Sanguine Results

Anadarko Petroleum (APC) reported earnings of $1.05 per share against the $0.90 consensus estimates -- up 24% year over year. Revenue was in line at $3.5 billion, up 8.5% from the prior year, against the average analyst target of $3.53 billion. Cash flow per share came in at $3.60 vs. the $3.69 expectations.

The earnings beat was thanks to lower costs for exploration, and from depreciation, depletion and amortization. These, in turn, were offset by lower sequential volume and 5% lower realized prices. Oil-and-gas production came in at 746,000 barrels of oil equivalent per day, up 1% from the prior year and in line with guidance of 730,000 to 758,000. Within this, crude output was lower and gas output climbed.

Volume comprised 59% gas, 30% oil and 11% natural gas liquids -- and, by region, the U.S. accounted for 91%. Prices averaged at $46.77, up 5% year over year but down 4% sequentially. Oil prices were down 4% and gas was up 80%, both against the prior year. Unit costs declined 9% from last year and 5% from the prior quarter.

Production guidance in crude was mixed, as the company expects a 12% year-over-year growth in the third quarter but a 3% dip for the full year. The projected 2013 decrease is expected to be entirely driven by U.S. crude, tied to mechanical issues at Anadarko's deepwater Gulf of Mexico project, Caesar/Tonga. But total production estimates were lifted at the low end by 2 million BOE on better gas production -- specifically, growth in the Marcellus and Haynesville shale sites.

The company additionally generated $281 million in free cash flow. It reduced net debt by $1 billion from the prior quarter and by $3 billion from the prior year as a result of the Algerian tax settlement. Currently, the ratio of net debt to capitalization stands at 29% vs. last year's 39%.

The company announced a few successful offshore results, as well. The Anadarko-operated deepwater Gulf of Mexico Raptor well, in which the firm has a 51% working interest, showed 150 net feet of high-quality oil. The Yucatan, meanwhile, showed 120 net feet of oil. Anadarko has a 15% working interest in this well, which is operated by Shell (NYSE:RDS.A). It's located three miles from Anadarko's Shenandoah field, and is currently under appraisal, so the results are encouraging for this potential discovery.

Onshore, Anadarko also completed its first two Delaware Basin Wolfcamp wells in the Delaware Basin (600,000 gross acres) with respective 24-hour test rates of 1,000 and 1,600 BOE/D. So far the company has seen 80% oil content, higher than the 33% rate seen by some of its peers. Anadarko also posted impressive liquids growth in Wattenberg, with its year-on-year climb of 37%; Eagle Ford, which was up 62%; and East Texas/Haynesville, which rose 87%. The Mozambique site posted mixed numbers: Positive gas results at Espadarte-1 were offset by a dry well in Linguado.

Anadarko has one of the most active programs in the sector, with 24 projects ongoing this year, and the firm will be reporting on these throughout the remainder of the year. On the call later this morning, we'll want to hear more about each of the new discoveries, as well as further upside potential from others. We'll look to get further updates on the U.S. Gulf of Mexico, Yukatan and Mozambique.

But we'll also be listening for updates on the firm's 15%-owned Coronado and 30%-owned Phobos wells, and on potential asset sales in Brazil and China. Also of interest are Anadarko's plans to sell part of its 92% interest in Western Gas Partners NYSE, which could be valued at $4 billion, or $8 per share. Any or all of these would be positive catalysts for the shares and unlock value for shareholders.

Finally, any resolution to the lawsuit involving Anadarko's Tronox NYSE spinoff will remove a huge overhang on the shares.

Regards,

Jim Cramer, Stephanie Link, and TheStreet Research Team

DISCLOSURE: At the time of publication, Action Alerts PLUSwas long APC.