Finance Research

Ticker: APA March 14, 2011	Recommendation: BUY
Price: $118.82	Price Target: $140

Earnings/Share
	Mar.	Jun.	Sept.	Dec.	Year	P/E Ratio
2007A	7.20	6.92	6.80	8.45	29.37	$14.60
2008A	10.02	12.44	14.15	2.11	38.73	$5.57
2009A	-6.18	-9.17	-11.39	-0.87	-27.61	NM
2010E	6.44	7.69	8.52	8.52	31.17	$13.30

Highlights

· Company Description: Apache Corporation specializes in the exploration, development and production of natural gas, crude oil and natural gas liquids. Since its inception in 1954, Apache has become a multinational company with offices and operations in over seven countries across the globe. Apache has a current market capitalization of 44,376.3 billion, about 1,067 million barrels of oil equivalent (BOE) and 7.8 trillion cubic feet of natural gas in its reserves.

· Differentiation strategy: Apache Corporation has become successful in the industry through a differentiation approach. Apache’s strategy involves buying up mature properties from larger oil companies and drying them out. This involves the use of complicated technologies that allow old wells to be more fully depleted and new wells to be drilled where the terrain was too difficult before. With this technology in the current high-price environment, Apache’s profits are able to increase substantially.

· Growth through acquisition: Apache Corporation has maintained an aggressive growth strategy since its inception and has continued this mentality into 2010. During the first half of 2010, Apache struck three major energy deals designed to expand the company's core production assets. From the acquisitions, Apache increased its assets in North America, the Gulf, and Egypt, which were all area that provided a large percentage of Apache's production and reserves numbers in 2009.

· Diversification: Through geographic diversification, Apache Corporation is able to limit the typical risks involved within the oil industry. Apache has assets and production plants in seven different countries worldwide. With established business segments in US, Canada, Egypt, Australia, UK, Argentina and Chile. In 2010, no single region accounted for more than 25% of overall production.

Market Profile

52 Week Price Range

127.73 High / 81.94 Low

Average Daily Volume (mm)

3.46

Beta

1.16

Dividend Yield (Estimated)

0.5%

Shares Outstanding (mm)

382.8

Market Capitalization (mm)

44,376.3

Institutional Holdings

81%

Insider Holdings

0%

Book Value per Share

$60.48

Debt to Total Capital

25%

Return on Equity

15.1%

Source: Capital IQ

Business Description

Founded in 1954, Apache Corporation, along with its subsidiaries, is an independent energy company that explores for and produces natural gas, crude oil, and natural gas liquids. Independent companies are also referred to as upstream businesses where their main customers are commercial businesses as well. Apache currently has exploration and production interests in the Gulf of Mexico, the Gulf Coast, east Texas, the Permian basin, the Anadarko basin, and the Western Sedimentary basin of Canada. Apache also has interests outside of North America exploring and producing offshore in Western Australia, the U.K. in the North Sea, as well as onshore in Egypt, Argentina, and Chile. Production at Apache is split evenly between liquid hydrocarbons and natural gas, though oil generates more than 70 percent of revenues.

Apache Corporation sells its natural gas to distribution companies, utilities, end-users, and integrated oil and gas companies. It sells its crude oil to integrated oil companies, marketing and transportation companies, and oil refineries. Apache’s greatest customer in 2009 was Shell, who is an integrated oil and gas business, with upstream and downstream operations.

At the start of the 2010 calendar year, Apache Corporation had an estimated proved reserve of 1,067 MMboe of crude oil, condensate, and natural gas liquids with an additional 7.8 trillion cubic feet of natural gas. The company is led by the current Chairman of the Board and Chief Executive Officer, G. Steven Farris (62), who has been in this position for over eight years and with the company for 22 years. Apache Corporation is currently based in Houston,Texas.

Top 5 oil producing countries 2009

1. Russia

1. Saudi Arabia

1. United States

1. Iran

1. China

Industry Overview and Competitive Positioning

Worldwide demand growth

The oil and gas industry is still the world’s primary source of energy, providing an estimated 65 percent of the world’s energy supply according to the international energy agency. Despite efforts of pushing for renewable resources over the last decade, overall demand has impeded a crowding out of oil and gas. The demand of emerging economies throughout the world, especially China, has so far been able to compensate efforts of increasing energy efficiencies in mostly developed nations in order to cope with increasing prices.

