West Texas Fracking Boom Sputters as Apache Corp. Admits Firm Lost Billions, Cites Alpine High 'Challenges'

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Balmorhea, Texas โ€” Less than four years ago, oil and gas company Apache Corp. announced an oil strike worth $80 billion in one of the most pristine reaches of West Texas โ€”ย the โ€œbiggest oil findโ€ of 2016 โ€”ย which the company dubbed Alpineย High.

Yesterday, Apache officially called it quits in Alpine High, as its business partner revealed that Apache has โ€œno current plans for future drillingโ€ in thatย field.

Alpine High was on the western edge of the Permian Basin in an area that conventional drillers had long rejected, citing disappointing test wells and a lack of pipeline and other infrastructure. While much of the desert to the north and east is dotted with pump jacks, the irrigated fields atop much of Alpine High showed few signs of any oil and gas activity before Apache arrived. Apache had insisted that it had cracked the puzzle of Alpine Highโ€™s geology and planned a multi-decade drilling program sprawling across more than 300,000 acres in Reeves County,ย Texas.

Alpine High drew Apache to drill and frack in and around Balmorhea, Texas, famed for its spring-fed swimming pool and its mid-desert wetlands, home to multiple endangered species and the heart of a long-established tourism industry that brought in over 150,000 visitors a year before drillingย began.


A spring-fed wetland on the outskirts of Balmohrea, Texas. Credit: Justin Hamel ยฉย 2020

In Aprilย 2018, DeSmog reported that Apacheโ€™s highly-touted Alpine High find was producing disappointing amounts of oil and instead coughingย up a high percentage of natural gas. Natural gas prices in the region have at times turned negative as drillers rushed to produce oil from the Permianโ€™sย shales.

โ€œFor Apache, 2019 was a year of both progress and challenges,โ€ CEO John J. Christmann IV said on an earnings call today. โ€œOur most significant challenges were associated with Alpineย High.โ€

In a statement, he pointed specifically to โ€œthe performance of our multi-well development pad tests at Alpine Highโ€ and low gas and natural gas liquidsย prices.

Apache also announced a $3 billion loss for the fourth quarter of 2019 โ€”ย bringing the drillerโ€™s losses for the year to $3.6 billion. During 2019, Apache sank a total of 55 new oil and gas wells in the Permian, the company reported, adding that the wells had โ€œstrong initial production rates.โ€ In the conference call, CEO Christmann said that they had โ€œgenerated highly competitive well results, solid returns, and an attractive oil production growth rate in the Permian.โ€ Nonetheless, the company planned to โ€œreduceโ€ its Permian operations. Altus Midstream Co., a pipeline company spun off from Apache in 2018, also announced losses for 2019 from Alpineย High.

โ€œItโ€™s unfortunate that Apache and Altus exploited this area, despite warnings,โ€ said Sharon Wilson, a senior organizer with the nonprofit Earthworks’ Oil and Gas Accountability Project. โ€œNow this beautiful slice of the West Texas high desert will remain scarred for generations no matter what elseย happens.โ€

Empty Man Camps as Losses Spurย Layoffs

In January, Apache had announced layoffs for its West Texas operations, saying that it would lay off over 270 employees as it shut down its San Antonio offices. On Wednesday, the Midland Reporter-Telegram reported that Apacheโ€™s layoffs extended to its Midland, Texas, offices, in the heart of the Permian Basin, asย well.

Across the broader Permian region, where drillers have produced more oil than gas, hiring has dried up and wages have failed to rise. โ€œPermian Basin payrolls stagnated in 2019, and the unemployment rate ticked up,โ€ the Dallas Federal Reserve reported on Friday, Februaryย 21. The energy sector, the report adds, caused a 4 percentย decline in the โ€œmining, logging, andย constructionโ€ sector, which makes up roughly a third of the localย economy.

Permian man camps
Temporary worker housing, refered to as a man camp, in the Alpine High region of the Permian Basin, Reeves County, Texas. Credit: Justin Hamel ยฉย 2020

Many man camps in and around Balmorhea looked visibly empty this weekend, though drilling rigs still dotted cotton fields and a massive Apache gas processing plant hummed with activity on the outskirts of town. At least four flares towered over a gas processing plant outside Balmorhea โ€”ย a handful of the hundreds of flares that have left parts of the horizon in Reeves County, previously prized by astronomers for its rare dark night skies, glowing in a perpetualย twilight.

