Apache Corporation (APA): An Oil & Gas Company To Avoid

According to a recent press release, Shell has agreed to sell its downstream assets in Egypt to Total S.A. The company operates 85 fuel stations in Egypt, which altogether rakes in a domestic market share of 5%-7%. It was a cash-based transaction, but the exact terms of the deal were not disclosed. However, Shell’s asset divestiture is being cheered by the Street due to its reduced exposure to the country. Since Shell has been eying a stake in the Mozambique LNG plant, I believe that the cash generated from the deal will most likely be used to fund that purchase.

Similarly, Chevron is looking to offload $300 million worth of downstream assets in Egypt and Pakistan. These numbers aren’t huge because only its downstream assets were considered for the sale. Its spokesperson recently stated that Chevron is currently reviewing its fuel operations in Egypt and Pakistan, following which the company will decide whether to keep or divest its assets in the countries. But since most rating agencies are advising the sale of Egyptian assets, I’m inclined to say that Chevron will follow suit

But since Apache Corporation (NYSE:APA) hasn’t announced the divestitures of its Egyptian assets, Oppenheimer has downgraded its shares to market perform. Its analysts stated that Apache’s earnings have been dampened by 20%-30% due to its significant exposure to Egypt. So, to unlock shareholder value, Oppenheimer suggests that Apache divests some of its Egyptian assets and use the cash generated to repurchase around 15% of its outstanding shares.

Conclusion

In my opinion, Apache is a great company and its recent spurt of expansions will be its key growth drivers. But its huge exposure to Egypt has nullified its positive catalysts, and offers little potential for growth. I firmly believe that Apache Corporation (NYSE:APA) should offload some of its assets in the country this year, as the Egyptian Pound will most likely continue to weaken. But until that happens, I wouldn’t recommend Apache Corporation to conservative investors.

The article An Oil & Gas Company To Avoid originally appeared on Fool.com and is written by Piyush Arora.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache. Piyush is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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