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Tickers in this Article: APA, STO, CRZO, BP, DVN, CNQ, TLM
Investors often learn to appreciate conservatively run companies during tough times, but that same conservatism can seem like a drag when times are good. Maybe that is why Apache (NYSE:APA) never quite seems to get its due during the good times in the energy industry. Although this oil and natural gas production and exploration company has proved itself over many cycles, investors always seem to forget this name in lieu of spicier ideas during the boom years ... only to come back to it when the boom names have gone "boom" and wrecked themselves with debt or extended their operations too far.

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A Messy End to the Year
That said, Apache management did itself no favors at end 2010; fourth-quarter results for this company are quite a bit messier than the many other E&P earnings report. Revenue did rise 35% in the fourth quarter, fueled in part by a 24% increase in production, but profitability is where things get messy. Net income looked to be up about 18%, so the company's baseline profitability seemed to track top-line growth. That said, issues like the timing of acquisitions, undeclared incentive compensation, and equity tied to uncompleted transactions made things a lot more confusing. Moreover, lease operating expenses did jump pretty significantly from the third quarter, rising almost 55%.

The fourth quarter is also when E&P companies discuss their reserve situation. Apache replaced 344% of its production this year (far better than Statoil (NYSE:STO) recently announced, for instance), but organic reserve replacement was a more sedate 102%. Costs also continue to rise here as well.

The Road Ahead
Some investors may be put off by suggested growth estimates of around 17% for 2011, and it certainly seems to pale in comparison to hyper-growers like Brigham Exploration (Nasdaq:BEXP) or Carrizo (Nasdaq:CRZO). That said, Apache is a noted "under-promiser" and is also highly leveraged to better oil prices. Moreover, Apache has a strong history of wringing very cost-effective production from acquired assets, so it is likely that Apache's acquisition activity in 2010 with counterparties like BP (NYSE:BP) and Devon (NYSE:DVN) will pay in the years to come in the form of not only higher production, but profitable production as well.

The Bottom Line
Apache looks like a relative bargain in the energy sector. Investors can also check out names like Canadian Natural (NYSE:CNQ), Devon, Anadarko (NYSE:APC), Occidential (NYSE:OXY), and Talisman (NYSE:TLM), but Apache seems to have a pretty appealing risk-return trade-off at these levels.

Apache may not set the world on fire with robust production targets, but it remains one of the best-run E&P companies out there and a solid name for investors who want a balanced and conservatively run energy play. (For additional stock analysis, see On The Hunt For Dividend Stocks.)

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