By Johnny Duncan
Buying its way into success is one option an energy company has during this time of energy resource surpluses and scarcity, as well as stiff competition. It is not just buying to gobble up competitors, but in the case of Apache (APA), it is for the benefit of more opportunities to bring more materials to market. Apache has already spent about $15 billion to acquire several major productive assets. Being one of the leading mid-major oil and gas exploration and production companies, with global operations in the Gulf of Mexico, Egypt, Australia, Argentina, and the U.K., Apache is keen on knowing what assets it can exploit in order to bring more value to investors. Because of the constant growth as well as growth potential, I see this company as one of those "steady-Eddies" and a long-term keeper.
When it comes to deals, Apache has made some whoppers. There was the $7 billion deal with BP during that period when BP was selling assets in the aftermath of the Deepwater Horizon accident. The deal was for infrastructure and land in the Permian Basin of West Texas, and New Mexico, upstream natural gas assets in Alberta, and British Columbia, and plays in Egypt. This added close to 260 million barrels of oil equivalent for Apache. Another good buy was Devon Energy's (DVN) Gulf of Mexico assets for $1.05 billion. In that transaction Apache has identified 79 recompletion candidate wells and 14 more that can be reactivated. And still another example of Apache coming up a winner buying business is when it gained Oklahoma and Texas operations that use the technique of hydraulic fracking to get to the oil and natural gas, when it purchased Cordillera Energy Partners III LLC for $2.85 billion in cash and stock. This purchase more than doubled Apache's holdings in the Anadarko basin, adding estimated proved reserves of 71.5 million barrels of oil equivalent. The acquisition is slated to be paid for with $2.25 billion in cash and $600 million of stock, including 18,000 barrels a day of existing production.
There are plenty more smart buys Apache has made and all have proven profitable for the company. In January, the company announced that it had closed a deal with Exxon Mobil (XOM) with the acquisition of Mobil North Sea Limited assets for $1.25 billion. The buy includes ExxonMobil's operating interests in the Beryl, Nevis, Ness, Nevis South, Skene and Buckland fields, non-operating interests in the Maclure, Scott and Telford fields, as well as the Beryl/Brae gas pipeline and the SAGE gas plant, and the Benbecula exploration acreage west of the Shetland Islands. The entire deal is expected to increase Apache's production by 54%, or an increase of 19,000 barrels of oil equivalent and 58 million cubic feet of natural gas a day, and raise its proved reserves in the North Sea by 44%.
The deals work well for Apache, whether buying or selling. There is the Wheatstone project where Apache partnered with Chevron (CVX) for a 13% ownership interest in the Liquefied Natural Gas (LNG) project. The deal provided an additional capacity of 8.9 million tons per year and has since lead to other deals such as the one this month between the Australian Wheatstone project and the Japanese company, Chubu Electric Power Company, selling LNG to the power company.
Apache is capitalizing on purchases it made. The company recently reported that in Egypt seven new development leases in the Faghur Basin were approved enabling the Apache to add 5,200 barrels per day of new production in Egypt's Western Desert. Because of the company's strong regional knowledge that enables its geoscientists to find the liquid gold, five new Faghur fields have been discovered over the past six months. The company's current gross operated production in Egypt totals approximately 203,000 barrels of oil and 880 MMCF of gas per day in Egypt, up 3% from 2011. This includes Apache's newest Faghur Basin well, Neilos-2, which recently test-flowed 6,301 barrels of oil and 4.2 million cubic feet (MMcf) of gas. The company continues to acquire and evaluate seismic surveys through about 10 million acres in the Western Desert. The company's current overall production is running at approximately 203,000 barrels of oil and 880 million cubic feet of natural gas per day. The company reported a daily average of production of about 165,000 barrels of oil equivalent (BoE) from Egypt in 2011, with about 63% of this volume composed of crude oil, and proved reserves in Egypt totaling 292 million BoE at the end of 2011. The company reported exploration and development costs of $896 million in Egypt in 2011, up from $757 million the year before.
According to Financial Times, the consensus forecast amongst 30 polled investment analysts covering Apache Corporation advises that the company will outperform the market. Apache keeps its consistency with this being the consensus forecast since the sentiment of investment analysts deteriorated on September 07, 2002. The previous consensus forecast advised investors to purchase equity in Apache Corporation.
Apache has a market cap of $38 billion, with about $10 billion of operating cash flow and debt of about 20% of Apache's capitalization. This year, the company expects to grow production by 7%-13%. The company reported 4th-quarter 2011 earnings of $2.94 per share, and had 4th-quarter 2011 revenue of $4.30 billion. Last year, the company generated $4.5 billion in net income or $11.47 per share while the company's production rose 14% to 748,000 barrels of oil per day and increasing proven reserves to 3 billion BoE, while replacing 125% of production through drilling. The company recently announced it will trade ex-dividend, for its quarterly dividend of $0.17, payable next month, working out to be, as a percentage of Apache's recent stock price, approximately 0.18%.
With smart acquisitions and capitalizing on those sweet deals, Apache continues to please investors and should be a member of oil and gas stock portfolios for the a very long time.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.