Independent oil and gas producer Anadarko Petroleum Corporation’s (APC) second quarter 2011 operating earnings of $1.14 per share surprised all by displaying an 18.8% rise from the Zacks Consensus Estimate of 96 cents. On a year-over-year comparison the company recorded significant growth from operating earnings of 49 cents reported in the second quarter 2010.
On a GAAP basis, Anadarko’s net earnings of $1.08 per share in the second quarter improved significantly from the year-ago loss of 8 cents per share.
Revenue
Anadarko’s revenue of $3.68 billion in the reported quarter rose nearly 10% from the Zacks Consensus Estimate of $3.35 billion. Quarterly revenue also grew 41% from $2.60 billion in the year-ago quarter. The year-over-year increase was primarily due to record liquids sales volume achieved in the quarter together with robust oil prices.
Operational Highlights
Sales volumes in the quarter of 62 million barrels of oil equivalent (MMBOE) or 685 thousand BOE per day (MBOE/d) were up 5% from the year-ago quarter. The company achieved record sales volumes during the second quarter in Wattenberg, Greater Natural Buttes, Wamsutter, Bone Spring and the Marcellus Shale. The company also achieved impressive results in Ghana and proceeded with two major projects in deepwater Gulf of Mexico.
In the Eagleford Shale, Anadarko closed its $1.6 billion joint-venture agreement with a subsidiary of Korea National Oil Corporation and exited the quarter with record gross sales volumes of about 45 MBOE/d in the play, an increase of 25% from the prior quarter-end.
Daily sales volumes of crude oil & condensate, natural gas and natural gas liquids (NGL) averaged 225 thousand barrels (up 13.6%), 2.3 billion cubic feet (up 0.1%) and 72 thousand barrels (up 9.1%), respectively.
Further, the robust liquids performance in the quarter was boosted by the 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 $108.99 per barrel (up 46.3%), $4.11 per thousand cubic feet (up 8.4%) and $56.21 per barrel (up 43.9%), respectively.
Financials
Anadarko continues to strengthen its balance sheet along with enhancing its financial flexibility and liquidity position. The company ended the second quarter 2011 with roughly $3.4 billion of cash on hand and retained its $5 billion undrawn credit facility.
As of June 30, 2011, Anadarko had a total debt of $13.2 billion and net debt of $9.8 billion. It had a total debt-to-capitalization ratio of 31% at quarter-end.
Cash flow from operations in the second quarter was $1.84 billion compared to $1.57 billion in the year-ago quarter. Capital expenditure in the reported quarter summed to $1.72 billion with discretionary cash flows of $1.84 billion. As a result, the company had a free cash flow of $117 million as of June 30, 2011.
Outlook
Following the solid second quarter results, Anadarko provided its expectations for the third quarter and the full-year 2011. The company provided third quarter total sales guidance of 58-61 MMBoe, while it maintained its full-year sales estimate in the 244-248 MMBoe range.
Anadarko projected other revenues, including Marketing & Gathering and Minerals & Other, to range within $45-$65 million and $25-$35 million for the third quarter 2011. For the full year 2011, Marketing and Gathering revenues guidance has been revised to $220-$260 million and the Minerals & Other revenues is now expected to come in the range of $60-$80 million.
Going forward, Anadarko’s estimates 2011 capital expenditures of about $6.1-$6.5 billion, excluding capital expenditures related to Western Gas Partners L.P. Total capital spending for the third quarter is expected to be in the range of $1.4-$1.6 billion.
Our View
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. The company primarily competes with ConocoPhillips (COP) and Exxon Mobil Corp. (XOM).
Anadarko currently has a Zacks #3 Rank (short term Hold rating). We maintain our long term ‘Neutral’ recommendation on the stock.
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