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Anadarko Petroleum Corporation (APC - Analyst Report) posted net earnings from continuing operations of 84 cents per share for the third quarter of 2012, surpassing the Zacks Consensus Estimate of 76 cents and the prior-year figure of 66 cents per share.

On a GAAP basis, Anadarko reported earnings of 24 cents per share in the third quarter versus a loss of $6.12 per share in the year-ago quarter. The difference between operating and GAAP earnings during the quarter was due to the impact of certain one-time items, charges and gains, during the quarter.

Numbering among the charges were a 58 cent loss from derivatives, 1 cent for impairments, 1 cent for Algeria profit tax settlement, 1 cent related to accelerated depreciation of Gulf of Mexico assets and a gain of 1 cent from divestiture.

Revenue

Revenue of $3.3 billion in the quarter missed the Zacks Consensus Estimate of $3.42 billion but surpassed the year-ago figure of $3.19 billion.

The year-over-year growth in revenue was mainly due to a 13.5% increase in oil and condensate sales from the prior-year quarter, which covered up the slackness in sales from natural gas and natural gas liquids.

Operational Highlights

Sales volumes in the quarter improved 11.4% to 68 million barrels of oil equivalent (MMBOE) or 739 thousand barrels of oil equivalent per day (MBOE/d) from 61 MMBOE or 660 MBOE/d in the year-ago quarter. The year-over-year rise was mainly due to higher oil and condensate sales volumes.  

Liquids sales averaged 234 thousand barrels per day (MBbl/d), up 13% year over year. The increase was driven by ramped up activities in Anadarko’s Wattenberg HZ program in northeast Colorado and in the Eagleford Shale in South Texas.

Realized prices for crude oil and condensate, natural gas and NGL averaged $99.793 per barrel (up 0.01%), $2.67 per thousand cubic feet (down 32.1%) and $35.93 per barrel (down 35.2%), respectively, in the reported quarter.

Exploration costs during the quarter were $297 million versus $307 million in the prior-year quarter. A major portion of the exploration cost comprises of the dry hole expenses, which amounted to $142 million in the reported quarter.

Interest expense during the quarter was $185 million, lower than $206 million in the year-ago quarter.

Financials

The company continues to have a strong cash position. Cash and cash equivalents as of September 30, 2012, were $2.53 billion versus $2.69 billion as of December 31, 2011.

Long-term debt of the company as of September 30, 2012 was $13.10 billion versus $15.06 billion as of December 31, 2011.

Cash flow from operations in the third quarter of 2012 was $2.22 billion versus $1.46 billion in the year-ago quarter.

Capital expenditure during the quarter was $1.8 billion, increasing from $1.3 billion in the third quarter of 2011.  

Guidance

The strong performance in the first nine months of the year prompted the company to revise its full year sales expectation. Anadarko increased its 2012 sales expectation to 265–267 MMBOE from the prior range of 261–265 MMBOE.

Marketing and gathering margins for the fourth quarter and full year 2012 are expected to be in the band of $40–$50 million and $175–$185 million, respectively.

Minerals and Others for the fourth quarter and full year 2012 are expected to be in the band of $30–$40 million and $160–$170 million, respectively.

General and administrative expenses for the fourth quarter and full year 2012 are expected to be in the band of $290–$310 million and $1.11–$1.13 billion, respectively.

Capital expenditure of the company for the fourth quarter and full year 2012 is expected to be in the range of $1.6–$1.9 billion and $6.6–$6.9 billion, respectively.

Peer Comparison

ConocoPhillips (COP - Analyst Report), which competes with Anadarko Petroleum, announced operating earnings of $1.44 per share for the third quarter 2012, which surpassed the Zacks Consensus Estimate of $1.19 per share. The reported figure was also up by almost 2.9% from the year-earlier profit of $1.40, reflecting higher-than-expected production of crude oil from its high-margin areas like the Eagle Ford and Bakken.

Revenues in the reported quarter decreased to $15.08 billion from the year-ago level of $16.69 billion. However, the reported figure comfortably surpassed our projection of $11.11 billion.

Our View

Despite the expansion in volumes year over year, the results this quarter were hurt by lower realized prices of the products sold. Due to lower realized prices of natural gas and natural gas liquids, the company’s top-line results fell short of our expectation.

The Mozambique discovering, with initial appraisal drilling suggesting recoverable natural gas of 15 to 35 trillion cubic feet, is encouraging for the company’s future growth. We believe this reserve once developed can cater to the growing demand from the eastern Asian countries and a part of Europe.

Based in The Woodlands, Texas, Anadarko Petroleum is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and NGLs. The company presently retains a short-term Zacks #3 Rank, (Hold rating). With a market capitalization of $33.22 billion, the company has 4,800 full time employees.

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