I have a friend whose favorite hashtag is #CantCatchABreak. She uses it to describe situations like arriving early at the bus stop only to have the bus run late.
It's a hashtag that could also be applied to poor Apache Corporation (NYSE:APA), which on Thursday reported better-than-expected fourth-quarter earnings only to see its share price fall to its lowest point in almost 15 years. Here's why.
Apache Corporation results: The raw numbers
|Metric||Q4 2017||Q4 2016||Change (YOY)|
|Revenue||$1.6 billion||$1.5 billion||9.3%|
|Adjusted production||362,251 BOE/D||363,657 BOE/D||(0.4%)|
|Operating cash flow||$668 million||$796 million||(16.1%)|
|Adjusted earnings per share||$0.33||($0.06)||N/A|
What happened with Apache Corporation this quarter?
- Adjusted production of 362,000 BOE/D was very slightly down from this point last year, even after adjusting for the company's divestitures of its Canadian assets. This partly reflects 17 days of unscheduled downtime in the North Sea as a result of a third-party pipeline issue that's now resolved.
- Notwithstanding the overall production decrease, U.S. production came in at the high end of guidance at 222,000 BOE/D, with volume in the Permian Basin up 10% sequentially. Total Permian production achieved a company record, exceeding the previous high set two years ago.
- The company reported $668 million in net cash from operating activities and adjusted EBITDAX -- which is EBITDA that also excludes exploration costs -- of $1.1 billion.
- Apache increased production from its Alpine High play in West Texas to 25,000 BOE/D by the end of the quarter.
- The company further reduced its net debt, which now stands at $6.8 billion, down from $7.2 billion at the end of 2016.
- During the fourth quarter, Apache operated an average of 36 rigs and drilled and completed 87 gross-operated wells worldwide. Six of those rigs were at Alpine High.
- The company completed construction of its fifth central processing unit at Alpine High, bringing processing capacity to 280 million cubic feet per day.
What management had to say
CEO John J. Christmann IV preferred to focus on the company's full year, saying:
2017 was a year of significant progress at Apache marked by several important milestones. In the Permian, we returned to a growth trajectory with notable oil growth in the Midland Basin and commencement of production from Alpine High. We made great technical progress in the Midland Basin increasing lateral lengths and utilizing technology to improve our recoveries and reduce our costs. We consolidated our land position, confirmed additional landing zones, and progressed numerous strategic tests. At Alpine High, we initiated first production ahead of schedule, substantially increased our inventory count, and began to realize operational efficiencies with pad drilling.
Apache's earnings were a positive surprise to analysts, who had been expecting EPS of only $0.22. The company soundly beat those projections by 50%. But the market was dismayed by Apache's production outlook.
The company is projecting adjusted production of between 375,000 and 395,000 BOE/D for 2018. That's lower than the 403,130 BOE/D the company put out during 2017, but if you don't count production from the company's now-divested Canadian assets, the 2017 figure drops to 371,747. Still, even if Apache comes in at the top end of its guidance range, that's only a 6.2% increase over 2017.
Part of the issue seems to be a longer-than-expected ramp-up of Alpine High, which the company now projects will only contribute 40,000 to 50,000 BOE/D for 2018. Apache expects that number to increase exponentially to the 160,000-180,000 range by 2020, but the market is looking for a quicker boost to production while oil prices are at their current levels.
Still, Apache's three-year projections, which predict a compound annual growth rate of 11% to 13% overall, and more than 150% at Alpine High, look good. And with anticipated strong double-digit returns on invested capital during the same period, Apache looks poised for long-term success. But as has been the norm with this company, it's taking a bit longer than expected.