Apache Corp: Permian Basin Player

By Eric Fox | May 12, 2011 AAA

Apache Corporation (NYSE:APA) outlined the potential of the company's large acreage position in the Permian Basin, as the company plans to aggressively develop various oil and liquid plays here to help increase production and reserves over the next four years.

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Capital Boost
Apache Corporation recently announced an increase in the company's 2011 capital budget from $7.5 billion to $8.12 billion. The company plans to spend an additional $170 million on exploration and development of the Permian Basin, bringing its total budget for this vast basin to $1.12 billion for the full year.

Permian Basin
The Permian Basin is located across parts of Texas and New Mexico, and is one of the oldest producing basins in the United States. The exploration and production industry has been piling into this mature basin as operators began to realize the horizontal development potential of the much oil and liquid plays here.

Apache Corporation has been acquiring acreages here in separate acquisitions over the last decade. The most recent was in the summer of 2010, when the company spent $7 billion to buy assets here and in two other areas from BP (NYSE:BP). Apache Corporation now has approximately 3 million acres under lease here, making the company one of the largest holders in the Permian Basin.

Apache Corporation reported production of 84,000 barrels of oil equivalent per day from the Permian Basin during the first quarter of 2011. Sixty-eight percent of this production was composed of oil and natural gas.



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Permian Development
Apache Corporation has a wide range of different projects planned for the Permian Basin, including traditional water flood development to testing new horizontal shale opportunities on its properties. The company is operating 24 rigs in the Permian Basin, and plans to drill 555 wells here in 2011, and an additional 4,277 wells from 2012-2016.

The busiest area for Apache Corporation in 2011 will be the Deadwood project, where the company has 11 rigs and plans to drill 150 wells. Wells here are not large, with average initial production rates of only 105 BOE per day and estimated ultimate recovery of 141,000 BOE. However, the relatively low well cost of $2 million still gives the company an acceptable rate of return.

Other Operators
Many other players are developing properties in the Permian Basin. El Paso (NYSE:EP) has 138,000 net acres under lease, and is testing the Wolfcamp formation. The company has reported four successful wells here and is operating two rigs on its acreage.

Two recent entrants into the Permian Basin are W&T Offshore (NYSE:WTI) and Petrohawk (NYSE:HK), both of which entered the play through acquisitions. W&T Offshore bought 21,500 net acres for $366 million, and plans to operate three rigs in 2011 on its acreage. Petrohawk Energy picked up 325,000 net acres for $455 million and has allocated $75 million in 2011 to drill 15 wells.

The Bottom Line
Apache Corporation is betting on the Permian Basin to increase the size of the company over the next four years. The company plans aggressive development of many different oil and liquid plays in this basin.

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