Deep-water Projects Delays, Cost Overruns Reduce Anadarko’s Profits In 2Q

Anadarko Petroleum (APC, Market Perform), one of the largest independent exploration and production companies in the world, reported 76 percent fall in second quarter earnings due to one-time costs and derivative losses irrespective of sales volumes grew at high end of quarterly guidance at 77 million boe. Revenue of $4.44 billion was $300 million ahead of consensus expectations recording nearly 27% growth year over year while earnings of $1.32 per share were slightly above our estimates.

The product mix of oil and gas help company to ease project risk and changes in commodity prices. Company’s domestic assets comprise recognized gas, liquids-rich plays in Rockies and noteworthy places in the Eagle Ford, Haynesville, and Marcellus shales and Permian Basin. Company has good positions in deep-water leaseholds (which give new opportunities to raise reserves and production) in the Gulf of Mexico. Abroad, company’s ongoing rising giant projects in Ghana and Algeria with multiple breakthroughs in western and eastern coasts of Africa. On trouble side, deep-water drilling, which nearly contributes 20 percent to 25 percent of the total production consists multiple challenges.

In this quarter, company had record U.S. onshore sales volumes averaged 667K boe/day, up 21% year over year, driven by solid results from Wattenberg field, Eagleford shale and Delaware Basin assets. Algerian sales volumes increased by 70% year over year to 73K bbl/day, driven mostly by El Merk, which recently gained record daily gross volumes of 150K-plus bbl/day. Company raised its fiscal year 2014 sales volume guidance to 299 million to 302 million boe from earlier guidance of 293 million to 298 million boe. Company raised fiscal year 2014 sales volume outlook.

APC resolved fraud claims took place from 2006 acquisition of Kerr-McGee with payment of $5.15 billion placing Tronox lawsuit after it. Now company will be able to focus more on release better value from its key operations. We strongly believe that company’s portfolio which includes an well set base of low cost domestic properties, oil rich deep water and international assets, up-and-coming eccentric plays and new explorations scenarios provides convincing advantages of economics throughout various oil and gas price developments. We thus hiked price target for APC shares to $134 with potential upside of 23% from current price but downgrade rating to ‘Market Perform’ from ‘Outperform’ considering existing shortfalls.


Andy Weld, CFA, is an editor and equity analyst for The Downtown Leader. If you have a great story idea for Andy Weld, you can write at [ ].