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| APA > SEC Filings for APA > Form 10-Q on 7-Nov-2012 | All Recent SEC Filings |
7-Nov-2012
Quarterly Report
Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops and produces natural gas, crude oil, and natural gas liquids. We currently have exploration and production interests in six countries: the U.S., Canada, Egypt, Australia, offshore the United Kingdom (U.K.) in the North Sea, and Argentina. Apache also pursues exploration interests in other countries that may over time result in reportable discoveries and development opportunities.
This discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for our 2011 fiscal year.
Financial Overview
Throughout 2012, Apache's results have been impacted by the significant fall in North American natural gas prices compared to the prior year. However, our overall results continue to be supported by our strategy to maintain a portfolio balanced across crude oil and natural gas in North American and international markets. Our projects balance the spectrum of geologic types and risks in a variety of geographies. This allows us to redeploy capital dollars to parts of our portfolio that offer higher investment returns while reducing capital projects better deferred in today's environment. We have invested $2.9 billion and $7.8 billion for exploration and development activities in the third quarter and first nine months of 2012, respectively, and will continue to review our capital program and spending levels in order to maintain our rate of return focus and manage our balance sheet.
Earnings totaled $161 million, or $0.41 per diluted common share, in the third quarter of 2012, compared with $983 million, or $2.50 per diluted share, in the third quarter of 2011. Earnings for the first nine months of 2012 totaled $1.3 billion, or $3.27 per diluted share. These earnings reflect the impact of non-cash after-tax write-downs of the carrying value of our Canadian proved oil and gas properties totaling $390 million, $480 million, and $539 million in the first, second, and third quarters of 2012, respectively. For additional discussion on these write-downs, refer to "Results of Operations-Depreciation, Depletion and Amortization" in this Item 2.
Apache's adjusted earnings, which exclude certain items impacting the comparability of results, were $861 million in the third quarter of 2012, down from $1.2 billion in the prior-year quarter, and $2.9 billion for the first nine months of 2012, down from $3.5 billion in the prior-year comparative period. Adjusted earnings is not a financial measure prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). For a description of adjusted earnings and a reconciliation of adjusted earnings to income attributable to common stock, the most directly comparable GAAP financial measure, please see "Non-GAAP Measures" in this Item 2.
Total daily production of oil, natural gas, and natural gas liquids averaged 771 thousand barrels of oil equivalent per day (Mboe/d) in the third quarter of 2012, up two percent compared with the third quarter of 2011. Increased production in the quarter was tempered by downtime resulting from Hurricane Isaac in the Gulf of Mexico and planned turnaround activities and downhole pump issues in the North Sea, which reduced third quarter production approximately 25 Mboe/d. Although production was higher than the prior-year quarter, oil and gas production revenues decreased three percent from the prior-year quarter to $4.1 billion on a 15-percent decline in natural gas realizations, partially offset by a one-percent rise in crude oil realizations.
Natural gas price realizations in North America have fallen 27 percent since the third quarter of 2011, and we believe weak natural gas prices in North America will continue to pressure gas revenues for the remainder of the year. Our natural gas production outside of North America, where third-quarter 2012 prices averaged 13 percent higher than the comparative 2011 quarter, boosted worldwide natural gas realizations. Over one-third of our natural gas is produced outside of North America, which emphasizes the benefit of having a balanced geographic base.
Third-quarter 2012 worldwide crude oil prices rose one percent from the prior-year quarter. Crude oil and liquids combined represented 51 percent of our production but provided 81 percent of our $4.1 billion of oil and gas revenues. Crude oil drove 87 percent of our combined crude and liquids production and 96 percent of the related revenues.
Operational Developments
Apache has a significant producing asset base as well as large undeveloped acreage positions that provide a platform for organic growth through sustainable lower-risk drilling opportunities, balanced by higher-risk, higher-reward exploration. With an inventory of more than 67,000 future drilling locations identified in the onshore United States alone, we are well positioned to grow through an
United States
• For the third quarter of 2012, our Permian region's active drilling program continues to set new highs for net production, reaching 112 Mboe/d, up 18 percent from the prior-year quarter. Over 70 percent of this production was from crude oil and natural gas liquids (NGL).
