Apache Case

883 WordsJul 13, 20114 Pages
What are the major risks Apache faces? As an independent oil and gas exploration and production company, Apache is exposed to a myriad of risks stemming from price fluctuations in oil and gas markets. As we see in the case, Apache has 80 percent of its proven resources in the United States, which puts the company at a disadvantage should oil prices rise significantly. When oil prices rise, production tends to shift away from domestic sources, as oil is relatively expensive to extract in the US as compared to elsewhere in the world. Apache has also purchased a number of mature oil fields from larger producers, and these fields tend to be more expensive to extract from, since production falls and extraction costs rise as fields mature.…show more content…
Since the oil market was bullish at the time, the company’s concern was that the properties might be overvalued, since high current market prices would inflate the purchase price for said properties. If prices were to drop in the future, Apache may have over-paid for the resources. For this reason, many other companies chose not to acquire additional properties during times of rising oil prices; Apache instead chose to hedge their acquisitions in order to mitigate the risk of future losses. This strategy worked well for Apache, allowing them to complete multiple acquisitions and increase their rating from a BBB+ to A-. V SWOT Analysis a. Strengths to build upon - Apache operates 80 % of its properties, which allows the company to retain control over development. - Apache’s executive compensation package promotes wider objectives of minimizing costs while maximizing production. - As an independent oil company, Apache has a lower cost structure than larger companies, therefore making them able to feasibly produce from mature oil fields. Mature fields carry less risk, as the resource is proven. - Apache is more technologically advanced and larger than most independent oil companies. b. Weaknesses to overcome - 80% of properties are within the United States; production in these areas

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