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Apache piles up the cash Acquisitions, drillbit successes drive production, cash flow to record heights Petroleum News
Big independent Apache Corp., which has done about $6.5 billion in acquisitions during the past decade, is now reaping the benefits of this year’s $1.5 billion in deals with huge production gains and mounting cash reserves that have left industry observers wondering about the company’s next move.
Houston-based Apache surprised no one but perhaps Wall Street when it checked in Oct. 23 with 2003 third-quarter net income, excluding a non-cash charge, of $276 million or $1.81 per share, beating analysts’ earnings consensus of $1.77 per share by 4 cents. Apache’s net was up 90 percent from $145 million or 95 cents per share in the year-ago quarter.
Since the first of the year, Apache’s overall production has increased a third to 449,034 barrels per day of oil equivalent, largely on the strength of Shell acquisitions in the Gulf of Mexico and BP acquisitions in the gulf and North Sea.
Those acquisitions also helped boost Apache production 34 percent above last year’s third quarter and 5 percent above this year’s second quarter. Oil volumes alone rose 51 percent to 228,698 barrels per day, while natural gas volumes increased 19 percent to 1.26 billion cubic feet per day and natural gas liquids 20 percent to 9,686 barrels per day.
Apache also got a boost from the third quarter startup of the Zhao Dong oil field in China, currently yielding 16,000 barrels per day, 60 percent net to Apache until capital and carried funds are recovered. Apache actually holds a 24.5 percent stake in the field. Moreover, discoveries during the quarter in Western Australia’s offshore Exmouth sub-basin, coupled with more drilling successes in Egypt, have added future production potential in both of those Apache core areas, the company noted.
More than $2 billion in cash from operations Increased production and strong commodity prices during the first nine months of this year have propelled Apache’s cash from operations to over $2 billion, more than the previous full-year record of $1.9 billion in 2001, the company said. Cash from operations during the 2003 third quarter alone was $730 million, up 14 percent from the prior quarter and up 81 percent versus the same period last year.
Apache said all of this activity is expected to land the company about $1 billion in discretionary cash by year-end, and the deal-minded independent indicated last month that it could do yet another big acquisition this year. But in a recent conference call with analysts, company officers kept their plans to themselves.
However, Steve Farris, Apache’s chief executive officer, made it clear the company finds international properties today more appealing than North American natural gas properties, presumably because of the stiff competition and related high cost associated with quality properties. “International is better because it’s not as frothy as North America,” he said.
Despite Apache’s strong balance sheet and rapid production growth this year, the company has received mixed reviews from the analysts.
In a report to investors, Prudential analyst Jason Gammel said his firm expects Apache to increase production 22 percent this year and 17 percent in 2004. Apache already generates the highest free cash flow per share in the exploration and production sector, he said, adding that Prudential believes Apache “has the strongest balance sheet of the (sector) under our coverage.”
Lehman Brothers analyst Tom Driscoll is forecasting 23 percent production growth for Apache in 2003 but only a 9 to 10 percent increase in 2004, about 8 percent lower than Prudential’s estimate. However, Lehman’s model “does not assume any acquisitions that (Apache) may make over this time period,” a doubtful scenario given Apache’s track record on deals.
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