Good day everyone and welcome to the Apache Corporation's Second Quarter Earnings 2008 Conference Call. This call is being recorded. Today's presentation will be hosted by Mr. Bob Dye, Vice President of Investor Relations. Mr Dye, please go ahead sir.

Thank you for joining us today. This morning Apache Corporation released second quarter 2008 results, which totaled net income of $1.4 billion or $4.28 per diluted share and cash flow of $2.3 billion, which were both all-time records. Today’s discussion may contain forward-looking estimates and assumptions and no assurance can be given that those expectations will be realized. A full disclaimer is located on our website. In addition, any non-GAAP numbers that we discuss such as adjusted earnings, cash flow from operations, or cost incurred will be identified as such with the reconciliation again located on our website at www.apachecorp.com. Steve Farris, our CEO, and Roger Plank, our CFO, will now make prepared remarks prior to taking questions. And, with that, I will turn the call over to Steve.

Thank you, Bob. Good afternoon everyone. Thank you for joining us for Apache’s second quarter earnings conference call. Our second quarter was marked by record financial results, continued explorations success, and sustained progress in delivering on our pipeline of development projects. As Bob pointed out, we achieved record financial results for the quarter with $4.28 per diluted share of earnings and cash from operations of $2.3 billion for the quarter. Not only did we exceed $4 per share of earnings for the first time, but we exceeded our highest previous total by over $1 per share. Cash flow of $2.3 billion exceeded the previous record set in the fourth quarter of 2007 by over $400 million. Our exploration achievements during the quarter again reflected our ability to identify and control profitable opportunities and build value for our shareholders. And I would like to just give you a few highlights. In the Gulf of Mexico, the US made major discovery at the Gulf of 1X, which holds an estimate recoverable reserves of 100 BCF, we don’t operate -- we have a 40% non-operated interest. In Egypt, the Heqet-2, which is located in the western part of the Greater Khalda tested 2,100 barrels a day from a deep horizon and that opens up a new play potential, which potentially could extend hundreds of square miles primarily on our acreage. Also in Egypt, we achieved 4,300 barrels a day of production from a new well in the Umbarka field in the Greater Khalda area and have identified a new water flood project in East Bahariya concessions in (inaudible) Basin. In Canada, new drilling results by our partner and our Ootla shale play further supports our estimated 9 to 16 TCF of net recoverable reserves to Apache. In the North Sea, we have five…

Thank you, Steve. Good afternoon, everyone. What a quarter. Apache turned in outstanding financial results that eclipsed all prior record as well as consensus of expectations despite our production challenges during the quarter. This obviously, speaks to the impact of substantially higher prices, but it also speaks to the effectiveness of Apache's balance portfolio approach that we could absorb both the pipeline explosion in Australia and a strike shutting down at Forties filed, our largest field and still have the rest of our portfolios production carry the day and enable our best quarter ever. Oil and gas revenues climb $1.5 billion to a record $3.9 billion from second quarter of '07. $1.1 billion of the increase came from oil alone, another pleasant reminder of the benefit of Apache's balance production mix, which remains around half oil and half gas. Over one third of these revenues made it to the bottom line as earnings more than doubled to $1.4 billion from the same period last year and humbly are paced our previous best quarter by 370 million. As Bob and Steve mentioned, earnings per share of $4.28 were also a record beating our previous record by over a third. Cash flow of $2.3 billion exceeded second quarter a year ago by $853 million and bested a former high by $400 million. Apache's record profits yielded exceptional returns. Second quarter annualized return on capital employ average 29%. Return on equity was 35%. Turning to detailed comparisons of second quarter versus the first quarter of '08, our oil realization rose 21.07 or 24% from the first quarter, while gas realizations rose $1.67 per Mcf or 26% driving up oil and gas revenues by 726 million or 23%. I want to take a moment to remind everyone of the impact that higher prices have…

We are ready to take questions at this time.

(Operator Instructions). And we will take our first question from Tom Gardner at Simmons & Company.

Good afternoon, gentlemen.