• The Central region also saw record production in the third quarter as we ramp up activity across our nearly two million gross acres. Production was up 55 percent relative to the prior-year quarter as we realized the benefits of our active oil and liquids-rich drilling program and a full quarter of Cordillera production. During the quarter we operated an average of 24 drilling rigs, drilling 40 wells with 100 percent success.
• On October 3, 2012, Apache announced that our Gulf of Mexico (GOM) production facilities were back online following suspended operations due to Hurricane Isaac. GOM production was deferred for six weeks in August and September, impacting third-quarter volumes from our Deepwater, Shelf, and Gulf Coast Onshore regions by an estimated 13 Mboe/d for the full quarter.
North Sea
• In September 2012, Apache announced that a Beryl field development well test-flowed at 8,161 barrels of oil per day (b/d) and 5.9 million cubic feet of natural gas per day (MMcf/d). The well contained 71 feet of net oil pay and began producing at the end of August. The well also encountered 245 feet of net pay in three additional zones that will be produced at a later date. A 3-D seismic survey of the Beryl field commenced in early August and, when completed, will further refine our drilling plans for these recently acquired assets. Apache has a 50-percent interest in the field.
• Apache announced that the jacket for the Forties Alpha Satellite Platform was installed in September 2012, with a fully commissioned topside and bridge scheduled to be delivered during the second quarter of 2013. Once complete, the platform will provide Apache with full-fluid processing and contain 18 new production well slots that will facilitate additional drilling in the field beginning in the third quarter of 2013. With this platform, we will continue to develop the Forties field that was forecasted by the previous operator to cease production this year.
• On October 3, 2012, Apache announced that North Sea production has recovered following platform maintenance activities completed during the third quarter. These planned turnarounds and continued downhole pump issues deferred nearly 12 Mboe/d during the period.
• On November 1, 2012, Apache announced that the U.K. Department of Energy & Climate Change awarded 11 new North Sea licenses to Apache. The Company was also awarded an interest in another non-operated license. These awards cover 19 full or partial blocks (approximately 613,000 gross acres). Included in these blocks is all of the available acreage around our Beryl field plus two key licenses near the Forties field.
Australia
• In October 2012, an Apache subsidiary announced that three major contracts with a total value of AUD$325 million net to Apache have been awarded for the development of the Julimar subsea facilities. Gas from the Julimar Development Project (JDP) will feed into the Wheatstone LNG project. Apache has a 65-percent interest in the JDP and is the operator. Apache has a 13-percent interest in the Chevron-operated Wheatstone project. The value of the contracts were within budgetary expectations and represented the final significant subsea contracts to be awarded for the JDP.
• Also in October 2012, a planned three-week maintenance turnaround at the Yara Australia Pty Ltd (Yara) operated ammonia plant on the Burrup Peninsula of Western Australia was extended to nine weeks, the result of an unforeseen equipment problem. Yara expects production at the Burrup plant to resume in the second half of November 2012.
Egypt
• During the quarter, the Company's operations continued unabated with an average of 26 rigs in Egypt, drilling 68 wells during the period, including 11 exploratory wells. In addition, during the quarter we experienced faster government approvals of development leases as compared to the prior year, where we experienced delays of nine months or more. Our exploration efforts made several discoveries, continuing recent successes identifying opportunities in deeper drilling horizons.
New Ventures
• In September 2012, Apache announced that the Mbawa 1 offshore exploration well in Kenya encountered natural gas. The well encountered 170 feet of natural gas pay in three zones; however, no oil was encountered. Apache and its partners in the Kenya L8 Joint Venture are analyzing the well data to determine the potential for future exploration activities. Apache has a 50-percent interest in the Mbawa well and Block L8 and is the operator.
