Why Is Apache (APA) Down 77% Since Last Earnings Report?

A month has gone by since the last earnings report for Apache (APA). Shares have lost about 77% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Apache due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Apache’s Q4 Earnings & Revenues Beat Estimates

U.S. energy firm Apache Corporation (NYSE:APA) reported fourth-quarter 2019 earnings per share — excluding one-time items — of 8 cents. The Zacks Consensus Estimate was of a loss of 4 cents. This outperformance is led by record Permian production.

However, the bottom line plunged 74.2% from the year-ago quarter’s earnings of 31 cents due to increased operating expenses.

Revenues of $1.7 billion were 4% lower than the fourth-quarter 2018 sales of $1.77 billion but beat the Zacks Consensus Estimate of $1.6 billion, attributable to expanded production volumes. Precisely, this Houston, TX-based upstream explorer’s output of 487,202 oil-equivalent barrels per day (BOE/d) improved form the year-ago figure of 482,298 BOE/d.

During the third-quarter earnings release, the company informed that it started a strategic operational reorganization that is expected to result in savings of at least $150 million. This strategic move is likely to be completed by Mar 31, 2020.

Production & Selling Prices

Production of oil and natural gas averaged 487,202 BOE/d, which comprises 66% liquids. The figure rose 1.01% from the year-ago quarter, backed by the impressive contribution from the Permian region.

The U.S. output (accounting for 61.3% of the total) rose 5.32% year over year to 298,567 BOE/d while the company’s international operations decreased 5.13% to 188,635 BOE/d. Apache’s production for oil and natural gas liquids (NGLs) was 320,888 barrels per day (Bbl/d). Natural gas output came in at 997,887 thousand cubic feet per day (Mcf/d).

In the company's Permian Basin acreage, production volumes improved to 288,043 BOE/d from 235,936 in the fourth quarter of 2018. Permian region output marks the highest oil production level in the company’s history at 103,000 barrels per day and the same also outpaced its guidance.

The average realized crude oil price during the fourth quarter was $60.19 per barrel, up 3.12% from the year-ago realization. The number also came above the Zacks Consensus Estimate of $59. However, the average realized natural gas price declined to $2.05 per thousand cubic feet (Mcf) from $2.57 in the year-ago period but was ahead of the Zacks Consensus Estimate of $1.94.

Costs & Financial Position

Apache’s fourth-quarter lease operating expenses totaled $343 million, down 2.6% from the year-ago quarter. However, total operating expenses rose 124.3% from the corresponding period of 2018 to $4.7 billion. This was mainly on account of higher financing costs, rise in exploration expenses and higher costs related to asset impairment.

During the quarter under review, Apache generated $778 million of cash from operating activities while it shelled out $590 million as capital expenditures for positive free cash flow.

As of Dec 31, this oil giant had approximately $247 million in cash and cash equivalents. Apache had long-term debt of $8.2 billion, representing a debt-to-capitalization ratio of 71.5%.

Guidance

In 2020, this U.S. energy firm targets $1.6-$1.9 billion investment in upstream oil and gas capital, which is 26% below the 2019-level at the midpoint. If oil prices decrease from the current rates, Apache is ready to further reduce activity and capital resource. However, at a higher price band, the priority will be to retain cash for debt reduction. The company does not anticipate increasing capex above $1.9 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -115.39% due to these changes.

VGM Scores

Currently, Apache has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Apache has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.