash-flow multiples using 2015 estimates are 7.6x, 6.1x and 7.2x for the peers Continental Resources, EOG Resources, and Noble Energy, respectively, as compared to Anadarko Petroleum’s 7.3x.

Devon Energy (DVN) is a better bet, says Driscoll, who upgraded its shares to Overweight from Equal Weight. He explains why:

Devon has made decisive steps to high-grade its portfolio in recent months, significantly improving its near-term investment opportunity set. The two more important changes since Devon's portfolio have been the 1) $6bn Eagleford acquisition and 2) the dramatic expansion of drilling inventory in the Delaware Basin (risked remaining inventory now stands at 5000+ locations and will likely continue to grow as Devon and the industry de-risk the Wolfcamp opportunity. These two oil assets join the Canadian heavy oil assets to provide a trio of high-return oil opportunities and the three areas will account for 70% of total E&P capital spending this year. On the other hand, the 50%+ reduction in spending in the Barnett/Cana/Mississippian plays does not, we believe, reflect a degradation of returns in those areas, but rather stiffer competition for capital within Devon's portfolio. The announced sale of the Canadian conventional properties for $2.8 billion strengthens the balance sheet along with monetizing an asset that did not compete for capital in the portfolio.

Shares of Anadarko Petroleum have dropped 1.2% to $98.87 at 2:46 p.m. today, while Continental Resources has gained 0.4% to $134.48, EOG Resources has fallen 0.5% to $101.77, Noble Energy has dipped 0.3% to $69.34 and Devon Energy has jumped 1.1% to $72.04.