U.S. natural gas prices may never return to the double digits of yesteryear, but there are “a lot of reasons” to see some upside in pricing going forward, Apache Corp. CEO G. Steven Farris said last week at Sanford Bernstein’s 29th Annual Strategic Decisions Conference 2013.
“Before anybody else said it, I thought natural gas prices were going to go in the pits,” he said. “I’m changing my view a little bit; not that it’s going to go back to $14.00, but I think you’ve got some upside in the price right now. I think we’ve hit the bottom, and it’s not when it’s going to go up in gas wells because we’ve drilled very, very few gas wells. If we wanted production, we could drill Horn River [Basin] and get 1 Bcf/d right now.
“So it’s not about how much gas you can flow or what your gas production is. But I sense [higher gas prices] for a lot of reasons.” One reason is a turn by former coal-based utilities to gas generation, he told the audience. As the current chairman of the industry-sponsored America’s Natural Gas Alliance, Farris and staff recently met with East Coast utility executives to discuss their concerns about gas, some of which are about exporting liquefied natural gas (LNG).
“We met with all the utilities on the East Coast, and all of them were scared to death of LNG being exported because they are being dictated to get off some of the coal and go to natural gas…If you look at their baseload now, it’s becoming more and more natural gas, which means you’re going to get more demand. So I’m slightly positive on the natural gas side.”
Farris supports the free-market system, and Apache in particular supports LNG exports, with stakes in North American and Australian gas projects. The operator owns a half-stake in the Kitimat LNG project with Chevron Corp., also the partner/operator in the Wheatstone facility in Australia. If Kitimat is sanctioned, it would carry gas from the west coast of British Columbia to overseas markets. Wheatstone is scheduled to begin shipping gas in the “latter part of 2016,” he said.
Apache is investing about $4.5 billion in Wheatstone over time, and once it begins service, the project would generate $1 billion a year over 20 years, said Farris. On Kitimat, he seemed less sure.
“Kitimat went from raw material to now it’s wholesale, and we’ve got to get it to retail. Right now we have 50% of that. Chevron is now the operator of the downstream. It is one of their top two projects in their company…They are very high on this project,” in part because of Apache’s holdings in the Liard Basin, which the company considers the best unconventional gas play in North America. A single Apache well in 2009 initially produced 21 MMcf/d over 30 days with six fractures. The company has more than 172,000 hectares of land in the basin, west of the Horn River.
Chevron is “doing a supplemental feed right now” on the Kitimat project, said Farris. “We have now 57 people of Apache into the joint venture with Chevron downstream. They have 180 people in their project. They are working very hard on this project. And at some point this project will go forward.” However, “what our interest ends up being, we’ll just have to get there and see. It will be very hard for us to be able to fund 50% of this project.”
Until Kitimat gets to a final investment decision, “there’s not going to be a lot of big-dollar spend on Kitimat.”
Apache is in the process of marketing $4 billion worth of its portfolio this year, and rumors have swirled about which properties are for sale. Farris was tight-lipped and as he had during a conference call to discuss the performance in 1Q2013, he offered few clues. What doesn’t appear to be up for sale are the North American onshore assets, particularly those in the Permian Basin.
“Apache is a company that takes what we think the market gives us at the time. We’re not buying things right now. We have a tremendous inventory of things that we can exploit if you want to talk about acquire and exploit. I can’t emphasize enough when you think about what shales are in terms of what bucket they fit it. They fit in the bucket of acquire and exploit, probably better than any other asset that you could find. Because you get all of the upside when you’re growing the well as opposed to just upside that you get when you buy a mature field…”
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