Current shareholders should hold Apache (APA) long-term; interested investors may consider initiating a position around the upcoming earnings release. Apache had declining revenues and earnings in the previous quarter while its rate of overall production continued to increase. Apache is effectively increasing liquids production and benefits from higher commodity prices overseas. Apache recently came to terms for unrelated production and supply agreements while opening a CNG fueling station in Louisiana; Apache also endured minor headwinds that will postpone development in Alaska. Apache faces increased competition on various assets within its worldwide portfolio, but ultimately, it's successfully positioning itself to benefit handsomely once oil prices stabilize and domestic natural gas prices rebound.
Chevron (CVX), EOG Resources (EOG), Devon Energy (DVN), and Noble Energy (NBL) are the firms most comparable to Apache. Both Apache and Devon Energy's price is around 10.5 times earnings; EOG Resources and Noble Energy are both over 22 times earnings. Apache's price is 2.03 times sales and 1.1 times its book value, its price-to-book ratio is the lowest among the firms while only Chevron's 0.9 price-to-sales ratio is lower than Apache's. Its annualized dividend is around $0.77 per share. Apache's current ratio is around 0.9, and its debt-to-equity ratio is around 0.33. Apache's ROE is around 11.9%, its operating margin is around 37.3%, and its profit margin is around 19.5%.
Apache's EPS is around $8.35; it increased 35.6% in 2012, and is projected to increase 8.1% in 2013. Apache's sales have increased 15.2% over the past 5 years, and only EOG's 20.8% sales growth is higher. Apache's 1.4% float short and 2.1 short ratio are among the lowest of the aforementioned firms. Its beta score is around 1.3 and is the highest among these firms. Its average trading volume is around 2.6 million, and its relative volume is close to 0.75. The stock is trading at a 1.3% deficit YTD and is down 0.3% throughout the past month. Apache stock has increased 7% since its last earnings release.
On Apaches' latest earnings release, revenues totaled $3.95 billion, decreasing from $4.355 billion, YOY; first half 2012 revenues totaled $8.41 billion, increasing from $8.23 billion, YOY. Second quarter operating expenses totaled $3.16 billion, increasing from $2.2 billion, YOY. Second quarter net income totaled $356 million, decreasing from $1.25 billion, YOY. Apache's second quarter operating cash flows totaled $2.8 billion, increasing 2%, YOY. Apache second quarter worldwide average realized price for crude oil decreased 8%, YOY; averaged realized prices for natural gas in North America decreased 35%, YOY.
Liquids accounted for more than half of Apache's second quarter production, and over 80% of its second quarter oil and gas revenues. International operations account for 46% of Apache's total production; Apache realized higher prices for oil and gas outside of the North America. Apache realized $3.17 per mcf in North America and around $4.08 per mcf for natural gas overseas; around 37% of Apache's natural gas production came from international operations. Apache expects overall full year 2012 production to increase 6% to 9%, from 2011. Apache realized its ninth consecutive quarter of production growth; daily production averaged around 774 mboe per day during the second quarter.
Apache's second quarter liquid production increased 5%, and natural gas production increased 2%, YOY; this was primarily due to international production increasing 14%, YOY. Apache's production in the Permian region totaled over 100 mboe per day, increasing 40%, YOY; liquids accounted for over 70% of the production from this asset. Apache finished the second quarter with 28 rigs operating in Egypt and had an 80% success rate on 68 wells drilled, 16 were exploratory wells. Egypt accounted for 29% of crude oil revenue and 26% of total oil and gas revenues during the second quarter.
Apache recently reached a $100 million supply agreement with Subsea 7 for the Julimar natural gas project in Western Australia. Under the agreement, Apache will supply subsea 7 with pre-commissioning services, installation and transportation starting in the second half of 2014. Apache has a 65% stake in the Julimar and Brunello projects, these are Apache's largest discoveries in Australia; Apache expects to uncover 2.1 tcf to sell from these fields. Apache also has a stake in Chevron's Wheatstone project in Western Australia. Apache also recently signed a 30 year production agreement with Staatsolie, the Suriname national oil firm. Apache is investing $230 million in the exploration of Block 53 and will conduct 3d seismic research and drill as least two wells.
Apache is currently invested in 450,000 acres on the Vaca Muerta Shale in Argentina. Apache spud its first horizontal well in August 2012; the firm projects there are 800 mmbbls of crude oil to uncover in this region. Apache also produced around 97 mmcf of natural gas per day in the second quarter. Chevron recently signed a 3 year agreement with YPF (YPF) to drill over 100 wells on the Vaca Muerta Shale. Noble Energy also currently has over 10 million acres to explore in the Falkland Islands. Competition in this region in increasing, but Argentina only accounts for around 3% Apache's total oil and gas productions.
Development plans for Apache's Cook Inlet asset in Alaska are not going as scheduled. Apache recently announced it has temporarily suspended its 3D seismic research due to delays in obtaining the necessary permits from the National Marine Fisheries Service. Apache believes it will obtain the permits in the near term and may resume the 3D seismic research early in 2013. Earlier in September, Apache announced it would divest 20% of its stake under the partnership with EOG Resources and Encana (ECA) for building the $15 billion Kitimat LNG Facility in Canada. The consortium will identify a new partner in 2013, and expects to resume operations by 2017. This was partially due to the recent Cheniere Energy (LNG) decision to begin selling LNG at Henry Hub prices opposed to crude oil prices.
In September, Apache also announced it opened its first CNG station in the state of Louisiana. This station will allow fleet vehicles, government and public passenger cars, and trucks to fill up if they use natural gas as a fuel source. This development helps support a bullish outlook on Apache looking forward, once oil prices stabilize and natural gas prices completely rebound from recent lows.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
