Please ensure Javascript is enabled for purposes of website accessibility

Why Apache Stock Fell 17.8% in May

By Matthew DiLallo - Jun 6, 2019 at 9:47AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Two factors sank the oil and gas company’s stock last month.

What happened

Shares of Apache (APA 0.92%) plunged 17.8% in May, according to data provided by S&P Global Market Intelligence. Dual headwinds weighed on the oil and gas company's stock price last month: plunging crude prices and Apache's lackluster first-quarter results.

So what

May was a rough month for the oil market, as crude prices tumbled by double digits. The U.S. oil benchmark, WTI, experienced the biggest decline at 16%, which pushed it down to $53.50 per barrel, its lowest level since mid-February. While a range of factors weighed on crude prices last month, the main culprit was escalating trade tensions between the U.S. and China. The oil market is growing increasingly concerned that this trade war will negatively impact the global economy, which would sap demand for oil.

An oil pump at dusk.

Image source: Getty Images.

This slump in oil prices will impact producers like Apache since it will earn less money per barrel if oil remains weak. In Apache's case, it needs crude to average $53 per barrel this year so that it can generate enough cash to fund its operating plan. If oil falls below that key level, the company either needs to cut spending or borrow money to bridge the gap.

In addition to the pressure from lower oil prices, Apache reported disappointing first-quarter results last month. The oil and gas company's adjusted earnings came in at $0.10 per share, which missed analysts' expectations by $0.04 per share. The main issue was weaker gas prices in the Permian Basin because of that region's lack of adequate pipeline capacity. That led Apache to defer some of its production late in the quarter, though overall output was strong, as its production in the U.S exceeded its guidance, fueled by record output in the Permian Basin.

Now what

While Apache can't do anything about the price of oil, it is working on solutions to address the Permian Basin's infrastructure issues. The company's midstream arm, Altus Midstream (KNTK), is investing in five long-haul pipelines that should start up over the next two years, including two large-scale natural gas pipelines. In addition to that, Altus Midstream completed work on a natural gas processing plant last month. These investments should enable Apache to make more money on its production in the coming years, which should improve its profitability.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apache Corporation Stock Quote
Apache Corporation
$40.82 (0.92%) $0.37
Altus Midstream Company Stock Quote
Altus Midstream Company

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.