Anadarko Petroleum Q2 Earnings Call Highlights

Key Points

• Second-quarter performance improved: Net income rose to $12.2 million, adjusted EBITDA increased 4% to $39.8 million, and Discretionary Cash Flow grew 12% to $27.1 million. The company maintained its $0.50 quarterly dividend.
• USPP acquisition planned for later in 2026: The $205 million cash-and-stock transaction would add roughly 280 million gallons of annual wholesale volume, more than 400 locations, two fuel terminals, and delivery assets. Management expects approximately $30 million in annual adjusted EBITDA and integration synergies beginning in 2027.
• Full-year guidance was reaffirmed: The company continues to target approximately $156 million of adjusted EBITDA and $110 million of Discretionary Cash Flow for 2026. Pro forma leverage after the acquisition is expected to be 3 to 3.5 times net debt to adjusted EBITDA.

ARKO Petroleum Corp. reported higher second-quarter earnings and cash flow, while outlining an agreement to acquire U.S. Petroleum Partners, a transaction management said would expand its wholesale distribution network, add terminal and transportation assets, and contribute approximately $30 million of annual adjusted EBITDA after closing.

Chairman, President and Chief Executive Officer Arie Kotler said the company expects the acquisition to close later in 2026. The consideration includes $205 million in cash plus the cost of inventory, along with $30 million in Class A common stock held in escrow. The escrowed shares are tied to EBITDA-based performance targets during the first four full quarters following the transaction's closing.

Second-Quarter Results

Chief Financial Officer Jordan Mann said net income rose to $12.2 million in the second quarter from $10 million a year earlier. Adjusted EBITDA increased about 4% to $39.8 million, compared with $38.3 million in the prior-year quarter.

Discretionary Cash Flow increased approximately 12% to $27.1 million, from $24.2 million a year earlier. Net cash provided by operating activities, however, declined to about $10.4 million from $23.2 million, which Mann attributed primarily to higher working capital resulting from an increase in fuel costs.

The company declared a quarterly dividend of $0.50 per share, consistent with its stated annual dividend target of $2 per share.

• Wholesale fuel contribution increased 3.7% to $26.3 million.
• Wholesale gallons declined 4.6% to 240.8 million gallons.
• Wholesale blended fuel margin rose to approximately $0.109 per gallon, from $0.101 per gallon a year earlier.
• Fleet fueling contribution declined to $17.1 million from $17.8 million, while gallons increased slightly to 36.4 million.
• GPMP fuel contribution from related-party ARKO retail locations increased to $11.5 million from $11.3 million.

Mann said wholesale contribution increased despite the decline in gallons because of incremental dealer locations from the company’s dealerization program. He said the wholesale margin benefited from higher prompt-pay discounts associated with higher fuel costs and retail fuel prices.

In fleet fueling, the blended margin declined by about $0.02 per gallon to $0.469. Mann said margins reflected a more normalized rate and were also affected by fuel margin compression, as customer index prices declined more quickly than the cost of the company’s weighted-average inventory.

USPP Acquisition Adds Wholesale Volume and Infrastructure

Kotler said U.S. Petroleum Partners is a vertically integrated fuel distribution platform that would add about 280 million gallons of annual wholesale fuel volume. That would represent an approximately 14% increase in ARKO Petroleum’s fuel volume for the 12 months ended June 30, 2026, according to management.

The business distributes fuel to more than 400 wholesale locations. Following a closing, ARKO Petroleum said its network would exceed 2,500 locations.

The transaction also includes two fuel storage terminals on the Buckeye Pipeline system, located in Novi, Michigan, and Toledo, Ohio. The terminals handle refined products including gasoline, diesel, ethanol and jet fuel. Kotler said the assets would introduce the company to a terminal business that generates fees from third-party storage and throughput activities, while also providing more flexibility in fuel logistics and supply.

The acquired business also includes trucks and trailers serving last-mile fuel delivery. Kotler said the company already operates approximately 80 trucks, primarily in the Carolinas, and that the USPP fleet would be particularly complementary because its dealer network is concentrated in the Great Lakes region.

Management said the acquired business is expected to be low capital expenditure intensity. Kotler described the terminals as storage assets, saying the company does not own approximately 97% of the product stored there and instead collects storage fees from major oil companies.

Financial Targets and Capital Allocation

ARKO Petroleum expects the acquisition to be accretive after closing and to enhance Discretionary Cash Flow. The company expects integration synergies to begin in 2027 and said it sees opportunities for further operating efficiencies over time.

The earn-out shares are subject to adjustments based on whether the acquired business achieves $31.7 million of EBITDA and $2.2 million of EBITDA from certain fuel-related components, as defined in the purchase agreement. Kotler said the approximately $30 million of expected annual adjusted EBITDA represents the base business being acquired, while the escrow arrangement is designed to reward performance above that level.

At quarter-end, Mann said net debt was $324.2 million and the company’s net debt-to-adjusted EBITDA ratio was approximately 2.2 times. ARKO Petroleum reported approximately $710 million of availability under its credit lines.

After the USPP transaction closes, the company expects annualized pro forma net debt-to-adjusted EBITDA of between 3 and 3.5 times, within its previously communicated target range of 3 to 4 times.

2026 Outlook Maintained

Management maintained its full-year outlook, citing first-half execution and expectations that the USPP transaction’s 2026 contribution will be generally consistent with assumptions already incorporated into guidance.

ARKO Petroleum continues to expect full-year adjusted EBITDA of approximately $156 million and Discretionary Cash Flow of approximately $110 million.

Kotler said the company has identified 20 new CardLock locations for opening during 2026. Three had opened as of the call, while the remaining 17 were in various stages of development. He said management expects mid-to-high-teen returns per location and views the segment as requiring relatively low capital investment.

About Anadarko Petroleum (NASDAQ:APC)

Anadarko Petroleum Corporation engages in the exploration, development, production, and marketing of oil and gas properties. It operates through three segments: Exploration and Production, WES Midstream, and Other Midstream. The company explores for and produces oil, natural gas, and natural gas liquids (NGLs). It is also involved in gathering, processing, treating, and transporting oil, natural-gas, and NGLs production, as well as the gathering and disposal of produced water. The company's oil and natural gas properties are located in the United States onshore and deepwater Gulf of Mexico; and Algeria, Ghana, Mozambique, Colombia, Peru, and other countries.

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