Hey Tom.

A couple of questions on your emerging developments, first in Egypt. With reference to your high grade oil wells, how should we think about this opportunity, how would you characterize it as -- would it be an unconventional?

Do you mean in our Heqet area, Tom?

The deep oil completion we made.

Yeah.

Yeah, the Heqet area is kind of in the South Western quarter of -- obviously a huge acreage in our Khalda concession. Many years ago the Heqet -- the first well was actually drilled in 1991, the Heqet-1 and at that time we didn’t really bring frac equipment into Egypt until about 1997. So this was the first time we had fraced one of those deep Lower Safa zones in that well. We have a number (inaudible) of months through there and I can't tell you all of those are going to be good, but we are going to drill four wildcats in that area here in the coming months. We think because it is a cruder basin that we have potential to add significant low reserves down there.

Okay. Any characterization of how big the opportunity set could be beyond this field? I mean it just, I guess it's…?

I think it's probably a little premature. We are going to get -- we are actually going to recomplete two of our earlier wells drilled. We drilled some wells down there from 1991 through about 1996, and it probably be just speculation at the present time.

Okay. Well, moving on to Canada and it looks like the major pipeline infrastructure appears to be targeted for 2011 or 2012. Can you talk about what's the plan capacity? There's been -- these discussions would be for that optic capacity?

Well, that is a moving kind of unfolding event. One major pipelines up there is talking to us about not only for us but for other players out there. Actually (inaudible) that area, which create significant takeaway capacity. I think in the end, our largest investment will be in plants because I think over time there will be major pipelines that come up there and take that gas. Right now we probably have -- if we have the plant capacity, we probably could take over 400 million a day out of there, gross out of that Ootla area. Ourselves and our partners in Canada plus the other players up there, you can see a time when 400 million a day is not going to be enough.

That's significantly liquids production with the gas?

No, it's pretty dry.

Pretty dry, okay. Thank you gentlemen.

Thank you.

And we will go next to Brian Singer with Goldman Sachs.

Thank you. Good afternoon.

Good afternoon Brian.

Picking up on the end of some of the comments made on the second half production, I think depending on how you are calculating the 2%, it look like you have to get to about 590,000 BOE a day in the second half to get to that 2%. And I was wondering what you are assuming in terms of contribution from additional gas in Egypt from the Salam plant in your numbers?

Well, we should -- actually we should be commissioning that in about the middle of September. And I think right now we are going to be ramping up I think the first -- October will be the first of any meaningful probably gross about 15 million a day. That's gross. And then we would ramp up another actually by the end of the year, we would be up almost to the 200 million a day and about 5,000 barrels of liquid.

Thank you.

And we take about half of that, I guess.

Okay. You mentioned that you are looking at international markets for Australian gas. I know this has come up before and you discussed that upfront. Are there any new thoughts on how actively you consider participating in LNG development and the timeline for that?

Well, I think if you look at the infrastructure going in an immediate area to where our discoveries are, you can understand why that may be an alternative. Certainly we've had discussions -- ongoing discussions along those lines, but we don't have anything to report at the present time.

Okay. Also on the international gas front, any changes on the Egypt side? I think at the time of your last call, you were about ready to potentially bring the topic up and I was wondering what the latest on the consideration for higher gas prices if you build additional process and capacity?

We have made a proposal to EGPC and also to the Petroleum Minister on our concession called the up to the North, [Heqet] concession, the Heqet discovery that we made. We made a presentation to them on a higher gas price. It's interesting. I just read a thing out of the Egyptian paper that the Egyptians are working to incentivize foreign contractors to increase activity, which is going to require cost prices in Egypt to go up. So I think we are beginning to see some traction in that area.

Where do you think they could go?

I don't have a timeline in that area. We made a proposal that was pretty aggressive. If we get half of what our proposal is we are probably going to be lucky. Now the one thing I would say in Egypt because I think some -- we don’t do a very good at explaining it. We have one portion of our gas that have 100 million a day gross is 50 million a day net that actually sells for about $15 an M because it wasn't capped back in 2001. So our average gas plays in the second quarter was much higher than the July gas plays of 2.65 plus BTUs. We actually average $6.25 per quarter.

