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Apache beats earnings estimates, but driller's shares slide

Apache Corp. beat fourth-quarter 2017 profit estimates but still saw its stock hit a 52-week low amid concerns about the slowly emerging Alpine High shale play the company pioneered.

Apache reported adjusted net income of $126 million, or 33 cents per share, for the fourth quarter. That beat S&P Global Market Intelligence's consensus normalized earnings estimate of 25 cents per share. With an increased emphasis on the Permian Basin and the Alpine High, Apache reported total U.S. production of 222,000 barrels of oil equivalent, up 7% from the third quarter, with U.S. oil production increasing to 98,000 barrels per day.

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"In 2017, we returned the Permian Basin to a growth trajectory, exclusive of Alpine High, with a relatively limited capital program and clearly demonstrated that Apache possesses high-quality acreage and can deliver leading well results," CEO John Christmann said. "We anticipate sustained, high-return growth from the Permian for many years to come."

Apache announced a $3 billion capital expenditures budget for 2018, including $500 million to build out midstream infrastructure related to the Alpine High, part of the Delaware Basin in West Texas. Approximately $1.6 billion, or two-thirds, of the company's upstream budget will be devoted to the Permian. The company will be busy in the Alpine High as it works to hold acreage by production as other producers look to encroach on the new find.

"We plan to operate 13 to 15 rigs during the year, with six to seven at Alpine High, three elsewhere in the Delaware Basin and four to five in the Midland Basin," Executive Vice President of Operations Support Timothy Sullivan said on the earnings call Feb. 22. "At Alpine High, we plan to drill 85 to 95 wells during 2018. This will comprise approximately 50% development retention wells and 50% delineation wells."

While Christmann said the build-out of Alpine High midstream assets is a "critical piece of the story for the near term" at Apache, he said the company is also looking for ways to monetize portions of the infrastructure once it is completed. "We must strategically control the build-out of the infrastructure to meet the needs of the upstream. We do not need to own 100% of these assets for the long-term level, and we are studying strategic alternatives that will ensure we capture the value we are creating and will free up cash flow by eliminating future capital."

Despite the positive returns for the quarter and increased U.S. production totals, Apache shares tumbled more than 6.3%, or $2.35, to $34.85 on the NYSE on Feb. 22.