Anadarko To Post A Strong Improvement In Its 1Q’17 Earnings Backed By Recovery In Commodity Prices

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APC: Anadarko Petroleum logo
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Anadarko Petroleum

Having posted a notable improvement in its performance in the last quarter, Anadarko Petroleum (NYSE:APC) is slated to report another set of solid results for its March quarter of 2017 on 3rd May 2017((Anadarko To Announce March Quarter 2017 Results, 11th April 2017, www.anadarko.com)). The jump in the company’s performance is likely to be driven by higher price realizations and the company’s unabated efforts to control its operating costs. That said, the company slashed its quarterly dividend from $0.27 per share in the last quarter to merely $0.05 per share, with an aim to invest its capital on high-margin projects that will augment its expansion plans. However, this left the investors disappointed, causing the E&P company’s stock to drop by almost 19% in the last four months.

See Our Complete Analysis For Anadarko Petroleum Here

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Key Trends Witnessed In 1Q’17

Given the production cuts implemented by the Organization of Petroleum Exporting Countries (OPEC) in the first quarter, crude oil prices rose sharply, and averaged at around $52 per barrel during the quarter, as opposed to an average of only $33 per barrel in the same quarter of last year. Further, the Henry Hub gas prices increased from $1.99 per MMBTU in 1Q’16 to over $3.02 per MMBTU in the latest quarter. This rebound in oil and gas prices is expected to result in an improvement in Anadarko’s price realizations, boosting the company’s top-line growth for the quarter. Further, the company’s consistent efforts to reduce its operating costs are likely to boost its bottom line.

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Data Source: US Energy Information Administration (EIA)

In its latest investor presentation, Anadarko highlighted that it has increased its net resource in the DJ Basin development area to more than 2 billion barrels of oil equivalent (BOE), and in Wolfcamp A (Delaware Basin) to more than 3 billion BOE. In terms of asset sales, Anadarko had stated earlier that it would not be as aggressive in its asset sales as it has been over the last two years. However, the oil and gas producer sold its Eagleford Shale assets to Sanchez Energy Corporation and Blackstone Group LP in the March quarter for a sum of $2.3 billion. The divestiture includes roughly 155,000 net acres in Dimmit and Webb counties, producing close to 45,000 barrels of liquids per day and 131 million cubic feet of natural gas per day. With the completion of this deal, the company’s cash on hand will increase to more than $5 billion.

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Source: Anadarko’s Capital Program 2017

Going forward, Anadarko will continue to focus on its long term growth, driven by the three Ds in its portfolio – the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM), in that order of priority. Also, the company plans to alter its product mix and expand its liquids exposure to over 65% by 2021. For this, the company aims to grow its oil production by more than 15% annually over the next few years, assuming an oil price scenario of $50-$60 per barrel. Consequently, the company has increased its capital spending budget from $2.8 billion in 2016 to $4.5-$4.7 billion for the current fiscal, a majority of which will be spent on developing the three key plays in the company portfolio.

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Source: Anadarko’s Capital Program 2017

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