Apache Corporation announces fourth-quarter and full-year 2014 financial and operational results

HOUSTON, Feb. 12, 2015 /PRNewswire/ -- Apache Corporation (NYSE, Nasdaq: APA) today announced a fourth-quarter 2014 net loss of $4.8 billion or $12.78 per diluted common share, primarily as a result of after-tax, non-cash charges totaling $5.2 billion. Adjusted earnings, which exclude certain items that impact the comparability of results, totaled $404 million or $1.07 per share. Net cash provided by operating activities was approximately $1.9 billion in the fourth quarter of 2014, with cash from operations, before changes in operating assets and liabilities, totaling $2.1 billion.

"Onshore North American liquids production growth exceeded our guidance for 2014, and we exited the year with strong operational momentum," said John J. Christmann IV, Apache's chief executive officer and president. "Since our Nov. 20th North American Update, oil and gas prices have decreased substantially, prompting us to act quickly and decisively to reduce activity levels and reset our well cost structure.  We have reduced our rig count from an average of 91 rigs in the third quarter of 2014 to an estimated 27 rigs by the end of this month.  We have also reduced our frac crews by approximately 50 percent during the same time period and are delaying some well completions until service costs decrease materially. In 2015, Apache will run a streamlined capital program that focuses on efficiency improvements, downspacing and other strategic tests to further delineate our extensive inventory of locations within the Permian, Eagle Ford, Canyon Lime, Duvernay and Montney. While we are fortunate to have a substantial inventory of projects that can make economics at these oil prices, we believe it more prudent to curtail our activity until costs are lower and prices recover.  This strategy will enable us to further strengthen our balance sheet and preserve the financial flexibility to capitalize on industry opportunities during the downturn."

Fourth-quarter acquisition and divestiture activity

During the quarter, Apache significantly expanded and enhanced its core operating areas through $800 million of leasehold acquisitions in onshore North America.

In December, Apache entered into an agreement to sell its interests in the Wheatstone and Kitimat LNG projects along with certain other upstream assets in Australia.  The company anticipates closing the transaction during the first quarter of 2015. Upon closing, Apache will receive cash proceeds of approximately $2.75 billion plus recovery of an estimated $1 billion in net expenditures between June 30, 2014, and closing. On Dec. 31, 2014, Apache completed the previously announced sale of non-core properties in the Anadarko Basin and southern Louisiana and received net proceeds of $1.3 billion.

Christmann noted, "2014 was a year of transition marked by the completion of many of our key strategic portfolio repositioning initiatives. We completed or announced the sale of approximately $7 billion of assets worldwide and enhanced our North American portfolio through the purchase of approximately $1.2 billion of strategic acreage.  2015 will be a year of tangible operational results that demonstrate the progress Apache has made with the application of leading-edge geoscience and process improvements across our nine primary plays in North America.  This will put us in an excellent position to efficiently ramp-up the capital program and take advantage of market opportunities as commodity prices recover."

Fourth-quarter 2014 production and operating highlights

• The Permian Region achieved record production of approximately 168,700 boe per day, up 26 percent from the prior-year period. The region averaged 42 operated rigs during the quarter and drilled 148 gross operated wells.  Apache plans to operate approximately 10 to 12 rigs in the Permian Basin during 2015.
• The Central Region produced approximately 93,900 boe per day, up 1 percent from the prior-year period and up 3 percent sequentially from the third quarter of 2014.   The region averaged 20 operated rigs during the quarter and drilled 72 gross operated wells.  In the Canyon Lime play, the company is in the early stages of flow back and testing on its first four-well pad and has drilled two step-out delineation wells that indicate excellent fluid properties and higher-than-expected oil content. Apache plans to operate two to three rigs in the Central Region during 2015, one to two of which will be in the Canyon Lime.
• Gulf Coast production averaged 32,800 boe per day in the fourth quarter, up 8 percent from the prior-year period and up 13 percent sequentially from the third quarter of 2014.  Following the sale of its south Louisiana properties on Dec. 31, 2014, Apache's Gulf Coast regional production is almost entirely attributable to the Eagle Ford play.   The company is in the early stages of flowing back wells from several new pads in the Eagle Ford.  On the Grant pad in Brazos County, Texas, four wells have been producing for more than 50 days.  These wells have produced substantially higher oil volumes than indicated by the "Area B" type curve presented in Apache's North American Update on Nov. 20, 2014.  Apache plans to operate one to two rigs in the Eagle Ford during 2015.
• Egypt's gross production of 344,100 boe per day was down 4 percent from the prior-year period, primarily due to lower gas volumes at the Shell Egypt NV-operated Obaiyed Gas Plant. The lower gas volumes resulted from unplanned mechanical-related downtime and the operator exercising its right to utilize a greater portion of the plant capacity.
• North Sea production averaged 80,800 boe per day, up 7 percent compared to the prior-year period and the highest quarterly production rate in the history of Apache's operations in the region.      

