We have maintained our Neutral recommendation on U.S. energy
APACHE CORP (APA): Free Stock Analysis Report
BP PLC (BP): Free Stock Analysis Report
DEVON ENERGY (DVN): Free Stock Analysis
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Founded in 1954, Houston, Texas-based Apache is one of the
world's leading independent energy companies engaged in the
exploration, development and production of natural gas, crude oil
and natural gas liquids. Approximately 68% of the company's
proved reserves and 55% of its production comes from North
America, where its operations are focused in the Gulf of Mexico
(GoM), the Gulf Coast, East Texas, the Permian basin, the
Anadarko basin and the Western Sedimentary basin of Canada.
Internationally, Apache has core operations in onshore Egypt,
offshore U.K. North Sea, onshore Argentina and offshore Western
Australia. Additionally, Apache holds exploration interests on
the Chilean side of the island of Tierra del Fuego.
We like Apache's large geographically diverse reserve base, its
balanced exposure to natural gas and crude oil, and its
multi-year trends in reserve replacement and production growth.
Apache is noted for growing through the acquisition and
development of existing reserves. Long-term production growth
visibility has significantly improved following the recent asset
), the purchase of a portion of
Devon Energy Corporation
) GoM properties and the deal to acquire Mariner Energy. These
new acreage positions further complement the company's
diversified asset base.
Despite being one of the largest domestic exploration and
production companies, Apache still boasts annual output growth in
excess of 10%. A pristine balance sheet helps the company to
capitalize on investment opportunities and strategic
acquisitions, thereby further improving growth visibility.
However, we see limited upside potential for shares, taking into
consideration Apache's sensitivity to gas/oil price volatility,
its drilling results, costs, geo-political risks and project
timing delays. As such, we expect Apache to perform in line with
the broader market.
The company's long-term production and reserve growth primarily
depends on its acquire-and-exploit model. Apache may find it
difficult to complete accretive transactions in the future, which
could negatively impact its growth rate.
Lastly, Apache sells natural gas in Western Australia under
long-term, fixed-price contracts, many of which contain price
escalation clauses based on the Australian consumer price index.
This exposes the company to greater-than-average margin
Considering these factors, we see Apache shares performing in
line with the broader market. Our long-term Neutral
recommendation is supported by a Zacks #3 Rank (short-term Hold