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Apache's Tough Fourth Quarter

Zacks Equity Research

U.S. energy firm Apache Corp. (APA) reported weak fourth-quarter 2012 earnings, mainly due to deteriorating oil and gas realizations.

Earnings per share – excluding one-time items – came in at $2.27, below the Zacks Consensus Estimate of $2.30 and significantly down from the year-ago period adjusted profit of $2.94.

However, revenues of $4,391.0 million were up 2.2% from the fourth quarter of 2011 and were also ahead of our projection of $4,373.0 million on the back of increased volumes.

Operational Performance

The production of oil and natural gas averaged 800,005 oil-equivalent barrels per day (BOE/d) (53% liquids), up approximately 5.4% year over year. Production for oil and natural gas liquids (NGLs) was up roughly 11.4% at 425,857 barrels per day (Bbl/d), while natural gas production of 2,244.9 million cubic feet per day (MMcf/d) inched down 0.8% from the fourth-quarter 2011 level.

For the year ended Dec 31, 2012, production of natural gas and liquids reached 778,679 BOE/d, up 4.1% from 2011.

Apache’s upstream growth momentum is retained organically as well as through acquisitions as it continues to explore the extensive, multi-year inventory of drillable locations in the Permian and Anadarko basins of North America.

The average realized crude oil price during the fourth quarter was $98.93 per barrel, representing a decrease of 3.7% from the corresponding period of the previous year. The average realized natural gas price during the December quarter of 2012 was $4.14 per thousand cubic feet (Mcf), down 1.0% from the year-ago period.

Lease operating expenses totaled $790.0 million, up 19.9% from $659.0 million in the year-ago quarter.

Balance Sheet & Capital Spending

As of Dec 31, 2012, Apache had approximately $160.0 million in cash and cash equivalents. The company had a long-term debt of $11,355.0 million, representing a debt-to-capitalization ratio of 26.6%.

During the three months ended Dec 31, 2012, Apache’s capital investments (excluding acquisitions) totaled $2,829.0 million, bringing the full-year spending to $10,033.0 million.

Stocks to Consider

Apache currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at other domestic energy explorers like Cabot Oil & Gas Corp. (COG), Memorial Production Partners L.P. (MEMP) and Penn Virginia Corp. (PVA) as attractive investments. All these firms – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

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