So what do I make of Apache (APA) as an investment now? Should I look at it as an investment opportunity now? The company appears to be at the end of the acquisition strategy it has partaken in the last three years. It has spent roughly $16 billion acquiring assets in the U.S., Canada, Egypt, and the North Sea. This has also raised the company's debt from $6.8 billion in 2011 to $11.4 billion in 2012. It plans on selling about $2 billion in assets this year in the hopes of paying down that debt as it switches gears to focus on drilling. But here's what puzzles me: Chief executive officer Steve Farris said that "…major acquisitions aren't part of the current strategy," according to Edward Klump's article in Bloomberg. So the company has grown through acquisition and debt, but these acquisitions are not a part of its present strategy. This may not be all bad, because this could mean that these acquisitions are being held for future development. But it does make me question the company as an investment right now.
Spending and Revenue has been a challenge. Look at these numbers:
- Revenue was up $4,391.0 million (up 2.2%) for the fourth quarter of 2011 and ahead of the $4,373.00 million projected.
- The production of oil and natural gas averaged 800,005 oil-equivalent barrels per day, up 5.4% (YoY).
- The realized fourth quarter price for oil was $98.93, a decrease in value of 3.7%.
- The average realized natural gas price during the December quarter of 2012 was $4.14 per thousand cubic feet (MCF), down 1.0% from the year-ago period.
- Lease operating expenses totaled $790.0 million, up 19.9% from $659.0 million in the year-ago quarter.
It appears we can see better fourth quarter results from more production but costs have gone up and prices have gone down; this is not a good combination.
One major problem is that natural gas prices dropped an additional 26% while oil has fallen about 4%. How heavily Apache is investing in natural gas could be a big problem and why investors reacted so negatively. Companies like Apache are spending more on drilling for oil right now which is far more profitable. Net income fell to $649 million, or $1.64 per share, in the fourth quarter, from $1.17 billion, or $2.98 per share, a year earlier. Can the company maintain its present cost structure? It is facing challenges of higher-than-expected lease operating costs as well as the labor and maintenance expenses this year.
And it is not like the company has had a stellar love affair with analyst's forecasts. Not only did it miss fourth quarter profit expectations by 2 cents, but it is the fourth straight miss by the company. It has a habit of falling short. Labor and maintenance expenses rose and natural gas production for 2013 was also a disappointment. On top of that, 2013 guidance for oil and gas output was lowered to expect a (3% to 5%) growth that is well below the long-term planned (6%-9%) growth per year that the company plans for.
With Apache Corp. missing expectations for the fourth time in a row and the downsizing of 2013 expectations, I would play a wait and see on this stock. The reactionary move may or may not be done, but I am uncomfortable investing in too many unknowns at this point.
The stock was doing good moving up after it built its base in November and early December. After rising 10.5% the stock appeared to be establishing another base before it would continue up, then all hell broke loose! I would have expected the stock to continue to move up after I observed it moving sideways off the upper Bollinger band. But I cannot say where the stock will move at this point after the reaction drop that all but wiped out the last 10 weeks of rising value in the stock. At this point is wait and see.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.