Apache Question Essay

542 Words3 Pages
Case 3 Questions: 1. Which risks does Apache face? Do they differ by country or property type? How does Apache’s operating strategy affect its risk exposure? The price of gas and oil changes quickly and that affects the production and development of properties. Deep water drilling had large fixed costs and considerable high risks. The world’s largest oil platform in the ocean off Brazil tipped over and sank. With high volatility of oil prices the high rate of hiring and firing cycles were extremely costly to firms. This would affect the cash flow of the company which affects the ability to start new adventures and take advantage of a down cycle. Risks which apache faces includes ground water contamination, volatility, ground exploration process is not always accurate. How does Apache’s operating strategy affect its risk exposure? Apache’s operating strategy works on the mantra of maximizing production and minimizing cost. To be able to have control over its development and operation, Apache prefers to operate its own properties. Subsequently, Apache has roughly 80% of it proven reserves located within North America. Apache is exploratory as well, and is constantly searching out new reserves in developing market. However Apache prefers to find a proven location through research, and become the dominant producer in that region. Apache lowers its exposure to the risk associated with drilling in exotic or untested location. The majority of Apache’s reserves are within the more stable Northern American market, and reserves that are located in other regions are researched and analyzed before receiving significant attention. Can you quantify how large Apache’s exposure to oil and gas price risk are? Apache has begun a practice of hedging the production of new acquisition. By hedging away future production, Apache is able to lock
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