Apache Corporation (APA, Financial) stepped into fiscal 2015 with a net loss. The reason for this loss is the rapid downturn in oil prices recently. It is exciting to know that, although the company posted a loss in the first quarter, its performance was better than the consensus estimates. The analysts had been modeling a bigger net loss margin. However, the management looks confident for a solid future ahead due to many bright spots that it is seeing. The recent rally in oil and gas prices has encouraged it, and Apache is now looking forward to a better financial performance in the upcoming quarters. Let us see If Apache can really respond to this rally and rebound in the near future.
In the recently reported quarter, Apache posted a net loss of $4.64 billion or $0.37 per share which beat consensus estimates of $0.62 per share. This clearly states that Apache’s moves are paying off for it and a better performance can be expected by the Houston-based oil company. On the other hand, Apache’s quarterly revenue came in at $1.82 billion. This cheered everyone as this revenue figure beat consensus estimates of $1.78 billion on revenue.
Cautious moves
Apache’s cautious moves helped it to maintain its performance even after a toll in the oil market. The company is now looking forward at some key aspects to improve its profitability. It is significantly reducing its drilling activity and cost structure to align itself according to the rapid oil price downturn. Permian and Anadarko basins are among its best opportunities which look in good shape, and have also performed well in the past, despite adverse weather conditions. Apache is counting on these as another solid growth prospect. Not only domestically but Apache is also pleased to see its international production in Egypt and the North Sea performing ahead of its expectations.
Portfolio update
Another key growth driver to Apache’s growth story is its effort to rebalance its portfolio. With this, Apache now can position its asset base well for the long term, which will benefit its shareholders, leading to good improvement in the market share in the future. In addition, the company has also made acquisitions in the past that have further streamlined its portfolio. Considering this, Apache will continue moving on with this initiative along other divestiture transactions. This will result in greater leverage to onshore North America. Apache, with a robust inventory of drilling opportunities, seems well positioned to generate better cash flow in the future.
Another growth opportunity that Apache is looking at is Condor wells in Delaware Basin which pleased it by its outstanding performance in the recently reported quarter. This is a positive sign and Apache is planning for more well drills in 2015, which will strengthen its market presence. In addition, Canyon Lime and Woodford plays are tremendous source rock with significant oil. This can be another growth opportunity for Apache. But due to weak oil prices, the company has slowed its drilling programs in those areas. But recently the company noticed improvement in the cost structure in Canyon Lime. The company now thinks that there are significant opportunities in this as it advances in 2015.
Apache also has aggressive investment plans in which it is now investing heavily in seismic acquisition, processing and other technical services to provide a more thorough understanding of its acreage, while also optimizing its drilling and completion techniques. It is laser focused on quick payout, high return work over and re-completion projects that might protect its North American production base.
Conclusion
Now moving to the fundamentals, the stock doesn’t have a trailing P/E as it is still incurring losses, but the forward P/E of 69.72 shows good earnings growth in future. The oil market is expected to rebound which will surely improve its profitability. Based on these valuation levels, the investors can definitely opt for Apache Corporation, as of now.
