It’s so hard to be consistent as an energy analyst and trader – there’s truly no other sector with so much of the economy riding on it that seems to undergo more ups and downs.
We’ll have months, sometimes years of rising prices like other growth areas in the economy – with rising production, increasing jobs, stronger balance sheets. All seems to be going well and then – BOOM - almost without warning, we’ll get a complete market bust.
As an analyst, I’ll spend the next months, and more likely years, just waiting for the gluts and overspending to slowly drip out. My days become a constant search for the one or two lone sub-sectors or companies that might have seen a bit ahead, maybe prepared (at least a little?) for the bust cycle and are scrupulously planning longer-term towards the next boom cycle with discipline.
And then – when you think you might have found one, maybe ONE company with a bit of foresight, a plan for the downturn, and an even more disciplined plan for the inevitable turnaround in prices, another, entirely unrelated but massively destructive event will emerge out of the blue.
Frustrated, and likely with some of my own money in this company, I’ll now try to figure out whether this event – whatever it is – is fairly re-valuing my investment, and whether I should see this as an opportunity --- or as an omen – to go find another place for my capital.
Now, I am talking about the general pitfalls of investing in the energy sector. But, I’m also not so subtly referring to one lone, seemingly snake-bit oil company in particular. Have you figured it out yet?
It’s Anadarko Petroleum (APC).
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Look back to 2009. You had rising prices and prospects for this company, at that moment (and probably still) with one of the best oil and gas asset portfolios of the U.S. independents. And then, out of the blue, you had the Deepwater Horizon disaster.
It takes nearly three months for BP to close that hole in the ground and give partner Anadarko a chance to recover its losses – although the continuing Federal fines and lawsuits from Deepwater Horizon will dog the company throughout 2011-2013, frightening shareholders and creating tremendous under-performance. But, just as the Gulf of Mexico disaster seems finally in the rear-view mirror for the company, the oil market collapses in 2014.
This bust doesn’t leave anyone untouched, but investors are particularly mean to Anadarko shares, dropping their price under $40. Oil prices finally find the bottom and begin to rally into late 2016 and the Spring of 2017. But, like a recurring nightmare, In April of 2017, a cut gas line from an Anadarko well in Firestone Colorado kills two men – sending share prices plummeting again.
Which brings us to today and Anadarko shares again. Anadarko has recently been one of the best performers of the U.S. independents, finally reflecting its superior asset base and steady leadership. But a relatively benignly negative quarterly report surprisingly sent investors fleeing from Anadarko shares. In addition, we’ve gotten the news this week that a new class-action lawsuit was filed on behalf of Anadarko shareholders, saying that executives knew of the deadly Firestone well dangers yet kept them to themselves.
Shares have again been trashed.
Yes, it’s tough being an oil and gas investor. But I’m telling you this Anadarko tale for a reason – along with the pitfalls, there’s always a lot of opportunity that comes with the unpredictable surprises in the oil and gas sector. I’ve made some of my best trades over the years in Anadarko shares. My single best winner in 2010 was with Anadarko near their trading lows – profiting off of the panic of Deepwater Horizon. And yes, I had some Anadarko shares after the Firestone disaster in 2017 too.
Again, I’m going to look at the drop in Anadarko as an opportunity and recommend getting some cheap shares. The fundamental oil outlook continues to improve. The asset base for Anadarko remains some of the best, with optionality in the Permian, the DJ basin and the Gulf of Mexico. Their leadership has been steady. They’ve been disciplined in production guidelines. They deserve a higher valuation.
And like in the last four instances of quick drops in their share price, I think they’re going to get it.