Anadarko Beats, Outlook Positive

Zacks Equity Research
May 1, 2012

Anadarko Petroleum Corporation (APC) posted net earnings from continuing operations of 92 cents per share for the first quarter of 2012, surpassing the Zacks Consensus Estimate of 83 cents and earnings of 72 cents per share reported in the same period last year.

On a GAAP basis, Anadarko reported earnings of $4.28 per share in the first quarter versus 43 cents per share in the year-ago quarter. 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 a 2 cent loss from divestiture, 7 cents for impairments, 35 cents of Tronox related contingent loss, and 1 cent related to the Deepwater Horizon settlement. The company registered a total gain of 18 cents from derivatives, a 3 cent gain from tax positions and $3.60 from the Algeria exceptional profits tax settlement.

Revenue

Revenue of $3.45 billion in the quarter exceeded the Zacks Consensus Estimate of $3.40 billion and the year-ago figure of $3.25 billion. The year-over-year growth in revenue was mainly due to a 24.2% rise in oil and condensate revenues.

Operational Highlights

Sales volumes in the quarter improved 3.2% to 64 million barrels of oil equivalent (:MMBOE) or 704 thousand BOE per day (MBOE/d) from 62 MMBOE or 690 MBOE/d in the year-ago quarter. The year-over-year rise was mainly due to  marginal growth in natural gas and oil and condensate volumes.

The liquids sales averaged 301 MBOE/d, up 5% year over year. The increase was driven by the company’s five major U.S. onshore growth plays, namely Wattenberg, Eagleford, Greater Natural Buttes, East Texas HZ and Permian.

Realized prices for crude oil and condensate, natural gas and NGL averaged $111.07 per barrel (up 17.4%), $2.60 per thousand cubic feet (down 33.8%) and $47.09 per barrel (down 3.6%), respectively, in the reported quarter.

Total cost and expenses during the quarter (excluding the Algeria exceptional profits tax settlement) were $2.54 billion versus $2.35 billion in the year-ago quarter.

Interest expense during the quarter was $186 million, lower than $220 million in the year-ago quarter.

Financials

The company continues to have a strong cash position. Cash and cash equivalents as of March 31, 2012, were $2.95 billion versus $2.69 billion as of December 31, 2011.

Long-term debt of the company as of March 31, 2012 was $15.4 billion versus $15.06 billion as of December 31, 2011.

Cash flow from operations in the first quarter of 2012 was $1.89 billion versus $1.28 billion in the year-ago quarter.

Capital expenditure during the quarter was $1.79 billion, increasing marginally from $1.58 billion incurred in the first quarter of 2011.

Guidance

The company expects its sales volume in the second quarter and fiscal 2012 to be in the range of 64–66 MMBOE and 258–262 MMBOE, respectively.

Marketing and gathering margin for the second quarter and fiscal 2012 are expected to be in the band of $55–$75 million and $240–$280 million, respectively.

Minerals and Others for the second quarter and fiscal 2012 are expected to be in the band of $35–$45 million and $155–$180 million, respectively.

General and administrative expenses for the second quarter and fiscal 2012 are expected to be in the band of $290–$310 million and $1.1–$1.2 billion, respectively.

Capital expenditure of the company for the second quarter and fiscal 2012 are expected to be in the vicinity of $1.6–$1.75 billion and $6.4–$6.7 billion respectively.

Peer Comparison

ConocoPhillips (COP), which competes with Anadarko Petroleum, announced operating earnings of $2.02 per share for the first quarter 2012, which failed to beat the Zacks Consensus Estimate of $2.08 per share. However, earnings were 20 cents higher than the year-ago results.

ConocoPhillips’s operating revenue of $58.35 billion in the quarter slipped 2.3% from $59.73 billion reported in the year-ago quarter.

Our View

Anadarko was able to beat our expectation, riding on higher sales volumes and better realized price for crude and condensate sales. Most importantly, all the regions in which company operates registered year-over-year growth in sales volume, except for Gulf of Mexico (GoM). Sales volumes in GoM were down due to a fall in the gas sales volume.

Anadarko continues to improve its overall portfolio gaining from drilling successes in GoM, Mozambique and Ghana. The company is also entering into strategic partnerships to develop its exiting assets. Recently, Anadarko joined hands with Linn Energy, LLC (LINE) to develop the Salt Creek field in Wyoming's Powder River Basin.

Despite the positives, depressed natural gas prices are causing havoc in the oil and gas industry. Besides, the domestic operations of the company are subject to certain laws and regulations. Failure or delay in compliance can impact the smooth running of operations.

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.

Read the Full Research Report on COP

Read the Full Research Report on APC

Read the Full Research Report on LINE

Zacks Investment Research



More From Zacks.com