APA buying CPE

[cmm3rd]

Thoughts on this all stock deal? CPE to receive 1.0425 shares of APA per CPE share. Values CPE at $38.31.

[mkarpoff]

I can't say the price impresses me.

[dan_s]

All stock deals are not equal to cash buyouts. For one, they are tax free: "Like Kind Exchanges".

Also, if APA is also undervalued by the market, the CPE shareholders will be getting shares in a much larger company that pays dividends.

[cmm3rd]

Not much of a buyout premium in this deal for those who believe CPE is significantly undervalued.

[dan_s]

Fair deal if you believe APA is also significantly undervalued.

TipRanks: "In the last 3 months, 13 ranked analysts set 12-month price targets for APA. The average price target among the analysts is $46.88. The 13 price targets range from $36 to $60."

Neal Dingmann's price target for APA is $59.

I don't follow APA closely.

[cmm3rd]

I hope Dingman is right. It will be interesting to see what analysts say (am guessing they will be positive and say that APA is getting good assets at a very reasonable price). APA says it is accretive to CFPS and FCF w/ $150 m in synergies/reduced costs of debt. It also increases their % of production in the Permian significantly. Press release said nothing about whether/how this would affect the $1.00 annual dividend, unless I missed it.

Content to wait and see.

[Lbark]

what is disturbing is pxd and cvx deals and now this have no big premiums. i understand that companies like cpe may be looking at being part of bigger companies but it sure does not help our stock portfolios and wonder how PR or others would do in a buyout/merger, et al. Not sure what would motivate buyers to pay a premium . CPE et al obviously dont read your reports on their value. lol

[dan_s]

Stock for Stock deals ARE NOT COMPARABLE to all cash deals. I cannot stress this point enough.

CPE shareholders get stock in a much larger company that has world class assets, cheaper cost of capital and it already pays a dividend.

Compare First Call's price target for APA to their price target for CPE. Lots of analysts believe APA is undervalued and this deal should be viewed by the Wall Street Gang as a positive for APA.

[marc.wolin@yahoo.com]

APA Buying CPE
Disappointed in the price. APA got a steal. Callon was the last good manager. Do we keep it? What are the prospects for APA?
Marc Wolin

[dan_s]

See TipRanks' valuation above.

APA is a much larger company with significant international assets.

[marc.wolin@yahoo.com]

APA buying CPE
Low premium does not bode well for these M and A. Will these other small oil cos. suffer the same fate? They are better off to produce the average themselves if they have the capital?
Marc Wolin

[Lbark]

that was my basic point. Would we be happy if VTLE did a deal like this instead of potential for huge upside to over 100+? let them run first and then do a deal. APA may add value but dead money for awhile.

[allen46]

IMO, this is a crappy deal for CPE shareholders - its half of Dan's price target. Dan, it would be helpful if you could take a quick look at APA for us - should we hold or DPE and put funds elsewhere - like CRK or EQT?

The market is certainly valuing these companies at much lower multiples than Dan does.

[marc.wolin@yahoo.com]

APA Buying CPE
If a good quality company were to purchase one of these smaller companies it would be a better deal. But how do you attract a FANG? You cannot pick your acquieror. Would a quality company be attracted to one of these smaller strained companies with no leverage? Better pray for the price of oil to go up or be ready to ride out more than one merger.
Marc Wolin

[dan_s]

My "Quick Look" is that a reasonable valuation of APA would be in the upper half of the 13 price targets that have been submitted to TipRanks, which is $36 to $60 per share. TipRanks' current price target is $46.88.

My valuation method is close to what Neal Dingmann uses. His current price target for APA is $59.00.

APA Corp. is a GOING CONCERN with a lot of upside. It generated over $764 million of operating cash flow in the 3rd quarter and should generate close to $1.2 billion of free cash flow in 2023.

APA is a large-cap with a first class technical staff. They would not buy CPE without doing EXTENSIVE DUE DILLIGENCE. If you think they got a good deal on CPE, then take the APA stock and go along for the ride.

Take 30 minutes to go through the slide presentation they spoke from this morning. You can find it on the APA website under the Investor tab.

APA 3rd Quarter Highlights
• Reported production of 412,000 barrels of oil equivalent (BOE) per day; adjusted production,
excluding Egypt noncontrolling interest and tax barrels, was 340,000 BOE per day;
• Year-over-year U.S. oil volumes increased 16% driven by operating efficiencies and strong well
performance in the Permian Basin;
• Confirmed an estimated recoverable resource of 700 million barrels of oil at Sapakara and
Krabdagu discoveries on Block 58, offshore Suriname;
• Generated net cash from operating activities of $764 million and free cash flow of $307 million
during the quarter; and
• In the first three quarters of 2023, APA returned 65% of free cash flow to shareholders through
dividends and buybacks, including the repurchase of 5.5 million shares at an average price of
$37.91.

