Friday, July 22, 2011

Anadarko Petroleum Corp. (NYSE: APC): Q2 Earnings Preview 2011

Anadarko Petroleum Corporation (NYSE: APC) is scheduled to release its second-quarter earnings before the opening bell on Monday, July 25, 2011. Analysts, on average, expect the company to report earnings of 91 cents per share on revenue of $3.47 billion. In the year ago quarter, the company reported earnings of 49 cents per share on revenue of $2.60 billion.

Anadarko Petroleum Corporation engages in the exploration and production of oil and gas properties primarily in the United States,the deepwater of the Gulf of Mexico, and Algeria. Anadarko has focused largely on upstream activities like the exploration and production of oil & gas rather than the refining and marketing of end products like gasoline, distillates and fuel oil. The majority of the large oil companies in the world are vertically integrated, but Anadarko has kept focus on its core strengths of exploration and production which has yielded handsome returns for investors in recent years.

In the preceding first quarter, the Woodlands, Texas-based company's net income was $216 million, or 43 cents per share, compared to $716 million, or $1.43 per share, in the year-earlier quarter. On an operating basis, the company earned 72 cents per share in the first quarter. Revenue rose to $3.25 billion from $3.14 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of 58 cents per share on revenue of $3.09 billion. 

At its last earnings call in April, the company said that it expects total sales for the second quarter to come in the range of 60-62 MMBoe, while full-year sales estimate is in the 244-248 MMboe range. Anadarko projected other revenues, including Marketing & Gathering and Minerals & Other, to come in the ranges of $50-$70 million and $35-$45 million for the second quarter 2011. 

For full year 2011, Marketing and Gathering revenue is expected to be in the $225-$275 million range and the Minerals & Other revenue is expected to reach the $110-$140 million range. 

Anadarko's valuation continues to suffer based on the after-effects of the oil spill incident at the Macondo exploration well in the Gulf of Mexico. The resultant suspension of deepwater drilling in the Gulf of Mexico has hurt production volumes in the region. Also, uncertainty on Anadarko's liability for the clean-up of the oil spill remains. Anadarko owned a 25 percent stake in the blown-out Macondo well. BP had asked Anadarko to help pay for some of the cleanup and recovery costs, but the company has refused. Anadarko then filed a lawsuit in April, claiming it was not at fault for the explosion and spill. Anadarko has maintained that it has a strong legal position and should face no liability in last year's spill, but Jim Hackett, the company's chief executive, said in May that Anadarko would discuss the issue with BP under the right circumstances.

On the bright side, discoveries from Mozambique to Brazil, along with takeover talk, have returned the explorer's shares to pre-accident levels. The company is known for its deep and diversified asset base, low-risk and predictable production profile, global business development approach and brilliant execution capability. Anadarko has a proven track record of identifying and executing high-impact projects. At its last earnings call in November, the company executives emphasized not only the growth in exploration in places such as Brazil who look to increase infrastructure and would need a great deal of energy to match its expansion rate, but they also noted that the drilling and other such activities have been a success in these areas. Anadarko is also focused on strengthening its balance sheet and enhancing its financial flexibility and liquidity.

The company has also benefited from  higher oil prices. The demand for fossil fuels continued to rebound in recent months on an increase in global economic activity. Oil prices have advanced 27 percent in New York this year.

Anadarko is also focused on strengthening its balance sheet and enhancing its financial flexibility and liquidity. The company ended its first quarter 2011 with roughly $3.5 billion of cash on hand and maintained access to its $5 billion undrawn credit facility.

The company recently finalized an agreement with Exxon Mobil Corp. (NYSE: XOM) to jointly develop the Lucius field in the deepwater Gulf of Mexico. Anadarko said it will take a 35% working interest in the unit, which will extend to four blocks in the Keathley Canyon field about 250 miles southwest of New Orleans. Anadarko already has placed an order for a floating production facility that it says will have capacity of 80,000 barrels of oil a day and 450 million cubic feet of natural gas a day.

Full Disclosure: None.
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