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How low can oil go?
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February 11, 1998: 4:05 p.m. ET
Apache Corp.'s CEO talks about the outlook for the oil and gas industry
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NEW YORK (CNNfn) - Apache Corp. is a large oil and gas company that is active in many parts of the world, including the Middle East and Asia. Raymond Plank, Apache's chairman and chief executive officer, joined anchor Lauren Thierry on CNNfn's "In Play."
The two discussed Plank's outlook for his company and the industry as a whole.
Here is a transcript of that interview.
THIERRY: Overall, last fall oil was $20, now it's $16. A year ago it was even higher, surely this has to be of concern to you.
RAYMOND PLANK, CEO, APACHE CORPORATION: Yes, oil is a very volatile commodity, and at the present time it's actually selling about $6 per barrel below what it was a year ago.
THIERRY: And you fund your expenditures from your cash flow?
PLANK: We fund most of our activity from cash flow, and this year it's our intention to fund it entirely from cash flow.
THIERRY: Actually, you're building an international asset portfolio for shareholders, right?
PLANK: We do operate internationally. We set our strategy about a decade ago, and in our best year to date in 1997, when earnings were $1.71 a share and cash flow was $5 -- $6.74 a share. Two of our international core areas crossed the $100 million a year mark in revenues. That was Egypt as well as --
THIERRY: Let's talk a little about Egypt. What are your gross prospects for Egypt short-and long-term?
PLANK: Our growth prospects are excellent, Lauren. We have there about 25 million acres primarily on the western desert of Egypt. We will be drilling probably 25 exploratory wells there. Our results to date have been very satisfactory to us. We will also be drilling a number of developmental wells. We will be seeing our first natural gas come to market under long-term contracts in the year 1999.
THIERRY: Let me just ask you right there. You're talking about 1999. You're talking about a market that behaves in such a short- term fashion, everything is short term, short term, and yet in your line of work, it's got to take you two years to build an oil rig. How do you reconcile the short-term necessities of the market with your long-term prospects?
PLANK: Reconciling the time difference is a difficult problem, but in the same token that's part of what makes the industry fun. Because you're dealing with a number of variables, we have to respect primarily the long-term investor and set our focus on those things that will make this company more valuable over time. And to that end, in the last 10 years we've multiplied our reserves 600 percent. And in the last 5 years, we've more than doubled.
THIERRY: Let me then just ask. I can't let you go without asking this. If the Iraqi situation does not become a military conflict, if OPEC (Organization of Petroleum Exporting Countries) is pumping, how low can oil prices go and how can you sustain them?
PLANK: We really don't know how low they can go. We would think that there would be a number of measures taken in whether OPEC would choose to be in aggregate the swing producer I think is somewhat questionable. I think it's possible that oil prices could go lower, but historically, the world and OPEC seem to have been most comfortable over the period of the last few years, at a price varying between $18 and $20 per barrel.
So, we see oil at the present time below the historic trading range. Yet for this year, we are making our capital expenditures decisions on a price close to the present market, which will cause us to husband our capital, and should prices improve or get stronger from the producer's standpoint, we would ramp up our budgets.
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