"Apache had an excellent fourth quarter in both Egypt, where we made two significant new oil discoveries, and in the North Sea, where we achieved record quarterly operating efficiency and production volumes.  Both of these regions provide relatively stable cash flow and complement Apache's growth potential in North America, particularly during the current period of depressed oil and gas prices," said Christmann.

Year-end 2014 proved reserves

Worldwide estimated proved reserves totaled 2.40 billion boe at year-end 2014, down from 2.65 billion boe at year end 2013. The decrease in reserves was the result of sales of approximately 358 million boe of proved reserves during the year. These sales were partially offset by 313 million boe of proved reserves added through extensions and discoveries during the same period. During the year, Apache replaced 158 percent of 2014 North American production through extensions and discoveries.

Oil and gas prices

Apache's production during the fourth quarter 2014 consisted of approximately 62 percent liquids and 38 percent natural gas. Liquids contributed 81 percent of the company's revenue during the period. In North America onshore, Apache received an average oil price of $68.21 per barrel during the fourth quarter, compared with $91.64 per barrel in the prior-year period. North American onshore natural gas prices averaged $3.79 per thousand cubic feet (Mcf), compared with $3.55 per Mcf in the prior-year period. Globally, Apache received an average oil price of $70.89 per barrel during the fourth quarter, compared with $101.12 per barrel in the prior-year period. Global natural gas prices averaged $3.89 per Mcf of natural gas, compared with $3.78 per Mcf in the prior-year period.

Fourth-quarter 2014 charges to income

During the fourth quarter, Apache recorded after-tax, non-cash charges of $5.2 billion, the majority of which was attributable to the following items:  

• $2 billion reduction in the carrying value of oil and gas properties pursuant to quarterly ceiling test requirements for full cost accounting companies;
• $1.3 billion impairment of goodwill associated with prior year acquisitions;
• $1 billion deferred tax adjustment related to undistributed and distributed foreign earnings; and
• $750 million fair value impairment of downstream LNG assets held for sale.

2015 capital budget and production outlook

Apache anticipates capital spending of $2.1 to $2.3 billion in onshore North America and plans to run an average of 17 rigs in 2015.  Onshore North American production in 2015 is projected to be relatively flat from 2014 average production of approximately 302,000 boe per day, as adjusted for 2014 asset sales. The company's year-end 2015 onshore North American production exit rate is also projected to be relatively flat compared to the average production rate for 2015.

Internationally and offshore, the company is planning a capital budget of $1.5 to $1.7 billion and estimates that 2015 pro forma production will be up slightly from 2014 average production of 207,000 boe per day, as adjusted for 2014 and announced 2015 asset sales. The company's year-end 2015 international and offshore exit rate is projected to be relatively flat compared to its average production rate for the year.

Christmann commented, "We have planned our budget and operations in such a way that we can dynamically manage our activity levels and capital spending to respond quickly to material changes in commodity prices. Should we see a meaningful rebound in oil prices from current strip levels or a notable shift in our cost structure, we have the organizational capability to add rigs and production quickly and efficiently from our ready inventory of highly economic projects in North America."  

Conference call

Apache will conduct a conference call to discuss its fourth-quarter and full-year 2014 results at 1 p.m. Central time Thursday Feb. 12. The conference call will be webcast from Apache's website, www.apachecorp.com. The webcast replay will be archived on Apache's website. The conference call will be available for delayed playback by telephone for one week beginning at approximately 4 p.m. Central time Feb. 12. To access the telephone playback, dial 855-859-2056 or 404-537-3406 for international calls. The conference access code is 31399418.

Additional Information

Additional information follows, including reconciliations of adjusted earnings and cash from operations before changes in operating assets and liabilities (non-GAAP financial measures) to GAAP measures and information regarding pro forma production. Apache's quarterly supplement is available at www.apachecorp.com/financialdata.

About Apache

Apache Corporation is an oil and gas exploration and production company with operations in the United States, Canada, Egypt, the United Kingdom and Australia. Apache posts announcements, operational updates, investor information and copies of all press releases on its website, www.apachecorp.com, and on its Media and Investor Center mobile application, which is available for free download from the Apple App Store and the Google Play Store.      

Non-GAAP financial measures

Apache's financial information includes information prepared in conformity with generally accepted accounting standards (GAAP) as well as non-GAAP information. It is management's intent to provide non-GAAP financial information to enhance understanding of our consolidated financial information as prepared in accordance with GAAP.  Adjusted earnings and cash from continuing operations before changes in operating assets and liabilities are non-GAAP measures.   This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP.  Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure. 

Forward-looking statements

This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects" and similar references to future periods. These statements include, but are not limited to, statements about future plans, expectations and objectives for Apache's operations, including statements about our drilling plans and production expectations, asset sales,  monetizations and share repurchases. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties which could cause our actual results, performance, and financial condition to differ materially from our expectations. See "Risk Factors" in our 2013 Form 10-K filed with the Securities and Exchange Commission for a discussion of risk factors that affect our business. Any forward-looking statement made by us in this news release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future development or otherwise, except as may be required by law.

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