In the broader Permian Basin, drilling continues, with Baker Hughes tallying 409 drilling rigs in the Permian as of Februaryย 21, up by one from the prior week but down by 64 from a yearย ago.

Until yesterday, it had appeared that Apache planned to continue drilling operations in Alpine High, but at a reducedย level.

Pipeline company Altus announced its own major loss from Alpine High. โ€œWhile operational execution was very strong, our financial results in 2019 were impacted by declining activity levels at Alpine High,โ€ Clay Bretches, Altus Midstream CEO and President, said in a statement released yesterday. โ€œApache has no current plans for future drilling at Alpine High. As a result, Altus took an approximate $1.3 billion impairment charge on its gathering, processing, and transmissionย assets.โ€

The company still appears positioned to continue producing from its existing wells and several other drilling companies have arrived in Reeves County since Alpine High wasย announced.

Altus added that if gas prices at the Waha hub continued to be unfavorable, they expected Apache to cut gas production from its previously drilled Alpine High wells by up to 20ย percent.

Hype Overtookย Sanity

Apache plans to focus its efforts on offshore drilling alongย the coast of Suriname in South America, where it confirmed a new discovery in January of thisย year.

The move away from shale drilling and fracking in Alpine High was met with approval from Wall Street, which had initially greeted Apacheโ€™s oil find with an influx of investment, but soured on the firm as Alpine High proved gassier than Apache had hoped. Apacheโ€™s share price has trended sharply downwards from the end of 2016, when it traded at over $60 a share, to today, when a share cost $25.07 as marketsย closed.

The Alpine High pullout appeared to move Apacheโ€™s stock price higher, analystsย said.

โ€œDespite the broad market sell-off today and a massive $2.7 billion write-off, Apache’s stock actually rose sharply after this morning’s earnings announcement,โ€ said Clark Williams-Derry, an energy financial analyst at the Institute for Energy Economics and Financial Analysis. โ€œAll told, it looks like these companies [Altus Midstream and Apache] wasted about $4 billion on the risky Alpine Highย gamble.โ€

Spring-fed canal through Balmorhea, Texas
A spring-fed canal runs through the town of Balmorhea, Texas. Credit: Justin Hamel ยฉย 2020

โ€œIn the short term, investors are right to applaud Apache’s decision toย abandon its Alpine High plans,โ€ he added. โ€œBut over the long term, this is a perfect example of how hype overtook financial sanity in the shaleย boom.โ€

Amid the flaring crisis in the Permian Basin โ€”ย described by Pioneer Natural Resources CEO Scott Sheffield as a โ€œblack eyeโ€ for the industry โ€”ย Apache had worked to market itself as a more responsible driller, citing its long-term agenda in Reevesย County.

Nonetheless, Earthworks has documented pollution coming from Apache oil and gas sites,ย including a series of three videos, one in 2018, one in 2019, and one in 2020, showing plumes of emissions coming from the sameย tank.

Environmentalists also honed in on the costs of shale projects, noting that Apache and Altus are not alone in racking up losses from gambles onย shale.

The losses are โ€œa preview of the impacts of the inevitable decline of the oil and gas industry on a broad scale,โ€ Wilson said. โ€œThis announcement sends an unmistakable signal to potential investors: back away from oil and gas infrastructureย investment.โ€

Sunset in Alpine High area of Permian Basin
Sunset in the Alpine High region of the Permain Basin. Credit: Justin Hamel ยฉย 2020

ย 
Main image: Oil and gas company Apache’s cryogenic processing plant at the Diamond facility in the Alpine High region of the Permian Basin. Credit: Justin Hamel ยฉย 2020
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Sharon Kelly is an attorney and investigative reporter based in Pennsylvania. She was previously a senior correspondent at The Capitol Forum and, prior to that, she reported for The New York Times, The Guardian, The Nation, Earth Island Journal, and a variety of other print and online publications.

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