Update: Apache's Sale Of LNG Assets Should Strengthen Its Balance Sheet

| About: Apache Corporation (APA)
This article is now exclusive for PRO subscribers.


Apache announced the sale of its LNG assets in Australia for an estimated $3.7 billion.

The sale is in line with the company's restructuring plans to sell non-core assets and focus on U.S. shale assets.

These transactions were expected as the company had announced the restructuring plan.

I maintain that the company should focus on strengthening its balance sheet and curtail investments in shale assets.

Apache Corporation (NYSE:APA) announced the sale of its LNG assets - Wheatstone LNG and Kitimat LNG - to Woodside Petroleum Limited (OTCPK:WOPEF)(OTCPK:WOPEY). The transaction also includes the upstream oil and gas reserves of the company. The total proceeds from the transaction will be around $3.7 billion, but the transaction will result in an estimated tax liability of $650 million. The company will not exit the Australian market completely - Apache will still hold upstream offshore assets and related hydrocarbons in production, and the company will also keep its 49% ownership interest in Yara Holdings Nitrates and 10% interest in the ammonium nitrate plant.

These transactions are in line with the company's restructuring plans. Apache is divesting its non-core assets and the company is planning to focus on shale assets inside the U.S. The focused approach usually results in giving the company an edge, as the operations become streamlined and the production gets efficient. However, as we have emphasized in our previous article, diverting all the investments towards shale oil might not be the best decision at the moment. The company has not suggested that all the funds will be directed towards the development of shale assets; however, the overall strategy suggests that these funds might be used to grow production from the oil-rich shale assets.

Crude prices continue to tumble and it is now abundantly clear that OPEC has declared a price war on U.S. shale producers. As crude prices continue to fall, it might become difficult for a number of U.S. shale producers to operate and be profitable. In my opinion, the best decision right now will be to curtail investment in the shale assets and focus on balance sheet enhancement. The funds coming from the transaction can strengthen Apache's balance sheet and allow the company to tackle the current market conditions in an effective way. As crude prices start to make a recovery, the company can invest in its shale assets and grow production.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.