Corporate Finance: Clean Energy Fuels Corp. and Apache Corporation - Research Paper Example

? Corporate Finance Introduction The significance of natural gas is growing everyday as energy needs in industrial, transportation, and technological sectors are on the rise. Although other renewable energies like solar power and wind power have been in use, individuals and business organizations still depend more on natural gas due to its easy availability and increased efficiency. In addition, features like easy availability, broader applicability, high safety, reduced noise pollution, and renewability of natural gas improve the scope of natural gas industry. Clean Energy Fuels Corp. (CLNE) is the North America’s largest provider of transportation natural gas and the organization has currently spread its business from British Columbia to the Mexican border. Even though the CLNE is at its early stages of development, the company already owns and operates many natural gas fueling stations and is a global leader in developing the natural gas vehicle market. The company deals with many areas of natural gas business including “compressed natural gas (CNG) and liquefied natural gas (LNG) fueling; construction and operation of natural gas fueling stations; compressor equipment and technology; biomethane production; and vehicle conversion” (qtd in Investorideas.com). The company fuels over 530 fleet customers and 25,000 vehicles every day at over 273 stations across the United States and Canada. In addition, the organization has a strong customer base in transit, trucking, shuttle, taxi, airport, solid waste, and municipal fleet markets (Investorideas.com). Similarly, Apache Corporation is a multinational gas and oil corporation headquartered at Texas in the United States. In addition to US, the company has regional subsidiaries and operations in Canada, UK North Sea, Australia, Argentina, and Egypt. As of 2012, the firm’s market capitalization is estimated at nearly $35 billion. The Apache was founded in 1954 and the organization expanded its business horizons mainly through acquisitions. This paper will critically analyze the investment opportunities in both the firms and suggest which firm offers the best long term value for the investor. Natural gas industry analysis Porter’s five forces model is used here to analyze the natural gas industry in the United States. The five forces in the industry are described below. Degree of rivalry While analyzing the US’ natural gas industry, the degree of competitive rivalry is less as a result of unpopularity of natural gas resources. Currently, there are a few natural gas providers in each states of the US. This favorable business situation increases the scope of investments in the natural gas industry. Threat of new entrants A study conducted by the Navigant Consulting reveals that North America has enough reserves of natural gas to supply for at least 120 years (U.S Department of Energy). Hence, the United States has abundance of natural gas resources and this strength makes the country an attractive place for business investments. As a result, new players are more likely to enter the natural gas market and therefore the threat of new entrants is high. Threat of substitutes There are many substitutes to natural gas including liquefied petroleum gas (LPG) and biogas. Today, LPG is widely used in US for transportation proposes due to its easier availability and highly effective performance. In addition, the development of hybrid electric vehicles also appears to be a growth impediment to vehicle fueling natural gas. Hence, the threat of substitutes can be moderate to high in the natural gas industry. Buyer power Since the level of competition intensity is low in the natural gas industry, buyers have limited options to choose the provider. Hence, there are not much alternative to buyers but to choose any of the limited available providers. From other perspective, vehicle fueling natural gas has a number of potential substitutes and hence buyers may switch their demand to those products. In short, buyer power is low in the industry Supplier power It seems that most of the ‘vehicle fueling natural gas providers’ have their own technologies to collect and store the natural gas. Therefore, they do not need to depend much on external suppliers As a result, supplier power is low in the in natural gas industry. Investment potential of Clean Energy Since the reincorporation in 2001, the Clean Energy has been enriching the US transportation industry with cheaper, cleaner, and abundant natural gas products. The company has taken several initiatives to meet growing requirements of vehicular natural gas industry in the North America. The Clean Energy strives to deliver improved services to its clients and to promote long term environmental sustainability. The organization has formed a strategic business alliance with Saddle Creek, a nationwide third party logistics firm offering warehousing, transportation, and contract package delivering services; and through this alliance, the Clean Energy could reduce greenhouse gas emissions by 23% and stabilize fuel costs of Saddle Creek (‘Success story’). In addition, the company’s strategic alliance with Waste Pro USA is beneficial to enhance environment friendly waste disposal and management activities across several regions of the US. Bell Transportation’s 100% conversion to natural gas is another achievement of Clean Energy in environmental sustainability enhancement. All of these initiatives also aim to make effective use of the country’s domestic resources and thereby to reduce US’ dependence on foreign countries to meet its growing energy needs. Since the Federal government and today’s people are increasingly concerned about environmental safety and mounting fuel prices, this type of green initiative is likely to benefit the company to obtain great public acceptance. The Clean Energy has potential partner companies such as IMW Industries, BAF Technologies Inc., and NorthStar Inc. In 2010, the company acquired IMW Industries, a leading supplier of CNG equipment for vehicle fueling and a globally leading player in natural gas compression technology. The acquisition of BAF Technologies has assisted the Clean Energy to provide natural gas vehicle conversion services to light/medium duty fleet sector. Since 2010, the NorthStar Inc. is working as a subsidiary of Clean Energy and it is a well established provider of LNG/LCNG fueling systems and stations. Evidently, these partner companies assist the Clean Energy to expand its service areas and hence serve its customer groups better. In order to reach its services to more and more people, the organization has designed improved promotion tactics. For instance, the firm shows a demonstration video through its official website to train people about safe CNG fueling. In addition, the Clean Energy has strategic business link with National Gas Academy. The organization makes National Gas Academy’s releases, images, and videos accessible to its