The Recession Won't Affect This Energy Stock

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The fear of another recession is weighing heavily on investors' minds. But it shouldn't, because a stock with solid fundamentals and growth prospects should always see you through the bad times. Houston-based Apache's (NYS: APA) might just be one of those stocks.

Solid growth
Apache saw fantastic improvement in production during its second quarter. Total production rose by 16% over last year, to nearly 749,000 barrels of oil equivalent per day. That's huge. North American operations led the way with a 44% production increase. Natural-gas liquids production from this region doubled, with Canada contributing to a massive 201% increase. Natural gas production itself has been impressive: up by 50% in North America, with Canada providing an 87% increase.

In a bearish market for natural gas, a production increase is commendable. Natural gas production overall increased by 27%, and revenues from this commodity increased by 44% to $939 million. In all, fundamental growth in operations has been solid, and that's why I'm impressed.

Higher crude prices resulted in a $948 million year-over-year increase in revenues, which totaled $3.3 billion. But this is not a sustainable phenomenon. With crude oil falling to a 10-month low, to $78 a barrel, I'm not expecting similar returns the next time around. Q3should definitely see a drop, if not a huge fall, in earnings.

The long term is where I'm most bullish about Apache. The Kitimat LNG facility, in addition to the Pacific Trail Pipelines partnership -- operated along with EOG Resources (NYS: EOG) and Encana (NYS: ECA) -- should open up exciting opportunities in the liquefied natural gas space. With natural gas demand expected to shoot up, LNG facilities will be one of the hottest properties around.

And with the development of assets acquired last year from Devon Energy (NYS: DVN) on the Gulf of Mexico shelf, the prospects look even more mouthwatering. I believe this is one region to watch out for. McMoRan Exploration (NYS: MMR) has already shown what these assets are capable of.

Finally, Apache's $2.7 billion acquisition of Mariner Energy is yet to bear fruit. Expect this deal to show results over the next few years.

Foolish bottom line
Don't consider last Monday's nearly 8% stock drop a body-blow. Demand for oil and gas is only bound to increase, and the only way to meet demand is through higher production. Apache looks capable of meeting that challenge and ramping up even further.  

At the time this article was published Fool contributor Isac Simon owns no shares of any of the companies mentioned in this article.The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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