Apache Corporation (APA): This Oil & Gas Play Is Cheap, Confirmed by Its Insiders

Among the three, BP plc (ADR) (NYSE:BP) has the highest proven reserves of around 17.7 billion BOE, while Anadarko’s proven reserves are approximately 2.6 billion BOE. Apache Corporation (NYSE:APA) has a higher level ofproven reserves than Anadarko Petroleum Corporation (NYSE:APC) at 2.9 billion BOE.

Income investors might be excited about BP, as it pays the highest dividend yield at 5.2%. Anadarko pays the lowest dividend yield at only 0.4%, while Apache pays investors dividends with a yield of 1.1%. However, BP is paying more than 50% of its earnings in dividends.

BP’s investors will get much more total yield in the coming 12-to-18 months as BP plc (ADR) (NYSE:BP) intended to buyback as much as $8 billion worth of stock. The buyback has been recently announced by the company after BP completed a major restructuring in its Russian oil business with Rosneft. As part of the deal, BP will get $12.5 billion in cash and an 18.5% stake in Rosneft. An $8 billion buyback would represent a 6% yield. Thus, a total yield to shareholder will be quite juicy at 11.2%.

If Apache Corporation (NYSE:APA) pays 50% of its earnings in dividends (the same recent payout ratio with BP), the dividend yield should be around 4.4%. However, it’s the decision of Apache’s Board.

Anadarko Petroleum Corporation (NYSE:APC) is also conservative in its dividend policy, with a mere 7.6% payout ratio.

Apache might be worth $110 per share

With a strong balance sheet, strong cash flow generating capacity and low valuation, Apache is quite cheap at its current trading price. If Apache is valued comparably to BP plc (ADR) (NYSE:BP) at around 5 times EV/EBITDA, Apache Corporation (NYSE:APA) should be worth around $110 per share.

Anh HOANG has no position in any stocks mentioned. The Motley Fool owns shares of Apache.