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Apache Corp’s Key Drivers in 2017

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Apache Corp’s stock

In the two weeks since January 23, 2017, Apache Corp (APA) has returned approximately -5%, underperforming the energy sector. The Energy Select Sector SPDR ETF (XLE) returned -1.2% in the same period. The broader market S&P 500 ETF (SPY) (SPX-INDEX) returned 1.2%.

APA was one of the better-performing stocks last year. The stock had especially seen sharp upward movements in the second half of 2016, following its Alpine High discovery in the Permian Basin. However, the stock saw weakness in the two-week period ended February 6, 2017.

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This weakness was due to a decline in crude oil prices (USO) (UCO), which fell on the back of excess supply at the Cushing US storage hub last week. Crude oil prices fell 1.5% following the news. A stronger dollar on February 6 also caused crude oil prices to fall. The dollar rose ~0.1% to 99.86 on February 6. A rise in US oil rigs, as reported by Baker Hughes (BHI), also pressured oil prices.

Geopolitical tensions between Iran and the United States have also caused investors to speculate about future oil prices. The sanctions on Iran enforced by President Trump on February 3 could restrict supply from Iran and help crude oil prices. However, Iran announced on February 6 that such impositions would only impact US companies’ ability to participate in oil and gas development in the country. Deputy Oil Minister Amir Hossein Zamaninia added that international companies are keen on doing business with Iran. In December 2016, Royal Dutch Shell (RDSA) agreed to sign a deal with Iran to develop oil and gas exploration and production projects in the country.

Year-over-year, APA has given a return of ~48%, compared with XLE’s ~31%. APA’s increased focus in the Permian, along with its Alpine High discovery in the Delaware Basin within the larger Permian Basin, could be a game-changer for the company this year.

APA estimates that its acreage holds around 3 billion barrels of oil in the Barnett and Woodford regions and about 75 Tcf (trillion cubic feet) of rich gas. This supply could significantly boost its production this year.

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