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Apache Corporation (APA): 1 Oil Company Betting Big on U.S. Shale

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With the end of the “easy” oil era at hand, energy companies around the world are venturing into some of the most remote regions of the world – where costs and risks are both often high – in the never-ending quest for oil.

Others, however, are focusing their efforts on onshore U.S. shale plays, where resource potential is often more certain and risks are considerably lower than they are in, say, the Arctic. One such company is Houston-based Apache Corporation (NYSE:APA), an independent oil and gas company with assets that span the U.S. and Canada, as well as Egypt, Australia, Argentina, and the U.K. North Sea.

Apache Corporation (NYSE:APA)

Apache’s growth core

Though Apache Corporation (NYSE:APA)’s asset base is spread across the globe, the company sees future growth coming mainly from its onshore North American oil plays. The company maintains that’s its “growth core” assets are in Texas and Oklahoma, while its operations in the U.K. North Sea and Egypt are mainly for cash flow generation.

Indeed, of its $10.5 billion capital budget for the year, about $4 billion will go toward onshore U.S. operations, where the company projects output growth in excess of 20%. “We used to ask our US assets to stay even, and we’d grow internationally. And all we’re doing is flipping that,” Steve Farris, Apache Corporation (NYSE:APA)’s CEO, told the Financial Times. “We’re talking about having our international [operations] provide cash for our North American growth.”

Apache’s approach

As Apache Corporation (NYSE:APA) attempts to reduce its debt, it doesn’t plan on acquiring additional properties any time soon – a departure from its previous strategy, which sought growth through international expansion. Instead, it plans to continue with its successful strategy of coaxing more oil out of its existing asset base. A shining example of its prowess in this respect is the Forties field in the North Sea, where Apache managed to boost production from 40,000 barrels a day to a peak of 70,000 barrels a day after acquiring the field from BP plc (ADR) (NYSE:BP) back in 2003.

Similarly, in the Permian Basin of West Texas, where Apache Corporation (NYSE:APA) is currently the second-largest producer, it has managed to sharply boost estimated ultimate recoveries by drilling deeper laterals and employing a greater number of frac stages. Other companies, such as Pioneer Natural Resources (NYSE:PXD) and Linn Energy LLC (NASDAQ:LINE), have seen similar success in the Permian by employing secondary oil recovery techniques.

For instance, Pioneer Natural Resources (NYSE:PXD)’s use of waterflood injection technology has significantly  boosted its recovery rates in the Spraberry formation, while Linn Energy LLC (NASDAQ:LINE), which tends to use more conventional recovery methods in its core Wolfberry acreage, has seen great success by utilizing waterflooding in its Permian operations outside the Wolfberry.

One big risk to consider

Despite Apache’s enthusiasm over its onshore U.S. oil and gas assets, where it hopes to continue slashing costs and boosting production, the company’s substantial exposure to Egypt – where it is the largest acreage holder in the nation’s Western Desert, controlling some 9.7 million gross acres – is a cause for concern.

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