Apache Corp. is deferring 250 MMcf/d of gas production from its West Texas Alpine High play in response to low gas prices at the Waha Hub pricing point.
The producer began production cutbacks in late March "in response to extremely low prices at Waha Hub," Apache said in a statement Tuesday.
"We anticipate relatively wide and volatile natural gas price differentials in the Permian Basin until the Gulf Coast Express pipeline enters service," Apache President and CEO John Christmann IV said.
"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," he said.
Large volumes of gas produced in association with oil output in the Permian Basin, coupled with a scarcity of pipeline infrastructure to move that gas to markets has caused gas prices in the region to plunge, even veering into negative territory several times this spring.
Christmann said Apache would keep a close eye on daily gas price movements and return its Alpine High volumes to sales when the producer deems it profitable to do so.
"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," he said.
Apache had anticipated the current pipeline-constrained situation in the Permian Basin two years ago and had taken steps to deal with it, Christmann said.
"First, we contracted more than [1 Bcf/d of long-term, firm takeaway capacity from the Permian Basin, on the Kinder Morgan-operated Gulf Coast Express and Permian Highway pipeline projects," he said.
Pipeline developers expect to place Gulf Coast Express into service later this year, while Permian Highway is expected to be in service later in 2020.
When those two lines are placed into service Apache will be able to selling the vast majority of its Permian gas at several Gulf Coast price points, Christmann said.
"Second, to address the pricing risk prior to these pipes coming into service, we entered into a series of basis swaps on a significant portion of our expected Permian Basin gas production through the middle of 2019. These swaps significantly mitigate the impact of current Waha pricing," he said.
