Apache Corp.’s Permian Basin oil and gas production topped a record during the fourth quarter, with natural gas, oil and liquids volumes all claiming double-digit growth year/year.
Permian natural gas volumes during the fourth quarter climbed 42% year/year and 15% sequentially to nearly 320 MMcf/d, while oil volumes increased 10% to 85,448 b/d. Natural gas liquids volumes from the Permian totaled 38,193 b/d, up 12% year/year and 4% higher than in the third quarter.
No. 1 Permian prospect, the Alpine High, saw output hitting 25,000 boe/d at year’s end, matching expectations.
Overall, domestic production climbed to 222,000 boe/d in the final period, at the high end of guidance, while total output, including from overseas operations, was 440,000 boe/d.
While the gas-rich Alpine High was expected to carry the bulk of 4Q2017 volumes, CEO John Christmann IV also cited growing oil volumes from the Delaware’s twin sub-basin, the Midland.
“In the Permian, we returned to a growth trajectory with notable oil growth in the Midland Basin and commencement of production from Alpine High,” Christmann said of last year’s milestones. “We made great technical progress in the Midland Basin increasing lateral lengths and utilizing technology to improve our recoveries and reduce our costs.
“We consolidated our land position, confirmed additional landing zones, and progressed numerous strategic tests. At Alpine High, we initiated first production ahead of schedule, substantially increased our inventory count, and began to realize operational efficiencies with pad drilling.”
Apache unveiled the West Texas discovery in September 2016, and within two months, Alpine High was the top priority, a position it’s unlikely to cede in the near future.
Overseas, Apache also made progress, signing its first concessions in Egypt in 10 years, which should “unlock significant future drilling opportunities in the region,” Christmann said. To accomodate more funding for the Permian and overseas, last year marked Apache’s exit from Canada.
“It was a year of numerous accomplishments that has set us up for great success in 2018 and beyond,” he added.
Worldwide during the fourth quarter, Apache operated on average 36 rigs, including 21 rigs in North America, and it drilled and completed (D&C) 87 gross-operated wells.
Apache D&C’d 58 wells in the final period across North America leaseholds. All but one of the wells was completed in the Permian, where 16 rigs on average were working. Permian production between October and December averaged 177,000 boe/d.
Nine rigs on average worked the Delaware in the final period, with six running at Alpine High. The company completed its fifth central processing unit at Alpine High during 4Q2017, which brought processing capacity to 280 MMcf/d. An additional 50 MMcf/d was commissioned in January.
In the Midland sub-basin, three multiwell pads were placed on production, while D&C and equipment costs fell 20% from 1Q2017 on a treated-lateral-foot basis. Volumes improved year/year by around 17%.
Expect 2018 to be all about the Permian once again. Apache expects to direct more than 70% of an estimated $3 billion capital budget this year to West Texas, including $500 million for Alpine High midstream infrastructure.
Worldwide production growth in 2018 is expected to grow year/year by 7-13%, with Permian oil volumes forecast to climb by 9%.
Permian Three-Year Forecast 26-28%
Between 2018 and 2020, Apache is planning an aggregate upstream investment worldwide of around $7.5 billion. Total Alpine High midstream investments alone are estimated at $1 billion over the period.
The compound annual growth rate is forecast at 11-13% worldwide, 19-22% in the United States and 26-28% in the Permian. Cash returns on capital invested are estimated at 18% for 2018, 20% in 2019 and 22% in 2020.
“Over the last three years, Apache has returned over $1.1 billion to shareholders through the dividend,” Christmann said. “In the coming three years, we plan to return at least this amount and possibly more.”
Net income in 4Q2017 was $456 million ($1.19/share), reversing a year-ago loss of $182 million (minus 48 cents). For 2017, Apache reported income of $1.3 billion ($3.41/share), compared with a 2016 loss of $1.4 billion (minus $3.71).
At year-end, Apache had $1.7 billion cash on hand, versus $1.4 billion at the end of 2016. Last year’s asset sales generated $1.4 billion of proceeds and eliminated about $800 million of future asset retirement obligations. Net debt position at year-end was $6.8 billion, down from $7.2 billion at year-end 2016.
Worldwide estimated proved reserves totaled 1.2 billion boe at the end of December, versus 1.3 billion boe at year-end 2016, primarily from selling the Canadian assets.
Apache replaced 124% of 2017 production through extensions and discoveries net of engineering revisions. Proved undeveloped reserves represented 13% of total proved reserves at year-end. From all sources, finding and development costs averaged $11.89/boe.