Anadarko Petroleum Corp. (NYSE:APC) suffered an ugly first-quarter bottom-line loss of $6.45 per share. But that's not a clean number. In fact, while the the oil industry is clearly struggling, the first quarter's red ink hid some good news. And Anadarko wants you understand the positives.
These are tough times
Anadarko CEO Al Walker summed up the quarter nicely with one sentence: "I'm extremely proud of the way in which our employees have demonstrated a competitive spirit in their energy and focus on enhancing value in these challenging times." This highlights that good things are happening at Anadarko, but also is clear about the challenging market environment in which his company is operating.
That said, the $6.45 per share loss in the first quarter isn't what it seems. That number included roughly $5.75 a share in one-time items, specifically a massive legal settlement. So the loss was more like $0.70 a share. While still not good, it's much better than the headline figure.
We're in no rush
So what's the driller doing about it? When pushed by an analyst about looking for more growth, Walker made clear Anadarko is in no rush: "I think what we would say is that we need to see higher oil prices than we have today." That doesn't mean the company has stopped looking for oil, just that it isn't being as aggressive as it once was. Specifically, this year's capital budget is 33% lighter than last year's.
Walker isn't on pins and needles waiting to pull the trigger, either, explaining that oil prices "need to be higher and they need to look -- appear to us to be sustained." So look for Anadarko to stay disciplined even though that means slower production growth, or even possibly declines, over the near term. Until the company believes there's more upside potential, management is happy to refocus around getting better at what it does.
One if by land
On that score, Walker had some nice stats to brag about regarding Anadarko's land-based portfolio, including "cycle time reductions in Wattenberg, which improved about 17% over the fourth quarter of last year. And in the Eagle Ford shale, we're drilling wells in less than seven days." Summarizing that, he explained, "the benefits we're getting from lower service costs, we're seeing significantly improved economics."
Charles Alvin Meloy, who heads up Anadarko's U.S. onshore exploration and production division, added that such improvements offer "a lot of opportunity to use our capital more efficiently." In other words, Anadarko is doing more with less during the tough time. Which sets the company up to do even better when oil prices rebound and it pushes the production accelerator again.
Two if by sea
Walker also noted that "We've also made significant progress in our international and deepwater activities during the quarter." That included first oil in its Lucius project in the Gulf of Mexico and the Heidelberg project in the Gulf "moving forward on schedule." Work offshore of Ghana is progressing smoothly, too.
There's more to come in this segment. Walker noted that "we are very excited about the recently announced Yeti oil discovery in the Gulf of Mexico, and are planning appraisal activities." Other longer-term projects are also in the queue. So Anadarko is setting itself up for more oil when the time is right both on land and by sea.
Ensuring it gets there
Positives aside, the current market is still difficult and Anadarko is bleeding red ink. That's why Walker made sure to highlight that "we ended the quarter having approximately $2.3 billion of cash on hand, which should be further bolstered by proceeds from our $700 million EOR monetization that closed subsequent to quarter-end." Put another way, Anadarko has staying power. In fact, Walker proudly noted the company's financial strength was "recognized recently with two upgrades on our credit ratings."
At the end of the day, an ugly bottom-line number hid some real positives taking shape at Anadarko. Increased efficiency, production opportunities for the future, and strengthening finances all suggest this oil and gas company will not just make it to the other side of this industry downturn, but emerge a stronger player.