Apache moves to ramp up Alpine High
Touted as one of the biggest oil and gas discoveries of the decade, Apache Corp.’s Alpine High development is positioned to expand quickly next year and beyond as the Houston company strikes deals to help build pipelines to carry oil and gas from West Texas to port and refining hubs in Houston and Corpus Christi.
Last week, Apache signed on as an anchor customer of Enterprise Products Partners’ Shin Oak natural gas liquids pipeline that will traverse 658 miles from Reeves County to Enterprise’s storage hub just east of Houston in Mont Belvieu. Earlier this month, Apache inked a contract as a major customer of the planned Epic Crude Oil pipeline project to move crude from Alpine High to Corpus Christi, where the oil can be refined or exported.
These deals follow Apache’s big move in December to become the anchor customer of Houstonbased Kinder Morgan’s $1.7 billion gas pipeline from West Texas to the Corpus Christi area. The Gulf Coast Express Pipeline will transport dry gas to the port hubs where the gas can be
shipped to power plants for electricity generation, to liquefied natural gas export terminals, or to Mexico, which is increasingly importing more American gas for its power generation.
All of these pipeline projects are slated for completion no later than the end of 2019, and the contracts give Apache the ability to buy ownership stakes in the pipelines ranging from 15 percent to 33 percent.
The Alpine High development is west of Fort Stockton, in the Delaware Basin, a section of the larger Permian Basin. The pipelines are critical to Apache’s plans to develop the play, in a remote area without the pipelines, terminals and other infrastructure needed to move the petroleum to market and allow Apache to ramp up production.
Alpine High is expected to produce plenty of oil, dry gas and natural gas liquids, called NGLs, much of which are used to manufacture plastics and other petrochemicals. The development has proven controversial because of its proximity to pristine environmental attractions like Balmorhea State Park and the Davis Mountains.
Alpine High, however, continues to move forward.
Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis, said the pipeline deals are good moves for Apache, especially in the Permian where there’s a shortage of pipelines. Apache is securing its long-term growth while taking it slower for now, Youngberg said.
But some of the luster is off the Alpine High discovery, which was announced in late 2016, Youngberg said. Alpine High is producing more natural gas — which is less valuable than oil — than many analysts and investors had hoped.
Alpine High is believed to hold 15 billion barrels of oil and gas under 350,000 acres of southern Reeves County. But only 3 billion is crude oil.
“Right now oil is the name of the game,” Youngberg said. “The liquids are still there, but the gas share is higher than people thought.”
Apache’s stock has fallen from a recent high of $66 a share in December 2016 to a closing price of $39.28 on Friday.
Apache is focusing more than 70 percent of its capital spending in West Texas’ booming Permian Basin, including the Alpine High development. Apache last year sold many of its Canadian assets, in part to pour more money into the Permian, including building pipelines to gather oil and gas from wells.
Earlier this month, Apache CEO John Christmann said the company is focused on drilling wells and reducing costs, targeting dry gas and natural gas liquids for the time being with the goal of expanding into oil wells.
“We’ve said all along that we plan conservatively with Alpine High. And it will get more oily as time progresses,” Christmann said. Earnings from from pipeline joint ventures, he added, may go into funding the development of “oilier and more liquids-rich portions of Alpine High.”
Meanwhile, he said, Apache has already decreased its cost per well by 20 percent from last year, with a goal of at least 25 percent by year-end. That would shrink costs from $8 million per well to $6.2 million, he said.
“It's a great story and is going to only get better,” Christmann said.