• On October 18, 2012, Apache signed a production sharing contract with Staatsolie Maatschappij Suriname NV (Staatsolie) for block 53 off the northwest coast of Suriname. The contract offers Staatsolie the opportunity to purchase a stake in the development phase of up to 20 percent. Under the agreement, if a commercial find is made and brought into production, Apache will receive reimbursement for exploration phase costs. The two-phase exploration period under the contract includes an investment by Apache of approximately $230 million and drilling at least two wells.
Results of Operations
Oil and Gas Revenues
For the Quarter Ended September 30, For the Nine Months Ended September 30,
2012 2011 2012 2011
$ % $ % $ % $ %
Value Contribution Value Contribution Value Contribution Value Contribution
($ in millions)
Total Oil Revenues:
United States $ 1,143 35 % $ 1,040 33 % $ 3,409 35 % $ 3,008 32 %
Canada 115 4 % 105 3 % 361 3 % 355 4 %
North America 1,258 39 % 1,145 36 % 3,770 38 % 3,363 36 %
Egypt 1,021 32 % 1,054 33 % 3,028 31 % 3,149 34 %
Australia 303 9 % 411 12 % 947 10 % 1,167 12 %
North Sea 571 18 % 542 17 % 1,876 19 % 1,535 16 %
Argentina 67 2 % 60 2 % 203 2 % 170 2 %
International 1,962 61 % 2,067 64 % 6,054 62 % 6,021 64 %
Total(1) $ 3,220 100 % $ 3,212 100 % $ 9,824 100 % $ 9,384 100 %
Total Gas Revenues:
United States $ 288 36 % $ 399 43 % $ 837 36 % $ 1,185 43 %
Canada 186 24 % 256 28 % 547 23 % 792 29 %
North America 474 60 % 655 71 % 1,384 59 % 1,977 72 %
Egypt 122 15 % 159 17 % 375 16 % 464 17 %
Australia 94 12 % 50 5 % 264 11 % 136 5 %
North Sea 44 6 % 5 1 % 148 7 % 14 1 %
Argentina 54 7 % 57 6 % 168 7 % 147 5 %
International 314 40 % 271 29 % 955 41 % 761 28 %
Total(2) $ 788 100 % $ 926 100 % $ 2,339 100 % $ 2,738 100 %
Natural Gas Liquids (NGL)
Revenues:
United States $ 102 76 % $ 109 75 % $ 279 71 % $ 292 74 %
Canada 17 13 % 27 19 % 58 15 % 76 19 %
North America 119 89 % 136 94 % 337 86 % 368 93 %
Egypt - - 1 1 % - 0 % 2 1 %
North Sea 9 7 % - - 36 9 % - -
Argentina 5 4 % 7 5 % 18 5 % 23 6 %
International 14 11 % 8 6 % 54 14 % 25 7 %
Total $ 133 100 % $ 144 100 % $ 391 100 % $ 393 100 %
Total Oil and Gas Revenues:
United States $ 1,533 37 % $ 1,548 36 % $ 4,525 36 % $ 4,485 36 %
Canada 318 8 % 388 9 % 966 8 % 1,223 10 %
North America 1,851 45 % 1,936 45 % 5,491 44 % 5,708 46 %
Egypt 1,143 28 % 1,214 28 % 3,403 27 % 3,615 29 %
Australia 397 9 % 461 11 % 1,211 10 % 1,303 10 %
North Sea 624 15 % 547 13 % 2,060 16 % 1,549 12 %
Argentina 126 3 % 124 3 % 389 3 % 340 3 %
International 2,290 55 % 2,346 55 % 7,063 56 % 6,807 54 %
Total $ 4,141 100 % $ 4,282 100 % $ 12,554 100 % $ 12,515 100 %
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(1) Financial derivative hedging activities decreased oil revenues $22 million and $126 million for the 2012 third quarter and nine-month period, respectively, and $82 million and $301 million for the 2011 third quarter and nine-month period, respectively.
(2) Financial derivative hedging activities increased natural gas revenues $105 million and $328 million for the 2012 third quarter and nine-month period, respectively, and $65 million and $190 million for the 2011 third quarter and nine-month period, respectively.
