Apache Corp. is officially calling it quits on a highly publicized but disappointing shale discovery in West Texas after vehemently defending the prospect for about three years.
The Houston-based company posted a roughly $3 billion writedown on its Alpine High project, a find from 2016 that fizzled when it turned out to hold more natural gas than oil. Apache will instead focus on offshore riches in Suriname, where the explorer recently struck crude and enlisted French oil titan Total SA as a partner.
“Apache has no current plans for future drilling at Alpine High,” Clay Bretches, chief executive officer of Apache’s pipeline spinoff, Altus Midstream Co., said in a statement.
Apache rose as much as 10% on Thursday, even as almost every other oil producer in the S&P 500 Index slumped amid coronavirus fears. The company is shifting capital spending to focus on places like Suriname and Egypt rather than “near-term growth opportunities” — industry shorthand for shale.
The Alpine High was announced in September 2016 to much fanfare and claims the field held 3 billion barrels of crude and 75 trillion cubic feet of gas. But it quickly became apparent that that corner of the prolific Permian Basin was far richer in natural gas and its byproducts than more-valuable oil. The Alpine High became even more worrisome for investors as gas supplies in the region ballooned and prices cratered.
“When Alpine High was announced in 2016, we had great hope for what it could mean for Apache,” John Christmann, Apache’s CEO, said during the company’s fourth-quarter earnings call on Thursday. “In the end, a number of factors were problematic at Alpine High.”
He cited steeply lower prices for gas and gas byproducts, as well as a lack of infrastructure to handle that output. He also said productivity improvements “did not materialize.”
Christmann’s comments were in stark contrast to his past defense of the Alpine High. At the start of 2018, he told analysts that the play would “really hum” even with gas prices at $2. As recently as May, Apache said that investors didn’t “have an appreciation for the potential cash flow generation from the liquids play at Alpine High.”
But roughly five months later, the star Apache geologist who led discovery of the field abruptly left. At the time, the departure of Steven Keenan, Apache’s senior vice president of worldwide exploration, raised red flags for the company’s other high-profile prospect — offshore Suriname.
Apache calmed investors who were nervous Suriname would be a bust last month when it disclosed a major discovery. The announcement came shortly after Apache brought Total aboard to help develop the project on Suriname’s Block 58.
“We are currently drilling the second well on Block 58, Sapakara West-1, and are encouraged by what we’ve seen so far,” Christmann said in Wednesday’s statement. The company has plans for a third, and likely a fourth, exploratory well.
Across its business, Apache sees the need for a “permanent reduction” in headcount in response to slowing shale activity.
Altus Midstream, meanwhile, will look for new customers to fill its pipes.
“We are aggressively pursuing third-party volumes to replace declining production from Alpine High and maximize throughput at our Diamond processing facility,” Bretches said in Altus’ fourth-quarter earnings statement.
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