Thinking outside the box has its rewards – especially when it comes to drilling in the Permian Basin.
Apache Corp. saw potential in a remote corner of North America’s most coveted oilfield that other drillers overlooked – and the company’s insight appears to be paying off in multiples.
1. Apache quietly bought up 350,000 acres in an undesirable area of the Permian Basin for a song.
While other drillers paid $40,000 and more per acre in the mineral rich basin, Apache paid just $1,300 an acre in the southern reaches of the Permian because others viewed it as undesirable. The area is being called Alpine High.
2. Apache did its homework and ignored preconceived notions.
Other drillers considered the area too geologically complex to produce.
“You had to get in and do the work,” said Apache CEO John Christmann said at Barclays Plc energy conference, where he unveiled the company’s finding.
The Alpine High had been ignored because its underground layers of shale rock were thought to be too fractured and intermingled to support a productive well. The area was also thought to be bogged down with clay, which creates drilling problems, and consisted of mostly dry gas, which is less profitable than crude oil or natural gas liquids.
These assumptions were inaccurate.
3. Apache hit big.
Apache tapped into what appears to be a major new oil and natural gas discovery. The company estimates that the region contains at least 3 billion barrels of oil and 75 trillion cubic feet of natural gas.
4. The Alpine High is layered with shale plays.
The Apache CEO compared the area to a giant onion with years of layers to peel back – including the Barnett and Woodford shale layers, in addition to the Pennsylvania, Bone Springs and Wolfcamp shale layers.
Apache estimates the region may support 2,000 to 3,000 wells in the Barnett and Woodford, alone. layers.
5. Oil and gas production is scheduled to begin in the second half of 2017.
Due to Alpine High’s location in an area that is lacking in pipeline and processing, it will have some infrastructure challenges to overcome.
Apache rose as much as 14 percent in New York, the biggest intraday gain since November 2015, before closing 6.7 percent higher at $55.13.