We are maintaining our long-term Neutral recommendation on
Apache Corporation
(
APA
), reflecting its high-quality and diversified asset base,
attractive production outlook and healthy financial profile.
These positives, though, are somewhat offset by the unstable
gas/oil prices and depressing macro environment.
Houston, Texas-based Apache is a leading independent energy
company engaged in the exploration, development and production of
natural gas, crude oil and natural gas liquids.
Apache is poised for production growth given its large
geographically-diversified property line-up, its balanced exposure
to natural gas and crude oil, and multiyear trends in reserve
replacement.
Looking into 2012, Apache expects production to jump about 7% to
13% from the prior-year level. We believe that enhanced operations
at the Permian Basin along with extensive exploration activities
across the liquids plays of the Granite Wash, the Tonkawa, the
Cleveland, the Marmaton, Cherokee and the Canyon Wash will enable
the company to achieve its target.
We remain bullish on Apache's international operations. The
company has been steadily expanding its footprint in Egypt, in
particular, with positive results from the Qarun joint venture,
Khalda acreage and AG development lease. Despite the political
disturbances in the country, Apache has received a lot of support
from the authorities and plans to carry on its work by exploring
new fields.
We also appreciate Apache's strategy of designing a capital
expenditure program that is within the cash flow range, and
allocate funds and resources to projects that are expected to
generate high-returns in the coming days.
However, our optimism is clouded by the dull first quarter 2012
results, mainly due to deteriorating natural gas realizations.
Apache's earnings and revenue fell short of Zacks Consensus
Estimates.
Additionally, Apache's performances are directly exposed to oil
and gas prices, which are inherently volatile and subject to
complex market forces. Realized prices could differ significantly
from our estimates, thereby affecting the company's revenues,
earnings and cash flow.
The company's long-term production and reserve growth primarily
depends on its acquire-and-exploit model. If Apache fails to
complete accretive transactions on schedule in the future, it could
negatively impact its growth rate.
Apache, which competes with other energy players such as
Anadarko Petroleum Corporation
(
APC
) and
Exxon Mobil Corporation
(
XOM
), currently, retains a Zacks #3 Rank, which translates into Hold
rating for a period of one to three months.
APACHE CORP (APA): Free Stock Analysis Report
ANADARKO PETROL (APC): Free Stock Analysis
Report
EXXON MOBIL CRP (XOM): Free Stock Analysis
Report
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