Apache Earnings Call Nuggets: Lower Growth Rate in 2013 and Adjusted Guidance

Apache Corporation (NYSE:APA) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Lower Growth Rate in 2013

Arun Jayaram – Credit Suisse: Steve, I wanted to talk to you a little bit about the overall production. In October, you guys updated the market, and you’re about 800,000 barrels a day in overall production. So there – next quarter despite some pretty strong gains in the U.S. onshore and you’re guiding down now for Q1. So, the sense is you’re losing a little bit of operating momentum outside of the U.S. So I was wondering if you could just comment on that and just the overall shift to a little bit of a lower growth rate in 2013, notwithstanding the changes in capital allocation.

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G. Steven Farris – Chairman and CEO: To be real frank. Holding 800,000 barrels a day for quarter we were very proud of that frankly because we’ve never hit that from where we were. In terms of going into 2013, the first quarter we’re effected by hurricane, a cyclone in Australia. I will tell you though we put that downtime in our 3% to 5% growth projection. There is no doubt that we have some properties that are declining, but we’re going to more than make up for it in the Permian and the Anadarko Basin this year. We’re pretty confident about the long-term value of our Canadian assets also.

Arun Jayaram – Credit Suisse: I was wondering if you could comment. Has there been any change in the way you’re thinking about. I know guidance is relatively new to Apache thinking about the long term. Are you all changing your approach, you may be trying to guide to like P90 type of case versus P50 differently. So just trying to see if there has been any change in the way you’re thinking about guidance.

G. Steven Farris – Chairman and CEO: We are new to this. I have to be real honest with you. One thing that we don’t want to do is miss our guidance. We’re going to spend quite a bit of money intentionally in a few – remember what Rod said, $1.5 billion of that $2.2 billion is going to Australia. The biggest chunk of that is Julimar, Brunello and the Wheatstone LNG facility, which is now 80% – over 80% contracted. Those are tied to oil linked prices so when that comes on we are going to see about over 25,000 barrels a day for the next 25 years.

Adjusted Guidance

Pearce Hammond, Jr. – Simmons & Co.: Steve I just wanted to get a little color. You mentioned about the possibility of maybe divesting around $2 billion worth of assets for that 3% to 5% production growth guidance for 2013. Is that guidance already includes the potential sale of those assets if there’s production or would the guidance potentially need to be adjusted after the sale?

G. Steven Farris – Chairman and CEO: The guidance would be adjusted after the sale.

Pearce Hammond, Jr. – Simmons & Co.: My follow-up would be on service costs, specifically in the Permian and then in your Central region. Just curious as you look at 2013 and compare it to 2012, how do you see service costs trending? Do you think that prices are bottoming and are there any areas of services right now whether they are a little bit (tightening) in one of those regions?

G. Steven Farris – Chairman and CEO: Rod you…

Rodney J. Eichler – President and COO: The service costs in both areas are flat and declining and we see that – specifically we see that in the Permian. They are very large increases and then a frac stimulation companies as a result that’s provided simply downward pressure on the pricing of that. We have seen a 30% drop in frac spread costs compared to 2012 as well as we might expect to see even more decline in our side from using more self-sourcing of same in chemicals in 2013 which will allow us to further reduce those stimulation costs. Same thing on rig rates. Spud rates are much more favorable than they were. We’ve seen about a 5% to 7% decline in rig rates. For the mechanical rigs, 2,000 horsepower rigs we used to build the vertical wells at Deadwood, that’s an example and we expect to see continued downwards pressure on those as well.

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Roger B. Plank – President and Chief Corporate Officer: Just little bit of comment on the sales. We are going to identify exactly what it is we’re going to sell, but not everything necessarily would have current production. For example, the assets that we sold to Chevron I guess last week, we collected $400 million and there is no production associated with that.

A Closer Look: Apache Earnings Cheat Sheet>>