Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Can the APA Corporation Make Money from Oil?

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Can oil companies make money in the 2020s? That’s the question bargain-hunting investors are asking about The APA Corporation (NASDAQ: APA).

APA Corp (APA); formerly the Apache Corporation owns and operates oil wells in the United States, the North Sea, Suriname, and Egypt. In recent years, APA has had a hard time making from those oil wells.

For example, APA’s quarterly gross profit fell from $1.62 billion on 31 December 2019 to $1.071 billion on 31 December 2020. Moreover, APA’s quarterly revenues fell from $1.778 billion on 31 December 2019 to $1.289 billion on 31 December 2020. However, APA’s quarterly operating income grew from -$3.035 billion on 31 December 2019 to $70 million on 31 December 2020.

The APA Corp Shrinks

Similarly, Stockrow estimates the APA’s revenue growth shrank by -27.5% in the quarter ending on 31 December 2020. Stockrow also estimates APA’s quarterly revenue growth shrank for six straight quarters before 31 December 2020.

Tellingly, the APA Corp (NASDAQ: APA) reported no cash flow figures on 31 December 2020. However, APA reported a quarterly operating cash flow of $304 million and an ending cash flow of $27 million on 30 September 2020.

APA Corp did borrow some money in 2020, it reported quarterly financing cash flows of $82 million on 30 September 2020, $31 million 30 June 2020, and $188 million on 31 March 2020.

What Value Does the APA Corp Have?

APA (APA) lost value in 2020. It’s Total Assets fell from $18.107 billion on 31 December 2019 to $12.746 billion on 31 December 2020.

In contrast, the cash and short-term investments rose from $247 million on 31 December 2019 to $262 million on 31 December 2020. Meanwhile, the Total Debt rose from $8.566 billion on 31 December 2019 to $8.772 billion on 31 December 2020.

Predictably, APA’s share value fell from $47.50 on 1 April 2016 to $18.79 on 26 March 2021. However, the share value rose from $4.86 on 27 March 2020.

Thus, APA has experienced enormous share value growth in the past year. So investors did make some money.

Will demand for oil continue to fall?

The APA Corp’s (APA) business is in trouble because coronavirus devastated transportation.

For instance, the International Civil Aviation Organization (ICAO) estimates that the number of airline passengers fell from 4.5 billion in 2019 to 1.8 billion in 2020. Moreover, the ICAO estimates domestic air travel fell by 50% and international air travel shrank by 74%.

Furthermore, road travel in the United States fell by 13.5% between August 2019 and August 2020, the Federal Highway Administration estimates. Moreover, cumulative road travel fell by 15.3% in 2020.

Furthermore, road travel in the United States fell by 13.5% between August 2019 and August 2020, the Federal Highway Administration estimates. Moreover, cumulative road travel fell by 15.3% in 2020.

Macrotrends estimates crude oil prices rose from $20.97 a barrel on 17 April 2020 to $60.97 a barrel on 26 March 2021. So the oil market could be recovering.

The Electric Threat

I think oil could recover from COVID-19, but not from electric cars. Statista estimates global sales of plug-in electric vehicles rose from 580,000 in 2015 to 3.1 million in 2020. Notably, electric vehicle sales grew by almost a third between 2019 and 2020, rising from 2.17 million to 3.1 million.

I think oil could recover from COVID-19, but not from electric cars. Statista estimates global sales of plug-in electric vehicles rose from 580,000 in 2015 to 3.1 million in 2020. Notably, electric vehicle sales grew by almost a third between 2019 and 2020, rising from 2.17 million to 3.1 million.

The number of electric vehicles (EVs) is rising, Car and Driver estimates there were 19 EV models for sale in the United States in February 2021. Many more electrics are coming, Daimler (DAI) plans to introduce 10 EVs in 2021. Similarly, Ford (F) wants to start production of its electric F-150 pickup in 2021.

The Electric Vehicles are Coming

Audi claims it will have 20 EVs on the road by 2025, Car and Driver reports.General Motors (GM) also claims it could have 30 EVs on the market within the decade. Hyundai claims it will sell 23 EVs worldwide by 2025. Volkswagen hopes to build 1.5 million EVs by the end of 2025.

The United Kingdom could ban the sale of new diesel and gas powered cars in 2030. Accordingly, Mitsubishi plans for 50% production of electric and hybrid vehicles in 2030.

Meanwhile, Subaru wants 40% EV and hybrid sales in 2020. Volkswagen plans for 60% of its European sales to be hybrids or EVs in 2030. Plus, GM plans to end diesel and gasoline power train production by 2035.

Note: these projections do not include Elon Musk’s plans for more gigafactories and electric semi production. Interestingly, a battery shortage could delay the Tesla (TSLA) semi until 2022 or later, CleanTechnica claims. However, PepsiCo (PEP) claims it could take delivery of 15 Tesla electric semis by the end of 2021, Electrek reports. Pepsi ordered 100 Tesla semis in 2017.

So yes, electric vehicles are coming, but circumstances could delay their widespread adoption. That is bad news for APA and other oil companies.

Is APA a good stock?

I think Mr. Market fairly priced APA (APA) at $17.96 a share on 29 March 2021. The price is fair because APA makes some money as its business shrinks.

Attractive features at APA Corp include a 2.5¢ quarterly dividend scheduled for 21 April 2021. However, the dividend is so new APA offered a 10¢ forward annualized dividend and a 0.55% forward dividend yield on 26 March 2020.

If you can live with the moral problems, the oil industry creates, Apache Corp (APA) is an attractive stock. However, I think investors need to avoid APA because I think its business will shrink.