Apache Corporation announces fourth-quarter and full-year 2016 financial and operational results and announces 2017 capital program
Achieved full-year 2016 production target, with reported production of 522,000 barrels of oil equivalent (Boe) per day and adjusted production of 449,000 Boe per day;
Funded $1.9 billion in oil and gas capital investments for the year, below guidance of $2 billion;
Discovered a significant new resource play in the Delaware Basin at Alpine High adding thousands of new drilling locations;
Realized a 16-percent year-over-year reduction in lease operating expenses on a per barrel basis;
Achieved target of unchanged net debt and ended the year with $1.4 billion in cash;
Establishes a 2017 capital budget of $3.1 billion, with nearly two-thirds directed towards the Permian Basin; and
Outlines strong, organic growth rates from fourth quarter of 2016 to the fourth quarter of 2018:
Total company production is projected to grow at an average annual rate of approximately 10 percent.
Total Midland and Delaware basin production is projected to grow at an average annual rate of more than 50 percent.
Oil production in the Midland and Delaware basins is projected to grow at an average annual rate of approximately 18 percent.
HOUSTON, Feb. 23, 2017 – Apache Corporation (NYSE: APA) (Nasdaq: APA) today announced its financial and operational results for the fourth quarter and full year 2016.
Apache reported a net loss attributable to common stock of $182 million or $0.48 per diluted common share during the fourth quarter 2016, including non-cash, after-tax impairments of $90 million. When adjusted for these and certain additional items that impact the comparability of results, Apache’s fourth-quarter loss totaled $22 million, or $0.06 per share. Net cash provided by continuing operating activities in the fourth quarter was $819 million, and adjustedEBITDAX was $878 million.
For the full year 2016, Apache reported a loss of $1.4 billion, or $3.71 per diluted common share. On an adjusted basis, Apache’s 2016 loss totaled $430 million, or $1.13 per share. Net cash provided by continuing operating activities was $2.5 billion, and adjusted EBITDAX was $3.1 billion in 2016.
John J. Christmann IV, Apache’s chief executive officer and president, said, “2016 was a very successful year and an important step in Apache’s transformation. We protected our balance sheet in a volatile price environment, remained focused on costs, and allocated our capital to high-return projects and strategic testing opportunities. This strategy resulted in an expanded economic drilling inventory, meaningful improvements in Permian Basin well performance, a more streamlined portfolio, and lower overhead and operating costs. We also discovered and announced the Alpine High, a sizeable new resource play in the Delaware Basin, which brings significant drilling inventory and puts Apache in one of the most exciting and competitive positions in the industry.
“After two years of dramatic reductions to our capital program, our strategic objective has shifted in 2017 to delivering returns-focused growth. Accordingly, we are increasing our capital budget more than 60 percent this year over our 2016 spend, which will materially impact Apache’s production trajectory beginning mid-year. We are poised for excellent long-term organic growth through 2018 and beyond, which will be driven primarily by our high-quality acreage positions in the Delaware and Midland basins.”
Capital budget outlook
The company’s budgeted oil and gas capital investment for 2017 is $3.1 billion. This level of investment will exceed planned cash flow from operations, but given the depth of its attractive opportunities, Apache believes increased investment is strategically important for the year. Based on current strip pricing, the remaining outspend will be funded primarily by proceeds from non-core asset sales, more than $400 million of which were already received in the first quarter. Apache has also implemented a hedging program for 2017 oil production to protect cash flows from downside price risk.
The majority of the budgeted 2017 capital investment, approximately 65 percent or $2 billion, is being directed to growth opportunities in the Permian Basin, of which $500 million will be for infrastructure at Alpine High. Internationally, Apache will continue to invest at a level to sustain long-term free cash flow in Egypt and the North Sea. Capital investment in these two regions is expected to total approximately $900 million and will primarily focus on low-risk development and step-out exploration opportunities.
Apache also provided a preliminary view into 2018 capital, with an expected budget for the year of $3.2 billion. Like 2017, the 2018 plan is expected to be heavily weighted toward investments in the Permian Basin.
While Apache is now investing at a level that will generate meaningful long-term growth rates, production will experience a brief decline before transitioning to a strong growth trajectory around mid-2017.
During the first half of the year, the company anticipates production will decline as a result of scheduled downtime for the annual maintenance turnaround in the North Sea, scheduled downtime for plant maintenance in Canada, and natural declines as a result of reduced investment in lower-margin, North American Onshore regions during 2016. The North Sea annual turnaround, which usually takes place in the third quarter each year, has been scheduled for the second quarter 2017 to prepare facilities for first production from the Callater subsea tieback.
“Once scheduled maintenance is behind us and the impact of our increased capital investment program begins to take hold, we anticipate our production volumes will steadily climb in the second half of the year when Alpine High sales volumes, increased Midland Basin activity, and the North SeaCallater development all come online. We are very confident that our portfolio is capable of delivering strong production growth and achieving the guidance we are providing today,” said Christmann.
Specifically, the company expects total company production to increase by approximately 10 percent annually from the fourth quarter of 2016 to the fourth quarter of 2018. Total Midland and Delaware basin production is projected to grow at an annual rate of more than 50 percent over this same time period and drive the vast majority of Apache’s overall production increase. Oil production growth from the Midland and Delaware basins will also be very strong, with an expected annual rate of approximately 18 percent.
Fourth-quarter operational summary
During the fourth quarter, Apache operated an average of 18 rigs and drilled and completed 29gross-operated wells worldwide. Highlights from Apache’s three principal areas include:
North America Onshore – Apache drilled and completed 17gross-operated wells in North America Onshore during the fourth quarter and reported production of 252,000 Boe per day in the fourth quarter.
