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Apache Australia Pty Ltd. – an affiliate of Apache Corporation (APA - Analyst Report) – awarded a supply contract to oilfield services firm Subsea 7. The contract, worth $100 million, will be utilized for the Julimar gas project in the offshore region of Western Australia.

The scope of the deal covers the transportation, installation and pre-commissioning of subsea umbilicals and manifolds as well as diver-less tie-in spools. U.K.-based Subsea 7 will immediately start rendering project management and engineering services from its office in Perth. The company’s offshore activities related to the contract are expected to begin by late 2014.

Located in the Carnarvon Basin, Julimar along with Brunello natural gas field is in the exploration permit WA-356-P, about 112 miles to the west-northwest of Dampier. Apache controls 65% operating interest in the Julimar and Brunello development, while the remaining 35% is with Kuwait Foreign Petroleum Exploration Company.

The Julimar and Brunello fields are touted as one of Apache’s biggest natural gas discoveries in Australia. These ventures are expected to contribute immensely to Apache in setting up a strong foothold in the rapidly growing global liquefied natural gas (LNG) market. Apache expects to generate nearly 2.1 trillion cubic feet of sales gas from the Julimar and Brunello fields.

Houston, Texas-based Apache is a leading independent energy company engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.

Apache – which partners Chevron Corporation (CVX - Analyst Report) in another Australian natural gas venture, Wheatstone Project – currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.

We believe that Apache is in a better position to weather the current uncertain environment than many of its peers in the exploration and production space, given its solid production growth outlook, strong financial health and diversified asset base.

However, Apache’s sensitivity to gas/oil price volatility, its drilling results, inflationary cost conditions, geo-political risks and project timing delays continue to be an overhang on the stock.

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