"Pound for pound, I will never break down
No sir, I don't mess around."

-- Sugar Hill Gang, "Apache (Jump on It)"

Since the Sugar Hill Gang penned that ditty back in 1982, dividend-reinvesting Apache (NYSE:APA) shareholders have enjoyed roughly a 20-bagger. OK, so it's no Wal-Mart or Berkshire Hathaway, but still -- this company doesn't mess around.

So where does Apache stand today? In addition to a highly informative investor conference held last month, we also have the most recent quarterly results as a guide. Production came in 14% higher than the prior year, which is extremely robust for a large, independent oil and gas producer these days. Occidental Petroleum's (NYSE:OXY) production was essentially flat after adjusting for divestitures.

Of the comparable firms I've seen report this quarter, only Petro-Canada (NYSE:PCZ) has turned in more impressive production growth. Operating cash flow, which is driven beyond all else by Apache's terrific Gulf Coast assets, also looked robust, up 16% over last year and 23% sequentially.

Of course, those are the numbers that the company placed front and center in its release. No mention was made of the company's persistent cost pressures. Fortunately, all the information we need to explore this matter for ourselves is included in the income statement. It's just not written in Earthling.

Now, in order to get an appropriate read on costs, it's important to measure various expenses on a BOE basis. It's perfectly acceptable to see costs rise in line with production. It's only when costs are rising faster than output that I start to get a bit concerned. On a quarterly basis, the company's per-barrel production costs, otherwise known as lease operating costs or lifting costs, rose faster than production. General and administrative (G&A) expense similarly outran production growth.

My concerns ebb when I look at Apache's six-month results, and I see that its costs have risen right in line with production growth. Apache has done an admirable job, given the industry-wide margin squeeze, but there are companies out there that are doing even better at containing their costs. XTO Energy (NYSE:XTO), for example, has grown production by double digits with only a 2.5% rise in lifting costs on a six-month basis.

Some might consider it worthwhile to bear somewhat elevated costs to gain access to the high upside potential of an elephant hunter like Apache. I, however, think it's unwise to take your eye off any E&P company's cost structure. Keeping that structure lean means that pound for pound, it'll never break down.

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Fool contributor Toby Shute doesn't own shares in any company mentioned. Berkshire Hathaway has been chosen by Stock Advisor, and Wal-Mart is an Inside Value stock. The Motley Fool's disclosure policy will rock you out of your moccasins.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.