Apache Corp.'s acquisition of nine Permian Basin natural gas and oil fields from Marathon Oil Corp. may be the first of several purchases this year, executives said Thursday.
The independent last week agreed to pay Marathon $187.4 million for the leasehold, which is spread across Lea County, NM, and the Texas counties of Reagan, Howard and Sterling. Current net production is 10 MMcf/d of gas, 1,332 b/d of oil and 524 b/d of natural gas liquids.
"These fields are a great fit with Apache's existing properties in the Permian Basin, particularly in Lea County," said John Crum, co-COO who helms Apache's North American operations. "Based on our experience with well spacing in the area, we have identified more than 200 possible drilling locations on the Marathon acreage...Although this is a modest transaction, it is an opportunity to add to our substantial position in the area." Apache has 914,226 gross acres (447,760 net) in the basin with current net output of 86 MMcf/d and 34,500 b/d.
CEO G. Steven Farris, who shared the microphone with his executive team during a quarterly earnings conference call, told energy analysts that Apache is looking for other opportunities.
"It's no secret that we're actively looking for good things to buy," he said. "The prices today are much more palatable to us than they were at this time last year. First let me say that we don't have anything in front of us at the moment. But we are constantly looking, and on the bid and ask, between the buyer and seller, it's getting a lot closer. We anticipate that by this summer, a lot of things will start turning over...We don't chase every pretty girl, but we are confident that this will be a good year."
Farris was hesitant to put a size or price on the types of assets Apache is stalking.
"If you think about the time frame, this is probably a pretty good time to grow," Farris said. "You grow by drilling wells or you grow by buying things. As the costs come down, it's more economic to drill, but in terms of acquisition costs, this is a better time to acquire. I wouldn't put a size on it, but we like to grow incrementally. I doubt seriously we'll buy something gigantic, but maybe something a little bigger than today...we'll do that..."
Apache has pulled back in its onshore drilling program until costs come down and when commodity prices rise. When Apache set its 2009 capital spending budget, Farris noted that guidance for the company was based on $4.50/Mcf gas. Service costs at the time were higher. All of those assumptions are out the window now, he said.
"I think that the first premise is, we don't think costs have come down as far as they're going to come down yet," he said. "To the extent that we can, we're going to push service companies down as far as we can get them. In terms of what price you need, it really depends on where it is. It's very hard to make a blanket statement that you need $5 gas, $4 gas. Every profile has a different cost, no matter what some people say."
Neither the CEO nor his management team hinted at where Apache might look for more properties. However, Apache still finds its best economics for gas projects in the Gulf of Mexico -- not onshore, Farris said.
"Frankly, in the Gulf of Mexico we don't see the declines, and we drill off our platforms," he said. "Whether it's Apache's shale play or anybody else's...we don't get an upfront price in unconventional plays, and we don't get the economics. It makes better economics drilling Gulf of Mexico wells."
Apache's total gas and oil production in 1Q2009 rose 6% sequentially from 4Q2008, even on lower commodity prices. Total natural gas production rose to 1.6 Bcf/d from 1.5 Bcf /d in 4Q2008. Equivalent production declined 2% from 1Q2008.
After taking a ceiling test writedown on its reserves, Apache reported a quarterly net loss of $1.76 billion (minus $5.25/share), compared with net income in 1Q2008 of $1.02 billion ($3.03). Adjusted earnings totaled $218 million (65 cents/share) versus the year-ago earnings of $1 billion ($2.99).
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