The permitting delays in the Gulf of Mexico (GOM) haven’t been a positive for most producers but for Apache Corp., they’ve actually been a benefit, CEO G. Steven Farris said Thursday.

Farris and his management team discussed the company’s third quarter earnings during a conference call with energy analysts. The company reported record 3Q2011 natural gas and oil output from its worldwide operations but there’s plenty more to come, the CEO explained. Among projects high on the to-do list are some in the deepwater, where activity is escalating.

Apache in early 2010 purchased most of Devon Energy Corp.’s oil and gas assets in the shallow waters of the GOM and completed the deal shortly after the drilling moratorium was imposed in the deepwater, which delayed operations basin-wide (see Daily GPI, June 11, 2010). But the suspension proved to be opportune for Apache, Farris explained.

Over the past few months the company has been able to study the portfolio it acquired. Before the Devon deal, Apache, which also has a deepwater portfolio, already was one of the GOM’s largest held-by-production acreage owners and the second-largest producer in waters less than 1,200 feet deep. The Devon assets acquired cover 477,000 net acres across 158 blocks, with 80 platforms and 211 production caissons in waters up to 450 feet deep. The downtime gave Apache the edge to assimilate operations and has been all to the good, Farris said.

“We’ve secured an exploration permit for the deepwater and we’re in the process of securing a rig,” Farris said. Costs have begun to rise in the U.S. offshore, but that’s no surprise, he said, considering that many of the rigs and the workers were displaced following the Macondo blowout in April 2010.

“All of these things are connected to everything else” Farris told analysts. “As we see increasing activity we’ll see increasing costs and increasing terms.” However, higher costs won’t stop Apache from moving forward.

“We’re going to be active in the deepwater. It’s not in the plans right now in hard numbers because we’re still trying to understand what’s going on with permitting, etc. Over time, it will be important from an exploration standpoint, from a production standpoint.” The moratorium “has been a benefit to us. We’re learning something. We are saddled up with good operators and we’re very comfortable with where we are.”

On the strength of its liquids output, Apache churned out record production in 3Q2011, with natural gas output up 11% worldwide and oil up 7%. The company reported 3Q2011 production of 752,000 boe/d, well above the year-ago output of 667,000 boe/d.

Apache earned $983 million ($2.50/share) in the quarter, up from $765 million ($212) in 3Q2010. Revenues jumped 41% year/year to $4.3 billion from $3 billion. Cash from operations totaled $2.7 billion, up 35% from the prior year’s $2 billion.

“We had excellent drilling results,” said Farris. “As the market fluctuates, the robustness of our balance is a key strength of the company.” He said Apache would “continue to emphasize our core business, which is ringing value out of our operations…and in the future will provide a steady cash stream for decades to come.”

The CEO said Apache had “always been an exploration company,” and results in the latest quarter had proved that it still was. “We’re building a serious exploration business in the Gulf of Mexico. We now have 110 exploration blocks, and we now are the largest acreage holder in the Cook Inlet of Alaska…” The company has moved into the deepwater of Kenya and added an unconventional oil play in New Zealand.

“There’s nothing new to any of this. We add a new core area every couple of years over time and we intend to continue to do that…and squeeze value out of the assets.”

In North America, where it makes the bulk of its capital investments, Apache is continuing to drill from an “extensive, multiyear inventory of drillable locations we have developed in the Permian, Central, Gulf of Mexico and Canadian regions,” said Farris. “Domestically, the recent focus has obviously been on higher-margin oil and liquids-rich opportunities. This operational flexibility is a competitive advantage of Apache’s portfolio model.”

High on the proposal grid are two liquefied natural gas (LNG) projects being developed on opposite ends of the Pacific Ocean. The Apache-operated Kitimat project in British Columbia, in which it holds a 40% stake and partners with Encana Corp. (30%) and the Canadian arm of EOG Resources Inc. (30%), has received federal approval and should receive a final investment decision by the first half of 2012, Farris said.

And in Australia, the Chevron Corp.-operated Wheatstone LNG was sanctioned in September; Chevron holds a 73.6% stake in the massive development, while Apache (13%), a unit of Royal Dutch Shell plc (6.4%) and Kuwait Foreign Petroleum Exploration Co. (7%) are partners. The project is scheduled to ramp up in 2016 with production of up to 160 MMcf/d.

Liquid hydrocarbons represented half of Apache’s output and more than three-quarters of revenues in the latest quarter. The company said it benefited from higher oil prices for both its international production indexed to Brent benchmarks and sweet crudes from the Gulf of Mexico, “which continue to receive a meaningful premium per barrel compared with production benchmarked to West Texas Intermediate prices.”

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