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Apache (APA) to Exit Canada, Eyes Prospects in Other Regions

US energy explorer Apache Corporation APA is set to exit Canada following its latest deal with local oil producer Paramount Resources Ltd. Through the deal worth C$459.5 million ($354 million), Apache is divesting its Canadian unit. This is the company’s third sell-off in the last two months in Canada.

Investors should know that so far Apache's Canadian assets have produced around 300 million cubic feet of gas equivalent per day in the fiscal second quarter of 2017, almost 67% of which was natural gas.

Deal Details

Paramount Resources will pay the stipulated amount along with working capital and other monetary adjustments. The deal, expected to be completed by Aug 2017, will add 1.6 million acres to the acquirer's portfolio of which 185,000 acres have good prospects and 45,000 acres are yet to be developed. Apache Canada's assets are mainly located in the provinces of Alberta and British Columbia.

Apache's Motive

The deal is in line with Apache's plan to streamline its portfolio and shift focus from Canada to its assets in the US, UK North Sea and Egypt. This strategy will help the company to manage its resources efficiently and engage in high growth areas, especially in the Permian Basin.

We would like to remind investors that Apache sold its Midale and House Mountain assets to Cardinal Energy Ltd. in June. In the same month, the company agreed to sell its Provost assets in Alberta to a private company, details of which are yet to be disclosed.

The company expects the aggregate proceeds from these three transactions to be around $713 million (C$ 927 million). These will be utilized to fund Apache's capital program of 2017-18, decrease debt and enhance its overall liquidity.

Apache had planned capital expenditures of $125 million for Canada this year and 2018. The unspent amount will be diverted toward other areas of the company's operations. The exit from Canada will help the company to reduce its asset retirement obligations and annual overhead costs. The company's revenue and cash margin per barrel of oil equivalent (BOE) and earnings per share will rise with the completion of the transactions. The company will change its 2017-18 guidance once the transactions are complete. While the transaction with Cardinal was completed toward the end of June, the remaining two are expected to be closed by the end of Aug 2017.

What Next?

Apache's next targets include 63% of its oil and gas capital investment in the Permian Basin for this year. The company targets to increase its production by 13%-18% by the end of 2018.

Capital allocation to the assets abroad includes providing further concessions for Egypt and new high-resolution 3-D seismic across the Western Desert. Apache expects 32 wells to come online during the second half of 2017 in Midland Basin. The company also has plans to prepare for a bad year for oil price in the future.

About the Company

Founded in 1954, Houston, TX-based Apache is one of the world's leading independent energy companies engaged in the exploration, development, and production of natural gas, crude oil, and natural gas liquids. Approximately 69% of the company’s proved reserves and 54% of its production comes from North America, where its operations are focused in the Permian Basin, the Anadarko Basin in western Oklahoma and the Texas Panhandle, Gulf Coast and the offshore Gulf of Mexico areas of the U.S., and in Western Canada. Internationally, Apache has core operations in Egypt and offshore U.K.

Price Performance

In the last six months, Apache’s shares fell 26.6%, mirroring the performance of the Zacks categorized Oil and Gas - United States - Exploration and Production industry, which lost 19.5%.

Zacks Rank and Stocks to Consider

Apache presently has a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the oil and energy sector are Delek US Holdings, Inc. DK, Southcross Energy Partners, L.P. SXE and Canadian Natural Resources Limited CNQ. All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Delek US Holdings’ sales for 2017 are expected to increase 71.3% year over year. The company came up with an average positive earnings surprise of 60.7% in the last four quarters.

Southcross Energy’s sales for the second quarter of 2017 are expected to increase 29.4% year over year. The partnership delivered an average positive earnings surprise of 22.7% in the last four quarters.

Canadian Natural Resources’ sales for 2017 are expected to increase 49.4% year over year. The company delivered a positive earnings surprise of 30.8% in the first quarter of 2017.

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