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Anadarko Reiterates 2017 Production Guidance, Launches $2.5B Share Buyback

Anadarko Petroleum Corp. has launched a $2.5 billion share buyback and reaffirmed 2017 production guidance for the U.S. offshore, Permian and Denver-Julesburg (DJ) basins.

The combined year-end exit rate for the DJ and Permian Delaware sub-basin was reiterated at 150,000 b/d. Despite heightened hurricane activity, production from projects in the deepwater Gulf of Mexico also are on track to exit at an expected rate of 130,000 b/d.

Anadarko’s investment theme is centered building production from the “three Ds” -- the DJ, Delaware and deepwater.

“Our ability to continue to meet previous targets is indicative of the quality of the company's assets and the efforts of our organization to deliver strong performance, despite challenges from recent storms,” CEO Al Walker said. "Going forward, we will continue to demonstrate financial discipline with a focus on returns.”

Walker had announced the exit rates during a second quarter conference call in July. He also at that time reiterated that overspending, even with $6 billion in cash on hand, was not in the plan.

As laid out this week, Anadarko’s 2018 upstream investment plan is expected to produce “substantial” free cash flow, assuming an average oil price of $50/bbl, while total capital spending, including midstream investments, should be about breakeven to discretionary cash flow from operations.

The share buyback program, which would account for close to 10% of all outstanding shares, is authorized through 2018. Repurchases are to be made from time to time in open market or private transactions, depending on market conditions, and could be discontinued at any time.

"We believe this is a very attractive use of our cash given the value of our assets and the highly accretive nature of this program," said Walker. “At the current share price, this represents approximately 10% of the company's outstanding common shares, and we will initially target $1 billion of share repurchases prior to year-end 2017.”

The share buyback drew support, with Anadarko closing up more than 8% on Thursday to end the day at $48.49/share.

Reiterating production guidance “is clearly positive given the potential disruptions of 2017’s hurricane season,” said Sanford C. Bernstein Ltd.’s Bob Brackett. Living within cash flow in 2018, including midstream capital, at $50 oil also sends a strong signal.

“In a sector where outspending in 2017 and 2018 is a common theme among Permian operators, Anadarko is signaling that it does not plan to follow the crowd,” Brackett said. “This is consistent with the company's previous statements on this topic and is not a surprise.”
The buybacks and living within cash flow demonstrate disciplined capital allocation, he said.

“Given where Anadarko’s stock is trading, we think this is a smart use of the $6 billion in cash sitting on the balance sheet. The obvious question is whether this move decreases the likelihood of a potential Delaware acquisition.” A conversation with Anadarko’s investor relations, said Brackett, “leads us to believe that it doesn't.”

Tudor, Pickering, Holt & Co. (TPH) said the share repurchase should drive outperformance.

“In our view, the move removes a certain degree of uncertainty around potential use of the $6 billion cash balance, while preserving optionality for consolidation,” TPH analysts said. “Assuming the full $2.5 billion authorization is utilized, we believe Anadarko could still pursue significant Delaware bolt-ons with its remaining $3.5 billion cash balance.”

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