Quarterly / Earnings Reports | Second Quarter (2Q) Update

Apache Talks Q2 Activity, Exit from MidCon Region; Reaffirms Capex for 2019

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   |    Wednesday,July 31,2019

Apache Corp. announced its financial and operational results for the second quarter of 2019.

Highlights:

• Reported second-quarter production of 455,000 barrels of oil equivalent (BOE) per day. Adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 396,000 BOE per day, exceeding guidance of 392,000 BOE per day; 
• Achieved U.S. production of 264,000 BOE per day, which was reduced by approximately 4,000 BOE per day as a result of asset sales during the quarter; International adjusted production was 132,000 BOE per day, in-line with guidance;
• Invested $589 million in upstream capital, 13 percent below capital guidance midpoint, remain on track for $2.4 billion for the year; 
• Commissioned first cryogenic processing facility at Alpine High in partnership with Altus Midstream during the quarter and second facility in July, both of which were on budget and schedule; and
• Closed on the sale of midcontinent assets in two separate transactions in May and July, comprising approximately $560 million of cash proceeds, after customary closing adjustments. $150 million of proceeds were used to retire debt in early July.

Apache reported a quarterly loss of $360 million or $0.96 per diluted common share for the second quarter of 2019. These results include a number of items outside of core earnings that are typically excluded by the investment community in their published earnings estimates. When adjusted for items that impact the comparability of results, Apache’s second-quarter earnings were $41 million or $0.11 per share. Net cash provided by operating activities in the quarter was $856 million. Adjusted EBITDAX was $994 million.

John J. Christmann IV, Apache's chief executive officer and president, said: “Apache has demonstrated capital discipline, refined our portfolio with the sale of the midcontinent assets, utilized asset sale proceeds to reduce debt, and successfully commissioned our first cryogenic processing facilities at Alpine High. We also delivered strong cash flow as our leverage to WTI and Brent oil prices offset the impact of very weak natural gas and natural gas liquids prices.

“We responded quickly to weak Waha and El Paso Permian gas prices and deferred production at Alpine High. While total Permian production volumes were strong, oil volumes trailed guidance due to timing delays bringing wells online during the quarter. We will catch up in the second half of 2019 and exit the year with oil production on plan and with strong momentum heading into 2020. 

“We have balanced our quarterly investment pace, and through June 30, have invested slightly less than half of our 2019 upstream capital budget. For the full year, we anticipate spending at or below our $2.4 billion budget,” continued Christmann. 

Second-quarter operational summary     

Highlights from the company’s three principal areas include:

Permian – Production averaged 226,000 BOE per day during the quarter. Apache operated an average of 12 rigs and drilled and completed 54 gross-operated wells. 

• Midland Basin – During the quarter, the company averaged four rigs and placed 20 wells on production. A 30-day delay in the commissioning of a new electric-powered frac fleet delayed production from nine wells during the quarter.
   
• Delaware Basin – Outside of Alpine High in the Delaware Basin, Apache averaged three rigs and placed nine wells on production during the quarter. 
  
  At Alpine High, the company averaged five rigs and two frac crews and placed 26 wells on production. Approximately half of these wells came online late in the quarter and were still in the early clean-up phase as of June 30. 
  
  Production at Alpine High during the quarter was 49,000 BOE per day. As previously announced, Apache initiated the deferral of certain natural gas production volumes near the end of the first quarter in response to severe Waha Hub gas price weakness. The impact of these deferrals during the second quarter was approximately 22,000 BOE per day. In the third quarter, the company is continuing to defer a similar amount of lean and rich-gas volumes in response to ongoing price weakness until the GCX pipeline comes online.
  
  Apache continues to deliver cost reductions in the play with average drilling and completion costs per foot down 26 percent and 41 percent, respectively, from 2017 through the end of the second quarter. 

Egypt – Apache averaged seven rigs during the quarter and drilled and completed 11 gross-operated wells. Adjusted production in Egypt, which excludes noncontrolling interest and the impact of tax barrels, averaged 72,000 BOE per day. During the quarter, the company made a discovery in the Lower Bahariya on a new concession area and has identified numerous additional low-cost, short-cycle drilling locations in the immediate vicinity. 

North Sea – Apache averaged three rigs during the quarter and produced 60,000 BOE per day. During the second quarter, the company completed a farm-out agreement in a portion of the Beryl area to enable the continuation of tertiary exploration while preserving capital.

Asset sales and use of proceeds

In May and July, Apache closed the sale of noncore assets in two previously disclosed transactions, comprising approximately $560 million of net proceeds. The asset sales reflect the company’s exit from the Western Anadarko Basin and the SCOOP/STACK play.  A portion of the proceeds from these asset sales was used to retire $150 million of debt that matured in early July.

Capital and production outlook 

Upstream oil and gas investment was $589 million in the second quarter. Apache is reiterating its full-year capital investment guidance of $2.4 billion. 
  
Apache is revising its production guidance for the second half of 2019 in the Permian Basin to reflect the delays experienced in the Midland/Delaware Basins, as well as continuing gas production deferrals at Alpine High in response to ongoing weak Waha gas prices. 

For Permian Basin oil, Apache expects third-quarter production to be 94,000 to 98,000 BOE per day and fourth-quarter production to be 100,000 to 105,000 BOE per day. 

At Alpine High, Apache expects third-quarter production to be between 70,000 to 75,000 BOE per day, which includes the impact of planned production deferrals. Fourth-quarter Alpine High production guidance of greater than 100,000 BOE per day is unchanged from prior guidance. This assumes that all deferred gas production is returned to sales by the beginning of October in conjunction with the GCX pipeline startup. 

Internationally, the company expects third and fourth quarter volumes will be in-line with prior guidance.

“Our objectives for the second half of 2019 include managing capital investment to a level at or below our full-year budget of $2.4 billion, increasing Permian Basin oil well completions and oil production, continuing to drive capital and operating efficiencies into our business, and enhancing our opportunity set through high-impact exploration initiatives in Suriname and the Lower 48,” concluded Christmann.