Apache's Surprise Savings Signal US Drillers Not Done With Cuts

Reuters

HOUSTON, May 5 (Reuters) - Apache Corp's cost savings in the first three months of 2016 exceeded its own expectations and are likely to continue even if oilfield services costs rise, executives of the Houston-based oil and gas producer said on Thursday.

The cost cuts mean the company could achieve its goal of cash flow neutrality for 2016 with oil prices at $35 per barrel and natural gas prices at $2.35 per million British thermal units, Chief Executive John Christmann told investors on a conference call to discuss first quarter results.

The surprise savings come despite concerns that U.S. shale companies might have hit a wall in cost or productivity improvements, and are the latest sign that cost reductions could allow U.S. shale producers to keep drilling and pumping even if prices fail to recover significantly from a nearly two-year rout.

"Six quarters into the downturn, we are still achieving significant quarter on quarter cost improvements," Christmann said, noting that well cost reduction efforts "continued to exceed our expectations."

He said these cost reductions "are more than belt-tightening efforts in response to the downturn."

U.S. oil prices have fallen 60 percent since mid-2014 amid a global glut, but have rebounded since falling to nearly $26 per barrel in February, ending Thursday at about $44 a barrel. Natural gas futures settled at $2.08.

Christmann acknowledged skepticism around the sustainability of the company's cost-cutting hopes, particularly if demand for oilfield services rebounds, but said Apache's structural changes would help its bottom line "regardless of where oil prices and service costs go in the future."

Overall, the company's well costs in key North American onshore plays were 45 percent below 2014 levels, with oilfield with service cost savings making up half the decline and design and efficiency savings making up the other half.

Chief Financial Officer Steve Riney noted that capital costs in North American regions for the quarter were lower than the company had budgeted for, led by savings in the Permian basin.

Some steps that helped Apache save costs in the Permian included modifying fracture intensity and optimizing fluid levels.

(Reporting By Luc Cohen; Editing by Terry Wade and Marguerita Choy)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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