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A Look at Apache’s Operating Cash Margins in 3Q17

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Operating Cash margins

Apache (APA) has noted that its cash margins in the Permian Basin averaged $18 per boe (barrels of oil equivalent) in 3Q17. While Other North America regions saw cash margins of $10 per boe in 3Q17, Egypt and North Sea operations saw higher cash margins of $30 and $31 per boe, respectively.

These cash margins were calculated by subtracting operating expenses such as LOE (lease operating expenses), gathering and transportation expenses, taxes, and other income from total price realizations.

Apache’s (APA) total LOE per boe fell ~6.3% YoY (year-over-year) in 3Q17. Gathering and transportation expenses fell 23.5% from 3Q16, while taxes and other income rose 411%.

In its 3Q17 earnings release, APA management noted, “We continue to benefit from our cost structure focus, with both LOE per BOE and G&A [general and administrative) costs remaining low as a result of the significant rationalization efforts over the last two years.”

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How Canada exits support higher cash margins

APA’s management also noted that “value creation and returns accretion were challenged in Canada,” due to a low ratio of cash margins to finding and development costs.

On the other hand, Alpine High is believed to have lower finding and development costs, with higher cash margins. Believing its Alpine High play to be an “Organic portfolio transformation” APA pointed out that while time-consuming, the addition of Alpine High to its portfolio could be more accretive to returns as opposed to acquiring expensive acreages.

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