(APA) Apache Strikes Oil in Egypt

U.S.energy firm Apache Corp. (APA) announced five new oil discoveries in Egypt’s Western Desert, building on the integrated energy company’s leading position in this hydrocarbon-rich area.

The latest finds in the Faghur basin play – West Kalabsha-I-4, Faghur North-1X, Faghur South-1X, Huni-1X and Neith North-1X – logged a combined 189 feet of net pay of oil and gas. We believe that the exploration successes will boost Apache’s growth prospects in Egypt by adding to its already significant interests in the country. In 2010, Egypt accounted for over 20% of Apache’s oil and gas output.

Year-to-date, the firm has drilled eight new discoveries in the Faghur Basin region. Additionally, drilling is underway on three wells, with plans for eight more before the end of 2011. As of now, Apache’s total volumes from Egypt come to around 215,000 barrels of oil and 900 million cubic feet of gas per day, including 40,000 barrels of oil per day from the Faghur Basin.

Founded in 1954, Houston, Texas-based Apache is one of the world’s leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

Apache currently retains a Zacks #3 Rank (short-term Hold rating), in line with its closest peers Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN). We are also maintaining our long-term Neutral recommendation on the stock.

We like Apache’s large geographically-diversified reserve base, its balanced exposure to natural gas and crude oil, and its multiyear trends in reserve replacement and production growth. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.

However, taking into consideration Apache’s sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project timing delays, we see limited upside potential for the stock. As such, we expect Apache to perform in line with the broader market.

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