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| APA > SEC Filings for APA > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Pre-tax Margins
For the Quarter Ended September 30,
2008 2007
(In thousands, except margin)
Income before Income Taxes $ 1,813,354 $ 1,174,078
Barrels of oil equivalent produced 46,982 51,650
Pre-tax margin per boe produced $ 38.60 $ 22.73
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Year-to-Date 2008 compared to Year-to-Date 2007 Apache earned a record $3.7 billion, or $10.84 per diluted common share, for the nine-month period ending September 30, 2008, more than double the $1.7 billion, or $5.19 per share, earned in the same period last year. Cash flow from operating activities totaled $6.0 billion for the nine-month period, compared to $3.9 billion last year, an increase of 55 percent. The 2008 period effective tax rate and earnings were impacted by a $127 million non-cash tax benefit, primarily on deferred taxes, related to the strengthening U.S. dollar. The 2007 period effective tax rate and earnings were impacted by a $182 million non-cash deferred tax charge related to the weakening U.S. dollar, partially offset by a $17 million Canadian tax rate reduction benefit.
The Company generated $10.5 billion of oil and gas production revenues, surpassing 2007 full-year revenues and 50 percent higher than the 2007 nine-month period. Crude oil realizations averaged $100.17 a barrel, 57 percent above 2007 year-to-date prices, while natural gas realizations averaged $7.30 per Mcf, up 39 percent. Apache's pre-tax margin for the period was nearly double the 2007 period margin. For a more detailed discussion of our revenue and cost components, please refer to Results of Operations in this Item 2.
Pre-tax Margins
For the Nine Months Ended
September 30,
2008 2007
(In thousands, except margin)
Income before Income Taxes $ 5,833,110 $ 3,126,965
Barrels of oil equivalent produced 147,922 151,985
Pre-tax margin per boe produced $ 39.43 $ 20.57
Third Quarter 2008 Operating Highlights
U.S. Gulf Coast
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Egypt
During the third quarter, several notable wells were drilled in Egypt. The
East Bahariya and East Beni Suef concession wells tested at 1,145 b/d and 930
b/d, respectively. These two discoveries potentially add to our inventory of
water-flood projects. In the Khalda Offset concession, a gas-condensate wildcat
discovery tested 11 MMcf/d of gas and 5,027 b/d of condensate. The Heqet-2 well,
located in the Greater Khalda area of Egypt's Western Desert, tested 2,100 b/d
from a previously untested Jurassic Safa formation at a depth of 14,430-14,450
feet. We also announced that the Umbarka-174 well tested 4,300 b/d in the main
Alem el Bueib (AEB) field in the north central portion of the Greater Khalda
area.
Subsequent to the end of the third quarter, we announced the WKAL-C-1X
discovery on the West Kalabsha concession. The well tested 4,746 b/d and 4.4
MMcf/d of gas in the Jurassic Safa formation. The WKAL-C-1X discovery had
similar characteristics to the Heqet-2 well and represents the westernmost oil
ever discovered in Egypt, confirming our exploration model for this area of the
Faghur Basin.
Australia
Varanus Island - On June 3, 2008, subsidiaries of the Company reported a gas
pipeline explosion and fire at the Varanus Island gas processing and
transportation hub offshore Western Australia, which shut-in production at the
John Brookes field and Harriet Joint Venture. The Island's operations account
for approximately 195 million cubic feet (MMcf) of natural gas and 5,400 barrels
of oil per day (net to Apache subsidiaries). On August 5, 2008, partial
production was reestablished from the John Brookes field. By the end of the
quarter, the field was producing at the full capacity of the John Brookes
facility. Production from the Harriet Joint Venture remains shut-in, awaiting
facility repairs. The John Brookes field accounted for approximately 60 percent
and 25 percent of the island's pre-incident natural gas and oil production,
respectively. Production from the Harriet Joint Venture, which accounted for the
remaining 40 percent and 75 percent of the island's pre-incident natural gas and
oil production, respectively, is currently projected to be restored in the
fourth quarter. The Harriet Joint Venture facilities are located adjacent to the
pipeline explosion and will require significant repairs to restore production.
Company subsidiaries operate the facilities and own a 68.5 percent interest in
the Harriet Joint Venture and a 55 percent interest in the John Brookes field.
Company subsidiaries maintain replacement cost insurance, subject to a
deductible of approximately $7 million, with adequate limits to cover fully
their share of the estimated cost of restoring the Varanus Island facilities.
Drilling Results - During the third quarter of 2008, four wells reached total
depth. Three of the wells found commercial quantities of hydrocarbons. The Lee-4
intersected four pay zones in the North Rankin, Brigadier, Mungaroo "A" and
Mungaroo "B" formations and is currently being completed as a future gas
producer. The Simpson-9 and Simpson-10 oil wells have been perforated and are
waiting on repairs to the Harriet Joint Venture facilities to commence
production.
North Sea
Drilling successes and improved platform operating efficiencies enabled the
region's third-quarter 2008 production to reach 61,305 boe per day, the region's
best daily production average since the second quarter of 2006.
