Anadarko Petroleum Corporation Colorado Pipes

Source: Anadarko Petroleum

Anadarko Petroleum (NYSE:APC) recently reported surprisingly strong second-quarter results. Driving these strong results was the company's focus on doing more with less, which was really the theme of its second-quarter conference call. During that call, the company's management team spent a lot of time focusing on five key areas that are really expected to drive the company over the next year.

1. We're exceeding production expectations
One of the real surprises Anadarko Petroleum unveiled during the second quarter was much stronger than expected production. For the quarter, production average 846,000 barrels of oil equivalent per day, or BOE/d, which was 18,000 BOE/d higher than its own guidance. Thanks to that strength, and the company's backlog of wells, CEO Al Walker wanted investors to know, "Full-year sales volumes are expected to be above our initial guidance by approximately 20,000 barrels per day."

2. Our costs are really coming down
In addition to the surprisingly strong production, the other big factor fueling the company's unexpectedly strong second-quarter results were its rapidly falling costs. Walker spent some time on the call walking through these reductions by saying:

[W]e've driven our drilling cost down in the Wattenberg field by almost 35% in the last six months and doubled our rig efficiency over the last year, drilling the same number of wells with half the rigs. In the Delaware Basin, we've reduced drilling costs by about $0.5 million per well and completions by nearly 45% year-over-year. Our efficiencies and savings will enable us to drill more than 100 wells this year with our current capital expectations and with no belief that we're going to increase our capital plans beyond initial guidance through the balance of the year.

As Walker points out, the company's costs have fallen so dramatically that it can now drill 100 more wells than planned this year for the same capital expenditures budget. That drilling efficiency really the driving force behind the company's ability to increase its production guidance without increasing capex.

3. Long-term growth potential remains excellent
While Anadarko Petroleum is investing heavily in short-cycle shale plays that deliver production almost immediately, the company isn't walking away from longer-term investments. Walker pointed out, "In addition to the short-cycle successes ... we are also continuing to make excellent progress on our mid-cycle opportunities, while achieving strong results with our deepwater exploration program."

He specifically mentioned two offshore regions that the company was really excited about: Colombia and Mozambique. He noted that the company recently discovered a large natural gas column in Columbia, which is giving it the confidence to keep drilling in the region. Meanwhile, in Mozambique, the company continues to make excellent progress on its LNG export facility, which it's actually increasing in size. The reason the company is excited about these projects is due to the fact that both can still deliver compelling economics in the current price environment. 

4. Financials remain very strong
One of the reasons the company can continue to invest in both short and longer cycle projects is because its financials are really strong. Walker pointed that out by saying, "[W]e finished the quarter again in very strong financial condition." What's worth noting is the fact that the company continues to believe that it can invest within its cash flow plus noncore asset sales for the foreseeable future. This will enable Anadarko to grow in the current environment without putting any added pressure on its balance sheet.

5. The near-term future is still uncertain
That firm financial footing is very important because the company isn't very bullish on commodity prices. Walker said:

[W]e still see the uncertainty that we made reference to in the first quarter with respect to sustainable prices giving us an encouragement to go back into the growth mode. [We] don't think the rest of this year is likely to create that. [Because of this outlook] we're going to watch what happens this year as hopefully an indication of what we might think for 2016.

The company sees commodity prices remaining weak at least through the end of this year, which is why it's not going to increase its capex budget. Instead, it's simply going to wait out the market and invest roughly within cash flow. But if it sees higher commodity prices on the horizon then the company could become more aggressive and spend more money to accelerate production growth in 2016.

Investor takeaway
While Anadarko Petroleum is being affected by weak commodity prices just like its peers, the company is in a much stronger position to handle the downturn. It has really cut costs enabling it to produce more oil with the same amount of money. Further, it's not giving up on longer term projects as it still sees compelling opportunities to drive future growth. As a result, the company remains very confident in its future.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.