Anadarko Corp (NYSE:APC) released its Q2 earnings figures on Monday, posting a strong 8.3% increase in production volumes over the same period last year.  The company increased both its liquids and natural gas output during the period, but was impacted by low natural gas prices in the U.S. Earnings were dragged down by a $978 million charge that reflected the impairment of its coal bed methane properties because of low natural gas prices. Excluding one-time items, the company’s adjusted net income for the quarter was $424 million, down from $607 million in Q2 2011. The company’s average sales price for natural gas fell to $2.15 /Million cubic feet (Mcf) from $4.11 /Mcf a year ago because of a glut in the market.
We have revised our price estimate for Anadarko to $88, which is about 20% ahead of its current market price. The revision reflects the impact of the fall in commodity prices in 2012 and the company’s revised production outlook. We have reduced our forecast for the average price of natural gas, crude oil and Natural Gas Liquids (NGL) to reflect the drop in prices as reported by Anadarko. The company’s capital expenditure forecast has also been adjusted to reflect the changed outlook in the industry.
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Anadarko ramped up its natural gas and oil production by 9% and 7%, respectively, over the same period last year.  Most of the production growth came from its operations in the U.S. The increase in output is attributed to the company’s drilling program in Wattenburg and production from the Ceaser/Tonga field in the Gulf of Mexico. Earnings were impacted by a drop in commodity prices. Revenues from the sale of natural gas declined by 43% to $496 million in the last quarter. Revenues from oil and condensate sales remained roughly at the same level as higher volumes offset a 7% decline in the average sales price.
Anadarko highlighted the second natural gas discovery it made in Mozambique and its recent oil find off the West African coast. CEO Al Walker said that Anadarko would look to operate within its cash flows for the rest of the year. This means that the company will be selective in developing some of its long-term prospects.Notes: