Current shareholders should hold Anadarko (APC) long-term; interested investors may consider the upcoming earnings release as an opportune entry point to initiate a position. Anadarko's revenues correlate with fluctuations in commodity markets; over the long term, ROI on its shares have routinely outperformed the S&P 500. Despite increasing oil and natural gas production, Anadarko's 2012 revenues declined from pressure on commodity prices. Anadarko's revenues mostly derive from US oil production though it is making strides towards improving natural gas prospects overseas. Anadarko is attempting to capitalize on uncovered natural gas reserves in Mozambique while divesting noncore assets to reinvest in operational growth. Anadarko may realize an uptick once oil prices rebound and it starts exporting natural gas overseas to growing markets in the east.
Apache (APA), EOG Resources (EOG), Devon Energy (DVN) and Noble Energy (NBL) are the independent E&Ps most comparable to Anadarko. Anadarko's price is around 16.6 times next year's projected earnings, only EOG's 21.1 forward price-to-earnings ratio is higher. Anadarko's price is around 2.6 times sales and 1.8 times its book value; these are lower than both EOG and Noble Energy's corresponding ratios. Anadarko's current ratio is around 1.4. Its 0.73 debt-to-equity ratio is the highest among the aforementioned E&Ps
Anadarko's -6.4% ROE, -9.8% operating margin and -9.15% profit margin are the lowest among these E&Ps. Anadarko's -$2.71 EPS is the lowest among the E&Ps, Apache's $8.35 EPS is the highest. Anadarko's EPS is down 449.6% in 2012, but it is expected to increase 25% in 2013. Anadarko's 6.4% sales growth through the past 5 years is higher than both Devon Energy and Noble Energy by over 210 bps and 130 bps, respectively. Anadarko's annualized dividend is around $0.36 per share - it's the lowest among the aforementioned E&Ps.
Anadarko's 1.19% float short and 1.54 short ratio are the lowest among these E&Ps. Anadarko's beta is around 1.5 and its average trading volume is around 3.8 million, these are the highest among the aforementioned E&Ps. Anadarko's 0.34 relative volume is the lowest among these E&Ps. The stock decreased around 5.08% YTD and decreased around 1.68% in the past month. This is the worst performance among these E&Ps. Anadarko's stock has increased around 0.7% since its last earnings release.
On Anadarko's latest earnings release, second quarter revenue totaled $3.22 billion, decreasing from $3.67 billion, YOY. Costs and expenses totaled $3.5 billion, increasing from $2.67 billion, YOY. First half 2012 costs and expenses totaled $4.24 billion, decreasing from $5.03 billion, YOY. Anadarko realized a second quarter net loss of $89 million, decreasing from $544 in net income, YOY; but, first half 2012 net income totaled $2.06 billion, increasing from $760 million, YOY. Oil and condensate revenues totaled $2.22 billion, only decreasing 1%, YOY; first half oil revenue totaled $4.46 billion and increased 10%, YOY.
Natural gas revenues totaled $496 million, decreasing 43%, YOY; LNG sales totaled $282 million, decreasing 24%, YOY. Second quarter boe sales volume totaled 742 mboe per day, increasing 8%, YOY; liquid sales volume totaled 318 mbbls per day, increasing 7%, YOY. Anadarko's Rockie Region second quarter sales volume totaled 317 mboe per day, increasing 6%, YOY. Anadarko's Appalachian Region sales volume totaled 192 mboe per day, increasing 37%, YOY primarily due to increased volume from the Eagleford and Marcellus shales.
Anadarko's total second quarter sales volume was 68 mmboe, increasing 8%, YOY. US sales volume totaled 60 mmboe, increasing 11%, YOY, international sales volume totaled 8 mmboe, decreasing 7%, YOY. Natural gas sales volumes totaled 230 bcf, increasing 9%, YOY; crude oil sales volume totaled 23 mmbbls, increasing 7%, YOY. US oil sales volumes totaled 15 mmbbls, increasing 16%, YOY; international crude oil sales volumes totaled 8 mmbbls, decreasing 7%, YOY. Average realized prices for natural gas totaled $2.15, decreasing 48%, YOY. Crude oil prices decreased in the second quarter due to macroeconomic headwinds in Europe and China but increased in first half 2012 due to unrest in the Middle East.
Over the summer, Anadarko's offshore find in Mozambique was expected to yield 10 to 30 tcf of recoverable natural gas reserves. In September, Anadarko announced it had discovered an estimated 50 tcf of natural gas reserves on its assets in Mozambique. Reportedly, Anadarko is currently in negotiations with ENI to jointly construct a processing facility in Mozambique to develop their reserves; ENI has discovered 70 tcf of natural gas reserves. The construction cost for the natural gas processing facility is projected to be around $15 billion.
Mozambique intends to offer 12 new blocks for exploration in the first quarter of 2012; three of these blocks will be on the Rovuma basin where Anadarko has its major discoveries. Many E&Ps like Noble Energy and Exxon Mobil (XOM) are interested in these assets in order to build facilities that can export LNG to Asia. Mozambique is expected to favor bids that intend to co-develop a domestic natural gas industry in the country as well. The US shale boom lowered domestic natural gas prices to around $3.20 per mcf, whereas prices in Europe and Asia range from $11 to $15 per mcf. Apache already has a 40% interest in the $15 billion Kitimat LNG export plant that is expected to be completed by 2016.
Anadarko's shares have outperformed the S&P 500 by 240 bps since 1987. Anadarko stock average return to shareholders was 11.1%, compared to the 9.7% average return from the S&P 500. Under this timeframe, Anadarko dividends accounted for 19% of total returns. S&P dividends accounted for 39% of the returns to shareholders. Anadarko stock has proven to be far more volatile than the S&P 500 throughout the past 25 years; its 6.3% average EPS growth per annum is only 30 bps higher than the S&P 500. On average, Anadarko's price has been 40 times earnings; the S&P is typically over 24 times earnings. It's reasonable for shareholders to expect Anadarko to rebound once the commodity markets begin to stabilize.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.