Anadarko Petroleum (US: APC) is one of the world's largest independent oil and natural gas exploration and production companies. However, growth prospects for the company have not been undermined by this year's slide in the oil price, according to James Sutton, client portfolio manager of JPM Natural Resources Fund (GB0031835118).
"We prefer to be buyers of exploration and production companies, such as shale gas producers, instead of integrated oil majors, as we think the former have more compelling opportunities for growth," says Mr Sutton. "With the slipping of the oil prices below $70 a barrel in the short term, the growth of unconventional producers such as shale gas companies has been called into question, with investors fearing that lower prices could dampen production growth. Despite this, we continue to have approximately 10 per cent of our portfolio exposed to this area.
"It is important to point out that not all shale producers are created equal. Some of the higher cost producers with considerable debt obligations will run into difficulty at current prices. However, we have concentrated our holdings in companies with the lowest cost profile, the most promising acreage and the strongest balance sheets.
"Our highest conviction oil and gas holding is Anadarko Petroleum, the US headquartered exploration and production company. Over the last few years its management has developed a large and diverse international asset base, and has successfully replaced depleting reserves. The company has had steady US onshore growth from core areas including the Eagleford, Marcellus and Permian shales, and the Permian shale producers are particularly well protected given the so called triple play of oil, natural gas liquids and dry gas. There is also considerable exploration potential given Anadarko's large inventory of exploration wells in the Gulf of Mexico and Africa.
"Crucially, this continued growth is not undermined by the current slide in the oil price. This is because:
a) the company is well funded with a $5bn undrawn bank facility, plenty of cash on hand and the flexibility to divest assets as it has successfully done in the past; and
b) Andarko has low cost production which can still be cash flow positive in a $70 oil price environment."
