A Peek at Apache

Thus far this year, the energy sector has absolutely smoldered. The Energy Select Sector SPDR (AMEX: XLE) has outrun the broad market by more than 20%, and you would have done quite well by allocating a chunk of your portfolio to the broad-based ETF, whose holdings include supermajor ConocoPhillips (NYSE: COP), refiner Valero Energy (NYSE: VLO), and driller Transocean (NYSE: RIG). But thanks to the company's upstream leverage, Apache's (NYSE: APA) investors have done even better.

Apache's third-quarter results don't deviate far from recent trends. Production, of which 53% was gas, increased 9% over last year. Combined with strong pricing, particularly on the oil side, product revenues reached $2.5 billion, up 21% over last year. GAAP earnings had little to do with economic reality, as can be seen in the disconnect between a 25% rise in operating cash flow and the 5% fall in earnings dutifully reported by the newswires. After adjusting for an accounting quirk, the bottom line rose soundly.

Apache was again rather terse in its release and didn't spell out cost metrics that would easily allow an investor to eyeball its operating efficiency. It's a pretty stark contrast to, say, Burlington Northern Santa Fe (NYSE: BNI), which slices its numbers six ways to Sunday. But that's what calculators are for, and the equal sign tells me that production costs and G&A both rose slower than production growth on a per-barrel basis. That makes me glad I didn't get too worked up about last quarter's apparent cost creep.

Apache is something of a Goldilocks energy stock: Given its girth, it doesn't run too hot or too cold with the swings in commodity prices, but it does tend to pack more of a punch than a Conoco or an ExxonMobil (NYSE: XOM). It has a product mix and a geographic diversity that's just right. Again, balancing regions like Egypt and Canada means it's neither too hot nor too cold. If you don't have any energy stocks in your stable, Apache is definitely worth a look.