[Lbark]

This is from Valueline on APA. 2024 CFPS 12.50; eps 7.30; book value 6.95; operating margin 71%; relative P/E 7.7 so that would equate to about 50 or so per share or 4 times cfps about the same. has revenues increasing out to 28 at 14.5%; cash flow the same and eps 19.5%.
when they did the report i am looking at it was Oct 27 and stock was 42 so has come way down. Looks like with what Dan showed and this has upside depending on the market for oil.

also, go to twitter and see josh young comment on the deal and what he thinks should be a very high premium for vtle if there is a deal. he owns vital.

[ChuckGeb]

Based on market activity today, APA shareholders don't like the deal (down 7%) while CPE is up 3%.

Long term play for APA is the Suriname discovery near XOM/Hess's Guyana field. Hoping that someone from the US with a brain assists in defending Guyana's claim to the field from challenge by the Commies in Venezuela but that likely won't come until 2025.

APA recently stopped drilling the Forties Field in the North Sea until the Brits wise up with their extortion (windfall taxes) of production from the field.

i own APA and like its prospects. I am neutral to negative on CPE in that the market has continually discounted the stock value. Hopefully the market has been discounting the quality of management of CPE and not the quality of its minerals.

[allen46]

I ended up selling my CPE. Don't like that 50% of APA production is in politically sensitive areas and they have relatively high debt. Added some CRK (which I sold many months ago but now believe it is starting to be a good time to buy NG stocks) and looking to add to EQT. Bought some BOIL on Tuesday and am already up 18% on it - should have bought more!!

[Cliff_N]

"APA's long-term debt stood at $5.45 billion at the end of 2022, according to federal filings. Meanwhile, the company's debt-to-equity ratio weighs in at 216%. For comparison, ConocoPhillips (COP) has a debt-to-equity ratio of 34%, Occidental Petroleum (OXY) 65% while Hess (HES) comes in at 108%, according to MarketSmith."

[knusser58]

APA's Balance Sheet should look a lot better after the merger.

APA's leverage (Debt/Equity) should look a lot better.
1. DEBT/EQUITY: 265% before vs 126% after (Q3 2023). This is a very large improvement.
2. Expense savings of +/- 150$mm per year will help.
3. APA will be a much larger company.
=> Great Deal for APA

Question: Why is it down this much???

Regards,
Klaus

[Cliff_N]

From Petroleum Economist on CPE Yahoo Finance Discussion Board:

Petr. Economist
6 hours ago

I think Callon was short changed in the acquisition by Apache. Looking at some of the Callon and Apache numbers I see the following:

· Callon adds 104-106 K BoE/d (= 26%) to the Apache production (416 K BoE/d)),

· Callon adds 492 M BoE (= 55%) to the Apache proven reserves (890 M BoE).

· Callon adds $ 3,861 M (= 89%) to the Apache equity ($ 4,292 M). This is assuming no impairments

Callon receives 70 M shares (= 23%) on top of 381 M Apache shares.

The Callon contributions to production (26%), proven reserves (55%) and equity (89%) outweigh the 23% additional shares.

There are other factors than displayed above which determine the value of a company, but it appears that Callon has been shortchanged in the acquisition and should deserve a higher exchange ratio.

I think APA shareholders will see the value of CPE and that APA and CPE share prices will go up in the next few days.

[aja57]

Thanks for that post, Cliff. The "urgency" of CPE BOD/officers to sell trumps shareholder interest. Same as PXD. Why should anyone be surprised? Boys need their golden parachutes.

[ChuckGeb]

CPE’s stock has gone nowhere in the last three years and I can’t say APA has done well either. Recent research piece by Paul Sankey shows that the larger the company the higher the multiple.in that it is a all stock transaction based on relative price maybe the pie will get much bigger than the value of the two pieces and it is a win win.i think APA has some good things going especially with Surinamethat likely doesn’t begin producing before 2029. This fills a cash flow gap in the interim for them.

[farrell90]

I agree .A simple way to look at the relative value of CPE's acquisition is to compare the PE ratios of the 2 companies.

CPE's PE is 4.16 and APA is 6.6.....A 37% difference

APA should be able to deliver a much higher rate of return; both profit and cash flow on the assets added from CPE.

I used todays PE ratios which are not completely accurate since they have changed from the time of the acquisition.

As a CPE shareholder I am delighted to trade my CPE shares to APA for a better financial return.

Farrell