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Apache cuts 2019 production guidance, downplays Alpine High

Apache Corp. has cut its production guidance for 2019 as it remains intent on staying below its established capital budget limits for the year, CEO John Christmann said Aug. 1.

Speaking during the company's second-quarter earnings call, Christmann said the company had experienced delays in its Permian Basin operations and had reduced its guidance for the region for the second half of 2019 in response. He also reiterated the company's decision to reduce natural gas production in its Alpine High play as a result of very weak pricing.

For the second quarter, production was down 9% from the first quarter, with Permian oil production at 92,000 barrels per day. The company announced its U.S. production guidance for the fourth quarter would be lowered from 323,000 boe/d to 293,000 boe/d.

In spite of the issues the company has faced in the Permian, Christmann said Apache holds some high-quality acreage in the oil-heavy shale plays in the area.

"In the Midland and Delaware Basins, we are in full development mode, delivering highly productive top-tier oil wells at very competitive costs," he said. "We have a large inventory of oil-prone locations that continued to expand with ongoing improvements and understanding of the resource base."

After spending several years exploring and talking up the Alpine High, Christmann took a more circumspect approach to the gas-heavy play as it suffers from both poor pricing and a lack of pipeline capacity.

"Alpine High must now compete for capital with the rest of our Permian assets. In the short-term, Alpine High economics are adversely impacted by a very depressed gas pricing at Waha," he said. "From a cash flow and returns perspective, it is far more valuable to wait a few weeks and produce into an improved price environment … some portions of Alpine High are less competitive than other opportunities in our portfolio. If this pressing situation does not improve, some capital will be relocated to areas with more leverage to price, most likely elsewhere in the Permian Basin."

Christmann said the company has spent less than half of its $2.4 billion capital budget in the first six months of the year and will not increase it to try to increase production. Instead, Apache will continue to emphasize operating within its means.

"We are focused on strict capital discipline, which is achievable, given our level loaded activity set and relatively stable operational pace over the last couple of years," he said. "I am confident Apache can deliver on the strategy, given our diversified and well-balanced portfolio, high-quality drilling inventory, a relatively low Permian oil-based decline rate, attractive exploration portfolio and continuous focus on improving capital productivity and efficiency."

For the quarter, Apache reported adjusted earnings of $41 million, or 11 cents per share. That missed the S&P Global Market Intelligence consensus estimate of 13 cents per share and was down significantly from the 50 cents per share profit reported in the second quarter of 2018. Shares of Apache on the New York Stock Exchange hardly budged on the earnings and guidance news, dropping less than 0.5% to $24.32 by 1:00 p.m. ET.