Anadarko Petroleum corp.
/ (APC-NYSE) / $66.52Note: More details to come; changes are highlighted. Except where noted, and highlighted, no other sections of this report have been updated.
Reason for Report: Flash Update: 1Q18 Earnings Results
Prev. Ed.: 4Q17 Earnings Update done on March 15, 2018.
Flash Update [Note: earnings update in progress; final report to follow]
On May 1, 2018,Anadarko Petroleum reported first-quarter 2018 earnings of 52 cents per share, beating the Zacks Consensus Estimate of 43 cents by 20.9%. In the year-ago quarter, the company had incurred a loss of 60 cents.
On a GAAP basis, Anadarko Petroleum’s earnings were 22 cents per share, rebounding from the prior-year quarter loss of 58 cents.
Total Revenues
In the reported quarter, Anadarko Petroleum’s revenues of $3,045 million surpassed the Zacks Consensus Estimate of $2,979 million by 2.9%. However, revenues were down 19.2% year over year.
Operational Highlights
In the quarter, the company’s average daily sales volume was 643,000 barrels of oil equivalent per day (BOE/d). U.S. Onshore assets delivered sales volumes of 400,000 BOE/d on a divestiture-adjusted basis, an increase of 6.4% from the prior-year quarter.
The company’s total costs and expenses in the first quarter dropped 35.5% year over year to $2,494 million, primarily due to lower exploration and Oil and gas transportation expenses.
Interest expenses came in at $228 million, increasing 2.2% from $223 million a year ago quarter.
Financial Condition
Anadarko Petroleum had cash and cash equivalents of $3,361 million as of Mar 31, 2018, down substantially from $4,553 million as of Dec 31, 2017.
Long-term debt as of Mar 31, 2018 was $15,643 million, reflecting an increase from $15,547 million as of Dec 31, 2017.
Its net cash flow from operating activities during the quarter was $1,430 million compared with $1,123 million recorded in the year-ago quarter.
Guidance
Anadarko Petroleum expects average daily oil sales volume in the range of 615,000-640,000 BOE/d for second-quarter 2018.The company projects its total sales volume in the range of 56-58 million BOE/d for the second-quarter.
It expects capital expenditure in the range of $1,300-$1,500 million for second-quarter 2018.
Anadarko Petroleum expects average daily oil sales volume in the range of 658,000-685,000 BOE/d for 2018.The company projects its total sales volume in the range of 240-250 million BOE/d for the year.
It expects 2018 capital expenditure in the range of $4,200-$4,600 million.
MORE DETAILS WILL COME IN LATER, IMMINENT EDITIONS OF ZACKS RD REPORTS ON APC.
Portfolio Manager Executive Summary[Note: Only highlighted material has been changed.]
Anadarko Petroleum Corporation is a Texas-based independent oil and gas company engaged in the acquisition, exploration, production and marketing of oil and gas, primarily in the United States, the deepwater Gulf of Mexico (GoM), and Algeria. Its strategy is to optimize its asset portfolio and deliver long-term value to its stakeholders by combining a large inventory of expansion opportunities in its domestic operations with various offshore diversification activities.
Of the 21 firms covering the company in the Zacks Digest Group, 16 gave positive ratings, four assigned neutral ratings and one rendered negative rating. The target prices range from $42.00 (27.6% downside from the current price) to $87.00 (49.9% upside from the current price). The Zacks Digest average target price is $69.69 ($7.72 from the previous report; approximately20.1% upside from the current price).
The following is a summarized opinion of the diverse brokerage viewpoints:
Bullish or equivalent (76.2%; 16/21 firms): The bullish firms are impressed with Anadarko’s management for exhibiting financial discipline and improving production mix margins. Increased cash flows accentuated by reduced debt will improve the company’s financial flexibility going forward. The Anadarko’s exposure to the DJ and Delaware basins where wells are improving and the company generates strong returns. The company has been selling non-core assets tostrengthen balance sheet and liquidity. Another SPA in Mozambique is positive as APC's LNG project marches towards FID.
