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Apache’s 3Q15 Losses Weren’t as Bad as Expected

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Key takeaways from Apache’s results

Apache announced its third quarter financial results on November 5, 2015. Apache’s adjusted net loss totaled $21 million, or $0.05 per diluted share. Wall Street analysts were expecting wider losses of $0.38 per share for Apache considering the year-long drop in oil prices. However, the company’s performance fell from the year-ago period with an adjusted profit of $1.27 per share.

Average realized crude oil prices for the third quarter of 2015 averaged $46.34 per barrel compared with $94.38 per barrel in the third quarter of 2014. Crude oil accounted for 77% of Apache’s total oil and gas revenues. The key factors behind the less-than-expected losses were strong production volumes and efficient cost cutting.

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Production targets were revised upwards

Apache (APA) reported onshore North American production of 306,000 barrels of oil equivalent (or boe) per day and revised its guidance upward to 307,000 to 309,000 boe per day for the rest of 2015. This will be a ~2% pro forma increase compared to 2014. During 3Q15, Apache’s total production accounted for 542,000 boe per day.

Strong production volumes may continue for Apache in the coming quarters due to new discoveries at the K, Corona, and Seagull wells along with two high-rate development wells in the North Sea, as per the press release on October 30, 2015. K, Corona, and Seagull combined have the reserve potential of 70 million barrels of oil (USO). This accounts for a potential 50% increase over 145 million barrels of total proved reserves considering the reserves at the end of 2014.

Apache had a strong liquidity position and held $1.7 billion in cash. Apache was also well positioned on the leverage basis. Its net debt was less than two times the adjusted annualized EBITDA (earnings before interest, tax, depreciation, and amortization) of 2015.

Apache is still feeling the heat

Oil explorers and producers continue to feel the heat due to lower realized prices. Companies are utilizing cash generated by operations for capital expenses and servicing debt. Therefore, the profitability of energy companies in North America has almost fallen to zero. Apache’s peer group includes Pioneer Natural Resources (PXD) and Marathon Oil (MRO), and these companies continued the same practice of hiking production growth by reducing capital spending to sustain themselves in the lower energy (XLE) price environment.

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