APA Corporation: Opportunistic Bottom-Fishing In The Oil Patch

Summary

Disciplined approach to CAPEX is a key driver to capital efficiency going forward.
Focus on debt reduction and growth of returns-on-investments is net positive for the balance sheet.
Despite lower commodity prices, APA's current share price offers attractive level to initiate or add to positions.
APA displays good quality of earnings.

APA Corporation (APA) is the holding company of its wholly-owned subsidiary Apache Corporation. It is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). APA is geographically diversified with operations in the United States, Egypt’s Western Desert and the United Kingdom’s North Sea and exploration opportunities offshore Suriname.

I have owned shares of APA at various times between 2005 and currently, with positions added or trimmed depending on my capital allocation needs and/or sector participation and weighting.

Although the equity price has often provided a reasonable proxy to energy and commodity prices generally (and handily beating the broader S&P 500 during most of the previous six-month period, as shown below),

APA vs S&P 500 Six Months (CNBC)

APA's share price significantly lagged the S&P 500 during the last one-year period (see below).

APA vs S&P 500 1 Year (CNBC)

However, at current levels, APA looks to offer a reasonable opportunity to initiate and/or add to positions. The cyclical nature of energy prices notwithstanding, this article intends to highlight several catalysts which give me confidence to add to my position in APA.

Disciplined approach to CAPEX will drive capital efficiency going forward

Like most operators in the E&P sector, access to new reserves is critical to sustaining growth potential over the long-term. Likewise, the cost of acquiring reserve assets (proven and unproven) and developing assets doesn't come cheap.

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