Anadarko Petroleum’s (APC - Free Report) board of directors has authorized a $1-billion hike in share repurchase program and raised its debt reduction plan by $500 million. The authorization indicates the company’s plan to utilize free cash flow to fund repurchase and repayment of debts.
Enhancing Shareholders’ Value
Anadarko Petroleum has been undertaking initiatives to increase the value of shareholders. On Jun 29, 2018, the company completed its previous $3-billion share repurchase authorization. The recent authorization created another coffer of $1 billion for shares to be repurchased before the end of June 2019.
On Feb 7, 2018, the board of directors raised quarterly dividend by 400% to 25 cents, which boosted shareholders’ value.
Debt Reduction Plan
The current debt/capital ratio of the company is 57.09%, which is higher than the industry average of 35.05%. Anadarko Petroleum had a plan to redeem debts worth $1 billion in the near term. The recent authorization raised the debt reduction program to $1.5 billion.
The planned debt reduction will strengthen the company’s balance sheet and lower annual interest expenses, which will have a positive impact on margins.
Recovery in Commodity Prices
Ongoing recovery in commodity prices, high-quality domestic onshore assets and contribution from international assets drove the company’s performance.
Net cash from operating activities in the first quarter of 2018 was $1.43 billion, up 27.7% on a year-over-year basis. The improvement in commodity prices and rising oil production will boost the company’s performance and generate surplus funds for share repurchase and debt reduction.
Long-Term Plan of Anadarko Petroleum
Anadarko Petroleum is gradually shifting to a greater liquid composition in its total production mix.The company’s shift toward higher-value oil has resulted in highest per-barrel margins since 2014.
To focus on high-return domestic assets and achieve capital efficiency, the company has been systematically selling non-core properties since 2004.The high-quality domestic onshore assets have started to yield results. The sales volume from Delaware Basin and DJ Basin assets in the first quarter of 2018 rose 70% and 8% year over year, respectively.
Anadarko Petroleum is likely to invest nearly 85% of its planned capital expenditure in three U.S. development areas. Consistent focus on these areas is likely to improve oil production from current levels
In the past 12 months, shares of Anadarko Petroleum have surged 72.5% compared with the industry’s rally of 28.1%.
Zacks Rank & Other Key Picks
Anadarko Petroleum carries a Zacks Rank #2 (Buy).
Investors can consider other top-ranked stocks from the same industry such as Devon Energy (DVN - Free Report) , Murphy Oil Corporation (MUR - Free Report) and Cheniere Energy, Inc (LNG - Free Report) . Murphy Oil and Cheniere Energy sport a Zacks Rank #1 (Strong Buy). Devon Energy carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Murphy Oil delivered a positive earnings surprise of 4.55% in the last earnings report. Its 2018 estimates have increased 21.9% to $1.67 in the last 60 days.
Cheniere Energy delivered a positive earnings surprise of 90.32% in the last earnings report. Its 2018 estimates have moved up 7.8% to $1.93 in the last 60 days.
Devon Energy delivered a positive earnings surprise of 5.26% in the last earnings report. Its 2018 estimates have surged 36.6% to $1.83 in the last 60 days.
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