Anadarko Petroleum Company (NYSE:APC) announced another significant Gulf of Mexico discovery this morning. The new discovery offers 300 feet of net oil pay, in addition to Anadarko’s other Gulf of Mexico find announced a couple of days ago. The company is definitely on a roll.

We have speculated that Anadarkomay be the weakest of the non-Big Three US oil companies. The two newdiscoveries, coupled with Devon’s weak report today could berearranging things. Anadarko shares are up nearly 6% today, whileDevon’s are down about an equal amount.

Last year, Exxon Mobil Corporation (NYSE:XOM) spent nearly $36 billionon stock buybacks. The market cap for Anadarko is just over $18billion. Devon’s market cap is nearly $26 billion. We noted just lastweek the futility of most stock buyback programs. But in Exxon’scase, one could argue that the $36 billion in buybacks could be addedto the $40 billion or more that it now holds in cash. That’s a fearsomewar chest.

Every new discovery makes Anadarko more attractive to a potentialbuyer. The new discoveries still need evaluation, but at least they’relarge and already in the bag. Poking new holes all over the earth isfar more expensive. Also, the Anadarko finds are located in thefriendly waters of the Gulf of Mexico, not in some frozen northernclimate or in the hands of some unstable government.

Still, there are only a few potential buyers for a company likeAnadarko, with Exxon being the pre-eminent one. Even at a 100% premium,Exxon can afford it. With plenty of cash left over.

Paul Ausick
February 4, 2009

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