With an “arsenal of exploration prospects” ready to fire up, Apache Corp. CEO G. Steven Farris said Thursday the company expects production to grow on a pace of 6-10% over the coming year in its core operating regions, which include the United States Central Region and the Gulf of Mexico (GOM).

Worldwide natural gas production for the Houston-based independent was up 2%. Apache’s core drilling region, classified as its U.S. Central Region, reported gas production grew 2.3% in 1Q2007 over a year ago. In the GOM, gas output gained 6% over a year ago.

“We began 2007 with a much larger inventory of higher risk, higher growth prospects,” Farris told financial analysts during a conference call to discuss quarterly results. “What you see in 2007 is maturing of a number of plays this year…We expect to see some significant growth…In the Gulf region, particularly in the United States, we had a very strong quarter.”

Farris said that absent any acquisitions or divestitures, gas production in the GOM alone will grow at a rate of at least 6%. Another 10 MMcf/d still shut in offshore will ramp back up by Aug. 1, he said. Apache’s Gulf Coast assets, which accounted for 17% of its proved reserves at the end of 2006, continue to be the company’s leader for both production volumes and revenues. Now that restoration efforts are nearly completed following the hurricanes in 2005, Farris said more offshore production will ramp up by August.

Apache’s Central Region, which accounts for about 24% of the company’s estimated proved reserves, also is performing above expectations. The assets are spread across the Permian Basin, East Texas and the Anadarko Basin of western Oklahoma.

Earlier this month, Apache completed two Oklahoma wells that tested at 5.3 MMcf/d and 3.4 MMcf/d. The Apache West 8-14, in the Verden Field, located in Caddo County, OK, encountered 380 feet of gas pay and was completed from perforations in the Middle Wamsley member of the Springer formation between a measured depth of 16,391 feet and 16,521 feet. The Verden Field was discovered in 1976 and has produced a cumulative 5.1 million bbl of oil and 593 Bcf of gas. The Apache Switzer 2-32, in the Strong City Field of Roger Mills County, OK, discovered 81 feet of gas pay in the Lower Red Fork Formation. The well was perforated between a measured depth of 12,996 feet and 13,036 feet, and it tested at a rate of 3.4 MMcf/d of gas and 25 bbl/d of condensate.

One of Apache’s “hottest plays,” said Farris, is the Stiles Ranch in Wheeler County, TX, where the company now has four rigs running. Apache is tapping long-overlooked Granite Wash and Atoka Wash formations in a play that Farris said has stayed under the radar. “The ultimate recovery will be about 400 Bcf, Farris said.

Operating costs, which beat down on producers the past year, “are definitely coming down,” he said. Without elaborating, Farris said, “We’ll see some changes by the end of the year,” which he said could translate into additional spending on some assets.

“In Canada, as a result of rebalancing our program to include more higher-risk, higher-potential-reward prospects, first quarter production was generally flat despite substantial reductions in capital spending and the number of wells drilled,” Farris said. “Service costs are declining across North America, and the trend is more pronounced in Canada. If costs continue to decline, we may increase activity in shallow gas plays later in the year.

“By almost any measure, we’ve had success in the past and it’s only going to get better,” Farris said. “Apache has developed several catalysts for growth. Stay tuned — we have a quality exploration program that is just beginning to unfold.”

Apache’s earnings, however, were lower compared with a year ago. It reported 1Q2007 net profit of $492 million ($1.47/share), compared with $660 million ($1.97) in 1Q2006. Apache produced 536,297 boe/d in the quarter, 17% higher than a year ago and 1% higher sequentially from 4Q2006.

Speaking to analysts about the lower earnings, Farris said that “if there ever was a time when things were volatile, I’d say it’s as volatile today as it’s ever been. We’re being a little bit conservative, and that’s not a bad thing. We have a number of projects that are going to be significant with respect to capital.”

CFO Roger Plank told analysts, “A wise man once said ‘don’t cut the grass too short.’ The best moves are made when you have the flexibility to act, and that’s A-number one with us.”

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