×

Apache shares rise after oil discovery that 'could be a game-changer'

Apache Corp. workers
Spencer Platt | Getty Images
Apache Corp. workers

Shares of Apache climbed more than 7 percent Thursday in a second day of sharp gains, after the company's Wednesday announcement of a major oil discovery in Texas.

The Houston-based oil and gas exploration company said in a release it had secured more than 300,000 contiguous acres in an oil field it calls "Alpine High" that offers "a significant new resource play."

To accelerate development of Alpine High, which is mostly located in Reeves County in West Texas, Apache is increasing its 2016 capital spending by about $200 million for the year and raising its full-year capital guidance to roughly $2 billion. As a result, capital spending for the project this year will represent more than 25 percent of the company's total capital expenditures, the release said.

Based on the planned expenditure increases, Citi analyst Robert Morris on Thursday raised his price target on the stock to $58 a share from $53. He maintained a "neutral" rating in the report, titled "Alpine High could be a game-changer but too early to tell."

Apache estimates the land holds 75 trillion cubic feet of rich gas and 3 billion barrels of oil in the Barnett and Woodford regions of the field. The company also noted significant oil potential in the shallower Pennsylvanian, Bone Springs and Wolfcamp formations.

"We are incredibly excited about the Alpine High play and its large inventory of repeatable, high-value drilling opportunities," Apache CEO and President John J. Christmann IV said in the Wednesday release.

The firm paid $1,300 an acre for the field, compared to deals in other parts of Texas with prices of as much as $30,000 an acre.

Apache said it would develop wells with average lateral lengths of 4,100 feet. Each well will cost about $4 million to $6 million, about half what they cost before oil prices slumped in mid-2014.

The firm also said it has identified 2,000 to 3,000 drilling locations that have a pre-tax, net present value range of $4 million to $20 million per well. Those figures assume oil at $50 a barrel and natural gas at $3 per thousand cubic feet. The field has 19 wells right now.

Apache's stock closed 6.7 percent higher Wednesday at $3.46 a share. Shares are tracking for a weekly return of 15 percent and are up more than 35 percent over the last 12 months.

Apache 5-day performance


The news comes amid recent energy company land purchases in the nearby Permian Basin, one of the country's most cost-effective oil fields. EOG Resources on Tuesday announced it would buy privately held Yates Petroleum for $2.5 billion in stock and cash. Pioneer Natural Resources and WPX Energy also bought land in the Permian Basin in the past year.

Christmann said the Alpine High announcement "represents a significant addition to our already deep and highly economic Permian Basin position."

"With the contribution of Alpine High to our global portfolio of world-class international and North American assets, Apache clearly has more profitable-growth opportunities than at any other time in the company's 60-year history," he said.

Reuters contributed to this report.