Apache (APA -2.26%) recently announced that severe winter storms and other factors will adversely affect its fourth-quarter production volumes. But a closer look reveals that this news isn't so bad after all, and the company's longer-term outlook remains promising, thanks to major strategic changes over the past few years.

Apache's operations update
In a January update of its fourth-quarter operations activity, Apache said that downtime and outages caused by severe winter weather negatively affected the company's fourth-quarter activities at its Permian Basin and Central Region operations. Widespread power outages in West Texas and New Mexico over the past couple of months, as well as a reduction in Central Region drilling activity, will result in lower oil and gas production for the fourth quarter, the company said.

While it's always nice to see an exploration and production company growing its output quarter over quarter, Apache's announcement isn't particularly concerning. Not only do weather-related events affect all companies operating in the affected areas, but Apache's reduction in production volumes must also be looked at within the context of the massive asset sale program it has embarked upon over the past year.

Asset sale strategy
Year-to-date, the company has announced more than $7 billion worth of asset sales and monetizations, including the sale of its Gulf of Mexico Shelf operations for $3.75 billion in July; the sale of Canadian properties for $214 million in August; and the sale of a one-third minority stake in its Egyptian oil and gas business to Chinese oil giant Sinopec (SHI) in November.

Since these properties were producing assets, they will obviously have a negative immediate impact on companywide production volumes, earnings and cash flow. Apache reckons that they will reduce the company's quarter-over-quarter production by roughly 134,000 barrels per day. But once you look beyond the near-term adverse impact, Apache's future looks solid.

Asset sales have allowed the company to whittle down and streamline its global asset portfolio, pay down as much as $2 billion in debt last year, and repurchase more than 8 million shares. But, more importantly, they have enabled it to concentrate more fully on its North American assets, which offer higher and more predictable rates of return.

Apache's growth core
These assets primarily include Apache's 1.6 million net acreage position in Texas' Permian Basin and its 1 million net acres across Oklahoma's Anadarko Basin. Third-quarter production in the Permian climbed 18% year over year to a record 132,000 boe per day, while Central region output surged 31% year over year to 95,000 boe per day, helping the company deliver 35% year-over-year growth in North American liquids production.

That rate of growth is truly impressive, putting Apache near the top of its peer group. By comparison, competitor Chesapeake Energy (CHKA.Q) saw its oil and natural gas liquids, or NGLs, production surge by 25% year over year; Pioneer Natural Resources (PXD) reported a more than 19% year-over-year increase in third-quarter oil and NGLs sales volumes; and EOG Resources (EOG -0.69%) increased its U.S. crude oil and condensate production by a remarkable 41% year over year.

Not only has Apache aggressively grown North American production at double-digit rates, but it has also consistently slashed drilling costs through pad drilling, mud programs, and other optimization techniques. Year-to-date, the company has reduced drilling and completion costs by $1.5 million per well in the Anadarko Basin's Tonkawa play and by more than $1 million per well in the Permian Basin's Wolfcamp and Cline Shale plays.

The bottom line
As a result of its portfolio rebalancing over the past few years, Apache finds itself in better financial health, and with a much more streamlined asset portfolio consisting of growth assets in North America, complemented by cash-generative assets abroad. With its Permian and Central Region assets featuring attractive rates of return of around 30% and more than 65,000 remaining drilling locations, Apache is well positioned to keep growing production at double-digit rates for several years to come.