In the Permian Basin, Apache operated an average of seven rigs and drilled and completed 17gross-operated wells during the quarter, down from 29 wells drilled and completed in the third quarter. Production averaged 149,000 Boe per day.
During the quarter, Apache completed five wells at Alpine High. Delineation drilling confirmed an overpressured regime across the acreage position, a productive hydrocarbon column in the southern portion of the play, and productivity from the Pennsylvanian formation.
In addition to Alpine High, the company drilled and completed four gross-operated wells in other areas of the Delaware Basin, primarily targeting the Bone Springs formation.
The company also drilled and completed eight gross-operated wells during the quarter in the Midland Basin, Northwest Shelf and Central Basin Platform.
North Sea – Production in the North Sea was 70,000 Boe per day, which was a 12-percent increase compared to the previous quarter. During the quarter, construction on the subsea tieback at Callater progressed on schedule for first production in the third quarter 2017.
Egypt – Gross production in Egypt declined slightly from the third quarter. On a net basis and excluding minority interest and tax barrels, Egypt production was down 7 percent sequentially from the third quarter to 90,000 Boe per day primarily due to the impact of improving Brent oil prices on the cost recovery mechanisms in production sharing contracts. During the quarter, Apache was awarded two concessions in November comprising 1.6 million acres, which are expected to be signed mid-2017.
During the fourth quarter of 2016, Apache entered into multiple transactions to sell certain noncore assets. These included a midstream infrastructure asset in the North Sea, which is expected to close later in 2017, and two smaller leasehold packages in the Midland and Delaware basins that were completed during the first quarter of 2017.
Financial position and liquidity
At year-end, the company had access to available liquidity of approximately $5 billion, including $1.4 billion in cash on hand and $3.5 billion in available borrowing capacity under its committed credit facility. The company’s credit facility matures in June 2020. Apache has reported debt of $8.5 billion as of Dec. 31, 2016, with no debt maturities before 2018 and only $700 million of debt maturing before 2021.
Year-end 2016 proved reserves
Worldwide estimated proved reserves totaled 1.3 billion Boe at year-end 2016, down from 1.6 billion Boe at year-end 2015. This decline is almost entirely associated with production- and commodity-price related revisions. Changes in Apache’s reserves during the year consisted of the following: divestitures of 7 million barrels of oil equivalent (MMboe); production of 191 MMboe; and revisions of previous estimates of 159 MMboe. These decreases were partially offset by 103 MMboe of proved reserves added through net extensions and discoveries. Apache’s proved undeveloped reserves as a percentage of total proved reserves fell to 10.5 percent at year-end 2016 as a result of lower commodity prices and revised timing of development plans associated with reduced rates of capital expenditures. 2016 worldwide estimated reserves include limited contributions from Alpine High.
Apache will host a conference call to discuss its fourth-quarter and full-year 2016 results at 1 p.m. Central time, Thursday, Feb. 23. The conference call will be webcast from Apache's website at www.apachecorp.com and investor.apachecorp.com, and the webcast replay will be archived there as well. A replay of the conference call will be available for seven days following the call. The number for the replay is 855-859-2056 or 404-537-3406 for international calls. The conference access code is 48376856. Sign up for email alerts to be reminded of the webcast at http://investor.apachecorp.com/alerts.cfm.
Additional information follows, including reconciliations of adjusted earnings, adjusted EBITDAX and net debt (non-GAAP financial measures) to GAAP measures and information regarding adjusted production. Apache’s quarterly supplement is available at www.apachecorp.com/financialdata.
Apache Corporation is an oil and gas exploration and production company with operations in the United States, Canada, Egypt and the United Kingdom. Apache posts announcements, operational updates, investor information and copies of all press releases on its website, www.apachecorp.com, and on its Media and Investor Center mobile application, which is available for free download from the Apple App Store and the Google Play Store.
Non-GAAP financial measures
Apache’s financial information includes information prepared in conformity with generally accepted accounting principles (GAAP) as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of our consolidated financial information as prepared in accordance with GAAP. Adjusted earnings, adjusted EBITDAX and net debt are non-GAAP measures. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure is presented along with the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure.
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects,” “guidance,” “outlook,” and similar references to future periods. These statements include, but are not limited to, statements about future plans, expectations and objectives for Apache’s operations, including statements about our capital plans, drilling plans, production expectations, asset sales, and monetizations. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties which could cause our actual results, performance, and financial condition to differ materially from our expectations. See "Risk Factors" in our 2015 Form 10-K filed, and 2016 Form 10-K when filed, with the Securities and Exchange Commission for a discussion of risk factors that affect our business. Any forward-looking statement made by us in this news release speaks only as of the date on which it is made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future development or otherwise, except as may be required by law.
Cautionary note to investors
The United States Securities and Exchange Commission ("SEC") permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable, and possible reserves that meet the SEC's definitions for such terms. Apache may use certain terms in this earnings release, such as "resources," "potential resources," "resource potential," "estimated net reserves," "recoverable reserves," and other similar terms that the SEC guidelines strictly prohibit Apache from including in filings with the SEC. Such terms do not take into account the certainty of resource recovery, which is contingent on exploration success, technical improvements in drilling access, commerciality and other factors, and are therefore not indicative of expected future resource recovery and should not be relied upon. Investors are urged to consider carefully the disclosure in Apache's Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2015, (and Apache’s Annual Report on Form 10-K for the fiscal year ended Dec. 31, 2016, when filed) available from Apache at www.apachecorp.com or by writing Apache at: 2000 Post Oak Blvd., Suite 100, Houston, TX 77056 (Attn: Corporate Secretary). You can also obtain this report from the SEC by calling 1-800-SEC-0330 or from the SEC's website at www.sec.gov.
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