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Apache Chief: Weaker Players Could Be Up for Grabs

Apache Corp. enters the new year with rising production, cash on its balance sheet and access to credit markets "at very acceptable rates," CEO G. Steven Farris said last Wednesday as he warned that less well positioned companies could be up for grabs given the tight market for credit.

Speaking at the Goldman Sachs Global Energy Conference, Farris indicated that 2009 will likely be a challenging year for commodity markets as well as exploration and production companies. "Over the past five years, energy companies have had the wind at their back as oil steadily increased to nearly $150/bbl. Service costs went through the roof and acquisitions became very expensive.

"With the collapse of energy prices, the industry is facing a much tougher environment where merger and acquisition activity may heat up. Companies that didn't put the brakes on capital spending fast enough are in danger of going deeper into debt at a time when cash flow has been cut in half, service costs have not yet adjusted to the new commodity prices, credit is hard to find, and financial flexibility is absolutely critical.

"In addition, all companies are putting together year-end numbers and wrestling with the possibility of ceiling test write-downs given the rapid collapse in prices. Depending on the covenants that govern their banking agreements, write-downs could prevent some companies from further accessing credit. That may put some companies and assets in play."

Apache has nearly $2 billion in cash and a debt-to-total-capitalization ratio of less than 20%, as well as an "A" credit rating, Farris said. "Our strategy for 2009 will be focused on completing several large development projects while living within operating cash flow to protect the cash on our balance sheet. We will review and adjust exploration and development capital spending quarterly, and we remain on the lookout for acquisitions."

Apache plans to release its fourth quarter and full year 2008 results Feb. 19.

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