Anadarko Petroleum Seeks Cost Efficiencies amid Low Energy Prices
(Continued from Prior Part)
Anadarko’s historical multiples
Anadarko Petroleum’s (APC) 3Q15 EV-to-adjusted EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio was 54x. EV is the summation of a company’s market capitalization and net debt.
Breaking down Anadarko’s valuation
APC’s 3Q15 EV-to-adjusted EBITDA multiple is trading at a premium compared to its historical average of ~15x. The multiple has been trading at a premium since 4Q14. You can see in the graph above that it has risen every quarter in 2015.
The market value of APC’s equity has fallen by ~42% year-to-date. Its net debt rose from ~$6.4 billion in 3Q14 to ~$14 billion in 3Q15. This resulted in a 20% drop in APC’s EV in 3Q15 versus 3Q14.
APC’s trailing-12-month EBITDA has fallen more rapidly this year compared to its EV. Its trailing-12-month adjusted EBITDA as of 3Q15 fell 91% year-over-year. This explains its rising EV/EBITDA multiple trend in 2015.
Anadarko’s forward EV/EBITDA multiple, which uses market expectations for the company’s EBITDA for the current fiscal year, is ~8.5x. The lower forward multiple indicates that Wall Street expects APC’s EBITDA to rise this fiscal year compared to the last 12 months. So, the current premium reflects the market’s expectation that the drop in EBITDA was temporary. It also indicates that Anadarko could trade at a discount compared to its historical levels.
Other upstream companies including Devon Energy (DVN), Hess (HES), and ConocoPhillips (COP) also saw lower EBITDA levels in 2015 compared to 2014 due to lower crude oil and natural gas prices. These companies’ 3Q15 EBITDAs for the trailing 12 months fell by ~20%, ~60%, and ~67%, respectively, compared to 3Q14. These companies combined make up ~9% of the Energy Select Sector SPDR ETF (XLE).
Anadarko’s proved reserves
As of December 31, 2014, Anadarko Petroleum had total proved reserves of ~2.9 billion barrels of oil equivalent. According to APC’s 10-K filing, the discounted value of its reserve base at the end of 2014 was $30.6 billion. This would be lower today, given the lower price of crude oil now compared to at the end of 2014.
In the next part of this series, we’ll look at Anadarko’s relative valuation.
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