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Apache Raises Horn River Estimates, Sees Promise in Granite Wash

November 2, 2009
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With oil and natural gas production up 19% from a year ago, Apache Corp. said last week it achieved its first-ever output of more than 600,000 boe/d in 3Q2009, lifted in part by a better-than-expected recovery rate from natural gas wells in the Horn River Basin and promising output in the Granite Wash.

The Houston-based independent said it produced 607,118 boe/d in 3Q2009, with gas output averaging 1.8 Bcf/d, which was 5% more than in 2Q2009. In North America Apache produced 1.07 Bcf/d of gas in the quarter, up from 984.9 MMcf/d in 3Q2008. Worldwide liquid hydrocarbons output averaged 297,997 b/d.

The company is banking of a long list of prospects, many of which are overseas, including the Wheatstone liquefied natural gas project in Australia and ongoing development in Egypt. However, Apache's North American exploration unit is holding its own.

John Crum, co-COO of Apache's North America unit, said the Hostetter #1-23H well in Washita County, OK, in which Apache owns a 72% stake, was drilled to a depth of 12,500 feet with a 4,000-foot horizontal section and eight separate fracture-stimulation stages. The well "has been producing to sales for the past four weeks and is still flowing at 17 MMcf of gas per day with some 800 barrels of liquids," he said. A second well is under way and scheduled for completion in early November.

"The Granite Wash has long been a core...play for our central region, where we have drilled hundreds of vertical wells over the past decade," Crum said. "As a result we now control over 200,000 gross held-by-production acres in the play. Horizontal multi-frac [fracture] technology has vastly improved the potential recoveries. The high associated liquids should make this field competitive with any other resources in place, and we'll add a third rig in November."

"We would expect to run four horizontal rigs through 2010, resulting in at least 20 new wells," Crum said of the Granite Wash play.

Even more encouraging for Apache are the early results from its leasehold in the Horn River Basin.

The shale play, which Apache operates 50-50 with EnCana Corp., ramped up two more wells in 3Q2009 "at more than 10 MMcf/d each," Crum said. "The four wells from the 2009 program continue to produce at more than 24 MMcf/d after more than three months of production; the results support our newest estimate of expected ultimate recoveries [EUR] of over 12 Bcf per well for a 14-frac well."

Six of the wells from the development's 2008 program, which used six-10 fracs per well, "continue to meet expectations as well, producing another 11 MMcf/d after more than a year of production," he noted.

Apache expects to complete operations at a 16-well pad in the basin in December, with fracing operations to begin in early January. "First production from that pad is expected in April but will ramp up quickly as we expect to frac all of the wells before bringing the pad on production," said Crum. "We should have all 27 new wells on production near mid year 2010."

The producer also is using a pad to drill an additional 11 wells to experiment with longer laterals, up to 20 fractures and wider spacing, Crum said. "Those wells are expected to be drilled by mid year and will be completed in the second half of 2010. EnCana has moved their rig to the...pad where they will drill 14 wells by the end of the second quarter [2010] again followed by completion operations in the second half of 2010..."

"We continue to find ways to reduce costs and improve rates and recoveries, which are expected to make this a very competitive play for the long-term," said Crum.

Apache reported net income of $441 million ($1.30/share) in 3Q2009, down from $1.2 billion ($3.52) in 3Q2008. Cash from operations totaled $1.3 billion, compared with 2.1 billion in the year-ago period. Adjusted quarterly earnings were $534 million ($1.58/share), versus 3Q2008's $1.1 billion ($3.19). Apache had $1.4 billion in cash at the end of the quarter, and debt was 24.7% of total capitalization.

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