Third-quarter results include a non-recurring gain of $174 million on the sale of assets in China; a $92 million, one-time prior-period adjustment reflecting increased tax rates in the United Kingdom; and a $24 million negative adjustment related to foreign currency fluctuations.
Cash from operations before changes in operating assets and liabilities totaled $1.3 billion, up from $1.26 billion in the year-earlier period. (This is a non-GAAP measure; see reconciliation below.)
Apache's gas production averaged 1.7 billion cubic feet (Bcf) per day, up 35 percent from the prior-year period and up 9 percent from the second quarter. Apache produced 228,551 barrels of liquid hydrocarbons per day, down 6 percent from the third quarter of 2005 and a 5 percent decline from the second quarter, as a result of the sale of the Zhao Dong field in China and shut-ins in the North Sea and Egypt.
"We are pleased with Apache's progress thus far in 2006," said G. Steven Farris, president and chief executive officer. "We plowed through a lot of variables during the third quarter; despite extended shut-ins in the North Sea and Egypt and the sale of our China assets, Apache's worldwide production increased 2.4 percent from the second quarter to an all-time high of 513,000 boe per day.
"Our North Sea production has been stable thus far in October and, barring any unforeseen events, we should exit 2006 with production rates 20 percent higher than we started the year, giving us good momentum going into 2007," Farris said.
"We remain on track to achieve 10 to 15 percent production growth this year," Farris said. "We expect a strong finish to a record year in nearly every financial and operational aspect."
Apache received $63.66 per barrel of oil in the quarter, up about 9 percent from the prior-year period and down 1 percent from the second quarter; and $4.83 per thousand cubic feet of gas, down 26 percent from the year- earlier period and a 3 percent drop from the second quarter of 2006.
Third-quarter operational update
U.S. Central Region production increased to 265 million cubic feet (MMcf) and 31,727 barrels of liquids per day on drilling success at Stiles Ranch in the Texas Panhandle, the Red Fork and Springer formations in Western Oklahoma, and in the Permian Basin.
Gulf Coast Region production increased to 455 MMcf of gas and 44,165 barrels of liquids per day during the third quarter as Apache took over operations on 96 platforms acquired from BP. Recovery from hurricanes Katrina and Rita is progressing, although net production of 3,000 barrels and 10 MMcf per day will likely remain shut-in at year end. Apache expects to recover those volumes during the first half of 2007.
In Canada, Apache's third-quarter production was flat with the second quarter, averaging 422 MMcf and 22,613 barrels per day. Production was up 8 percent from the prior-year period on a barrel-equivalent basis.
Although the BP pipeline shut-in impacted third-quarter production from the North Sea, the company shifted planned maintenance at the Delta platform to coincide with the pipeline shut-in. The downtime reduced the region's production by 13,000 barrels per day during the quarter. During October, gross production has averaged approximately 70,000 barrels per day.
The North Sea Region continues to make progress on facilities upgrade projects, including the electric generation/gas and power ring project, which should result in substantial fuel savings and reliability. The first well from the Charlie platform to determine the westerly extent of the Forties Field was spudded; if successful, this project could extend the field to the west. Apache also began its North Sea exploration program.
In Australia, Apache established a single-day gas production record of 240 MMcf and a quarterly record of 204 MMcf per day, up 11 percent from the second quarter. Apache submitted a field development plan to regulatory agencies for the Van Gogh/Theo oil field in the Exmouth area off Western Australia. The project is expected to commence production in the second half of 2008 with net production rates of 20,000 barrels per day.
Net production in Egypt declined 3 percent from the second quarter, mainly the result of a 14-day shut-in at the Shell-operated Obayied gas processing plant and 10-day shut-ins at Apache's Salam and Tarek plants for maintenance; the shut-ins also impacted condensate production associated with the gas. However, Apache set records for gross operated production: 120,374 barrels of oil per day on July 7 and 525 MMcf of gas per day on Sept. 13. Apache also drilled a new-field discovery: The Hathor Deep 1X wildcat tested 12 MMcf per day from the Alem el Buieb formation. The Qasr 34 well extended the Qasr field -- already Apache's largest discovery -- approximately 1.6 miles to the northwest and appraised a previously unproven area of 2,700 acres.
Apache's operating costs increased 12 percent from the second quarter to $7.67 per boe. Costs in Canada, Australia, Egypt and Argentina were flat to lower, and Central Region costs were up slightly. North Sea operating costs were up 39 percent because they were spread over much lower volumes. Gulf Coast Region costs were up 31 percent because the focus shifted from hurricane-related activity to the backlog of workovers and maintenance.
In China, the $174 million gain was the result of Apache's sale of its 24.5 percent interest the Zhao Dong block for $260 million.
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