Natural gas proved a bright spot in Anadarko Petroleum Corp.’s fourth quarter results as the super independent missed Wall Street estimates by a wide margin on the rapid deterioration late last year in liquids prices.

Gas, oil and natural gas liquids (NGL) sales volumes were within guidance in the final three months, averaging about 701,000 boe/d from 637,000 boe/d a year earlier. However, higher volumes were offset by lower NGL prices and a 19% increase in expenses, as more funds were poured into the Permian Basin’s Delaware formation in West Texas and in northeastern Colorado’s Denver-Julesburg (DJ) Basin.

CEO Al Walker, who shared a microphone with his management team on Wednesday to discuss results, keyed on the positives, including the massive liquefied natural gas (LNG) export project in Mozambique, which quickly has picked up foundational customers. A final investment decision (FID) by Mozambique LNG1 Co. Pte Ltd. is scheduled by mid-year, but Walker’s comments indicated it is a done deal.

“This portfolio development opportunity should have a game-changing impact on our company and in Mozambique for decades to come,” Walker said. Announcements in the past few days alone for long-term sale and purchase agreements (SPA) “underscore the viability and credibility of this project.”

As of Wednesday, offtake agreements with major Asian and European customers totaled more than 7.5 million metric tons/year (mmty), and the project sponsors have agreed to key terms for an additional 2 mmty, expected soon to be converted to SPAs.

“This, combined with a number of milestone achievements in 2018, has positioned this world-class LNG project for a sanctioning decision in the first half of this year,” Walker said.

While the gains from LNG exports to Asian markets loom, analysts were as focused on what’s happening in the broad U.S. portfolio in Lower 48 unconventional hot spots, conventional production from the deepwater Gulf of Mexico (GOM) and midstream operations.

Each piece of the portfolio plays an integral role in the company’s long-term future, Walker said. However, he acknowledged that the quarterly results were not up to expectations.

“Anadarko performed well against performance metrics in 2018, particularly with regard to safety and environmental performance and our cash returns metric, where our cash flow return on invested capital exceeded 25%,” he said. “We were outside of the capital guidance for the fourth quarter and for the full year, as we continue to see an increase in nonoperated activity,” as well as “highly economic” opportunities in nonconsent activity, i.e. joint operating agreements (JOA).

The Permian Delaware sub-basin’s JOA activity provided “some of the most attractive acquisitions we can make, given the performance of these wells. This dynamic, combined with additional leasehold acquisitions, resulted in about $175 million of additional capital in the fourth quarter.”

The Delaware’s results were impacted mostly by the decline in NGL prices, reflected in lower sales revenue and gross processing margins. Those issues are likely to be overcome as the market snaps back and takeaway is expanded.

The portfolio is designed overall to support a “durable strategy,” Walker said, with a diverse mix of oil-levered, high margin assets that can generate free cash flow and returns within an average $50/bbl West Texas Intermediate/Brent oil price.

“With the exception of the Delaware Basin, all of our major operating assets are significantly cash flow positive today at $50 oil,” the CEO said. “At that price, we expect the Delaware Basin to be free cash flow positive in 2020, as we are already seeing the benefits of operatorship capture and the establishment of our integrated midstream footprint.”

Delaware oil sales volumes averaged 75,000 b/d in 4Q2018, with total volumes averaging 127,000 boe/d. Much of the focus last year centered on expanding an extensive network of infrastructure to transition to pad development.

During the year, the Reeves and Loving regional oil treating facilities ramped in West Texas, adding 120,000 b/d of processing capacity. Western Gas Partners LP, its master limited partnership, also ramped the first train of the Mentone gas processing plant.

The processing facilities support the touted Silvertip-A campaign in the Delaware, the company’s first multi-well, multi-pad development in the play.

Silvertip Promising, Execs Say

This year Silvertip and the Delaware overall should draw more resources, as Anadarko expects to average 10 operated rigs and five completion crews. Plans are to bring more than 150 operated wells to sales.

In the legacy DJ, output averaged 272,000 boe/d in the final quarter. This year four operated rigs and three completion crews on average are set to work in Colorado to bring more than 250 operated wells to sales.

Anadarko also is ready to work its latest acquisition in Wyoming’s Powder River Basin, where the core position includes about 300,000 gross acres with stacked-oil potential. This year activity includes appraising the Turner formation, with on average one rig and one completion crew in operation. Plans are to deliver more than 10 operated appraisal wells to sales.

GOM sales volumes averaged 142,000 boe/d in 4Q2018, including 120,000 b/d of oil.

The company’s infrastructure position is advancing a lot of tieback opportunities, including new wells and developments at the 100%-owned Constitution, Horn Mountain, Holstein and Marlin platforms.

Anadarko plans to operate up to two drillships and two platform rigs this year and bring about 10 wells to sales in the areas near Constellation, Holstein, Horn Mountain, K2, Lucius and the North Hadrian producing assets.

Last year Anadarko organically added 284 million boe of proved reserves at costs of around $4.6 billion, with exploration and development costs of $4.5 billion. Proved reserves at the end of 2018 totaled an estimated 1.47 billion boe, 78% proved developed, comprised of 63% liquids and 37% natural gas.

The company, which ended 2018 with $1.3 billion of cash, repurchased $250 million of its common stock and retired $500 million of debt during the fourth quarter, bringing total share repurchases to $3.75 billion and total debt retirement to more than $600 million. During 2018, the company also increased its per-share dividend 500% to 30 cents from 5 cents.

Although some operators have reduced capital guidance on volatile oil prices, Anadarko is not joining the herd, with its 2019 capital guidance matching the announcement in November of $4.3-4.7 billion. Spend in 2018 originally was set at $4.1-4.5 billion, but capital investments totaled $4.8 billion, excluding $176 million of unbudgeted PRB acquisitions and $1.19 billion of spending by Western Gas.

Net income for the fourth quarter totaled $102 million (21 cents/share), a sharp decline from a year ago when net profits totaled $976 million ($1.80). For the year, net income was $615 million ($1.20/share), flipping a 2017 loss of $456 million. Net cash climbed to $6 billion from $4 billion in 2017.