Apache Corporation, A Solid Investment?

No, oil and gas exploration company Apache Inc. (APA), is not directly tied to ancestral Native American lands in the American southwest - though I guess all US lands are ancestral Native American lands.  Nor, as far as I can determine, is the Apache tribe involved in management in any way.   Instead, the name was picked by using the first letters of the last names of Truman Anderson, Raymond Plank and Charles Arnao, the three founders of the company in 1954.  Helen Johnson, an early employee, was awarded a $25 United States savings bond for suggesting the “che” be added, thus the “Apache” name.  Raymond Plank has just retired this year after 54 years of service.
Apache Corporation has grown rapidly in the 54 years since its founding and is now a $26 billion (market cap) international oil and gas exploration, production and development company.  The company reached the $100 million earnings mark in 1996 and $1 billion mark in 2003.  Starting in 1999 Apache has had a steady string of acquisitions.  The acquisitions are continuing.  In April of this year agreement was reached with Marathon (MRO) to acquire 9 Permian Basin oil and gas fields.  This company seems to do acquisitions quite well.
Apache is active in seven regions around the world: the Gulf Coast (onshore and offshore), USA Central, Canada, Egypt, Australia, the North Sea and Australia.  On the the companies’ web site there is a map showing the seven regions they operate in (see it here).  By clicking on the captions on the map you get a summary and details of what the company is doing in that particular region.
Competitors include Exxon Mobil (XOM), BP plc (BP), and Anadarko Petroleum (APC) among others.
Apache, as of December 31 2008, had estimated proved reserves of 1,081 million barrels of crude oil, condensate and natural gas liquids along with 7.9 trillion cubic feet of natural gas.    Reserves are located in mid-continent USA (25%), Canada (22%), Gulf of Mexico area (14%), Egypt (14%), Australia (12%), North Sea (8%) and Argentina (5%).  Apache claims they replaced 122% of production in 2008.
Apache had a $5.25/share loss first quarter of 2009.  In the Earnings Transcript release Tom Banks, President of Corporate Planning and Investor Relations, said “Loss was the result of the continuing deterioration in north American gas prices at the end of 2008 which recorded 1.98 billion non-cash after tax reduction in the carrying value of oil and gas properties”   Also, revenue growth is down 48% year over year due to lower oil and gas prices (Yahoo Finance).  In general, however, Apache is regarded as a conservatively run company and should weather the current downturn better than some of its competitors.  Total cash is $1.38 billion and total debt $4.91 billion (Yahoo Finance).
I like to read annual reports.  The annual report always puts a positive spin on things, of course, but it does give you a feel as to where company enthusiasms lie.  The reports are usually available on the company website under “Investor” sections.  Unfortunately, the Apache website said the 2008 annual report was not yet available and when I clicked on the links to the 2007, 2006 and 2005 reports I got a “page not found” message.  Having done some web design I know it is very simple to create pdf links, so not sure what is going on here.
Apache seems to be a good, solid company in which to invest.  Oil and gas reserves are tangible assets that will hold value, it not appreciate, in today’s climate of currency devaluations.  Unlike gold, oil and gas have actual uses (think your car).  Oil, currently near $60 a barrel and natural gas still only marginally higher than 52 week lows, may drop if the current market upswing is just a bear market rally as many, including myself, think.  On the other hand, if you think that all “real” assets are on a tear due to currency debasements now may be the time to invest in apparently solid companies such as Apache selling for a little over 1/2 its 52 week high.
Disclosure: Long APA

How You Can Lose with Annuities and Whole Life Policies

“Look, Bruce!”, my 85 year old mother-in-law exclaimed, waving a letter over her head.  “My annuity is now up to $85,000.  I just can’t withdraw my money for 6 months.  I don’t need it now anyway, though”. That got my attention.  Why couldn’t she withdraw?   Turns out, Standard Life of Indiana, her annuity company had  sent her a second letter.  That letter informed all policy holders Standard Life was now under an “Order of Rehabilitation” with the state of Indiana.  The letter went on to assure policy holders that all annuity contract terms would be honored except “partial and full surrenders clauses”. This is kind of like a bank holiday for an insurance company.
For more information policy holders were referred to the website: www.standardlifeofIndiana.com.  On the website the first question in the FAQ section is “What happened to Standard Life Insurance Company?” — a good, if not particularly encouraging starting point.  Other questions address issues such as financial condition and safety.  The answers were reassuring but vague and short on specifics.
The court filed “Order of Rehabilitation” document is more direct.  Basically, Indiana state Insurance Commissioner Jim Atterholt and his appointees now have control of Standard Life of Indiana.  All power formerly vested to the directors, officers and managers now resides with the State Commissioner.  For those who would like to see the court filed document go here. The rehab action is essential so as to prevent a run on the company while the state figures out just what the assets are worth.  A minimum of six months is needed and that time period may be extended.
Standard Life of Indiana may have been a good company at one time.  However, It was acquired in the 1990’s by Capital Assurance Corporation, a private company.  Obviously, they made  investment mistakes and were caught in last years slump.  I don’t know what the outcome will be for Standard Life’s 40,000 policy holders such as my mother-in-law.  It is probably safe to say that after the bad investments are written down and the legal and other state fees are assessed policy holders will take a significant haircut.
Now, I do not know a lot about annuities and the Standard Life of Indiana action is not new (the court document was filed December 18, 2008).  I do know that funds invested in fixed annuities and whole life policies go into the companies’ balance sheet and will take a hit along with the balance sheet.
The purpose of this article is to alert fixed annuity and whole life policy holders: You cannot assume you 100% safe.  The products are only as good as the company and its investments.   Annuities and life insurance is often sold to financially unsophisticated and/or elderly people.  Even with state regulation, the potential for abuse in these non-transparent investments is present
I would be careful with all fixed annuity and whole life products, especially those held by AIG affiliates (AIG), and large annuity providers such as Genworth (GNW), Hartford (HIG) and Allstate (ALL).
It is not easy to find the financial standing of many annuity and whole life holders.  Some, such as Standard Life of Indiana, are privately held.  Others are large company subsidiaries (with different names) or international firms such as Allianze or Aviva.  Many large banks with shaky balance sheets hold annuity money.  The rating firms gradings have been over optimistic in the past.  Those sophisticated in financial analysis may be able to track this stuff down but the vast majority of annuity and whole life policy holders are clueless.
Disclosure: No positions in any of the above mentioned companies