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Apache Tops on Higher Volumes
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ShareEnergy firm Apache Corp. (APA - Analyst Report) reported better-then-expected second-quarter results, driven by increased volumes, particularly in its Australian and Egyptian operations. Earnings per share, excluding one-time items, came in at $2.44, ahead of the Zacks Consensus Estimate of $2.33 and the year-ago adjusted profit of $1.41. Revenue was up 42.0% year over year to $3.0 billion and in the process surpassed the Zacks Consensus Estimate of $2.8 billion.
The company’s 4.7% positive surprise comes as welcome news following last quarter’s disappointment, where Apache missed the Zacks Consensus Estimate by 5.8%.
Operational Performance
The production of oil and natural gas averaged 646,866 oil-equivalent barrels per day (BOE/d) (54% liquids), up approximately 10.1% year over year. Oil and natural gas liquids (NGLs) production was up roughly 19.1% to 348,272 barrels per day (Bbl/d), while natural gas production increased approximately 1.2% year over year to 1,791.6 million cubic feet per day (MMcf/d).
Apache’s upstream growth momentum continues organically as well as through acquisition. The reported quarter production increase was on the back of a full quarter of contribution from two Australian fields (Van Gogh and Pyrenees), as well as higher output from the Faghur Basin in Egypt's Western Desert .
The average realized crude oil price during the June quarter was $74.89 per barrel, representing an increase of 28.8% from the corresponding period of the previous year. The average realized natural gas price during the second quarter of 2010 was $4.01 per thousand cubic feet (Mcf), up 15.2% from the year-ago period.
Lease operating expenses totaled $445.9 million, up 10.0% from the $405.3 reported in the year-ago quarter.
Balance Sheet
As of June 30, 2010, Apache had approximately $1.8 billion in cash. The company had a long-term debt of $4.9 billion, representing debt-to-capitalization ratio of 21.7%.
BP Asset Acquisition
In a separate announcement, Apache informed that it has agreed to buy several assets in the Permian Basin (of West Texas), Canada, and Egypt from beleaguered oil giant BP Plc (BP - Analyst Report) for $7 billion. The company also said that it expects the Mariner Energy (ME) deal to close in the third quarter.
Stock Offering
Apache outlined plans to offer 21 million shares of its common stock and $1.1 billion in mandatory convertible preferred stock consisting of 22 million depositary shares in order to raise funds.
Shares Down After Market
Apache’s earnings beat was overshadowed by the BP asset acquisition announcement and its plans to issue $2 billion worth of stock to finance the deal. As a result, the company’s share price took a hit and was down more than 2% in after hours trading.
Our Recommendation
Apache is currently rated as Zacks #3 Rank (Hold), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our Neutral recommendation, which implies that Apache shares are expected to perform in line with the overall U.S. equity market over the next six to twelve months. Therefore, we advise investors to retain the stock over this time period.
Read the full analyst report on APA
Read the full analyst report on BP
Read the full analyst report on ME
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