Top 5 oil consuming countries 2009

1. United States

1. China

1. Japan

1. India

1. Russia

Prices for oil and gas are very vulnerable to supply shocks given the fact that demand has outpaced supply and speculators in the markets often amplify movements in price. The current turmoil in the Middle East caused by pro-democracy revolutions in Egypt, Tunisia and Libya have so far only had a minor impact on the overall worldwide production, yet entailed a dramatic increase in oil prices.

Top 5 oil exporters toUnited States 2009

1. Canada – 21%

1. Mexico – 10%

1. Venezuela – 9%

1. Saudi Arabia – 9%

1. Nigeria – 7%

BP publication of proven oil reserves

NYSE:APA - Share Pricing

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40583.0 40584.0 40585.0 40588.0 40589.0 40590.0 40591.0 40592.0 40596.0 40597.0 40598.0 40599.0 114.63 113.55 119.4 114.71 116.42 114.69 115.86 115.77 116.22 115.35 118.8701 117.62 119.86 117.46 113.86 118.27 110.15 107.75 110.06 112.9400000000003 119.75 119.19 119.05 120.82 120.87 122.39 123.18 126.4100000000001 128.6 130.0 133.89 134.26 131.93 136.44 136.1 140.7 139.01 142.51 141.15 141.6 138.93 133.34 137.8 137.9 132.68 134.68 126.4100000000001 128.81 131.33 137.66 135.83 138.18 135.67 134.05 139.3 135.04 136.16 143.49 144.22 146.8 144.75 143.9 139.41 135.8500000000007 138.97 133.16 134.06 136.0 130.91 130.15 135.4 133.9 141.99 137.2 140.0 137.43 138.46 137.43 141.27 139.67 137.45 136.93 143.93 137.04 132.66 134.4 137.1 139.0 142.1 134.43 133.19 127.57 122.87 116.96 122.43 124.59 124.93 117.9400000000003 114.46 111.12 110.9400000000003 115.76 114.42 108.76 108.87 109.6 111.5 107.63 116.56 112.17 113.74 106.72 106.88 110.81 108.78 105.21 103.73 104.1 110.69 110.62 106.74 105.27 110.17 114.49 115.89 111.57 112.63 115.76 117.24 114.36 114.38 106.34 107.48 110.03 111.43 109.77 100.55 105.36 109.01 112.39 104.39 108.84 106.58 113.19 121.15 116.13 113.4100000000001 112.59 114.73 109.88 98.87 104.28 100.15 91.26 90.48 86.46000000000002 80.1 80.45 71.8 66.8 81.04 79.84 65.28 75.66 73.88 81.39 79.14 69.49 73.33 69.7 64.36 71.5 74.81 78.95 82.33 79.28 83.2 80.42 74.94000000000002 76.99 78.55 75.98 70.65 80.29 76.04 74.36 75.69 72.19 61.55 68.07 72.99 73.66999999999998 78.33 77.3 69.46 71.49 72.52 65 .5 62.61 67.29 68.19 74.16 72.94000000000002 71.54 71.84 74.6 74.02 69.81 74.57 70.99 70.66 70.16999999999998 71.32 72.99 73.64 74.53 79.26 83.05 85.67999999999998 83.71000000000002 82.1 80.62 75.22 76.42 73.28 74.23 74.49 70.1 74.8 73.72 75.95 78.33 76.82 78.62 77.32 75.0 73.59 75.53 76.03 77.92 78.74 79.39 75.21 72.84 73.11 73.3 68.15 67.09 66.66999999999998 63.84 59.5 60.52 59.7 59.83 59.09 52.35 52.88 56.38 54.3 53.46 51.38 54.56 56.64 59.75 60.94 62.23000000000001 64.62 64.91000000000002 67.24 64.86 70.65 68.25 67.6 68.31 65.97 63.46 64.09 66.07 67.92 68.0 65.9 62.73000000000001 65.47 68.92 69.48 68.15 67.32 68.01 69.09 65.38 66.05 65.64 67.26 69.08 68.15 68.05 69.83 72.86 76.97 80.19 79.34 82.55 81.46 84.89 81.84 81.43 78.0 78.63 76.61 79.21 79.34 80.8 78.25 77.83 79.56 79.57 83.02 84.26 86.0 85.57 82.34 83.28 82.26 83.04 83.7 83.99000000000002 85.34 84.2 