Anadarko 4Q Rides on Higher Volumes

Zacks

Anadarko Petroleum Corporation (NYSE:APC - News) posted net earnings from continuing operations of 85 cents per share for the fourth quarter 2011, surpassing the Zacks Consensus Estimate of 60 cents and earnings of 38 cents per share reported in the same period last year.

On a GAAP basis, Anadarko reported a net loss of 72 cents per share in the fourth quarter versus the year-ago earnings of 22 cents per share. The difference between operating and GAAP earnings during the quarter was due to the impact of a few one-time items, charges and gains, during the quarter.

Numbering among the charges were impairments of $2.03 per share, 2 cents from changes in tax positions, a 7 cent loss from interest rate swaps, and 32 cents related to Tronox related contingent loss. The company registered a total gain of 19 cents from derivatives, a 49 cent gain from divestitures and 19 cents from the Deepwater Horizon settlement.

For the full year 2010, Anadarko earned $3.37 per share, surpassing the Zacks Consensus Estimate of $3.11.

Revenue

Revenue of $3.83 billion in the quarter exceeded the Zacks Consensus Estimate of $3.26 billion and the year-ago figure of $2.69 billion. The year-over-year growth in revenue was mainly due to a 46% rise in oil and condensate sales.

Revenue in 2011 grew 27.1% year over year to $13.96 billion from $10.98 billion in 2010.

Operational Highlights

Sales volumes in the quarter improved 12% to 63 million barrels of oil equivalent (:MMBOE) or 683 thousand BOE per day (MBOE/d). The year-over-year growth was mainly due to an 18% increase in higher-margin liquids volumes.  Anadarko’s sales volumes in 2011 reached a record of 248 MMBOE or 680 MBOE per day, up 6% from 2010 levels.

Commodity price realizations remained robust during the quarter with significant improvement in oil and NGL prices while natural gas prices slumped compared to last year.

Realized prices for crude oil and condensate, natural gas and NGL averaged $104.82 per barrel (up 28.4%), $3.43 per thousand cubic feet (down 7.3%) and $55.29 per barrel (up 12.1%), respectively, in the reported quarter. A similar trend was followed in the fiscal year. Oil, natural gas and NGL realized prices for the full-year came in at $102.24 per barrel (up 34.1%), $3.87 per thousand cubic feet (down 6.1%) and $53.95 per barrel (up 25.3%), respectively.

Total cost and expenses during the quarter were $3.98 billion versus $2.41 billion in the year-ago quarter. The increase in expenses during the quarter was due to $1.48 billion in impairment charges.

Interest expense during the quarter was $197 million, lower than $213 million in the year-ago quarter.

Proved Reserves

Anadarko replaced 159% of is proved reserve in 2011. The company’s net proved reserves at year-end 2011 totaled 2.54 billion BOE, adding about 392 MMBOE during 2011. About 71% of the estimated proved reserves have been categorized as proved developed and 29% as proved undeveloped. At year-end 2011, Anadarko’s product mix of proved reserves consisted of roughly 55% natural gas and 45% liquids. Costs incurred in 2011 were approximately $5.561 billion associated with the company’s oil and natural gas exploration and development activities.

Financials

Cash and cash equivalents of the company as of December 31, 2011, were $2.69 billion versus $3.68 billion as of December 31, 2010.

As of December 31, 2011, Anadarko incurred a total debt of $15.23 billion and long-term debt of $15.06 billion. The company had a total debt-to-capitalization ratio of 46% at year end, higher than the previous year-end level of 39%.

Cash flow from operations in 2011 was $2.5 billion compared with $5.24 billion in the prior year. The substantial decline from the previous year level was mainly due to the deepwater settlement during the year, which accounted for nearly $4 billion.

Capital expenditure of the company during the year was $6.55 billion, reflecting a substantial rise of $1.39 billion from the 2010 expenditure of $5.16 billion.

Peer Comparison

ConocoPhillips (NYSE:COP - News), which competes withAnadarko Petroleum, announced operating earnings of $2.02 per share for the fourth quarter 2011, surpassing both the year-ago figure of $1.32 per share and the Zacks Consensus Estimate of $1.80.

ConocoPhillips’s operating revenue of $59.9 billion in the quarter increased 15.0% from the year-ago quarter.

Our View

Anadarko is working consistently to improve it overall portfolio and is doing well in its onshore US operating areas. In 2011, its exploration and drilling program has paid rich dividends. The company has concentrated on its operations in Africa, after the Gulf of Mexico accident, and was able to make big discoveries in Ghana and Mozambique.

In October 2011, the company finally reached a settlement with BP plc. (NYSE:BP - News) by shelling out $4 billion that released all mutual claims regarding the Deepwater Horizon explosion. In December 2011, Anadarko decided to develop the Lucius project, located in the Keathley Canyon area of the deepwater Gulf of Mexico, jointly with other partners

Based in The Woodlands, Texas, Anadarko Petroleum is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs.The company presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating.

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