Apache Corp. and the Permian Basin
Last month, activist investors’ hedge fund JANA Partners LLC disclosed a stake worth $1 billion in Houston-based independent exploration and production company Apache Corp. (APA) It’s pushing the company to divest its international holdings.
In its latest 2Q14 results, Apache missed on revenue, but beat on earnings estimates. The company posted second quarter earnings of $505 million or $1.31 per diluted common share—50% down from $1 billion or $2.54 per diluted common share for the same period last year. Its revenue also fell 18.4% to $3.48 billion in the second quarter from $4.27 billion in 2Q13. Apache said the previous year’s results reflected contributions from divested assets, including producing assets in the Gulf of Mexico, Canada, Argentina, and a non-controlling interest in Egypt.
Apache’s total reported worldwide net daily production of oil, natural gas, and natural gas liquids (or NGLs) averaged 636,000 barrel of oil equivalent (or boe) per day, with pro forma production averaging 550,000 boe per day. North America onshore regions increased pro forma liquids production by 31,000 barrels per day over the prior-year period. Total pro forma production averaged 201,000 barrels per day. The management said on the earnings call that North American onshore liquids represented nearly 61% of the company’s total worldwide liquids production and 37% of its overall production.
Apache said its results were driven by a “record-setting performance” from the Permian region. The region achieved production averaging 155,000 boe per day, up 26% from the prior-year period, and averaged 37 operated rigs during the quarter and drilled 164 gross operated wells—74 horizontal. In the region, the Barnhart, Pecos Bend, and Cedar Lake areas lead the production growth, while Deadwood and Barnhart in the Midland Basin remained the top two areas in terms of production contribution.
Steven Farris, chairman, CEO, and president of Apache said “Apache’s onshore North American liquids production increased 18% on a pro forma basis in the second quarter 2014 compared with the same period a year ago.” He added that, “We are excited about our initial results in emerging plays in the East Texas Eagle Ford and Canyon Lime in the U.S., and the Montney and Duvernay in Canada,” and that “We continue to broaden and advance our compelling North American onshore portfolio.” He reiterated on the earnings call that, “Apache’s future will be centered on our tremendous North American onshore resource base.”
Production in other geographic segments
- 2Q14 production in the Central region was 89,883 Boe/d, and Apache said growth was lower than expected because fewer wells were brought online than had been planned. CEO Farris told analysts on the earnings call that, “Our total wells drilled to-date for the year is 26% behind plan due to weather slowdowns as well as mechanical difficulties in both drilling and completion.”
- Production in the Gulf of Mexico averaged 11,908 Boe/d, up 11% sequentially with natural declines being offset by a full quarter of production at Bushwood.
- In the Gulf Coast, production averaged 29,483 Boe/d, down 2% from the 1Q14 due to planned downtime at Belle Isle facility and a small asset sale of approximately 3,000 Boe/d on average for the quarter in south Texas. Apache said when adjusting for asset divestitures, production was flat sequentially.
- Canada production, which included Kitimat upstream production, was down 13% in the second quarter to 76,692 Boe/d from the 1Q14 due to the divestments in Alberta and British Columbia made in April and third-party downtime of ~3,000 Boe/d.
- Production in the North Sea was 72,118 Boe/d, up 7% from the first quarter due to a combination of production efficiency and drilling success while Australian production averaged 49,633 Boe/d, down 6% from 1Qfirst quarter 2014.
- Production in Egypt was 150,853 Boe/d, up 2% from the production in the same period last year. In Egypt, Apache averaged 26 rigs in the second quarter and drilled a total of 67 gross, 59 net, wells.
Apache and some of its peers operating in the Permian Basin such as Anadarko Petroleum (or APC), Occidental Petroleum (or OXY), Pioneer Natural Resources (PXD), and EOG Resources (EOG) are components of the Energy Select SPDR ETF (XLE) and the Vanguard Energy ETF (VDE).