New Apache Oil and Gas Discovery in Southern Delaware Basin Driving Interest, but Located in Historically Underperforming Area, IHS Markit Says

Analysis indicates asset has solid potential, but repeatability unknown

Monday, September 26, 2016 3:33 pm EDT

Dateline:

HOUSTON
"However, the play’s proximity to the nearby Waha hub helps."

HOUSTON (Sept. 26, 2016) – Apache Corporation’s recent announcement that it had made a significant new oil and gas discovery in the southern portion of the Delaware Basin in west Texas has strengthened industry interest in the emerging sub-play, but previous well results from other operators in the immediate area have been poor, according to analysis from IHS Markit (Nasdaq: INFO), a world leader in critical information, analytics and solutions.

The Apache discovery, which the company has dubbed the “Alpine High” play, lies primarily in Reeves County, Texas, not far from the New Mexico border, but still within the prolific Permian Basin. Apache has secured more than 300,000 contiguous acres, which Apache said holds an estimated 75 trillion cubic feet (TCF) of gas and 3 billion barrels of oil in the Barnett and Woodford shales alone. The company also sees significant oil potential in the shallower Pennsylvanian, Bone Springs and Wolfcamp formations.

“While this new find is significant and Apache is deservedly excited about its new discovery in this relatively untapped part of the Delaware Basin, previous well results in the immediate area have been poor. It has been hit or miss,” said Imre Kugler, senior consultant, energy research, at IHS Markit, and lead author of a new report entitled IHS Energy Plays and Basins Analysis—Apache’s Alpine High: An Early Look. “Nearly 10 years ago, several Permian Basin specialist companies left the area after drilling a handful of unsuccessful wells. Admittedly, unconventional drilling and completion technology has advanced a good bit since then, but well performance is critical, particularly in the current oil price environment. You don’t have as much of a cushion or tolerance for failure or poor performance at today’s prices as you did at $120 a barrel.”

Kugler said some quality Wolfcamp wells owned by a variety of operators sit within 10 miles of the Apache acreage. However, there are also some poor performing wells nearby, so “it remains to be seen whether Apache’s initial success in the play will carry over into the Wolfcamp formation. It’s too early to tell, but more drilling and appraisal will be necessary,” he said.

According to the IHS Markit analysis, early economics for the area indicate gas production breaks even near $2.50 per MCF (million cubic feet) of gas, and oil production breaks even at $55 per barrel assuming a ‘constrained’ 24-hour initial production (IP) rate equates to peak-month production and a $5 million well cost, the midrange guidance. However, if recently published IP rates indicate true 24-hour rates, then break-evens for the play will be closer to $65/barrel and $3 per MCF, IHS Markit said.

According to Kugler, the Woodford gas play is a play in the area of interest, as the ratio of oil at peak is around 15 percent, but has a wide variance of 1 percent to 19 percent in a six-well sample. The projections only consider Woodford, as there is just one Barnett well drilled in the area to date, IHS Markit said.

“To make this part of the play viable, gathering infrastructure will need to be built out,” Kugler said. “However, the play’s proximity to the nearby Waha hub helps. “We have seen associated-gas production nearly double from 0.5 BCF/D (billion-cubic-feet per day) to nearly 1 BCF/D during 2014 to 2016, with Wolfcamp and Bone Spring development. To fully monetize production from this gas and NGL play, additional takeaway capacity may be required.”

As for Apache, the company is quite bullish on its new discovery, and to accelerate the delineation and development of Alpine High, the company is increasing its 2016 capital spending by approximately $200 million. This figure will represent more than 25 percent of Apache’s total capital spending program, according to recent updated capital guidance from the company.

To speak with Imre Kugler, please contact Melissa Manning at melissa.manning@ihsmarkit.com. For more information on the IHS Energy Plays and Basins Analysis—Apache’s Alpine High: An Early Look, please contact clare.fletcher@ihsmarkit.com.

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About IHS Markit (www.ihsmarkit.com)

IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and expertise to forge solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 85 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

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Multimedia Files:

“New energy play and basin analysis on the southern portion of the Delaware sub-basin from IHS Markit indicates that, historically, well results near the recently announced Apache discovery underperformed. The Wolfcamp well locations shown on the map indicate producing oil or gas wells – color-coded according to their well production performance quintile – located near Apache’s recently announced Alpine High discovery in west Texas. The best performing Wolfcamp wells have been north of the Alpine High area, according to the IHS Markit analysis, so further delineation will be required to establish Wolfcamp productivity in Apache’s acreage. ”