Great. And if I can just one more. When you look at where oil prices are and also where some of the international gas prices are and free cash flow that you are and are likely to continue to generate, any thoughts on the acquisition market, other international gas markets potentially or bulking upon North American oil?

The one thing, I mean, Apache's 52 year history, we are an inquisitive company and we haven't stopped being an inquisitive. But right now it's very difficult to make things, make sense economically. We continue to look, but we continue to drill wells, which we have a tremendous opportunity to grow this company with the drill bit right now.

Thank you.

Thanks Brian.

And we will go next to Gil Yang with Citi Investment.

Good afternoon. Could you make a comment on why there was a sequential drop, maybe you mentioned this earlier, but why was there a sequential drop in the Argentine gas price versus the first quarter?

It's we are going through the winter. In Argentina, it's just the opposite of where we are here. I mean, in fact, it's cold there right now. I just got back from Argentina a week ago and it was about 37 degrees in the evening. So they use an awful lot of gas during the winter and what happens is the residential uses a lot of gas and because of the tiered approach that they have to gas down there, you get about $0.50 for your residential price and they redirect gas to the residential market in the winter. So you will see until they change their pricing, you will see that counter cyclic go through the United States and turn the prices in Argentina. The one thing I might point out is yesterday, Argentina just announced that they are going to increase electricity prices and that’s not natural gas prices yet, but there is a real anticipation that natural gas prices will be right behind them.

To get an appreciation that Argentina is headed in the right direction with gas prices, even with this sort of winter effect, the price of $1.39 we averaged in the second quarter compared to $1.02 a year before. So we aren't making headway.

Well, last year you didn’t seem to have as much of an effect maybe on region certainly, you didn’t seem to have a much winter effect on pricing, is that because of the industrial and the residential prices were more similar then?

Probably and yeah, so you won't see -- okay, go ahead.

We also lost a Methanex contract in TdF that we were abrogated, so that was a higher price contract than our average as well, Gil.

When was that?

Last year. That's on a suspended exports from TdF.

John, I don’t know if maybe we didn’t explain ourselves. Roger pointed out that at end of June of 2007, our average price was $1.02 and the average price at the end -- for the second quarter of 2008 was $1.39. So we increased about $0.37.

36%.

Yeah, 36% from last year. And I am optimistic because one of the reasons I just got back from there and talked to a number of people. I think you are going to see -- we talked to the Finance Minister and my expectation obviously is not going to look like him, but we are going to start seeing gas prices start trend upwards there.

Okay. And related to that, when you look at in a broader sense, when you look at capital allocation for all the different projects you have got and you look at Argentina versus Ootla versus Australia, are the investments in Argentina, are they economic at the current prices of oil and gas that you are selling or are you really the loss leader for the anticipation that prices will rise at some point in the future? And then with Ootla, how do the returns fit into the overall portfolio of return you have got on your different projects?

Okay. With respect to Argentina, we don't drill wells at lost leaders. Every well that we drill makes economics at a price scenario that is under the current environment. It's interesting that we can find a lot of hydrocarbon. In fact, my message even to the government down there was that the Argentina has a lot of hydrocarbon. What they need is a little bit different pricing regime and they would have a lot more activity down there than they get today and that provides jobs and a lot of other things besides the product itself. So we don't - we make economics on the wells that we drill under our current price scenario. With respect to Ootla, I think we had a presentation after we drilled our three wells and tested them and actually publicly showed the results of those, and it's 4 BCF. At $8 an acre we were making about 13% rate of return. If you get to 5 BCF it goes up and obviously it goes up exponentially at 6 BCF. So far we are -- and that was using $10 million per well to drill those wells. What we found and I think what we are going to continue to find is that we are not going to spend $10 million to drill and test those wells. And the other thing is I think over time you are going to see the reserves trend toward the upper number. If you look at the wells that EnCana drilled and they put 10 fracs on those wells, we put 6 to 8 fracs on our wells. They fracs them larger and if you just look at the early returns out of the EnCana wells, they are going to do better than our wells, which you would expect and you would also expect those two wells to be in the higher end of that reserve number that I gave you.

