Apache 2Q04 Earning Up 53% on Higher Production

Apache reported that rising production, lower costs and continued strong commodity prices fueled second-quarter 2004 earnings of $372 million, or $1.13 per diluted common share, after unusual items. Earnings increased 53 percent from $243 million, or 74 cents per share, in the prior-year period.

Apache's earnings surpassed the previous quarterly record of $1.06 per share reported in the first quarter of 2004. Second-quarter earnings included two unusual items that together reduced the per-share results by 19 cents: a $48 million after-tax reserve for a previously announced arbitration award, which Apache intends to contest, and the $14 million after-tax impact of the employee share appreciation plan, also disclosed earlier. These items were partially offset by a lower effective tax rate, primarily from a reduction in Alberta provincial tax rates and the impact of favorable currency swings on deferred taxes. The tax items totaled $35 million (after-tax) or 11 cents per share.

Liquid hydrocarbon production averaged 234,788 barrels per day, up 3 percent from the first quarter and up 6 percent from the prior-year period. Natural gas production averaged 1.25 billion cubic feet per day, up 38 million cubic feet per day from the first quarter and a slight increase from the year- earlier period.

Cash from operations before changes in operating assets and liabilities totaled $721 million, up from $639 million in the year-earlier period.

"The story in the second quarter was higher production, lower lifting costs and strong commodity prices," said G. Steven Farris, president, chief executive officer and chief operating officer. "Our drilling program is showing excellent results across Apache's portfolio. We invested $1 billion on exploration and development in the first half, and this increased activity level is providing strong momentum for the second half. We also further reduced our debt-to-capitalization ratio."

Among Apache's operational highlights for the second quarter:

-- U.S. gas production increased 3 percent from the first quarter on exploitation of offshore blocks acquired from BP and Shell in 2003 and onshore on South Louisiana fee acreage acquired in 2002, as well as continued success in the Deep Springer and Red Fork plays in the Anadarko Basin, the Styles Ranch area in North Texas and in East Texas.

-- North Sea production increased 7 percent from the first quarter, to 47,179 barrels per day, as a result of six new producers and increased field efficiency. Thus far in July, net production has averaged approximately 55,000 barrels per day.

-- Apache's Egypt region set quarterly records for gross production: 100,828 barrels of oil and 276 million cubic feet of gas per day.

Commodity prices remained strong in the second quarter. Apache received $4.84 per thousand cubic feet (Mcf) of gas, up from $4.61 per Mcf; $33.06 per barrel of oil during the second quarter, up 26 percent from $26.19 in the prior-year period; and $22.92 per barrel for natural gas liquids, compared with $19.27 per barrel.

In the first half, Apache reported net income of $719 million, or $2.19 per share, up from $580 million, or $1.79 per share, in the first half of 2003. First-half cash from operations before changes in operating assets and liabilities totaled $1.46 billion, up from $1.28 billion in the year-earlier period.

Apache's debt-to-capitalization ratio declined to 23.2 percent at the end of the quarter from 24.2 percent at the end of the first quarter.