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Apache, Sinopec in Global JV

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Leading independent energy company, Apache Corp. (APA - Free Report) has entered into a Joint Venture (JV) deal with Sinopec International Petroleum Exploration and Production Corporation, a wholly owned affiliate of China Petrochemical Corporation (Sinopec Group).

Per the agreement, Apache will divest 33% interest in its Egypt-based oil and gas business for a total cash consideration of roughly $3.1 billion. Apache added that the agreement is subject to approvals from the regulatory authorities and that it will maintain its operatorship of the asset as before.

The places in Egypt where Apache conducts its exploration and production activities are remotely populated, and are not impacted by the recent political disturbances in the country. In 2012, the net liquid output of Apache from its Egypt-based operations was reported at 100,000 barrels of oil per day, while production of gas amounted to 354 million cubic feet (MMcf) of natural gas per day.

Moreover, Apache has realized substantial growth from its Egyptian exploration and development activities and has been able to generate considerable cash flows for its shareholders over the years. Management believes that the current deal with Sinopec International Petroleum Exploration and Production Corporation will help to maintain this growth profile in the near future.

Founded in 1954, Houston, Texas-based Apache is one of the world's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil, and natural gas liquids.

We are optimistic about Apache’s large geographically-diversified reserve base, as well as its balanced exposure to natural gas and crude oil, and multi-year trends in reserve replacement and production growth. This allows management to allocate capital and resources to high-return projects.

However, the company’s long-term production and reserve growth primarily depends on its acquire-and-exploit model. Apache may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

Apache currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile one can look at exploration and production firms like Range Resources Corporation (RRC - Free Report) , VOC Energy Trust and Matador Resources Company (MTDR - Free Report) as attractive investments. All the stocks sport a Zacks Rank #1 (Strong Buy).

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