Tags: Apache | APA | oil | stocks

Apache: Reaping the Rewards of Acquisitions

By Dan Weil   |   Wednesday, 24 Aug 2011 11:39 AM

Dwindling global economic growth has put a hurt on oil prices recently, sending them down more than 25 percent from their early May peak, to $84 a barrel recently. But that still represents a 15 percent increase from just a year ago.

That’s a good environment for Apache (APA), the largest U.S. independent oil and natural-gas producer by market value

Apache’s strategy combines developing its own energy assets and buying supply from other companies. The combination has proven effective, providing the company a diversified portfolio of oil and gas production facilities around the world, offshore and onshore. It also has an attractive mix of old assets and new.

Apache spent $12 billion on acquisitions last year, including Mariner Energy and assets from BP and Devon Energy. While the company had to increase its shares outstanding and take on some debt to finance the purchases, its balance sheet still looks solid. And the acquisitions are paying off this year.

Apache’s profit soared 44 percent in the second quarter to $1.24 billion from $860 million a year earlier. Revenue jumped 46 percent to a record $4.34 billion.

Record output

The acquisitions helped push the company’s oil and gas output up 16 percent to a record 749,000 barrels of oil equivalent per day. Apache benefited from higher oil prices too, of course.

The company also announced recently that it discovered two new oil pockets in Egypt's Faghur Basin. While the country obviously faces political turmoil in the short term, Apache says demand for natural gas has remained robust. A favorable political outcome would help boost the country’s future energy demand.

Standard & Poor’s analyst Michael Kay has a five-star buy rating on Apache. “We believe APA's $11.5 billion of acquisitions in 2010 will add significant future opportunity in core regions . . . providing visible production growth and significant exploration upside,” he writes.

Kay is impressed with Apache’s steps to integrate and exploit mature reserves and devote capital to international development projects. The company next reports around Nov. 4.

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Dwindling global economic growth has put a hurt on oil prices recently, sending them down more than 25 percent from their early May peak, to $84 a barrel recently. But that still represents a 15 percent increase from just a year ago. That s a good environment for Apache...
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