Apache Corp. intends to spend its free cash flow on exploration rather than what's now used by many of its peers: share buybacks.

CEO Steve Farris told investors and financial analysts Wednesday that the Houston-based independent in the coming year will be using its cash to explore and possibly acquire some assets to increase its reserves base. Share repurchases, he said, are not part of the plan -- despite their popularity with shareholders.

"I doubt very seriously you'll see us repurchase shares in the foreseeable future," Farris said.

Apache on Wednesday also upped its production forecast for the year. It now is forecasting that oil and natural gas output will rise 9-12% this year over 2006 -- 2-3% higher than the company forecast in April. Just two months ago, the producer said it expected 2007 output to grow by 6-10% over 2006, when it produced 501,000 boe/d (see Daily GPI, April 27).

With strong growth expected from several prospects, including the Gulf of Mexico, Apache's production in 2008 is expected to grow another 6-10%, CFO Roger Plank said during the investor presentation. About 10 MMcf/d that remains shut in from the 2005 hurricane season is expected to be back in August.

Farris said the company may consider moving some of Apache's midstream assets into a tax-advantaged master limited partnership (MLP). Exploration and production companies are moving their mature production assets into MLPs at an increasing rate. However, Farris said that at this point, the midstream assets were "more suitable."

Although Apache's focus has been trained more on growing globally, U.S. operations are still the foundation of the company's growth, he noted. Apache's U.S. regions are the largest contributor to operating income. Apache is the largest held-by-production acreage holder and the second largest producer in Gulf of Mexico waters less than 1,200 feet deep. In 2006, for the third year in a row, the Gulf Coast was Apache's leading region for both production volumes and revenues.

Apache also plans to keep the pressure on its expanded asset base onshore in the United States. At year-end 2006, Apache's Central Region, which includes the Permian Basin, East Texas and the Anadarko Basin, accounted for 24% of the company's estimated proved reserves at year-end 2006. Apache added 28 oil and gas fields in the Permian Basin to its portfolio earlier this year following a $1 billion purchase from Anadarko Petroleum Corp. (see Daily GPI, Feb. 15).

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