82.02 80.41000000000002 78.89 77.89 75.34 71.0 71.22 71.44000000000002 73.21 72.22 72.53 72.15 71.09 69.0 67.51 66.39 66.12 69.08 68.05 69.27 71.15 74.57 75.32 75.5 77.45 77.58 76.39 79.27 79.75 80.03 78.56 77.92 82.29 83.95 86.59 87.56 87.12 86.8 87.06 88.4 86.2 87.25 87.93 86.91000000000002 84.05 85.8 86.77 85.86 88.87 88.36 86.26 85.74000000000002 86.44000000000002 87.3 84.95 83.35 83.16 83.13 84.03 86.16 87.46000000000002 89.91000000000002 91.37 91.38 91.53 94.65 94.3 94.19 92.06 93.11 90.99000000000002 91.52 91.98 92.7 91.53 91.83 89.6 89.95 92.51 96.5 97.66999999999998 100.52 99.86 99.33 98.01 99.91000000000002 102.67 102.75 104.06 104.14 101.46 102.08 99.39 97.83 98.16 93.85 97.09 94.12 95.48 97.73 98.1 99.04 98.87 100.82 100.54 100.63 97.95 98.14 100.39 100.62 99.75 97.07 96.47 97.77 97.24000000000002 97.95 95.75 95.28 97.72 96.37 94.9 94.2 93.34 92.52 93.09 94.95 94.63 98.5 99.1 101.35 99.97 99.86 101.79 103.6 104.5 104.89 105.13 104.52 104.22 103.17 105.87 107.12 108.8 107.15 106.59 106.9100000000001 105.29 106.82 107.4 107.66 108.4 106.46 105.06 102.03 104.0 102.36 101.4 101.69 98.77 102.4 104.63 103.32 98.88 98.4 97.19 98.51 98.55 99.82 99.58 103.68 103.57 103.59 105.01 104.02 102.46 102.27 103.14 103.64 105.03 106.18 106.01 104.8 107.4100000000001 106.02 106.21 106.59 106.9400000000003 106.85 104.32 104.65 106.18 103.45 101.68 101.6 103.26 102.32 99.07 98.31 99.8 99.72 101.5 103.87 106.21 106.54 105.47 106.29 106.76 107.11 106.79 108.06 106.67 105.4400000000003 105.18 107.81 108.06 108.24 109.87 109.49 105.86 106.58 102.92 101.76 104.55 100.92 99.3 95.96000000000002 93.53 98.27 96.66 98.44000000000002 96.46000000000002 94.28 95.19 94.04 93.26 87.97 89.58 87.35 88.04 87.81 91.84 89.54 85.42 89.04 89.6 87.57 86.03 88.89 88.84 93.26 93.64 95.34 98.2 97.62 97.19 97.57 95.55 93.33 92.21000000000002 89.66999999999998 89.92 87.71000000000002 84.51 84.19 83.7 82.85 82.89 87.05 87.4 87.88 85.07 86.65 86.83 86.13 82.75 85.59 88.28 87.45 89.28 92.79 95.5 94.92 94.37 95.4 95.58 98.47 98.02 97.76 97.55 95.95 96.22 95.46000000000002 92.33 91.85 91.26 91.4 93.0 92.83 91.75 90.53 89.46000000000002 87.48 86.66 87.29 89.97 89.55 89.85 92.46000000000002 91.3 92.62 90.36 91.95 92.71000000000002 93.73 94.6 94.7 94.23 94.3 94.48 96.03 96.07 95.42 94.99000000000002 98.13 97.56 97.1 98.03 97.76 98.28 97.01 98.9 99.76 99.65 101.53 102.01 101.57 103.29 103.23 104.14 106.35 102.28 103.4 102.97 101.3 101.07 100.37 100.51 100.36 101.02 101.0 103.12 102.58 107.79 108.69 109.51 109.97 110.25 110.71 109.51 107.63 105.26 105.79 108.22 109.11 108.34 105.48 108.46 107.19 108.42 107.64 111.26 114.38 115.11 116.42 116.32 113.6 114.49 114.92 116.8 116.25 116.02 116.67 116.45 117.07 118.16 118.22 118.48 118.31 118.46 119.6 119.92 119.23 121.03 121.86 124.9100000000001 122.38 123.17 124.74 125.13 126.2 125.18 125.63 127.56 124.18 124.16 125.6 123.92 122.64 122.1 116.33 114.84 119.36 118.98 121.06 118.32 116.84 117.77 117.5 116.15 117.75 119.73 121.18 119.34 120.51 120.62 120.01 117.07 120.93 120.5 123.53

Commodity Mix

Commodity Mix

North American Gas International Gas Total Oil & Liquids 0.29 0.21 0.5