What Has Apache Done with Its Debt to Get Investor Attention?


Jun. 28 2016, Updated 9:06 a.m. ET

Net debt-to-EBITDA

Apache’s (APA) net debt-to-adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) has been on an increasing trend since 2Q15. It has moved in the opposite direction of EBITDA movements, which declined significantly in the same period. The company’s net debt-to-adjusted EBITDA ratio is currently ~2.6x.

As you can see in the above graph, the spike in Apache’s net debt-to-adjusted EBITDA ratio in 1Q15 was due to higher debt. Its net debt increased to ~$12 billion in 1Q15 from ~$10.5 billion in 4Q14. But APA has since significantly reduced its net debt.

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Apache’s 1Q16 net debt was ~$7.7 billion. Its trailing 12-month EBITDA as of 1Q16 was ~$3 billion compared to ~$7.7 billion in 1Q15. So while its net debt was lower in 1Q16 compared to 1Q15, its trailing 12-month adjusted EBITDA was lower in 1Q16 than 1Q15. So the net debt-to-adjusted EBITDA multiple in 1Q16 is higher than 1Q15, despite net debt being significantly higher at that time.

Peers, liquidity, and financial position

By comparison, upstream companies such as Continental Resources (CLR) and Hess (HES) saw their respective 1Q16 EBITDAs for the trailing 12 months fall ~48.5% and ~56%, respectively, compared to 2015.

APA noted that it had $1 billion in cash as of March 31, 2016, and a credit facility of $3.5 billion. This results in a liquidity of $4.5 billion.

So APA’s strong cash and liquidity position is noteworthy, especially at a time when energy prices are significantly lower.

In the next part, we’ll look at APA’s free cash flow trends and goals.


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