Apache to shrink stake in Canadian LNG

HOUSTON — Apache Corp. CEO G. Steven Farris says the company plans to cut its stake in a liquefied natural gas project in Canada, part of a strategy to continue shifting its focus towards North American, onshore liquid production.

Farris, who spoke to a handful of reporters ahead of Wednesday’s annual investor day, said the company plans to reduce its 50 percent ownership in Kitimat LNG, a joint project with Chevron that would export natural gas to Asia from a planned facility in British Columbia.

“In 2014, we need to right-size it for us,” Farris said. “This is not a project Apache can afford in 2014.”

Without shrinking its stake, Farris said, the company likely would need to put around $1 billion in capital expenses toward the project this year.

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He said the company has had “serious discussions” with several potential buyers in the Asian market who could take on a greater role in the facility, one of a slew of planned LNG projects in the Kitimat area. Farris said the Apache-Chevron venture could be attractive, since it’s unlikely all of those other projects will get built, and the Apache-Chevron venture is well-along in the permitting process.

Apache initially acquired its stake in the planned export terminal, which had preliminary construction cost estimates of $2.7 billion, in 2010. A year ago, it closed a deal with Chevron that made the venture a 50-50 split between the two companies, with Chevron operating the facility and Apache operating the upstream development of natural gas resources.

Narrowing focus

The move is part of a broader effort to focus the business largely on the Permian Basin and the area around the Texas and Oklahoma panhandles.

In recent months, the company has sold assets in the Gulf of Mexico shelf, Canada, Egypt and Argentina in a series of deals worth nearly $8 billion.

On Tuesday, Farris reiterated the company’s focus on growing the North American, onshore side of its business and shedding some assets as part of a strategy designed to deliver predictable growth and reliable cash-flow.

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It’s a throwback, of sorts, for Apache. From around 1997 to 2008, the company invested all of its capital internationally, Farris said. But in 2009, Apache began retooling,  funneling cash earned from international projects back into North America – the opposite of the strategy it had pursued the previous decade.

“We really had to resize the portfolio in order to make North America big enough to count,” Farris said.

North America growth

Today, North American, onshore production represents about 60 percent of the company’s business, up from 34 percent in 2009. The company’s liquid production in those two regions is nearly four times what it was in 2009, Apache officials said.

This year, Farris said, the company expects total production growth of 5 percent to 8 percent. That largely will be driven by gains in North American, onshore liquid production of 15 to 18 percent, Apache projects.

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Farris also announced a worldwide exploration and production budget of $8.5 billion, a figure that’s roughly equal to Apache’s expected cash flow. About two-thirds of that amount will be allocated to North American, onshore projects. In addition to that figure, the company will invest an addition $1.4 billion in its Wheastone LNG project in Australia.

International investments

While the company is focusing on North America, it hasn’t entirely shed its international presence. Assets in Egypt and the North Sea are expected to generate a total of $1 billion in cash flow in 2014.

Farris said four Australian projects are slated to come online in 2014, generating 18,000 to 25,000 barrels of oil equivalent per day. The Wheatstone LNG hub in Australia will generate $1 billion in annual cash flow for the company once it comes online in 2017, Farris said.

He said the company is excited about experimenting with horizontal drilling in Egypt — a prospect that could hold great promise, given the region’s similarities to the Permian Basin, where Apache has had success. The company has drilled eight horizontal wells in Egypt, where Apache has 6.5 million acres.

Historically, Farris said, it’s been difficult to implement horizontal drilling technology abroad for political and logistical reasons.

“Getting that technology into another country takes time,” he said. “(The) jury’s still out, but I think it has tremendous potential in the western desert.”

Apache’s stock closed at $79.82 percent per share Wednesday, down $3.27 for the day.

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