Anadarko Petroleum Is Set To Make Big Profits

Aug. 3.14 | About: Anadarko Petroleum (APC)


Anadarko Petroleum’s focus towards growing liquid and oil production is paving the path for future growth.

Its industry-leading liquid and oil assets with higher margins and strong cash generating potential putts it in a position to post big profits in the coming quarters.

Anadarko is an attractive pick with the recent fall in price.

Anadarko Petroleum (NYSE:APC) has been achieving a number of millstones with its smart business plan and disciplined capital allocation strategy. The company has been able to make an industry-leading asset base with assets like Wattenberg Field, the East Texas/North Louisiana area, Wolfcamp Shale, Eagle Ford, and others. Furthermore, the company has recently settled Tronox Adversary Proceeding for $5.15 billion to the plaintiffs, which has abolished various uncertainties. In addition, Anadarko has been generating record production over the past few successive quarters and is looking to further accelerate its production capacity quarter after quarter. All this will place the company in a very strong financial position. Anadarko also showed confidence on its financial situation and recently raised quarterly dividend by 50% to $0.27/share.

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Investors are also admiring the company's smart and disciplined capital allocation strategy, which has placed it in an industry-leading portfolio of crude oil, liquid rich, and gas assets. Year-to-date, the stock gained almost 34.17%, and most of the growth came after the Tronox settlement and first quarter results. Recently, the company has announced very strong second quarter results in terms of production and sales volume and has increased its full year guidance to 299M-302M boe from an earlier estimate of 293M-298M boe. However, its earnings dropped by 76% due to the payout related to the Tronox settlement. Right after the second quarter, results share price went to 52-weeks high of $112/share but certainly started to decline and reached around $106/share with a few concerns related to the drop in earnings. I believe this fall presented an opportunity for investors to buy Anadarko shares as the company is set to generate big profits in the coming days as the company has already paid settlement charges in the past two quarters.

The company has maintained a strong portfolio of high margin oil and liquid rich assets. In the first quarter of 2014, its onshore assets Eagle Ford, Wattenberg Field, and Wolfcamp Shale have generated record sales volumes, and overall, these three areas added 14,000 barrels per day in its oil volumes compared to the fourth quarter of 2013. Its Wattenberg Field increased sales volumes by 7,000 barrels a day, and the company is investing in this Wattenberg Field for continued future growth. Furthermore, in the second quarter, Anadarko has generated sales volume growth of 100,000 BOE per day over the Q2 of 2013. Its U.S. onshore liquids sales volumes enlarged by 86,000 barrels per day led by liquids-rich assets in the Wolfcamp Shale, Wattenberg field, East Texas/North Louisiana area, and Eagleford Shale.

The company has also achieved milestones at El Merk development in Algeria where it achieved a gross-daily production of 150,000 barrels per day. In Ghana, its cumulative gross oil production increased by 100 million barrels during the second quarter. In the Gulf of Mexico, it has completed major construction, and its Lucius development is expected to achieve its first oil on schedule in the beginning of the Q4 of 2014. All these developments allowed the company to increase full year sales volume guidance.

Going forward, Anadarko's strategy is to expand its oil and liquid production as they offer high volume and high margins. Therefore, its 2014 capital program is focused more towards oil and liquid plays. It is expecting to invest around 85% of its capital budget on expanding oil and liquid plays. Thus, Anadarko is expecting U.S. onshore store sales volumes to grow by more than 10% on a year-after-year basis to over 625,000 BOE per day, including an estimated 50,000 barrels-per-day rise in liquid volumes. Most of the growth is expected to arrive from its Eagleford Shale development, Wattenberg Horizontal program, and liquids-rich growth plays like the East Texas/North Louisiana area and Wolfcamp Shale.

In Conclusion

Anadarko Petroleum is set to generate big profits in the coming days as the company has been growing its oil and liquid production quarter after quarter. Its smart and disciplined capital allocation strategy set it to achieve record production over the past few successive quarters. The Tronox settlement will allow it to focus more on enhancing operational efficiencies, and its cash generation potential is strong enough to support investments and returns for share holders. I believe the fall in its share price is presenting an attractive opportunity for investors to pick Anadarko shares.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.