Apache (APA) Asset Sale Viewed as 'Game Changer'; More to Come, Thinks Analyst

August 30, 2013 8:47 AM EDT
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Price: $61.81 -0.66%

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On Friday investors learned that Apache Corporation (NYSE: APA) and Sinopec (NYSE: SHI) announced they have launched a global strategic partnership to pursue joint upstream oil and gas projects. As the first step in this partnership, Apache will receive $3.1 billion in cash, subject to customary closing adjustments, in exchange for Sinopec gaining a 33 percent minority participation in Apache's Egypt oil and gas business. Apache will continue to operate its Egypt upstream oil and gas business.

Commenting on developments, analyst Stephen Richardson of Deutsche Bank said, "A game changer transaction in our view as it further bolsters the momentum for change at APA and secures value from a key asset that the market was significantly discounting due to political unrest in country. Our recommendation has been to 'embrace the restructuring' at APA and our view remains that there is more to come."

Richardson continued, "importantly this places a $10.5 Bn value on a business that we would argue has been effectively discounted by the street to close to zero (~$25/shr). At the very least lifting and de-risking $3.1 Bn of additional value from Egypt could see the stock up $7-8/shr . . . Perhaps most significantly, proforma this transaction the APA portfolio is now rebalanced with Egypt comprising 15% of production vs. 20% in FY12. While never confirmed by APA, press reports (Reuters) have indicated the GoM deepwater is also under consideration for sale which we assign a $2.5-3.1 Bn value."

Deutsche Bank has a Buy rating on Apache Corp. with a price target of $105.00.

For an analyst ratings summary and ratings history on Apache Corp. (NYSE: APA) click here. For more ratings news on Apache Corp. click here.

Shares of Apache Corp. closed at $78.64 yesterday.

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