APA: Apache Corporation Message Board

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Gold/Mining/Energy : APA: Apache Corporation

APA 22.65

+1.1%

Oct 31 9:30 AM EDT

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From: Dennis Roth	9/12/2007 8:03:06 AM
	of 23

Improved visibility, oil, and low expectations: Upgrading to Buy - Goldman Sachs - September 12, 2007 Source of opportunity We believe the six reasons to own Apache shares now are: (1) Australia and Egypt production growth and relative stability are not being factored in; (2) exposure to our bullish view on crude oil; (3) greater production growth visibility versus previous periods; (4) minimal value to potential for reserve additions in the Gulf of Mexico and gas price increases in Australia; (5) long-term Energy Carbonomics benefits from Permian Basin oil assets; and (6) increased optimism on Canada shale potential. We believe this can lead to multiple expansion and are upgrading the stock to Buy from Neutral. Our $100 price target implies 26% upside potential. Catalyst Key catalysts include further strength versus Street expectations in crude prices (expected in the near and medium term), further detail on development project progress and legacy growth in Australia and Egypt (quarterly), exploration announcements (ongoing), lower-than-expected production declines in the Gulf of Mexico (quarterly) and improved access to CO2 in the Permian Basin (near, medium and long term). Valuation Apache trades at 4.8x 2008 EV/debt-adjusted cash flow versus other large-cap E&Ps at 5.4x. We have increased our 12-month discounted cash flow based target price to $100 from $92. Our new target assumes 26% upside versus 18% upside for E&P stocks. We do not assume any unbooked resource from the Gulf of Mexico or from Argentina in our target. While we do not argue that Apache will regain its historic leading multiple, we believe the Street will increasingly see the company’s production profile as more visible which can lead to multiple expansion. Key risks Key risks include commodity price volatility, drilling results, cost pressures and regulatory pronouncements.

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