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Why Anadarko Petroleum’s Net Debt Decreased in 2017

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Anadarko Petroleum’s debt, cash, and net debt

As of September 30, 2017, Anadarko Petroleum’s (APC) total debt stood at ~$15.6 billion. With ~$5.3 billion in cash and cash equivalents, its net debt is ~$10.3 billion at the end of 3Q17.

Anadarko Petroleum’s debt, cash, and net debt trends

From 3Q16 to 3Q17, Anadarko Petroleum’s total debt has shown a marginal increase of ~$200 million. Its total debt increased from ~$5.3 billion in 3Q16 to ~$5.5 billion in 3Q17. However, its cash and cash equivalents have increased significantly by ~31% in the last four quarters. They’ve risen from ~$4 billion in 3Q16 to ~$5.3 billion in 3Q17.

The smaller increase in total debt coupled with the much larger increase in cash and cash equivalents over the last four quarters resulted in a steep decline in APC’s net debt. In the trailing four quarters, it has successfully reduced its net debt ~$1.6 billion, from ~$11.9 billion in 3Q16 to ~$10.3 billion in 3Q17.

Why Anadarko Petroleum’s net debt decreased

The ~13% reduction in Anadarko Petroleum’s net debt over the last four quarters can be attributed to its Eagle Ford and Marcellus Shale asset divestitures in 1Q17. It received net cash proceeds of ~$2.8 billion in 1Q17 for these asset sales, which increased its cash balance significantly from ~$3.2 billion in 4Q16 to ~$5.8 billion in 1Q17.

However, Anadarko has no plans to use the proceeds from the Eagle Ford and Marcellus Shale asset sales to pay down its total debt. Instead, it’s focusing on financial discipline, expecting its 2018 capital program to be within its operating cash flow at $50 per barrel of crude oil (USO) (SCO) (UWT) (DWT) prices. At these prices, it’s expecting ~$700 million of free cash flow in 2018.

Anadarko Petroleum plans to use its cash to enhance shareholder returns using a share repurchase program. In 2018, it’s planning to repurchase ~$1.5 billion of its common stock.

Next, we’ll take a look at APC’s leverage.

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