U.S. energy firm Apache Corporation (APA) reported strong fourth quarter results, mainly due to increased volumes and higher realized oil prices.
Earnings per share, excluding one-time items, reached $2.94, comfortably surpassing the Zacks Consensus Estimate of $2.87 and way above the year-ago adjusted profit of $2.19.
Revenues of $4,297.0 million were up 25.1% from the fourth quarter of 2010 and also managed to beat our projection of $4,245.0 million.
For its fiscal year ended December 31, 2011, Apache reported profit of $11.83 per share on revenues of $16,888.0 million, both ahead of estimates.
Operational Performance
The production of oil and natural gas averaged a record 759,327 oil-equivalent barrels per day (BOE/d) (50% liquids), up approximately 4.2% year over year. Production for oil and natural gas liquids (NGLs) was up roughly 5.2% at 382,239 barrels per day (Bbl/d), while natural gas production of 2,262.5 million cubic feet per day (MMcf/d) was 3.2% above the fourth quarter 2010 level.
For the year ended December 31, 2011, production of natural gas and liquids reached 748,149 BOE/d, up 13.8% from 2010.
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.
The average realized crude oil price during the fourth quarter was $102.71 per barrel, representing an increase of 24.0% from the corresponding period of the previous year. The average realized natural gas price during the December quarter of 2011 was $4.18 per thousand cubic feet (Mcf), up 3.0% from the year-ago period.
Lease operating expenses totaled $659.0 million, up 3.1% from $639.0 million in the year-ago quarter.
Balance Sheet & Capital Spending
As of December 31, 2011, Apache had approximately $295.0 million in cash. The company had a long-term debt of $6,785.0 million, representing a debt-to-capitalization ratio of 19.0%.
During the three months ended December 31, 2011, Apache’s capital investments (excluding acquisitions) totaled $1,926.0 million, bringing the full-year spending to $7,193.0 million.
Proved Reserves
As of year-end 2011, Apache had a proved reserve base of 3.0 billion oil-equivalent barrels (BBOE), up 1% from the previous year level.
Rating & Recommendation
Apache – which completed the purchase of Exxon Mobil Corporation’s (XOM) Beryl Field, together with other properties in the U.K. North Sea earlier this year – 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.
Despite being one of the largest domestic exploration and production companies, Apache still boasts an annual output growth in excess of 10%. 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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