One of the -- going back to the no lost leader in Argentina thing, one of the things that's also going on down there is the way that market is currently structured, we have to deliver basically a relatively fixed volume of gas into that residential market. So once you get above that allocation by the government that you deliver into it, then you can sell your incremental gas at what the market will bear and that's been 2.5 to $3.5 per MCF when you don't have winter iterations going on. But the point is the more incremental gas we bring on, the higher percentage of our gas will be sold at a more market sensitive price.

Got you. Okay, thank you.

And we will go next to David Tameron with Wachovia.

Hi good afternoon. Question, going back to Argentina one more time, and I apologize if you mentioned this. You were talking about at some point doing a 3D seismic shoot, I think it was going to be done this summer. Did that get done and if so any color from that?

We were -- I think what you are referring to is our shoot down in Tierra del Fuego. We have now shot about 2,500 square kilometers of 3D seismic down there, the latest of which was the Lago Feugo shoot, which was 520 square kilometers. In fact, spot price is in charge of Argentina and Australia. We both went down. I am very, very optimistic about the ability to find things from that 3D shoot and on some exploration stuff number of prospects and we are also adding a rig in the third quarter to take advantage of that.

Okay. So that rig is going to drill some of the -- is it going to drill these prospects that were just identified?

You bet.

Okay. And you kind of talked about it, but pipeline issues coming out of Tierra del Fuego, where those currently stand or you had some pipeline takeaway capacity issues?

We have two problems with pipelines, one is there is not enough capacity. The other one is that we are at the tail end of that pipe and what happens is a couple of Petrobas and Totale inject into that pipe on the mainland and changed the pressure regime down to our end. There is more than just a passing fancy to build a loop line. In fact we talked about it when we were down there. They've ordered the steel. The government sanction pipe that will take another 250 million a day by the middle of 2009 of what they are advertising. Take another 250 million a day out of Tierra del Fuego. So hopefully in the next year or year-and-a-half we'll have excess capacity coming out of Tierra del Fuego and then they have a longer term plan to move that up to about 550 million a day by 2011.

Okay. But just going back 12 months, 250 shouldn't be - that should be more than enough for what you have in Totale and Petrobras, correct? You have excess capacity once that starts up?

As long as we don't get the pressures regime problems that we get off of the mainland.

All right. And then another question and I don't know if this is for Bob or whom, but you mentioned the 2% growth target. You mentioned the assumptions for Salam to come back on line. Assuming if Australia come back online. Any other big project start ups that are needed in order to hit that target?

No. The two big obviously are hitting our timelines on bringing to Salam and also hitting our timelines of bringing gas on in the Egypt.

Okay.

You'll also get a pretty good uptick from the North Sea. We average about 55 to 56,000 barrels a day in the first half, and we've been averaging a fair amount higher than that since the strike ended. So I would anticipate that that will be a pretty good operation as well.

All right. Okay, thanks a lot.

And we will go next to David Heikkinen with Tudor Pickering Holt.

Okay. Just a couple of questions on Egypt, the Heqet discovery described as 835 acres on that structure, trying to get an idea of the scope and size of these, can you give us net feet of pay or resource potential for that?

Well, it's a little early to give a resource potential. We had about 40 feet of pay in that zone, which we fracked and the most interesting thing about it frankly is that we drilled other wells in that area both sides of that big east west [pool]. And all of those wells have the potential to be fracked but have never been fracked, so it's somewhat a…

Okay. And then you had a well drilling Signus-3X, could you give a status on that well?

Your memory is better than mine.

That was in Egypt, offset to…

I thought Egypt 3X. That was [Hedrip 3X] We found some pay. It was thinner. Actually the well was updip and had a thinner pay, which was surprising because on our seismic picture we thought it would be downdip. So it's going to produce but it's not what we thought it was going to be.

