Anadarko’s Earnings To Improve Driven By Higher Commodity Prices

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APC: Anadarko Petroleum logo
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Anadarko Petroleum

Anadarko Petroleum (NYSE:APC), the US-based independent exploration and production (E&P) company, is slated to report its December quarter and full year financial results after the market closes on 6th February 2018((Anadarko To Announce December Quarter 2017 Results, 15th January 2018, www.anadarko.com)). Given the recovery in the commodity prices during the year, the company is expected to witness higher price realization for its output, which is likely to result in a notably growth in its top-line. However, the oil and gas company’s involvement in a series of safety and security accidents disrupted its reputation and led to a loss of market value.

That said, Anadarko will continue to focus on the three Ds in its portfolio — the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM) — that will drive its value going forward. We have a price estimate of $53 per share for Anadarko’s stock, which is 10% above the current market price.

See Our Complete Analysis For Anadarko Petroleum Here

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Key Trends Witnessed In 4Q’17

  • As a result of the extension of the Organization of Petroleum Exporting Countries’ (OPEC) production cuts in the fourth quarter, commodity prices witnessed a sharp rise. The WTI crude oil prices averaged at $55.26 per barrel for the December quarter, notably higher than the $48.18 per barrel of the previous quarter. For the full year 2017, WTI oil prices stood at $50.80 per barrel, 17% higher than 2016. Thus, we expect this higher price realization to boost Anadarko’s revenue for the quarter as well as the full year 2017.
  • However, the company has been involved in a few unfortunate safety accidents through the year, which have not only hampered its reputation in the market but also resulted in disappointing quarterly performance from the company. Due to the fire explosion in a house in Colorado, Anadarko was forced to shut a majority of its operations in the region, which is expected to weigh on its overall volume, and in turn, revenues for the year.
  • Further, Anadarko continued to pay quarterly dividends of 5 cents per share during the quarter, reinforcing investor faith in the company.

  • Going forward, Anadarko aims to maintain its oil production growth target at 12%-14% for 2018, with the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM) driving this growth. With this, the oil and gas company plans to alter its product mix and expand its liquids exposure from around 40% in 2010 to over 65% in the coming years. Since the company has already divested a large portion of its non-core and low-margin assets, it may be easy for the company to ramp up its oil production in its key basins and achieve this objective.
  • In order to improve and redeem itself of the poor performance in 2017, the company has proactively announced its capital investment plan for 2018. The company expects to keep its capital expenditure within its adjusted discretionary cash flows, which is expected to be in the range of $4.2 to $4.6 billion in 2018, assuming crude oil prices remain sticky at $50 per barrel and gas prices at $3 per Mcf.  A majority of this capital spend will be concentrated on the company’s US onshore and deepwater markets.

You can create your own forecasts about Anadarko’s results and visualize their impact on its stock price using our interactive platform.

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