Apache Corporation (APA) is an independent energy company that explores, develops, and produces natural gas, natural gas liquids, and crude oil around the world. The company has operations in onshore assets in the Permian Basin as well as in the Midcontinent/Gulf Coast regions and offshore assets in the Gulf of Mexico. It also has interests in Egypt, the North Seas region, and the United Kingdom as well as other interests around the globe. It was one of those interests that drove the price of APA stock appreciably higher last week.
The company has been around since 1954, and its headquarters are in Houston, Texas.
In 2019, APA shares traded in a range from $18.33 to $38.12 and closed on December 31, 2019, at $25.59 per share, below the middle of its trading range. The low for the year came in early December when APA traded to $18.33 on December 3 and again on December 6. Last week, the shares gapped higher after news of a significant oil discovery.
A significant oil discovery in Suriname
On January 7, Apache shares surged to their most significant one-day gain in nearly fifty years.
APA shares closed at $25.64 on January 6, and traded to a high of $32.58 on January 7, closing at $32.51 near the high of the session. The stock jumped 26.8% and traded to a high of $33.42 on January 14.
The company discovered a significant oil reserve off the coast of Suriname. The discovery was at the Maka Central-1 well drilled offshore Suriname on Block 58. Apache CEO John Christmann said, “Preliminary formation evaluation data indicates the potential for prolific oil wells. Additionally, the size of the stratigraphic feature, as defined by 3-D seismic imaging, suggests a substantial resource.”
Suriname is on the northeastern Atlantic coast of South America. The country borders on the Atlantic Ocean to the north, French Guiana to the east, Guyana to the west, and Brazil to the south.
Apache’s partner is Total SA
The Noble Sam Croft, a drillship, drilled the well with Apache as the operator. Apache and Total SA (NYSE:TOT) each own 50% working interests in the property. Total is an integrated oil and gas company with interests all over the world. Total’s headquarters are in Paris, France. TOT has a market cap of $140.697 billion at a share price of $54.74 as of Tuesday, January 14. The stock trades at a price to earnings multiple of 15.34 and pays shareholders a 5.30% dividend. TOT’s market cap is over eleven times APA’s at $12.578 billion. The discovery in Suriname had virtually no impact on TOT shares last week.
The chart shows that TOT shares closed at $56.51 on January 6 and moved lower to $54.74 as of January 14. TOT moved lower with the price of crude oil last week. The discovery in Suriname was far more significant for Apache, given the size of the company’s market cap.
APA has not been making money
The trend in APA’s earnings has been lower since Q4 2018.
Source: Yahoo Finance
As the chart highlights, in Q4 2018, the company earned 31 cents per share and beat consensus estimates by seven cents. In Q1 2019, a miss of two cents led to earnings of 10 cents. Q2 was one penny better, and the earnings came in five cents above the estimates. The third-quarter loss of 29 cents per share was ten cents below the level the market had expected. The current forecasts for the fourth quarter are for a loss of 12 cents per share.
The dividend is attractive
At $33.42 per share, APA was paying its shareholders a 3.12% dividend. A continuation of the dividend depends on a return to profitability by the company.
Many oil-related companies are paying attractive dividends these days, but that has not done much to help the price of their shares. In 2019, stocks moved appreciably higher, and NYMEX crude oil rose by over 34% on the year. However, the Energy Select Sector SPDR (NYSEARCA:XLE) only increased by 4.69%, which underperformed both the stock and oil markets.
Oil-related shares have been suffering, but the price action in APA last week is an example of how a bullish surprise could have a substantial impact on a stock in the sector.
A wide range of targets from analysts
A survey of 26 analysts on Yahoo Finance has a wide range of target projections for the stock from $20 to $58 per share, with an average of $30.40 as of January 14. Many analysts quickly upgraded the shares after the discovery off the coast of Suriname.
APA shares left the other oil and gas stocks in the dust last week after it announced the discovery of significant reserves. The price action in the stock is a wake-up call for investors looking for value in the stock market these days with shares near all-time highs. Time will tell if the oil sector is preparing to recover. All signs are that the current price levels of most members of the energy sector limit the downside risk. APA is an example of the upside potential of other energy stocks.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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