Business Snapshot
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.”
