Apache takes $3B writedown as it quits West Texas shale project

By Rachel Adams-Heard on 2/27/2020

HOUSTON (Bloomberg) - Apache is officially calling it quits on a highly publicized but disappointing shale discovery in West Texas after vehemently defending the play’s prospects for about three years.

The Houston-based company posted a roughly $3 billion writedown on its Alpine High project, a find from 2016 that fizzled when it turned out to hold more natural gas than oil. Apache will instead focus on offshore riches in Suriname, where the explorer recently struck crude and enlisted French oil titan Total SA as a partner.

“Apache has no current plans for future drilling at Alpine High,” Clay Bretches, chief executive officer of Apache’s pipeline spinoff, Altus Midstream Co., said in a statement.

The discovery was announced in September 2016 to much fanfare and claims the field held 3 billion barrels of crude and 75 trillion cubic feet of gas. But it quickly became apparent that that corner of the prolific Permian Basin was far richer in natural gas and its byproducts than more-valuable oil. The Alpine High became even more worrisome for investors as gas supplies in the region ballooned and prices cratered.

Until recently, Apache executives defended the Alpine High, saying in May that investors didn’t yet “have an appreciation for the potential cash flow generation from the liquids play at Alpine High.”

But roughly five months later, the star Apache geologist who led discovery of the field abruptly left. At the time, the departure of Steven Keenan, Apache’s senior vice president of worldwide exploration, raised red flags for the company’s other high-profile prospect -- offshore Suriname.

Apache calmed investors who were nervous Suriname would be a bust last month when it disclosed a major discovery. The announcement came shortly after Apache brought Total aboard to help develop the project on Suriname’s Block 58.

“We are currently drilling the second well on Block 58, Sapakara West-1, and are encouraged by what we’ve seen so far,” Apache CEO John Christmann said Wednesday in a fourth-quarter earnings statement.

The company will now shift its capital spending to focus on Suriname rather than on “near-term growth opportunities,” Christmann said. Altus Midstream, meanwhile, will look for new customers to fill its pipes.

“We are aggressively pursuing third-party volumes to replace declining production from Alpine High and maximize throughput at our Diamond processing facility,” Bretches said in Altus’ fourth-quarter earnings statement.

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