Source: Anadarko Petroleum Corporation.

After oil prices fell more than 20% during the third quarter, investors had a hunch that Anadarko Petroleum's (APC) earnings wouldn't be good. Turns out that hunch was right after the company reported a big quarterly loss, though after adjustments the loss did come in slightly less than expected. Still, it was a rough quarter for the company, and its results don't bode well for other major E&P companies such as ConocoPhillips (COP 0.39%), which reports on Thursday morning.

Drilling down into the numbers
Anadarko reported a $2.2 billion third-quarter loss, which equated to $4.41 per share. However, $1.9 billion of that loss, or $3.69 per share, was the result of an after-tax impairment charge the company took because of the impact of low oil prices on its oil and gas reserves. Still, even if we adjust for the charge, the company still lost $358 million, or $0.72 per share. While that was $0.01 per share better than analysts were expecting, it's well off from the $0.01 per share in profit the company reported just last quarter. Having said all that, Anadarko isn't necessarily losing money on oil production, which is evident from the $979 million in discretionary cash flow it produced this quarter.

Driving that cash flow was a combination of production that not only exceeded the midpoint of the company's guidance by 6,000 barrels per day, but those barrels were also all higher-margin oil. Fueling this result was the company's U.S. onshore portfolio, which increased oil production by 11% year over year after adjusting for asset sales. Further, the company achieved capital expenses and lease operating expenses on a barrel-of-oil-equivalent basis that were at the low end of its guidance range. Higher production and lower costs are the formula for producing cash flow in a weak oil price environment. 

We can expect to see similar results at ConocoPhillips tomorrow. It too is expected to see strong year-over-year growth from its U.S. onshore portfolio, which would be a continuation of last quarter, when ConocoPhillips reported that production from its key Bakken and Eagle Ford Shale plays grew by 16% year over year. Still, despite that growth, ConocoPhillips is expected to join Anadarko in reporting a loss this quarter, with the expectation being a $0.37-per-share loss. That's quite a reversal of the $0.07-per-share gain the company reported last quarter, when it benefited from higher oil prices. 

Two big milestones to celebrate
Both companies are benefiting from shale plays to drive near-term growth. However, the Gulf of Mexico is a longer-term value driver, especially for Anadarko. During the quarter, the company announced two important milestones, suggesting its position in the Gulf will create a lot of value in the years ahead.

First, the company announced that it has continued to successfully advance the Heidelberg project by installing the top sides. Because of this and other significant milestones achieved to date, the company now expects to accelerate first oil at Heidelberg to the second quarter of next year from the first three subsea wells, with two more wells coming online later next year. This will enable Anadarko and its partners to begin to cash in on the project earlier than first thought.

Source: Anadarko Petroleum Corporation. 

The other big news out of the Gulf was the successful third appraisal test of the Shenandoah discovery, which is co-owned with ConocoPhillips and other partners. This test encountered more than 620 net feet of oil pay, which is a significant find. Further, it confirms an earlier appraisal, which encountered 1,000 net feet of oil pay, making it one of the largest oil discoveries in the Gulf of Mexico. The size of this find suggests that Anadarko and ConocoPhillips could have a significant future value driver on their hands.

Investor takeaway
Clearly, Anadarko's financial results are being pressured by weak oil prices. However, the company is overcoming some of that thanks to strong growth from its U.S. onshore portfolio. Further, the company has two big future value drivers in the Gulf of Mexico, with a near-term catalyst coming from Heidelberg, which should begin flowing oil and cash flow early next year. That project will help the company keep its head above water during the downturn, as well as provide it with cash to fund new projects such as potentially developing the Shenandoah discovery along with ConocoPhillips and its other partners.