Apache Corp. reiterated its optimism for the Alpine High shale play it is pioneering in West Texas in giving Wall Street an update a little more than a year after announcing the vast discovery.

In an Oct. 9 presentation to investors, CEO John Christmann IV reiterated that the discovery of Alpine High in 2016 was "a strategic milestone" for Apache that had been funded by $1.2 billion of asset sales in 2017. While the infrastructure build-out of the play continues, Christmann said, the company now sees the Alpine High as three distinct entities: "an extensive and highly economic wet gas play, a very economic dry gas play on a portion of our acreage and an attractive emerging oil play in the Wolfcamp/Bone Springs [formations]."

"We have come a long way in one year, and Alpine High is getting better," Christmann said. The CEO described Apache's position as including an "extremely large" wet gas play with more than 3,500 highly economic locations, with well costs between $4 million and $6 million and net present values for a regular well averaging between $5 million and $8 million.

"The economics of this play are driven by the low cost and the tremendous volumes of oil and NGLs. Longer laterals provide additional upside to the play's economics," he said. "We also have a dry gas play with over 1,000 highly economic locations. These wells will cost around $5 [million] to $6 million in development, and will generate average [net present values] of $3 [million] to $7 million per well."

The liquids-heavy areas of the play, however, are not as delineated at this point. "Just like in the rest of the Delaware Basin, the Wolfcamp and Bone Springs take some time to map and test. Once understood, they, too, can become prolific producers and highly economic," Christmann said. "Thus far, we have drilled five wells into the para-sequences, with two being very productive, and one of which has been online long enough to be confident it will be highly economic. We still have much to learn in the para-sequences, but we are confident we now have at least 500 locations, and we are equally confident there are more to come."

Christmann said Apache will have spent more than $1 billion on Alpine High infrastructure by the end of 2018 as part of a $3.1 billion multiyear capital program specifically aimed at the play as upstream investment was projected to be cash flow neutral. That plan could be adjusted, however, if oil prices do not reach the projected average of $55 per barrel.

"We are currently updating our 2018 plan, which will incorporate our latest views on production volumes, industry inflation, continued operating efficiencies and possibly a lower oil price assumption," he said.

The size and scope of Apache's plans for the Alpine High left analysts with mixed reviews. Paul Sankey of Wolfe Research said in his commentary on the Apache presentation that the company is likely to outspend cash flow by between $850 million and $900 million at $50/bbl oil.

"To cover the outspend the company has been actively monetizing non-core assets through this year … but an Alpine High midstream monetization is likely a year+ away. We are wary of companies locked into long-cycle investment. Alpine High qualifies as having the cash flow profile of a major offshore project, but without the promise of very high margin future production," he said.

Richard Tullis of Capital One Securities said the presentation should provide some relief for investors interested in the evolution of the Alpine High and called the results "overall positive."

"The distribution is dominated by the 3.5K+ wet gas drilling locations estimated by [Apache] that it sees generating 44% - 300%+ [before tax internal rates of return] at $50 oil & $3.00 nat gas," he said. "At the same time, still not much info on the well results targeting the oily zones."