Region overview

Apache’s holdings in Australia are focused offshore Western Australia in the Carnarvon basin, where we have operated since acquiring the gas processing facilities on Varanus Island and adjacent producing properties in 1993, in the Exmouth basin and in the Browse basin. Production operations are located in the Carnarvon and Exmouth basins. In total, we control approximately 8.8 million gross acres in Australia through 35 exploration permits, 16 production licenses, and 10 retention leases. Approximately 90 percent of our acreage is undeveloped. During 2011, the region had net production of 38,000 barrels per day (Bpd) of oil and 185 million cubic feet (MMcfd) of natural gas, contributing 10 percent of Apache’s worldwide production revenue, 9 percent of worldwide production and 11 percent of year-end estimated proved reserves.

Production compared to the prior year was 13 percent lower as a result of numerous tropical cyclones, repairs to the fating production storage and offloading vessel (FPSO) that services our Van Gogh oil field, and natural decline in the Pyrenees and Van Gogh oil fields.

Offsetting production declines was the start-up of two new developments offshore Western Australia. In June 2011, Apache’s Halyard-1 gas discovery well commenced production into the domestic gas market. The Halyard development, which largely utilized existing Apache-operated pipelines and facilities, was completed ahead of schedule and set the stage for further development of our nearby Spar field. The region also completed development of the Reindeer gas field and construction of the Devil Creek Gas Plant in December. This plant is Western Australia’s third domestic natural gas processing hub and the first new hub to be constructed in more than 15 years. Gas from the development has been sold to a number of customers in Western Australia’s growing mining and minerals processing sectors.

The region also drilled several significant exploration and development wells in 2011. We participated in drilling nine wells during 2011, of which five were productive. Ongoing exploration activity at Apache’s Julimar and Brunello complex resulted in the discovery of a deeper Mungaroo gas pool encountering 362 feet of net pay. This 65-percent working interest Balnaves Deep well is associated with continuing field development efforts and augments previous discoveries. Separately, the Zola-1 natural gas discovery logged 410 feet of net pay and is on trend with the Gorgon gas field 16 miles to the north and near both existing and developing infrastructure. The evaluation of this 30-percent working interest discovery, including the planning of future appraisal drilling, is currently underway.

In addition, the region has a pipeline of projects that are expected to contribute to production growth as they are brought on-stream over coming years.

The 2010 Spar-2 discovery is projected to commence production in 2013 through an extension of the Halyard subsea infrastructure, which will also allow for the tie-in of future wells.

First production is also projected in 2013 from four completed gas wells in the Macedon gas field. We have a 29-percent non-operating working interest in the field. Gas will be delivered via a 60-mile pipeline to a 200 MMcfd gas plant to be built at Ashburton North in Western Australia. The project, approved in 2010, is currently underway. Apache has successfully marketed nearly all of its proved reserves in the Macedon field under long-term contracts.

In 2011, the Coniston oil field project, which lies just north of the Van Gogh field, was sanctioned for development. First production is projected for 2013. The field will be produced via subsea completions tied back to the FPSO at Van Gogh. To more effectively control the Van Gogh and Coniston field operations, development, and maintenance efforts, this FPSO (the Ningaloo Vision) was purchased from the lessor in January 2012.

The region will also proceed with development of the offshore Balnaves field, an oil accumulation located near the Brunello gas field offshore Western Australia. The project is expected to deliver initial gross production of 30,000 Bpd in 2014 utilizing a leased FPSO vessel. Apache has a 65-percent working interest in the project.

During 2011, Apache and its partners announced we will proceed with the Chevron-operated Wheatstone LNG development project (Wheatstone) in Western Australia. The first phase of the Wheatstone project will comprise two LNG processing trains with a combined capacity of approximately 8.9 million metric tons per annum (mtpa), a domestic gas plant, and associated infrastructure. Apache has a 13-percent interest in the project and expects to invest approximately $4 billion over five years for the field and LNG facility development. Apache will supply gas to Wheatstone from its operated Julimar and Brunello complex. The 65-percent interest Julimar development project is expected to generate average net sales to Apache of approximately 140 MMcfd of gas (equivalent to 1.07 million mtpa of LNG) at prices pegged to world oil markets, 22 MMcfd of sales gas into the domestic market, and 3,250 barrels of condensate per day. First production is projected for 2016.