The Motley Fool's readers have spoken, and I have heeded their cries. After months of pointing out CEO gaffes and faux pas, I've decided to make it a weekly tradition to also point out corporate leaders who are putting the interests of shareholders and the public first and are generally deserving of praise from investors. For reference, here's my previous selection.
This week, we'll turn our attention to the oil and gas sector and I'll show you why Apache (APA +1.67%) CEO, G. Steven Farris, is truly an incredible leader.
Kudos to you, Mr. Farris
Apache certainly hasn't had the easiest go over the past half-decade. As an oil and gas company that has assets onshore in the U.S., in the Gulf of Mexico, and overseas, it's dealt with drastically lower oil prices, a glut of natural gas that sent prices to a decade-low last year, and the oil spill in the Gulf of Mexico in 2010 that placed a temporary moratorium on drilling. You could say it's been one challenge after another for oil and gas exploration and production companies, yet Apache continues to shine on.
Source: Mike Baird, Flickr.
One of the primary reasons Apache looks poised for long-term success is the company's asset base, which consists primary of liquids (oil and liquid natural gas). In fact, only 11% of Apache's 2012 revenue was derived from natural gas sales, which is a good thing given that oil and NGL prices tend to have less volatility and supply worries than natural gas. The same can't be said for Chesapeake Energy (CHK +0.00%), which was skewed heavily toward natural gas as recently as a few years ago, forcing the company to sell off billions in assets -- including in the oil-rich Permian Basin -- to raise the capital needed to cover this year's expenditures.
Another factor working in Apache's favor, as my Foolish colleague Paul Chi has pointed out previously, is the ability to ship its crude by rail past Cushing, Okla., to receive the significantly higher Brent crude pricing as opposed to West Texas Intermediate pricing. Even with the added costs of shipping, Apache is able to generate more doing this than if it were to sell oil directly out of the wellhead or in Cushing. According to Paul's figures, Apache is selling nearly three-quarters of its oil for higher than the WTI price, although it's certainly not the only E&P company doing so. Continental Resources (CLR +0.00%), one of the largest players in the Bakken shale, is shipping about 65% of its daily oil production past Cushing to Louisiana to take advantage of the disparate rate between Brent and WTI. As long as this pattern persists, smart CEOs like Farris are going to use it to their advantage.
Farris has also orchestrated some large acquisitions over the past three years totaling more than $16 billion cumulatively and adding significantly to the company's liquid assets. One particularly intriguing purchase was ExxonMobil's (XOM 0.06%) North Sea assets, which Apache paid $1.75 billion for in 2011. At the time of purchase, the remaining assets were approximately 68 million barrels of oil, but Apache has made a habit of investing in newer technology to get every last bit of oil out of the ground and extend the life of oil fields far beyond their original projections. Ultimately, ExxonMobil may be sorry it gave up its North Sea assets.
A step above his peers
Aside from being a chip off the old drill when it comes to positioning the company for success now and in the future by focusing on liquid-rich assets, Farris has been a pioneer for shareholders, employees, and the surrounding communities with which his company operates.
In early May, Apache announced a divestment of $4 billion in underperforming assets, which it would use to pay down debt and repurchase its own shares. The mark of an exceptional leader sometimes isn't in making successful deals, but in cutting ties quickly with the unsuccessful ones. By jettisoning these assets, Apache will be able to pay down $2 billion in debt and might be able to repurchase up to 30 million of its shares, which would make the company cheaper on a P/E basis.
Source: Nasdaq.com.
*Assumes $0.20 quarterly payout for remainder of 2013.
On top of this divestment, Farris has also overseen the more than tripling of Apache's quarterly dividend from just $0.06 in 2004 to $0.20 in 2013. I know some of you are going to look at Apache's 0.9% yield and yawn, but it's not as common as you might think to get a dividend from an E&P company, since they spend so much on exploration costs and often maintain high levels of debt.
Apache employees are also not forgotten in this process. In addition to the usual perks you would expect when it comes to working for an oil company -- which can often include very generous wages based on your task at hand -- Apache allows for alternative work schedules for some of its employees, which can involve a compressed work week (four nine-hour days followed by a four-hour Friday), or flextime if child care or other special requests are involved. Employees also get a minimum of three weeks of vacation on top of 10 paid holidays off each year!
But if Farris has instilled anything in his employees, it's that sharing is most certainly caring. The company's gift-matching program which will match dollar-for-dollar any donation up to $10,000 to qualified charities and raised nearly $909,000 for charitable organizations in 2011. Furthermore, Apache itself donated $500,000 to a newly created nonprofit organization that would help schools develop and build storm shelters in the wake of the tragic Oklahoma tornadoes.
Two thumbs up
Apache's stock performance last year may not be burning it up relative to its peers, but G. Steven Farris has definitely set his company and current shareholders up for success by ridding itself of non-performing assets, reducing debt, and focusing on liquid-rich assets. Furthermore, Farris has done a fantastic job keeping the employees of his company happy with a generous benefits package while also remembering to give back to the communities his company operates in. Farris is truly a class-act worthy of two thumbs up!
