Tickers in this Article: APC, STO, HK, XOM, HAL, SLB, RIG
In the energy sector, investors never want the same thing for long. Oil is hot until it isn't again; foreign reserves are a great growth opportunity until local governments want to revisit the deals; and offshore is the last great opportunity to build reserves until somebody screws it up for everybody. For investors who don't want to try to play that game, Anadarko (NYSE: APC) is a good balanced play with solid exposure to emerging shales, oil-rich offshore deposits, and high-potential overseas reserves.

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Good Cost Control in Q1
First quarter results for Anadarko were really solid, due in large part to good cost control. Production jumped more than 13% on a sequential basis, with most of the growth in natural gas and natural gas liquids (though oil was up 9% sequentially). Pricing was also solid, and that blended into 21% sequential revenue growth. (For more, see Oil And Gas Industry Primer.)

On the cost side of the ledger, Anadarko saw production expenses fall 3% sequentially. On a per barrel basis, cash costs dropped about 8%, with operating costs down almost 12% and DD&A expenses rising 2%. Results were definitely helped by the company's drilling success and that may not be sustainable. Likewise, production costs could be more problematic as the company expands its shale and offshore operations - companies like Halliburton (NYSE:HAL), Schulmberger (NYSE:SLB) and Transocean (NYSE:RIG) are all looking to make their own growth targets on those markets.

A Bright Production Future
There are a lot of things working in Anadarko's favor when it comes to future production. Projects in Ghana (Jubilee), Tonga (Caesar), and Algeria (El Merck) should bring oil-rich production online for Anadarko and partners like Tullow (Nasdaq:TUWOY.PK) and Statoil (NYSE:STO), as well as service companies like Technip (Nasdaq:TKPPY.PK).

Likewise, the company is moving hard on its shale properties. Marcellus, Eagle Ford and Haynesville are major territories, and Anadarko is now the largest Eagle Ford producer alongside producers like Petrohawk (NYSE:HK) and ExxonMobil (NYSE:XOM). Admittedly, natural gas is not the most attractive asset these days, but that has not always been the case and it is an important part of the balanced production profile of Anadarko. (For more, see Eagle Ford Shale Midstream Assets Coming.)

The Bottom Line
With oil prices being what they are, there are precious few real bargains in the E&P sector. To find a cheap stock, investors typically have to make compromises when it comes to the balance sheet, the asset base, or the amount of value that comes from known reserves (as opposed to potential developments).

Anadarko has to be looked at as a relative bargain, then. The stock probably should trade somewhere in the high 80s to the low 90s and that is not a tremendous amount of capital appreciation potential. On the other hand, Anadarko is not too likely to get caught lacking the next must-have asset and the company does not take outsized risks. (For more, see Anadarko: A Balanced Player In An Unbalanced Time.)

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