Is Apache Stock A Good Buy?

Apache Corporation (NASDAQ:APA) is a hydrocarbon exploration company that produces and holds a large portion of the United States oil reserve. This was great for the company during the early 2000s, but as the world moved toward electric cars in the 2010s, APA share price took a turn for the worse.

Global shutdowns didn’t help as demand for oil reduced due to canceled flights and less travel. With its stock beaten down, this could represent a value, so is Apache stock a Buy?

U.S. crude oil prices dove below zero for the first time in history in 2020. This glitch in the price of oil drums was caused by the global quarantine reducing the use of gas in cars and airplanes, among other places. It’s a market anomaly that created chaos for the oil industry.

But optimism is high that the economy could return to normalcy and take oil prices with it. As travel increases and demand for gasoline rises, increasing margins will be key to returning Apache Corporation to pre-covid profitability.

Let’s spill the data on this company to see if it’s “slick enough” to survive the choked market and keep moving forward.

Apache Produces 473,000 Barrels Of Oil Daily

Apache Corporation is a Texan oil company that produces petroleum and natural gas and was founded in 1954.

Its daily production output of 473 thousand oil barrels per day comes mostly from the Permian Basin, although it also holds reserves in other parts of Texas and Oklahoma.

It has since expanded into Egypt’s Libyan Desert, along with the North Sea, which gives it access to international oil supplies. The company hasn’t experienced any problems with political turmoil thus far, but you never know when conflicts can flare up, particularly in oil concentrated regions.

The company discovers, buys, and sells oil reserves around the world, and this asset trade helps supplement revenues. However, the shale oil business is rough, and it wasted $3 billion over the course of three years working on its Alpine High shale project near Texas. The failure was announced in 2020 and held the company underwater for a while.

With the economy set to reopen next year, stock prices are being driven up, which could be a good sign that the company’s market capitalization will recover. 

Is Apache Stock A Good Buy?

Although it was a rough year, Apache Corporation outpaced estimates in its October quarterly earnings report released November 2020. It generated $1.1 billion in revenues, equating to a $0.01 per share losses.

APA share price plummeted when it became clear that demand for oil would fall in March 2020, dropping to a low of $3.80 before rising back up to the $15 trading range. This is still only halfway to its $30-per-share pricing before the COVID-19 pandemic.

Its market capitalization of over $5 billion and 0.71 percent annual dividend yield make it a possibly stable investment with plenty of growth potential over the next five years, as travel returns to normal.

As U.S. oil prices rise on the world market, the company should be able to resume operations and continue increasing its profit margins. The Alpine High fiasco was a hard pill to swallow, but it signals the company is ready to refocus its efforts to regain investor confidence.

With more cars on the roads, airplanes in the sky, and manufacturing plants running to catch up to market demand, oil could be a savvy play for the next two years. But that doesn’t mean Apache is the bet to place.

Risks of Buying Apache Stock

The economics of oil production mean that Apache is susceptible to crumbling oil prices. Until oil prices recover, Apache’s margins suffer and that’s evident from its negative earnings in the latter half of 2020.

APA has a mix of both crude oil and natural gas, which comprises 40 percent of its production volumes. To get back into the black, the company needs to sell them at appropriate prices to maximize the value of its current reserves.

Its business model requires a complete five-year overhaul, particularly given that companies tethered to fossil fuels have targets on their back as sustainability criteria are increasingly integrated into company mission statements and operating models.

Another concern is that Apache has just  $250 million in cash and cash equivalents on hand – a small cushion for such a capital intensive business. 

Beyond worrisome Apache financials, rivals are a threat too.

Competition In The Oil Sector Is Rough

Apache Corporation has competitors in all its hydrocarbon operations. This includes catching heat from the likes of Exxon Mobil (XOM), Chevron (CVX), Pioneer Natural Resources (PXD), and Chesapeake Energy (CHKAQ).

No oil companies have remained unscathed from the crash in oil prices. Strategically, the fallout means oil companies will attempt to encroach on each other’s patch of land.

And there are also other alternative energy sources to consider. Companies like Tesla (TSLA) are building a lithium-based future that utilizes solar and wind energy. These will still likely need to be backed by natural gas, though. You might be surprised at how much energy production in this country would still rely on non-replenishable fuel reserves.

So long as it has resources to sell, this company can stay in the game.

Is Apache Stock A Good Buy? The Bottom Line

Apache Corporation is one of the biggest independent oil and natural gas producers in the United States. It focuses on locating reserves, negotiating prices to buy them, work them, and/or sell them as necessary to beat the market. And it has beaten both the market and analyst expectations when things are going right.

Things haven’t gone right for the company over the past five years though. From the Alpine High fiasco to the crash in oil prices, the company is now digging itself out of a hole. That’s what it excels at though, so there’s a good chance it can get back on its feet in the next five years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.