Is the long-awaited consolidation in the oil patch starting? We hear talk in the press of Apache (APA) getting a bid, right now, and we have to wonder, where have these deals been? The stocks are trading at prices that I think represent bargains relative to the price of crude, IF you have a decent balance sheet and can take advantage of the lower prices.
The problem, of course, is that other than Exxon Mobil (XOM) no one really does have a decent balance sheet. There are some good ones: EOG Resources (EOG), Occidental Petroleum (OXY) and Chevron (CVX) come to mind. Cimarex Energy (XEC) and Concho Resources (CXO) also come to mind. They are all in relatively liquid shape.
But everyone else pretty much thought the party would last forever, including Apache, which has first-class assets but has been in a downturn far longer than all of the others in its class. Apache peaked at $104 at the top in June, but, unlike so many others, it had been as high as $134 in 2011. That's when the Arab Spring happened -- and Egypt, an important part of Apache's portfolio, suddenly became a liability. Subsequently, China Petrochemical (SNP) purchased 33% of the company's position in Egypt for $3.1 billion -- which was a pretty good deal, but Apache's stock never really recovered from the Egyptian sore point, even after it sold its Gulf of Mexico assets in 2013 for $3.75 billion, which, in retrospect, was a pretty smart move.
And it did have some decent production growth, despite the decline in its drilling budget -- like so many other oil outfits. But it hasn't mattered. In the end, Apache is viewed not for its more-than 542,000 barrels of oil equivalent production, but as a company with $8.8 billion in debt and a decent borrowing capacity that could be worth more to someone else, given the total lack of respect that even the best oil companies -- other than Exxon and Chevron -- are getting right now.
In other words, it wouldn't surprise me that a company with a stock that traded at $134 not that long ago would succumb to a bid for less than half of that now, because it would still amount to a large premium over the current price.
