Anadarko Petroleum (NYSE:APC), the US-based independent exploration and production (E&P) company, posted a strong improvement in its December quarter and full year financial results((Anadarko Announces December Quarter 2017 Results, 6th February 2018, www.anadarko.com)), backed by the recovery in the commodity prices during the year. However, unlike its competitors, the company continued to make adjusted losses for the year. That said, the oil and gas producer witnessed an improvement in its cash flows, which enabled it to increase its quarterly dividend as well as share repurchase program for 2018. Further, the company 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% below the current market price. We will update our model shortly to reflect the company’s 2017 results and guidance for 2018 and beyond.
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Key Highlights Of 4Q’17 Earnings
- Much like its peers, Anadarko witnessed a sharp surge in its oil and gas price realization through the year, which bolstered its full year revenue by more than 50%. Given the extension of the production cuts by the Organization of Petroleum Exporting Countries (OPEC) and its Non-OPEC allies, the company is optimistic about the rebound in commodity prices in 2018 and beyond. Consequently, we expect Anadarko’s price realizations to improve in the coming years, which will augment its top-line growth.
- The positive impact of higher price realization in 2017 was partially offset by lower production due to asset sales and natural field declines during the year, coupled with the company’s effort to increase its liquids exposure. Going forward, the company plans to expand its total output to 238-248 million barrels of oil equivalent (MMBOE) in 2018, which represents a growth of 7% over 2017 production. Further, it aims to grow its oil production to 370-390 thousand barrels per day (BOPD), converting the company’s product mix to 57% oil by the end of the year. This growth will be driven by the company’s operations in the Permian’s Delaware Basin, Colorado’s DJ Basin, and the deepwater Gulf of Mexico.
- During the 4Q’17 earnings call, Anadarko emphasized that it would use its increased cash flows to enhance its shareholder value in the form of dividends and share buybacks, rather than chasing aggressive production growth. In this quest, the company recently increased its quarterly dividend from 5 cents to 25 cents, close to the pre-downturn dividend. In addition, the company also authorized another $500 million to its existing $2.5 billion share repurchase program. This is a great move for the company’s shareholders as they are likely to see a jump in their returns from the company for the first time in the last three years.
- The key highlight of Anadarko’s 4Q’17 earnings was the downward revision of its capital spending budget for 2018. In November 2017, the company had announced its plans to spend $4.2-$4.6 billion in capital investment in this fiscal year. However, despite the optimistic outlook for commodity prices, the company has reduced its capital spending expectations to $4.1-$4.5 billion for the year, largely due to the recent sale of some of its Alaska assets to ConocoPhillips and from some anticipated downtime in the deepwater Gulf of Mexico.
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