Apache Corporation (APA), Chevron Corporation (CVX): Three Things to Know About Energy Stocks

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Yearly growth of production

Growth of production is often used as a measurement of success for energy companies.

Firms measure growth by how many barrels of oil they produce every year. They always look to increase production and expand drilling to stay ahead of the industry. However, as a firm gets larger, this becomes more difficult.

Apache Corporation (NYSE:APA) managed to triple its production of oil between 2000 and 2012. Until recently, Apache Corporation (NYSE:APA) focused on oil field acquisitions and lofty production goals to grow with the competition. However, after facing some strong challenges, Apache Corporation (NYSE:APA) chose to take a new approach.

By selling off assets and buying back shares, Apache Corporation (NYSE:APA) hopes to increase liquidity and boost the percent of earnings attributable to each share. In short, Apache Corporation (NYSE:APA) hopes to clean up its balance sheet and essentially buy earnings.

BG Group plc (LON:BG) takes a similar approach as Apache Corporation (NYSE:APA). Not only has BG Group plc (LON:BG) modified production goals, but it’s also discussing selling assets and repurchasing its shares in an attempt to raise cash and reportedly return capital to shareholders.

Apache and BG Group plc (LON:BG)’s approach may seem counter-intuitive but this is not the case. Both belong to the “million barrel club” (term coined by Robin West) since each firm is expected to reach outputs of one million barrels daily by 2018. Before they can reach this lofty goal, however, these firms realize they must clean up their dirty balance sheets.

Conclusion

To better understand energy firms, we looked into three of the unique trials they face. Within the sector, companies must overcome elbow shoving by shareholders, intense capital requirements for discovering and producing fuel, and growing yearly production while keeping a clean balance sheet. Energy firms who prove they can overcome are those investors will grow to love.

The article 3 Things to Know About Energy Stocks originally appeared on Fool.com and is written by Marie Palumbo.

Marie Palumbo has no position in any stocks mentioned. The Motley Fool recommends Chevron. The Motley Fool owns shares of Apache and has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy (NYSE:CHK), Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Marie is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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