HOUSTON, Dec 15 (Reuters) - Apache Corp Chief Executive John Christmann is betting the future of his company on a remote corner of the Permian Basin, the largest U.S. oilfield, planning to spend billions of dollars in the next 20 years to drill more than 5,000 wells.
The development of the company's Alpine High field holds ramifications for U.S. oil reserves and future output from the already prolific Permian oilfield in Texas. The region was first tapped in the 1920s. After decades of drilling, it was considered largely exhausted by the late 1990s.
But the shale revolution gave the Permian a new lease on life, and production has risen so fast it contributed to a collapse in global oil prices. Now, Apache's efforts in a once-overlooked corner of the Permian suggest the oil field can still provide surprises.
"The Permian and Alpine High are the engine behind our North American operations," Christmann said in an interview at the company's headquarters. He detailed a goal of drilling more than 5,000 Alpine High wells, up from 2,000 to 3,000 when the discovery was announced last year.
The Houston-based company and rivals such as Pioneer Natural Resources Co and EOG Resources Inc are plotting decades of drilling in the Permian, believing they can crank up production and give investors greater profits.
The U.S. Energy Information Administration this week lifted its projection for total 2018 U.S. crude production to 10.02 million barrels per day. That would be up sharply from projected 2017 production of 9.2 million bpd. Higher-than-expected production from the United States and elsewhere has prompted OPEC and other producing countries to extend output cuts in an attempt to reduce a global glut.
Unlike other parts of the Permian, which contains rocks rich in crude oil, some of Alpine High's geology predominantly contains types of natural gas. But as Apache drills more wells, it will collect more data that it can use to update its reserve estimates for Alpine High.
Apache's initial tests last year showed Alpine High contained at least 75 trillion cubic feet of natural gas and 3 billion barrels of oil - enough to satisfy U.S. oil demand for almost half a year - in a western part of the Permian in the far west of Texas.
The company bought the land on the cheap during the oil price downturn of 2015 and 2016, paying an average of $1,300 an acre at a time when some parcels elsewhere in the Permian sold for more than $30,000 an acre.
So far, investors give the company little credit for that bargain. Apache's stock has dropped 27 percent since disclosing the find in September 2016. The company has not yet disclosed its 2018 capital budget and drilling plan for Alpine High, but analysts expect it to be similar to 2017's $3.1 billion budget.
In part, the stock drop reflects delays in opening two gas-processing plants due to Hurricane Harvey and about $1 billion in spending to create infrastructure for the field. It also reflects scaled back estimates for the field's oil production.
"The oil play for Alpine High seems to be in more of an exploration mode than a development mode now," said Darrel Koo of RS Energy Group, which analyzes energy projects for investors in the oil industry. "There's much more promise on the gas side."
Still, Apache says it sees giant potential. Alpine High well costs are only $4 million to $6 million, well below the price tag of more than $10 million for drilling shale wells elsewhere a few years ago.
"Not everyone understands Alpine High yet," said Christmann, who became CEO in 2015. "Thoughtful folks looking at the data, they get excited about it and its potential."
As it looks to ramp up its Permian operations, Apache is getting a boost from its Egyptian and North Sea oil businesses. But Wall Street is far more focused on Alpine High than its international areas, seeing it as the company's future.
"The future of Apache rides on the success of Alpine High, so it's a critical area for the company," said Linda Htein, an analyst with consultancy Wood Mackenzie. "There is a great potential for upside, but it's still incredibly early." (Reporting by Ernest Scheyder; Editing by David Gregorio)