The headline number is impressive:
Apache (NYSE: APA) surpasses 600,000 barrels
per day of average production in the third quarter. Digging
further into the financial report, it's clear that not
everything went Apache's way during the period, but I think
there's plenty to be pleased with here.
Namely, Apache's cash margins have held up very well
during the downturn. Last year, they pushed well north of
70%. This quarter, margins came in at a still-attractive 65%.
That's quite close to what
Range Resources (NYSE: RRC), a low-cost
leader, achieved this quarter. This achievement by Apache is
all the more impressive considering the firm's unfavorable
hedge position.
I said not everything went Apache's way this quarter. The
firm's hedge book did it no favors at all. Both oil and gas
price realizations were brought
downversus what they would have been without
hedging. This was most pronounced on the gas side, in which
Apache's company-wide realization was $3.19 per thousand
cubic feet (mcf). That's less than half what well-hedged
Cabot Oil & Gas (NYSE: COG) got for its
gas!
Hedges are supposed cushion your revenues during commodity
crashes. How'd you botch this one so badly, Apache? Maybe you
need to poach someone from
XTO Energy (NYSE: XTO) to run your hedge
book. Then again, with only 12% of oil volumes and 8% of gas
volumes hedged in the quarter, I guess better hedging
wouldn't have made that big of a difference.
Hedges aside, rising oil prices are definitely making a
strong impact on Apache's results. Liquid hydrocarbons made
up 49% of production during the period, and average realized
prices rose 12% from
last quarter, when we pointed out Apache's beautiful
balance compared to peers like
Anadarko Petroleum (NYSE: APC) and
EOG Resources (NYSE: EOG). Apache has some
nice oil projects coming online in Australia next year, with
partners
Inpex and
BHP Billiton (NYSE: BHP). Those will add
another 40,000 barrels or so of daily production to the
mix.
Apache remains one of my go-to independents. Keep this one
high up on your watch list in case oil gets a haircut in the
months ahead.
This article was originally published as
Apache Pumps Up the Productionon
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