Gadfly: Anadarko Woke Up, and It Really Smells the Coffee

Gadfly: Anadarko Woke Up, and It Really Smells the Coffee
Five bucks: The price of a fancy cup of coffee had a subtle, but important, role on Anadarko's earnings call.

(This column does not necessarily reflect the opinion of Bloomberg LP and its owners. The views expressed are his own)

(Bloomberg Gadfly) -- Five bucks: The price of a fancy cup of coffee had a subtle, but important, role on Anadarko Petroleum Corp.'s earnings call on Wednesday morning.

Anadarko is at the vanguard of U.S. exploration and production companies proclaiming a shift in emphasis from growth to value. It unfurled that particular banner with a surprise $2.5 billion buyback program, announced six weeks ago. It reinforced the message on Wednesday.

Growth, said CEO Al Walker, is an output of Anadarko's capital-planning process, not an input. And the board intends to meet later this month -- earlier than usual -- to discuss next year's budget and likely changes to an executive compensation plan that, like so many others in the industry, has been criticized for encouraging expansion over efficiency.

As an antidote to creeping activism in the E&P sector, it's powerful stuff. Despite missing forecasts on several fronts in the third quarter, Anadarko's stock was up on Wednesday morning (though weaker oil prices later took the wind out of its sails):

The mantra of value does raise an interesting question about a target Anadarko put out only eight months ago, though.

At its investor day in March, the company aimed to double its oil production by 2021, compared with 2016; or, in other words, growing it by an average compound annual rate of 15 percent. Underpinning this was a planning assumption of oil at $55 a barrel.

Change Since Anadarko's March Assumption About Future Oil Prices: $5 

At the time, Walker said Anadarko was "very comfortable" with that growth rate and suggested it might go up a little bit if market conditions allowed. The slide is still featured in the company's standard investor book on its website (slide 15, in case you're interested).

Here's an idea of what that might mean for Anadarko's oil production using such an assumption:

Things have changed since the spring, though. 

Anadarko has had to trim its production target for 2017, largely because of Hurricane Harvey. Even so, at the midpoint, it still implies 20 percent growth this year. 

More important was the decidedly more ambiguous language around that 15 percent growth rate on Wednesday's call. Asked about it several times, Walker said this in his first response:

I don't think at this juncture talking about the compound and annual growth is as important as making sure that we give you the type of returns in a $50 [oil price] world that this budget we believe if ratified will provide. So, growth at this point is really going to be, as I said earlier, an output not an input.

Besides punting a definitive answer until after the next board meeting, that $50 figure is key. It is $5 lower than the earlier price level that underpins the 15 percent growth plan; and, indeed, one analyst made a point of clarifying this on the call.


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