Neutral or equivalent (19%; 4/21 firms): According to the neutral firms, Anadarko has an attractive acreage in the DJ Basin in Colorado and Delaware Basin in the Permian in West Texas, plus attractive growth potential in the Gulf of Mexico. However, this is negated by a relatively higher risk profile than most subsector peers, as it continues to undertake expenditures on exploration in various parts of the Gulf of Mexico, Africa, South America and other parts of the world. Anadarko has a diversified portfolio of assets, operating globally.
Negative or equivalent (4.8%; 1/21 firms):
March 15, 2018
Overview[Note: Only highlighted material has been changed.]
The firms identified the following issues for evaluating the investment merits of the company:
Key Positive Arguments / Key Negative Arguments- Portfolio of assets, primarily domestic, holds significant unrecognized value
- Increasing asset base is likely to generate a more sustainable growth profile
- Strong cash flow generation out of the Gulf of Mexico
- Emerging new growth plays
- Strong organic production growth visible from existing projects
- Asset divestments will enable the company to seize growing opportunities in domestic unconventional resource plays, besides helping to fund ongoing exploration activities.
- Volatility caused by drilling disappointments
- Regulation restriction regarding waste water disposal
- Uncertainties regarding unconventional drilling and fracturing may pose investment risk
- Substantial decline in crude oil and gas prices
- High operating costs prevailing in the E&P sector
- Technical and economic problems at development plays
- Delay in completion of infrastructure upgrade project
Anadarko Petroleum is among the world's largest independent oil and natural gas exploration and production companies. Anadarko is engaged in the exploration, development, production, and marketing of natural gas, crude oil, condensate, and Natural gas liquids (NGLs). The company also engages in the gathering, processing, and treatment of natural gas, along with the transportation of natural gas, crude oil, and NGLs. The company’s core asset base includes positions in onshore resource plays at the Rocky Mountain region, southern United States and the Appalachian Basin. Moreover, the company is a major independent producer in the deepwater Gulf of Mexico and has operations spread worldwide in East and West Africa, Algeria, Alaska, South Africa and New Zealand. It also has exploration and production facilities in Brazil, Indonesia, Mozambique, Liberia, Côte d’Ivoire, Sierra Leone and Ghana.
Anadarko Petroleum primarily operates through three business segments:
The Oil & Gas Exploration & Production segment explores and produces natural gas, crude oil, condensate and NGLs and plans to develop and operate the company’s liquefied natural gas (LNG) project.
The Midstream segment is engaged in gathering, processing, treating and transportation of oil and gas produced at its own and third-party facilities.
The Marketing segment manages sales of Anadarko’s gas, oil and NGLs. The company also markets petroleum largely sourced from partners and producers located near its plants.
At the end of 2017, Anadarko had 1.44 billion barrels of oil equivalent (BOE) of proved reserves, which is lower compared with 2016 end level of 1.7 billion BOE.
The company’s website is It operates on a calendar year basis.
March 15, 2018
Long-Term Growth[Note: Only highlighted material has been changed.]
Anadarko has repositioned portfolio like many other peers, with an increased focus on more-profitable domestic oil shale. It has sold various interests (mostly weighted toward natural gas) and added to its Gulf of Mexico position with a significant acquisition in late 2016. Firms believe this should help growth in coming years and enhance profitability with greater size advantages in certain areas and better growth potential.
Anadarko provides a combination of stable U.S. onshore growth, along with considerable upside potential from its international oil exploration and development activities. Anadarko’s objective is to deliver a competitive and sustainable rate of return to shareholders by exploring, acquiring and developing oil and natural gas resources.
To achieve this objective, the company identifies and commercializes resources, explores high-potential proven basins, employs a global business development approach, and ensures financial discipline and flexibility. Developing a portfolio of primarily unconventional resources provides the company a stable base of capital-efficient, predictable and repeatable development opportunities, which in turn position the company for consistent growth.
Anadarko continues to make progress toward reaching Final Investment Decision (FID) on its LNG project in Mozambique. FID is expected once approval is finalized, the target level of Sale and Repurchase Agreements (SPAs) (8.5 MTPA) is reached and the financing is in place. In Mozambique, the company continues to proceed with potential development of a LNG facility of which it would operate and own 27%. It would export natural gas that the company would produce itself from existing fields.
