Since the beginning of the year, Apache Corporation (NYSE:APA) has appreciated 8%, much lower than the S&P 500’s return of 14%. Interestingly, Apache is in the portfolio of many famous investors including Brian Rogers, Wallace Weitz, and oil guru T. Boone Pickens. What might make investors excited is the fact that Apache is the second-largest position of Pickens, accounting for 9.5% of his portfolio. Is Apache cheap now? Let’s find out.
Business snapshot
Apache Corporation (NYSE:APA) is an oil & gas company operating in several countries including the U.S., Canada, the U.K North Sea, Argentina, Australia, and Egypt. At the end of 2012, it had around 2.85 billion BOE in proved reserves, concentrated in the U.S. and Canada. The proved reserves and the Permian/Central Resources total around 11.7 billion BOE, four times higher than the current proved reserves. The U.S. Permian Basin accounted for around 28% of the company’s total reserves. The company is considered the most active driller in the Permian Basin with around 38 operating rigs.
What makes me interested in Apache Corporation (NYSE:APA) is its conservative capital structure. As of March 2013, it had nearly $32 billion in equity, $248 million in cash, and only $11.5 billion in long-term debt. Moreover, Apache is a consistent dividend payer. Its dividend increased from $0.21 per share in 2003 to $0.66 per share in 2012. For the full year 2013, Apache expects to push its costs down, increase its dividend, and restructure its asset portfolio. The company expects to divest $4 billion in assets, and then it would use $2 billion to reduce its debt level and the remaining amount to repurchase 30 million shares.
Apache Corporation (NYSE:APA) is trading at $84.90 per share with a total market of nearly $33.3 billion. The market values Apache at only 9 times its forward earnings. Compared to peers Anadarko Petroleum Corporation (NYSE:APC) and Exxon Mobil Corporation (NYSE:XOM), Apache is valued the cheapest.
Anadarko and ExxonMobil are more expensive
Anadarko Petroleum Corporation (NYSE:APC) is trading at $86.10 per share with a total market cap of more than $43.1 billion. The market values Anadarko at a much higher valuation of 15.9 times its forward earnings. Anadarko had around 2.56 billion BOE in its proved reserves at the end of 2012. In the first quarter of 2013, the company achieved record daily sales volume of 793,000 BOE and monetized around $1.2 billion of assets. The EPS came in at $0.91 per share, much lower than $4.28 per share last year. The higher EPS last year was due to the profit tax settlement of more than $1.8 billion in and lower depreciation, depletion, and amortization.
For 2013, Anadarko Petroleum Corporation (NYSE:APC) expects to have around 279 million to 287 million BOE in sales volume. With an estimated capital expenditure of around $7.2 to $7.6 billion, Anadarko’s reserve replacement would be more than 150%. By 2020, the company is confident that it could deliver 5% to 7% annual production growth at current prices.
Exxon Mobil Corporation (NYSE:XOM) is cheaper than Anadarko Petroleum Corporation (NYSE:APC) but still more expensive than Apache Corporation (NYSE:APA). At $90.60 per share, ExxonMobil is worth around $402.8 billion on the market. It is valued at 11 times its forward earnings. ExxonMobil had the largest proved reserves of around 25.2 billion BOE at the end of 2012. It is also considered the largest natural gas producer in the U.S., owning more than 74 trillion cubic feet equivalent of natural gas proved reserves.
