Compared with 2004, the company's operating revenues increased by $12.1 million and equity income increased by $6.7 million. Crude oil, natural gas and liquefied petroleum gas (LPG) sales prices for the combined consolidated and equity interests averaged $37.89 per barrel, $1.06 per mcf, and $381.42 per ton, respectively, compared with $31.30 per barrel, $.75 per mcf, and $335.33 per ton, respectively, during 2004. Oil, natural gas, and LPG sales volumes for the combined consolidated and equity interests totaled 2.184 million bbls, 6.3 bcf, and 19.3 thousand tons, respectively, compared with 1.981 million bbls, 4.9 bcf and 16.4 thousand tons, respectively, during 2004.
The improvements in both product sales prices and sales volumes were complemented by lower exploration expenses.
Apco reports that increases in operating expense, provincial taxes, and Argentine income taxes partially offset the above favorable variances in operating revenue, equity income, and exploration expense. Operating expense increased by $772,000 from the previous year due to a combination of factors, the most important of which are increased labor costs, higher tariffs charged by field service companies, a rise in the cost of electricity, and higher rod pump operation and maintenance expenses.
"The company's 2005 net income represents its highest annual income ever reported," said Ralph Hill, Apco's chairman and CEO. "This record performance is due to our success in increasing production levels with our successful drilling program and to increased oil prices, along with the acquisition of our new Tierra del Fuego assets."
In the Entre Lomas concession, the company's core asset that is located in the provinces of Rio Negro and Neuquen in southwest Argentina, Apco continues drilling development wells at an aggressive pace. In 2005, the company and its partners drilled 37 wells, all of which were put on production. The success of this drilling program was the principal driver of the company's production increases described previously.
The 2006 budgeted capital program for the company's combined consolidated and equity interests totals $27 million. "This level of investment demonstrates the company's commitment to continue to execute on its plan for growth in Argentina," said Hill. "So far, 2006 is getting off to a good start with the early success of our Tierra del Fuego drilling program."
In Feb. 2005, the company purchased an interest in three concessions on the island of Tierra del Fuego. After having acquired and interpreted 360 square kilometers of 3D seismic data, Apco and its partners commenced a drilling program in Nov. 2005. To date, six development wells have been drilled to depths ranging from 6,000 to 8,000 feet targeting the Springhill Formation. The first four wells encountered the Springhill with favorable reservoir characteristics. These wells tested gross daily rates from 2.8 million cubic feet of gas and 29 barrels of condensate to as high as 15.8 million cubic feet of gas and 265 barrels per day of condensate. Gas produced will yield varying contents of gas liquids that can be extracted. The fifth and sixth wells have both reached total depth and, although preliminary indications are not encouraging, both wells will be completed. Whether either of these wells will be productive is not yet known. The company and its partners will continue to drill wells in Tierra del Fuego through August 2006.
None of these wells have as yet been put on production because Apco and its partners must first increase capacity of production facilities on the properties and find a market for the increased volume of gas. The gas sales market is small on the island of Tierra del Fuego, an area with significant gas reserves that is distant from major Argentine markets and is connected to those markets by the San Martin pipeline. The company is evaluating options available for marketing this additional gas, including increasing gas sales on the island, selling to markets in continental Argentina, and exports to Chile.
"We are very pleased with the early results of our Tierra del Fuego drilling program," said Thomas Bueno, president of Apco. "Since the company acquired these interests, daily production of gas, condensate and gas liquids from these fields, with no impact from the new wells, has averaged 13.8 million cubic feet, 495 barrels and 15 tons, respectively. Based on what we see today, these results could positively impact production levels in our Tierra del Fuego property. This validates our decision to purchase this asset and our continuing strategy to grow our presence in Argentina," he said.
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