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On Tuesday, Mizuho reiterated its underperform rating on Apache Corp (NASDAQ:APA) with a steady price target of $28.00. The firm recognized the official sanctioning of the GranMorgu development project on Block 58 offshore Suriname, which will develop the Sapakara and Krabdagu discoveries. The project's anticipated start-up is set for 2028.
The GranMorgu project, involving Apache Corp and TotalEnergies (EPA:TTEF) (TTE), is slated to have a higher gross development cost of approximately $10.5 billion, surpassing the initial forecast of around $9 billion. Despite the increased expenditure, the project is expected to develop over 750 million barrels of recoverable resources, which is more than the initial estimate of roughly 700 million barrels.
The development will employ a Floating Production Storage and Offloading (FPSO) unit with a capacity of 220,000 barrels per day, which exceeds the previously estimated 200,000 barrels per day. Mizuho views these developments as neutral compared to expectations, citing the higher costs but also noting the increased scope and resource potential of the project.
The announcement of the project's Final Investment Decision (FID) and the start-up timeline matched prior expectations. Mizuho's stance remains unchanged as it factors in the larger resource scope against the higher capital expenditures per barrel.
Following the news release, shares of both Apache Corp and TotalEnergies underperformed in comparison to their industry peers. This reaction came after initial reports about the FID circulated in the press.
In other recent news, APA Corporation and TotalEnergies have committed to a significant $10.5 billion investment in Suriname's offshore oil project, Block 58. Slated to begin production in 2028, the joint venture is expected to produce over 750 million barrels of oil. In other developments, APA Corporation has extended its agreement with Palantir Technologies (NYSE:PLTR), integrating artificial intelligence capabilities into its operations for several years.
APA Corporation also recently announced a dividend of 25 cents per share and sold non-core assets in the Permian Basin for $950 million, moves that analysts from TD Cowen, Truist Securities, and Scotiabank have reacted positively to. These recent developments highlight APA Corporation's commitment to improving its financial health and focusing on its most competitive projects.
In other company news, Diamondback (NASDAQ:FANG) Energy and Kinetik Holdings have increased their equity interest in EPIC Crude Holdings to 27.5% each, a move expected to enhance the company's growth and financial stability. These recent developments demonstrate the dynamic and evolving landscape of the energy sector.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Apache Corp's (NASDAQ:APA) financial position and market performance. The company's market capitalization stands at $9.46 billion, with a notably low P/E ratio of 2.83, suggesting the stock may be undervalued relative to its earnings. This could be particularly interesting in light of Mizuho's underperform rating and the market's reaction to the GranMorgu project announcement.
InvestingPro Tips highlight that APA has maintained dividend payments for 54 consecutive years, demonstrating a strong commitment to shareholder returns. This consistency in dividends could be appealing to income-focused investors, especially considering the current dividend yield of 4.09%. Additionally, analysts predict the company will be profitable this year, which aligns with the positive outlook on the GranMorgu project's potential.
It's worth noting that APA's stock price movements are quite volatile, as indicated by another InvestingPro Tip. This volatility is reflected in the recent price performance, with a 1-month total return of -14.15% and a year-to-date return of -30.19%. These figures underscore the importance of careful consideration when investing in the oil and gas sector, particularly given the higher development costs of the GranMorgu project.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights that could provide valuable context to Apache Corp's financial health and market position.
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