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Apache Corp. First Quarter 2020 Results

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   |    Thursday,May 07,2020

Apache Corp. reported its Q1 2020 results.

Highlights:

  • Responded quickly and decisively to COVID-19 global pandemic by closing offices and implementing work-from-home-processes and stringent operational protocols in the field to protect Apache employees and communities; 
  • Revised 2020 upstream capital budget following oil price collapse to approximately $1.1 billion; down nearly 55% from 2019; 
  • Reduced the company’s quarterly dividend by 90% and outlined plans to use the $340 million of cash retained annually from the dividend reduction to further strengthen the company’s financial position;
  • Highlighted the company’s ample liquidity through its $4 billion revolver and ability to manage bonds maturing between February 2021 and January 2023;
  • Increased estimated cost savings associated with the previously announced organizational redesign; annual cost reduction target doubled to more than $300 million;
  • Announced two significant oil discoveries at Maka Central-1 and Sapakara West-1 in Block 58 offshore Suriname; and
  • Delivered first-quarter reported production of 468,000 barrels of oil equivalent (BOE) per day; adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 423,000 BOE per day.

Apache reported a loss of $4.5 billion or $11.86 per diluted common share during the first-quarter 2020. When adjusted for certain items that impact the comparability of results, primarily noncash impairments related to the company’s legacy vertical developments in the Permian Basin, Apache reported a first-quarter loss of $51 million, or $0.13 per share. Net cash provided by operating activities in the first quarter was $502 million, and adjusted EBITDAX was $764 million. 

John J. Christmann IV, Apache’s chief executive officer and president, said: “The global economy and the energy industry have been deeply impacted by the COVID-19 pandemic.  As we navigate this crisis, Apache’s priorities are protecting the health and safety of our employees and the communities in which we operate and preserving the inherent value and optionality of our diverse asset base for the long-term.

“We have taken several decisive actions to preserve Apache’s financial and operational strength during this difficult time, including reducing our planned 2020 capital program, reducing our dividend, initiating a hedge position to protect from further near-term downside oil price exposure and increasing the cost-saving measures of the organizational redesign that we began last year. We also conducted a thorough economic and operational evaluation of all producing wells across the company to inform the methodical and targeted approach we are taking to production curtailments and shut-ins in this price environment. I am confident these comprehensive steps will enable us to minimize the cash flow impacts of this distressed and volatile price environment.

“Apache remains committed to our long-term objectives, which, despite the current environment, haven’t changed. We will budget conservatively and direct free cash flow, on a priority basis, to debt reduction; maintain a balanced and diversified portfolio; and prioritize investment for long-term returns over production growth. We will also maintain our capacity to generate material free cash flow in Egypt and the North Sea. And, lastly, we will advance the exploration program and follow-on appraisal activity in Block 58 offshore Suriname.”

COVID-19 Response 

Apache is prioritizing the health and safety of its employees and communities where it operates. The company responded quickly to the COVID-19 pandemic by closing many of its offices and implementing work-from-home-processes and stringent operational protocols in the field with minimal business interruption. For example, the company has introduced temperature screenings throughout its operations, expanded assessment of all contractor companies and vendors coming onsite to locations, and increased cleaning measures in the field and in office locations. Apache has developed a thorough and phased re-entry plan for the eventual reopening of its closed offices and will follow the guidance of local governments before implementing its re-entry plans. To assist the communities where Apache operates, the company has contributed to the COVID-19 response with donations of personal protective equipment (PPE) to hospitals and first responders and financial and in-kind contributions to food banks and women’s shelters.

2020 Capex & Outlook

Following the rapid drop in oil prices in early March, Apache announced a plan to reduce activity in Egypt and the North Sea and to eliminate all U.S. drilling and completion activity. This resulted in a $650 million decrease in planned upstream investment, compared to the company’s initial budget announced in late February.  Approximately 60% of the revised 2020 investment will be in international assets, compared to approximately 45% in the previous budget.  

Liquidity Update

Apache has a strong liquidity position, supported by a $4.0 billion revolving credit facility that matures in March of 2024. The facility has commitments from 18 banks, 17 of which are rated A or better, is not subject to borrowing base redeterminations, has no covenants that are triggered by credit ratings, and includes a $2 billion committed sublimit for letters of credit.

In April, Apache posted letters of credit (LCs) under the LC sublimit aggregating approximately $800 million related to asset retirement obligations in the U.K. North Sea. These postings utilize a portion of that facility.

In addition to the company’s ample liquidity, Apache also maintains a very manageable bond maturity profile. In the event the company is unable to generate free cash flow to retire or refinance its bond maturities over the next three years, the revolver could be used to pay them down.  

Q1 Ops Summary

First-quarter reported production was 468,000 BOE per day; adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 423,000 BOE per day.

During the first quarter, Apache operated an average of 21 rigs and drilled and completed 44 gross-operated wells worldwide. Highlights from Apache’s principal areas include: 

United States – Operated an average of seven rigs, drilled and completed 24 gross-operated wells, all of which were in the Permian, and reported production of 283,000 BOE per day. 

Permian Basin production averaged 273,000 BOE per day, including oil production of 97,000 BOE per day. Following the significant drop in oil prices in early March, Apache decided to reduce its rig count to zero in the Permian. The company is down to one rig in the Delaware Basin, which is currently finishing its last well. After which, the company will have approximately 70 drilled and uncompleted (DUC) wells in the unconventional Midland and Delaware Basins, 15 of which are in Alpine High.

  • Midland Basin – Averaged four rigs and placed 12 wells on production, all on multi-well pads. Substantially completed drilling the company’s first 3-mile lateral pad, achieving significant cost savings. Completion of these five wells has been deferred due to the current price environment.
  • Delaware Basin – Averaged three rigs and placed 11 wells on production.  Alpine High production averaged 94,000 BOE per day with a 39% liquids mix.

International – Operated an average of 14 rigs, drilled and completed 20 gross-operated wells and reported production of 185,000 BOE per day. 

  • Egypt – Averaged 11 rigs, drilled and completed 16 gross-operated wells and reported production of 116,000 BOE per day, or 72,000 BOE per day on an adjusted basis. Achieved a 94% drilling success rate, including four successful exploration tests.
  • North Sea – Averaged two rigs and drilled and completed four gross operated wells during the quarter. Production of 69,000 BOE per day was up 9% from the fourth quarter, driven by the high-volume Garten-2 well, which was placed on production in late January.
  • Suriname – On Jan. 7, Apache (50% interest) and its partner Total S.A. (50% interest) announced a significant oil discovery offshore Suriname in Block 58 at Maka Central-1. On April 2, the partners announced a second significant oil discovery in Block 58 at Sapakara West-1, and in the second half of April, commenced drilling on a third exploration well, Kwaskwasi-1, which is located approximately 10 kilometers (6 miles) northwest of Sapakara West-1. Following Kwaskwasi-1, a fourth exploration prospect, Keskesi East-1, will be drilled approximately 10 kilometers (6 miles) southeast of the Sapakara discovery well.

“While the 2020 outlook for the global economy and the oil and gas industry, specifically, is uncertain, we have made great strides in this environment to reduce our cost structure, protect our balance sheet, and manage our operations to preserve cash flow. Our teams have done an exceptional job implementing our organization redesign, responding to the recent changes in activity levels and operational protocols, and are delivering very good results in both our exploration and development programs. When market conditions improve, I am confident we will successfully leverage Apache’s diversified portfolio to differentiate our long-term value proposition for shareholders,” concluded Christmann.


Permian Basin Drilling Activity By Operator

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