Timing of $2B Anadarko-Freeport Deal Makes GOM Assets a Bargain

While the $2 billion price tag on the deepwater Gulf of Mexico assets Anadarko Petroleum Corp. bought from Freeport McMoran Inc. was in line with current valuations, the assets could be worth $5 billion by year end.

Analysts at Morgan Stanley said in a note to investors they had valued the oil and gas segment at 9 times 2016 EBITDA (earnings before interest, taxes, depreciation and amortization). That would’ve pushed the assets’ delivery to around $500 million in EBITDa this year, which is consistent with other companies’ performance in the area, they said.

And while some may have questioned the Anadarko (NYSE: APC) investment in offshore at the expense of onshore activity, analysts at Piper Jaffray & Co. noted the deal is expected to provide immediate cash flow for Anadarko to build out work in the Delaware and DJ basins.

“Overall, positive news, but it will be interesting to see how investors digest an unexpected [but accretive] GOM acquisition funded via an equity offering, which provides cash flow to accelerate onshore activity vs. investor expectations of further asset divestitures leading to a US onshore acquisition[s],” Piper Jaffray said.

Morgan Stanley noted that Freeport (NYSE: FCX) reaps multiple benefits from the deal. It is shedding the deepwater assets allows the company to focus on its core copper business. Plus, one impact of the downturn is that deepwater operators have in many cases struggled just to stay afloat.

“Given the limited near-term interest in deep-water GOM assets, we think the company may have viewed this offer as a chance to quickly progress their restructuring plan,” Morgan Stanley said. “Perhaps they may have received a better valuation by waiting a couple of years for the oil market to recover, but the business would have been an ongoing distraction.”

What’s more, the deal fulfills a $3 billion threshold that would have otherwise forced Freeport to secure its revolving credit facility and term loan, the analysts said.


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