Apache Q3 2010 Earnings Call Transcript

Apache (APA)

Q3 2010 Earnings Call

November 04, 2010 2:00 pm ET

Executives

Rodney Eichler - Co-Chief Operating Officer and President of International

John Crum - Co-Chief Operating Officer and President of North America

Roger Plank - President, Principal Financial Officer and Member of Risk Management Committee

G. Farris - Chairman of the Board, Chief Executive Officer and Member of Executive Committee

Thomas Chambers - Vice President of Planning & Investor Relations and Member of Risk Management Committee

Analysts

Philip Dodge - Stanford Group Company

Brian Singer - Goldman Sachs Group Inc.

Mark Polak - Scotia Capital Inc.

Sachin Shah - ICAP

David Tameron - Wells Fargo Securities, LLC

John Herrlin - Merrill Lynch

Douglas Leggate - BofA Merrill Lynch

Leo Mariani - RBC Capital Markets Corporation

Presentation

Operator

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Good day, everyone, and welcome to the Apache Corporation Third Quarter 2010 Earnings Release. Today's presentation will be hosted by Mr. Tom Chambers, Vice President of Corporate Planning and Investor Relations. Mr. Chambers, please go ahead.

Thomas Chambers

Thank you. Good afternoon, everyone and thanks for joining us for Apache Corporation's Third Quarter 2010 Earnings Conference Call. This morning, we reported net income of $765 million or $2.12 per diluted share. Adjusted earnings, which exclude certain items that impact the comparability of results totaled $791 million or $2.19 per diluted share. Cash flow from operations totaled $2 billion.

On today's call, we'll have four speakers making prepared remarks prior to taking questions. Steve Farris, our Chairman and Chief Executive Officer will lead off followed by Roger Plank, our President; John Crum, Co-Chief Operating Officer and President, North America; and then Rod Eichler, Co-Chief Operating Officer and President of International.

We prepared our usual detailed supplemental data package for your use, which also includes the reconciliation of any non-GAAP numbers that we discussed, such as adjusted earnings, cash flow from operations or costs incurred. This data package can be found on our website at www.apachecorp.com/financialdata

Today's discussions may contain forward-looking estimates and assumptions and no assurances can be given that those expectations will be realized. A full disclaimer is located with the supplemental data package on our website. With that I'll turn the call over to Steve.

G. Farris

Thank you, Tom and good afternoon, everyone and thank all of you for joining us for our third quarter 2010 results call. Those of you who have followed us for many years know that Apache has a truly unique culture and is involved with strong sense of urgency and paramount of our employees and an independent mindset. And Apache's culture really is that the heart of how we build value and has taken us from very humble position not so long ago to where we are today. And I don't think there's anything that exemplifies more our third quarter, what that culture is capable of delivering for our shareholders.

On the portfolio side, we announced the $7 billion acquisition of three entire upstream operating regions from BP and the Permian Basin, Canada and Egypt. These three positions have an excellent fit with our existing carriers and provide us with a rich inventory of growth and value enhancement opportunity for years to come.

It was July 20, the last conference call, we were just announcing this step, and we were getting ready to get on a plane to go sell stock and debt for this important step forward. And while we clearly believed that the transaction had all the ingredients to make a great deal for our shareholders, we really didn't know how the share price would react, given the amount of new stock we were about to issue.

Well, as most of you know, the stock actually went up by 5% in the three days after we announced, and this is opposite of what generally happens. Internally, we took that as an endorsement of Apache's ability to generate value out of the transaction. Obviously, we're honored with the vote of confidence. I want to ensure all of you, we'll do everything humanly possible to make good on this investment, to create long-term value for our shareholders. As of about an hour ago, we have now closed all three of the BP packages, if you haven't looked at the Wire, we just closed Egypt today. But we are integrating the people and starting to get our arms around the assets. In addition, we expect to close on our merger with Mariner Energy when the vote ends on November 10.

We couldn't be more pleased and excited about the opportunity set we are building into our portfolio with the $11 billion in acquisitions. Through these steps we have added years of inventory to our core regions and have built the right footprint in what we believe are two new areas for us, the Deepwater oil exploration and LNG. LNG, for us, means the monetization of large North American gas resources at oil length prices.

We've taken these steps on our own way which is the Apache way and we're confident that we'll constitute important foundations for Apache's continued growth and profitability during the coming decade.

On the operating front, in the third quarter, we had a very successful quarter, with production was up 10% year-on-year and our cost and expense is on a per unit basis, excluding DD&A, it was down 3% year-on-year. John, Rod and Roger will give you more color on our results and developments during the quarter in a moment. Before getting to that, I'd like to put 2010 in a broader context, starting with where we were at the beginning of 2010 and what we look like going into 2011.

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