?The current environment for acquiring oil and gas assets is “the best I’ve seen in my lifetime,” says Apache Corp. chief financial officer Roger Plank, but shaking hands on a deal today is like grabbing a knife.
“You invest one day and the next day you could have gotten it for 10% off. At what point do you grab the knife? At some point it’s going to be irresistible.” Plank spoke to IPAA and Tipro members in Houston recently.
With $4.3 billion in cash and credit available, Apache has the firepower to “take advantage of the carnage, but at this point we haven’t seen anything that is all that interesting to us. We tend to think it will get worse before it gets better.”
In recent years Apache has waited on the sidelines in the acquisition arena, put off by intense competition, and content with drill-bit growth.
“But in our hearts we all drool for acquisitions. We’re at our best when we’re chasing deals for our shareholders.”
Apache is fortunate to be entering this economic downturn with cash on the books, a result of a disciplined philosophy—often questioned—of not outspending cash flow, even in good times, he says.
“While we were accumulating cash we were ridiculed. People said, ‘You should be doing things to add shareholder value,’ ‘You can’t be earning much on that cash,’ and ‘You’re hyper-conservative.’ Thank goodness we did, because it’s clearly a different world today.”
The company has $1.8 billion in the bank. “Our treasurer struggles with the fact that we’ve got all that money in Treasuries, and it’s not earning any interest, but these days it’s nice just to get your principal back, so we’ll accept that.”
Living within cash flow, however, will be particularly challenging this year. “We don’t have a clue what cash flow is going to be. Every time we run a model the price seems to fall.” Apache is currently modeling $4 gas and $40 oil.
Other E&Ps make the mistake of setting a plan at the year’s outset based on an assumed price and not adjusting through the year as the?marketplace changes, says Plank.
“We did that for years before realizing we had to be more nimble. When capital commitments are made, then prices fall away and cash flow doesn’t cover capex, all of a sudden you’re into the banks for more money. You’re hamstrung. We do everything possible to avoid that.”
Conserving cash will be a top priority as well. “We want to have that cash available to go out and buy properties—possibly even companies, if the right one were to come along. We want to come out of the other end of the chute bigger and better for it.”
Plank foresees a period of high acreage turnover in some U.S. shale plays, a sector Apache has bypassed due to high entrance costs. Acreage in these plays will be stirred up by short-fuse leases and constrained capital availability, he predicts.
“Drilling up 31 million acres and holding it by production isn’t going to happen, particularly with cash flows cratering.”
Apache holds some 220,000 net acres in the Ootla shale play in the Horn River Basin of Canada, a joint venture with EnCana Corp., where acreage costs were significantly less expensive and lease terms more generous. Four-year leases are common, and Apache’s entire position could conceivably be validated with only 14 wells, holding the acreage for another 10 years, says Plank.
And with a resource potential of 9- to 16 trillion cubic feet and 100- to 200 billion cubic feet per section, “this could be as big as our whole company over time. It’s hard to fathom that there could be that much gas anywhere.”

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