1.

Whatdoesthebusinessdo?
a. AnadarkoPetroleumCorporationisoneoftheworldslargestexplorationandproduction
companies,bringingvaluethroughacombinationofonshoreassetsintheUnitedStatesas
wellasoffshoreprojectsacrosstheglobe.Asofyearend2015,thecompanyheld2.1billion
barrelsofoilequivalentofprovedreserves,makingitoneoftheworldslargestE&P
companies.Thecompanyissplitintothreemainsegments:Oilandgasexplorationand
production,Midstream,andMarketing.

2.

Whatarethecompanysbusinesssegments?
a. Oilandgasexplorationandproduction
b. Midstream
c. Marketing

3.

Howdoesthebusinesswork?
a.
b.
c.

OilandGasExplorationandProduction:Exploresforandproducesoil,condensates,natural
gas,NGLs,aswellasplanningforfutureventures(Mozambique)
Midstream:Responsibleforthegathering,processing,treatment,andtransportationof
products.Midstreamisfurthersplitinto2segments:WESandothermidstream
Marketing:Responsibleforthesaleofproductsandpurchasedvolumes.

4.

Howandwhendoesthecompanygetpaid?
a. TheE&Psmainsourceofrevenuecomesfromthesaleofoilandgasproducts.Thesesales
arefacilitatedbyavarietyofcontractualagreements.
b. TheUSoperationaccountsfor89%ofsalesvolume,80%ofsalesrevenue,and90%of
provedreserves.Internationallocationsaccountedforthebalance.
c. Noonesaleexceeded10%ofthetotalsalesrevenue
d. Midstreamsalesaremademainlythroughthreetypesofcontracts
i.
FixedFee:Feebasedonvolumetransported
ii.
PercentofProceeds:Feebasedoneventualsaleofproduct
iii.
Keepwholeagreements:KeepNGLandreturnproduct/valueofproduct
e. Marketingisfocusedonmaximizingrealizedpriceswhileminimizingriskthroughcontracts:
i.
Indexed:Priceadjustedtomatchmarketfluctuations
ii.
FixedPrice:Setpricefordurationofcontract
iii.
Costescalationbasedagreement:Setinitialpricewithperiodicadjustments

5.

Whatkindsofproductsorservicesdoesthecompanyoffer?
a. OilandGasExplorationandProduction:OnshoreandOffshoreoilandgasreserves
b. Midstream:Processesforgathering,processing,treatment,andtransportationofproducts.
c. Marketing:Saleandpurchasingofproductsaswellaslimitedtradingactivities

6.

Whatrawmaterialsdoesthecompanyuse?
a. Themainmaterialisthegrounduponwhichtheexplorationisbeingdone.Asmentioned
earlier,USoperationscountforthemajorityofAnadarkosprovedreserves,cominginat
90%.OthersignificantventuresincludeDeepwaterGulfofMexico,Colombia,Algeria,and
WestandEastAfrica.

7.

Howistheproductmade/howistheserviceperformed?
a. First,thecompanymustobtainandsigncontractstothespecificpieceoflandininterest.
Following,appraisalandexplorationprocesseswilloccurinordertodetermineifthereis
trulyenoughnetoilpayundergroundtowarrantfullscaleconstruction.Ifso,thesereserves

b.

willbecomedesignatedasProvedUnDevelopedReserves(PUD).Oncedevelopmentwells
areestablished,andresourcescanbeextractedfromthereserve,itbecomesaProved
DevelopedReserve.
Alongseriesoffinancialandmarketanalysismustbeperformedinordertoadequatelyvalue
thesereserves.Thus,thisiswheremarketpricesofoilandgasplayalargefactorinswinging
thepricesineitherdirection.Independentpetroleumconsultantsarealsobroughtintoensure
thelegitimacyandtransparencyofthecompanysvaluationtechniques,particularlywith
respecttoSECregulations.

8.

Whoarethecompanysmaincustomers?
a. TheE&Psegmentmainlysellsitsproductdownthevaluechaintodownstreamcompaniesor
segments,throughavarietyofcontractualagreementsdiscussedabove.
b. Themidstreamsegment,whilemainlyprovidingservicewithinthecompany,alsocatersto
thirdpartycustomers,includingmajorandindependentproducers.
c. Themarketingsegmentisresponsibleforfacilitatingtheabovecontractsandsales.

