Apache Corporation (NYSE:APA) was already among the best-performing energy stocks this year, but today APA stock is breaking out into a full sprint.
Shares of Apache are up 8%-plus on news the independent energy company has discovered a new resource in the Southern Delaware Basin, which could bring serious changes to the relatively tiny Apache.
APA is naming its discovery “Alpine High,” which geologists and engineers alike had previously considered an unfit candidate for hydraulic fracturing. As it turns out, the discovery could be worth anywhere from $8 billion to $80 billion.
From the Apache Corporation press release:
” … after more than two years of extensive geologic and geophysical work, methodical acreage accumulation, and strategic testing and delineation drilling, the company can confirm the discovery of a significant new resource play, the ‘Alpine High.’ Apache’s Alpine High acreage lies in the southern portion of the Delaware Basin, primarily in Reeves County, Texas.”
The new “resource play” discovered by APA is estimated to contain some 75 trillion cubic feet of rich gas and 3 billion barrels of oil in its Barnett and Woodford formations.
In total, the Alpine High consists of about 307,000 acres at a cost of $1,300 per acre; five formations; 3,000 (possibly more) drilling locations delivering both rich gas and oil; and yields some $4 million to $20 million per well (at prices of $50 per barrel and $3 per thousand cubic feet). According to Apache, the company expects around a 30% profit margin.
APA Stock Booming
So far, APA has 19 wells already drilled, and nine are in the nascent stages of producing. There’s likely more oil yet to be found in the Alpine High, as Apache expects to strike oil in the Pennsylvanian, Bone Springs and Wolfcamp formations.
According to Apache CEO John J. Christmann:
“We have thousands of low-risk locations in the Woodford and Barnett formations alone, and we are looking forward to further delineating what we believe will be a significant number of oil-prone locations in the Pennsylvanian, Wolfcamp and Bone Springs.”
APA also announced that it will spend $200 million for the full year to speed up the development of the Alpine High, with capital spending eating up 25% of Apache’s total spend.
Christmann believes the Alpine High, which took more than two years to uncover, will yield shareholder value for years to come. The new resource, says Christmann, means Apache Corporation has hit a 60-year pinnacle in “profitable-growth opportunities.”
However, it’s worth noting that some resource plays never reach their estimated potential, and at any rate, it will take a few years before we even see its impact on Apache’s financials.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
