Apache earnings drop 44 percent for 4Q

Apache Corp. has been hit hard by the downturn in natural gas drilling in North America, as lower margins and increased costs drove down earnings for 2012.

The Houston-based independent oil and gas company on Thursday reported $668 million in net income  for the fourth quarter, a 44 percent decrease from $1.2 billion for the same time last year.

The drop in profits comes even as Apache has ramped up production and sales. The company increased its fourth quarter 2012 revenue to $4.4 billion, up 2 percent from $4.3 billion for the same time last year. It increased average daily production up to 779,000 barrels of oil equivalent per day, up 5.4 percent from last year’s production.

Apache is the leading oil and gas driller in the Permian Basin of West Texas and is deeply invested in horizontal drilling in other major plays, including the Anadarko basin in Oklahoma and the Texas Panhandle.

“We have some production declines anticipated, but we are going to more than make up for it in the Permian and Anadarko basin, and we are pretty confident about our Canadian assets as well,” said Rodney Eichler, chief operating officer for Apache.

Apache plans to drill a further 700 wells  in the Permian Basin, which accounts for 50 percent of its total production.

These plays have become less economic for operators in the last year, challenged by low natural gas prices. As a result, the increases in sales have been matched by higher costs that still leave profits weak: Apache recorded $2.75 billion in expenses for the quarter, also up from its $2.4 billion from the same time last year.

Margins were affected  by rises in lease operating  and labor costs, and a 3 percent decrease in commodity prices, Eichler said.

CEO Steven Farris announced plans to sell  $2 billion in assets this year, as the company juggles the challenge of generating its planned 6 percent to 9 percent production growth from  $16 billion in recent acquisitions.

“We cannot be all things to all people,” Farris said in explaining the need to identify assets the company can exploit profitably and eliminate those it can’t.

The company has shifted its investment toward natural gas liquids and oil in North America, in response to lower domestic natural gas prices. It produced more than 167,000 barrels of oil and 50,000 barrels of natural gas liquids in North America in the fourth quarter, up from 141,000 barrels of oil and 31,000 barrels of natural gas liquids for the same time last year.

Total international production of oil also grew: Apache reported 372,000 barrels per day of oil for the fourth quarter, up from 348,000 barrels per day for the same time last year. Total natural gas liquids production rose to 54,000 barrels of oil equivalent per day, up from 34,000 barrels per day for the same time last year.