Inside Apache's Alpine High Fiasco: Deception, Fraud, And A $3 Billion Write-Down

• In 2016, Apache announced a major oil and natural gas discovery in the Alpine High region in Texas and promised massive returns to investors.
• Apache drilled numerous wells at Alpine High but failed to disclose that many produced no oil or gas, with zero production.
• In September 2016, Apache reported a well, producing 281 barrels per day, but by November, it had dropped to zero and stayed that way for five months.
• In early 2020, when the site’s unviability was revealed, Apache was forced to take a $3 billion write-down and slash its dividend by 90%. Its stock, once $69 per share, dropped 93% by March 2020.
• In 2021, investors sued Apache for hiding Alpine High’s poor performance, including zero output and sharp declines from several wells.
• Apache has agreed to a $65 million settlement with shareholders to resolve the lawsuit. Affected investors can now file a claim to receive their payouts.

Overview

In 2014, APA Corporation APA acquired nearly 300,000 acres in West Texas, branding it "Alpine High" and promoting it as a major oil and gas discovery with promises of huge profits. Despite knowing the land was economically unviable, senior management misrepresented information regarding the actual oil production of the site, and delayed regulatory documents. When the truth emerged, Apache’s stock plummeted 93%, wiping out $24 billion in market value. After that, investors filed a lawsuit against the company, and Apache recently agreed to settle, paying $65 million to damaged shareholders.

Alpine High: From "Oilmen's Graveyard" to "World-Class Discovery"

In 2014, Apache shifted focus to North American shale oil and appointed Steven Keenan as head geologist. 

Since the 1950s, competitors had drilled the area, later called “Alpine High,” with no success, labelling it as “where oilmen go to die.” Despite conducting internal studies that also suggested the site's economic unviability, Apache issued a press release in 2016, touting Alpine High as a major oil discovery in Texas.

John J. Christmann, the company's CEO at the time, hailed Alpine High as "an immense resource that we believe will deliver significant value for our shareholders for many years." 

Christmann touted the discovery's "large inventory of repeatable, high-value drilling opportunities" and "oil-prone locations," referring to it as a "world-class resource play" expected to yield large amounts of natural gas, natural gas liquids, and oil.

Given the site's history and previous dismissals by competitors, some market analysts and investors remained sceptical. Still, Christmann reassured them that the potential of Alpine High was unlocked by Apache's lead geologist and his team’s expertise, allowing them to spot opportunities others had missed.

Upon the discovery of the site, Apache revealed that the site could be worth over $8 billion. Commenting on the potential of Alpine, Apache's CEO John Christmann said:

"Alpine High will be very difficult to compete with on an economic basis."

Following positive news and the CEO’s comments about Alpine High’s potential, Apache’s stock price rose by 61% since the beginning of 2016, reaching its highest point in over a year.

Court Findings: The Truth Begins To Unravel

The truth started to surface by mid-October 2019, following the presentation of Project Neptune’s findings to CEO Christmann and other executives. 

On February 26, 2020, Apache announced a $3 billion write-down for Alpine High, wiping out its profits from the previous two years. The company also slashed its dividend by 90%. 

Major media outlets highlighted the $3 billion write-down and halt of exploration at Alpine High, noting this was "in stark contrast" to the CEO's statements over the previous three years defending the play's prospects. 

Bloomberg's February 27, 2020 article, titled "Apache Calls It Quits on Alpine High After $3 Billion Write Down" reported that Apache abandoned the disappointing shale discovery.

In the fourth-quarter earnings webcast, CEO Christmann recognized that 2019 posed significant challenges, with Alpine High identified as the primary issue. He indicated that "further testing is not warranted at this time" and confirmed that Apache "dropped the remainder of our drilling rigs in the fourth quarter and chose to defer some previously planned completions." 

The controversy had a severe effect on investors, as seen by the stock's collapse of 93%. 

After these events, investors sued Apache, claiming the company misled them about Alpine High’s poor performance and concealed key production information.

Resolving The Case

To resolve the lawsuit from investors, Apache Corporation has agreed to a cash settlement of up to $65 million. If you invested in Apache, you may be eligible to claim a portion of this settlement to recover your losses.

Following the fallout, Apache ultimately abandoned the Alpine High project. Since then, the company’s stock price has rebounded, climbing from a low of $4.46 in March 2020 to about $25 today. There were also leadership changes, including the exit of Steve Keenan, the senior vice president of worldwide exploration. Apache has since shifted its focus to the Suriname project in South America and other ventures in Egypt, which analysts see as key opportunities to rebuild investor confidence and improve stock performance. However, the shadow of Alpine High still looms over the company’s operations.