Net income for the quarter and year-to-date periods was lower than the same periods of 2013 due to the combination of lower operating revenues, greater operating costs and expenses, and lower equity income. Results for 2014 reflect lower amounts realized from the Oil Plus hydrocarbon subsidy program, the absence of a $3.6 million gain realized in 2013 on a farm-out agreement, and the impact of a 25 percent devaluation of the Argentine peso during the first six months of 2014.
Total operating revenues decreased by $3.0 million for the quarter and $7.7 million for the first six months of 2014 compared with the same periods in 2013. During 2014, the benefits of higher oil and natural gas sales prices were more than offset by the impact of decreased revenues from the Oil Plus hydrocarbon subsidy program in Argentina and lower oil sales volumes compared with 2013.
Total costs and operating expenses were higher for the second quarter and the first six months of 2014 compared with 2013 primarily due to the absence of a $3.6 million gain related to recovery of costs from a farm-out agreement a year ago. Absent the gain from 2013, total costs and operating expenses would have been slightly lower in the second quarter and flat for the first six months of 2014 compared with the same periods of 2013.
Devaluation of the Argentine peso during 2014 has impacted oil price realizations, operating costs including foreign exchange losses, and equity income from Argentine investment in Petrolera Entre Lomas S.A. (Petrolera).
Apco also experienced lower equity income from its 40.72 percent interest in Petrolera. For the second quarter and first six months of 2014, the impact of lower operating revenues, higher operating costs and greater foreign exchange losses contributed to a $1.9 million and $5.7 million decrease in equity income from Argentine investment compared with the comparable periods of 2013.
“Our second-quarter results improved with an increase in oil price realization in Argentina,” said Bryan Guderian, Apco’s chief executive officer.
“We do not expect Argentina’s recent debt default to have an immediate impact on our industry. However, until the situation is resolved, it could cause further deterioration of the peso, increase inflation and impede progress toward improving the country’s economic environment,” Guderian added.
During the first six months of 2014, capital expenditures of $37.6 million attributable to Apco’s consolidated interests were invested primarily in exploration and development drilling in Colombia and development drilling in Neuqun basin properties.
In addition to the previously announced exploration and development activities in Colombia, Apco participated in the drilling and completion of 14 development wells and one exploration well in Neuqun basin properties year-to-date. An additional five wells were in various stages of drilling or completion at the end of June.
“Our development drilling in the Neuqun basin is progressing in line with expectations,” said Michael Kyle, Apco’s president and chief operating officer.
“Development drilling in Tierra del Fuego and three conventional horizontal wells in the Neuqun basin planned for the second half of 2014 should combine with our Colombian success to have a positive impact on both oil and natural gas volumes in the balance of the year,” Kyle added.