With a number of the world's key oil-producing areas mired in internal or geopolitical skirmishes, U.S. fracking being besieged by an ascending environmental cacophony, and shrinking refining margins cutting into upstream strength for the majors, I'm becoming partial to a group of independent producers. Indeed, I'm inclined to also include those North American companies conducting operations in the calmer overseas venues.
Strength in independence
I'm referring, for instance, to the likes of Houston-based Apache Corp. (NYSE: APA) and EOG Resources (NYSE: EOG), along with Oklahoma City's Devon Energy (NYSE: DVN). Each member of this threesome stepped up last week with solid results for the fourth quarter of 2011, along with expectations of a further strengthening this year.
Apache's strong beat
Let's spend our time here on Apache, which managed to boost its earnings by a whopping 73% YOY to $1.17 billion, or $2.98 a share, compared with $670 million, or $1.77 a share, for the comparable quarter of 2010. Adjusted income came to $2.94 per share, handily beating the $2.87 per-share consensus among analysts who follow the company.
With global production up by 4.2%, and commodity prices -- including the effects of hedging -- higher by 24% for oil and 3% for natural gas, revenue climbed by 25%, to $4.3 billion. It's also important to note that, along with its technological sophistication, Apache boasts an inventory of balanced assets that yielded 50% of its production in liquids.
What lies ahead?
Looking at expectations for 2012, G. Steven Farris, CEO of Apache -- which has operated in the Gulf of Mexico and onshore North America, along with Egypt, Australia, the North Sea, and Argentina -- noted on his conference call following the release of earnings:
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 the deepwater Gulf of Mexico and also our global exploration. We live within our means, and we do it consistently.
Apache clearly has no intention of letting grass grow under its feet in the rekindled Granite Wash play in the Anadarko Basin portion of the Texas Panhandle. While it was worked by horizontal drilling for a number of years, the Granite Wash has now been converted to a largely horizontal drilling / hydraulic fracturing venue. In the process, it's yielding significant increases in liquids volumes.
Meanwhile, back at the ranch
Further, just last week Apache announced that it had achieved successful results in five of six wells drilled in the newly awakening Bivins Ranch area of the Whittenburg Basin, about 100 miles west of the company's Anadarko Basin properties. Also in close proximity, just last month Apache announced that it would spend $2.85 billion to acquire privately held Cordillera Energy Partners, which holds 254,000 net acres and 71.5 million barrels of oil equivalent in the Granite Wash, Tonkawa, Cleveland, and Marmaton plays of western Oklahoma and the Texas Panhandle.
Other U.S. plays that will receive attention from Apache this year include the deepwater Gulf of Mexico, the Permian Basin of southwest Texas and New Mexico, and Alaska's Cook Inlet. The company's Permian Basin acreage was increased in 2010, for $2.5 billion, when it acquired a substantial position in the longtime play from BP (NYSE: BP), along with the assets obtained from the troubled London-based giant in Canada and Egypt.
I recognize that Egypt obviously doesn't qualify as one of the "calmer" overseas venues that I mentioned above, a fact that Farris essentially acknowledged when he observed, "Clearly, the events in Egypt had an impact on our share price over the last year." As such, as with many Middle Eastern and North African nations, events in the country merit close attention from those with an interest in companies working there.
Additional non-U.S. locations that will receive attention from Apache during 2012 include Canada, deepwater Kenya, Argentina, New Zealand and Australia, and the North Sea. According to Rodney Eichler, Apache's president, the company intends to double its Aussie investment in 2012, as several of its projects "move into the heart of the construction phase." Those activities include a position with Chevron (NYSE: CVX) -- which serves as operator -- in the big Wheatstone LNG project west of Onslow in Western Australia.
Dividend hike?
There are further compelling aspects of Apache which merit our attention -- including an encouraging statement from Farris on the conference call that the company "put (increasing dividends) on hold as the world went through its turmoil over recent years, but we believe it is the right time to resume our dividend growth."
Interested in following Apache more closely? If so, I strongly suggest that do so by adding the company to your Watchlist.
