We recently retained our Neutral recommendation on Anadarko Petroleum Corporation (APC).
Texas based Anadarko Petroleum has a deep and diversified asset base comprising unconventional resources, which provide the company with substantial growth potential over the medium-to-long term. Additionally, the company’s low-risk and predictable production profile reflects a visible upside potential going forward.
One of the largest independent oil and natural gas exploration and production (E&P) companies of the world, Anadarko engages in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and natural gas liquids (NGLs). The company’s assets are primarily situated in the United States, with additional facilities in Algeria, Brazil, China, Indonesia, Mozambique and Ghana.
Anadarko’s project management expertise is considered to be among the best in the industry. It has a proven track record of identifying and executing high-impact projects. Additionally, the company also remains committed to the execution of its worldwide exploration, appraisal and development programs, with a sound capital expenditure program in place.
Of its 2010 capital budget, Anadarko estimates spending 65% on development activities, 25% on exploration activities and 10% on gas-gathering and processing activities and other business activities.
Moreover, we believe the company’s strong balance sheet, investment-grade rating and access to liquidity will enable it to pursue new strategic and tactical growth opportunities. The company has in place a five-year $5.0 billion revolving credit facility with available capacity of $4.6 billion as of September 30, 2010. The company ended the year with $4.2 billion of cash in hand and a total debt of $13.5 billion, with a debt-to-capital of 40%.
Despite the strong financial position and solid execution history, the after-effects of the oil spill at the Macondo (APC – 25% interest) exploration well in the Gulf of Mexico continue to weigh on Anadarko’s valuation. Apart from the production delays in the Gulf of Mexico due to the suspension of drilling activities in the region, another thing that affects Anadarko’s performance is the uncertainty regarding the company’s liability, as a 25% stake-holder, for the clean-up of the oil spill.
Quarterly Results & Guidance
Anadarko third quarter earnings came in at 21 cents per share for the third quarter, which was below the Zacks Consensus Estimate of 30 cents but significantly above the net loss of 11 cents reported in the same period last year.
Revenues of $2.55 billion in the quarter showed a negative surprise of 2.3% from the Zacks Consensus Estimate of $2.61 billion, while it dipped 23.7% year over year from $2.87 billion last year.
Encouraged by the consistent performance of its producing properties, Anadarko has raised its outlook for full-year sales volumes to a range of 233−236 MMBOE. For the fourth quarter of 2010, the company expects sales volumes in the 54−57 MMBOE range.
However, Anadarko has lowered its anticipated capital expenditures for 2010. The company now expects capital expenditures in the range of $5.075−$5.270 billion for 2010 and $1.265−$1.460 billion for the fourth quarter.
The Zacks Consensus earnings estimates for the fourth quarter fiscal 2010, fiscal year 2010 and fiscal year 2011 are 21 cents per unit, $1.78 per unit and $2.12 per unit, respectively.
Our Take
Although we believe Anadarko’s strong cash position along with its impressive $5 billion credit facility provides it enough flexibility to meet any future liabilities, we project limited growth for Anadarko shares until there is a resolution on the liabilities front with regard to the oil spill.
Anadarko currently retains a Zacks #3 Rank (short-term Hold rating), in line with its closest peers Devon Energy Corp. (DVN) and Apache Corp. (APA).
APACHE CORP (APA): Free Stock Analysis Report
ANADARKO PETROL (APC): Free Stock Analysis Report
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