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Is Apache Bracing for Lower Energy Prices in 2016?

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Apache’s revenues for the first nine months of 2015

After analyzing Apache’s (APA) 3Q15 performance, we will now discuss its year-to-date (or YTD) revenues and earnings. APA recorded $5.1 billion in revenues and other income for the first nine months of 2015, down 49.6% from $10.1 billion recorded in the corresponding period in 2014. APA’s lower average price realization and lower production volume during the period caused this revenue fall.

APA’s revenues from crude oil in the first nine months of 2015 fell 49% over the corresponding period in 2014 while natural gas liquids (or NGLs) revenues fell 69% during the same period. The company’s revenues from natural gas fell 40%.

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What has affected Apache’s net income?

Apache’s net loss in the first nine months of 2015 dropped sharply to a loss of $15.9 billion compared to the $0.59 billion net loss in the corresponding period last year. Asset write-down and valuation allowance charge in 3Q15 totaling $5.2 billion, which we discussed previously, primarily resulted in the net loss deterioration.

Lower sales price realizations also affected Apache’s income this year. APA’s average crude oil price realization in the first nine months of 2015 fell 49% over the corresponding period in 2014. The realized price for natural gas liquids (or NGLs) fell the most by 66% while the 31% fall in natural gas average realized price was the lowest during the same period.

Compared to APA’s $15.9 billion net loss in the first nine months of 2015, Concho Resources (CXO) recorded $67 million in net income during the period. Concho Resources, a Texas-based energy upstream company, is APA’s smaller peer. Its current market capitalization is $14.3 billion versus APA’s $20.4 billion. Apache makes up 1.4% of the Vanguard Energy ETF (VDE).

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APA’s production by geography

Overall, APA’s total production volume in the first nine months of 2015 fell 6.1% compared to the corresponding period in 2014. APA’s North America onshore operation recorded a 13% production volume decrease, which more than offset APA’s 4% production increase in its international and Gulf of Mexico operations during the same period.

Management’s outlook

APA’s management expects lower energy prices to continue in 2016. In its 3Q15 conference call, APA’s chief executive officer, John Christmann, commented, “as we look to 2016 and beyond, our organization and our balance sheet are well prepared for the possibility of lower for longer oil and gas prices. We have in place the planning, capital allocation and operational structure and focus that will enhance shareholder value, despite the challenging commodity price environment.”

In the next article, we will discuss Wall Street’s forecasts for Apache.

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