Apache defers Permian gas production citing weak prices

Apache has temporarily reduced natural gas production from its Alpine High play in the Permian basin due to extremely low prices at Waha Hub.

The production volume deferrals began last month and represent 250 million cubic feet per day (MMcf/d) of gross gas production.

According to the company, the measure will positively impact its cash flow in the near term.

The reductions will not affect pipeline firm Altus Midstream Company’s 2019 EBITDA guidance range. Apache holds a majority interest in Altus.

Prices for gas produced in the Permian basin are set at the Waha Hub. Early this month, spot prices at the hub declined to a record low of negative $4.28 per million British thermal units (MBtu), reported Reuters.

Apache CEO and president John Christmann stated that the company took measures in anticipation of the potential for gas takeaway constraints in the Permian Basin.

The first measure involved booking firm takeaway capacity of more than one billion cubic feet per day (Bcf/d) on the Kinder Morgan-operated Gulf Coast Express and Permian Highway pipeline projects. These pipelines are yet to be placed into service.

The second mitigating action was initiated to address the pricing risk prior to these pipes coming online.

Apache hedged a significant portion of its expected Permian Basin gas production through the middle of this year. The company believes these swaps will help mitigate the impact of current low prices at the Waha hub.

Christmann said: “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 stated that the company will continue to monitor daily pricing and return the gas to sales at an appropriate time.

Christmann added: “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.”

The production delay is expected to have no significant bearing on oil production at Alpine High.

Apache has reiterated its Alpine High exit rate guidance of more than 100,000boe/d by the end of the year.