U.S. energy firm Apache Corp. (APA) announced two new oil discoveries in Egypt’s Western Desert, building on the integrated energy company’s leading position in this hydrocarbon-rich area.
The latest finds – Tayim South 1-X in the Faghur basin play and AG-90 in the Abu Gharadig Field – flowed at a rate of 8,196 and 7,614 barrels of oil per day respectively. The AG-90 development well also logged 1.5 million cubic feet natural gas per day during a completion test. We believe that the exploration successes will boost Apache’s growth prospects in Egypt by adding to its already significant interests in the country. In 2010, Egypt accounted for over 20% of Apache's oil and gas output.
Year-to-date, the firm has drilled eleven new discoveries in the Faghur Basin region with plans for exploring five more by the end of 2011. It has also drilled eleven successful wells in the Abu Gharadig field since purchasing the assets last year, with oil production rising 20% to 24,000 barrels per day, and gas output going up 70% to 60 million cubic feet per day. As of now, Apache’s total volumes from Egypt come to around 100,000 barrels of oil and 360 million cubic feet of gas per day.
Founded in 1954, Houston, Texas-based Apache is one of the world's leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.
Apache currently retains a Zacks #3 Rank (short-term Hold rating), in line with its closest peers Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN). We are also maintaining our long-term Neutral recommendation on the stock.
We like Apache’s large geographically diverse reserve base, its balanced exposure to natural gas and crude oil, and its multiyear trends in reserve replacement and production growth. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.
However, taking into consideration Apache’s sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project timing delays, we see limited upside potential for the stock. As such, we expect Apache to perform in line with the broader market.
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