Mixed 3Q at Anadarko (APC) (BP) (COP)

Zacks

Independent oil and gas producer Anadarko Petroleum Corporation's (APC) third quarter 2011 operating earnings of 66 cents per share were in line with the Zacks Consensus Estimate. On a year-over-year basis, the company recorded significant growth from operating earnings of 25 cents per share in the third quarter 2010.

On a GAAP basis, Anadarko reported a net loss of $6.12 per share in the third quarter versus the year-ago loss of 5 cents per share.

The reported quarter bottom line was slashed by $6.78 per share due to the effects of the recently announced $4.0 billion settlement agreement with BP Plc (BP).

Revenue

Anadarko’s revenue of $3.19 billion in the third quarter rose nearly 25.5% from the year-ago quarter revenue of $2.55 billion. The year-over-year growth was driven by strong performance across its reporting segments, with significant upside coming from Oil and condensate sales.

However, the quarterly revenue of the company was lower than the Zacks Consensus Estimate of $3.32 billion.

Operational Highlights

Sales volumes in the quarter of 61 million barrels of oil equivalent (MMBOE) or 660 thousand BOE per day (MBOE/d) were up 4.9% from the year-ago quarter. The sales volume expansion was attributable to solid demand in both domestic and international markets. The company has registered strong volumes in its Permian Basin, Eagleford Shale and Marcellus Shale operations. It is presently working to expand its midstream infrastructure in these areas to support future growth.

Daily sales volumes of crude oil & condensate, natural gas and natural gas liquids (NGL) averaged 207 thousand barrels (up 7.8%), 2.27 billion cubic feet (up 1.67%) and 74 thousand barrels (up 13.9%), respectively.

Further, the robust liquids performance in the quarter was boosted by increasing commodity price realizations with special mention to liquids prices, which showed impressive growth. Realized prices for crude oil and condensate, natural gas and NGL averaged $99.92 per barrel (up 35.6%), $4.02 per thousand cubic feet (up 2.03%) and $55.47 per barrel (up 45.6%), respectively.

Anadarko continues to move ahead with its Caesar/Tonga mega project, selecting a solution that is expected to enable the project to achieve first production by mid-year 2012. Besides, Anadarko finalized a unitization agreement to develop the Lucius field and, as operator, is expected to receive sanction for the project prior to year-end 2011.

Financials

Anadarko continues to strengthen its balance sheet along with enhancing its financial flexibility and liquidity position. The company ended the third quarter 2011 with roughly $3.48 billion of cash on hand and retained its $5 billion undrawn credit facility.

As of September 30, 2011, Anadarko had a total debt of $12.94 billion and long-term debt of $12.8 billion. Exiting the quarter, the company had a total debt-to-capitalization ratio of 41%.

Cash flow from operations in the third quarter was $1.47 billion compared with $1.04 billion in the year-ago quarter. Capital expenditure in the reported quarter summed to $1.3 billion with discretionary cash flows of $1.87 billion. As a result, the company had a free cash flow of $576 million as of September 30, 2011.

Outlook

Anadarko provided its expectations for the fourth quarter and full-year 2011. The company provided fourth quarter total sales volume guidance of 60–63 MMBoe, while it maintained its full-year estimate in the 245–248 MMBoe range.

Anadarko projected other revenues, including Marketing & Gathering and Minerals & Other, to range between $50–$70 million and $25–$35 million, respectively, for the fourth quarter 2011. For the full year 2011, Marketing and Gathering revenues expected to range between $210–$230 million and Minerals & Other revenues are expected to come in the range of $130–$140 million.

Going forward, Anadarko estimates 2011 capital expenditures of about $5.97–$6.27 billion, excluding capital expenditures related to Western Gas Partners L.P. Total capital spending for the fourth quarter is expected to be in the range of $1.82–$2.12 billion.

Peer Comparison

ConocoPhillips(COP), which competes withAnadarko Petroleum, announced operating earnings of $2.52 per share for the third quarter 2011, surpassing both the year-ago figure of $1.50 per share and the Zacks Consensus Estimate of $2.16.

ConocoPhillips’s operating revenue of $63.6 billion in the quarter increased 28.0% from the year-ago quarter. The reported revenue lagged the Zacks Consensus Estimate of $68.1 billion.

Our View

We believe Anadarko's $4 billion settlement with BP for all current and future claims associated with the Deepwater Horizon accident has come as a relief for Anadarko. The uncertainty over its liability in the clean-up of the Macondo oil spill had to an extent limited the upside potential of the stock.

The company presently retains a short-term Zacks #3 Rank, which translates into a short-term Hold rating.

Based in The Woodlands, Texas, Anadarko Petroleum is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs.

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