Higher Crude Oil Prices Will Boost Anadarko’s Margins
The crude oil & condensates business is crucial for Anadarko (NYSE:APC) since the business accounts for around 46% of its stock price based on our estimates. Anadarko’s profit margins from crude oil and condensates declined from around 80% in 2006 to 48% in 2009, as the company increased its spending on exploration and production by nearly $200 million in 2007. On top of this, the drastic fall in natural gas prices from $7.70 per million cubic feet in 2008 to $3.60 per million cubic feet in 2009 pinched margins as well. Anadarko competes with BP (NYSE:BP), ExxonMobil (NYSE:XOM), Chevron (NYSE:CVX) and ConocoPhillips (NYSE:COP) in the oil and gas industry.
As crude oil and compensates prices increase, this will push the EBITDA margin back to pre-recession levels. While we expect the margin to rise and stabilize at 65% during the forecast period, Trefis members expect the margin to ascend higher to 84% – suggesting a potential upside of 13% to our price estimate for Anadarko’s stock.
We currently have a Trefis price estimate of $72.82 for Anadarko’s stock, about 7% below the current market price of $78.53.
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Higher Crude Oil Price Will Boost EBITDA Margin
Oil prices in global markets are very volatile and influenced by several factors like OPEC rules, oil reserves, oil demand and political uncertainties. As the global economy slowly recovers from recession and oil demand from emerging countries keeps growing, average realized prices for crude oil and condensates should remain elevated in the coming years.
Also oil and gas producers have high fixed costs related to the exploration and drilling operations, and so changes in oil and gas prices have a direct impact on the producers’ operating margin. This is one of the assumptions underlying our higher margin outlook.
Trefis Community Forecast
Trefis members expect Anadarko’s crude oil & condensates EBITDA margin to increase from 73% in 2011 to 84% by the end of the Trefis forecast period, compared to the baseline Trefis estimate of that will remain flat at around 65%. The member estimates imply an upside of 13% to the Trefis price estimate for Anadarko’s stock.
Our complete analysis for Anadarko’s stock is here.
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