U.S. Energy firm Apache Corp. (APA) reported strong first-quarter results, mainly due to increased volumes and higher realized oil prices.
Earnings per share, excluding one-time items, reached $2.90, comfortably surpassing the Zacks Consensus Estimate of $2.61 and way above the year-ago adjusted profit of $2.10.
Revenues of $3,925.0 million were up 46.8% from the first quarter 2010 and also beat our projection by 8.8%.
Operational Performance
The production of oil and natural gas averaged 731,905 oil-equivalent barrels per day (BOE/d) (49% liquids), up approximately 24.9% year over year. Production for oil and natural gas liquids (NGLs) was up roughly 19.0% to 357,688 barrels per day (Bbl/d), while natural gas production of 2,245.3 million cubic feet per day (MMcf/d) was 31.2% above that achieved in the first quarter of 2010.
Apache’s upstream growth momentum is retained organically as well as through acquisition. The reported quarter’s production increase was on the back of contribution from two Australian fields (Van Gogh and Pyrenees), as well as higher output from the recently-acquired Permian Basin, Gulf of Mexico and Canadian fields.
The average realized crude oil price during the March quarter was $97.83 per barrel, representing an increase of 31.2% from the corresponding period of the previous year. The average realized natural gas price during the first quarter of 2011 was $4.32 per thousand cubic feet (Mcf), down 6.1% from the year-ago period.
Lease operating expenses totaled $623 million, up 41.6% from $440 million in the year-ago quarter.
Balance Sheet
As of March 31, 2011, Apache had approximately $356 million in cash. The company had a long-term debt of $8,130 million, representing a debt-to-capitalization ratio of 24.4%.
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-diversified reserve base, balanced exposure to natural gas and crude oil, and 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, taking into consideration Apache’s sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks, and project timing delays, we see limited upside potential for the shares.
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