Apache's New Discoveries Will Propel Stock Higher By 2013

| About: Apache Corporation (APA)
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Investing in Apache (NYSE:APA) simply for its fruits of great returns, smart management plays, innovation and creativity, and sticking by its philosophy of strong organic growth should be enough to convince any investor to jump on board. However, when a company this size can be typically seen as "small business, small returns" it is difficult to match it up to the giants of ConocoPhillips (NYSE:COP), Anadarko (NYSE:APC), Total (NYSE:TOT), BP (NYSE:BP), and especially Exxon Mobil (NYSE:XOM).

But we must not be fooled by its stature. With a market cap of $33.63 billion, a P/E of 8, and a dividend yield of .80%, Apache is not a company to sneeze at. In fact, it I believe it is one to embrace. Oh, and did I mention that the company just discovered what is thought to be one of the world's largest shale-gas discoveries? It may be chugging along behind the giants, but it is turning heads and making money for investors. Getting on board now for a very long term would be a wise move today.

Oil production in West Texas and the central U.S. will create most of the growth for Apache through year 2016, according to CEO Steve Farris. The company expects the Permian Basin in West Texas to grow by 13% per year and that the Central U.S. plays will grow by 24%. Farris stated "We're now in a position to really move the needle in the United States. We have the inventory to do that and the acreage to do that. For Apache, this is the time to drill more wells: We have captured a vast, liquids-rich resource base and drilling costs are declining. By remaining committed to Apache's historical focus on returns and preserving our conservative financial structure - which means living within our cash flow - our portfolio is positioned to continue to deliver long-term growth and value for our shareholders."

Apache has identified approximately 34,500 drillable locations with an estimated net resource of 3.8 billion barrels of oil equivalent (NYSE:BOE) in the Permian Basin of West Texas and eastern New Mexico where it is the second-largest producer and acreage owner. The company has also identified approximately 32,500 drillable locations in the Anadarko Basin in western Oklahoma and the Texas Panhandle, primarily in the Granite Wash, Cleveland, Tonkawa and Marmaton formations, with an estimated net resource of 5.4 billion Boe.

Based on recent drilling and tests results, Apache has also confirmed a promising new shale play in the Liard Basin in northern British Columbia, Canada, with net estimated sales gas of 48 trillion cubic feet of natural gas (8 billion Boe) across 430,000 acres held with a 100% working interest. And in Argentina, the company estimates that its 450,000-acre position in the Vaca Muerta oil shale has a net potential recoverable resource of 800 million Boe. Offshore Kenya, in Block L-8, the company has identified eight prospects with net potential of 1.4 billion barrels of oil, where the company expects to commence drilling its first well in the deepwater block in the third quarter.

It is the discovery of shale gas that has transformed North America's natural-gas industry, creating a surplus of the fuel that has driven prices down to 10-year lows and jump-started the liquefied natural gas industry. Recently, in a remote corner of northeastern British Columbia, Apache discovered a massive field containing as much as 48 trillion cubic feet of recoverable natural gas. This is a gold mine in terms of resources and profits to the company. Apache said that it had drilled three wells into its holdings in the Liard Basin in British Columbia, and those wells hit upon a massive shale-gas reservoir that is said to be able to supply U.S. needs for almost two years. The company owns roughly 430,000 acres of exploration lands surrounding the new find and with wells already been connected to pipelines in the region.

Even more interesting is that just one of the three wells drilled in the region was treated with the multiple-stage hydraulic fracturing process. That well, which was fracked six times, delivered 21.3 million cubic feet of gas per day over its first 30 days of production. What makes the find more attractive is that the field where the gas was discovered could also supply an LNG export facility that Apache and partners Encana (NYSE:ECA) and EOG Resources (NYSE:EOG) are planning to build at Kitimat on British Columbia's northern coast.

The good news does not stop there. Coupled with this recent find, the company announced that its 580,000 acres of land in the Mississippian Lime field in Kansas and Nebraska could contain as much as 2 billion barrels of oil while its holding in Montana's Williston Basin may hold another 1 billion barrels. Additionally, the company is targeting as much as 1.3 billion barrels of oil in Alaska's Cook Inlet.

Year on year Apache grew revenues 39.66% from $12.09 billion to $16.89 billion while net income improved 51.19% from $ 3.03 billion to $4.58 billion. The company is firm in its belief that the company should grow organically as much as possible using home reserves for future growth and expansion. In 2011, the company increased its cash reserves by 120.15%, or $161 million. The company earned $9.95 billion from its operations for a cash flow margin of 58.94%.

Additionally, the company used $8.65 billion on investing activities and also paid $1.15 billion in financing cash flows. The company has a Debt to Total Capital ratio of 20.95%, a lower figure than the previous year's 32.26%. The company recently announced that The Board of Directors has declared regular cash dividends on the company's common shares and 6% Mandatory Convertible Preferred Stock, Series D. In 2011, the company reported a dividend of $0.60.

With such great financials and the company's pursuit of even more untapped resources, Apache was a great investment two weeks ago and is an even greater one now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.