On Friday, Evercore ISI adjusted its price target for Apache Corp . (NASDAQ:APA) to $30.00, down from the previous $33.00. The firm maintained its In Line rating for the stock.
This revision follows Apache's announcement of third-quarter results earlier last week, which surpassed expectations. The company provided a preliminary view of its 2025 outlook, indicating improved capital efficiency in the Permian region.
Additionally, Apache expects a 10-15% year-over-year reduction in unit operating costs, leading to positive revisions in cash flow per share estimates.
Despite these positive results, Apache's shares experienced a sharp decline on the day of the announcement and have continued to underperform the XOP, an oil and gas exploration and production sector index, by approximately 10%. The decline was attributed to concerns raised during the company's earnings call regarding its North Sea (NYSE:SE) Asset Retirement Obligation (ARO).
The ARO is a liability related to the decommissioning of oil and gas facilities, which, for Apache, is estimated to be around $880 million or roughly $2.40 per share.
The North Sea ARO has been on Apache's books for some time and is not considered a new or unexpected negative factor. However, there is little expectation that the situation will reverse due to the UK's regulatory environment history over recent years.
It is also noted that ARO estimates tend to increase, especially when decommissioning begins on facilities that have been operational for over 50 years.
Evercore ISI has updated its model to explicitly account for liabilities related to both the North Sea and Fieldwood. The report provides context for these figures and outlines the key assumptions that support the calculations. The firm's analysis suggests that the North Sea liability is a significant factor to consider in Apache's financial outlook.
In other recent news, APA Corporation reported a consolidated net loss of $223 million in Q3 of 2024, primarily due to a $571 million impairment related to its North Sea and non-core Permian assets.
However, the adjusted net income stood at $370 million. In response to these developments, APA Corporation has shifted its strategic focus towards its Permian operations and plans future exploration in Alaska for the first half of 2025.
RBC (TSX:RY) Capital Markets has adjusted its price target for APA Corporation, reducing it to $32.00 from the previous $34.00, while maintaining a Sector Perform rating on the stock. This decision follows APA Corporation's choice to abandon its North Sea operations and the associated decommissioning costs.
The company also plans to sustain production in the Permian and Egypt with a 2025 capital budget of $2.2 billion to $2.3 billion, adjusting its U.S. operations in response to a softer oil price outlook.
Despite facing a $2 billion liability in the North Sea and a slight decline in Egyptian production, APA Corporation's GranMorgu project in Suriname is expected to contribute significantly from 2028. Analysts from Jeoffrey Lambujon anticipate detailed financial guidance regarding North Sea operations to be provided in February 2024.
InvestingPro Insights
Recent InvestingPro data adds depth to Apache Corp.'s (NASDAQ:APA) financial picture, complementing Evercore ISI's analysis. Despite the lowered price target, APA's current P/E ratio of 3.42 suggests the stock may be undervalued relative to its earnings. This is further supported by an InvestingPro Tip indicating that APA is trading at a low P/E ratio relative to its near-term earnings growth.
The company's financial health appears robust, with a revenue of $8,955 million over the last twelve months and a strong gross profit margin of 69.95%. An InvestingPro Tip highlights that APA has maintained dividend payments for 54 consecutive years, reflecting a commitment to shareholder returns despite industry volatility. The current dividend yield stands at 4.42%, which may be attractive to income-focused investors.
However, investors should note that APA's stock price movements are quite volatile, as pointed out by another InvestingPro Tip. This volatility is evident in the year-to-date price total return of -34.85%, aligning with the underperformance mentioned in the article.
For those interested in a more comprehensive analysis, InvestingPro offers 7 additional tips for APA, providing a deeper understanding of the company's prospects in the context of current market conditions.
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