Apache Corporation (NYSE:APA) decided to break ranks with its peers, pumping cash into exploration activities instead of trying to conserve it amid oil price collapse. That approach may have seemed insane for some, but Apache has been vindicated. The company said that its exploration activities landed it an oil-rich play in the Delaware Basin called the Alpine High.
You find the Alpine High in western Texas and on the west side of the famous Permian Basin.
In the Alpine High, Apache Corporation (NYSE:APA) has secured for itself some 307,000 net acres in a region that is rich in oil and gas.
Besides the massive oil find in Alpine High, Apache acquired the acreage in the region at only a fraction of what its peers have been paying for acres in the Permian Basin. Apache’s acreage acquisition in Alpine High was at an average cost of $1,300 per acre. That compares with prices of $9,000 per acre and $43,000 per acre that other drillers are paying for in other parts of the Permian Basin.
How big is the reserve?
The Alpine High acreage that Apache has acquired exposes the company at more than 3 billion barrels of oil and 75 trillion cubic feet of gas. Keep in mind that the estimate is for the reserve in just two of the formations, yet there are five formations.
The stone that the builders rejected
Alpine High is turning out to be the corner stone that the builders rejected. Many drillers shunned Alpine High over a range of misconceptions including that it had less oil and that drilling there would be difficult because of too much clay. Not only did Apache Corporation (NYSE:APA) discover that the region is rich in oil, but also that it didn’t have as much clay as naysayers claimed. The misconceptions that many drillers had about Alpine High explain why Apache managed to acquire acreage in the region at a significantly lower cost.
Apache Corporation (NYSE:APA) has boosted its 2016 capex allocation by $200 million so that it can immediately begin work at Alpine High. The company’s new capex budget is $2 billion.