Apache hunts gas for regulated markets

David Knott
London
[email protected]

Many of the world's gas suppliers see supply markets that are preparing for liberalization as an opportunity, but not Apache Corp., Houston.

You would expect an unconventional view from Apache, which prides itself on its independence and directness: the company titled a recent corporate brochure "Against the grain."

Apache was founded in 1954 by Raymond Plank, now chairman and chief executive officer. He guided the company from small beginnings to its current position of the world's 25th largest oil and gas company.

"Now we're aiming to have the critical mass to be global," said Plank. "We're focused and growing, with net production of 70,000 b/d of oil and 625 MMcfd of gas and estimated reserves of more than 500 million bbl of oil equivalent.

"We have a simple strategy: maximize production and don't fall in love with inventories. North America is our cash cow, enabling us to grow internationally through drilling and acquisitions."

E&P projects

Outside North America, Apache's hottest areas are Western Australia, Egypt, and China, where drilling and development work are under way.

Australian income is expected to pass $100 million next year with first oil production from Stag field. Apache has also acquired acreage from Mobil Corp. under a $310 million deal.

Apache has three rigs drilling off northwestern Australia and reckons it may prove more than 2 tcf of gas in Reindeer prospect and up to 1 tcf in Lepus, while a well in Wonnich prospect has just cut 200 ft of gas pay.

Egyptian revenues are also expected to pass $100 million next year, while drilling costs are anticipated to amount to $200 million. Apache is involved in 14 discoveries made in Egypt in the last 2 years and in projects to transport output via pipeline to Alexandria and Cairo.

Off China, Apache's Zhao Dong block in Bohai Bay has yielded a number of discoveries, including one that flowed 15,300 b/d of oil on test, which Plank claims as the best exploratory well test results to date for China.

Apache is completing a proposal to China's government for a $230 million field development on Zhao Dong block, with first oil intended for mid-1999 and output expected to reach 40,000 b/d.

Apache has also acquired acreage in Poland for exploration, has a 500 bcf gas find off Cote d'Ivoire with a gas supply contract, and plans for gas supply in Indonesia.

Carpetbaggers

"We prefer to do business in countries compatible with rapid catch-up or expansion of standards of living," said Plank.

"Egypt's GDP is growing faster than its population, and the same goes for China. Australia's siting on the Pacific rim is good, and the country is moving to more domestic use of gas."

Plank also chose developments in these countries because they are expected to be able to sell gas into regulated markets.

"A new class of carpetbaggers is growing up through gas market deregulation," said Plank. "When a government takes a market that is regulated at the consumer level, then deregulates in the middle, the gas producer is whipstocked.

"In the U.S., deregulation led to modification of monopolies at gathering stations. It's not pleasing for producers there, with gas price volatility of 15%. Too large a percentage of what the consumer pays is scooped off by middlemen."