website visitors through creating a web link. In addition, the company maintains an online NGV Forum for the natural gas vehicle industry. The company publishes news, events, and releases concerning natural gas vehicle industry in this forum. Such efforts greatly aid the company to promote the use of natural gas in vehicles and thereby to popularize its products and services among the public. Over the last few years, the company has made several notable achievements that are likely to drive the firm’s growth over the next years. Company reports indicate that the Clean Energy’s ‘gallons delivered’ increased by 24% in second and third quarter of 2012 as compared to the respective periods in the previous year (Press releases). To illustrate, the firm’s operating results for the second quarter of 2012 indicate that the company’s total gallons delivered is 48.6 million whereas it was 39.2 million gallons in the same period a year ago. Similarly, the company achieved a total of 50.9 gallons delivered in the third quarter of 2012 whereas the gallons delivered was totaled at 40.9 millions in the same period of the last year (Press releases). The Clean Energy’s Board of Directors has set high standards for the employees because employee efficiency is considered as one of the key provisions of the company’s corporate governance strategy. In addition, the Board of Directors has the duty to ‘serve as a prudent fiduciary for shareholders’ (Corporate governance). Hence, the company pays particular attention to increasing its shareholder values. It is uninteresting to look at the stock information of the Clean Energy. The firm’s stock information chart clearly shows that the company’s stock price is fluctuating throughout the 2012 so far. To illustrate, the company’ stock price was $19.36 by the end of the April 2012 and it was declined to $11by August 2012. Currently, the stock price stands at $12.90 (as of 4:10 PM ET on Dec 5, 2012) (Stock Information). From an investor perspective, the fluctuating stock price is not beneficial as this trend reveals the firm’s instability. However, it must be noted that the company is at its beginning stages and still its business grows explosively. The firm has not paid any dividend to date with intent to enhance its stability and sustainability. While analyzing the 2011 annual report, it is clear that the stockholders’ equity of the Clean Energy has dramatically improved over the last years (2011 annual report). Investment potential of Apache Corporation The Apache Corporation operates under the oil and gas industry. While analyzing the corporate history of the Apache Corporation, it seems that the company mainly uses mergers and acquisition strategy to enhance its global presence. The company’s stock information is not so hopeful for an investor. Although the company’s stock price was above $110 in February 2012, it has been gradually declining since then and the stock price currently stands at $76.37 (as of 4:15 PM ET on Dec 6, 2012) (stock information 2). Market analysts indicate that the Varanus Island gas pipeline explosion has greatly contributed to the share price decline of the company. The firm’s operating results for the third quarter of 2012 reflect that the company achieved a 2.4 percent rise its oil production as compared to the same period an year ago. Recently, the Board of Directors of Apache Corporation announced that the company will shortly issue regular cash dividends on its common shares and preferred stock. According to the company releases, the dividend on common shares will be payable at the rate of 17 cents per share whereas dividend preferred stock will be payable at the rate of $15 per share (News releases). On the strength of its strong market performance, the Apache Corporation could post a net income of $4.584 billion in 2011 while the organization had earned a net income of $3.032 billion in 2010 (Annual report 2011). The company gives specific focus to sustainability operations, health and safety, and community practices. Minimization of greenhouse gas emissions is one of the major environmental priorities of the Apache Corporation. The firm’s vision statement says that “our commitment to sustainability demands creative solutions that minimize our environmental impact, high standards for safe operations and support for our communities” (vision). Recommendations While comparing the investment potential of Clean Energy Fuel Corp with that of Apache Corporation, it seems that both the firms have immense growth potential despite their fluctuating stock prices. However, it can be argued that the Clean Energy stands one step ahead of Apache Corporation considering the fact that the former is still at its early stages of growth. It must be noted that the Clean Energy posted a 24% rise in production in the third quarter of 2012 whereas Apache Corporation achieved only 2.4% growth in production during its third quarter of 2012. Another major difference between the two firms is that Apache Corporation particularly focuses on oil business while Clean Energy mainly operates in the natural gas industry. Furthermore, the Clean Energy has formed more innovative strategic business alliances to spread its products and services among the general public. Given the scope of natural gas industry in the United States, the Clean Energy can generate better operational outcomes. Therefore, it is advisable for Aikens Co to invest in Clean Energy Fuel Corp, because this organization offers the best long term value opportunity for the Aikens’ fund. Conclusion From the above discussion, it is clear that both Clean Energy and the Apache Corporation are growing organizations with a set of different competitive advantages. When Apache Corporation works in the oil and gas industry, Clean Energy operates in the natural gas industry. Although both the firms are potential for investment, the Clean Energy offers more value for the shareholders’ fund in the long term. Works Cited Annual report 2011. Apache. Web 07 Dec 2012 http://www.apachecorp.com/Resources/Upload/file/investors/Apache_AR_2011.pdf Clean Energy, Press releases. Web 07 Dec 2012 http://investors.cleanenergyfuels.com/releases.cfm Clean Energy , Corporate governance. Web 07 Dec 2012 http://investors.cleanenergyfuels.com/governance.cfm Clean Energy, Stock Information. Web 07 Dec 2012 http://investors.cleanenergyfuels.com/stockquote.cfm Clean Energy. 2011 annual report. Web 07 Dec 2012 http://www.cleanenergyfuels.com/annualreport/2011/corpinfo.html News about BAF Technologies. Investorideas.com. web 07 Dec 2012 http://www.investorideas.com/news/2012/energy/06111.asp News releases, Apache. Web 07 Dec 2012 http://investor.apachecorp.com/releasedetail.cfm?ReleaseID=722311 Success story. Web 07 Dec 2012 http://www.cleanenergyfuels.com/successstories/saddlecreek.html Stock information. Web 07 Dec 2012 http://investor.apachecorp.com/stockquote.cfm U.S Department of Energy. The advantages of compressed natural gas. 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