The BP spill shouldn’t hurt this Gulf of Mexico oil stock’s prospects

Oil prices fell from their July 2008 peak of $148 U.S. a barrel to just under $40 U.S. in February 2009. Prices have roughly doubled since then, but are unlikely to get back to their 2008 highs any time soon.

We think oil prices could rise further if the global economy continues to recover, as we expect. Even so, we continue to advise against overindulging in natural gas and oil stocks. That’s because the Resource sector (including oil and natural gas) is highly volatile, and no one can accurately predict future commodity prices.

This oil stock’s diversity and high-quality reserves give it a strong foundation

One way you can lower your resource-investing risk is by sticking with companies that are leaders in their fields. Apache Corp. (symbol APA on New York), is a good example. Apache produces oil and gas in the Gulf of Mexico, so we’ve taken a close look at the oil stock’s prospects and updated our buy/sell/hold advice in a just-published issue of Wall Street Stock Forecaster.

Apache has producing properties in the U.S., Canada, the U.K., Australia, Egypt and Argentina. It gets roughly 50% of its production from oil, and 50% from natural gas.

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The company recently paid $2.7 billion in cash and stock for Mariner Energy Inc., which produces oil and natural gas in the Gulf of Mexico and at onshore properties in Texas and New Mexico. Apache also bought Devon Energy Corp.’s (New York symbol DVN) oil and gas reserves on the Gulf of Mexico Shelf for $1.05 billion.

The Gulf of Mexico now accounts for 20% of the oil stock’s production. In response to the BP oil spill, regulators will probably require offshore drillers to install more equipment aimed at preventing future spills. These extra costs would hurt the profits of oil stocks that are active in the Gulf, including Apache.

However, the company has a long history of success in this region. As well, most of its projects are in shallow water, which is less risky than deepwater projects like the BP well. These strengths should help it deal with any additional costs.

Higher selling prices and production have sent Apache soaring

The oil stock’s revenue and earnings rose sharply in its latest quarter. That’s because its average selling price for oil jumped 75% from a year ago. Gas prices rose 20%. As well, the company started production at two new oil projects in Australia during the quarter. That raised its average daily production by 7%.

These factors have helped pushed up the stock by 24.6% in the past year. In the latest Wall Street Stock Forecaster, we take a close look at Apache’s plans and see if it has the potential to go even higher.

You can get our full analysis, including clear buy/sell/hold advice, on Apache and 18 other U.S. companies in the latest Wall Street Stock Forecaster. What’s more, you can get this issue absolutely free when you subscribe today. Click here to learn how.