6% FY18 capex raise not the end of financial discipline
Q218 cash earnings of $2.88 (+1% YoY) beat consensus by 1%, thanks to good oil output of 364kbl/d (+10% YoY), 2% ahead. The key debate centres upon APC's 6% increase to FY18 capex, as the E&P sector's spending history is poor. We are not concerned: APC's recently enlarged share buy-back and debt-retirement programmes, plus management incentives that reward capital efficiency, allied to spending cuts in some areas ($300m), and an acceptance that higher oil prices result in more cost inflation and partner activity argue against backsliding into profligacy. With the Permian ramping up and an MLP restructuring ahead, which should help future funding options, we continue to recommend an Overweight rating.Anadarko Petroleum is an independent exploration and production company. The company also participates in the hard-minerals business through royalty arrangements. The company's reporting segments are as follows: Exploration and Production, which is engaged in the exploration, development, production, and sale of oil, natural gas, and natural-gas liquids (NGLs) and in advancing its Mozambique liquefied natural gas project toward final investment decision; and WES Midstream and Other Midstream, in which these two segments engage in gathering, processing, treating, and transporting the company and third-party oil, natural-gas, and NGL production as well as gathering and disposal of produced water.
Formed in 2003 by an established team from Cazenove, one of the most respected investment banks in the UK, Atlantic Equities conducts and publishes fundamental, bottom up research on mid and large cap US companies.
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