Region overview

Our commitment to Egypt began in 1994 with our first Qarun discovery well. Today we control 9.7 million gross acres making Apache the largest acreage holder in Egypt’s Western Desert. Only 18 percent of our gross acreage in Egypt has been developed, with gross production of 217,000 barrels per day (Bpd) and 865 million cubic feet per day (MMcfd) in 2011, or 104,000 Bpd and 365 MMcfd net to Apache. We believe this makes Apache the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the third largest in all of Egypt. The remaining 82 percent of our acreage is undeveloped, providing us with considerable exploration and development opportunities for the future. We have 3-D seismic covering over 12,000 square miles, or 78 percent of our acreage. In 2011, the region contributed 29 percent of Apache’s worldwide production revenue, 22 percent of our worldwide production, and 10 percent of our year-end 2011 estimated proved reserves.

Our operations in Egypt are conducted pursuant to production-sharing agreements in 24 separate concessions, under which the contractor partner pays all operating and capital expenditure costs for exploration and development. Development leases within concessions generally have a 25-year life, with extensions possible for additional commercial discoveries or on a negotiated basis, and currently have expiration dates ranging from five to 25 years. A percentage of the production on development leases, usually up to 40 percent, is available to the contractor partners to recover operating and capital expenditure costs, with the balance generally allocated between the contractor partners and Egyptian General Petroleum Corporation (EGPC) on a contractually defined basis.

Apache’s Egyptian operations continue to expand further into the Western Desert and achieved a record for annual production in 2011. Compared to the prior year, gross daily production was up 12 percent, and net daily production was up 2 percent. Throughout 2011, we maintained an active drilling and development program, drilling 221 exploration, development, and injector wells, resulting in 33 new field discoveries. Most notably, we drilled the first Paleozoic discovery at Tayim West, which test-flowed at 3,600 Bpd. This Paleozoic discovery opens a new play deeper than previous discoveries in the Western Desert and provides for continued exploration opportunities. We also made our first discovery in the Siwa Concession, our westernmost concession in Egypt, with the Siwa D-1X well that test-flowed at 4,490 Bpd and 8 MMcfd.

Building on prior year discoveries, we continued our drilling success in the Faghur basin having 10 new field discoveries in the year that tested in aggregate over 33,000 Bpd and 25 MMcfd. These wells are the most recent in a series of oil discoveries in the Alam El Buieb (AEB), Safa, and now Paleozoic reservoirs that support the multi-pay potential of the oil prone basin. We also started to actively drill on acreage acquired in the 2010 BP acquisition. We drilled 21 successful wells on this acreage and have increased gross production by over 8,000 Bpd and 34 MMcfd. In addition to the increased drilling activity, we continue to assess opportunities to leverage existing processing and transportation infrastructure at the BP-acquired Abu Gharadig field complex and expand our processing facilities in the Faghur and Matruh basins. Maintaining and increasing infrastructure capacity is a critical component to our growth goals in the Western Desert.

Heading into 2012, our drilling program includes a combination of development and exploration wells with current plans to drill approximately 20 percent more wells than in 2011.