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Freeze-Offs, Sales Ding Apache Profits, Output

Super independent Apache Corp.'s decision to cast off Gulf of Mexico (GOM) producing properties and multiple onshore and overseas assets, combined with freeze-offs in North America's onshore, led to missed profit expectations and lower production in the fourth quarter, the Houston-based producer said Thursday.

The slim down sharply cut into end-of-year numbers, CEO G. Steven Farris told analysts during a conference call. However, those losses should reverse as Apache keeps its capital spending flowing to the Permian and Anadarko basins, he said.

Production from those two areas alone accounted for one-third of total global output in 4Q2013. Production averaged 688,000 boe/d in the quarter, well below the year-ago output of 800,005 boe/d. However, the U.S. production would have been higher had it not been for the severe winter conditions in late November through December, which reduced production in Oklahoma, Texas and New Mexico.

To demonstrate how important North American production is to Apache's bottom line, Farris said total production from the Permian and Central regions increased 32,000 b/d in 4Q2013, with total production of 227,000 boe/d nearly one-third of total output. Apache’s Permian and Central Region leasehold is led by 850,000 net acres on the Central Basin Platform and more than 500,000 net acres each in the Marmaton, Cline Shale and Midland Basin.

The Permian alone achieved record output that averaged 134,000 boe/d, 13% higher than in 4Q2012. Forty-three rigs were operating in the Permian at the end of the year, with 242 wells spud, including 83 horizontals. Apache also completed 289 gross (235 net) wells during the period. Permian organic drilling replaced 323% of production, with proved reserves nearly 14% higher to 910 million boe.

The Central region replaced 195% of production and also increased proved reserves nearly 14% to 304 million boe. The Central region, which includes the Anadarko Basin, averaged production in the final period of 93,000 boe/d, 18% more than the prior year, with liquids output 57% higher. The region averaged 25 rigs; 66 gross (51 net) wells were drilled.

However, the asset sales and rough weather dug into the bottom line, with quarterly net profits falling to $174 million (43 cents/share) from $649 million ($1.64). Adjusting for sales, earnings were $631 million ($1.57/share). Revenues plunged from a year ago by 19% to $3.57 billion. Quarterly operating cash was $2.5 billion net, up from $2.1 billion For the year, Apache's adjusted earnings were $2.2 billion ($5.50/share) on cash from operations at $9.8 billion, versus 2012's $10.8 billion.

Farris pivoted to what Apache accomplished production-wise, asset sales and winter conditions aside.

Onshore North American liquids production increased by 45,600 b/d last year -- a 34% gain from 2012. Almost 140% of 2013 production was organic, the CEO said. North America is more "predictable," Farris said.

The operator launched a plan last May to sell at least $4 billion in assets, which it well exceeded by the end of the year with nearly $7 billion sold (see Daily GPI, May 10, 2013). Besides the huge Shelf position, Apache also sold properties in Egypt and Canada (see Daily GPI, Sept. 19, 2013; Sept. 3, 2013; July 19, 2013).

On Wednesday Argentina's state-controlled YPF agreed to pay $823 million for Apache's assets in that country, to be noted in the 1Q2014 report. "The sale of our Argentina operations...continues our decisive strategic steps in 2013," said Farris.

Apache's mix of hydrocarbons production in 4Q2013 included 45% natural gas, 46% crude oil and 9% natural gas liquids. Oil and liquids contributed 83% of revenue during the period. Realized gas prices averaged $3.71/Mcf in the period, down from $4.14 in the year-ago period. Oil prices averaged $100.59/bbl from $98.93.

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