Oil prices had beentypically in the range of $55-$65 per barrel over the longer term, although they will be above and below the range at times while remaining volatile. Firms expect natural gas prices mostly being in the range of $3.25-$3.75 per thousand cubic feet (mcf) over the longer term. Current prices are below the range primarily due to continued mild weather and ample supply. Hotter summers and colder winters tend to drive higher demand and prices. Eventually, LNG exports should increase demand and prices. Key drivers in natural gas prices include weather,the U.S. economy, and drilling activity for new supply.
To effectively manage the influence of potential commodity-price volatility, Anadarko continued to optimize and further concentrate its portfolio on higher-return, oil-levered opportunities in areas where it possesses both scale and competitive advantages, namely the Delaware and DJ basins in the U.S. onshore and deepwater Gulf of Mexico.
March 15, 2018
Target Price/Valuation[Note: Only highlighted material has been changed.]
Rating DistributionPositive / 76.2%
Neutral / 19%
Negative / 4.8%
Digest High / $87.00
Digest Low / $42.00
Avg. Target Price / $69.69
Firms with Target Price/Total / 16/21
The major factors hindering the achievement of target price include commodity price volatilities, political disturbances in African countries, drilling restrictions and risks related to exploration activities.
Recent Events [Note: Only highlighted material has been changed.]
On March 5, 2018,Anadarko announced it has received official approval from the government of Mozambique for the Golfinho/Atum Field Development Plan. The Mozambique LNG project with have total nameplate capacity of 12.88 million tonnes per annum (MTPA). The Golfinho/Atum Project will also supply initial volumes of approximately 100 million cubic feet of natural gas per day (MMcf/d) (50 MMcf/d per train) for domestic use in Mozambique.
On Feb 20, 2018, Anadarko announced Mozambique LNG1 Company Pte. Ltd., the jointly owned sales entity of the Mozambique Area 1 co-venturers, has entered into a long-term LNG Sale and Purchase Agreement (SPA) with Électricité de France, S.A., (EDF). The off-take agreement calls for the supply of 1.2 million tonnes per annum (MTPA) for a term of 15 years.
On Feb 7, 2018, Anadarko delivered fourth-quarter 2017 earnings of 18 cents per share, beating the Zacks Consensus Estimate of 3 cents by a whopping 500%. In the year-ago quarter, the company had incurred a loss of 50 cents.On a GAAP basis, Anadarko’s earnings were $1.80 per share, rebounding from the prior-year quarter loss of 94 cents.
On Feb 7, 2018,Anadarko announced a quarterly cash dividend of 25 cents per share, an increase of 20 cents per share versus the previous quarter. Additionally, the board of directors authorized a $500-million increase to Anadarko's previously announced $2.5 billion share-repurchase program,bringing the total repurchase program to $3.0 billion. In addition, Anadarko intends to reduce outstanding indebtedness by more than $1 billion by retiring 2018 and 2019 debt maturities at par.
Revenue [Note: Only highlighted material has been changed.]
In the reported quarter, Anadarko’s revenues of $2,929 million surpassed the Zacks Consensus Estimate of $2,713 million by 7.9%. Revenues were also up 22.7% year over year.
The year-over-year improvement was due to higher oil sales revenues, which increased 30.6%.
Provided below is a summary of total revenue, as compiled by Zacks Digest:
Revenue ($ M) / 4Q16A / 3Q17A / 4Q17A / 1Q18E / 2016A / 2017A / 2018E / 2019EDigest Average / $2,387.0 / $2,552.0 / $2,937.5 / $3,108.9 / $7,869.0 / $11,128 / $12,881.9 / $14,296.9
Digest High / $2,387.0 / $2,690.0 / $2,946.0 / $3,157.1 / $7,869.0 / $11,908 / $13,609.9 / $14,351.9
Digest Low / $2,387.0 / $2,414.0 / $2,929.0 / $3,060.6 / $7,869.0 / $10,348 / $12,154 / $14,241.9
Y-o-Y Growth / 16.3% / 32.4% / 23.1% / -18.1% / -9.5% / 48.3% / 12.4% / 9.1%
Quarterly Growth / 26.1% / -7.6% / 17.2% / 9.5%
Sales Volume
In the quarter, the company’s average daily sales volume was 637,000 BOE per day (BOE/d). U.S. Onshore assets delivered sales volumes of 391,000 BOE/d on a divestiture-adjusted basis, an increase of 9% from the prior-year quarter.
