On Monday, UBS adjusted its price target for Apache Corp . (NASDAQ: NASDAQ:APA), bringing it down to $28.00 from the previous $29.00 while sustaining a Neutral rating for the stock. The revision follows Apache Corp.'s announcement regarding the winding down of operations in the North Sea (NYSE:SE), which has led to the stock's underperformance compared to the XOP, an index tracking oil and gas exploration and production companies. Since the third-quarter earnings report, Apache's shares have lagged behind the XOP by 720 basis points.
Apache Corp.'s third-quarter 2024 results were generally positive, with the company surpassing expectations in both production volumes and cash flow per share (CFPS). Despite these strong operational and financial metrics, the company's decision to accelerate the decline of its North Sea assets has cast a shadow over its stock performance.
The company's rationale behind the North Sea decision is understood, yet it has prompted concerns about the future of Apache's oil production. With oil volumes from the company's Permian and Egypt operations expected to remain flat, as opposed to previous growth forecasts, there is a growing apprehension about the potential impact on capital efficiency. This is especially relevant as investments increase in non-producing regions like Suriname and Alaska, which could further strain Apache's financials.
UBS reiterated its Neutral rating for Apache Corp., emphasizing the challenges posed by the declining oil production and the increased spending in areas not yet contributing to output. This stance reflects the firm's view on Apache's current position and its prospects in light of the recent operational decisions and market performance.
In other recent news, APA Corporation reported a third-quarter consolidated net loss of $223 million, 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.
The company is shifting its strategic focus towards its Permian operations and plans future exploration in Alaska for the first half of 2025. APA Corporation also plans to maintain 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.
Amid these developments, APA Corporation faces a $2 billion liability in the North Sea and a slight decline in Egyptian production. In contrast, the 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. In response to these developments, Evercore ISI and RBC (TSX:RY) Capital Markets have adjusted their price targets for APA Corporation.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Apache Corp.'s (APA) financial position and market performance, providing context to UBS's analysis. Despite the challenges highlighted in the article, APA's financials show some positive indicators. The company's P/E ratio stands at a low 3.39, suggesting that 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.
Another InvestingPro Tip notes that APA has maintained dividend payments for 54 consecutive years, demonstrating a commitment to shareholder returns even in challenging times. This is particularly relevant given the current dividend yield of 4.47%, which may be attractive to income-focused investors despite the company's operational changes.
However, aligning with UBS's cautious stance, an InvestingPro Tip highlights that APA's stock price movements are quite volatile. This volatility is evident in the company's year-to-date price total return of -35.48%, reflecting the market's reaction to APA's strategic shifts and broader industry challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for APA, providing a deeper understanding of the company's financial health and market position.
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