Overview

The Egypt region represents Apache's largest acreage position with approximately 11.2 million gross acres in 23 separate concessions (19 producing concessions). Apache is the largest producer of liquid hydrocarbons and natural gas in the Western Desert and the third largest in Egypt. Apache's production is operated under two joint ventures, Khalda and Qarun Petroleum Company. In addition, we have production from non-operated properties such as Northeast Abu Gharadig (NEAG).

In 2008, the Egypt region contributed approximately 21 percent of Apache’s production revenue and approximately 14 percent of total estimated proved reserves. Apache had an active drilling program in Egypt, completing 215 of 238 wells and conducted 701 workovers and recompletions.

The region achieved new daily production records in the second quarter 2009 for gross oil and condensate at 163,000 barrels per day (Bpd) and gross gas at 754 million cubic feet per day (MMcfd). Net production was 158,100 barrels of oil equivalent (Boe), a 15.9 percent increase over the first quarter.

 Development Projects

In the first quarter of 2009, incremental production began from the expansion of our Western Desert gas processing capacity and infrastructure, which will process an additional 200 MMcfd and 10,000 barrels of condensate per day gross (100 MMcfd and 5,000 barrels of condensate per day net) primarily from the Qasr field discovery.

Commissioning and start-up of the Salam Gas Plant Trains 3 and 4 and the Northern Pipeline Compression project are progressing for completion in the second quarter. We expect gross gas production to average 730 MMcfd, a 34-percent increase from the beginning of the first quarter.

The Karama power project, which will help reduce over 3,000 tons of CO2 emissions, is underway for completion in 2009.

 Khalda Area

Apache operates Khalda with a 100-percent contractor interest. The area produces oil, natural gas and natural gas liquids from several fields. Implementation of waterflood, fracture-stimulation and horizontal-drilling technologies has given new life to many old fields.

In the second quarter, we completed drilling and/or testing operations on five new exploratory wells resulting in two new field discoveries.

Exploration highlights
Two potential discoveries, Cordoba and Chelsea, will be tested within the next few weeks and three Jurassic wildcat wells are presently drilling. Apache has a 100 percent contractor working interest in all of these wells.

The Neith-1X wildcat on the Khalda Offset concession logged 82 feet of oil pay in the Jurassic Safa sands. The Safa tested at 1,460 Bpd. A plan of development has been submitted to the government and production is expected to commence in the fourth quarter.
The Falcon-1X wildcat in the Matruh concession logged 38 net feet of pay in the Jurassic Safa sands, 47 feet of Alam el Bueib (AEB)-6 sand pay, and 44 feet of AEB-3D sand pay. Test rates were 11 MMcfd and 415 Bpd in the Safa, 35 MMcfd and 1,953 Bpd in the AEB-6, and 4,400 Bpd from the AEB-3D. The well will be initially competed in the AEB-3D oil zone and first production from the well should commence in the early third quarter.

The Hydra-5X appraisal well, 2 kilometers south and updip of the 2008 Hydra-1X discovery well in the Shushan concession, logged 50 feet of Jurassic Upper Safa sand pay, and tested at 3,744 Bpd and 21 MMcfd, a new field pay zone. The well also has 40 feet of AEB-6 field pay uphole. The field will be developed upon completion of a gas sales agreement with the Egyptian General Petroleum Corporation.

The Phiops-5X was drilled to appraise and develop the AEB oil reserves found in the Phiops-1X discovery well in the first quarter. The Phiops-5X logged 242 feet of net pay in the AEB and tested 8,279 Bpd from the AEB-3E and AEB-3G reservoirs. Three additional Phiops field wells are in the process of drilling or testing.

Amendments to extend our Siwa, Sallum, and West Ghazalat exploration concessions for an additional three years (to July 2013) were approved by Parliament in June. These concessions encompass 3.8 million gross acres, in which Apache operates with 50-percent contractor interest. Apache’s first well in West Ghazalat should spud in October.

Development highlights
The new Salam Gas Plant Trains 3 and 4 and the Northern Pipeline Compression project became fully operational during the second quarter. Gross Khalda gas production averaged 668 MMcfd during June and 715 MMcfd in July. Upon completion of commissioning-related adjustments in early August, we expect gross gas production from the Khalda area concessions to average 730 MMcfd for the balance of the year, a 25 percent increase from 584 MMcfd at the end of the first quarter.

 Qarun Area

Qarun, the source of our original oil production in Egypt, comprises 16 exploration concessions and 55 development leases across 1 million gross acres. Current daily production is approximately 45,500 Bpd, 90 percent of which comes from long-life waterflood fields. Over the last two years, water injection has doubled year on year with daily water injection currently 50,000 barrels of water per day (Bwpd).

During 2008, several new oil fields were discovered in the Bahariya formation in the East Bahariya concession on a positive geological trend identified from 3-D seismic acquired in 2006. In the first quarter, the EBAH-G-1X discovery tested 750 Bpd. These discoveries will add significantly to our inventory of waterflood projects in the concession.

 Northeast Abu Gharadig (NEAG) Area

Apache began exploring with operator Shell Egypt in NEAG in January 1997 following the acquisition of Mobil’s interest. Apache and Shell have made seven new field discoveries since 2002, including three new discoveries in 2008 that are expected to start producing later in 2009. Production from the concession is currently at 11,000 Bpd and 52 MMcfd. A growing volume is now coming from new Bahariya oil fields located just north of Apache’s Yomna Field in East Bahariya Concession.