9.

Whatdoesitsgeographicfootprintlooklike?
a. HeadquarteredinHouston,Texas,Anadarkodoesmostofitsbusiness,andretainsthe
majorityofitsbusiness,intheUS.However,internationalprojectsareasignificantportionof
thecompanysassetsaswell.TheUSoperationaccountsfor89%ofsalesvolume,80%of
salesrevenue,and90%ofprovedreserves.Internationallocationsaccountedforthebalance.

10. Whoareitsmaincompetitors?
a.

Althoughnospecificcompetitorsarementioned,thecompanydoesacknowledgeahighlevel
ofcompetitivenessintheoilandgasproductionspace.Groupsofcompetitorsincludeother
independentE&P,supermajors,andindividualproducersfortheexplorationandproduction
segment,andothergasmarketersandmidstreamcompaniesfortheothersegments.Other
industriessupplyingenergyandfuel(solar,wind,alternativeenergycometomind)arealso
mentionedascompetitors.

11. Whatdoweknowaboutthecompanysmanagementteam?
a. TheCEO,R.A.Walker,hasservedinthepositionsince2012.Hehasexperienceinindustry,
investmentbanking,aswellasininvestmentmanagement.
b. Insidershavegenerallybeenbearish,withalmost10%dropininstitutionalsharesheld
comparedquartertoquarter.

c.

d.

Lotsofoptionsexercised,althoughPeterFluor,aDirector,hadsomeinterestingactivity
recently.Heseemedtotakeahuge,$3milliongamblethatthepricewouldgoupat$60,but
hassincebeenaveragingdown,purchasingover$1millionmoretotrytobringhiscostbasis
down,Imassuming.Therestofthetransactionsaregenerallyjustsalesofexercisedstock
optionstoflipforaquickprofit.

12. Inyouropinion,whataresomegoodandbadthingsaboutthecompany?
a. Iappreciatethebalanceoftheirfinancialstrategyinthattheyholdanetshortpositionwith
regardstomarketrisk,embodiedintheiragreementstosellproductsinthefutureforspecific
prices,whilemaintaininganaturallongpositionasaproducer,asseenintheirownershipof
theoilandgasreserves.
b. Aswithanyoilandgascompany,thereisundeniableexposuretomarketfactorsoutoftheir
controlthatcancausemajorshiftsinoilprices,whichwillinturncompletelyalterany
attemptsatvaluationofthereserves.Unlikesupermajors,whichbenefitfromvertical
integrationwithcheapsupplyfortheirdownstreamsegments,Anadarkoisstrictlyonthe
upstreamside,withsomemidstreamworkaswell,leavingextremerisktoswingsinoil
prices.
c. Additionally,thewiderangeofprojectlocations,whilebeneficialfordiversificationand
expansionefforts,docausesomecomplicationsintermsoflosingsomecontroloverprojects
tothelocalgovernmentshands.AnumberofprojectsIsawweremarkedasAwaiting
GovernmentApproval,whichisanimportant,butadditionalstepthatmustbetakeninthe
processofbusinessdevelopment.
13. Howisoil/anoilwelldrilledfor?Goindetailonthewholeprocess:Basinstypicalfollowa5stage
lifecycle
a. Licensing:Thissegmententailstheinitialanalysisoftheregion,aswellasthesettingupof
theframeworkfortheagreementbetweentheinvestingcompanyandthehostgovernment.
Thisiswherethedetailsregardingfees,commitments,andtaxationarehammeredoutbefore
anytoolisactuallydugintotheground.
b. Exploration:Seismicsurveyingandinitialdrillingwilltakeplace,allstillwiththegoalof
strikingapayloadworthdevelopingon.Thisiswherereservoirengineers,aswellasdrilling
andservicecompanies,areusedinthesearchforacommercialdiscovery.
c. Development:Allthedrillingandinfrastructureisconstructed,typicallyinvolvinglarge
capitalexpenditures.Additionally,moreconcretedataisobtainedregardingtheEstimated

