Apache (APA, Financial) recently announced its fiscal first-quarter results, reporting a quarterly loss compared to a profit in the year ago period. This does not come as a surprise as the entire industry reels under the pressure of low commodity prices. However, recent developments in the macro economy indicate that crude may have hit the bottom and may rally again in the coming years. Therefore before taking any decision, Apache’s long term prospects need to be taken into account. Starting with its numbers lets see in detail the factors driving its growth in the days ahead.
Looking past the performance
During the quarter its revenue halved from a year ago period to $1.8 billion, while reporting a loss of 37 cents a share compared to a profit of $1.81 last year. As already stated the numbers were negatively affected by weak oil and gas prices coupled with lower production. In response to this, Apache has slashed its spending by 60%, while reduced its North American rig count by 77%.
As a result of these initiatives its total drilling and completion cost will be down around 20% to 40% in the current fiscal. This is a good move and has been adopted by most of the companies in the industry, which would consequently reduce the overall production, making a balance between the demand and supply situation in the days ahead.
In 2015, the company will mainly focus on five strong horizontal Delaware Basin wells, which includes the Condor 205H and 206H in its Pecos Bend area and three wells with relatively short laterals at its Powell-Miller area of the Southern Midland Basin. These wells have reported significant production levels, outperforming its expectations.
More importantly, the Condor wells were drilled and completed for around $6 million, which is a 25% reduction from its last update in November. Its focus on low-cost, high-production wells is the need of the hour, which will sustain its balance sheet during the present downturn.
Conclusion
These are significant developments that will prepare Apache for positives moves in the future. But again there could some short term headwinds until the prices recover. Its forward P/E multiple of 69.72 is not very attractive but its P/S ratio is quite reasonable at 1.82 compared to the industry average of 2.12, indicating that its valuations are fair at current stock prices. Therefore, in the light of these facts Apache would be a good long-term bet.
