There is an upswing every now and then for most oil and gas companies based on the fluctuation of prices and the occasional good fortune of a one-time increase in production, but not many have a continual progression of increased production and profits. However, there are always exceptions, and thankfully, Anadarko Petroleum (NYSE:APC) is one of those exceptions.
Anadarko had a third-quarter profit of $121 million, or 24 cents per share, compared with a loss of $3.1 billion, or $6.12 per share in the third quarter of 2011. Anadarko's total sales of oil and gas rose to 68 million barrels oil equivalent (NYSE:BOE), from 61 million boe in the third quarter 2011 and the company expects to produce 265 million boe to 267 million boe this year, higher than its second-quarter forecast for output of 261 million boe to 265 million boe. This historic progression continues for the company with a rise in revenue for the company of 34.5% in the third quarter of the last fiscal year, 34.4% in the fourth quarter of the last fiscal year, and 6% in the first quarter.
During the third quarter, Anadarko continued to ramp up efforts in the Wattenberg HZ region in northeast Colorado and in the Eagle Ford Shale in south Texas. While strengthening its position there, the company is surrounded by some stiff competition including Cabot Oil & Gas (NYSE:COG) whose core of operations is Eagle Ford Shale. Cabot operates over 62,000 net acres that span across four counties in South Texas and the company largely targets the liquids-rich and shale oil plays of the Eagle Ford where returns are supported by higher oil prices. About one-third of Cabot's acreage is operated by EOG Resources (NYSE:EOG). EOG Resources began leasing in the Eagle Ford region before many thought producing liquids from the formation would yield economic wells. The company has since amassed a position of about 650,000 acres that stretches from Gonzales County down to La Salle and Webb counties.
Anadarko is also competing with Apache (NYSE:APA) which is one of the largest leaseholders in the Eagle Ford Shale play. The company holds over 450,000 acres that are prospective for the Eagle Ford much of which was established through a joint venture agreement with EV Energy Partners (NASDAQ:EVEP-OLD) in September of 2007. The agreement granted Apache exploration rights below the Austin Chalk. EV Energy is a Houston-based publicly traded master limited partnership engaged in acquiring, producing and developing oil and gas properties and Enervest acquires, develops and operates oil and gas fields on behalf of its institutional investors and is the general partner of EV Energy. While surrounded by robust energy companies in many of its plays, Anadarko still continues to impress building momentum at every turn. That is why I believe this company to be a solid buy now and one to stay with for years to come.
Most of Anadarko's assets in the Eagle Ford play are located in the Maverick Basin of South Texas where the oil formation in this area is found at more shallow depths and where liquids are found horizontally across much of Anadarko's 400,000 gross acres. The company has made some smart moves either through acquisitions and joint ventures to continually bring oil to the surface.
Last year, the company made a deal with the Korea National Oil (KNOC). Korea National earned a 33 percent interest in Anadarko's Maverick Basin assets for $1.55 billion. In the agreement, Korea National received 80,000 net acres in the liquids-rich Eagle Ford Shale oil play and 16,000 additional acres prospective for the deeper Pearsall Shale gas formation. This Eagle Ford joint venture was built with plans to drill horizontal wells that target oil in the Eagle Ford. Additionally, Korea National is in partnership with Anadarko in its oil and gas gathering systems and facilities.
The company also has operations in plays in Texas and the southern US, Rocky Mountains region in Colorado, Wyoming, and Utah, as well as the Appalachian region in Pennsylvania. In 2008, Anadarko formed Western Gas Partners, LP (NYSE:WES) a limited partnership to own, operate, acquire and develop midstream energy assets. In January of this year, Western Gas acquired certain midstream assets from Anadarko for approximately $483 million. Under the terms of the acquisition agreement, Western Gas acquired Anadarko's 100 percent ownership interest in Mountain Gas Resources LLC, which owns the Red Desert Complex, a 22% interest in Rendezvous Gas Services, L.L.C., and related facilities.
Anadarko's third quarter results revealed a three million BOE (barrels of oil equivalent) increase to the midpoint of full-year sales-volumes guidance, while maintaining previous full-year capital spending expectations; a 12 percent increase in sales volumes by 79,000 BOE per day over the third quarter of 2011; and collected an additional $501 million associated with the Algeria tax resolution. This continuation of upward momentum is expected of the company. As the President and CEO of Anadarko, Al Walker stated during a third-quarter results conference call, "Anadarko is delivering another year of strong operational results and continued cost reductions, and with this momentum, we are pleased to increase our full-year sales-volumes guidance to a new range of 265 to 267 million BOE with no corresponding increase in capital spending.
During the quarter, we delivered record liquids volumes of 322,000 barrels per day and safely reduced controllable costs on a per-unit basis in every category relative to the third quarter of last year. The significant cash generation year-to-date also enabled us to strengthen the balance sheet by reducing borrowings under our revolving credit facility by $1.5 billion, while maintaining approximately $2.5 billion of cash on hand at the end of the third quarter."
In the last quarter, Anadarko's current ratio of assets to liabilities came in at 1.33. Obviously, the current ratio is an indication of the company's liquidity and ability to meet creditor demands and generally, for every dollar the company owes in the short term, it has that figure available in assets that can be converted to cash in the short term.
The company lost ground in this liquidity measure from 1.78 in the first quarter to the last quarter driven in part by an increase in liabilities. Current liabilities increased 30.9% to $6.41 billion while assets decreased 1.9% to $8.55 billion. Cash flow from operating activities in the third quarter of 2012 was approximately $2.229 billion, and discretionary cash flow totaled $1.794 billion.
With this on-fire approach to greater productivity while preserving cash reserves, Anadarko is destined to be a leader in the world of oil and gas. Anadarko Petroleum is currently trading around $70. I think this stock will trade in the low to mid $80 range by early next year. This is a company to buy now and keep in your portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.