Apache's Harris touts firm's aggressive, 'lean and mean' drilling strategy

Nina Rach
Drilling Editor

Houston-based Apache Corp. had a stellar year in 2003, with 22% growth in production, 26% growth in reserves, and a 330% reserve replacement rate. It was a year in which "everything went right," said Mike Harris, Apache's director of worldwide drilling.

The year's results are the fruit of a corporate strategy that stresses aggressive exploration and development drilling while keeping a tight rein on costs.

The company completed $1.5 billion in acquisitions from BP PLC and Royal Dutch/Shell Group in 2003. Early in the year, BP sold Apache its 96.14% stake in the UK North Sea's Forties oil field as well as some shallow-water Gulf of Mexico properties for $1.3 billion.

Apache entered the North Sea arena and set out on an ambitious program at Forties, including successfully removing the rig from Forties field's Echo platform in order to place GlobalSantaFe Corp.'s Galaxy I jack up over the structure. As an example of how Harris believes Apache will add value to its assets in the North Sea, the removal project came in 58% under the original estimate and 18% under the revised estimate, partly because the company was able to avoid using a crane barge in the platform rig removal—a first in the North Sea.

In a January analysis of the 2004 North Sea rig market, Simmons & Co. International, Houston, noted, "Apache's recent contract with Global Santa Fe's Galaxy I and Galaxy III rigs for drilling over the Forties Echo platform is another good example of an aggressive program being put together by new asset owners [in the North Sea]."

Apache's new holdings in the 62 small Gulf of Mexico fields acquired from BP complemented the firm's already substantial operations in Texas and Louisiana.

In mid-2003, Apache bought additional Outer Continental Shelf assets from Shell for $200 million, including 15 operated and 11 nonoperated properties. This acquisition made Apache the No. 1 acreage holder in leases held by production on the Gulf of Mexico shelf.

The company considers itself extremely adept at adding value to property acquisitions in mature basins by increasing production and reserves.

Finding drilling solutions
Harris says Apache staff find cost-effective, practical solutions to long-standing technical or procedural problems. Quoting from drilling personnel from recent trips to the UK and Australia, Harris says: "Apache is about attitude: We do remarkable things because we believe it is possible."

For example, in addition to the North Sea rig removal project, Harris cited Apache's innovative use of the Ensco 56 jack up drilling rig to install a dozen small wellhead platforms in the Carnarvon basin off Australia.

Apache drilled 1,144 company-operated wells in 2003, drilling a total of 5.2 million ft. This included 802 wells in Canada, 122 in the central US, 101 in Egypt, 60 in the Gulf of Mexico, 34 off Australia, and 25 off China.

In July 2003, Apache achieved its first Chinese production, from the company's Zhao Dong block, in the shallow waters of Bohai Bay off Northeast China, after installation of the drilling-production platform only 5 months earlier.

Harris points out that the worldwide Apache-operated wells were drilled for 97% of their total budgeted amount.

Also, an aggressive drilling performance plan for 2003 helped the company focus internally and externally for improvement ideas. One indicator of the 2003 drilling success was that the number of wells that recorded over 3,000 ft of progress in 1 day tripled last year from 2002 levels.

Application of proven technology in Apache's 2003 drilling campaign included factors such as aggressive use of new bit technology and its application in every region, use of rotary steerable systems in directional wells and straight-hole motor systems to improve penetration rates in various regions, casing drilling in China and South Texas, coiled tubing drilling in Canada, and the use of logging-while-drilling tools to replace wireline logs in Australia.

2004 plans
Apache will continue to be active in North America. The company controls about 3.3 million acres in western Canada. Harris says Apache will drill about 370 wells in Canada in the 2003¿04 drilling season, in the Colville Lake area just east of Yukon and in Saskatchewan, Alberta, and British Columbia.

Harris said there are over 200 wells planned for the central US, including the Anadarko and Cherokee basins and deep Springer play in Oklahoma, as well as Southeast New Mexico and West and East Texas.

Apache intends to drill about 100 wells in the Gulf Coast region in 2004. This includes wells on the properties acquired from BP and Shell in 2003.

The company's planned capital expenditure for the North Sea in 2004 is $275 million. Harris said the company would probably drill 12 wells from the Echo jack up and 4 wells each from the Charlie and Delta platforms, also in Forties field.

Harris said that Apache would drill over 100 wells in Egypt in 2004, primarily in the Western Desert, where it has been particularly successful in increasing production to a record 102,000 b/d of oil in 2003. After four discoveries in the last 2 years, further drilling and testing of its deepwater play in the Mediterranean Sea off western Egypt is also possible.

Off northern Australia, the company plans to drill about 50 wells in 2004, including exploration, appraisal, and development wells in the Carnarvon basin, as well as in the Exmouth subbasin off Northwest Australia.

Finally, elsewhere in 2004, Apache is planning additional exploration and development of its concessions in Argentina and China.

Balanced portfolio
Apache uses a balanced-portfolio business model to deliver consistent results. Assets are geographically diverse and provide a mix of products.

The company has been active in mature North American basins (Anadarko, Permian, Gulf of Mexico), and about a third of its North America production comes from the prolific Western Canada Sedimentary Basin and Williston basin in Western Canada.

Production outside of North America accounts for about 36% of Apache's E&P portfolio. Operations in Egypt and Western Australia, in particular, have provided good opportunities for growth.

Harris says the hallmark of Apache success is the achievement of continuous profitability and growth while maintaining a strong balance sheet. Harris says that Apache is the only A-rated company for debt in its peer group and at the beginning of this year had an enviable 26% debt to capitalization ratio.

The company has a market capitalization of over $14 billion and earned a record $1.16 billion in 2003.
Harris voiced enthusiasm about Apache's long-term strength and viability. The company emphasizes holding down costs and encouraging employees to do their best to improve efficiency. As a result, annual production per employee has doubled from 1992 to 2003.

Apache is a "lean and mean" company, with only 2,300 employees worldwide.

Harris points to the company's electronic newsletter, Arrows, as an effective communications tool among Apache's worldwide staff. He sees initiatives such as the new 3-year engineering development program as helpful in training and retaining quality staff, to avoid the "brain-drain" so common in the industry today

"The whole deal with Apache is getting the best out of people, recognizing them as professionals, and giving them the responsibility of 15 years ago," Harris explained to a luncheon audience at Houston's Petroleum Club sponsored jointly by American Petroleum Institute in early March.


Career Highlights

Mike Harris is director of worldwide drilling for the exploration and production technology group of Houston-based Apache Corp. He has been in his current position for 4 years. Prior to joining Apache, Harris was BP PLC's regional drilling manager for the Gulf of Mexico.

Employment
Harris began his career with Exxon Production Research Co. in chemical, and then production, research. He has over 20 years experience in drilling and completions operation and management with BP predecessor Amoco Corp. and BP Amoco PLC as drilling manager in the US, UK, and Netherlands and as drilling superintendent in Denver, Oman, and the Philippines.

Education
Harris graduated from the University of Arkansas with a bachelor's degree in chemical engineering in 1973.

Organizations
Harris is a member of the Drilling Engineering Association and serves on the DEA advisory board as vice-chairman. He is also a member of the Society of Petroleum Engineers and is conference chairman for the 2005 SPE/IADC Annual Drilling Conference in Amsterdam. Harris is also a member of the advisory board for the Deep Offshore Technology Conference.

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