How Gassy Will Apache Go?

The Daley Note: October 26, 2022

During the first week of October, East Daley's Midstream Activity Tracker spotted a second Apache (APA) rig on its Alpine High acreage in southwest Reeves County, TX. That second APA rig vanished the following week, prompting us to wonder whether APA would reconsider the gassy play.

APA’s commitment has been in question since the producer unveiled the Alpine High extension in the southern Delaware Basin. The gas-prone play was a disappointment for investors looking for more Permian liquids. But with Henry Hub hitting 14-year highs this year and trading over $5/MMBtu for the coming winter, perhaps Apache would reconsider its natural gas exposure.

Now owned by Kinetik (KNTK), the Alpine High system has seen volumes decline with little to no rig activity from late 2020 up until this summer, when Apache began running a single rig. We assume that rig is to fulfill APA’s commitment to the deal with BCP Raptor for the purchase of Altus Midstream, Apache's former midstream spinoff.

East Daley is in the News.  Click here to read a new Natural Gas Intelligence article highlighting East Daley's natural gas market perspective. Rob Wilson, EDA Vice President of Analytics, warned the LDC Gulf Coast Energy Forum of oversupply on the horizon. "By the end of next year, East Daley projects there could be more than 5 Bcf/d in added natural gas production, flooding domestic markets," NGI wrote.   

We track Apache's rigs through our Midstream Activity Tracker, the industry's only product monitoring weekly and monthly changes in rig activity by G&P system and operator. The Midstream Activity Tracker provides a unique midstream perspective on oil and gas upstream trends. Click here for a free MAT sample.

We also reviewed the newly formed Kinetik in a Midstream Navigator for subscribers last week (see our Oct. 19 Navigator, “Kinetik is Making Waves in the Permian”). We are fairly bullish on KNTK’s outlook, though it is the nearby EagleClaw G&P system, rather than Alpine High, that drives our view.

The figure reviews volumes for the Kinetik - Alpine High G&P system from East Daley’s Energy Data Studio. We currently model 325 MMcf/d flowing through the Alpine High system with ample room to grow, including 1 Bcf/d of effective capacity and NGL egress via the Shin Oak Pipeline. We expect KNTK to fill some of this capacity with spillover volumes from the newly interconnected EagleClaw system.

Whether APA is increasing its drilling commitment on the Alpine High acreage is unclear; we will be watching for further company guidance. However, continued drilling activity and incremental growth on the system would provide a positive boost to KNTK’s earnings, given a favorable commodity price environment on this underutilized system. – James Taylor Tickers: APA, KNTK.