Anadarko Petroleum Seeks Cost Efficiencies amid Low Energy Prices
(Continued from Prior Part)
Anadarko’s 2015 performance
In this final part of our series on Anadarko Petroleum (APC), we’ll compare the company’s stock movements to movements of the broader market, crude oil prices, natural gas prices, and the USDX (US Dollar Index).
As we saw in the first part of this series, Anadarko’s stock has fallen nearly 42% year-over-year. The stock has been on a falling trend, mirroring crude oil and natural gas price movements.
The correlation coefficient between APC’s stock price and crude oil prices from January 2015 to the present is ~0.8. This indicates a strong degree of correlation between crude oil prices and Anadarko’s stock prices. In the same period, the correlation coefficient between APC and natural gas prices is 0.7. This also indicates a significant positive correlation between the two.
Many upstream companies including Chesapeake Energy (CHK) and ConocoPhillips (COP) have taken hits due to weakening commodity prices. All these companies make up ~6.6% of the Energy Select Sector SPDR ETF (XLE).
APC’s stock has given lower returns compared to WTI’s (West Texas Intermediate) and natural gas’ returns year-over-year.
When compared to the broader market S&P 500 ETF (SPY), APC has underperformed. As we can see in the graph, APC is negatively correlated to the USDX. Since January 2015, the USDX has returned ~9%.
Conclusion
Given the current energy price environment, Anadarko is focusing on a disciplined approach to its capital spending. It’s aiming to fulfill its capital needs via its cash inflows. APC is also selling its non-core assets to strengthen its financial position.
APC monetized ~$2 billion in assets in 2015. This further strengthened its cash position. Given the company’s rising debt, these cash holdings are imperative. APC has also taken steps to increase its production and cost efficiencies. These measures could serve the company well if oil prices were to rise on a sustained basis.
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