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Gold/Mining/Energy : APA: Apache Corporation

APA 22.49

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To: Dennis Roth who wrote (17)	2/8/2008 4:52:00 AM
From: Dennis Roth	of 23

Apache Corp. (APA): Strong 4Q results and further signs of rising international gas prices - Goldman Sachs - 02/07/08 News Apache reported 4Q adjusted EPS of $2.92 versus our $2.71 and consensus of $2.52. Operating cash flow was $1.9 billion, in line with our estimate which was also likely above consensus. Production was 575 MBOE/d versus our 576 MBOE/d. All-in finding and development costs were $15.30/BOE versus $15.50/BOE last year. Drillbit F&D costs were $15.60/BOE versus $20.50/BOE last year. Analysis Apache has not always beaten expectations, and as such these results are likely be perceived very positively. Also noteworthy in the quarter were comments regarding natural gas prices in Australia and Argentina. While management did not announce a new Australia gas contract for its Reindeer or Julimar volumes, management appeared to guide expectations to greater than US$7/Mcf, which is positive considering Apache's current $2/Mcf realization. In Argentina, the 4Q gas price realization of $1.60/Mcf is also positive and shows upward pressure on non-residential gas prices. Implications We believe that rising international gas prices in "stranded" regions such as Western Australia, Egypt and Argentina will continue to be a positive driver of Apache shares. Apache's finding and development costs were very much in line with those reported by Anadarko Petroleum and Devon Energy. While Apache has a greater percentage of production that sells for lower per BOE prices than these peers, we nevertheless see this year's F&D costs as positive. Apache trades at a discounted 5.1x 2008 EV/debt-adjusted cash flow. We see upside from greater production growth visibility, rising international gas prices and any success from the company's active 2008 exploration program focused on Western and Eastern Australia. We rate Apache Buy relative to our Attractive coverage view. Our estimates and price target are under review.

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