We issued an updated research report on upstream energy player Apache Corporation (APA - Free Report) on Oct 11. We appreciate the company’s large geographically diversified reserve base and multi-year trends in reserve replacement. However, crude weakness remains as overhang.
The company carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Apache’s high-quality drilling inventory with greater resource potential should help deliver crude production growth. We see Apache's Alpine High discovery in West Texas as a game-changer. Estimated to hold massive oil and natural gas reserves, the wells are expected to have strong economics and top-tier returns.
Management is quite proactive about divesting assets, particularly those that do not fit into the company’s long-term growth plan. As part of this initiative, Apache recently entered into an agreement to divest its high-cost Canadian assets, thereby freeing up capital to focus on high-grade prospects, especially in the Permian basin. The company has been focused on streamlining its portfolio and strategically redeploying capital toward better opportunities.
Moreover, by leveraging on its operational expertise, Apache has been able to keep its average well costs at or below budgeted levels — a major achievement in the current low commodity price scenario. It has been five quarters in a row that Apache's cash flow has exceeded capital expenditure, contributing positively to balance sheet.
However, oil price has been trading significantly below the mid-2014 level which will affect Apache's earnings and cash flow. The effect of the commodity price slump has been more profound on Apache’s top line as the energy explorer did not hedge production.
Over the past year, Apache's stock has lost 33.1%, underperforming the industry’s decline of 23.3%. The company has also reported average negative earnings surprise of 59.09% in the trailing four quarters.
Stocks to Consider
A few better-ranked players in the energy sector are Par Pacific Holdings Inc. (PARR - Free Report) , Enbridge Energy Partners, L.P. (EEP - Free Report) and Jones Energy, Inc. (JONE - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Headquartered in Houston, TX, Par Pacific managed to beat the Zacks Consensus Estimate in three of the last four quarters, at average earnings surprise of 195.26%.
Houston, TX-based Enbridge Energy, a master limited partnership (MLP), is a midstream energy player. The partnership recorded average positive earnings surprise of 22.83% over the last four quarters.
Based in Austin, TX, Jones Energy is an upstream energy player. The company’s 2017 earnings are estimated to grow 31.6%.
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