Apache Posts Lower Earnings for Q1

Apache Corp. on Thursday reported first-quarter earnings of $492 million or $1.47 per diluted common share as record production partially offset the impact of lower oil and gas prices and higher costs. Apache earned $660 million or $1.97 per share in the prior-year period.

Cash from operations before changes in operating assets and liabilities totaled $1.2 billion, flat with the prior-year period. (This is a non-GAAP measure; see reconciliation below.) Apache produced 536,297 barrels of oil equivalent per day in the first quarter, 17 percent above the prior-year period and up 1 percent from the fourth quarter of 2006.

"Apache had a solid first quarter, with substantial earnings and cash flow, increased production, and strong drilling results," said G. Steven Farris, Apache's president and chief executive officer. "Production should continue to grow, rising 6 to 10 percent over 2006 levels, excluding the impact of acquisition and divestiture activity.

"In addition to rising production in 2007, Apache is off to a good start drilling our arsenal of maturing exploration prospects in three core growth areas -- Australia, Canada and Egypt," Farris said.

In Australia, the recently announced Julimar-1 discovery test-flowed 85 million cubic feet (MMcf) per day from two zones. "We plan to appraise the discovery later in the year, drill the Brunello prospect -- a look-alike east of Julimar -- and drill the Rosella gas prospect located southwest of Apache's 1-trillion-cubic-foot John Brookes Field, which is currently producing 250 MMcf of gas per day from three wells," Farris said.

The Sedco 703 semi-submersible rig, which drilled the Julimar-1, has moved southwest to the Exmouth Basin and has commenced drilling on the Crosby West prospect, the first of five Exmouth exploration wells planned for 2007.

Apache's earlier discoveries in the Exmouth Basin -- Ravensworth, Crosby, Stickle, Harrison and Van Gogh -- resulted in the Apache-operated Van Gogh and BHP-operated Pyrenees developments. Van Gogh is expected to come on line in 2009 and add 20,000 barrels per day of net production for Apache; Pyrenees, which is scheduled to receive a formal go-ahead in the near future, is on a similar schedule and also is expected to add 20,000 barrels of oil per day to Apache's net production.

In Egypt, Apache's Jade-1X discovered natural gas on the company's Matruh Concession. The well tested 25.6 MMcf of gas per day from the Jurassic Upper Safa formation. The discovery also has significant reserve potential in multiple Cretaceous Alam El Bueib (AEB) reservoir objectives. Apache plans five additional Jurassic and two AEB exploratory wells on the Matruh Concession this year.

"In Canada, as a result of rebalancing our program to include more higher- risk, higher-potential-reward prospects, first-quarter production was generally flat despite substantial reductions in capital spending and the number of wells drilled," Farris said. "Service costs are declining across North America, and the trend is more pronounced in Canada. If costs continue to decline, we may increase activity in shallow gas plays later in the year."

At the end of the first quarter, Apache completed its $1 billion acquisition in the Permian Basin from Anadarko Petroleum. Net daily production from the fields is 9,000 barrels of oil and 19 MMcf of gas.

"Apache has developed several catalysts for growth," Farris said. "Stay tuned -- we have a quality exploration program that is just beginning to unfold."

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