Shares of Apache Corp. (APA) hit a 52-week high of $93.99 on Nov 20. In fact, the Houston, TX-based energy explorer has seen its stock price climb some 20% during the past three months. This price appreciation can be attributed to its large geographically-diversified reserve base, balanced exposure to natural gas and crude oil, impressive growth in its onshore liquids production and portfolio rebalancing initiatives.
Why the Bullishness?
Apache is noted for growing through the acquisition and development of existing reserves. Long-term production growth visibility has significantly improved following the BP plc (BP) asset acquisition, the purchase of a portion of Devon Energy Corp.’s (DVN) Gulf of Mexico assets and the deal to acquire Mariner Energy. These new acreage positions further complement the company’s diversified asset base.
Apache’s international operations also continue to generate attractive returns. In particular, the company has been steadily building its asset base in Australia over the last few years. Apache expects to see meaningful growth in free cash flow in the coming years, stemming from project start-ups in that country.
Management has also not been shy of divesting assets, particularly those that do not fit into the company’s long-term growth plan. Recently, Apache agreed to exit its operations in Kenya, following the sale of certain properties in Canada, and the divestment of 33% of its ‘risky’ Egypt business. In fact, the company has announced some $7 billion worth of asset dispositions year-to-date.
Finally, the oil and gas producer’s cheap valuation and multiyear trends in reserve replacement are other positives in the Apache story.
Zacks Rank & Stock Picks
With Apache shares trading at 52-week high, any upside from here may be limited, as suggested by the company's Zacks Rank #3 (Hold). Meanwhile one can look at other domestic upstream energy operators like SM Energy Co. (SM) as attractive investments. The firm – sporting a Zacks Rank #1 (Strong Buy) – offers value and is worth accumulating at current levels.