NEW YORK (TheStreet) --Anadarko Petroleum (APC) is an interesting investment opportunity, despite the current weakness in the oil market. The company keeps reaching its quarterly goals, improves its profitability and remains a possible takeover target.
The recent fall in the price of oil took its toll on leading oil and gas producers such as Anadarko, Chevron (CVX) and Exxon Mobil (XOM) . Exxon and Chevron did well in their quarterly earnings mainly on the strength of their refining businesses, which benefited from wider margins as a result of lower oil prices. Anadarko on the other hand managed to impress with its earnings report, even though it is more purely an exploration and production company and thus more at risk from lower oil prices.
In the past quarter, the company was able to meet its quarterly goals in production of natural gas and natural gas liquids and come very close to its oil quota for the quarter.
The table below shows the company’s volume of barrels of oil equivalent sold and daily volume of oil, natural gas and natural gas liquids sold in the third quarter of 2014 and 2013.
Source of data: Anadarko Web site
The company continues its direction of expanding its oil and NGL operations and cutting down its natural gas output. Due to this direction, Anadarko’s liquids operations -- oil and NGL -- grew from 43% of total production in the third quarter of 2013 to 51% in the past quarter.
Source of data: Anadarko Web site
Alas, the current weak oil prices are impeding the progress of this company’s stock. If oil prices remain at this current low level, it could adversely impact Anadarko’s profit margin.
Source of data: Google Finance
In the past quarter, the company’s operating profitability has improved to 34% -- a 7 percentage point increase sequentially and 16 percentage points higher year over year.
The current price of natural gas is hovering well above $4, which may call into question the company’s direction to cut natural gas output and turn to oil and NGL. Nonetheless, the Energy Information Administration still estimates the price of natural gas to average at $3.84 in 2015 -- 13.7% lower than in 2014.
In any case, the current fall in oil prices, which has contributed to the downfall of Anadarko’s stock, may position the company as a buying opportunity for big oil companies such as Exxon and Chevron. Rumors of a possible takeover were floated in the past but haven’t come to pass.
But as long as Anadarko Petroleum keeps meeting its quarterly goals and further shifts its attention from natural gas to oil and NGL, these factors are likely to raise its value.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates ANADARKO PETROLEUM CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ANADARKO PETROLEUM CORP (APC) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and a generally disappointing performance in the stock itself."
You can view the full analysis from the report here: APC Ratings Report