I've been looking high and low, trying to find a value in oil and gas, with crude oil seemingly stuck at around $54 a barrel. It's been tough, as many of the independent exploration and production companies I've traded and owned, and still own in some cases, have had tremendous runs already. They'll need another boost from crude oil prices to continue higher, in my view.
But one E&P offers a speculative play, and perhaps a value here: Apache (APA) .
Apache has probably been the most snake-bit of the independent E&Ps, ever since the Arab Spring uprisings beginning in 2011. Egypt was headed for two new governments and a coup, destabilizing oil production there and spooking investors in Apache, which then held close to 40% of its cash flow in Egyptian assets. (Apache is part of TheStreet's Action Alerts PLUS portfolio.)
Since that time, Apache has worked hard to leverage its production away from Egypt, and today barely 19% of its oil and gas production comes from Egypt. No matter to investors, they've been eager to stay far away from Apache, at least in comparison to other U.S. independents -- for example, Anadarko (APC) was up nearly 100% in 2016, while Apache barely gained 44%.
The numbers don't really bear out this bias -- Apache is no more leveraged, nor is its cash flow worse, than several other independent E&Ps, including Devon (DVN) and Hess (HES) .
In addition, Apache has its claimed monster find in the Permian, the so-called Alpine High acreage, which it bought for a song and claims to have spacing advantages 10 times better than other Permian acreage.
So, why does Apache still lag? Well, it has a tremendous development battle to wage in the Alpine High region, first to prove the value of the reserves and finally to complete wells and infrastructure to bring it all to market -- most analysts don't expect this find to really make a bottom-line impact for Apache until 2018 -- and that's if the Apache claims are proven right.
Meanwhile, Apache will have to use cash flow from proven assets, like in the North Sea and Egypt, to pay for the development of Alpine High and other Permian acreage. It is devoting 50% of 2017 capex to these two projects. Apache will be developing, while other E&Ps will be increasing real production.
Even so, the prospects for Apache are so much more tantalizing than other "plain" E&Ps, with a potential for such a big move up as a long-term investment, that I am often drawn to it particularly when it sags so spectacularly compared to other US E&Ps. Like now. Early in 2016, Apache swooned under $40 -- but ultimately soared toward $58 in the early summer. Again it dropped down to $56 in November, only to spike toward $65 at the end of the year. Now Apache has again dropped under $60.
A gift? Hardly. But as US E&Ps go, it's a better value and an easier recommendation than any of the others I've mentioned right now, with their lofty valuations -- especially those with serious assets in the red-hot Permian.
For a long-term speculative play, it could be a really, really good one.
