Apache Corp. reported a 5% decline in quarterly profit Thursday, but the Houston-based independent showed gains on natural gas price realizations and an healthy increase in U.S. and Canadian gas production.

Profit dropped to $612 million ($1.83/share) in 3Q2007 from $646 million ($1.94) in 3Q2006. Excluding a 34 cent charge for currency changes on deferred taxes, Apache would have earned $2.17/share compared with $1.77/share a year ago. Thomson First Call had pegged earnings to average around $1.96/share. Cash from operations reached a record $1.6 billion, up 25% from a year ago, and revenue from oil and gas production jumped to $2.50 billion from $2.07 billion, lifted by a 9% increase in average daily production to 561,412 boe/d.

CEO G. Steven Farris, who presided over a conference call with analysts, said the results "demonstrated the value of our uniquely balanced portfolio. With world oil prices strengthening and North American gas prices declining from the second quarter to the third, Apache's liquid hydrocarbon production -- about half of our volumes -- accounted for two-thirds of our revenue."

Apache received $70.43/bbl oil in the quarter, up 10% from the prior-year period and the second quarter. Overall, the independent received $4.99/Mcf for gas, up 3% from the year-earlier period but down 9% sequentially from 2Q2007. In the United States, Apache received $6.59/Mcf, ahead of the $6.27 it received a year ago. And in Canada, gas went for $5.54/Mcf, also above the $5.38 it received in 3Q2006.

On the production side, Apache's worldwide output grew 9% year-over-year to total 561,412 boe/d. U.S. gas production jumped to 763,693 Mcf/d from 719,324 Mcf/d a year ago. However, Canada's gas output dropped to 386,659 Mcf/d from 422,397 Mcf/d -- and Farris warned that it could be lower in the coming year depending on the outcome of the proposal to raise royalties on oil and gas production in Alberta (see related story).

"The proposed royalty increase in Alberta as currently formulated would have a negative impact on our 2008 development drilling program in that province," Farris told analysts. However, Alberta aside, Farris said Apache is keen on its holdings in British Columbia, a play in which Apache now controls about 400,000 acres (200,000 net).

"We plan to test the economic viability of this play [in British Columbia] in earnest during our winter drilling campaign," he said. Overall, Apache remains "on track to achieve the top end of our targeted range of 9-12% production growth in 2007. We expect a strong finish to the year in every financial and operational aspect."

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