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Apache Q2 Earnings In Line, Pulling Out of LNG

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U.S. energy firm Apache Corp. (APA - Free Report) reported in-line second quarter earnings amid strong North American liquids production growth and higher commodity prices. Earnings per share – excluding one-time items – came in at $1.67, same as the Zacks Consensus Estimate.

However, Apache’s performance deteriorated from the year-ago adjusted profit of $2.04 per share, reflecting asset sales.

Revenues of $3,484 million were down 18.4% from the year-ago quarter and were also lower than the Zacks Consensus Estimate of $3,557 million.

Importantly, Apache outlined plans to get out of some LNG projects following pressure from activist investor Jana Partners. Following the in-line earnings and asset sale update, shares of Apache climbed more than 2% during the early hours of regular trading.

Operational Performance

The production of oil and natural gas (excluding divested assets) averaged 550,356 oil-equivalent barrels per day (BOE/d) (60% liquids), up approximately 4% year over year. Apache’s production for oil and natural gas liquids (NGLs) was up roughly 6.8% at 330,561 barrels per day (Bbl/d), while natural gas production of 1,318.8 million cubic feet per day (MMcf/d) was essentially flat from the second quarter 2013 level.

The average realized crude oil price during the second quarter was $103.53 per barrel, representing an increase of 5.1% from the year-ago realization of $98.47. Moreover, the average realized natural gas price during the June quarter of 2014 was $4.18 per thousand cubic feet (Mcf), up 5.3% from the year-ago period.

Apache’s lease operating expenses totaled $613 million, down 21.5% from $781 million in the year-ago quarter.

Balance Sheet & Capital Spending

As of Jun 30, 2014, Apache had approximately $524 million in cash and cash equivalents. The company had a long-term debt of $9,674 million, representing a debt-to-capitalization ratio of 22.8%.

During the three months ended June 30, 2014, Apache’s exploration and development investments (excluding acquisitions) totaled $2,554 million.

Asset Sale Update

Pressured by activist hedge fund Jana Partners LLC, Apache informed that it plans to exit from two major natural gas projects in Australia and Canada. The company emphasized that it is focused on rebalancing its portfolio, targeting predictable and profit-oriented production growth in North America.

As part of this initiative, Apache is evaluating its overseas assets, with a potential sale not ruled out. Last month, the company completed the sale of its interests in deepwater Gulf of Mexico projects to mineral explorer Freeport-McMoRan Copper & Gold Inc.’s (FCX - Free Report) oil and gas subsidiary for $1.4 billion.  

Zacks Rank & Stock Picks

Apache currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at Jones Energy Inc. (JONE - Free Report) and Newfield Exploration Co. (NFX - Free Report) as good buying opportunities. These U.S. upstream energy operators – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from current levels.

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