BY BOB CAMPBELL
Notwithstanding volatility in prices for oil, natural gas and global liquefied natural gas, the Apache Corp. remains optimistic for the long-term prospects of those commodities, said President-CEO John Christmann in his Houston-based company’s recent first quarter earnings call.
“For the last several years we have been navigating a volatile price environment and this has been amplified recently with the ups and downs of global oil prices, extreme moves in global LNG pricing and the rapid decline in U.S. natural gas prices,” Christmann said. “Despite this volatility, we are constructive on long-term prices for oil, natural gas and LNG.
“Based on this fundamental belief, we plan to invest over the long term for sustainable low single-digit production growth at attractive returns,” he reported. “That said, we cannot ignore price volatility and will therefore seek to moderate our investment plans during periods of significant price weakness.”
Christmann said Apache must also be responsive to changing governmental tax and regulatory regimes within its countries of operations.
“Fortunately, our diversified portfolio provides us optionality and we maintain the flexibility to adjust our investment plans relatively quickly,” he said. “In 2023 we have demonstrated this by reducing natural gas-directed activity and even curtailing production in response to extreme Waha price dislocations.
“We also made the decision to reduce spending in the North Sea as the recently enacted energy profits levy has resulted in less competitive return opportunities than in the U.S. and Egypt.”
Executive Vice President-Chief Financial Officer Steve Riney said Apache paid $174 million for the remeasurement of its deferred tax liability in the United Kingdom that was caused by an increase in the energy profits levy.
“This was partially offset by the release of a valuation allowance on U.S. deferred tax assets,” Riney said. “Excluding these and other smaller items, adjusted net income for the first quarter was $372 million or $1.19 per diluted common share.”
He said free cash flow, excluding changes in working capital, was $272 million in the quarter, 81 percent of which was returned to shareholders through dividends and share repurchases.
“As John noted, it was a strong quarter for production and costs were a good bit under plan,” Riney said. “G&A expense was $65 million, significantly below both the prior quarter and the same quarter last year.
“Excluding the mark-to-market impact, underlying quarterly G&A (general and administrative) costs remained stable at roughly $100 million. Lease operation expenses also came in a good bit below expectations primarily due to the mark-to-market impact of stock-based compensation programs as well as foreign currency impacts in Egypt.
“Switching to forward-looking guidance items, in the U.S. oil production growth is expected to return in the second quarter and should ramp further in the third quarter in conjunction with completion cadence.”
Riney said Apache’s domestic natural gas production outlook “is more muted as we are responding to weak Waha pricing with lean gas drilling reductions.
“In addition we could see further lean gas production curtailments, but to be clear, further curtailments are not contemplated in our U.S. production guidance,” he said.