Argentina
We completed our 2,500 square kilometer three dimensional seismic shoot in
the Tierra del Fuego province and have identified over 100 potential features to
drill in the future.
Chile
During the third quarter of 2008, we commenced a seismic program on the two
exploration blocks we acquired early in the second quarter of 2008.
Results of Operations
Revenues
For the Quarter Ended September 30, For the Nine Months Ended September 30,
2008 2007 2008 2007
Revenues (in
thousands):
Oil $ 2,253,270 67 % $ 1,627,467 65 % $ 6,979,894 67 % $ 4,261,017 61 %
Natural gas 1,057,040 31 % 819,351 33 % 3,290,342 31 % 2,568,847 37 %
Natural gas
liquids 58,572 2 % 51,776 2 % 180,713 2 % 135,828 2 %
Total $ 3,368,882 100 % $ 2,498,594 100 % $ 10,450,949 100 % $ 6,965,692 100 %
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Effect of cash flow hedges included in oil and gas revenues were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
(In millions)
Increase (decrease) in crude oil
revenues $ (168 ) $ (40 ) $ (472 ) $ (30 )
Increase (decrease) in natural gas
revenues (19 ) 35 (29 ) 42
Total increase (decrease) in oil and gas
revenues $ (187 ) $ (5 ) $ (501 ) $ 12
Percentage of oil and gas revenues 5 % * 5 % *
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* Less than one percent
Production and Pricing
The table below presents oil and gas production revenues, production and
average prices realized from sales of natural gas, oil and natural gas liquids.
For the Quarter Ended September 30, For the Nine Months Ended September 30,
Increase Increase
2008 2007 (Decrease) 2008 2007 (Decrease)
Oil Volume - Barrels per day:
United States 80,284 97,025 (17.25 )% 93,622 87,660 6.80 %
Canada 16,655 18,451 (9.73 )% 17,247 18,838 (8.45 )%
Egypt 64,803 60,395 7.30 % 64,082 60,219 6.41 %
Australia 7,083 14,685 (51.77 )% 8,286 14,308 (42.09 )%
North Sea 60,856 48,888 24.48 % 58,740 52,572 11.73 %
Argentina 12,729 11,708 8.72 % 12,342 11,266 9.55 %
Total (1) 242,410 251,152 (3.48 )% 254,319 244,863 3.86 %
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Average Oil price - Per barrel:
United States $ 93.69 $ 67.70 38.39 % $ 91.48 $ 61.75 48.15 % Canada 111.81 73.95 51.20 % 108.10 63.74 69.60 % Egypt 105.60 74.04 42.63 % 110.01 66.50 65.43 % Australia 99.66 76.65 30.02 % 111.86 73.30 52.61 % North Sea 113.56 73.18 55.18 % 110.08 65.21 68.81 % Argentina 50.95 49.70 2.52 % 48.76 45.52 7.12 % Total (2) 101.04 70.43 43.46 % 100.17 63.74 57.15 % Natural Gas Volume - Mcf per day: United States 635,891 763,693 (16.73 )% 712,529 768,520 (7.29 )% Canada 349,000 386,659 (9.74 )% 355,834 386,312 (7.89 )% Egypt 287,231 241,919 18.73 % 254,786 239,951 6.18 % Australia 54,726 194,520 (71.87 )% 124,888 195,242 (36.03 )% North Sea 2,697 1,721 56.71 % 2,604 1,851 40.68 % Argentina 217,091 196,168 10.67 % 193,257 203,524 (5.04 )% Total (3) 1,546,636 1,784,680 (13.34 )% 1,643,898 1,795,400 (8.44 )% Average Natural Gas price - Per Mcf: United States $ 9.96 $ 6.59 51.14 % $ 9.64 $ 6.95 38.71 % Canada 8.70 5.54 57.04 % 8.63 6.25 38.08 % Egypt 5.62 4.72 19.07 % 5.68 4.42 28.51 % Australia 2.36 1.93 22.28 % 2.18 1.83 19.13 % North Sea 27.17 16.98 60.01 % 21.88 12.80 70.94 % Argentina 1.41 0.93 51.61 % 1.53 1.03 48.54 % Total (4) 7.43 4.99 48.70 % 7.30 5.24 39.31 % Natural Gas Liquids (NGL) Volume - Barrels per day: United States 5,450 7,766 (29.82 )% 6,636 7,677 (13.56 )% Canada 2,034 2,253 (9.72 )% 2,046 2,199 (6.96 )% Argentina 3,005 2,794 7.55 % 2,877 2,749 4.66 % Total 10,489 12,813 (18.14 )% 11,559 12,625 (8.44 )% Average NGL Price - Per barrel: United States $ 72.82 $ 47.18 54.35 % $ 64.49 $ 41.64 54.88 % Canada 63.77 40.39 57.89 % 58.62 37.05 58.22 % Argentina 36.63 37.74 (2.94 )% 38.81 35.07 10.66 % Total 60.70 43.92 38.21 % 57.06 39.41 44.79 % |
(1) Approximately 20 percent and 19 percent of oil production was subject to financial derivative hedges for the third quarter and nine-month period of 2008, respectively; 20 percent and 18 percent for the 2007 third quarter and nine-month period, respectively.
