Apache Corp.'s conservative spending strategy and solid credit rating proved a powerful tonic as the financial markets began to panic, CEO G. Steven Farris said last week.
"The frenzied boom time is coming to a halt," he told financial analysts during a quarterly earnings conference call. "Now we have the opportunity to turn to long-term value."
Strong crude and natural gas prices fueled a 94% jump in Apache's quarterly earnings from a year ago. The independent's net income topped $1.2 billion ($3.52/share) for 3Q2008, compared with $612 million ($1.83) in 3Q2007. Cash from operations -- prior to changes in operating assets and liabilities -- totaled $2.1 billion, compared with $1.6 billion in the prior-year period.
Like almost every other producer, Apache continues to chase more oil and natural gas. Worldwide, quarterly output fell 9% from a year ago; it was down 7% sequentially from 2Q2008. The decline, said Farris, followed shut-ins related to hurricanes Gustav and Ike, which stormed through the Gulf of Mexico (GOM) in September, and from continued shut-ins following a June 3 explosion at a gas processing and transportation hub at Varanus Island in Australia.
Still, Apache expects to restore most of its lost output by year end, which will set the stage for higher production from existing and emerging fields. It's too early to forecast how much Apache might produce in the coming year, but Farris said he's optimistic it will be more than in 2008.
"It all depends on the level of capital spending for the year, and that planning has just begun," he said when asked about how much the company is forecasting it will produce in the coming year. Apache earlier this month said it expected to grow output by as little as 6% and as much as 14% in 2009.
"Frankly, until we get closer to 2009, there's no sense in setting a capital number at this time," said the CEO. Long term, however, he said more will have to be spent in the upstream regardless "because the world needs the energy. I think, if you back up a little bit, we don't make widgets. The opportunities ahead of us have never been greater. Despite the recent downturn, the world still needs energy and ever-increasing quantities of [natural] gas."
Apache has "an abundant inventory of drillable prospects across 36 million acres," but "we intend to continue to live within our means. Our major development projects are critical to Apache's future growth -- and we intend to fund them -- but we will adjust other capital spending to a level that does not exceed operating cash flow."
Several projects should positively impact Apache's 2009 production, said Farris. Two new gas processing trains are expected to ramp up in Egypt by year end, which would boost net output by about 100 MMcf/d of gas and 5,000 b/d of condensate. The Van Gogh field in Australia could contribute a net 20,000 b/d of oil by mid-2009.
In the GOM, the Geauxpher field is slated to start up in the first three months at a net rate of around 50 MMcf/d. Also on the horizon is the emerging Ootla gas shale play in British Columbia, which is producing around 25 MMcf/d. "We will increase that significantly," said the CEO.
Acquisitions also are a possibility, said Farris.
"We've stayed out of the asset market for some time now, and the recent spike [in prices] made good deals hard to find," he explained. "Things are clearly challenging now, but we look at the asset opportunities collectively. There are a lot of opportunities in our portfolio, and if we only look at ones to advance our portfolio, that would be longer-term value for our shareholders."
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