Apache's New Permian Basin Position Could Be The Key To Its Future Growth

MUFG’s Michael McAllister believes Apache Corporation APA's “new position in the Permian Basin could become one of the key drivers of the company’s future growth.”

McAllister initiated coverage of the company with a Neutral rating and price target of $64.

Strong Potential

“The recent unveiling of the Alpine High play in the Delaware Sub-Basin shows strong potential, and APA has done a good job demystifying the geologic complexities that characterize the area,” the analyst mentioned.

However, McAllister pointed out that it was still early days and execution risks would need to be considered, given that infrastructure is still not in place.

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The analyst believes Apache’s decision to transition away from a diverse mix of international assets in 2014 and to focus more on North America was the right decision.

“The “acquire and exploit” model morphed into a “divest and explore model.” Divesting non-strategic assets enabled APA to strengthen its balance sheet and allocate capital to new venture exploration projects,” McAllister pointed out.

The analyst believes the company’s cash flow from mature international programs could be redirected toward higher growth assets. The potential free cash flow from the North Sea and Egypt are expected to offer a robust source of funds for Apache to use if and when it ramps its activity in newer areas.

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