Apache (APA, Financial) looks well positioned with the shift of production that is driving its growth this year. Apache expects Permian production to enhance its profitability this fiscal year. It is seeing strong growth momentum for its Permian production in North America that has already gone past the earlier guidance of 12% to 15% growth provided by the company. Its production has increased 25% for the last nine months, with still a quarter to go.
Progressing well
Apache is progressing well with its North American drilling program that is expected to deliver on-shore liquid production growth of 5% sequentially and approximately 15% year-on-year basis for the current quarter. For the full year, the company expects its North American liquid production growth to come at the higher end of its 15% to 18% guidance, which is quite appealing. Besides, the company is also executing cost-cutting initiatives at its Permian regions that should improve its performance going forward.
The increased growth is associated to its mix shift to more horizontal drilling. The horizontal well count has increased about 50% this year, while vertical is down around 40%. The company sees strong growth for Permian in the future as well with its Wolfcamp horizontals in the Southern Midland Basin, its Yeso program in the Northwest shelf and its horizontal Bone Springs wells in the Delaware Basin.
More rigs
Apache is getting the most out of its production. The company has recently completed four very strong Bone Springs well in Pecos Bend area in Reeves Country. The average initial production for 30 days was well over 1,000 barrels equivalent per day from these wells. Also, it has ramped up activity for 10 rigs in its Eagle Ford play.
In addition, the company effectively spud approximately 29 wells that include four of its separate pads. Also, Apache managed to bring two of its first pads online in the Reveille area Williston County. These two of its first pads have averaged 30 days initial production of 609 barrels of oil equivalent a day. Apache has managed to lower well costs at Eagle Ford play that is helping the company to have production at these rigs well within its capital program and yielding higher rate of about 63% from these wells.
Furthermore, the company is scaling back the production for its traditional Granite Wash and Tonkawa plays in the Anadarko Basin. Also, the company is focusing on the drilling program in the Canyon Lime play in Oldham and Potter Country in Texas Panhandle. At present, Apache has 16 rigs running in the Anadarko Basin and 4 rigs in promising Canyon Lime. Apache also has three rigs in its Duverney and Montney plays in Canada. It has additional spud initial wells at the Duverney seventh well pad and has recently drilled the first well at its Montney two well pad.
The company expects its Duverney and the Montney to offer some of the best reservoir rock in North America. The company expects these plays to drive its production growth in the future. Also, it has elevated its well costs and its completions that should accelerate its earnings going forward.
Selling of non-core assets
Apache plans to continue with its high-grade North American asset base through the addition of leasehold in key growth areas and sale of non-core acreage. It has invested approximately $520 million primarily in leasehold in the sweet spots of its key growth area. Also, the company is raising funds from sale of its non-core North American assets. It is expected to sell $1.4 billion worth of assets.
Conclusion
Apache Corporation looks good on its production profile that should enhance its growth in the future. The stock is currently being traded at the forward P/E of 15.10 that shares cheap valuation for the stock. It has operating profit margins of 36.19% for the last trailing months. Its balance sheet carries total cash of $510.0 million, while its total debt of $10.92 billion. It has operating cash flow of $9.0 billion.
