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Analysts See Challenges to Rumored Anadarko Sale

A published report earlier Thursday said the company might be looking for an acquirer.

After a published report indicated that

Anadarko Petroleum

(APC) - Get Report

had put out feelers for potential buyers, analysts were divided, saying that while such a deal would be attractive, it would also pose challenges for any acquirer.

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The company is reportedly considering a sale to the likes of


(XOM) - Get Report


Royal Dutch/Shell Group




(BP) - Get Report

or Italy's


(E) - Get Report

, which have already been contacted by Anadarko, according to a


report Thursday.

"These rumors actually began when the CEO change occurred, back in March, and since then they have taken different gyrations," said Mark Friesen, research analyst at FirstEnergy Capital. "But

acquiring a company this size is a challenge. It would take one of the top-size independents or major producers to go through with it, and it would depend on the strategic direction they would like to pursue."

In March, Robert Allison was reinstated as chief executive, replacing John Seitz, who resigned.

The report also said Anadarko would consider being sold for more than $10 billion, but analysts said that price might be low considering the company's current market capitalization of $11 billion and some $6 billion in debt. A price tag of closer to $18 billion would be more reasonable, they said.

"Fundamentally, it is a decent company that has a reasonable outlook," said Rehan Rashid, analyst at Friedman Billings Ramsey. "But it will take time to monetize that outlook, and it won't be easy for somebody to buy them."

High Expenses

Rashid said Anadarko has significant assets in the Rocky Mountains that could be attractive to potential buyers, but "environmentally speaking, this is a very sensitive area." He also pointed to deep-water acreage in the Gulf of Mexico, which could catch the attention of a big player like

Chevron Texaco

(CVX) - Get Report


But the company also poses some problems in terms of high expenses, Friesen said. "They are not very cost-conscious, and the cuts announced today, although certainly a step in the right direction, are not considerable."

Anadarko said Thursday that it will cut about 10% of its workforce as part of a plan to reduce costs by more than $100 million a year. The company also reported that second-quarter earnings rose 25% amid higher oil prices. Net income rose to $301 million, or $1.20 a share, from $239 million, or 93 cents, in the year-ago period, but Anadarko also cut its 2004 forecast for production growth.

"The cut was long overdue, and that responds to any doubts about its discipline in cost control," said Rashid. "Investors had been asking for it for quite some time, and they did what they had to do to become more competitive."