On Dec 2, Zacks Investment Research downgraded the U.S. energy firm Apache Corp. (APA) to a Zacks Rank #4 (Sell).
Why the Downgrade?
On Thanksgiving Day, the international cartel of oil producers – Organization of the Petroleum Exporting Countries (OPEC) – declared their decision against an oil production cut. This resulted in a collapse in oil prices. As the commodity falls below the $70 per barrel mark, maintaining profitability could be a challenge for exploration and production firms like Apache.
Last month, Apache announced plans to sell its non-core assets located in Southern Louisiana and Anadarko Basin to focus on shale-related growth. This may not be an opportune time for such a move as North American shale producers are currently under pressure. Considering that the majority of U.S. shale output needs oil to be priced around $75 per barrel to break even, most of the projects are likely to lose money at the prevailing price.
Apache’s third-quarter results also reflected this concern. Though the company succeeded in meeting the Zacks Consensus Estimate at $1.38 per share, it fell significantly below the year-ago adjusted profit of $2.32. Lower oil prices and asset sales affected the results which were partially compensated by higher North American liquids production.
Following such undesirable events, most of the brokerage firms have lowered their estimates for both the current quarter and year, indicating further bearishness ahead.
Other Stocks to Consider
Despite the overall weakness in the oil exploration and production industry, one could consider better-ranked players like Sandridge Mississippian Trust II (SDR), Atlas Resource Partners, L.P. (ARP) and Cheniere Energy, Inc. (LNG). While Sandridge sports a Zacks Rank #1 (Strong Buy), Atlas Resource and Cheniere Energy hold a Zacks Rank #2 (Buy).
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