Anadarko Petroleum Corp. (NYSE:APC) will not only be slashing its capital budget this year by 50 percent and its rig count by 80 percent in order to weather the oil price slump, forecasting a 3-percent fall in production, but it’s also reportedly planning to cut over a thousand jobs and get rid of almost all of its contractors.
On Tuesday, Anadarko unveiled plans to lower capital spending, lower dividends and monetize non-core assets to improve its cost structure, including a 50-percent budget reduction from last year and an onshore 80-percent rig-count slash that would bring its rigs down to five from 25 last year.
According to an “exclusive” report by Benzinga, Anadarko has also let 95 percent of its contractors go and is planning to lay off 1,200-1,500 workers next week. Benzinga cited an unnamed source for this information on Thursday. If true, that would reduce the 5,800 workers Anadarko had as of December by as much as one-quarter
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In its earnings result on Monday, Anadarko reported $0.57 earnings per share for the quarter, which come in above the consensus estimate of $0.52. The company earned $2.05 billion for the quarter, which was below analysts’ expectations of $2.22 billion.
The company says it should have $3 billion in cash by the end of this year, and it’s progressing on asset sales, having divested $1.3 billion already and targeting a similar amount through 2016.
Anadarko shares were up a bit on the news. On Monday, the company closed at $37.95 per share, but was up to $40.11 at close on Tuesday, and $42.65 on Wednesday. By early trading on Thursday it was over $43.00. Related: Canadian Oil Slammed By Low Prices, Pipeline Woes
Overall, dividends have been cut by 80 percent. On 9 March, shareholders are due for a dividend of $0.05 per share, and quarterly dividends will be paid on 23 March. The quarterly dividend rate slash could generate it another $450 million per year, according to reports.
Insider buys are also worth watching. On Thursday, Anadarko Director Peter J. Flour purchased 7,527 shares in the company at $30.55 per share and he now directly owns 112,285 shares valued at over $3.4 million.
The key takeaway here is the shift in focus for Anadarko to wells that are still making it money, and this is what investors want to hear. Related: Australia’s $54 Billion Gas Project Starts Shipping
Onshore, Anadarko will cut spending by some $2.5 billion, which means it will spend around $2.8 billion this year. And its key focus will be on profitable production in the DJ Basin, Wattenberg field in Colorado and the Delaware Basin in West Texas.
According to Anadarko CEO Al Walker, it will continue to drill new wells in Colorado and West Texas because these wells have proven to be profitable even with today’s low oil prices. Walker noted that Anadarko’s new wells in Colorado and West Texas were still giving them 10 percent returns because of the company’s midstream and mineral interests. The profit focus in West Texas is on wells that have been drilled but not completed for producing yet. In total, Anadarko reportedly has some 230 wells that are drilled but not completed across the U.S.
“Our objective in 2016 is to preserve our assets for a more compelling investment environment than we have today, and to keep the engine running,” Walker told investors on a conference call.
By James Burgess of Oilprice.com
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