Will Anadarko Benefit from Its Production Mix Strategy in 2019?



Anadarko production mix strategy

Based on the company’s guidance, Anadarko Petroleum (APC) could increase its total sales volume or production mix in natural gas in 2019 by as much as one percentage point compared to last quarter. This increase could be achieved by reducing oil and natural gas liquids in APC’s total sales volume. In Q4 2018, crude oil sales accounted for 58% of APC’s total sales volume. In 2019, the oil sales volume as a percentage of total sales might vary between 57.6% and 58.8%. However, its oil production in the US will increase between 4.9% and 10.4% in 2019 compared to Q4 2018.

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Will it benefit from this strategy?

Based on the EIA’s (US Energy Information Administration) Short-Term Energy Outlook report, natural gas spot prices will average around $2.89 per MMBtu in 2019, which would be ~24% lower than the average natural gas average price in Q4 2018. However, with a possible slowdown in US oil production, this gap could further narrow.  However, oil prices might see an upside in the first half of 2019. So, APC would be at a slightly disadvantaged position if natural gas share in total sales volume rises.

How peers are positioning themselves

Based on the recent quarterly filings, ConocoPhillips (COP) operated with a production mix of ~34% in natural gas. Other peers such as Hess (HES), Devon Energy (DVN), and Occidental Petroleum (OXY) operate with a production mix of ~34%, 33.2%, and 21.7%, respectively, in natural gas. These stocks are among the holdings of the S&P 500 (SPY) in the upstream sub-sector.


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