Following the approval of seven new development leases in the Faghur Basin, Apache Corporation (APA) has further boosted its production in Egypt’s Western Desert.
Apache currently drills approximately 203,000 barrels of oil and produces 880 million cubic feet (mmcf) of gas per day in Egypt, about 3% higher than the 2011 level. With the addition of the new leases, the company’s production increased by 5,200 barrels per day in the oil play.
Per the terms of production-sharing agreements with the government, Apache is entitled to receive a net production of about half of the gross output.
Over the past few months, Apache achieved a number of successes in the Faghur Basin with the exploration of West Kalabsha South-1X and WKAL-N-1X wells. Year to date, the company has drilled 8 development wells in the region and targets to spud 14 more during the year. Currently, the company is drilling 3 wells in the region.
The latest well – Neilos-2 – drilled to evaluate the north flank of the Neilos Field and is estimated to hold 33 feet of net pay in the Jurassic Safa reservoir. The well’s daily production capacity is expected to be about 6,301 barrels of oil and 4.2 mmcf of gas.
Apache stated that it is acquiring and evaluating 3-D seismic surveys in the 10 million acres in the Western Desert in an attempt to improve the drilling inventory. The company has completed two such surveys in the Faghur Basin in order to identify exploration prospects across the Sallum and Shushan concessions.
We believe that Apache’s discovery of new Faghur fields over the past few months is mostly attributed to the company’s sound regional understanding coupled with efficient and knowledgeable personnel.
Earlier in 2010, a subsidiary of Apache paid $650 million to BP plc (BP) to acquire four development leases and one exploration concession in the Western Desert.
We believe that Apache is characterized by large geographically-diversified reserve base, successful drilling works and strong production growth outlook. The company also exhibits a strong financial position, which will enable it to capitalize on investment opportunities and pursue strategic acquisitions, thereby further improving growth visibility.
However, our optimistic view on the company is clouded by the unstable gas/oil prices, geopolitical risks associated with international operations and project costs overruns and delays.
Apache currently retains a Zacks #3 Rank (short-term Hold rating). We are also maintaining our long-term Neutral recommendation on the stock.
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