After the recent earnings slips by oil and gas majors, Chevron and Exxon Mobil, Anadarko Petroleum ( APC ), the independent oil and gas company, also missed the consensus estimate for its December quarter and full year 2016 earnings(( Anadarko Announces December Quarter 2016 Results , 31st January 2017, www.anadarko.com)). That said, the US-based company did show improvement in its top-line as well as bottom-line, on the back of the higher-than-anticipated production and the sharp rebound in commodity prices in the last six months. In addition, the company closed two large asset sales during the quarter, which enabled the oil and gas producer to exceed the target under its divestment program. On top of that, the company strongly feels that the crude oil prices will reach $60 per barrel in 2017, due to the improving demand and supply conditions in the industry. While it is too soon to comment on that but the market is evidently pleased with this positive outlook for the coming year. For this reason, the oil and gas company’s stock did not see a sharp decline post the earnings release, despite the earnings miss.
Key Highlights of Anadarko’s 4Q’16 Earnings
As expected by the market, Anadarko posted a drastic improvement in its fourth quarter revenue, both sequentially and annually, backed by the recovery seen in the commodity prices over the last six months. The impact of higher commodity prices was magnified by the company’s better-than-expected production numbers. As a result, the oil and gas producer’s 4Q’16 revenue stood at $2.39 billion, a rise of 26% and 16% on a quarterly and annual basis respectively.
In terms of costs, the company made a solid dent on reducing its operating expenses in the quarter to sustain its diminishing profitability. Through its relentless efforts, the exploration and production (EP) company managed to keep its lease operating expenses at less than $3 per barrel of oil equivalent (boe) throughout the year. Consequently, the company’s 4Q’16 operating expenses were almost 30% lower compared to 4Q’15, causing its operating loss to shrink to $610 million, from a loss $2.1 billion in the same quarter of the previous year. However, Anadarko recorded a much lower tax benefit in the latest quarter in comparison to the prior year, which led to a drag on its bottom-line. On an adjusted basis, the oil and gas player posted a net loss of 50 cents per share, as against the market expectations of 46 cents.
In terms of the financial position, the independent oil and gas producer generated cash flows of $1.1 billion in the last three months, significantly higher than the $257 million generated in the same period last year. For the full year, Anadarko’s cash flows from operations were $3 billion, versus an outflow of $1.9 billion reported in 2015. This implies that the company made a speedy recovery in its operations with the bounce back in commodity prices. Apart from this, the US-based company closed asset monetizations of more than $4 billion in 2016, with the majority of the sales coming in the last quarter of the year. In addition to this, the company has recently announced asset sales of $3.5 billion which are likely to close in the first quarter of 2017. The company aims to utilize the proceeds of its divestment plan to refinance and/or repay its long term debt to optimize its capital structure.
The Way Forward
As mentioned earlier, Anadarko’s management expects the WTI crude oil prices to reach $60 per barrel in the current fiscal, boosting its cash flows and profitability for the year. Further, the company reiterated that its long term growth will be driven by the three Ds in its portfolio – the Delaware basin, the DJ basin, and the deepwater assets in the Gulf of Mexico (GOM), in the order of priority. In fact, the company pointed out that its capital allocation for the coming years will be concentrated on these three key basins, and has increased its expected 5-year compounded annual growth rate for oil from 10%-12% to 12%-14%, assuming an oil price scenario of $50-$60 per barrel. The oil and gas company will shed more light on its production and capital plan in its investor conference on 8th of March 2017.
In terms of asset sales, the management clearly stated that it had done a lot to streamline its portfolio and is satisfied with the success of its divestment program. Going forward, the company will not be as aggressive in its asset sales as it has been over the last two years. However, it will continue to look for attractive opportunities that augment its long term vision. On the contrary, Anadarko will actively seek to add new attractive acreage through bolt-on acquisitions to further enhance the scale and to capitalize on its competitive advantages.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid Small Cap | European Large Mid Cap