APA: Apache Corporation Message Board

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Gold/Mining/Energy : APA: Apache Corporation

APA 22.65

+1.1%

3:59 PM EDT

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From: Dennis Roth	6/14/2007 9:26:55 AM
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Execution of development projects key as capital budget increases - Goldman Sachs - June 14, 2007 What's changed Apache held an investor day on June 13, providing operational updates on each of its key producing regions as well as management comments on general issues of corporate strategy and outlook. Apache’s revised production outlook of 9%-12% 2007 year-over-year volume growth is in line with our estimate of 11%. Management raised its 2007 E&P capital spending guidance to $5 billion, about 20% above our estimate, while also providing preliminary 2008 production growth guidance of 6%-10% versus our previous estimate of 5%. The company generally reiterated its commitment to its traditional conventional diversified E&P strategy. Implications At several points in the presentation, management expressed its frustration with the company’s persistent valuation discount relative to peers. We continue to believe this valuation is more a function of general Street preference for long-lived unconventional resources versus conventional assets, and that there are few company-specific steps likely to reverse this discount without a broader shift in investor sentiment. That said, we believe Apache’s significant development inventory and stepped-up capital program provides it with the opportunity to drive upward earnings revisions through strong execution on its projects, even without significant exploration success (which would only be additive). Valuation Apache trades at 5.1X 2008E EV/DACF, a discount to the 5.7X average of large-cap E&Ps but close to the middle of the 4.6X-5.4X range of other conventional E&Ps. We see 9% downside for Apache shares to our 12-month target price (based on net asset value and cash flow analyses) of $76, comparable to the risk/reward we see for large-cap E&Ps. We continue to rate Apache Neutral, relative to a Neutral coverage view. Key risks Commodity price volatility and drilling results.

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