A Case For Apache -- April 20, 2019

April 20, 2019: could this be the next high-profile Permian takeover? From the linked article, the "takeout case for Apache":

Apache's stock popped nicely on the CVX/APC news, as did many shale players, but fell back a bit as the day wore on. I read nothing into that event.

Alpine High is a massive block of about 300K contiguous acres that has been estimated to contain 3 bn BBOE.

As you can see from the slides [at the linked site], the Alpine High development is skewed to Wet Gas. Wet gas is basically the heavier end of the hydrocarbon molecule with more carbons attached, making them heavier, and tending toward a liquid phase. Dry gas is defined as being 85% methane or better.

One of the things that makes the Permian so prolific is the thickness of hydrocarbon column, up to 6,000'. There are multiple pay horizons, with names like Bone Springs, Wolfcamp, Barnett, and Woodford. Apache has already identified over 5,000 drilling locations across this acreage, with about 75% of them targeting wet gas.  One of the things that's been a drag on Apache's stock was the limited take-off capacity for dry gas. Once Kinder Morgan's, Gulf Coast Express-GCX, line goes into service, later this year, those concerns go away. Apache was one of original subscribers to the GCX, 500 MMCF/D guaranteed take-off.

Cryogenic capacity is the next piece of the puzzle. To turn wet gas into dry gas the heavy ends are first concentrated and removed from the gas stream cryogenically. These units will come on stream this year. The billion or so dollars of capex that's been required to process wet gas has also been a drag on the stock. The market gives you nothing for investing for the future, it's only interested in what's happening now to produce profits.

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