Anadarko Petroleum Corp.'s moves to cut debt and buy back stock have impressed analysts who have seen the oil and gas company change its focus from worldwide growth to fiscal balance and narrow regional focus.
Anadarko said July 9 that it would spend an additional $1 billion on its share repurchase program and $500 million on its debt-reduction program with the excess capital the company is bringing in. The additional spending on stock repurchases and debt reduction will increase the total spent to $4 billion and $1.5 billion, respectively.
Anadarko had budgeted for oil prices of $50 per barrel in 2018, and with prices in excess of $70/bbl, the company is making much more than it had anticipated at the start of the year. Instead of looking at M&A prospects or expanding production with the excess cash flow, the company stuck to its plans to clean up its balance sheet.
"We know what we want to do with [excess capital], and that is: a) buy back stock, b) reduce debt, and c) increase our dividend as appropriate on a periodic basis," CEO Al Walker said June 18. In a note praising the company, CreditSights noted that Anadarko has already bought back $3 billion in stock since late 2017 and the July 9 announcement forced the firm to move up its projections for further buybacks.
"We had previously anticipated an additional $1.0 bn in share buybacks to take place by the end of 2019, however we now expect the full amount of the $1.0 bn increase to take place by end-2018," CreditSights said.
Becoming one of the most fiscally prudent independents is a significant change for Anadarko, which was distributing capital to a wide variety of projects five years ago. At that time, the company was boasting of its holdings in places like the Eagle Ford Shale, east Texas and Alaska all of which have been divested as the company has narrowed its on-shore focus to the DJ and Delaware basins.
"I look back at what this organization has been for a long period of time, and it's just been a diversified set of assets around the world. They had a very diverse spending profile. But when the world changed, they changed with it and at a pace that's faster than most," Guggenheim Securities analyst Subash Chandra said in an interview.
The move from being a diverse asset holder to one that is focused on a couple of quality-producing basins has benefited Anadarko, even it if did sell off a number of assets in the midst of the oil and gas price collapse between mid-2014 and 2017.
"I'm sure it was a fairly painful reorganization, but they did it. Now they're extremely concentrated and focused on making a ton of free cash flow. It's very viable in a variety of situations, whether oil is $50 or $75," Chandra said. "I'm very impressed by their commitment to do this."