On Aug 26, we have issued an updated research report on Anadarko Petroleum Corporation (APC). A steady cash balance, increasing focus on domestic and international exploration and production (E&P) activities, strategic asset divestiture plan and payment of regular dividends are expected to act as catalysts for the company’s future growth. However, we are concerned about volatile commodity prices and stringent drilling regulations, which might challenge Anadarko Petroleum’s upcoming performance.
This Zacks Ranked #3 (Hold) stock’s second-quarter 2014 earnings missed the Zacks Consensus Estimate while revenues surpassed the mark. On a year-over-year basis, both earnings as well as revenues increased primarily due to higher natural gas, crude oil & condensates and natural gas liquids sales.
Anadarko Petroleum continues to maintain a stable financial position, which allows it to follow an organized E&P program. As of Jun 30, 2014, the company has cash and cash equivalents of $5.4 billion, up 17.4% year over year. In the second quarter of 2014, Anadarko Petroleum's operating cash flow stood at $2.46 billion.
Anadarko Petroleum is progressing well on its operations in the Wattenberg, Eagleford and Wolfcamp basins, as well as several ventures primarily in the Gulf of Mexico. During the second quarter, the company achieved oil production milestones at the El Merk development project, Algeria and at the Jubilee field, Ghana. The company plans to invest $8.6–$8.8 billion as 2014 capital expenditure. Disciplined investments in several domestic and international ventures will enable Anadarko Petroleum to expand its reserves and maintain a stable a reserve replacement rate.
Anadarko Petroleum also pursues a systematic asset-divestment program. In Jul 2014, the company completed a secondary sale of common units of Western Gas Equity Partners, LP (WGP). This will enable the company to utilize the net proceeds for profitable projects.
On the flip side, volatility in oil, natural gas and natural gas liquids prices is a prime cause of concern as Anadarko Petroleum obtains a major portion of its revenues from these commodities. Decline in commodity prices due to economic slowdown will likely impact the company’s profitability.
Key Picks from the Sector
Other better-ranked stocks in the sector include Sanchez Energy Corporation (SN) and Cimarex Energy Co. (XEC). While Sanchez Energy holds a Zacks Rank #1 (Strong Buy), Cimarex Energy carries a Zacks Rank #2 (Buy).