Contrary to what seems to be said with the seemingly steady drop in the price of oil, Apache (NYSE:APA) is set to be a stock on the rise. One reason for this is that its base of operations is scattered across a wide geographical area. Thus, operations are not likely to be affected by geopolitical unrest that cripples the operations of business that are tied to a single geopolitical region.
Moreover, important news that once again stamps the bullish trend for Apache is the recent acquisition of Cordillera Energy Partners last week. Cordillera is a privately held company that has operations and acreage across the western panhandle. It was reported that Apache paid $2.5 billion in cash as well as 6.3 million shares of Apache common stock to the sellers. This acquisition sees Apache more than doubling its acreage in the fairway and would make it a leading force in the industry.
The effect of this acquisition is that Apache now has the potential to double its production and its revenue. In fact,G. Steven Farris, Apache's chairman and chief executive officer, said "With this additional acreage, we expect to more than triple the pace of activity on the combined Apache and Cordillera acreage during 2012."
In another development, Apache is set to make a conversion to its rigs so that they can be powered by liquefied natural gas. This move is necessary in order to get a clean, low-cost and efficient alternative to diesel. One fact that investors will appreciate the most about this move is that the cost of making the conversion will be realized in two years and subsequent savings will go a long way in increasing the profit margin for the company.
Another competitor, Chesapeake Energy (NYSE:CHK), is also set to make the move to change the fuel that powers its drilling rigs. In fact, the plan is to convert about 40 rigs to be running on liquefied natural gas by the end of the year. This move is set to make Chesapeake a leading energy company with the least carbon footprint as far as drilling operations are concerned. According to Kent Wilkinson, vice president of Chesapeake Natural Gas Ventures, "to our knowledge, this will by far be the largest rig fleet utilizing natural gas."
Chesapeake is also in the news in that it has plans to join forces with three other companies to form an alliance that will build a pipeline to convey crude oil from the Mississippian Lime formation to Cushing, Oklahoma. The alliance, which is stated to take effect toward the end of this year, and reach its completion stages by the middle of next year, will create a pipeline with an initial capacity of 140, 000 barrels per day.
However, the good fortunes of Chesapeake may be short lived with the recent revelation about corporate irresponsibility that involved its last chairman. An investigation revealed that former CEO Aubrey McClendon has allegedly received up to $1.1 billion as loans against the stock that he has in Chesapeake oil and gas wells. This is in addition to the fact that he was running a $200 million hedge fund that traded in the same commodities produced by Chesapeake.
The revelation saw McClendon losing his seat. However, the effect of such corporate irresponsibility on Chesapeake will be monumental. Investors will, no doubt, keep its corporate governance in question.
Interestingly, it seems that all eyes are on Canada these days as far as the oil and gas sector is concerned. This is made evident in another development that sees Imperial Oil (NYSEMKT:IMO) scrambling to take a big size off the Canadian liquefied natural gas resources. This move is another testimony to the fact that Apache made a right decision in deciding to convert its rigs to be powered by liquefied natural gas.
However, the move, while being a smart one for Apache, may have an entirely different outcome for Imperial because its plan is projected far off into the future. For instance, while Apache plans to regain the cost of making the conversion through a two-year savings on fuel costs, Imperial has a 40-year plan that will require a lot of capital input.
If you follow issues relating to environmental pollution by players in the oil and gas industry, you may remember that the Environmental Protection Agency has recently let Encana (NYSE:ECA) and Cabot Oil and Gas (NYSE:COG) off the hook for some allegations. The allegations were that they were contaminating the groundwater in Wyoming and Pennsylvania by hydraulic fracturing activities.
However, the case took another interesting turn recently, when the federal authority decided to strengthen its argument and bring out a new set of safety rules for the environment especially as it relates to hydraulic fracturing on federal land. The new rules are designed to lift the bar and set a new standard that would be followed on all other lands where natural gas wells are found.
If the plan should move according to the EPA, it will literally bring a complete change to how oil is to be drilled in the United States. This will in no doubt have a negative effect on the production plans of companies and will lead to an increase in price until stability is regained once again.
Lastly, plans are underway for Apache to start drilling oil from an offshore well in the east African country of Kenya by securing a rig that will be used by it and its partners. This move will surely increase its productivity and you can be sure that the move will also increase its profitability.
Apache is quickly on the move up right now. My advice is to join in and enjoy the fast track to profits.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.