APACHE CORP. $113 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 334.5 million; Market cap: $37.8 billion; WSSF Rating: Average) explores for and produces oil and gas, mostly in North America. It also has operations in the UK, Argentina, Australia and Egypt. Oil accounts for about 67% of its production.
Thanks to record high oil and gas prices, Apache’s earnings in the three months ended June 30, 2008 jumped to $4.28 a share (total $1.4 billion) from $1.89 a share ($632.1 million) a year earlier. Cash flow per share rose 57.0%, to $6.94 from $4.42. Revenue grew 57.7%, to $3.9 billion from $2.5 billion.
Apache prefers to sell its oil at spot prices, instead of using supply contracts or hedges to lock in prices. Thanks to this strategy, Apache’s stock shot up to $149 in May, 2008, but has since moved down to its current price on lower oil prices.
Recent problems at some of Apache’s operations could hurt its production in 2008. In June, the company had to stop production at its offshore gas processing facility in Western Australia due to a pipeline explosion. Insurance covered most of the damage. However, it will take another few months before the facility resumes normal operations.
Apache also gets about 25% of its production from offshore platforms in the Gulf of Mexico. Hurricanes Gustav and Ike did little damage to these operations. However, the closure of refineries and the ongoing clean up will probably slow production in the region for the next few weeks.
The company should earn $14.25 a share in 2008, and the stock trades at 7.9 times that figure. It also trades at 5.0 times its cash flow of $22.45 a share. The token $0.60 dividend yields 0.5%.
Apache is a hold.
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