Source: Seeking Alpha
Apache Corporation (NYSE:APA)
Q2 2014 Earnings Conference Call
July 31, 2014 2:00 PM ET
Castlen Kennedy – Director-Investor Relations
G. Steven Farris – Chairman, Chief Executive Officer and President
Alfonso Leon – Executive Vice President and Chief Financial Officer
John J. Christmann, IV – Executive Vice President and Chief Operating Officer-North America
Thomas E. Voytovich – Executive Vice President and Chief Operating Officer-International
Robert Brackett – Sanford C. Bernstein & Co., LLC
Michael Roe – PPH
Pearce W. Hammond – Simmons & Co.
Joseph David Allman – JPMorgan Securities LLC
John Herrlin – Societe Generale
Doug Leggate – Bank of America Merrill Lynch
Brian Singer – Goldman, Sachs & Co.
Michael Hall – Heikkinen Energy Advisors
Charles A. Meade – Johnson & Rice Company L.L.C.
Arun Jayaram – Credit Suisse
Jeffrey Campbell – Tuohy Brothers
Leo Mariani – RBC Capital Markets
Richard Tullis – Capital One
Joseph Patrick Magner – Macquarie Capital Inc.
Good afternoon. My name is Sia and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation Second Quarter Earnings 2014 Conference. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions)
Thank you, at this time I would like to turn the conference over to Ms. Castlen Kennedy. Please go ahead ma’am.
Thank you, Sia. Good afternoon, everyone and thank you for joining us for Apache Corporation’s second quarter 2014 earnings conference call. On today’s call, we will have three speakers making prepared remarks prior to taking questions.
I will start by giving a brief summary of results and then we will hear from Steve Farris, our Chairman and Chief Executive Officer and President; followed by Alfonso Leon, our Executive Vice President and Chief Financial Officer. In addition, joining us for the question-and-answer session are John Christmann, Executive Vice President and COO of North America; and Tom Voytovich, Executive Vice President and COO of International.
We prepared our quarterly financial supplement for your use, which includes the reconciliation of any non-GAAP numbers that we discuss such as adjusted earnings or cash flow from operations. In addition, we have prepared our quarterly operation supplement which summarizes our activities and includes detailed well highlights across the various Apache operating region. These can both be found on our website at apachecorp.com/financialdata.
Today’s discussion will contain forward-looking estimates and assumptions based on our current views and most reasonable expectations. However, a number of factors could cause actual results to defer materially from what we discuss today. A full disclaimer is located with the supplemental data on our website.
This morning we reported second quarter 2014 earnings from continuing operations of $505 million or $1.31per diluted share. Adjusted earnings which excludes certain items that impact the comparability of results, totaled $644 million or $1.67 per diluted share. Cash flow from operations before changes in working capital totaled $2.2 billion during the quarter.
Total reported net production averaged 635,814 barrels of oil equivalent per day, with liquids production constituting 59% of the total. On a pro forma basis, adjusting for recent sales and excluding the non-controlling interest and tax barrels from Egypt second quarter production was 550,357 barrels of oil equivalent per day, with liquids production constituting 60% of the total.
I’ll now turn the call over to Steve.
G. Steven Farris
Thank you, Castlen and good afternoon, everyone and thank you all for joining us. I want to apologize everyone, I’ve got somewhat of a summer cold, so I sound a little – my sounds a little deeper than it usually does I apologize.
Our second quarter results provided I think additional evidence of our strong North America position, and our ability to continue to profitability grow our production. And before I jump into the details of the quarter, I want to provide an update on Apache’s ongoing repositioning of profitable and repeatable North American onshore growth. Over the last five years Apache has greatly enlarged and enhanced its North American onshore resource base and I believe that it is capable of driving our growth and performance over the next several years.
During the last 18 months, we’ve been increasing the focus on our North American onshore business, by divesting of around $10 billion of property. In addition, we’ve launched an aggressive stock repurchase program and we’ve also made it clear there are no sacred cows and our efforts continue. There has been recent discussion regard Apache’s potential future steps and focusing our portfolio, and today’s call gives me an opportunity to provide an update to our shareholders on our direction and the work that it’s been underway.
First, let me state at the outset, the Apache’s future will be centered on our tremendous North American onshore resource base. Second, I’d like to make it clear, that Apache intends to completely access the Wheatstone and Kitimat LNG project.
And third, in light of our expanding opportunity set in North American onshore, we are evaluating our international assets and are exploring multiple opportunities including the potential for separation of some or all of them through the capital markets.
And one additional note regarding our North American onshore portfolio, over the past year, we deepened our understanding of our North American properties. We’ve elevated our capabilities in advanced emerging plays and in that regard this fall we intend to hold an update presentation on North American onshore highlighting our $1.7 million net acres in the Permian basin.
So, with that out of the way, let me move to the details of our performance in the second quarter. This morning we announced second quarter results of $644 million or $1.67 per share of adjusted earnings, and $2.2 billion of cash flow from operations before changes in working capital.
During the quarter our operational focus in extensive acreage position across our best hydrocarbon region rich basins allowed us to drive production growth in North American onshore liquids. On a pro forma basis, we averaged 201,000, 395,000 barrels of oil per day, which is up 18% year-over-year.
North American onshore liquids represented nearly 61% of our total worldwide liquids production and 37% of our overall production. A corner stone of our North American onshore success has been the outstanding performance in the Permian basin. And through the first half of the year, the Permian region’s performance is ahead of our plan. In fact we surpassed the significant milestone earlier this year as we celebrated reaching 150,000 barrels of oil equivalent and a day net.
We have come a long way since we launched the regions just over four years ago. And have grown production nearly 200% since that time. In fact, we have grown production 17 out of the last 18 quarters, and the last 11 quarters consecutively.
Cash flow from the region is coming in ahead of plan. And we anticipate the region will fully fund its capital program for the year. We expect to deliver over 23% liquids growth and more than 20% Boe growth for the year. And this performance demonstrates our focus on operational excellence and are driving out of cost from the system. And it underscores Apache’s leading position in the Permian.
In the Anadarko Basin, our Central Region has experienced several challenges over the last couple of quarters. And as a result production growth has been disappointing. Our total wells drilled to-date for the year is 26% behind plan due to weather slowdowns as well as mechanical difficulties in both drilling and completion.
We’re retooling the region in addition to recently making personnel changes or scaling back the Anadarko Basin activity and reducing capital and rigs. We continue to believe in the growth opportunities in the Anadarko Basin, we just need to slowdown and assure our selves we’re making good investment decisions over the long term.
We do intend to ramp up our drilling activity in our Central Region Canyon mine play and Oldham and Potter County of Texas Panhandle. And I’ll touch on this in more detail a little later.
As we said in the past, we view North American onshore business as one large resource comprised of several different plays and we will allocate capital and resources to the best opportunities within that portfolio. Despite the challenges we had in the Anadarko Basin, I want to reiterate our 15% to 18% North American onshore liquids guidance. And I also want to reiterate our 5% to 8% increase in our production, overall production guidance. We have a significant opportunity before us in North American onshore and the ability and expertise to continue to execute and deliver growth in the years to come.