APACHE CORP. $86 (New York symbol APA; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 399.2 million; Market cap: $34.3 billion; Price-to-sales ratio: 2.0; Dividend yield: 0.9%; TSINetwork Rating: Average; www. apachecorp.com) continues to sell some its less important oil and gas properties, including its offshore fields in the Gulf of Mexico and a third of its Egyptian operations. In all, the company expects to raise $4 billion from these sales in 2013.
Apache will use half of the proceeds to pay down its $10.9 billion of long-term debt (as of September 30, 2013), which is equal to 32% of its market cap.
The company is also using the cash to increase production from its North American onshore properties. This approach is much cheaper than offshore drilling and has less political risk. Apache now gets 56% of its production from its onshore fields, up from 32% in 2009.
In addition, Apache is shifting its focus to oil and natural gas liquids (NGLs), such as butane and propane, which trade at higher prices than natural gas. In the third quarter of 2013, it produced 784,331 barrels a day (54% oil and NGLs, 46% gas), up 1.8% from 770,783 barrels a year earlier.
Apache trades at 5.4 times its likely 2013 cash flow of $15.90 a share. Its cash flow could rise 20.1%, to $19.10 a share, in 2014, and the stock trades at a low 4.5 times that estimate.
However, Apache’s stock will likely remain volatile until it completes its asset sales. As well, the $0.80 dividend yields a low 0.9%.
Apache is a hold.
