Thursday, 6 August 2015

Apache - conference call thoughts from an energy sector survivor

Apache - as with almost all of the rest of the energy space - has had a really poor last year. 

But it goes further than that: Apache are at decade plus lows: 

The shares are catching a bounce (+4%) today after a solid update which saw an increase in full year production guidance for both North American and International operations: 

Raising 2015 onshore North American production guidance from flat year over year to up 1 to 2 percent, which brings full-year guidance to 305,000 to 308,000 boe per day.

Updating 2015 International and Offshore production guidance (adjusted for divestitures, Egypt tax barrels and minority interest) to 164,000 to 168,000 boe per day, a 5 to 8 percent increase over 2014 pro forma production, and up from the previous guidance of a 'slight increase'.

Now, of course, with lower general energy prices this is nothing to get very excited about per se but at least it shows some execution capability.  

Far more interesting was the comment on the balance sheet:

Exited the second quarter with total debt of $9.7 billion and $3.0 billion of cash, a significant improvement from $12.3 billion of total debt and $200 million of cash at March 31, 2015.

This is clearly good news and puts the company on about a x6 EV/ebitda rating today which feels a depressed rating but probably rightly so given the environment.  Ultimately though Apache want to set themselves up as a survivor and comments on the conference call centred on the continued push to be cash neutral at worse at US$50 (they noted currently Egypt, the North Sea and parts of the American onshore business are already clearly cash flow positive even at prevailing prices), the unwillingness to participate in any M&A because of the attractions of internal projects and ongoing discussions with the oil services companies to keep costs going down.  All sensible stuff. 

Clearly there are exogenous risks such as an extreme collapse of the oil price but the early halving of capex (current run-rate of US$5bn) and previously mentioned disposals of a number of international businesses has proved sensible.  

My view: to complement the mega cap exposure in the space with their dividend focus (link here) Apache is a good choice.  For me the conference call reiterated they have the experience and acumen to see through the current conditions and ultimately prosper and move materially above the current decade plus share price low is clear.  As with probably any other energy sector call over the last year I have been wrong to buy/build in Apache shares but you can only invest going forward - and this is no time to be selling their shares in my view. 

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