In May of this year, I explained why I believed shares of Apache Corporation (NYSE:APA), the Houston-based independent exploration and production company, had big upside. Since that time, the company's share price has surged by more than 20%. Now the big question for investors is: How much higher can Apache go?

Photo credit: Apache Corporation

Why Apache still has room to run
In short, I think Apache can still go a lot higher over the next year or two and beyond. My original investment thesis was based on the company's extremely depressed valuation that, in my view, failed to account for its increasing exposure to low-risk, high-return oil plays in North America. While its valuation has written appreciably in recent months, the stock is still quite cheap.

As it stands, Apache trades at a little over 13 times forward earnings, 1.2 times book value, and commands an extremely depressed EV/EBITDA multiple of just over four times. That represents a massive discount to other similarly sized North American oil-focused peers like EOG Resources (NYSE:EOG), which trades at nearly 18 times earnings, four times book  value, and an EV/EBITDA multiple of 8.5 times.

While I think EOG definitely deserves to command a higher multiple than Apache due to its much stronger prospects for production growth and greater exposure to oil thanks to its leading positions in south Texas' Eagle Ford shale and North Dakota's Bakken shale, I think Apache's trading multiples should be somewhere in between what they are currently and where peers like EOG's are.

Transformational moves
To understand why Apache still has meaningful upside, one has to appreciate the transformational moves the company has made in the past year and a half. During that time, it has raised over $8 billion in proceeds from asset sales in Argentina, the Gulf of Mexico, and elsewhere, which have allowed it to accomplish a few very important things: pay down debt, buy back shares, and streamline its portfolio to focus on low-risk, high-return opportunities in North America.

As of the end of the first quarter, Apache had repurchased nearly 17 million shares for $1.5 billion as part of a 30 million share repurchase authorization announced in early 2013. It had also slashed its long-term debt from $12.3 billion as of June 30, 2013, to $9.7 billion as of the end of the first quarter, while sharply improving its cash position from $180 million to more than $1.6 billion over the same period.

In terms of rebalancing its portfolio, the company's North American onshore operations now represent 62% of company-wide production, up sharply from 34% in 2009. This shift in focus has not only lifted the liquids share of the company's production from 50% in 2009 to 58% currently, but it's also providing a big boost to cash flow due to the higher margins associated with its North American onshore operations. First quarter operating cash flow jumped by 10% year-over-year to $2.2 billion, as North American liquids production surged 21% year over year.

Near-term catalyst
In the near term, I think the next big catalyst to push shares of Apache higher could be the sale of its 13% interest in the Chevron-led (NYSE:CVX) Wheatstone liquefied natural gas (LNG) project. Such a move, for which Apache is actively pursuing a buyer according to Bloomberg, would allow the company to further reduce debt and finance additional share buybacks.

According to estimates by UBS, a sale could bring in a whopping $2.5 billion in proceeds and reduce the company's capital spending commitments by $1.4 billion this year and $800 million next year. A sale may also be in Apache's best interests given the possibility of further delays and cost overruns for Wheatstone and uncertainties regarding long-term LNG pricing.

Investor takeaway
All told, I think Apache's recent surge could be the beginning of a multiyear upward trend. Judging by its current valuation, the market still isn't fully appreciating the company's growing exposure to high-return, liquids-rich North American onshore plays.

Meanwhile, a sale of its Wheatstone LNG stake and a potential monetization of its Kitimat LNG project in Canada could provide a near-term boost to its share price. Overall, I think Apache is one of the most attractive large E&P companies to buy and hold over the next couple of years or longer.