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Why Apache’s Earnings Could Fall More than 60%

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Apache Corp’s earnings

Apache (APA) is set to announce its fourth-quarter earnings results on February 27. Based on analysts’ consensus estimates, its adjusted earnings per share could fall 61.9% on a sequential basis. Other oil-weighted stocks Concho Resources (CXO) and Pioneer Natural Resources (PXD) reported falls of 33.8% and 43%, respectively.

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Why APA’s earnings could fall so much

APA operates with a production mix of ~48.3% and ~15.4% in oil and NGLs (natural gas liquids), respectively, and the remainder in natural gas. Moreover, oil contributed ~78.7% to the top line in the company’s most recent quarter. Based on the company’s guidance released on January 24 for the last quarter, its oil realized prices from US and International operations are expected to decline 15.3% and ~15%, respectively, on a sequential basis. NGLs realized prices are expected to fall over 20% from both US and International operations. The fall in oil and NGL realized prices could be because of the decline in oil prices in Q4 2018, resulting from global demand growth concerns.

However, despite a rise of ~29.6% in natural gas prices on NYMEX in Q4 2018 versus the previous quarter, APA’s realized US natural gas prices should decline 2.9%. The Permian Basin accounts for 59.2% of APA’s total natural gas production. Because of takeaway capacity constraints, natural gas prices at the Waha Hub fell ~8% on a quarter-over-quarter basis last quarter. Natural gas prices at Waha are important to Permian Basin producers.

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