Apache Should Catch Up

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You know what can really drive an investor nuts? Picking a good stock in a hot industry and then watching it lag behind its peers. At least in my mind, Apache (NYSE: APA) is unquestionably one of the best-run independent oil and gas companies out there. Yet it's trailed the likes of Anadarko (NYSE: APC), Devon (NYSE: DVN), and Occidental (NYSE: OXY) for almost all of the past 12 months.

Now, those other firms are all fine energy companies in their own right, but where's the love for Apache? The fact is, Wall Streeters seemed to have had a hardcore passion for natural gas plays last year, and many seemed to take a pronounced dislike to Gulf operators. That's too bad for Apache, because the Gulf is a huge area for it (only Chevron (NYSE: CVX) produces more oil there), and a very profitable one as well.

Even though Apache is still recovering from a thorough thumping at the hands of two major hurricanes, the fourth-quarter results didn't look too bad to me. Revenue was up 37%, though that was due entirely to higher price realizations; production took a dip for both oil and natural gas. The company also did a good job staying ahead of rising production costs, and operating income rose 44% for the period.

Looking at some of the other statistics that energy folks care about, Apache managed to replace 216% of its 2005 production. Now, that's great all on its own (100% or better is usually considered good), but what makes it more impressive is that the vast majority of that replacement was done through the drill bit (versus acquisitions). Elsewhere, reserves rose more than 9% for the year, lifting costs were still less than $7 per barrel, and the company has managed to restore about 85% of its Gulf gas production and two-thirds of its Gulf oil production.

I understand the frustration of seeing other oil/gas stocks do better than the one you own, but if you own Apache, I hope you stay patient and sit tight. Nothing's more painful than letting the market shake you out of a stock that you knew all along was a good one -- only to see it finally go up once you've sold. Maybe energy is finally petering out as an investment theme, or maybe this is just another pause that refreshes. In either case, while Apache is not my tip-top investment idea in energy, it is a very good company, and it should have better days ahead.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).