Higher Oil Output And Improved Commodity Prices Will Drive Anadarko’s 3Q’18 Results

by Trefis Team
-14.52%
Downside
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Trefis
APC
Anadarko
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Anadarko Petroleum (NYSE: APC) is set to release its third quarter financial results after the market closes on 30th October 2018. Similar to the last quarter, the US-based company is expected to show significant growth in its top-line as well as bottom-line backed by rising commodity prices and an oil-focused production mix. With improved earnings and cash flows, the exploration and production (E&P) company is likely to return higher value to its shareholders in the form of dividends and share repurchase. We expect the company’s focus on the three Ds in its portfolio — the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM) — to drive its value going forward.

We currently have a price estimate of $63 per share for Anadarko Petroleum, which is higher than its market price. View our interactive dashboard – Anadarko Petroleum’s Price Estimate – and modify the key drivers to visualize the impact on its valuation.

Key Trends To Watch Out For In 3Q’18

  • Commodity prices have been on the rise since the beginning of 2018 backed by the production cuts implemented by the Organization of Petroleum Exporting Countries (OPEC) and its allies. Brent crude oil price rose sharply in the third quarter and averaged $75.07 per barrel, 44% higher compared to the same quarter of last year. Given the significant improvement in commodity prices, we expect Anadarko to witness higher price realization in the quarter, which will drive its top-line growth.
  • Driven by the strong performance from its key assets – the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM) – the company expects to grow its oil production by 12%-14% in 2018.
  • By expanding its oil output, 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. This will allow the company to capitalize on the increasing crude oil prices with higher oil volumes in the coming months.

  • At the end of the 2Q’18, oil comprised 57% of the company’s total sales volume mix compared to about 52% in the second quarter of last year. We expect the share of oil in the company’s production portfolio to rise further in 3Q’18, which will enable the company to generate higher margins for its shareholders in the near term.
  • In 3Q’18, we anticipate further divestitures from the company as it continues to focus on streamlining its portfolio, expanding its oil production and enhancing its profitability. This will enable the company to achieve its objective of delivering shareholder value rather than focusing on volume growth.
  • In the last quarter, the company had extended its share buyback program by $1 billion and retired $500 million of debt to reshape its capital structure. We foresee further reduction in the company’s debt, financed by the asset sales in the 3Q’18. A leaner balance sheet will not only boost the company’s profitability, but will also reinforce investor confidence in the company.

 

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