Anadarko Earnings Preview: Liquids Production Volumes Are Key

April 27th, 2012 by Trefis Team
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APC: Anadarko Petroleum logo
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Anadarko Petroleum

Independent energy explorer Anadarko Corp. (NYSE:APC) will release out its earnings earnings update next week. Like other energy explorers, the company’s earnings should be impacted by the low gas prices in North America. The natural gas glut in the U.S. has impacted many firms involved in shale gas production such as Anadarko. However, the company had already started taking steps in 2011 to focus on liquids production to drive its growth. Anadarko’s earnings should show a boost over the last quarters when results were dampened by the $4 billion settlement with BP (NYSE:BP) over its equity stake in the Macondo well.

We have a $90.30 price estimate for Anadarko, which is at a 20% premium to its current market price.

Click here for our full analysis of Anadarko Corp.

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Gas price impact

Low natural gas prices in the U.S. are putting earnings of upstream companies in the U.S. under pressure, especially for players with large exposure to dry gas plays. Natural gas prices fell to their lowest point in a decade as a mild winter exacerbated the already existing oversupply situation in the industry.

With rapidly falling underground storage capacity, natural gas prices are expected to stay at these low levels. Gas producers have reacted to this development by focusing on liquid rich plays to increase oil production. Anadarko was already targeting liquid rich plays like Eagle Ford in its focus on raising the proportion of liquids in its overall output. Low gas prices should impact Anadarko’s overall revenue and profits for the last quarter unless higher liquids production helps the company offset the decline.

International markets

Internationally, Anadarko has stakes in multiple high impact discoveries including finds in Brazil, offshore Africa and its project in Algeria that is expected to begin production this year. There have been rumors that the company may consider selling a part of its holding in its Brazilian or African deepwater assets to finance its development plans, especially to raise resources for its plan to develop an LNG facility near its offshore find in Mozambique.

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