UltimateRecovery(EUR)ofthewell/basin,usedinpresentationssuchascreamingcurvesin
ordertoplotcumulativediscoveriesversuscumulativewells.
d. Decline:Oilfieldstendtohitapeakquickly,plateaushortly,andthentypicallytransitiontoa
longdeclinebeforerunningoutofsupply.Incomparison,gasbasinsmayplateauforupwards
of20years.Inthedeclinesegment,freecashflowgenerationtakesahitduetodecreased
volumeoutputaswellasincreasedcostsneededtoenhancetechniquesandmaintain
infrastructure.Thus,thesereservoirsaretypicallycandidatestobecastoffbylarger,
internationalcompanies,andprovideanopportunityforsmallerE&Pcompaniestotakeover
andsalvageanyremainingresources.
e. Abandonment:Whenthecosttoextracttheresourcesoutweighstheobtainablecommodity
prices,thewellisabandoned.Onland,thisinvolvespluggingthemwithcementandsteelin
anattempttorevertthelandtoitsoriginalstate,whileoffshoreplatformsnecessitatelarge
cranesinordertodismantleandtransporttheinfrastructurebacktoshore.
14. WhereisAnadarkodrilling?
a. USoperationscountforthemajorityofAnadarkosprovedreserves,cominginat90%.Other
significantventuresarelocatedacrosstheglobe.Theyarecharacterizedbelow:
b. Exploration
i.
USOnshore
ii.
DeepwaterGulfofMexico
iii.
Colombia
iv.
WestAfrica
v.
EastAfrica
c. Production
i.
USOnshore
ii.
DeepwaterGulfofMexico
iii.
Algeria
iv.
WestAfrica
d. NaturalGasProduction
i.
USOnshore
ii.
DeepwaterGulfofMexico
15. Dotheyhaveanyhedgesinplace?
a. Anadarkousesderivativeinstruments,inparticularfutures,swaps,andoptions,inorderto
hedgeagainstsuddenchangesincommoditypricesand/orinterestrates.
i.
Futures:anagreementtosellresourcesatasetpriceaheadoftime
ii.
Swaps:anagreementtoexchangeafixedpriceforafloating/marketprice
iii.
Options:acontractgivingthebuyertheoptiontobuy/sellthecommodityattheset
priceatapointinthefuture
b. OnehedgingstrategyAnadarkoemploysisthethreewaycollar.Thisisstructuredessentially
asacostlesscollar,justwiththesaleofanadditionalputoption.First,apriceceilingand
floorareset.Foracostlesscollar,thecompanysellsacalloptionatthepriceceilingandbuys
aputoptionatthepricefloor.Thecollarbecomescostlesswhenthepremiumpaidfortheput
optionisequaltothepremiumreceivedforthecalloption.Attheoptionexpirationdate,if
thecommoditypricefallswithintheceilingandfloor,businessproceedsasnormal.Ifthe
priceexceedstheceiling,thecompanyisobligatedtosellthecommodityattheceilingstrike
price,resultinginahedgingloss,butifthepricefallsbelowthefloor,thecompanyretainsthe
optiontosellatthefloorstrikeprice,thusresultinginahedginggain.Thewaythehedge
becomesathreewaycollaristhroughthesaleofaputoptionbelowthepricefloor,ideallyat
apricethecompanyfeelsisveryunlikelytoreach.Thisallowsforanimmediategainthrough
thepremiumobtainedontheputoptionsale.Althoughsafeintimesofstableprices,ifthe
priceweretofalldramatically,belowthestrikepriceofthethirdputoption,thenthe
companywouldbeobligatedtopaythatdifference.
16. Whatdoestheirproductionguidancefor2016looklikecomparedto2015?

a.

Totalsalesvolumeof282286MMBOE(MillionBarrelsofOilEquivalent)roughly3%drop
from2015(292MMBOE)
b. OilSalesvolume308313MBOPD(ThousandBarrelsofOilperDay)roughlyflatcompared
to2015(312MBOPD)
17. WhatdoestheirCapExguidancefor2016looklikecomparedto2015?
a. Thecompanyplanstocontinuetodriveafocusonvalueratherthangrowth,asevidencedin
thecapitalbudgetfor2016.At$2.8billion,thebudgetisaround50%lowerthan2015($5.4
billion),and70%lowerthan2014.
b. AnotheractiontheBoardtookwasdecreasingthequarterlydividendfrom$0.27pershareto
$0.05pershare,providingaround$450millioncash.