Production
For the Quarter Ended September 30, For the Nine Months Ended September 30,
Increase Increase
2012 2011 (Decrease) 2012 2011 (Decrease)
Oil Volume - b/d:
United States 133,001 120,353 11 % 128,884 117,135 10 %
Canada 15,075 13,027 16 % 15,311 14,040 9 %
North America 148,076 133,380 11 % 144,195 131,175 10 %
Egypt 97,546 103,289 (6 %) 98,648 103,913 (5 %)
Australia 28,191 39,400 (28 %) 29,690 38,248 (22 %)
North Sea 57,296 57,838 (1 %) 63,058 54,097 17 %
Argentina 9,885 9,461 4 % 9,701 9,577 1 %
International 192,918 209,988 (8 %) 201,097 205,835 (2 %)
Total(1) 340,994 343,368 (1 %) 345,292 337,010 2 %
Natural Gas Volume - Mcf/d:
United States 863,433 857,993 1 % 841,859 865,474 (3 %)
Canada 604,442 619,897 (2 %) 617,530 633,031 (2 %)
North America 1,467,875 1,477,890 (1 %) 1,459,389 1,498,505 (3 %)
Egypt 329,793 376,259 (12 %) 354,856 368,898 (4 %)
Australia 215,317 187,852 15 % 217,053 183,470 18 %
North Sea 54,478 2,497 NM 62,061 2,257 NM
Argentina 213,745 223,929 (5 %) 216,399 209,206 3 %
International 813,333 790,537 3 % 850,369 763,831 11 %
Total(2) 2,281,208 2,268,427 1 % 2,309,758 2,262,336 2 %
Natural Gas Liquids (NGL)
Volume - b/d:
United States 39,076 21,919 78 % 30,385 21,001 45 %
Canada 6,036 6,120 (1 %) 6,063 6,220 (3 %)
North America 45,112 28,039 61 % 36,448 27,221 34 %
Egypt - (4 ) NM - 66 NM
North Sea 1,470 14 NM 1,797 5 NM
Argentina 3,006 3,008 0 % 3,022 3,024 0 %
International 4,476 3,018 48 % 4,819 3,095 56 %
Total 49,588 31,057 60 % 41,267 30,316 36 %
BOE per day(3)
United States 315,982 285,271 11 % 299,578 282,381 6 %
Canada 121,851 122,463 0 % 124,296 125,765 (1 %)
North America 437,833 407,734 7 % 423,874 408,146 4 %
Egypt 152,512 165,995 (8 %) 157,791 165,461 (5 %)
Australia 64,078 70,708 (9 %) 65,866 68,826 (4 %)
North Sea 67,845 58,269 16 % 75,198 54,478 38 %
Argentina 48,515 49,790 (3 %) 48,790 47,471 3 %
International 332,950 344,762 (3 %) 347,645 336,236 3 %
Total 770,783 752,496 2 % 771,519 744,382 4 %
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(1) Approximately 12 and 14 percent of worldwide oil production was subject to financial derivative hedges for the third quarter and nine-month period of 2012, respectively, and 28 and 29 percent for the comparative 2011 third quarter and nine-month periods, respectively.
(2) Approximately 13 percent of worldwide natural gas production was subject to financial derivative hedges for the third quarter and nine-month period of 2012, and 15 and 16 percent for the comparative 2011 third quarter and nine-month periods, respectively.
(3) The table shows production on a barrel of oil equivalent basis (boe) in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This ratio is not reflective of the price ratio between the two products.
NM - Not meaningful
Pricing
For the Quarter Ended September 30, For the Nine Months Ended September 30,
Increase Increase
2012 2011 (Decrease) 2012 2011 (Decrease)
Average Oil Price - Per barrel:
United States $ 93.38 $ 93.86 (1 %) $ 96.53 $ 94.05 3 %
Canada 82.92 88.34 (6 %) 85.96 92.77 (7 %)
North America 92.32 93.32 (1 %) 95.41 93.91 2 %
Egypt 113.72 110.96 2 % 112.02 111.02 1 %
Australia 116.79 113.40 3 % 116.39 111.78 4 %
North Sea 108.44 101.85 6 % 108.60 103.90 5 %
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