Well Cost | Quarterly / Earnings Reports | Third Quarter (3Q) Update | Capital Markets | Drilling Activity | Capital Expenditure - 2020

Apache to Focus on Oily Targets in 2020; Alpine High Activity Decreasing

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Apache Corp. reported its Q3 2019 results and here are the highlights:

Oil-Focused 2020 Capital; 10-20% Lower than 2019

"As we look ahead to 2020, our capital planning process is underway and we will disclose a final budget with our fourth quarter results in February. Based on current strip prices, we anticipate a 2020 upstream capital budget that would be 10% to 20% below this year’s program of $2.4 billion. This will enable Apache to generate organic free cash flow that covers the dividend and puts us on pace to fund a multiyear debt reduction program while also delivering modest year-over-year oil production growth.

"We anticipate directing the vast majority of our Permian Capital in 2020 to more oil weighted projects in the Midland and Delaware Basins."

Permian Oil 4th Quarter

"Next, I will comment briefly on our third quarter performance and fourth quarter outlook before turning it over to Dave for more details. In the Permian Basin, our oil production in the second half of the year has been moderately impacted by some unplanned downtime events and to ways in our completion schedule and well maintenance timing. Consequently, we are now projecting fourth quarter Permian oil volumes of approximately 100,000 barrels per day.

Alpine Activity to Decrease

"At Alpine High, we have reduced our drilling activity to two rigs and have chosen to defer some fourth quarter completions into 2020. This lower activity set combined with a decrease production outlook on one of our multi-well pads has results in an approximate 5% reduction in our fourth quarter Alpine High guidance. Internationally, third quarter production was in line with guidance and our outlook for the fourth quarter is unchanged."

Drilling / Well Results & Well Costs

In the Midland Basin, we continue to drill high productivity oil wells. Our third quarter activity included an 11 well, 1.5 mile pad at Azalea located in the Midland County. This pad produces from the Lower Spraberry shale, Wolf Camp A and B and Lower Cline formation. The Lower Cline well tested in new landing zone with favourable results, achieving an average 30 day IP of 1,270 barrels of oil equivalent per day at 72% oil.

Plans are underway to drill future Lower Cline wells to further delineate the Cline potential across our Midland Basin acreage. In Reagan County, we drilled the five well 2 mile pad. In the Hartgrove area, producing from the Wolfcamp B1 and B4 formations, 30-day IP averaged 1,150 barrels of oil equivalent per day with 79% of oil with D&C cost averaging a very efficient $7.2 million per well.

And in the Delaware Basin, we drill five wells with 1 mile laterals at Dixieland at an average cost per well of less than $5.3 million. As we outlined last quarter, we are still feeling the effects of completing timing on our Permian oil production. We are on pace to put all 88 plan Midland in Northern Delaware Basin wells online, but many of them pushed back throughout the year. We have 25 wells schedule with online dates in November or December, which based on their timing, will add only minimum production to the fourth quarter.

At Alpine High, we brought 15 wells online during the quarter. This included several wells from our 14 well Blackfoot Barnett pad in the Northern Flank. We have now drilled four large multi-well pads in this area and this most recent Barnett pad has thus far underperformed relative to the adjacent Mont Blanc, Barnett pad. All 14 Blackfoot wells were completed sequentially before commencing flow back operations.

Scroll down to access Apache's Q3 release in full.

Apache Corp. reported its Q3 2019 results.

Highlights:

• Reported third-quarter production of 451,000 barrels of oil equivalent (BOE) per day. Adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 391,000 BOE per day, exceeding upper-end guidance of 383,000 BOE per day; 
• Achieved U.S. production of 266,000 BOE per day, which exceeds upper-end guidance of 260,000 BOE per day; international adjusted production was 125,000 BOE per day, slightly ahead of guidance;
• Invested $590 million in upstream capital; remain on track for $2.4 billion for the year; 
• Nearing first production from two new high-volume North Sea wells;
• Drilling first well in Block 58 offshore Suriname; expected to reach total depth in November; and 
• Announced organizational initiatives targeting operational efficiencies and annual cost savings of at least $150 million.

