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Apache’s Alpine High Pulls More Funds, Scrutiny as Development Continues

As it pulls money from other areas to fund the ballyhooed Alpine High formation of West Texas, Apache Corp. is working in tandem with outside experts and Texas officials to quell concerns about potential drilling pitfalls.

The Houston-based independent on Thursday agreed to take $244 million (C$330 million) for a package of Canadian light oil assets, joining with other U.S. producers now trained on the Lower 48 and, in particular, the Permian Basin.

The sale to Calgary-based Cardinal Energy Ltd. includes the House Mountain assets in Alberta and stakes in the Midale and Weyburn properties in southeastern Saskatchewan, which combined are producing about 5,000 boe/d.

"The sale of these assets is in line with Apache's efforts to further streamline its portfolio and focus on our high-growth areas of opportunity, particularly in the Permian Basin," spokesman Joe Brettell told NGI's Shale Daily.

Apache is not alone in taking cash from Canada and moving it to the Lower 48. ConocoPhillips in late March sold Calgary-based Cenovus Energy Inc. its Western Canadian oilsands assets for $13.3 billion. Marathon in March sold its stake in the Athabasca Oil Sands Project to Royal Dutch Shell plc and Canadian Natural Resources Ltd. for $2.5 billion, in turn buying 70,000 net acres in the Permian Basin.

Apache's West Texas developments ramped up during the first quarter as it began flowing natural gas from Alpine High. Initial gas sales began at a rate of around 20 MMcf/d, with volumes expected to increase to more than 50 MMcf/d by the end of June. The midstream buildout also was up and running two months ahead of schedule.

But there are warning flags. Alpine High is near the Davis Mountains, within the southern end of the Permian's Delaware sub-basin, long bypassed by geologists who considered it a riskier fit for horizontal drilling.

Community concerns have arisen about impacts from drilling since Apache announced the discovery last fall. The ecologically sensitive Big Bend area includes Balmorhea State Park, considered the world's largest spring-fed swimming pool, and the McDonald Observatory, where clear night skies may suffer from expanding infrastructure.

Apache still is in the early stages of putting together a long-term development plan, but the unique natural resources of the area are being taken into account. To alleviate community concerns and demonstrate its interest in working with the community, Apache voluntarily established drilling exclusion zones within its acreage position, mostly in Reeves County. The company agreed not drill in or under Balmorhea State Park or in or under the Balmorhea city limits.

Last October Apache partnered with the University of Texas at Arlington to conduct a baseline water quality study of groundwater and surface water in the resource area. Plans are to eventually recycle and reuse produced water.

The region, webbed with freshwater aquifers, also led Apache to hire the National Cave and Karst Research Institute, considered a leading authority, to map underground formations.

Apache faces more scrutiny by the Texas Parks and Wildlife Department (TPWD), which has begun a multi-year endeavor to determine how increased drilling may impact the region and its sensitive habitat.

"Protecting the environment has been a priority for Apache since beginning our Alpine High development," Brettell said. "From partnering with the University of Texas at Arlington for a water study, to working with the McDonald Observatory to protect the dark skies overhead, we will work with all stakeholders to continue these efforts. We already have an excellent relationship with TPWD and look forward to working with them in the future."

TPWD's monitoring plan is using as a baseline 3,000 proposed wells for Alpine High, which would use per well an estimated 2-5 million gallons of water or 15 billion gallons.

TPWD's Brent Leisure, who is director of state parks, said he could not remember launching a similar investigation of the state's other 95 parks, historic sites or natural areas.

"We have a rare and endangered resource there at the San Solomon Springs," he said. "There's no doubt about it. It's an oasis. We just want to make sure it's protected."

Parks officials are concerned that if any of the freshwater aquifers are tapped by drilling, flow would be diminished as the underground springs are interconnected.

However, the "larger threat...may be posed by saltwater disposal," i.e., produced water from drilling.

TPWD plans to measure spring flows and aquifer levels continuously and routinely sample water quality. It also plans to count and monitor wildlife species. Apache in turn has been asked by parks officials to report its fracturing water sources and volumes, and to inject wastewater only into aquifers already holding saltwater.

Also, state officials requested that Apache use steel for its wastewater containment systems instead of fiberglass and to measure underground pressure of wastewater injection wells. To shield West Texas skies from bright lights, Apache also was asked to turn drilling lights toward the ground.

Every recommendation is on the table, according to the company.

Today, Apache primarily is purchasing water for its drilling from landowners.

Apache now is evaluating whether to use brackish water and water recycling programs for longer-term operations as it as done at other sites. The operator was one of the first oil and gas companies to implement an onsite water-recycling program with its Barnhart development in West Texas, and it recently established a similar program to meet the water needs of its Pecos Bend project.

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