Apache Corp. is taking no prisoners in the Permian Basin nor in the Midcontinent after building output from the combined regions by almost 24% in 2012 from 2011. By themselves, the two regions represented 25% of total global production at 197,000 boe/d.
“We really hit our stride in our large Permian position,” said CEO G. Steven Farris during a conference call last Thursday.
“We have become the most active Permian Basin player with 38 operated rigs, and we plan to increase our horizontal rig fleet to half of our total operated rigs during the year. We’ve also become a leader in the Midcontinent liquids and oil plays, increasing our horizontal drilling activity from six rigs at the beginning of 2012 to 25 today.”
COO Rod Eichler noted that “as impressive as these results are, the reality is we’re just in the early stages of our growth as each region evolves in a full-scale development. In the Permian/Central alone, we have identified over 9 billion boe of resource potential to further fuel our liquids-rich gas and oil production growth to unfold.”
U.S. natural gas volumes in 4Q2012 totaled 890.55 MMcf/d, up from 862.57 MMcf/d in the year-ago period. The biggest gas output gains came from the Central operations, which include the Anadarko Basin, where Apache produced 287.96 MMcf/d, versus 193.72 MMcf/d. Permian gas output also rose, to 184.78 MMcf/d from 178.77 MMcf/d. Canadian gas production slipped to 550.50 MMcf/d in 4Q2012 from 631.12 MMcf/d a year earlier.
In the Gulf of Mexico, Outer Continental Shelf gas production plunged in 4Q2012 from a year earlier to 265.92 MMcf/d from 335.43 MMcf/d. Deepwater gas output was almost flat at 48.18 MMcf/d. Oil and natural gas liquids output was half (51%) of total volumes in 2012 and contributed 81% of revenues.
Apache has assessments ongoing across its operations in North America. A resource assessment is underway in Canada, where it has about 7 million gross acres in the Western Canadian Sedimentary Basin. All together in North America’s onshore, and engineers expect to identify “several thousand economic wells in our various plays,” said Eichler.
The global operator plans to spend a total of $10.5 billion for capital programs this year, essentially flat from 2012, with close to half of the spend in the United States.
“Approximately $4 billion of our capital will be invested in onshore U.S., but we expect production to grow in excess of 20% in 2013, driven primarily by our Permian and Central Region drilling programs,” said Farris.
North American oil output is forecast to jump by 14% year/year. Oil production in North America rose 12% last year from 2011.
“As a result of this capital allocation choice and taking into consideration production declines in certain of our regions, we expect total production to grow by 3-5% in 2013. Just for comparison purposes, and using our budgeted economics, if we instead use this long-term capital investment to fund additional drilling in the onshore U.S., our projected 2013 growth rate would be in excess of 6%.”
Long-term projects are slated to contribute 150,000 boe/d over the next five years and provide more than 200,000 boe/d by 2020. The growth will come, despite continuing asset sales. Close to $2 billion of assets are on the sales block this year.
“We’re currently running 122 rigs worldwide and expect to average a similar amount over the course of the year,” said Eichler. Nearly 1,600 wells are planned, with “almost two-thirds” to be drilled in the Permian and Anadarko basins.
The massive Permian operations generated nearly 118,000 boe/d in 4Q2012, weighted 74% to liquids and constituting almost 15% of Apache’s total output.
“In 2013, we’ll further exploit our vast 3.8 billion boe net resource position with plans to drill over 700 wells running on average of 34 rigs and investing nearly $2.4 billion of capital,” said the COO. “We will significantly ramp up our horizontally activity in the basin.”
The horizontal rig count in the Permian currently is 13; four more rigs are being brought in by the end of March. Ten horizontal plays were delineated last year “across the region.” This year an additional 20 horizontals will target and test other areas, Eichler said.
For its growing Permian production, Apache “negotiated a five-year contract to sell crude that is then transported to the Gulf Coast via pipeline,” Eichler noted. “These volumes will ramp up over the next several quarters and at a full capacity we will sell up to 20,000 bbl/d into the Gulf Coast.”
The Central operations produced almost 79,000 boe/d in 4Q2012, a 9.6% sequential increase and more than 38% higher year/year. Oil output rose by 24% from 3Q2012 to 21,000 b/d, which represented 27% of total production in the region.
Service costs in the Permian and Central regions are declining, specifically because of “very large increases” in hydraulic fracturing (fracking) stimulation processes, said Eichler.
“We’ve seen a 30% drop in frack spread costs compared to 2012…We might expect to see even more decline on our side from using more self-sourcing of chemicals in 2013, which will allow us to further reduce those stimulation costs. Costs also are down on rig rates, he said. “Spud rates are much more favorable than they were. We’ve seen about a 5-7% decline in rig rates.”
Apache earned $649 million ($1.64/share) in 4Q2012, compared with $1.17 billion ($2.98) a year earlier. Adjusting for one-time charges, Apache earned $907 million ($2.27/share) versus $1.2 billion ($2.94). Production in 4Q2012 reached a new quarterly milestone, averaging 800,000 boe/d. Cash from operations totaled $2.77 billion, compared with $2.66 billion in the same period of 2011.
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