Anadarko’s 3Q’16 Earnings To Remain Low Despite Improvement In Commodity Prices

Anadarko Petroleum Corporation (NYSE:APC), the US-based independent exploration and production company, is slated to release its 2016 September quarter financial results after the market closes on 31st October 2016 ^[1]. While the market expects to see an improvement in the company’s top line due to the recovery in commodity prices, the company’s 3Q’16 earnings are likely to suffer because of higher-than-expected costs and impairment charges.

Source: US Energy Information Administration (EIA)

Despite volatility in the market, commodity prices continued to remain resilient in the last three months. While crude oil prices did not show much improvement, natural gas prices jumped close to 35% during the quarter. Since Anadarko has a notable presence in the natural gas market, this recovery is likely to augment the improvement in the company’s revenue for the quarter. However, in the last quarter, the company had highlighted that it expects the commodity prices to recover in 2017, but foresees a tough second half of 2016. As a result, the US-based company had revised its full year production guidance downwards by roughly 2%. This decline in production could partially offset the impact of higher price realizations in the third quarter.

On the cost side, the company has worked towards reducing its operating costs to contain its margin contraction. However, it has not been too successful in controlling its costs in the last quarter. Since the company did not revise its cost guidance in the previous quarter, we expect to see a further drop in its earnings in the third quarter.

In order to enhance its growth prospects, Anadarko had agreed to acquire Freeport’s Deepwater assets in the Gulf of Mexico for a price consideration of $2 billion in the September quarter ^[2]. The deal is primarily aimed at strengthening the oil and gas company’s already leading position in the Gulf of Mexico at an attractive valuation. Since the transaction is likely to add roughly 155,000 barrels of oil equivalents per day (boepd) (85% oil) to Anadarko’s existing production, it could contribute incremental free cash flows of $3-$4 billion between 2017 and 2021, depending upon the commodity prices. The company is expected to release more details about the deal in its latest earnings call.  

Have more questions about Anadarko Petroleum (NYSE:APC)? See the links below:

• Deepwater Gulf Of Mexico: Freeport’s Loss Is Anadarko’s Gain – Part 2
• Deepwater Gulf Of Mexico: Freeport’s Loss Is Anadarko’s Gain – Part 1
• Anadarko’s 2Q’16 Earnings Continue To Decline; Company Revises 2016 Production Target Downward
• Weak Commodity Prices Will Continue To Weigh On Anadarko’s 2Q’16 Revenue And Earnings
• Anadarko Reports Depressed 1Q’16 Earnings As The Commodity Downturn Persists
• Why Have Oil Prices Touched $50 Per Barrel In The Last Few Days?
• Why Is Saudi Arabia The Strongest Member Of The OPEC?
• Lower Commodity Prices Likely To Create A Dent In Anadarko’s 1Q16 Earnings
• How Will Anadarko’s Revenue Move If Crude Oil Prices Average At $50 Per Barrel In 2018?
• How Will Anadarko’s Revenue Move If Crude Oil Prices Rebound To $100 Per Barrel By 2018?
• Why Are Crude Oil Operations Important For Anadarko?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Anadarko Petroleum

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1. Anadarko Announces Third Quarter 2016 Earnings Conference Call, 18th October 2016, www.anadarko.com [↩]
2. Anadarko Announces $2 billion Property Acquisition, 12th Spetember 2016, www. anadarko.com [↩]