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Pullback in Anadarko's Shares May Present a Buying Opportunity

NEW YORK ( TheStreet) -- Investors who follow  Anadarko Petroleum (APC - Get Report) may be wondering if the pullback in the oil and gas producer's shares since it reported its quarterly results in late July presents a good buying opportunity.

The shares have fallen about 5% since Anadarko reported that its second-quarter profit fell 76% from a year earlier. The stock's decline, in large part, reflects the drop in the price of crude oil. The shares were trading late Friday morning at $106.63, up 74 cents.

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The stock is up 34% year to date, compared with a 5.8% gain for the Standard & Poor's 500 Index. It has risen partly on takeover rumors and largely on a $5.15 billion settlement Anadarko reached with the U.S. Justice Department in an environmental case stemming from the company's acquisition of Kerr-McGee in 2006. Investors were relieved that Anadarko put the issue behind it and didn't have to pay more.

When considering whether to buy on a dip, investors have a lot to weigh with Anadarko. For one, the company may be facing billions of dollars in fines from its role in the BP (BP) oil spill in the Gulf of Mexico in 2010.

Another issue is Anadarko's huge investment in a natural-gas project off the coast of Mozambique. The project has reportedly cost Anardarko up to $1 billion so far.

On the other hand, the company exceeded its production and sales volume goals for the second quarter for each of its three products: oil, natural gas and natural gas liquids. Revenue during the quarter rose 28%, although hedging losses caused the profit to drop.

Another positive development is that oil production from Anadarko's Lucius project in the Gulf of Mexico is expected to start during the fourth quarter.

Anadarko estimates it will increase its overall output this year by almost 4%. Most of the growth is coming from higher production of oil and natural gas liquids. Natural-gas output fell by 1% during the second quarter and is projected to fall 6% in 2014. The switch toward oil and away from natural gas bodes well for Anadarko because natural-gas prices are projected to drop 6% this year. 

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