The second quarter was relatively kind to oil and gas producer Apache (NYSE:APA). While certain peers like XTO Energy (NYSE:XTO) may prove to have pulled down higher prices thanks to favorable hedging arrangements, I don't think anyone can boast of the natural portfolio balance that saved Apache's skin.
The thing is, most of the so-called independents -- the large E&Ps without refining and marketing businesses -- are quite levered to North America, or natural gas, or both. Apache sports both a more international and oily product mix.
Consider the sad state of North American natural gas. Industrial demand continues to slump, and curtailments by the likes of Chesapeake Energy (NYSE:CHK) have yet to take much of a bite out of production growth. Apache thus saw its price realizations (i.e., sales net of hedging effects) drop 16% from an already depressed first quarter.
The thing is, over 40% of Apache's gas production pie came from outside North America this quarter, and that fast-growing slice saw an 8% sequential increase in price. Oil production, which comprises 48% of Apache's output, is an even bigger differentiator. With the increase in crude prices this quarter, Apache saw oil and liquids revenue jump 45% sequentially.
The much stronger economics of oil production are motivating some peers, like EOG Resources (NYSE:EOG), to shift to a more balanced mix. That outfit, which produced 75% gas in 2007, is targeting a 50/50 gas and liquids split by 2013. Anadarko Petroleum (NYSE:APC) should also see an improvement in its mix as it brings on more deepwater projects, but the firm was about 64% gas-weighted as of the first quarter.
For now, Apache's balance is yet another reason that this firm stands out among the U.S. independents.
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