So it's not the big discovery. It's 100 BCF, not the 3X.

But we have a Hedrip 3 drilling as we speak, so we will hold that open. That well was eight kilometers away from the first well.

Okay. And then just one quick question. Thinking about Australia volumes, you talked about the gas volumes coming on August and late August and by year end. What's the appropriate ratio of oil ramp that comes with that? Is there any delay on the liquid facility or does it just match?

Well, we should get a little liquids out of coming up in August, but we have a lot of black oil that goes through the Harriett facility and that Harriett facility -- the Harriett joint venture facility won't be on in December. So we are not going to see significant oil increases in Australia from where we are today until really the end of the year.

Okay. That was it. Thanks guys

Thank you.

And we will go next to Joe Allman with JP Morgan.

Thank you and hi everybody. I apologize if you covered this earlier but can you give us an update on that Reindeer gas contract?

I would -- we talked about it so much, we ought to be able to give you an update, but I can. We do have a large contingent as I said on the call, a large contingent in Australia as we speak that will be meeting with various levels of the buyer in that and I anticipate that we get this thing done here pretty quickly.

Okay. And what's been the delay to settling this?

The honest delay is indemnity, which is interesting. We are down to lawyer negotiation about what happens if they don't take, what happens if we don't produce, and those events don't generally happen, but you got to ensure that you have mechanism on both sides in case that happens, but that is the hang up.

Okay, thanks. And then a different issue. In terms of could you just comment on concerns you might have about the availability of steel to drill and develop your programs and also what you are seeing recently with drilling complete costs just across the various areas?

Steel is a very interesting issue. Probably for the first time in my career because we do a stocking program, certainly for the first time in Apache, we are having to wait on steel. And if we don't take it immediately, sometimes even though we have a stocking program, that steel is not there. And I'm not the only ones that are suffering that, the reason you ask the question I assume. Steel is tight right now. Steel is tight more in this country or North America than it is in other parts of the world right now. We don't have that problem in Egypt. We don't have that problem in Australia. But in North America, that is an issue, and I think one of the reasons is that you got an awful lot more steel being put in the ground. In terms of cost, as you saw in our operating costs are down a little bit in real terms. North American drilling costs, completion costs are pretty level right now frankly.

Joe, you cut out.

(Operator Instructions).

Can you hear me?

Yeah.

I appreciate that. Any areas around the world where you are seeing particular tightness in equipment and related cost increases?

Well, we are not seeing significant increases. We are still -- obviously your waiting time on machines, whether it's turbines or the waiting time is longer. But in most places you can get around that. Like I mentioned earlier, the one place that we are beginning to see really you got to be on a tight leash in this country right now and in Canada is steel.

Got you, okay. Very helpful, thank you.

(Operator Instructions). And we will go to Leo Mariani with RBC.

Hi, good afternoon folks. A question on your exploratory program in the second half of the year. You mentioned trying to ramp up activity in the Gippsland Basin, Australia in late 3Q. I was hoping you can give little more detail on what you guys plan to target out there?

Well, we have four wells on the schedule. Gippsland Basin is a very oily area, has produced over 4 billion barrels of oil. We are drilling a well kind of on the outer shale of two major fields in that areas we call it Block 59, but we are going to drill at least three structures there, closest of which is call Ne Mo. It's certainly not a step out, but it's very close to SOs and BHPs field that made over 900 million barrels. I mean, I am sorry. All right. So we are in a good area and obviously there are exploration place, but we have done an awful lot of seismic work and an awful lot of geology, so.

Okay. Jumping over to Canada here, obviously you guys have some pretty significant research potential up in the Ootla area and obviously you have got a lot of land in Canada and in some other places. Just curious to know if you folks have looked at any other sort of emerging resource plays in Canada that may have acreage exposure, things like the [Modern Air] the Bakken oil play, extension up in Saskatchewan?

