Apache pumps up E&P investment

Earnings break record in Q2, spent $1 billion for E&D in first half of year, setting stage for even stronger second half

Ray Tyson

Petroleum News Houston Correspondent

Big Houston independent Apache doled out $1 billion for exploration and development in the first half of the year, resulting in strong production and record income for the 2004 second quarter and setting the stage for what could be an even stronger second half.

Fueled by robust oil and gas prices and lower lifting costs, Apache’s profit during the second quarter jumped 53 percent to $372 million or $1.13 per share on revenue of $1.247 billion from $243 million or 74 cents per share on revenue of $1.044 billion a year earlier, the company reported July 29.

Apache’s earnings surpassed the previous quarterly record of $1.06 per share reported in the first quarter of 2004.

“The story in the second quarter was higher production, lower lifting costs and strong commodity prices,” said Steve Farris, Apache president and CEO.

He said the $1 billion invested during first six months of the year increased the level of drilling activity and “is providing strong momentum for the second half.”

Apache said its liquid hydrocarbon production during the 2004 second quarter averaged 234,788 barrels per day, up three percent from the first quarter and up six percent from the prior-year period. Natural gas production averaged 1.25 billion cubic feet per day, up 38 million cubic feet per day from the first quarter and a slight increase from the year- earlier period.

Operation highlights during this year’s second quarter included a sequential three percent increase in U.S. gas production, due to exploitation of offshore blocks acquired from BP and Shell in 2003 and onshore South Louisiana fee acreage acquired in 2002, as well as continued success in the Deep Springer and Red Fork plays in the Anadarko Basin, the Styles Ranch area in North Texas and in East Texas.

Apache said its North Sea production increased seven percent from the first quarter to 47,179 barrels per day because of six new producing wells and increased field efficiency. In July, net production averaged about 55,000 barrels per day, the company said. Moreover, Apache’s Egypt region set quarterly records for gross production of 100,828 barrels of oil per day and 276 million cubic feet of gas per day, the company said.

Apache said its 2004 second-quarter earnings included two unusual items that together reduced the per-share results by 19 cents — a $48 million after-tax reserve for a previously announced arbitration award, which Apache said it intends to contest, and the $14 million after-tax impact of the employee share appreciation plan.

Those items were partially offset by a lower effective tax rate, primarily from a reduction in Alberta provincial tax rates and the impact of favorable currency swings on deferred taxes, Apache said. The tax items totaled $35 million after tax or 11 cents per share.Cash from operations during this year’s second quarter, before changes in operating assets and liabilities, totaled $721 million, up from $639 million in the year-earlier period.

Apache’s debt-to-capitalization ratio declined to 23.2 percent at the end of the 2004 second quarter from 24.2 percent at the end of the first quarter.