Thursday, January 15, 2009

Apache Sees Challenging Environment in 2009; Outlines Strategy



Apache Corporation's (NYSE, Nasdaq: APA) project development inventory and strong balance sheet should provide built-in production growth and acquisition opportunities in a difficult operating environment during 2009, G. Steven Farris, Apache's president and chief executive officer said Wednesday. "Apache is in good shape entering 2009 with significant rising production, cash on the balance sheet and access to the credit markets at very acceptable rates," Farris said. 

Speaking at the Goldman Sachs Global Energy Conference, Farris indicated that 2009 will likely be a challenging year for commodity markets as well as exploration and production companies. "Over the past five years, energy companies have had the wind at their back as oil steadily increased to nearly $150 per barrel. Service costs went through the roof and acquisitions became very expensive. 

"With the collapse of energy prices, the industry is facing a much tougher environment where merger and acquisition activity may heat up," Farris said. "Companies that didn't put the brakes on capital spending fast enough are in danger of going deeper into debt at a time when cash flow has been cut in half, service costs have not yet adjusted to the new commodity prices, credit is hard to find, and financial flexibility is absolutely critical. 

"In addition, all companies are putting together year-end numbers and wrestling with the possibility of ceiling test write-downs given the rapid collapse in prices. Depending on the covenants that govern their banking agreements, write-downs could prevent some companies from further accessing credit," Farris said. "That may put some companies and assets in play." 

"We will not finalize our year-end reserve estimates for a few weeks. Based on year-end oil and gas prices, a non-cash ceiling test impairment is likely, although its magnitude is yet to be determined. Any impairment would not impact availability under our undrawn $2.3 billion bank credit facility," he said. 

2009 Strategy 

Apache avoided the temptation to over-leverage its balance sheet during the peak of the cycle and that fiscal discipline paid off when the market deteriorated. "We enter 2009 in a strong position with nearly $2 billion of cash, a debt-to-total-capitalization ratio of less than 20 percent, and an 'A' credit rating that allows us to access the credit markets," Farris said. 

"Our strategy for 2009 will be focused on completing several large development projects while living within operating cash flow to protect the cash on our balance sheet. We will review and adjust exploration and development capital spending quarterly, and we remain on the lookout for acquisitions." 

"With the Van Gogh oil development in Australia, two new processing trains at the Salam gas plant in Egypt, and the Geauxpher development in the Gulf of Mexico projected to begin producing in 2009, annual production growth is estimated at 6 to 14 percent." 

"It is important to continue an active exploration program despite a likely decline in drilling activity," Farris said. Apache started strongly in 2009, reporting three new field discoveries in Egypt's Western Desert that tested a total of 80 million cubic feet (MMcf) of natural gas and 5,909 barrels of oil and condensate per day - all from Jurassic formations. "Taken together, these three discoveries highlight the significant exploration potential for both oil and gas remaining in these concessions," Farris said. (Read details in a separate release available on Apache's Web site.) 

Apache will release its fourth-quarter and full-year 2008 results at 7:45 a.m. Central time on Thursday, Feb. 19, followed by a conference call to discuss results at 1 p.m. Central time. The conference call will be webcast on Apache's Web site. 

Apache Corporation is an oil and gas exploration and production company with operations in the United States, Canada, Egypt, the United Kingdom North Sea, Australia and Argentina. 
 


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