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APC’s Reduced Capex Led to Improvement in Its Free Cash Flow

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Anadarko Petroleum’s cash flows

In 3Q15, Anadarko Petroleum (APC) reported a cash flow from operations (or CFO) of ~$1.1 billion. This was ~51% lower than its CFO in 3Q14. The drop was mainly due to lower revenues.

APC’s 3Q15 revenues came in at ~$1.7 billion, down ~66% compared to ~$5 billion in 3Q14. The company’s year-to-date revenues were ~$6.6 billion compared to the ~$15.3 billion it recorded in the first nine months of 2014. This represents a fall of ~57%.

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Anadarko’s free cash flow

APC’s FCF (free cash flow) has mostly been negative in recent quarters, as can be seen in the above graph. APC’s FCF was -$233 million in 3Q15.

However, in 2015, APC saw reduced capex, leading to an improvement in its FCF. In its 3Q15 earnings conference call, APC said that it sees itself attaining positive FCF in 2016.

Anadarko’s capex

Like many upstream companies, Anadarko also scaled back its 2015 capital expenditure. Its fiscal 2015 estimated capex of $5.4–$5.8 billion was 33% less than its 2014 levels. Companies such as Chesapeake Energy (CHK), Hess (HES), and Marathon Oil (MRO) also reduced their 2015 capex figures by ~46%, 16%, and 46%, respectively. These companies combined make up ~5.3% of the Energy Select Sector SPDR ETF (XLE).

In its 3Q15 earnings conference, APC announced that it has yet to come up with a figure for its 2016 capex guidance, but it said, “Our program will be similar to our mindset in 2015, and that’s investing within our cash inflows.”

APC provided a preliminary guidance of $2.7 billion for its 2016 maintenance capex, compared to its estimated figure of $3–$3.2 billion for its 2015 maintenance capex.

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