by Evan Chadwick
Do not be fooled by the reported 10-year lows in natural gas prices, as they should soon find a floor and then strengthen as global demand and liquid natural gas transport availability continues to increase.
In the last 30 years, the Middle East has seen a tenfold increase in natural gas demand from 1.3 Tcf in 1980 to 13.2 Tcf in 2010, and thus has experienced the most growth in natural gas demand of any region in the world. Asia is close behind as it reported an eightfold increase from 2.2 Tcf in 1980 to 19.2 Tcf in 2010, placing it at the same demand level as Europe. As a result of the significant increases in global demand, natural gas imports have reportedly risen from 6.7 Tcf in 2005 to 10.5 Tcf in 2010.
What these trends tell investors is that natural gas continues to appeal to more consumers due to its affordability, in contrast to the price of oil that is currently selling at around $103 per barrel. As a result, the price of natural gas should continue to increase as the demand for natural gas continues to rise. This rise should give U.S.-based natural gas companies an increased opportunity to profit from foreign markets.
One of the keys to capitalizing on the growing natural gas market is for these companies to make strategic acquisitions of land that produces natural gas in close proximity to the nations that are experiencing the highest increases in natural gas demand.
Apache (APA) is one company that has placed itself in a globally strong position with its recent acquisitions and agreements in close proximity to the Asian market. As a result, Apache, which is currently selling at around $90 per share, should make significant gains on its share price over the next eight months that will pay substantial dividends to its investors.
Recently announcing its deal with Chubu Electric Power (GM:CHUEF) to provide 19 million cubic feet of natural gas per day from its stake in the Whetstone Project in Western Australia, Apache has started 2012 with a substantial deal that will increase its presence in the Asian market. This 20-year deal should not only prove profitable for Apache, but should also allow it to improve its position as exports of natural gas continue to rise.
Apache also recently announced its purchase of a 65% stake in Burrups Holdings Unlimited, a company that owns the largest ammonium producing facility in the world. The Burrups acquisition will not only continue to diversify Apache's sources of profitability, but will also allow it to further its natural gas production in the resource rich Western Australian region. This acquisition, along with its recent deal with Chubu, has allowed Apache to continue to provide an increased amount of natural gas to the growing Asian market.
The strong 2011 financial reports that saw Apache achieve record resource production resulted in its profits reaching $4.5 billion, a 50% increase from 2010. This substantially improved financial position has given Apache the ability to further its resource holdings in domestic markets, as it recently announced its $2.85 billion purchase of Cordillian Energy Partners, a company that owned 254,000 net acres in the natural gas rich Texas panhandle and Western Oklahoma region.
Meanwhile, some of Apache's competitors have seen mixed results. Cabot Oil & Gas (COG) is still recovering from the flash fire its Lathrop Compression station suffered in March 2012. Recently, Cabot announced that the Lathrop facility had resumed operations but was only working at 55% of its normal capacity.
Anadarko (APC) has also run into its share of problems to start 2012, as it was reported that its drilling in the Centerra development in East Loveland, Texas, was put on hold. This report has also agitated local residents who claim that they had no knowledge of the proposed drilling, a situation that could cause Andarko further delay.
Berry Petroleum (BRY) has targeted acquisitions outside of the natural gas realm as evinced by its reported purchase of 19,350 acres of in the Wolfberry trend in West Texas since 2010. These acquisitions, which have cost Berry approximately $313 million, are primarily focused on oil reserves that will raise Berry's oil production in the area from 1,700 BOED to 9,000 BOED by 2014.
Atlas Resource Partners (ARP) has also made substantial acquisitions, as it recently announced the $190 million purchase of 277 bcfe of natural gas reserves in the Texas Barrett shale from Carrizo Oil & Gas (CRZO).
Despite the significant asset acquisitions by many of Apache's competitors, it is my opinion that the natural gas industry continues to be undervalued by many of the top natural gas producing companies. The price of natural gas will not remain low as the worldwide demand continues to rise. With Apache's massive natural gas production capabilities that saw it produce 1 billion cubic feet of natural gas in North America in 2009, it has continued to improve its command on the natural gas market while many of its competitors have looked to the skyrocketing oil market as a primary source of profits.
Selling at near 52-week lows, Apache should provide its investors with plenty of incentive to invest at its discount rate. The appeal of natural gas, Apache's large-scale holdings in American and foreign natural gas, and the projected continued rise in demand for exported natural gas make Apache a strong buy for its investors at its current market price.