UBS Investment Research
Anadarko Petroleum Corp.
Update on APC’s Oil Spill Liability
BP establishes $20 billion escrow account, funded over the next 4 years
Following a meeting with President Obama, BP announced several actions
including creation of a $20 billion claims fund to pay for clean up & compensation
costs related to the Macondo oil spill, but not for fines or penalties. Notably, BP
stated on its conf call that it expects its partners to fulfill their legal obligation,
inferring they must pay their fair share of clean up and legal costs. APC has a 25%
interest in Macondo, and has not yet been contacted by the administration.
APC has two options for handling its 25% share of liability
APC received its first clean-up bill from BP on June 8th, and has ~22 more days to
pay the bill. APC can either pay its 25% share, or sue BP on the grounds of gross
negligence, which we believe is very difficult to prove. Nonetheless, assuming $20
billion of gross liability ($5 billion net to APC), we believe APC could fund the
liability relatively easily with cash on hand and modest asset sales.
APC’s share price is discounting a worst case scenario
APC has outperformed BP by 20.8% from 6/9 to 6/15 on growing investor
perception that APC would be liable for less than its 25% interest, particularly after
the damning language in the Waxman letter regarding BP’s well design. However,
APC underperformed BP by 512 basis points today following BP’s inference that it
expects partners to pay their fair share. We believe APC’s stock price is
discounting a gross liability exceeding well beyond $50 billion.
Our current price target of $68 assumes $20 billion gross liability
Our PT assumes 0.80x NAV or 6.5x normalized EBITDX net of a $5.0B liability.
CFPS (UBS, US$)
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Profitability & Valuation