Anadarko To Post Another Weak Quarter; Revision Of Production Targets In The Cards

-14.52%
Downside
72.77
Market
62.20
Trefis
APC: Anadarko Petroleum logo
APC
Anadarko Petroleum

Anadarko Petroleum (NYSE:APC), the independent exploration and production (E&P) company, is slated to report its June quarter financial results after the market closes on 24th July 2017((Anadarko To Announce June Quarter 2017 Results, 10th July 2017, www.anadarko.com)). Similar to the last quarter, the market anticipates the company to post a disappointing quarter, both in terms of revenue and profits. The US-based company has been among the worst performing large-cap oil and gas companies in this year so far, losing over 35% of its value since the beginning of this year. This plunge is largely due to the negative sentiment that the company’s stock has attracted after being involved in two safety accidents over the last couple of months. While the oil and gas producer has tried to reassure its investors about the safety measures adopted by the company, and is cooperating with the government agencies in the investigation of the two incidents, we believe that it will take some time for Anadarko to regain the market trust and recoup its lost value.

See Our Complete Analysis For Anadarko Petroleum Here

Relevant Articles
  1. How Will Anadarko Perform In 2019?
  2. Andarko 4Q: Andarko To See Improved Earnings But Cash Flow May Face Headwinds
  3. Anadarko Has Been Trading At A 52-Week Low. Where Will It Head Going Into 2019?
  4. Higher Oil Output And Improved Commodity Prices Will Drive Anadarko’s 3Q’18 Results
  5. Ramp Up Of Oil Production Will Drive Anadarko’s Value In The Near Term
  6. Key Takeaways From Anadarko’s Second Quarter Results

Rising Safety Concerns

The June quarter began on a sad note for Anadarko. The rally in commodity prices, particularly crude oil, ended due to the rising US oil production and inventory levels. As a result, the WTI crude oil prices dropped from an average of $52 per barrel in the first quarter of the year to $48 per barrel in the latest quarter. This implies that the E&P company’s price realization for the quarter is expected to be lower than that of the previous quarter. Further, since the company reported significant losses in the last quarter and missed the consensus expectations despite the rebound in oil prices, we figure that the company’s profitability is likely to suffer even in this quarter.

To make things worse, Anadarko has been involved in a series of incidents that have caused the investors to doubt the safety measures adopted by the company. In mid April, a deadly house explosion occurred in Colorado killing two people. It is suspected that natural gas leaked from an abandoned line that remained attached to a 24-year-old well operated by Anadarko less than 200 feet away from the residence. While the company is cooperating with the authorities to identify the actual cause of the fire, it has been forced to shut almost 3,000 vertical wells, which produce roughly 13,000 barrels of oil per day. Furthermore, the company was asked to review all its oil and gas lines in the state that lie within 1,000 feet of an occupied building.

Source: Google Finance; US Energy Information Administration (EIA)

As the company began the statewide review of its wells, there was another explosion at its oil storage tank near Colorado in the Weld County almost a month later, killing one maintenance worker and injuring three others. The site of the second incident is just five miles north of the home explosion site, and is assumed to be linked to the abandoned line that caused the previous explosion. Although the cause of the incident is still under investigation, all of Anadarko’s operations in Colorado have been stalled until the verdict of a review by state and federal authorities. If the investigation results point towards any safety concerns on the company’s part, it could further erode Anadarko’s market value, causing heavy losses to its investors.

The two deadly incidents have not only resulted in shutting down of Anadarko’s operations in the Colorado region, but have also caused loss of reputation and investor faith in the company. One of the company’s investors has filed a lawsuit against it, stating that the company’s maintenance and safety protocols for certain of its vertical wells were inadequate, increasing the risk of explosion. He also noted that the company’s public statements were materially false and misleading at all relevant times. This lawsuit could further delay the company’s efforts to regain investor confidence.

Aggressive Production Target

Despite the ongoing events, Anadarko has maintained its aggressive production targets for the year. Going forward, the company 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. 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. With this, the oil and gas company plans to alter its product mix and expand its liquids exposure from 40% in 2016 to 55% in 2017, and to 65% by 2021. For this, 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’s portfolio. It remains to be seen if the company will continue with its robust production targets for the year to make good the loss from the recent incidents, or will amend its production plans for the year after the latest earnings.

Anadarko’s US Onshore Operations

Source: JP Morgan 2017 Energy Conference Presentation, 27th June 2017

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research