Apache (APA) has been buying opportunities for expansion, while maintaining a generous portion of plays in natural gas, natural gas liquids and crude oil. The company's $15 billion spending spree so far has paid off with major productive assets solely and through joint ventures in the Gulf of Mexico, Argentina, Australia, Egypt, and the U.S.
Although competitive with companies like Anadarko Petroleum (APC), BP, Exxon Mobil (XOM), and Total SA (TOT), Apache is becoming more diversified than most other energy companies. While other companies might analyze the merits of such plays, this nearly 60-year old company is cutting deals and making purchases quickly. There is no paralysis by analysts here, which is why I believe this company is a smart buy to be added to the energy sector of any investment portfolio.
Apache is pursuing deals where oil and gas can be found. Currently the company is very active in exploring and producing oil and gas resources in Australia. The company has approximately 6.7 million acres under lease with an average daily production of 69,000 barrels of oil equivalent and over the next three years, these projects are expected to add tens of thousands of barrels of production. Also, the company recently announced that from the Chevron-operated Wheatstone project in Western Australia, an Apache Australian subsidiary and its partners have agreed to sell liquefied natural gas (LNG) to Tohoku Electric Power Company Incorporated. The Wheatstone partners and Tohoku signed a Heads of Agreement to supply for up to 20 years, up to 1 million metric tons per annum (MTPA) of LNG. The Apache subsidiary, Apache Julimar Pty Ltd, through its 13% share in Wheatstone, will supply up to 19 million cubic feet of natural gas per day to Tohoku. The company has allocated $1.8 billion in capital for this year to go toward its Australian operations.
Argentina is one of the next exciting plays for Apache. CEO G. Steven Farris commented on the region in a first quarter 2012 conference call:
One change in our capital plans for the year in Argentina were our technical work has delineated about 650,000 acres in the oil window position in the Vaca Muerta shale. Most of these are either adjacent to our vicinity of the recent wells that have generated so much excitement down there, and our first test results have been very encouraging. And we have increased our region's capital program by 20% to accelerate our drilling and recompletion activity in this potentially very large oil resource play.
Apache is the fifth-largest gas producer in Argentina, accounting for 4% of national output. It is investing in the development of shale gas resources in the Neuquen Basin.
For the first-quarter 2012 results, the company reported record worldwide production as the company benefited from higher prices for oil and natural gas liquids. Apache's daily production increased 7% over the same period the prior year, and worldwide production was 769,000 barrels of oil equivalent (BOE) per day, compared with 732,000 boe per day the same period the year before. In 2011, the total included 11,000 boe per day from certain assets in Canada, and East Texas, that were sold in the second half of 2011. U.S. liquids production reached 148,000 barrels per day, representing an 11% increase over first-quarter 2011 results, as global liquids production rose 6% over the same period. The company also reported record revenues of $4.5 billion in the first quarter.
Oil production was up for Apache for this first quarter. The company increased onshore U.S. drilling activity by 56%, from 36 rigs operating at the beginning of the year to 56 currently. The company also recently acquired Cordillera Energy Partners III causing Apache to more than double its position in the Anadarko wash play to nearly 550,000 acres. There is an even greater increase in the company's exposure to the horizontal Tonkawa, Granite Wash, Cleveland, and Marmaton, gas condensate and oil plays. The number of rigs has increased from six at the beginning of 2012 to a total of 22, of which 21 are horizontal. For this first quarter, production in the Permian Basin increased to 99,000 boe per day because of increased drilling representing an 18% rise from the first quarter of 2011. Here, the company operates 31 rigs in the region, including six horizontals.
The company is getting good news from the U.K. as well. One well, Mobil North Sea Limited, that Apache acquired from Exxon Mobil at the end of 2011, which includes operating interests in Beryl, Nevis, Ness, Nevis South, Skene, and Buckland fields, is showing some very promising results. The company announced that an extension well had initial production rates higher than any oil well drilled at the Beryl Field in the U.K. North Sea since 2001. Apache said that it found virgin reservoir pressure in two of three zones containing more than 300 feet of net true vertical pay. The company is the operator and owns 50% of Beryl Field with other owners Hess (HES) (22.22%), Enterprise Oil Ltd. (22.78%), and OMV (U.K.) Ltd. (5%).
The company's exploration and production plays are paying off. Apache has a market cap of $36.43 billion and the dividend yield of the company stock is 0.7%. The company had an annual average earning growth of 15.3% over the past 10 years. For the first quarter 2012, crude oil revenues totaled $3.5 billion, $620 million higher than the comparative 2011 quarter, resulting in a 14% increase in average realized prices and a 6% increase in worldwide production. Crude oil accounted for 79% of oil and gas production revenues and 45% of worldwide production in the first quarter of 2012. Higher realized prices added $397 million to the increase in first-quarter 2012 revenues compared to the prior-year quarter, while higher production volumes contributed an additional $223 million.
Sir Richard Branson of Virgin Records fame and owner of Virgin Group once said that "The only difference between those who succeed and those who don't is timing: those who succeed jump at opportunities while others ponder the situation." It is obvious that Apache is a company that acts quickly to take advantage of opportunities and it shows in the company's success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.