APACHE CORP. $98 – New York symbol APA

APACHE CORP. $98 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 336.2 million; Market cap: $32.9 billion; Price-to-sales ratio: 4.1: WSSF Rating: Average) produces oil and natural gas from properties in the U.S., Canada, the U.K., Australia, Egypt and Argentina.

The company gets roughly 50% of its production from oil, and 50% from natural gas. This balance has helped shield the company from falling gas prices, which are down over 50% from a year ago. Oil prices, by comparison, are down roughly 35%.

Despite the lower prices, Apache increased its daily production to a record 607,118 barrels (including oil and natural gas) in the third quarter of 2009. That’s up 3.4% from the previous quarter, and 19% from a year earlier.

The company’s offshore platforms in the Gulf of Mexico returned to normal operations after being disrupted by hurricanes in the year-earlier quarter. As well, its gas-processing facility in Australia resumed operating in the second quarter of 2009 following an explosion last year. These were the main reasons for the higher production.

Apache uses hedging contracts to lock in selling prices and cut risk. However, in the three months ended September 30, 2009, its per-share earnings still fell 50.5%, to $1.58 from $3.19 a year earlier. Cash flow per share dropped 38.9%, to $3.84 from $6.28. Revenue fell 30.7%, to $2.3 billion from $3.4 billion.

The stock has nearly doubled since March. It now trades at 18.1 times the $5.40 a share that Apache is expected to earn in 2009. It also trades at 7.9 times its likely cash flow of $12.40 a share.

These are reasonable multiples in light of Apache’s high-quality reserves and geographic diversity. As well, its plan to add 40,000 barrels to its daily production in 2010 will let it profit as energy prices improve with the global economy. The $0.60 dividend yields 0.6%.

Apache is a buy.