Apache (APA) shouldn't get too far ahead of itself with its recent discovery of what could be as much as 3 billion barrels of pay dirt in Texas' Permian basin.
It may need to tap a partner before it gets its hands dirty.
Candidates that come to mind include Permian-focused drillers like Pioneer Resources (PXD) and Cimarex (XEC) , both of whose shares have already become "overheated" from hype in the region and this year's general recovery in crude prices, Real Money's Dan Dicker said in a recent phone interview. Getting in on Apache's new ground would certainly be a score for shareholders.
Other key players who have operated in the region include Exxon Mobil (XOM) , Chevron (CVX) and ConocoPhillips (COP) , as well as Chesapeake Energy (CHK) and Southwestern Energy (SWN) , both members of Real Money's Stressed Out watch list.
The 307,000 drillable acres in the Alpine High region of the Permian was unveiled last week in an Apache earnings call, in which the Houston exploration company's chief, John Christmann, boasted that the expected $1,300 value per acre is "just amazing" and likely to come at a "very, very low entry cost." But not all are so confident.
A Jefferies analytics team recently pegged a $2.7 billion value on the Alpine High discovery, could require "significant investments" and possibly a partner in establishing the required infrastructure including a wet gas pipeline. "The impact is a capital-intensive project with a likely long development timeline," Jefferies analyst Jonathan Wolff said in a recent investment note.
Dan Dicker argues that many of the Permian stocks have become "overheated" relative to the price of oil, and that the real beneficiaries in the future will be owners of acreage similar to the Alpine High region. He said the value of a comeback of crude prices and recent discoveries have already been "priced in" to Big Oil stocks.
"Apache says they can frack in places where it was previously impossible," Dicker told Real Money, highlighting that technical innovations could hike the property value of previously inaccessible terrain.
As RBN Energy recently noted, the shale revolution has lately become highly concentrated on only a few key areas, with about 50% of all onshore rigs in the lower 48 states clustered in just 20 counties, primarily with "sweet spots" primarily in western Texas and North Dakota.
But as Apache begins to look toward new ground, industry peers are likely to jump on the bandwagon. As for Apache's newfound technological developments that made the new find possible, "It won't stay a secret for long," as Dicker puts it.
