Source: Apache Corporation.
As the third quarter was filled with oil price volatility, oil companies were forced to work harder than ever to improve their operations and finances to make sure they are in a position to ride out this storm. For some companies the fruit of that labor was quite evident, which certainly was the case for Apache (APA 0.34%) after it reported a much stronger-than-expected quarter. Here are three accomplishments from its third-quarter report that deserve to be highlighted.
1. More oil for its buck
Without increasing its capex budget one penny -- in fact it's significantly lower year over year – Apache is again raising its 2015 production guidance range. In North America, the company expects to produce 307,000 to 309,000 barrels of oil equivalent per day, or BOE/d, which is an increase from its prior guidance of 305,000 to 308,000 BOE/d and represents more than 2% year-over-year growth. It's likewise raising its international and offshore production guidance from 164,000 to 168,000 BOE/d up to a range of 172,000 to 174,000 BOE/d, which represents even more robust 10%-12% year-over-year growth.
Two factors are playing a role in this increase. First, the company's well costs are coming down rather substantially, with costs in the Midland Basin, for example, down 44% year over year, enabling it to drill more wells with less money. In addition, record production efficiency in the North Sea thanks to solid base performance and better-than-expected contributions from new wells are fueling its increased outlook overseas.
2. Balance sheet gets even better
Not only is Apache's production improving without any extra spending, but its balance sheet is improving, too. The company paid down $900 million in long-term debt during the quarter, bringing debt down to $8.8 billion. That's a pretty big reduction from the $12.5 billion level it has had in the past.
APA Financial Debt (Quarterly) data by YCharts
Debt should head even lower before the year is out, because the company has another $500 million in non-upstream assets that are being sold.
3. Big discoveries in the North Sea
Apache also announced surprising success in its UK North Sea operations. Not only was production up 6% thanks to strong contributions from new wells and record third-quarter production efficiency of 92%, but the company also announced a number of new discoveries in the Beryl Area. These discoveries, when combined with other drilling successes, are expected to boost the company's net reserves by 50 million to 70 million BOE. That's almost half of what its proven reserves in the region were last year.
The Beryl Area has proved to be much stronger than initially thought, which is one reason Royal Dutch Shell (RDS.A) (RDS.B) paid $525 million a couple years ago get a stake in some of the 12 fields located on the UK Continental Shelf. These fields, which Apache operates, are expected to continue producing for the next 20 years. Discoveries such as the recent K Discovery, where Apache and Shell are 55%/45% partners, as well as future developments from Shell, Apache, and other field partners, are key to the continued success of the area to grow production at a time when most North Sea fields are declining.
Investor takeaway
Apache highlighted three important accomplishments during the third quarter. First, its operations were really strong, which will allow the company to produce more oil this year than initially expected while staying within its budget. Second, its balance sheet continues to get better, with debt falling substantially and more debt reductions on the way. Finally, its North Sea operations are turning out to be a real growth driver, with production better than expected and recent discoveries breathing new life into the field. Together, these accomplishments have the company well positioned to not just survive the downturn but to actually thrive at a time when others are not.
