Apache Corp. spent the past year quietly buying 350,000 acres of drilling rights in an overlooked corner of the Permian Basin, North America’s most coveted oil field.
The result? The Houston-based crude explorer has “pretty well locked up” what could be a major new oil play at rock-bottom prices, CEO John Christmann said.
Apache said Wednesday that it has made an “immense” oil and natural gas discovery in the southern reaches of the Permian, a region in West Texas where drillers have spent $40,000 an acre or more this year trying to amass assets. Apache spent about $1,300 an acre on average by focusing on land that others considered too geologically complex to drill economically, Christmann said in an interview in New York.
“You had to get in and do the work,“ he said on the sidelines of a Barclays Plc. energy conference, where he unveiled the finding. “There was a huge opportunity sitting out there, but everybody’s preconceived notions were just not correct.”
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Company geologists have been exploring the area since 2014, Christmann said in the interview. Apache has drilled 19 wells as it sought to define the potential of the resource; nine of those wells are currently producing.
This is a giant onion that is going to take us years to peel back and it’s a story that’s going to get bigger and better as it’s told later,
Apache CEO John Christmann
Apache has estimated the region it calls the Alpine High contains at least 3 billion barrels of oil and 75 trillion cubic feet of gas, the company said in a statement Wednesday. The land is mostly in Reeves County in the Delaware Basin, a section of the Permian that has been a hotbed of acquisition activity among oil explorers this year.
The Alpine High had been largely bypassed in the Permian rush because its underground layers of shale rock were thought to be too fractured and jumbled to support a productive well. The area was also believed to be full of clay, which complicates drilling, and skewed toward natural gas, which is less profitable than crude oil or natural gas liquids. All those assumptions turned out to be wrong.
“I think we surprised a lot of people,“ Christmann said. “There’s no way you could have put together 350,000 acres in the Delaware Basin, in the hottest county in the hottest basin in the world, at these prices, if everybody realized how prime this acreage really is.”
Apache stock rose as much as 14 percent in New York, the biggest intraday gain since November, and closed up 6.7 percent at $55.13.
“This is a giant onion that is going to take us years to peel back and it’s a story that’s going to get bigger and better as it’s told later,” Christmann said.