Apache Management Discusses Q2 2012 Results - Earnings Call Transcript

Apache (APA)

Q2 2012 Earnings Call

August 02, 2012 2:00 pm ET


Patrick Cassidy - Director of Investor Relations

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

Rodney J. Eichler - President and Chief Operating Officer

Thomas P. Chambers - Chief Financial Officer and Executive Vice President

Janine J. McArdle - Senior Vice President of Gas Monetization


Arun Jayaram - Crédit Suisse AG, Research Division

John Freeman - Raymond James & Associates, Inc., Research Division

Douglas George Blyth Leggate - BofA Merrill Lynch, Research Division

Michael A. Hall - Robert W. Baird & Co. Incorporated, Research Division

Bob Brackett - Sanford C. Bernstein & Co., LLC., Research Division

Pearce W. Hammond - Simmons & Company International, Research Division

John Malone - Global Hunter Securities, LLC, Research Division

Leo P. Mariani - RBC Capital Markets, LLC, Research Division

Brian Singer - Goldman Sachs Group Inc., Research Division

David R. Tameron - Wells Fargo Securities, LLC, Research Division

Charles A. Meade - Johnson Rice & Company, L.L.C., Research Division



Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation Second Quarter 2012 Earnings Release Conference Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Mr. Patrick Cassidy, Director of Investor Relations. Sir, you may begin.

Patrick Cassidy

Thank you, Regina. Good afternoon, everyone, and thank you for joining us for Apache Corporation's Second Quarter 2012 Earnings Conference Call.

This morning, we reported earnings of $337 million or $0.86 per diluted share. Adjusted earnings, which excludes certain items that impact the comparability of results, totaled $821 million or $2.07 per diluted share. Cash flow from operations totaled $2.4 billion for the quarter.

On today's call, we will have 3 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 finally, Tom Chambers, Executive Vice President and Chief Financial Officer.

We prepared our quarterly supplemental data package for your use, which also includes a reconciliation of any non-GAAP numbers that we discuss such as adjusted earnings, cash flow from operations or pretax margins. 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. Steven Farris

Thank you, Patrick, and good afternoon, everyone, and thank you for joining us today. I'm sure all of you have seen that in our recent Investor Day, we outlined our extensive oil and liquids drilling inventory in the onshore U.S. We have over 67,000 future drilling locations that have been technically assessed, and we also have 9 billion barrels of oil equivalent net un-booked inventory that is available to drive our growth in the years to come. And this inventory is already beginning to deliver meaningful results in our onshore.

During the second quarter, our Permian and Central regions grew net production at annualized base of 23% and 18%, respectively, and this was before the contribution of Cordillera assets that we acquired at the end of April. Obviously, not every quarter's going to be as good, but we're firmly on track to deliver the double-digit growth in these regions for the years to come, as we outlined in our Investor Day.

Moreover, if you count the land drilling rigs operating in the United States from the Rockies to East Coast, Apache has 62 rigs running, which is the second most active operator out of all the independents and majors, and that's only behind Chesapeake, which really has a different focus and business model. I might point out that not a single 1 of the 62 rigs is drilling a gas target. We said we were going to step up our U.S. drilling activity to exploit our large portfolio, and we're doing just that.

Our total reported production in the second quarter was reduced by a 16 -- which is the difference between a hit and a miss on our production growth. We had offline about 16,000 barrels oil equivalent a day. This includes 4,800 barrels a day due to unscheduled downtime at our third-party operated St. James [ph] plant in Kaybob in Canada. We had 2,000 barrels of oil a day down in the Gulf Coast Onshore due to a third-party pipeline outage in the Lake Paige Field, 3,200 barrels of downtime due to unscheduled facility repairs at Grand Isle 43, which is the complex in the Gulf of Mexico, and 6,000 barrels of oil equivalent a day out of service due to ESP failures for this year.

Most of the 16,000 barrels a day is already back on stream or is expected to be back before the end of the year. I know downtime happens as part of our business. The important thing is that we have a robust portfolio. So it really doesn't impact us over the longer term with the performance of the company.

We remain on track to deliver our production growth guidance in 2012 without any need to significantly increase our capital program for the year. We have a very active exploration program through the rest of the year, and we expect to further accelerate our exploration activities in next year and beyond.

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