RBC Capital Markets hosted investor meetings last week with Apache Corporation (NYSE:APA) management—John Christmann (President/CEO), Stephen Riney (CFO), and Gary Clark (VP-IR). Investors seemed to appreciate management's plans to re-establish the focus on returns and were interested in the progression and potential of the Alpine High development.
There was genuine management confidence in Alpine High, based on proprietary information such as 3D seismic and data from 30+ wells drilled so far. Management feels that currently there is little value in APA shares for Alpine High. RBC's current Alpine High NAV contemplates $2.5– 3.0B with a $1.5–5.0B range, but that does not include the optimized wells or oilier potential.
The initial wet gas development was a priority for lease retention, infrastructure sizing, and to scale the opportunity. There are eight wells targeting shallower zones that are either in early stages of flowback or planned that could show oilier economic potential.
Management did not provide a timetable on when new "critical" well results should be expected, which could help investors assess the upside at Alpine High. In the firm's view, the data could come in months, not years. The initial drilling was for science and delineation to develop the long-term plan and not to "impress" investors with big IP rates. Key catalysts are: successful shallower target interval tests to confirm potentially oilier intervals; optimized well results; and inventory additions from successful multi-zone delineation/spacing.
APA has undertaken the build-out to control the pace, design, and value opportunity. RBC thinks a success case for Alpine High could require $2.5 billion in spending over the next several years. Similar to other upstream players, this asset could have monetization value that reaches over 2x of investment. The current development for two 30" pipes has capacity to deliver 2.5–3.0 Bcf/d to key growth markets in Mexico and to the WAHA Hub. A third outlet is being evaluated that could further expand capacity from Alpine High. The market should get its first taste of the scale by July 1 from first gas deliveries in the Redwood area and then later in 2017 from the Mont Blanc area.
RBC thinks that likely candidates include Canada, Mid-Continent, Eagleford, and possibly more Permian. These assets are challenged to compete for capital in APA's portfolio and therefore likely to have more value to other operators, in the firm's view.
The companies mentioned in this article are subjects of research reports issued recently by investment firms. Their opinions in no way represent those of VoiceObserver.com