Guidance
Anadarko expects average daily oil sales volume in the range of 370,000-390,000 BOE for 2018.The company projects total 2018 sales volume in the range of 238-248 million BOE.
Outlook
The firms expect volume growth to mostly come from Anadarko’s premium properties in the DJ Basin in Colorado and the Delaware Basin in the Permian area in Texas, accentuated by Gulf of Mexico projects which continues to progress and should add new production over time. Despite the divestiture of Alaska project, as well as prolonged downtime witness in Enchilada platform in the Gulf of Mexico, firms expect a decent volume growth of 9% achievable in 2018 due to strong production from other assets.
Please refer to the Zacks Research Digest spreadsheet on APC for more details on revenue estimates.
Margins[Note: Only highlighted material has been changed.]
The company’s total costs and expenses in fourth quarter dropped 13.5% year over year to $2,591 million, primarily due to lower exploration and Oil and gas transportation expenses. Interest expenses came in at $252 million, increasing 8.1% from $233 million a year ago.
Provided below is a summary of margins as compiled by Zacks Digest:
Margins / 4Q16A / 3Q17A / 4Q17A / 1Q18E / 2016A / 2017A / 2018E / 2019EEBITDA Margin / 55.2% / 49.5% / 56.7% / 56.6% / 51.1% / 44.9% / 58.9% / 65.8%
Operating Margin / -23.1% / -29.6% / 11.5% / 20.5% / -31.4% / -7% / 25.4% / 22.1%
Pretax Margin / -8.4% / -28.1% / -22.0%
Net Margin / -11.4% / -17% / 3.6% / 8.1% / -20.4% / -9.2% / 11.7% / 10%
Note: Blank cells indicate that brokers have not provided estimates.
Please refer to the Zacks Research Digest spreadsheet on APC for more details on margin estimates.
Earnings per Share [Note: Only highlighted material has been changed.]
Anadarko delivered fourth-quarter 2017 earnings of 18 cents per share, beating the Zacks Consensus Estimate of 3 cents by a whopping 500%. In the year-ago quarter, the company had incurred a loss of 50 cents.On a GAAP basis, Anadarko’s earnings were $1.80 per share, rebounding from the prior-year quarter loss of 94 cents.
Provided below is a summary of EPS, as compiled by Zacks Digest:
EPS in US$ / 4Q16A / 3Q17A / 4Q17A / 1Q18E / 2016A / 2017A / 2018E / 2019EDigest Average / ($0.50) / ($0.77) / $0.18 / $0.45 / ($3.09) / ($1.96) / $1.68 / $2.85
Digest High / ($0.49) / ($0.77) / $0.18 / $0.56 / ($3.05) / ($1.96) / $3.02 / $3.09
Digest Low / ($0.50) / ($0.77) / $0.18 / $0.34 / ($3.12) / ($1.96) / $0.34 / $2.60
Y-o-Y Growth / 14.2% / 13.2% / 136.3% / 172.3% / -54% / 36.4% / 206.8% / 35.9%
Quarterly Growth / 44.3% / -0.5% / 123.3% / 140.7%
Guidance
Highlights of the table:
2018 forecasts range from $0.34 to $3.02 per share; the average is $1.68 per share.
2019 forecasts range from $2.60 to $3.09 per share; the average is $2.85 per share
Outlook
A few neutral firms believe that Anadarko can grow earnings by 7% per year on average, over next few years, exclusive of changes in commodity prices, growth in production volumes, realized prices and costs, as well as accounting for share repurchases plan in 2018.
Please refer to the Zacks Research Digest spreadsheet on APC for more details on EPS estimate.
Research Analyst / Raj KarnaniCopy Editor
Content Ed. / Jewel Saha
Lead Analyst / Jewel Saha
QCA / Jewel Saha
No. of brokers reported/Total brokers
Reason for Update / 1Q18Flash Update
Zacks Investment Research Page 1