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Why the market didn’t react to Apache’s Australian discovery

Kshitija Bhandaru

Apache Corp’s Australian oil discovery didn't impact stock much (Part 3 of 6)

(Continued from Part 2)

Market reaction

On August 18, the day of the announcement, Apache’s (APA) stock closed at $98.50. This was $0.18 less than the previous market’s close. On August 19, the day after the announcement, APA was trading at levels close to $99.76—a 1% increase.

Weak earnings

Earnings per share (or EPS) declined by 18% from the levels last year. Revenues were also down 18.4% from the same period last year. The following parts of this series will discuss APA’s second quarter earnings in more detail.

Discovery isn’t large enough

Investors might feel that the discovery isn’t significant. Leo Mariani, an analyst with RBC Capital Markets LLC noted, “It isn’t an enormous find…Explorers generally recover only 20 % of their oil in place estimates, which would yield about 60 million barrels…That’s not a huge needle-mover for them.”

Even considering APA’s entire share of the discovery—120 million barrels—it pales in comparison to its current proved reserves. The proved reserves have a high certainty of being developed. Proved reserves are well over 2.5 billion barrels of oil equivalent (or boe).

Investors are still hopeful

Apache hit a year-low of $77.31 in February this year, but shares have recovered by ~30% since then.

APA has outperformed both the SPDR S&P 500 ETF (SPY) and the Energy Select Sector SPDR ETF (XLE) despite the weak earnings. It seems that markets support APA’s strategy of divesting international assets to focus on North America. The markets also support APA increasing its liquids production.

Oil companies have been outperforming the broader market (SPY). Other companies that have outperformed the SPY include Cabot Oil and Gas (COG) and ConocoPhillips (COP).

Read our market realist series Why Cabot Oil & Gas slows after 2Q earnings despite beats and Must-know: Key takeaways from ConocoPhillips’ Q2 earnings for more insight into these companies.

Next steps

Given the recent development in Australia, APA will likely reconsider the position it intends to hold in Australia. Markets will be watching how the following months play out.

The next part in the series discusses APA’s major operations and assets in more detail.                


Continue to Part 4

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