One of the things I will say and -- in today's hectic world, it does not behoove you to advertise where you are putting acreage together because if you look at what happens to acreage cost just like they did (inaudible) for instance, when we bought most of our acreage in the Ootla area we probably have and probably we got less than $200 million on our acreage. If we sold our acreage in Ootla today for the latest land sale it would be worth $1 billion. So we are putting acreage together in plays and we get all of the acreage together that we want to get together then we will talk about where our acreage is. And again I am not trying to be evasive, it's just acreage is key today.

Okay. Jumping over to Argentina, it looks like your oil price was up to about 50 bucks in the second quarter. My understanding is hearing some shed out there that the government is talking about partially eating some of the restrictions on the oil price selling. Do you guys have any kind of comments on that and how it impacts you all?

We are allowed some oil price adjustments and some of that is catch-up on oil price adjustments that we haven't seen in the past.

But they have allowed, you know, we were getting 42 and then 47. It's not just quality adjustment. What's happening is is the actual purchasers allowed to actually pay a premium for crude oil and without suffering the tax on it. And so what we have seen is a market for crude oil that increases our price without affecting the excise tax and I would expect that to continue. I mean they need oil and natural gas desperately.

Okay.

The one thing I would say, I apologize for interrupting but the other thing I would say is Roger's comments about the different tiers in Argentina, when we are not redirected we have contracts that go from 250 certainly but up to 390. So you are starting to see prices in Argentina on a market driven prices start to reflect what's happening with respect to limited supply.

It's happening in the electricity. So they have been able to get away with fixed prices for a long time. I think there is a recognition that that just isn't going to work anymore.

Okay. Last question the US operations, you are talking about oil 2008 growth of 2% for the company with upticks in Australia into the North Sea. Is there an expectation for an uptick in the US production in the second half of the year as well?

Well, we certainly should see our central region buy-ins continue to go up modestly and I think from a quarter-over-quarter, you probably will see our Gulf region go up.

Okay. Well, thanks a lot for your time.

Thank you sir.

And we will go next to Jeb Armstrong with Calyon Securities.

Hi good afternoon. Turning back to acquisitions, given that you are one of the largest CBM producers in Canada, is that a reason where you think you would consider making an acquisition?

Well, I think it was a right opportunity obviously from our perspective and I think most people's perspective is Alberta shot themselves in the foot, and you can gauge that a number of different ways. The lease sales that are going on in BC, the lease sales that are going in Saskatchewan, the activity level inn those two provinces versus Alberta. I think from our standpoint in Canada, we add more value to our company and to our shareholders from land acquisitions and drilling wells than we do from acquisitions and never say never, but that's probably not an area that we would actively pursue a significant producing property acquisition, not unless it brought a tremendous amount of acreage.

Got you. And just turning back down to the Gulf of Mexico, following on go through, do you have any plans for any additional deep water wells?

Well, we don't have any on our drilling schedule right now, but we have a team that is put together to look for those kinds of projects, which is where this project came from. So we continue to develop the geology to be able to find more of these.

Good. Thank you very much.

And we will go back to David Heikkinen.

Just a follow up. What do you expect your total capital budget to be for 2008?

It will be about $6 million, David.

Okay.

We started lower than that but prices have held in and our regions have been able to find some new and interesting things to do, and so we are going to let them expand a little.

And you have some things going on that affect that. And for instance, go forward work, that's a significant development as well as we'll probably drill three wells in there this year and those wells are not inexpensive.

And then what did you sell in Canada and the $142 million of property acquisition? Is that leasing or is there any production with that?

A little bit of production but for the most part that was a land purchase and that's the one with the acreage buy. In Canada, we sold a number of scattered properties across Alberta.

Okay. Thank you.

And there are no more questions in the queue at this time.

Well, thank you all for joining us. I know for most of you you've had a very busy day, but we appreciate your interest in the company and if any of you have any questions after the call, be sure to give me a call. Thanks.

And this does concludes today's conference. We appreciate your participation and you may now disconnect.