Anadarko Petroleum (NYSE:APC) recently reported somewhat surprising second-quarter results as earnings came in a bit less than expected due to higher expenses. It was one of several oil producers that didn't meet what turned out to be overly optimistic expectations. However, while the company's results might have disappointed, it did have a lot of good news on the strategic front, which CEO Al Walker ran through on the accompanying conference call. These initiatives position the company to deliver stronger results in the future.

1. We're allocating our excess cash to these items

After spending the past few years repositioning its business to run on lower oil prices, Anadarko was able to set a growth-focused budget for 2018 that it could fund with the cash flows generated at $50 oil. However, with crude currently well above that level, the company is producing significant excess cash, which it's allocating to other things. Walker provided a progress update on the call, saying: "Anadarko's commitment to return value to shareholders was further evidenced by the completion of first $3 billion of share repurchases and the recently announced $1 billion expansion. This was complemented by our announced plans to retire an additional $500 million of debt, as we attempt to shrink the balance sheet in a coordinated manner." These two initiatives have helped fuel Anadarko's strong performance so far this year.

An oil pump with a sunny sky in the background.

Image source: Getty Images.

2. Higher oil prices have forced us to boost spending a bit

While Anadarko Petroleum's aim this year was to stick to a capital budget that it could finance with cash flow from $50 oil, Walker stated that "the improved commodity environment creates pressure on our capital program." As a result, the company is boosting its budget range up to $4.5 billion-$4.8 billion, which is a $250 million increase at the midpoint due to a combination of service cost inflation and increased drilling activity levels from its drilling partners. However, one thing Walker wanted to emphasize is that the company's "focus continues to be on capital efficiency and enhancing returns for shareholders." Because of that, he pointed out that even with the spending increase "we still expect to yield better than 19% for our cash flow return on invested capital." That's because the bulk of the incremental spending increase is on additional high-return investments, which is helping offset some of the cost inflation.

3. We thought ahead and aren't having the same problem as peers in the Permian

One of Anadarko's growth drivers is its position in the Permian Basin. It's not alone as the region has been a vital expansion engine for many oil companies in recent years, so much so that they're about to overwhelm its current pipeline capacity. This issue has already forced several peers to reallocate their resources to other areas. However, while the current constraints are impacting rivals, they won't affect Anadarko's plans because it has been building out infrastructure in the region to supports its growth and recently completed two key regional oil treating facilities.

In addition, the company has a deep relationship with midstream company Western Gas Partners. Those factors led Walker to emphasize that "Anadarko's integrated business model for its upstream and midstream operations, combined with a thoughtful plan by our marketing professionals to move hydrocarbon streams out of the basin, puts us in a very strong position in the Delaware."

An oil pump with a sunny sky in the background.

Image source: Getty Images.

4. We're optimistic about this area

While the Permian is one of Anadarko's major growth drivers today, the company unveiled a compelling new location for the future this quarter in Wyoming's Powder River Basin (PRB), "where we believe we have another onshore oil opportunity in its southern portion," according to Walker. He noted that the company has been evaluating this region for years, quietly building up a large acreage position that it acquired for a low cost. While the company needs to finish some appraisal work, it "expect[s] this basin to eventually compete for capital within our portfolio, increasing our optionality," according to Walker.

The PRB has turned into quite the find for some drillers this year as both EOG Resources (NYSE:EOG) and Chesapeake Energy (NYSE:CHK), for example, had great things to say about it this quarter. Chesapeake stated in its earnings release that the PRB is "quickly establishing itself as the growth engine of the company." Chesapeake's output in the region surged 78% since the start of this year, albeit off a low base, and should double in 2019 from this year's level. Meanwhile, EOG Resources announced that it made two more discoveries on its land in the region, which it now believes holds 2.1 billion barrels of oil equivalent resource potential. That makes it EOG's third-largest resource position and an important growth driver. Those numbers raise optimism that Anadarko's acreage in the region could hold similar promise. 

Built for success

One of the major themes running through Anadarko Petroleum's second-quarter call is that the company is in an excellent position for the future. While higher costs had an impact on earnings in the second quarter and the company will have to increase capital spending due in part to some service cost inflation, it's still doing exceptionally well. Not only is it generating a boatload of excess cash that it's using to buy back stock and pay off debt, but it won't experience the same problems as peers in the Permian, and it appears to have a compelling new growth engine emerging in the PRB. Those factors make Anadarko look like it could be an excellent oil stock for the long haul.

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.