APA Apache Corporation

We reiterate our Neutral recommendation on Anadarko Petroleum Corporation (APC). The company’s varied asset base comprising unconventional resources ensures its growth over the medium to long term.

Its low risk and predictable production profile, as well as speedy execution of high-impact projects, reflects its visible upside potential. This is apparent from its first quarter earnings which increased to 92 cents per share from 72 cents per share earned in the year-ago quarter.

Anadarko’s profitability is nevertheless exposed to volatile and cyclical oil, natural gas and NGL prices. Moreover, Anadarko’s failure to add to its reserves or to recover economically viable assets limits development activities both offshore and onshore.

On the bright side, the company optimizes its stock portfolio by engaging in strategic acquisitions and diversification activities. Its recent discovery of light oil in the Cote d’Ivoire region of Africa proves that it is continuously undertaking expansion activities. Additionally, the company’s strong financial position is anticipated to aid in the smooth functioning of its projects and strengthen its profitability in the coming years.

Negatives that might impede the company’s growth include exposure to unexpected natural disasters, higher oil field service costs and regulatory hurdles. Also, foreign operations are influenced by political and economic uncertainties which constrain progress of the existing programs. Capital market insecurities can thwart purchase and leasing obligations leading to operational austerities.

The company has outstripped our top and bottom line estimates in the first quarter of 2012. On a year-over-year basis, revenue increased by 6.1% to $3.45 billion.

The Zacks Consensus Estimates for the second quarter and fiscal 2012 are currently pegged at 90 cents per share and $3.93 per share, respectively.

Anadarko currently retains a Zacks #3 Rank which translates into a short-term Hold rating. The company’s peers include Apache Corporation (APA) Chesapeake Energy Corporation (CHK).

Based in the Woodlands, Texas Anadarko Petroleum Corporation engages in exploration, development, production and marketing of natural gas, crude oil, petroleum and natural gas liquids. Its operations are spread across the U.S. and in East and West Africa, Algeria, China, Alaska and New Zealand.

 
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