Has Anadarko Stock Been Punished Too Much?

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Anadarko Petroleum Corp. (NYSE: APC) reported a worse-than-expected net loss last Tuesday, the same day the company was blamed for a natural gas explosion on April 17 that killed two people and severely injured a third in Firestone, Colorado. Since the explosion, the stock is down more than 15%, more than half that loss since Tuesday.

Without in any way diminishing the loss of lives in the explosion, it seems that the markets might have overreacted to the Colorado disaster. Anadarko’s market cap dropped by about $2.4 billion last Wednesday.

In September of 2010, a PG&E natural gas line exploded in San Bruno, California, killing eight people while destroying an entire neighborhood and ended up costing the company around $600 million in civil settlements, most of which were paid in 2013. Earlier this year, PG&E also paid $3 million in criminal fines and was put on probation for five years, among other things. The company also paid $2.2 billion in penalties and remedies assessed in 2015 by the California public utilities commission for “unsafe operation of its gas transmission system.”

The Anadarko well that exploded was drilled in 1993 by a company first sold to Noble Energy in 2005 and acquired by Anadarko in 2014. The vertically drilled well apparently leaked unrefined, odorless natural gas into an abandoned gas line that had been cut when the house was built in 2015. One end had been left uncapped below grade level and gas seeped into the house through a French drain connected to a sump pump inside the house. The company closed more than 3,000 wells of the same vintage following the blast.

The Colorado Oil & Gas Conservation Commission has notified all the state’s producers that they must reinspect all existing flow lines and pipelines within 1,000 feet of a building by May 30. A good idea, but there are no maps of lines in the area, according to The Colorado Independent.

How much will the explosion cost Anadarko? In the San Bruno settlements, the $3 million criminal fine was the upper limit of the legal range. Of the $2.2 billion in fines and other remediation, the fine was $300 million and the rest paid for improvements to the system, a one-time bill credit to all PG&E customers, and other remedies to pipeline safety. Basically, the company was forced to spend money it should have spent in the first place.

That’s not an unlikely scenario for Anadarko, and while the hit to its market cap was probably made worse by the weak earnings report and the falling price of oil, stockholders may end up having to help the company pay for work it should already have done.

Anadarko’s stock traded higher just before noon Friday at $52.24, up 0.6% for the day. The stock’s 52-week range is $44.81 to $73.33, and the consensus price target was $80, but that was likely before the past week’s bad news.