In its week that ended on April 17, 2018, Apache Corporation (APA) rose 5.3%. APA stock has generally been on an uptrend since the beginning of this year supported by crude oil prices.
However, on a year-over-year basis, APA stock has fallen 21.2%, while crude oil prices have risen 26.5% in the same period.
What could be holding APA back?
Just over a year ago, in September 2016, Apache announced a major oil discovery in the Delaware Basin, Texas. The new resource play, called Alpine High, is located in the southern portion of the Delaware Basin, in the Permian Basin.
With expectations running high for Alpine High (read The Latest on Alpine High: Behind APA’s Strategic Goals), investors were disappointed after APA reported lower 4Q17 production levels compared to 4Q16. The fall in production came as a result of APA’s exit from Canada last year. However, the commencement of production at Alpine High and oil production growth in the Midland Basin offset the fall.
The company is forecasting 7%–13% production growth and 9% oil growth in the Permian in 2018. In comparison, oil and gas peer Oasis Petroleum (OAS) is forecasting production growth of 23% compared to 2017.
A key factor driving the slower production growth forecast in 2018 could be the infrastructure buildout at Alpine High that APA is currently focusing its efforts on to support production. To learn more, read Your Alpine High Infrastructure Update: What’s the Latest?
APA began the construction of its Alpine High infrastructure capacity in November 2016, with the first gas flowing to sales in May 2017.
What to look forward to
Between 2018 and 2020, Apache expects to invest ~$7.5 billion in its upstream operations and an additional $1 billion in its midstream operations at Alpine High. In this three-year period, the company expects a compound annual production growth rate of 11%–13%.
A key update APA provided in its October 2017 webcast was that by May 2018, it expects the Alpine High play to have completely replaced the ~50 Mboepd (million barrels of oil per day) of production it divested via its Canada exit last year. It also expects the margins on its Alpine High production to be higher than its Canadian margins.