At the 2013 Barron’s Roundtable, Brian Rogers, chairman and chief investment officer of T. Rowe Price, said that Apache Corporation (NYSE:APA) would be one of his winners in 2013. Scott Black, the President of Delphi Management, had recommended Apache last year, and it was the only loser on his list. Indeed, over the past 12 months Apache has lost nearly 50% of its value on the market. Let’s take a closer look at Apache to see whether or not investors should follow Brian Rogers into this stock at its current price.
Apache Corporation (NYSE:APA), founded in 1954, is an independent oil/gas company with the exploration and production interests in six countries, including the US, and Australia. As of December 2012, Apache had around 2.9 billion BOE in proved reserves. 28% of its total proved reserves were in the Permian basin. Canada ranked second, accounting for 19% of the total proved reserves in 2012. In 2012, the average daily production has increased to 779,000 BOE per day, a. 5.4% growth compared to an average daily production rate in 2011. In 2012, Apache’s revenue was more than $17 billion, a bit higher than the 2011 revenue of $16.9 billion. However, the net income came in at only $2 billion, 30% lower than what Apache earned in the previous year. The decrease in net income was mainly due to the increase in additional depreciation, depletion and amortization charges.
A Growing Business With a Conservative Capital Structure
What makes me interested in Apache Corporation (NYSE:APA) is its conservative capital structure. As of December 2012, it had $31.3 billion in total stockholders’ equity, $160 million in cash and nearly $12.3 billion in both short and long-term debt. In addition, Apache has generated consistent, growing, and positive operating cash flow and free cash flow in the past 10 years. The operating cash flow has increased from $1.38 billion in 2002 to nearly $10 billion in 2011, while the free cash flow has grown from $343 million to $2.87 billion in the same period. Brian Rogers commented that it also produced a great historical return on capital. Since 2009, its returns on invested capital have been quite high, in the range of 48.5% – 58.5%. He said: “Among energy companies, Apache historically has produced a great return on capital. The company is thoughtful in what it buys and sells, and it makes pro-shareholder investment decisions. It has a strong balance sheet, and is run conservatively. They aren’t gunslingers.”