U.S. oil and gas explorer Apache Corp. (APA) announced positive results from an offshore natural gas site (Zola-1) in Western Australia’s Carnarvon Basin, building on the integrated energy company’s leading position in this hydrocarbon-rich area.
Situated in the WA-290-P permit area which comprises approximately 119,000 acres, the Zola-1 well encountered 410 feet of net pay at a depth of 13,450-15,100 feet below sea level with excellent reservoir characteristics.
Apache believes that the thickness and quality of the reservoir sandstone – established above estimates – augurs well for the company. Additionally, the proximity to the massive Gorgon natural gas field and closeness to the existing/developing gas infrastructure is likely to broaden the development options for the Zola-1 project, as well as cut the time and/or cost required.
Apache has a 30.25% operated interest in the prospect, with the other partners being Santos Ltd (24.75%), OMV Australia (20%), Nippon Oil Exploration (15%) and Tap Oil (10%). Following the conclusion of operations on the Zola-1 well, Apache’s Australian subsidiary plans to work with the other stakeholders in finalizing the way forward, including appraisal drilling and development options.
Founded in 1954, Houston, Texas-based Apache is one of the world’s leading independent energy companies engaged in the exploration, development and production of natural gas, crude oil and natural gas liquids.
Apache currently retains a Zacks #3 Rank (short-term Hold rating), in line with its closest peers Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN). We are also maintaining our long-term Neutral recommendation on the stock.
We like Apache’s large geographically-diversified reserve base, its balanced exposure to natural gas and crude oil, and its multiyear trends in reserve replacement and production growth. A pristine balance sheet helps the company to capitalize on investment opportunities and strategic acquisitions, thereby further improving growth visibility.
However, taking into consideration Apache’s sensitivity to gas/oil price volatility, as well as drilling results, costs, geo-political risks and project timing delays, we see limited upside potential for the stock. As such, we expect Apache to perform in line with the broader market.
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