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Apache Builds Onshore, Adds Positions in Mississippian Lime, Williston

For Apache Corp., whose drilling operations ramped up in 1955 in the Cushing field of Oklahoma, home is now the sweetest place to be, CEO Steve Farris said Thursday.

The Houston-based independent today is spread far and wide, across six countries and seven operating regions, and for a while, it's kept a relatively low profile in the U.S. onshore. That, however, is changing, Farris and his management team explained in a half-day presentation to investors and financial analysts. Since late 2009 Apache has been buying up U.S. land across the central part of the country to capture as much liquids-rich and oil-heavy potential as possible.

Apache disclosed Thursday it has built a 580,000 net-acre position in the Mississippian Lime in Kansas and Nebraska with an inventory of 7,200 potential drilling locations and an estimated resource potential of 2 billion bbl. Another 300,000 net-acre leasehold has been acquired in the Williston Basin in Daniels County, MT, with more than 1,900 potential drilling locations and a potential resource of 1 billion bbl.

Those new leaseholds join solid U.S. holdings that include two "huge positions" that have gotten bigger in the past two years in the:

Apache also added 430,000 acres in the Liard Basin in northern British Columbia since 2009 that hold an estimated 48 Tcf (8 billion boe). However, gas exploration is for the future. Oil and liquids are the only drilling targets Apache plans to pursue in North America until gas prices strengthen.

"It's good to be away from the herd," Farris said of Apache's exploration efforts overseas. The Houston-based operator remains "very much a portfolio player" but "it's a good time to be back in the U.S. [with] the idea that we are in the last of the land grab."

In late 2009, with the United States hindered by a poor economy, it may have been difficult to conceive of the vision Apache's management team had for the U.S. onshore, said Farris. The reasons to buy up oily acreage "were not so obvious." However, "the maturity curve of gas and the maturity curve of oil are two different things..."

Apache's management sensed that oil would continue to fuel the future in the medium- to long-term -- and natural gas prices appeared even then to be going no where as reserves continued to build. Unconventional technology also was being transferred successfully to liquids and oil plays.

"Back in 2009 there was a tremendous inventory, an acreage base in this country...and what the premise was, those that had the financial strength when [the economy] came back around would be able to take advantage of it," said Farris. "There's a lot of talk about financial strength. Today the world is off its feed. All are trying to catch up on debt [including] Greece, Spain, companies in our sector. What we've learned in our sector is that you can't continually put on debt and outspend cash flow."

With a balance sheet in the black Apache was able to make the land grab and transform itself "both from an asset inventory, drilling inventory and financial standpoint to move the needle in the U.S. We certainly have the inventory to do that and we have the acreage to do that," Farris said.

"This is the time to drill more wells," he told the audience. "We have captured a vast liquids-rich resource base and drilling costs are declining." Two years ago it was tough to find oilfield equipment and hydraulic fracturing crews "couldn't be found." That's all changed today.

"We've been able to build a lot of strength in this company in the last two years...since it's inception, really," said Farris. "We're able to deliver on what we said we would do. This is the current evolution of Apache. We have gone through a lot of life cycles in this company and now we are expanding to liquids plays in North America...The portfolio may change but the principles won't.

"We remain focused on the rate of returns, not the rate of return at the wellhead but the rates of return for the shareholders."

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