Sunday, May 08, 2005

a few comments on APA

Besides the drop in the price of crude, some reasons for APA weakness might have to do with weak production in Australia and costs that are creeping up. I'm a bit bummed out on Australia but most analysts still see 7-10% production growth in 2005 and 2006. The cost issue is also unfortunate but it's an issue for all E&P's. Still, APA's 3 yr. F&D costs are among the lowest in the industry (with XTO). Another question investors have for APA is what to do with the cash? The co. will generate something like $2 billion in FCF in 2005. At this rate, they could probably completely wipe out their debt by 2006 (if that continues to be their preferred method of cash deployment). In my opinion, debt to cap at 20% is fine. I hope they would buy back shares in the 40's and low 50's.

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