Oil and gas producer Apache Corp. (APA) swung to a first-quarter loss as it wrote down properties by another $1.98 billion amid the plunge in commodity prices. It also said quarterly output dropped 2% versus a year ago.

Excluding writedowns, which are an admission that many of the assets were no longer worth as much as once thought, the Houston company reported quarterly earnings of $218 million, or 65 cents per share, compared to earnings of $1 billion, or $2.99 per share, in the same period last year. The latest quarter's write-down follows a $3.6 billion revision in the fourth quarter.

Apache, the second-largest independent U.S. oil producer by market value, substantially surpassed analyst expectations of 34 cents a share. Analysts attributed the surprising results to the fact that Apache doesn't have its oil production hedged, which allowed it to take full advantage of relatively stable oil prices in the first quarter. Apache produces more oil than its peers. Although prices of both commodities has fallen drastically from their all-time highs last summer, oil prices held better than those of natural gas in the first quarter.

Including writedowns, Apache swung to a net loss of $1.76 billion, or $5.25 a share, from year-earlier income of $1.02 billion, or $3.03 a share. Revenue plunged 49% to $1.63 billion.

Apache's shares were recently up $2.77, or 3.97%, to $72.60 Thursday afternoon as investors seemed to focus on the higher-than-expected earnings.

Apache said its oil-equivalent production declined 2% from the first quarter of 2008 and that it expects to come in at the lower end of its production growth target of 6% to 14% due to lower capital spending and a delay at the Van Gogh development offshore Western Australia. A platform under construction in Singapore that is supposed to be transferred to Australia caught fire earlier this month.

Apache also said it agreed to acquire nine Permian Basin oil and gas fields from Marathon Oil Corp. (MRO) for $187.4 million. Fadel Gheit, an analyst with Oppenheimer & Co., said the transaction was made at a fair price and it seems beneficial for both companies but too small to make a dent in any of the companies' finances.

During a conference call to discuss the company's first-quarter earnings, Apache Chief Executive Steve Farris said that the company is on the lookout for assets to buy.

"We don't have anything in front of us but we are constantly looking," Farris said.

Earlier this week, Farris said the company is in the market to buy assets in areas where it already has operations, including the Gulf of Mexico, onshore U.S. and Canada. Farris added that the company prefers to acquire assets rather than companies.

The executive also said that Apache will continue to pressure service costs lower to bring them in line with current oil and natural gas prices.

"As long as we see these kinds of prices, costs will continue to come down," Farris said.

Company executives said that the cost to drill a well in Western Oklahoma have already fallen by at least 30% from the same time last year.

-By Isabel Ordonez, Dow Jones Newswires; 713-547-9207; isabel.ordonez@dowjones.com

(Mike Barris in New York and Jason Womack in Houston contributed to this story)