US Apache Cuts Output as Waha Plummets
US producer Apache deferred gas production from its Alpine High play late March, in response to extremely low prices at Waha Hub, it said April 23. This now amounts to about 250mn ft³/day of gross gas production as Waha prices have been down to a few cents/mn Btu or sub-zero, meaning that oil producers have had to pay to dispose of associated gas.
Several US LNG projects, including Tellurian's Driftwood LNG, are aiming to exploit the relatively low-priced Permian basin as a source of long-term, cheap feedstock gas.
Apache CEO John Christmann said: “As far back as two years ago, Apache foresaw the potential for gas takeaway constraints in the Permian Basin and initiated two significant mitigating actions. First, we contracted more than 1bn ft³/day of long-term, firm takeaway capacity from the Permian Basin, on the Kinder Morgan-operated Gulf Coast Express and Permian Highway pipeline projects. Gulf Coast Express is expected to be in service later this year, and Permian Highway is expected to be in service later in 2020. At such time, Apache will be selling the vast majority of its Permian gas at a variety of Gulf Coast price points. Second, to address the pricing risk prior to these pipes coming into service, we entered into a series of basis swaps on a significant portion of our expected Permian Basin gas production through the middle of 2019. These swaps significantly mitigate the impact of current Waha pricing.
“We anticipate relatively wide and volatile natural gas price differentials in the Permian Basin until the Gulf Coast Express pipeline enters service. As a long-term returns-focused company, we know that production deferrals such as this will improve financial performance despite the impact on near-term volumes. This is the proper approach from both an environmental and economic perspective relative to other industry practices such as flaring or selling associated gas at a negative or unprofitable price,” he said.
“We will closely monitor daily pricing and return our gas to sales when it is profitable to do so. We are carefully managing these actions so there is no adverse impact on long-term wellbore integrity or reservoir productivity and look forward to returning this production to market as soon as practical,” he said.
Apache will further address the impact of deferrals in its second-quarter Alpine High production guidance with the release of its first-quarter results on May 1. Planned rig count and well completions are unchanged, and the company is reiterating its year-end 2019 Alpine High exit rate guidance of more than 100mn barrels of oil equivalent/day.