Rising Oil Prices, Apache Corp.'s Increased Permian Investment Turns Argus Bullish

The WTI grade of crude oil has gained about 8.5 percent year-to-date and is at $65-plus per barrel. Oil breached the $70-a-barrel level in May, although it has pulled back since then. 

An Argus analyst said rising oil prices will work in favor of oil and gas exploration and production company Apache Corporation APA.

The Analyst

Analyst Bill Selesky upgraded Apache from Hold to Buy with a price target of $56, suggesting 35-percent upside when the company's dividend is considered.

The Thesis

Rising oil prices and Apache's decision to allocate nearly 70 percent of 2018 capital spending to Permian basin production will benefit the company, Selesky said in a Monday note.

The analyst estimates WTI oil prices to average $56 a barrel in 2018 compared to $50 in 2017, although he expects it to remain volatile and trade in a range of $48-$64.

Apache intends to operate 13-15 rigs in the Permian this year, likely leading to stronger earnings growth, Selesky said. 

Continued efforts to save costs and deleverage will boost earnings, the analyst said. 

Citing higher oil prices and guidance for higher production, Argus increased its earnings per share estimate for 2018 from $1.30 to $1.60.

"On valuation, APA stock is trading below the peer average for enterprise value/EBITDA, enterprise value/total reserves and price/cash flow," Selesky said. 

The Price Action

Apache shares were rallying 6.77 percent to $45.10 at the time of publication Monday afternoon. 

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