Alpine High Oil & Gas Discovery
Introduction…Houston’s Apache Corporation has done the unexpected. It has made an amazing oil discovery in an area that no one expected. While much of the West Texas Permian Basin region commands $20,000 per acre, Apache’s Alpine High was purchased for just $1,300 an acre. This acreage is undeveloped and has no infrastructure. This contrasts to much of the Permian Basin that is very popular with drillers because it is so well developed.
Most amazing disovery in decades…Thanks to this major find though, Apache has a lock on what could be one of the most exciting finds in decades. How exciting you ask? Apache said it’s accumulated more than 307,000 acres and drilled 19 wells in Alpine High, a small part of the sweeping and energy-rich Permian Basin of Texas.
Further, Apache Corp. believes there could be 3 billion barrels of oil and 75 trillion cubic feet of natural gas in what it calls Alpine High. The reserves could be worth from $8 billion up to $80 billion by some estimates.
The company has begun drilling in the area for two years and says the early wells, which produce more natural gas than oil, are capable of providing at least a 30% profit margin at today’s prices, including all costs associated with drilling. Some are so prolific that they can break even at a price of 10 cents per million British thermal units, according to the company. Natural gas futures closed last Tuesday at $2.72.
Why does this discovery change the landscape? Apache’s recent oil find highlights what could be a new phase in fracking. To date, fracking in the U.S. had really been all about taking explored basins and drilling new wells to get at previously untapped resources. That strategy worked well when oil prices were more than $80 a barrel. At today’s prices though, drilling the old style rigs in mostly depleted fields to get at residual layers of black gold is a money losing strategy. Apache’s find shows that money can be made by taking risks and looking for major new finds in areas that had been passed over previously.
In conclusion…Apache Corporation has struck a world-class oil and gas discovery in a region that no one expected. This clay-ridden region of the Permian Basin was believed to have little value. The company has increased it’s 2016 capital spending by $200 million to a full-year capital of approximately $2 billion.
Sources: Michael McDonald, September 15, 2016, Why Apache’s Latest Oil Find Is Such A Game Changer, OilPrice, OilPrice.com; David Koenig, September 7, 2016, Apache may have struck big in West Texas, PowerSource, http://powersource.post-gazette.com