In an unexpected role reversal, in September EOG Resources Inc.—known for its organic growth model—announced it would pay $2.5 billion for a private company with a massive footprint in various basins, and Apache Corp.—known as a serial acquirer—announced the discovery of a major play in the Permian when just about everyone thought onshore exploration was dead.

Both are examples of seasoned E&P companies seizing unique opportunities to expand during the downcycle and position for future growth.

EOG is acquiring 93-year-old Yates Petro­leum Corp., which holds 1.6 million net acres in the Delaware, Powder River, San Juan, Par­adox, Uinta-Piceance, Green River, D-J and Williston basins. Most pundits, and EOG itself, have homed in on the Delaware aspect of the acquisition, where Yates’ position in New Mexico nicely intertwines with EOG’s preexist­ing acreage.

The 1,700 added locations here will double EOG’s “premium” drilling inventory, “and that’s really just a first pass,” said EOG CEO Bill Thomas in a conference call. Read between the lines, and EOG sees a plethora of future drilling locations as yet untested on the acqui­sition acreage.

In the call, Thomas spelled out what spurs the company to make an acquisition: The acreage must be as good as or better than EOG’s exist­ing acreage; it must come at a fair price; and it must be funded in a prudent manner, allowing the company to maintain a strong balance sheet.

“This isn’t about getting bigger; it’s about get­ting better,” he said. “Yates improves the quality and depth of our acreage position in some of the most important resource plays in the U.S.”

Analysts estimate EOG is paying about $6,500 to $8,500 per acre for the Dela­ware, well below recent big-ticket Delaware values, although the acres are farther north than recent deals.

Less talked about are the 200,000 acres in the Powder River Basin that come with the deal, which also intersect with and double EOG’s existing portfolio there, and the 1.1 million acres elsewhere in the Rockies. Pearce Ham­mond with Simmons & Co. said in a report, “We believe this additional acreage represents under­appreciated option value in this transaction.”

Bernstein’s Bob Brackett sees $4 billion of value in the deal, “making the purchase price of $2.5 billion a bargain.”

Apache, on the other hand, has been silent on the acquisitions front, and instead turned its attention to deftly crafting a 300,000-acre foot­print in the far southern reaches of the Delaware Basin abutting the Davis Mountains. Here, it is working to prove up a new resource play it has coined “Alpine High,” which it believes stores some 75 trillion cubic feet of rich gas in place, and 3 billion barrels of oil in the Woodford and Barnett formations.

“While other companies have focused on acquisitions during the downturn, we took a contrarian approach and focused on organic growth opportunities,” said Apache CEO John Christmann.

“Today is the culmination of a transforma­tion that’s been underway for several years,” he said on a call. “We have the ability to grow organically.”

This announcement represents “a new strate­gic bet,” said Brackett in a report. “We wonder aloud whether this first strategic bet represents a new core Apache capability.”

This patch of West Texas scrub overlays a Paleo shelf at the edge of the Delaware Basin with wet gas and oil potential. These zones certainly are not undiscovered, but like the Eagle Ford Shale at the time Petrohawk Energy revealed that play, this is the first time a com­pany has tested them with modern completion technologies.

Most of Apache’s test wells to date have delineated the Woodford with average 24-hour initial production rates of 6.7 million cubic feet of gas per day and 800 barrels of NGL. But the play features up to 5,000 feet of stacked pay with upside in the Barnett, Bone Spring, Wolf­camp and Pennsylvanian. Christmann foresees 2,000 to 3,000 drilling locations in the Woodford and Barnett alone, targeting one bench in each, but suggests “we probably could put three land­ing zones in each—easily.”

Apache believes in the play so much that it is directing a full 25% of its capital budget to holding the acreage.

“We have the ability through creative and innovative exploration capabilities to find new plays in North America,” Christmann said. “We’ve been playing offense, and we’re very excited about where we sit today.”

So whether acting on a “once-in-a-lifetime opportunity” to transform by acquiring a neigh­bor, as Thomas characterized the Yates deal, or by hiding under the cover of low commodity prices to stealthily lease and test a massive new play, both EOG and Apache are now poised to grow exponentially coming out of this downturn.

Hear first-hand Apache Corp.’s John Christmann delve further into the Alpine High play at Hart Energy’s Executive Oil Conference, Nov. 7-8 in Midland, Texas.

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