In a cautious and prudent display of corporate strategy, Anadarko’s CEO announced that his company would not seek to expand its holdings unless and until it becomes profitable to do so.
The Texas-based company has a market cap of $34 billion, and operates in the Gulf of Mexico, Texas, Colorado, Pennsylvania, as well as a few locations around the world. It produced about 787,000 barrels of oil equivalent per day in the third quarter.
Not overstretching is a logical strategy, but flies in the face of the aggressive growth strategy typically taken by companies looking to expand during a downturn by scooping up smaller players. Anadarko’s Al Walker – President, Chairman and CEO – told investors on a conference call that he would be more careful. “Growth will not be rewarded in this environment, and focusing on building and preserving value is more important at this time.” Related: Policy, Coincidence Or Conspiracy: What’s Really Holding Oil Prices Down?
Behind Walker’s thinking is a rather pessimistic view of the state of the oil markets. For companies thinking that a rebound is likely at some point in the foreseeable future, growing by acquiring new assets often makes sense. But Anadarko sees oil prices remaining low. As such, the company will continue to cut costs, keep spending at levels that can be covered by cash flow, slowing decline at existing fields, and maybe even selling off more assets. Related: Shell’s Scrapped Oil Sands Project Highlights Major Issue For Canada
In the third quarter, Anadarko had a rough go of it. The company took a $2.6 billion impairment charge, and posted a $2.2 billion net loss. But Walker also sees a bright side: drilling efficiencies have allowed costs to come down by about 15 percent. “When we see value in pursuing growth, we’ll be prepared to accelerate activity.” Related: How Long Can OPEC Hold Out?
The EIA reported that crude oil inventories jumped once again this week, rising by 3.4 million barrels to 480 million barrels. The number is closing in on the high reached earlier this year of 490 million barrels, and remains near 80-year highs.
That bodes ill for oil prices in the near-term. Rising storage suggests an increase in oil prices may not be just around the corner. Anadarko’s strategy – buckling down, cutting costs, bringing spending in line with cash flow, and not pursuing relentless growth at this time – may be a practical one.
By Charles Kennedy of Oilprice.com
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