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Behind The Ratings: The Second Biggest U.S. Independent Oil & Gas Producer: Anadarko Petroleum Corporation (APC)

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Anadarko Petroleum Corporation (NYSE:APC), the second biggest U.S. independent oil and natural gas producer by market value, reported fourth quarter profits that exceeded analysts’ estimates, and output that exceeded its own forecast.

Excluding one-time items, per-share profit was 20 cents more than the 71-cent per share average of 28 analyst estimates compiled by Bloomberg. “They’ve been surprising to the upside regularly now,” commented James Sullivan, an analyst at Alembic Global Advisors in New York who has a buy rating on Anadarko shares. “It’s a good quarter, it’s kind of an on pace quarter.” The company was able to generate higher sales volume to compensate for the lower realized price. In this article, I will examine Andarko’s fourth quarter results to give readers a clear understanding of why the company is so highly rated, and how this impacts the company as an investment candidate.

Anadarko Petroleum Corporation (NYSE:APC)Fourth Quarter Highlights

Anadarko Petroleum announced 2012 fourth-quarter results with net income attributable to common stockholders of $203 million, or $0.40 per share (diluted).  This included certain items that are typically excluded by the investment community and, in total, these items decreased net income by around $254 million, or $0.51 per share (diluted) on an after-tax basis.

Cash flow generated from operations in the fourth quarter of 2012 was $2.22 billion, while discretionary cash flow for the quarter was $1.612 billion. For the year 2012, the company reported net income attributable to common stockholders of $2.391 billion, or $4.74 per share (diluted), and 2012 cash flow generated from operations was $8.339 billion, while discretionary cash flow for the year was $7.157 billion.

Anadarko achieved record sales volumes representing an 8% increase year over year and gross processed production milestones of 100,000 barrels of oil equivalent (BOE) per day in four onshore plays in the United States. 434 million BOE of proved reserves were added, replacing 162% of production, and two of the world’s largest discoveries of 2012 in offshore Mozambique were made.

Anadarko’s full-year sales volumes of natural gas, crude oil, and natural gas liquids (NGLs) were a record 268 million BOE, or roughly 732,000 BOE per day, representing a growth of 8% over full-year 2011 sales volumes of approximately 248 million BOE. Fourth-quarter sales volumes of natural gas, crude oil and NGLs were 68 million BOE, or 741,000 BOE per day.  According to company estimates, proved reserves at year-end 2012 were 2.56 billion BOE, with 74% falling in the proved developed category and 26 percent in the proved undeveloped category. At year-end 2012, proved reserves consisted of 46% liquids and 54% natural gas.

Internationally, the company continued with a robust worldwide exploration and appraisal program and participated in more than 25 deepwater wells.  The company made two new significant natural gas discoveries at the Golfinho and Atum prospects in Mozambique, which more than doubled previously estimated recoverable resources in the operated Offshore Area 1.

Anadarko continued to progress its Mozambique liquefied natural gas (LNG) development toward the target of first sales in 2018. In West Africa, the company discovered and identified oil opportunities in offshore Ghana and Côte d’Ivoire. The company and its partners also increased production at Jubilee to more than 110,000 barrels of oil per day.

Anadarko achieved first oil in March at its Caesar/Tonga mega project in the deepwater Gulf of Mexico and, during the fourth quarter, drilled another successful development well in the field. In 2013, Anadarko is continuing its active international and deepwater drilling program in the Gulf of Mexico and expects to achieve initial oil production during the first quarter of 2013 from the first of three facilities in the El Merk complex in Algeria.

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