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Apache's Q1 Loss Narrower Than Expected, Sales Miss Mark

Zacks Equity Research

Apache Corporation APA reported first-quarter 2020 loss per share — excluding one-time items — of 13 cents, narrower than the Zacks Consensus Estimate of a loss of 30 cents. This better-than-expected result is led by improved Permian production.

However, the bottom line came in against the year-ago quarter’s earnings of 10 cents per share due to weak commodity price realizations and increased operating expenses.

Revenues of $1.28 billion were 22% lower than the first-quarter 2019 sales of $1.64 billion and marginally missed the Zacks Consensus Estimate as well.

Last year, management had informed about initiating a strategic operational restructuring, which is expected to result in savings of at least $150 million. In the just-released earnings report, the company announced that it doubled its cost-saving target to more than $300 million.

Production & Selling Prices

Production of oil and natural gas averaged 467,771 barrels of oil-equivalent per day (BOE/d), which comprises 67% liquids. The figure fell 7% from the year-ago quarter due to an unimpressive contribution from the MidContinent/Gulf Coast region.

The U.S. output (accounting for 67% of the total) dipped 3% year over year to 282,636 BOE/d while the company’s international operations also decreased 3% to 140,635 BOE/d. Apache’s production for oil and natural gas liquids (NGLs) was 314,488 barrels per day (Bbl/d). Natural gas output came in at 919,699 thousand cubic feet per day (Mcf/d).

In the company's Permian Basin acreage, production volumes improved 10% to 273,091 BOE/d from 247,939 in the first quarter of 2019. Following a significant oil price slump since the beginning of March 2020, Apache reduced its rig count to zero in the Permian play.

The average realized crude oil price during the first quarter was $48.31 per barrel, down 16.3% from the year-ago realization. The number also fell short of the Zacks Consensus Estimate of $49.35. Moreover, the average realized natural gas price declined to $1.47 per thousand cubic feet (Mcf) from $2.34 in the year-ago period and also lagged the Zacks Consensus Estimate of $1.65.

Apache Corporation Price, Consensus and EPS Surprise

Apache Corporation Price, Consensus and EPS Surprise

Apache Corporation price-consensus-eps-surprise-chart | Apache Corporation Quote

Costs & Financial Position

Apache’s first-quarter lease operating expenses totaled $335 million, down 8.2% from the year-ago quarter. However, total operating expenses skyrocketed 291.8% from the corresponding period of 2019 to $5.8 billion. This was mainly on account of higher financing costs and increased costs related to asset impairment.

During the quarter under review, Apache generated $502 million of cash from operating activities while it invested $442 million as capital expenditures. The company reported an adjusted operating cash flow of $523 million in the first quarter.

As of Mar 31, this oil giant had approximately $428 million in cash and cash equivalents and $4 billion revolving credit facility, which matures in 2024. Meanwhile, Apache had a long-term debt of $7.9 billion.

Guidance

In response to the coronavirus-induced sudden oil price plunge, Apache recently cut its quarterly dividend and adjusted its capital guidance.

This Houston, TX-based explorer and producer slashed its quarterly dividend payout by 90% from 25 cents per share to 2.5 cents (effective Mar 12, 2020). Management stated that this tactic was necessary to boost the existing cash position. The move intended to strengthen the company’s financials will likely lower Apache’s annual dividend distribution by roughly $340 million.

In addition to the trimmed dividend, this independent energy player took various other measures to withstand the oil price drop. Apache lowered its 2020 upstream capital investment to $1.1 billion, indicating a 55% descent from the reported 2019-level.

Further, Apache plans to slash its rig count in the Permian basin to zero and “meaningfully reduce” its drilling and completion activity in Egypt and the North Sea region. The company also focuses onremoving all U.S. drilling and completion activity.

Zacks Rank & Key Picks

Apache has a Zacks Rank #3 (Hold). Some better-ranked players in the energy space are CNX Resources Corporation. CNX, Cheniere Energy, Inc. LNG and KLR Energy Acquisition Corp. ROSE, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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