Apache reported a quarterly loss of $170 million or $0.45 per diluted common share for the third quarter of 2019. These results include a number of items outside of core earnings that are typically excluded by the investment community in their published earnings estimates. When adjusted for items that impact the comparability of results, Apache reported a third-quarter loss of $108 million or $0.29 per share. Adjusted earnings were generally in line with expectations except for the impact of increased depreciation, depletion and amortization costs. This was primarily associated with a reduction in Alpine High reserves due to deteriorating natural gas liquids (NGL) and gas prices. Upstream oil and gas capital investment was $590 million in the third quarter. Net cash provided by operating activities in the quarter was $635 million and adjusted EBITDAX was $905 million. 

“During the third quarter, adjusted production exceeded guidance while capital expenditures remained on pace with our full-year guidance of $2.4 billion,” said Apache CEO and President John Christmann. “In September, we began drilling the first of three committed wells in Block 58 offshore Suriname. We are also nearing first production from two wells in the North Sea, which should establish strong production momentum as we enter 2020.”

Third-Quarter Operational Summary     

Highlights from the company’s principal areas include:

Permian – Production averaged 254,000 BOE per day during the quarter and Apache operated an average of 10 rigs and drilled and completed 47 gross-operated wells. In the Permian Basin, our oil production in the second half of the year has been modestly impacted by some unplanned downtime events and completion schedule delays. As a result, the company is now projecting fourth-quarter Permian oil volumes of approximately 100,000 barrels per day.

• Midland Basin – During the quarter, the company averaged three rigs and placed 22 wells on production. Good results from a Lower Cline test well in the Azalea Field will lead to further evaluation and potential expansion of Apache’s core development inventory.
• Delaware Basin – Outside of Alpine High in the Delaware Basin, Apache averaged two rigs and placed nine wells on production during the quarter. 

Production at Alpine High averaged 76,000 BOE per day for the quarter and the company averaged five rigs and one frac crew and placed 15 wells on production. Volumes previously deferred due to low Waha prices were returned to production during August and September. 

As a result of continued weakness in gas and NGL pricing, the company has reduced Alpine High drilling activity to two rigs and has chosen to defer some fourth-quarter completions into 2020. These changes, combined with a reduced production outlook for a recent multiwell pad, has resulted in a 5% decrease in fourth-quarter Alpine High production guidance. 

Egypt – Apache averaged seven rigs during the quarter and drilled and completed 14 gross-operated wells. Adjusted production in Egypt, which excludes noncontrolling interest and the impact of tax barrels, averaged 72,000 BOE per day, up slightly from the second quarter. The company drilled multiple successful exploration wells during the quarter that have positive implications for future development inventory.

North Sea – Apache averaged three rigs during the quarter and produced 54,000 BOE per day, which reflects an anticipated decrease related to seasonal platform maintenance. The company expects to bring its first well at Storr online in November and its second well at Garten online around year-end. The Garten well encountered approximately 1,200 feet of pay, which significantly exceeded the company’s pre-drill estimates.

Suriname – Apache is currently drilling the Maka Central #1 well and expects to reach total depth in November at approximately 6,325 meters as measured from the deck of the drillship. The well is designed to test multiple targets and is located roughly seven miles from the Suriname / Guyana maritime border. Apache also exercised its option to drill two additional wells in Suriname Block 58 with the Noble Sam Croft drillship.

Organizational and Cost Saving Initiatives

“Apache has historically employed a decentralized, region-focused approach to operations. In recent years, we have centralized certain key activities, and today we see an opportunity to capture greater efficiencies by taking further steps in that direction,” continued Christmann. “To accomplish this, we have initiated a comprehensive redesign of our organizational structure and operations that will position us to be competitive for the long term. This process, which began in late summer, should be largely completed by the end of the first quarter 2020. We are targeting at least $150 million of combined annual savings and look forward to updating you on our progress in the future.”