APACHE CORP. $92 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 337.3 million; Market cap: $31.0 billion; Price-to-sales ratio: 3.3: Dividend yield: 0.7%; WSSF Rating: Average) produces oil and natural gas from properties in the U.S., Canada, the U.K., Australia, Egypt and Argentina. It gets roughly 50% of its production from oil, and 50% from natural gas.
The company recently paid $2.7 billion in cash and stock for Mariner Energy Inc., which produces oil and natural gas in the Gulf of Mexico and at onshore properties in Texas and New Mexico. Apache also bought Devon Energy Corp.’s (New York symbol DVN) oil and gas reserves on the Gulf of Mexico Shelf for $1.05 billion.
The Gulf of Mexico now accounts for 26% of Apache’s production. Offshore drilling is riskier than onshore operations, but Apache has a long history of success in this region. As well, most of Apache’s projects are in shallow water, which is less risky than deepwater projects like the BP well.
In the three months ended March 31, 2010, Apache earned $711.6 million, or $2.10 a share. That’s up 226.1% from $218.2 million, or $0.65 a share, a year earlier. These figures exclude unusual items, including a $2.0-billion non-cash writedown of various oil and gas properties in the year-earlier quarter. Cash flow per share rose 57.7%, to $4.62 from $2.93. Revenue jumped 63.6%, to $2.7 billion from $1.6 billion.
Apache’s average selling price for oil jumped 75% from a year ago. Gas prices rose 20%. As well, it started production at two new oil projects in Australia during the quarter. That raised its average daily production by 7%.
The company will probably earn $9.81 a share in 2010. The stock trades at 9.4 times that figure. It also trades at just 5.1 times Apache’s projected 2010 cash flow of $18.05 a share.
Apache is a buy.
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