Apache (APA) Q4 2011 Earnings Call February 16, 2012 2:00 pm ET Executives Patrick Cassidy - G. Steven Farris - Chairman of the Board, Chief Executive Officer and Member of Executive Committee Rodney J. Eichler - President and Chief Operating Officer Thomas P. Chambers - Chief Financial Officer, Executive Vice President and Member of Risk Management Committee Roger B. Plank - President, Chief Corporate Officer and Member of Risk Management Committee Analysts Brian Singer - Goldman Sachs Group Inc., Research Division Pearce W. Hammond - Simmons & Company International, Research Division John P. Herrlin - Societe Generale Cross Asset Research Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division Leo P. Mariani - RBC Capital Markets, LLC, Research Division John Malone - Global Hunter Securities, LLC, Research Division Craig Shere - Tuohy Brothers Investment Research, Inc. Presentation Operator
On today's call, we will have 4 speakers making prepared remarks prior to taking questions. First, we will hear from Steve Farris, our Chairman and Chief Executive Officer; followed by Rod Eichler, President and Chief Operating Officer; and Tom Chambers, Executive Vice President and Chief Financial Officer; and finally, Roger Plank, our President and Chief Corporate Officer.We prepared our usual detailed supplemental data package for your use, which also includes a reconciliation of the non-GAAP numbers that we discussed, such as adjusted earnings, cash flow from operations or pretax margin. The data package can be found on our website at www.apachecorp.com/financial data. Today's discussion 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. Steven Farris Thank you, Patrick, and good afternoon, everyone, and thank you for joining us today. Apache had an outstanding year in 2011. We had strong production growth, earnings and cash flow, all delivered with the financial and balance sheet discipline that has characterized our company for 57 years. Apache's global oil and gas production in 2011 was 748,000 barrels of oil equivalent a day, which is 14% growth over 2010 and a new record for us. The strong growth delivery is consistent with our performance over time compared with other companies. Whether it's over the last 5 years or 10 years, Apache gross production was more than most of its peers, and we do this in a balanced and diversified manner, living within our means. Crude oil represented 45% of our 2011 production, and if you add NGL, liquids represented 50% of our production. We already have the portfolio balance that most of our peers aspire to obtain at some point in the future. As we grow competitively, we do not sacrifice our balance. 2011 earnings, as Pat mentioned, was $4.5 billion, which was 50% up year-on-year or 36% per share. Our cash flow from operations before working capital items in 2011 stood at $10.2 billion, which was up 39% year-on-year. The driver of this financial performance is, truthfully saying, we focus on rate of return, and it shows. This financial performance will continue to fuel our growth as it continues to increase our investment capacity. Needless to say, 2011 was an excellent year for Apache.
I'd like now to move to 2012 and talk a little bit about our capital program and our production growth forecast. Our initial exploration and development capital budget for 2012 is $9.5 billion, which is a 25% increase year-on-year on a cash basis, and we'll continue to ramp up our activity in the Permian, the Anadarko wash fairways and development projects in deepwater Gulf of Mexico and also our global exploration. We live within our means, and we do it consistently. I would say at strip prices, this initial 2012 capital program leaves us with well over $1 billion of operating cash flow surplus. As we always do, we will put our additional investment firepower to use as we go through the year.In the Permian alone, our initial budget increased from $1.1 billion in 2011, and I might add it was $500 million in 2010. In 2012, we'll spend $1.7 billion, and depending on commodity prices, we expect to at least double last year's price. We expect to grow production between 7% and 13% in 2012, which excludes operations divested in 2011. And we delivered this competitive growth with less than half of our capital. And Roger will outline in greater detail, over half of our 2012 capital program goes to projects to grow our production starting in 2013 and beyond. In 2012, we're also stepping up our global exploration activity, and I'd like to briefly list a number of our key exploration steps for 2012. In the deepwater Gulf of Mexico, we expect to participate in 6 oil prospects with a combined potential of well over 600 million barrels of oil equivalent, and we continue to grow our footprint and prospect pipeline there. In Alaska, we will grow our first wells in the Cook Inlet, which is a [indiscernible] oil exploration play, where we are the largest acreage with some over 800,000 acres. In the onshore North America, we're taking advantage of our premiere acreage positions to progress new liquids plays in which we have critical mass, such as the Canyon Wash and the Texas Panhandle, where we were the first movers last year and are now shifting to the development phase with 14 wells in the play. A number of new plays in the Permian, including the Wolfcamp Shale play, where we're going to test our 25,000 acreage position there. Deepwater Kenya, we intend to drill our first major oil prospects in the third quarter for the potential of nearly 300 million barrels of oil equivalent and the opportunity to de-risk several additional prospects. In New Zealand, we expect to drill our first 4 wells targeting our new onshore unconventional play. We will also continue our exploration in Australia and Egypt, where we have built so much value through the exploration over the years, and we will continue to add new large-scale exploration positions, some of which we are not ready to announce. Read the rest of this transcript for free on seekingalpha.com