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Our Oil & Gas Exploration & Production team, led by Arun Jayaram, rates Apache Corp. ( APA ) an Outperform and ranks it as one of the most compelling opportunities in their universe. Apache explores for, develops, and produces natural gas, crude oil, and natural gas liquids. The company trades at an attractive valuation relative both to its peers and its own historical trading range.

Keen Ability To Extract Value: Over the years, APA has employed an "acquire and exploit" strategy that has taken full advantage of the perpetual reshuffling of industry assets. In the past, Apache's seasoned management team has shown a propensity to extract hidden value from capital-starved properties purchased from other operators. After the recent acquisition of $16.7 billion worth of assets in the Gulf of Mexico, North Sea, Canada, Egypt, Permian Basin, and Granite Walsh, our E&P team argues that it is a very attractive time to own Apache.

Growth At Attractive Returns: After reaching its deleveraging target, APA plans to deploy over $10 billion of capex in 2012 to exploit its new properties, well within cash flows excluding acquisition spending. Our team forecasts that APA can generate 17% returns on capital employed (ROCE) through 2014, significantly above the 12% average of the peer group.

Concerns Over Egypt Provide Compelling Entry Point: Approximately 22% of Q3-11 production came from Egypt. While the country has been dealing with the post-Arab Spring realities, our E&P team has concluded that there will be no significant changes to the oil and gas fiscal regime, given the economic importance of the sector. Their analysis includes discussions with industry experts with intimate knowledge of the Egyptian political and fiscal structure. Recent moves by Egypt to secure $3.2 billion of IMF aid plus a $1.5 billion pledge from the U.S. gives us confidence that the industry will not be the first source of funding in this period of social and economic duress.

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