Don't Admonish Apache

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I was going to dub independent oil and gas firm Apache's (NYSE: APA) quarter as "patchy," but we already used that zinger three years ago. As I look back in time, I'm reminded of the saying that history doesn't repeat, but it often rhymes.

Just as in 2005, Apache is today cashing on in lofty energy prices. Oil and gas revenue rose 60% over the prior year's second quarter, while cash generation set a new high-water mark well north of $2 billion. These huge numbers were entirely the result of higher price realizations, with production off a tad both sequentially and year over year.

I've unfairly knocked Apache in the past for limited disclosure in its quarterly press releases. It turns out that, unlike Southwestern Energy (NYSE: SWN) and Chesapeake Energy (NYSE: CHK), who lay everything out in the PR, Apache breaks down its per-barrel production costs and cash margins in a separate document on its website. There, we see that while the company's cash cost to pull a barrel of oil out of the ground rose 30% over the past year, cash margins actually fattened to 77%.

Also encouraging was management's comment during the conference call that controllable costs actually saw a sequential decline. As we've seen with XTO Energy (NYSE: XTO), production taxes rise along with oil and gas prices. People calling for a windfall profits tax may not be aware of these production and ad valorem taxes, which are entirely distinct from the corporate income tax.

I could admonish Apache for failing to deliver production growth this time around, but that would be kind of crazy. The firm delivered a 29% annualized return on capital employed, and a 35% return on equity. This management team continues to wisely allocate capital. Upcoming projects like the BHP Billiton-led (NYSE: BHP) Pyrenees field development and the massive Horn River joint venture with EnCana (NYSE: ECA) are evidence of an unbroken trend in Apache's acting like a shareholder's friend.

Apache's a popular one in Fooldom, sporting a five-star rating in Motley Fool CAPS. Others seem to agree that there's more to oil and gas than production growth. See what your fellow Fools have to say right here.

Related Foolishness:

• Last quarter told a similar tale.
• Apache's taking things even slower than this consistent grower.
• Is that you, Goldilocks?