Apache Corporation (APA - Free Report) stock looks lucrative at the moment. We are positive about the company’s future prospects and believe that it is the right time for you to add the stock to your portfolio.
Marathon Oil’s strategic portfolio in the Permian Basin signals visible production growth in the upcoming years. Estimated to hold massive oil and natural gas reserves, the Alpine High discovery is expected to be a game-changer for Apache. Estimated to hold massive oil and natural gas reserves, the wells are expected to drive strong economics and top-tier returns going forward. The company has made some solid output projections for its Alpine High assets and forecasts its overall Permian production at 315,000 BOE/d by 2020, which is almost double its 2017 figure of 158,000 BOE/d. In fact, Apache forecasts its Alpine High output to witness a compounded annual growth rate (CAGR) of more than 150% through 2020.
While the pipeline pinch raises concerns for many Permian players like Diamondback Energy (FANG - Free Report) , Jagged Peak Energy Inc (JAG - Free Report) and Centennial Resources (CDEV - Free Report) among others, it is to be noted that Apache has advanced infrastructural development in Alpine High by entering into a partnership with Kayne Anderson Acquisition Corporation for the creation of a pure-play Permian Basin midstream firm—Altus Midstream— in Texas. This midstream infrastructural development project holds much significance for Apache, providing it a competitive edge.
Importantly, as part of streamlining its portfolio, Apache divested its high-cost Canadian assets, thereby freeing up capital to concentrate on its longer-term high-grade prospects, especially in the Permian basin, which now constitute more than half of its total output. The company has been focused on ramping up its portfolio and strategically redeploying capital to highest value opportunities.
While Permian and Alpine High are the more significant assets of the company, Apache has certainly not put all its eggs in one basket. The company also has considerable acreage in Egypt and North Sea and expects robust cash flow from these assets in the coming years.
Further, the company’s high-quality drilling inventory with greater resource potential should enable it to deliver competitive per share growth. In this context, Apache's 2018 reserve replacement ratio (RRR) of 135% is indicative of the company’s ability to add proved reserves to its reserve base in excess of the amount of oil and gas produced. The company also announced a 5% increase in proved reserves at year-end 2018 to 1.23 billion oil-equivalent barrels driven by extensions.
Moreover, Apache remains committed to returning value to shareholders via dividends and buybacks and plans to return 50% or more of the free cash flows generated in 2019 to investors.
Considering the above factors, it should not come as a surprise that Apache carries a Zacks Rank #1 (Strong Buy) along with a favorable VGM Score of A. Our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1 or 2 (Buy) offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors should note that the company displays a decent earnings history, having surpassed estimates in each of the last four quarters. What’s more encouraging is the solid estimate revision that the company is witnessing of late. In the past 30 days, the earnings estimate for 2019 has moved 8 cents north to $1.13 a share.
As such, Apache appears to be a solid bet based on an impressive production profile, midstream efforts and investor-friendly moves. Hence, if you haven’t taken advantage of the share price appreciation yet, it’s time you add the stock to your portfolio.
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