Apache Says Canada Is Its North American Focus

Unless there is a "major breakthrough in the Lower 48" in the next five years, Houston-based Apache Corp.'s COO sees its energy future outside of the United States, most likely in Canada, Egypt and Australia. F. Steven Farris also told Banc of America Securities Conference attendees that Apache plans to soon sell $250 million in assets, mostly related to a recent Canadian acquisition.

On track to reach 30% growth in production worldwide by the end of 2001, Farris said Apache had increased its "firepower" significantly because of assets it had acquired in the past two and one-half years. However, by the "end of this quarter," Farris revealed the company would sell some of the assets related to its recent Fletcher Challenge Energy Ltd. acquisition (see NGI, Oct. 16, 2000).

The $600 million Fletcher acquisition, which closed on March 22, increased Apache's Canadian holdings in the western sedimentary basin by 75%. The joint project was a partnership with Royal Dutch/Shell Group's Overseas Holdings, which paid a total of $1.03 billion for all of New Zealand-based Fletcher. In the deal, Apache got the Canadian and Argentina assets, along with 14 natural gas processing plants and 35 compressor stations.

"We will make some sales by the end of this quarter from Fletcher and some of the smaller things that we've gotten, but even when that's out of (the picture), we still will have a 30% increase in production," Farris said. He did not reveal which properties would be sold, but was clear in his comments that Apache was geared toward Canadian "exploitation and exploration," and did not comment on how the processing plants and compressor stations fit into its growth.

The Fletcher deal gave Apache 118 MMboe at a cost of $6.31/boe. Gas production there is now at 130 MMcf/d; oil production is 12,000 b/d.

Canada is just one of Apache's growth areas. "What we are doing now is concentrating on our three growth areas, Egypt, Australia and Canada," Farris said. Even though Apache does not "budget acquisitions," Farris said the company had closed on $1 billion worth of assets in the first quarter.

On the North American side, besides the Fletcher buy, Apache also paid Phillips Petroleum Corp. $490 million for its assets in the Zama area of northwest Alberta (see NGI, Dec. 11, 2000). The properties included proved reserves of 71.6 MMboe, of which 59% is natural gas. Its other major close in the first quarter was completing the purchase of Repsol in Egypt for $419 million.

Worldwide, Apache drilled 169 productive wells in the first quarter of 2001, with 81 in the United States and 69 in Canada. For the first quarter, its gross natural gas production rates were 70 MMcf/d in the United States and 215 MMcf/d in Canada. Farris was quick to point out that Apache has a backlog of properties, especially in Canada, where it holds 3.3 million acres and has 3-D seismic on 1,618 square miles.

Most prolific in Canada is the Ladyfern discovery, Farris said, which Apache has partnered with operator Murphy Oil Co. (see NGI, Feb. 19). Farris called Ladyfern one of the best Canadian finds in the past decade, and a big part of Apache's future.

"We now have 11 wells down, and are at 228 MMcf/d," Farris said. "It's a major gas play. I think we will have the capacity by the winter of next year to move a Bcf of gas out of the area." He said field rules are being developed on the play now for its future development.

On Apache's growth, Farris said he couldn't specifically answer if it would come organically or through acquisitions. Apache, he said, has a "culture to drill. Buy or drill, it makes no difference to me. Our job is to increase the production of reserves at a reasonable cost."

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