(2) Reflects a per barrel reduction of $7.54 and $6.77 for the 2008 third quarter and nine-month period, respectively; a decrease of $1.71 and $.44 for the 2007 third quarter and nine-month period, respectively.
(3) Approximately 22 percent and 20 percent of natural gas production was subject to financial derivative hedges for the third quarter and nine-month period of 2008, respectively; 20 percent and 18 percent for the 2007 third quarter and nine-month period, respectively.
(4) Reflects a per Mcf reduction of $.13 and $.06 for the 2008 third quarter and nine-month period, respectively, an increase of $.21 and $.09 the 2007 third quarter and nine-month period, respectively.
Third Quarter 2008 compared to Third Quarter 2007
Crude Oil Revenues Third-quarter 2008 crude oil revenues increased
$626 million on a 43 percent increase in average realized price. Production was
three percent lower.
U.S. oil revenues were $88 million higher, driven by a 38 percent increase in
realized crude oil prices. Revenue growth was restricted by the 17,900 b/d of
estimated production shut-in from tropical storm and hurricane activity in the
Gulf Coast region. Gulf Coast region production was 28 percent lower on a
comparable basis, but would have been up three percent absent storm-related
downtime. Production gains in the Gulf Coast region from drilling and
recompletion activities were largely offset by natural decline and non-hurricane
downtime. Central region production was down two percent following property
divestitures.
Egyptian crude oil revenues increased $218 million on a 43 percent increase
in price realizations and a seven percent increase in production. Price
realizations averaged $105.60 per barrel, up $31.56 from 2007. Oil production in
Egypt increased 4,408 b/d as new discoveries and recompletion and workover
activities combined to more than offset the impact that higher commodity prices
have on cost recovery volumes. Production gains were made in several
concessions, most notably from new wells in East Baharyia, Matruh and Umbarka,
and successful recompletions in Matruh and El Diyur.
North Sea crude oil revenues rose $307 million, nearly double last year's
third-quarter amount. Production was 24 percent higher primarily because of
timing of annual maintenance and successful drilling and workover programs. Oil
realizations increased 55 percent, averaging $113.56 per barrel.
Canadian oil revenues rose $46 million on a 51 percent increase in price
realizations. Prices increased $37.86 to $111.81 per barrel. Production was down
10 percent on natural decline and property divestitures, which more than offset
gains from drilling and recompletion activities.
Argentina's crude oil revenues increased 11 percent, or $6 million from last
year, on a nine percent increase in production and a three percent increase in
realized prices. New wells in Tierra del Fuego area and successful recompletions
in the El Santigueño field drove production gains. Price restrictions in
Argentina limited oil price realizations and our ability to sell production at
prevailing world prices.
Australian oil revenues fell $39 million compared to the third quarter of
2007, primarily because production was 52 percent lower than the prior-year
quarter. Output was severely impacted by the June 3, 2008, pipeline explosion
and fire at Varanus Island which shut-in all production from the John Brookes
and Harriet Joint Venture. In the month prior to the explosion, the fields were
producing at an average net rate of 1,348 and 4,049 b/d, respectively. On
August 5, 2008, partial production was restored at the John Brookes field, and
in September, the field averaged 1,144 b/d. Production from the John Brookes
field was fully restored in early October 2008. The Harriet Joint Venture
remains shut-in awaiting repairs, and production is expected to come back online
in the fourth quarter of 2008.
Natural Gas Revenues Third-quarter natural gas revenues increased
$238 million driven by a 49 percent increase in realized prices. Worldwide
production was down 13 percent. All core gas producing regions, with the
exception of Australia, realized higher natural gas revenues.
U.S. natural gas revenues increased $119 million as natural gas price
realizations averaged $9.96, up $3.37 per Mcf from the prior-year period. Gulf
Coast daily production was 29 percent lower on natural decline and approximately
112 MMcf/d of estimated production shut-in from tropical storms and hurricane
activity in the Gulf Coast region, which more than offset gains from drilling
and recompletion activity. Central region production was up two percent on
acquired properties and drilling and recompletion activity, which more than
offset natural decline and downtime.
Egyptian gas revenues were $43 million higher than the comparable 2007
quarter. A 19 percent increase in both price realizations and production led to
stronger revenues. Production was higher at the Khalda concession where the
prior year's quarter was negatively impacted by non-recurring gas plant shut-ins
at Obayied and Salam. Production also rose with new wells at our Northeast Abu
Gharadig Concession.
Canadian gas revenues increased $82 million, or 42 percent, led by stronger prices. Third-quarter natural gas realizations averaged $8.70 per Mcf, 57 percent higher than the prior year. Natural decline and property divestitures . . .
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