U.S. energy firm Apache Corp. (APA) reported strong third-quarter results, mainly due to increased volumes and higher realized oil prices.
Earnings per share, excluding one-time items, reached $2.95, comfortably surpassing the Zacks Consensus Estimate of $2.82 and way above the year-ago adjusted profit of $2.20.
Revenues of $4,328.0 million were up 43.6% from the third quarter of 2010 and also managed to beat our projection of $4,172.0 million.
Operational Performance
The production of oil and natural gas averaged a record 752,496 oil-equivalent barrels per day (BOE/d) (50% liquids), up approximately 12.7% year over year. Production for oil and natural gas liquids (NGLs) was up roughly 4.5% at 374,425 barrels per day (Bbl/d), while natural gas production of 2,268.4 million cubic feet per day (MMcf/d) was 22.4% above the third quarter 2010 level.
Apache’s upstream growth momentum is retained organically as well as through acquisitions as it continues to explore the extensive, multi-year inventory of drillable locations in the Permian, Central, Gulf of Mexico and Canadian regions of North America.
During the three-month period under review, Apache announced the acquisition of ExxonMobil Corp’s (XOM) Beryl and other selected fields in the U.K. sector of the North Sea, thereby further strengthening its presence in the region. In Australia, the partner-operated Wheatstone liquefied natural gas (LNG) venture advanced to development. Additionally, during the September quarter, the Houston, Texas-based company started development of its Balnaves oil field offshore Western Australia.
The average realized crude oil price during the third quarter was $101.71 per barrel, representing an increase of 37.2% from the corresponding period of the previous year. The average realized natural gas price during the September quarter of 2011 was $4.44 per thousand cubic feet (Mcf), up 10.7% from the year-ago period.
Lease operating expenses totaled $661 million, up 30.4% from $507 million in the year-ago quarter.
Balance Sheet
As of September 30, 2011, Apache had approximately $586.0 million in cash. The company had a long-term debt of $6,785.0 million, representing a debt-to-capitalization ratio of 19.6%.
Our Recommendation
Apache – which has recently made combined asset purchases worth around $8 billion from BP plc (BP) and Devon Energy Corp. (DVN) – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.
We like Apache’s large geographically diverse reserve base, its balanced exposure to natural gas and crude oil, and its multi-year trends in reserve replacement and production growth. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.
However, we see limited upside potential for shares, taking into consideration Apache’s sensitivity to gas/oil price volatility, its drilling results, costs, geo-political risks and project timing delays. As such, we expect Apache to perform in line with the broader market.
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