Anadarko's Q2 results were under whelming, with net profit of US$29 million coming in below analyst expectations. Production remained flat with last quarter as facility downtime in Deepwater GoM offset a strong performance from the DJ and Delaware Basins Onshore US. Capex guidance was up net US$250 million, with spend Onshore US up a notable US$550 million, and spend on its other assets down US$300 million. Aggressive spend on share buybacks has increased Anadarko's combined dividend and buyback yield to over 9%, the highest amongst its peers. But the move has put pressure on the balance sheet with net debt creeping up to US$14 billion and gearing reaching 55% by the end of the quarter.
The headline figure for Anadarko in Q1 was a US$2.7 billion loss related to the Tronox settlement. But this was expected by the market and was more than offset by a strong operational performance; the company reported record sales volumes of 819 kboe/d and is well-positioned relative to its 2014 guidance. The market reaction was positive, with 3% added to Anadarko's market value on the day.
Production growth was primarily driven by the company's US Lower 48 resource plays, but Anadarko is also making good progress with development work at Lucius and Heidelberg in deepwater GOM, which are on-track to deliver volume growth in 2014 and 2015 respectively. The company remains a highly active explorer, with multiple wells drilling ahead in frontier areas across its portfolio, providing the potential for further investor catalysts during the year.
Despite the Tronox settlement, we believe that Anadarko continues to trade at a discount to our base-case NPV,10. With the key overhangs being resolved, this discount has not gone unnoticed by activist investors, which are increasing their holdings, encouraged by a strong operational and financial outlook.