Anadarko Petroleum’s (APC, Financial) performance was weak in the first quarter of fiscal 2015. The oil and gas company had been struggling due to weak pricing. The company further lost its market share right after its poor first quarter results, as the investors didn’t receive the results well. Anadarko also lost market share on the back of rumors regarding its engagement to sell its multi-billion stake in Mozambique’s gas reserves, to which the management denied.
This is a serious issue for the company, but if we look at the stock performance for the last five years, it can be clearly seen that despite weak oil pricing, the stock price is improving and is expected to be better in the future. The company is now engaged in formulating strategies to get over this headwind, securing a profitable position in the market.
A closer look
Anadarko posted a wider loss of $3.3 billion as compared to $2.7 billion in the same period last year. This loss was more than the analysts expected. The analysts had been modeling a loss of $0.64 per share. This scenario presents a struggling image of the company. But, there are some aspects on which Anadarko is now counting, and it thinks will certainly help it to uplift its performance.
To be profitable, Anadarko is focusing on bringing the overall cost down to improve its margins. In this regard, Anadarko has formed various teams, which are working on various aspects, such as moderating its base production decline. It is also working with various service providers to reduce the lease operating expenses and other costs in the upcoming quarters.
What next?
Moving forward, the stock is performing well on the exchange if we closely observe its five-year performance. But recently the company’s share dropped largely due to the rumors that the company is now engaged to sell its stake in Mozambique. The CEO has stated for their not being into such deals which can now attract few investors, and, it can see some growth in the market share. Instead, Anadarko is working well towards a final investment decision on a previously planned LNG project. This initiative seems to be a wise move by the company, as it will diversify its operations and can contribute well to its growth in future in the midst of weak oil pricing.
However, Anadarko’s plans seem abstract as they can only be beneficial when the oil prices show some recovery. But the analysts on the other hand are forecasting that the oil prices will not recover soon. Further, Anadarko is now operating about 2,800 wells with 133 being drilled in 2014. The company has aggressive plans to drill 400 wells every year. But this might lead to slow drilling activity as the gas prices are falling, and the company is undertaking cost reduction to overcome this problem. This will definitely hurt its margins in the long term as well.
Conclusion
Now moving to the fundamentals, the company doesn’t have a trailing P/E, as it is still making losses, but, the forward P/E of 149.43 shows robust earnings growth in the near term. Since, the overall industry is weak Anadarko might lose market share also because of a weak profit margin of -10.69%. All these points indicates that the investors should hold on to investing in Anadarko Petroleum and wait for the right time when the stock shows some concrete signs of gaining market share in future.
