Risk Management at Apache case Harvard Case Solution & Analysis

Risk Management at Apache Case Study


Apache organization was established in the year 1954. The Chief Executive Officer of the company was Raymond Plank. He also plays the role of chairman of the corporation means the Plank has the dual nature of CEO. (Malhotra, April 16, 2001)The CFO of the Apache was the son of Plank who manages all the financial reports and financial system of the corporation. In the year 2001, the company grows in the market of North America by producing a huge amount of natural gas and oil. The leadership of the Plank was very beneficial for the corporation.

From the 1999 to 2001 the company earn a good revenue in 2000 and 2001 from its major products oil and natural gas. The major strategy of the Apache Corporation is to profit maximization with cost minimization. All the employees of the corporation follow this strategy to increase the profit of the company. The CEO of the Apache arranges the programs of compensation in which employees compensate based on their contribution in accomplishing the organizational goal. The employees of the Corporation were satisfied with their jobs because they feel motivated in the workplace.

Problem Statement

The Apache Company has the main operation of manufacturing gas and oil. And the market of oil and gas is high volatile and the prices change regularly. So the problem for the company is to hedge the price of oil and gas by using some hedging programs.

Case Analysis

In the case analysis, we cover some topics which increase our knowledge about this corporation. In case analysis, we analyze the risks for the corporation, and also perform some quality analysis and financial analysis. Through this analysis, we better understand the position of the company in the market.

Risks for the Apache Corporation

After the analyzing of Apache Case study, we identify the following risks which affect the profitability of the corporation.

Price Risk

The market of the oil is gas has higher price variations which is the major risk for the company. The price risk completely effects on the profitability of the corporation. The rate of improbability is high for the future forecasting of a company that   the Apache meets with profit or loss in the future by selling this unhedged oil and gas.

Political Risk

As the Apache Corporation operates in national and international level, the risk of politics is also high because every country has its own political policies which affect the business of Apache.

Systematic Risk

The rate of systematic risk for the Apache Corporation is also high because the changes in market conditions affect the delivery of oil and gas, drilling process of oil and also market condition affect the unions and stocks of the Apache Corporation in the market of North America and other countries.

Hedging Risk

The rate of Hedging risk is low because if the prices of the oil and gas increase by market leaders, then the Apache can earn more revenue from the products. Increase in prices increases the revenue of the corporation. It means the hedging probability of the company is high.

Impact of Natural Gas and Oil prices on the operations of Apache

Apache Corporation is completely depends on the prices of the oil and gas which affect the overall operations of the company. If the prices of the company increase, it also increases the income of the corporation, which also increases the cash flows of the corporation and the Apache can invest the money in more expansion of the business in multiple markets. When the prices of the Gas and oil decreases it makes the loss for the corporation with reduced cash flows and lower income through which the company does not invest in additional projects.

The changing in prices of Apache also affects the rate of taxation on the corporation with the decrease, prices the taxes becomes, low whereas in higher prices and high, income the rate of tax also increases on income taxes.

With the changing in prices, the operating activities of the corporation also affect. As we know the strategy of corporation that Apache believes on cost minimization and profit maximization. With the increase in net income, the company hire the additional employees and specialists for generation of more profit whereas in low prices and reduced income, the Apache Fire the additional employees for reducing the costing of corporation.

With the decrease in prices of products of Apache, the income becomes very low on that, basis the company can switch drilling for a temporary time period and re start when the market become stable and the prices increase. The assets of the Apache also affects by the fluctuation in prices.

Potential Sources for managing the Price Risk

For controlling the fluctuation of prices, three major sources are used for maintaining the stability in prices. Following are the sources given for managing the risk of price.

Reduction in Price volatility

Managers and investors are the two major factors for the Apache Corporation. The corporation must motivate the employees by providing them rewards and incentives through which they work hard and increase the productivity of the corporation. Employees are the major assets of corporation through which the Apache can gain the competitive advantage in price fluctuation. Investors also help the CEO to make a good decision in the time of price fluctuation.

Price Stability

The stocks of the corporation help in this situation. The price stability can be possible when the securing of shares by bankrollers is to become constant or funding the subordinate market price of a safe keeping instant onerously subsequent an early community subscription.

Hedging the risk of Price

This source helps the corporation to reduce the overall capital cost by decreasing the value from the structure of capital and increasing the value of debt. This strategy helps the corporation to hedge the price risk with an increased value of the capital market.

Strategies for managing the Risk

The Apache Corporation uses the three major strategies for managing the risk. These strategies are helpful for increasing the prices of products, which increase the revenue of the corporation.

  • The corporation operates in those areas where the rate of risk is low.
  • The corporation offer the products based on company size.
  • The corporation diversifies the investments do not invest all the resources on a single investment.

It is the most profitable strategy for the Apache Corporation. In investment diversification, the chances of risk reduced with the increased chances of return from the investment. In the diversification, the profit of the corporation increase according to the organizational aim of profit maximization with cost minimization.

As the size of the corporation increase or becomes larger, the chances of product portfolio and business portfolio increase and the company can introduce more products which increase the revenue of the Apache Corporation.

The corporation targets those areas where the risk is very low, and the chances of profit are high. Some markets have low changing in prices where Apache operates and covers all the losses he faced in North America.

SWOT Analysis

SWOT analysis is the strategic tool for analyzing the internal strengths weakness of the Apache and also to analyze the external opportunities and threats for the company.


In the North America market, the apache has a competitive advantage. The market share of the corporation is high. Employees of the corporation are skillful. Expansion in international level is the major strength of the Apache Corporation. The brand portfolio of the corporation is great, with high profitability. In new markets, performing the corporation units is very good. The cash flows of the company are also strong. The Suppliers of the Corporation are also loyal to Apache.


The prime weakness of the Apache Corporation is that the company has no proper financial planning for managing the future risks. The research and development center of the corporation is also not advanced. The profitability of the corporation is not above then the average. The structure of the internal organization is also not well-suited.


The New policies of environment, Enhancement in research and development, new taxation policy and declining in the costing of transportation are the major opportunities for the Apache Corporation.


Fluctuation of price market is the major threat for the Apache Corporation because with the decrease in prices of oil and gas, the income of the corporation also decreases. The level of competition is high in the oil and gas industry.....

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