The Houston based Apache Corporation (APA) is one of the world’s largest independent oil and gas exploration and production companies. Its asset base includes conventional and unconventional resources, both on and offshore. APA operates mainly in North America, but has some major projects in Egypt (currently in the process of being sold), Australia, Argentina and the UK. Lately the company has entered into a rather dynamic acquisition process with the aim of working over its acquired properties as quickly as possible to improve field efficiency and stabilize production results.
APA maintains a balanced portfolio of assets which it has acquired over time from major oil and gas companies such as BP, Devon, and Exxon Mobil. In the activities it’s involved in, APA is a key player and its asset portfolio contains a solid pipeline of exploratory and developmental projects, both domestically and internationally. The annual production increase is expected to reach the 7% threshold in the coming year.
APA’s current daily production amounts to around 748 MBOE and its proved reserves to about 2.99 Mia BOE. The company also operates in the natural gas business. Its major gas resources lie in the Gulf of Mexico, as well as in the international frontier basins (Gulf of Mexico, North Sea). Natural gas reserves make up about half of APA’s present production and about 55% of its proved reserves.
These days, deep water development projects are a bit more controversial ever since the Deepwater Horizon accident and regulations are more rigorous than ever. Despite this, APA has secured a presence in almost every major play in the offshore basins where tens of thousands of drilling locations have been identified to date.
Apache Corporation is well managed and specializes in the acquisition and rehabilitation of existing fields. It is a high-beta stock in the energy sector with a sound long-term outlook, and it remains a key pick.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- APA pursues a sustainable long-term strategy. Its acquisition strategy is well thought-out, and selected targets generally fit well into the existing portfolio of assets,
- APA’s reserves portfolio is well balanced between gas and oil reserves, hence the company can play both of these potential long-term development opportunities,
- A selective disposal strategy has been put in place. The available funds will be used to pay off some of debts, and the remaining will be used for a share repurchase program,
- Some of the company’s key assets (in the Permian and Gulf Shelf regions) promise multi-year upside potential.
Weaknesses:
- APA is years away from being able to develop its own LNG project,
- Meeting international requirements makes development abroad more complex, and hence riskier. Eventually a complete withdrawal could prove the better outcome as growth opportunities appear to be very limited,
- APA has a low organic growth rate,
- The execution of the company’s expansion plan depends mostly on future oil and gas prices. Lower prices would render most of its strategy invalid.