Still Neutral on Anadarko

We reiterate our Neutral recommendation on Anadarko Petroleum Corporation (APC - Analyst Report). The Texas oil and gas exploration play posted mixed outcomes in the third quarter 2012 with the bottom-line surpassing the Zacks Consensus Estimate while sales missing it.

We believe Anadarko’s Golfinho and Atum prospects will continue to drive growth. With additional recoverable reserves, the Wattenberg play will also be a major element augmenting the company’s top-line going forward. The company’s large-scale midstream assets buyout of Front Range and Texas Express Pipeline and ongoing construction of the Lancaster plant will further support future growth.

However, the dull U.S. economic environment and European debt crisis will continue to present challenges to Anadarko’s development prospects. Moreover, much of Anadarko’s operations are foreign-based which exposes it to political and fiscal risks. High cost deepwater operations and unexpected rig accidents are also generic risks that could limit Anadarko’s growth momentum.

The company has nevertheless maintained a strong liquidity profile and its successful debt management will help in achieving the targeted business goals. Anadarko is also known to have a good track record of executing its projects and we expect its expansion of the Liquefied Natural Gas (LNG) facilities in Mozambique will accentuate business opportunities.

The company revised its full year sales expectation for 2012 to 265–267 million barrels of oil equivalent (MMBOE) from the prior range of 261–265 MMBOE.

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

The Zacks Consensus Estimates for the fourth quarter and full year 2012 are currently pegged at 81 cents and $3.47 per share, respectively.

Another exploration and production company, ConocoPhillips (COP - Analyst Report) is expanding its operations in Eagleford, Bakken and Barnett shale.

However, oil and natural gas price volatilities would continue to affect both these companies’ near-term financials. Both Anadarko and ConocoPhillips share a short-term Zacks #3 Rank (Hold rating).

Anadarko Petroleum Corp. is one of the largest independent oil and natural gas exploration and production companies of the world. The company is primarily engaged in the exploration, development, production, gathering, processing and marketing of natural gas, crude oil, condensate and natural gas liquids (NGLs).