Analysis: APC BP

After the closing bell on Tuesday, Anadarko Petroleum Corp (APC) reported a top and bottom line miss with its fourth quarter earnings. Revenue of $3.35 billion (up 14.3% year over year) was shy of the $3.47 billion consensus, and adjusted earnings per share of $0.38 was well short of the $0.62 consensus. Negatively impacting earnings was an increase in capital expenditures, which at $1.240 billion in the quarter was well above the $1.00 billion expectation.

Shares were down 2.61% to $47.80 in after-hours trading.

"In 2018, we delivered on our commitment to increase the return of cash to investors through repurchasing stock, retiring debt and increasing our dividend," said Anadarko Chairman and CEO Al Walker in the press release. "As we look to 2019 and beyond, we remain focused on enhancing our capital efficiency by further improving our per-barrel margins and lowering our free cash flow breakeven oil price to continue meeting our cash-return objectives. We believe our portfolio and people give us an industry-leading ability to accomplish this while maintaining the financial flexibility to invest in our future as we anticipate progressing toward a final investment decision (FID) in the Mozambique LNG project in the first half of the year."

"We have returned tremendous value to our shareholders totaling more than $4.5 billion through share repurchases, dividend increases and debt reductions, and we expect to complete the remaining $1.25 billion of authorized share repurchases and $1.4 billion of debt reduction by mid-2020," Walker added. "While we expect market volatility to continue for some time, we are maintaining our previously announced capital expectations, which enable us to operate within anticipated discretionary cash flow at $50 oil and remain committed to our durable strategy of maximizing capital efficiency and enhancing returns on a multi-year basis.

Total production of 701,000 barrels of oil equivalent/d (BOE per day) was within management's previous guidance range of 674,000 to 728,000 BOE/d, but was slightly below the 704,800 BOE/d FactSet expectation. Digging deeper, oil sales volumes were 407 MBOPD, or thousand barrels of oil per day, an increase of about 14.6% year over year on a divestiture-adjusted basis and slightly below the consensus of 411.6 MBPOD. Meanwhile, NGL sales volumes were 108 MBbl/d, or thousand barrels per day, an increase of about 18.6% year over year on a divestiture-adjusted basis and was slightly below the 111 MBbl/d consensus. And in Natural Gas, sales volumes were 1,118 MMCf/d, or million cubic feet per day, which is up about 11% on a divestiture-adjusted basis and is a slight beat on the 1,090.1 MMCf/d consensus.

In the Delaware Basin, Anadarko delivered record production with total sales volume of 127,000 BOE/d. Oil sales volumes averaged 75,000 BOPD, an increase of 7% sequentially and 53% year over year. In the DJ Basin of Colorado, Anadarko hit record sales volumes as well, averaging 272,000 BOE/d. Oil sales volumes averaged 102,000 BOPD for an increase of 6% sequentially. And in the Deepwater Gulf of Mexico, sales volumes were stable from the prior quarter. At Anadarko's international operations in Algeria and Ghana, sales volumes averaged 102,000 barrels per day during the quarter. This is a slight decline from the third quarter and was driven by the size and timings of liftings. And regarding Mozambqiue LNG, the project is now roughly two-thirds financed and FID is expected in the first half of 2019.

As for pricing, Anadarko's average sales price per barrel of oil came in at $59.86, which is roughly 6% more than the same period in 2017. For Nat Gas, the average sale price per thousand cubic feet was $3.14, up 19% year over year. Lastly, the average sales price per barrel of NGL was $28.20, which represents a decline of 20% year over year.

Looking ahead, management backed the 2019 guidance that was provided back in November 2018. As a reminder, it calls for full year capital investments in the range of $4.3 billion to $4.7 billion, with total sales volumes in the range of 260 to 270 MMBOE, or million barrels of oil equivalent with oil sales volumes in the rage of 410 to 435 MBPOD, or thousand barrels of oil per day. At midpoint, total sales volumes are expected to increase 9% year over year with oil up slightly more than 10%.

As for cash, the company ended 2018 with$1.3 billion of cash. Net cash provided by Operating Activities came in at $1.627 billion, and this represents solid growth of about 17% year over year despite the difficult energy environment. During the quarter, the company repurchased $250 million worth of stock and retired more than $500 million of outstanding debt. There is still plenty remaining under both programs, as management has completed $3.75 billion of its $5 billion share repurchase program and has paid more than $600 million of its $2 billion debt-retirement program. Both programs are expected to be completed by mid-2020.

Overall, we expect the weak top and bottom-line results to lead to a slight negative reaction in the stock price tomorrow (this is in a vacuum, of course, as the movements in WTI Crude will also direct the stock price). Despite the expected decline, we reiterate our TWO rating as we have made our preference known that our favored commodity play is (BP) plc, which delivered a great quarterly result Tuesday morning (see our analysis here and rewards shareholders with a far more meaningful divided yield (2.44% for APC vs. 5.74% for BP as of Tuesday's close).

Anadarko management will host its fourth-quarter conference call tomorrow, February 6 at 9:00 a.m ET. To register for the webcast, please see the site here: https://www.webcaster4.com/Webcast/Page/1074/29048 .