Last year, oil companies opened their wallets and spent billions of dollars locking up land in the Permian Basin. Driving that spending spree was the fact that producers could still earn excellent drilling returns from the region in the current low oil price environment. However, while its peers were bidding up acreage in core sections of the basin, Apache (NASDAQ:APA) was quietly leasing land in an overlooked area because it believed that region held an enormous amount of oil and gas resources. Overall, the company bought more than 300,000 net acres for the unbelievable price of $399 million. It's a decision that could pay big dividends in the years ahead.

What Apache bought

Last September, Apache announced that, "after more than two years of extensive geologic and geophysical work, methodical acreage accumulation, and strategic testing and delineation drilling," it could confirm the discovery of a significant new resource play it dubbed Alpine High. What was noteworthy about this discovery is that while it's in the southern Delaware Basin subplay, the industry hasn't had much success in the past in this particular area. However, thanks to advances in technology, Apache was able to confirm the existence of at least 3 billion barrels of oil and another 75 trillion feet of natural gas in just two of the five shale formations underneath its acreage.

A drilling rig at sunset.

Image source: Apache Corp.

Meanwhile, it's because the industry didn't pay much attention to this region that Apache was able to pick up so much land. Overall, it secured a total of 307,000 net acres in Reeves County, Texas, paying an average price of $1,300 per acre. The company estimates it can drill between 2,000 to 3,000 wells into the Barnett and Woodford formations on its land, with potential upside to drill more wells into the other formations after more testing.

Why that's such an incredible deal

Apache's land acquisition cost of just $1,300 an acre is hard to believe compared to what rivals paid for land north of its position in the core of the Southern Delaware over the past year. For example, in January of last year, Concho Resources (NYSE:CXO) picked up 12,000 net acres near its North Harpoon prospect in the Texas counties of Ward and Reeves for $360 million. That deal price implies Concho paid roughly $30,000 per acre for land just north of Apache's. Meanwhile, Parsley Energy (NYSE:PE) also spent a lot of money getting acreage in the Southern Delaware over the past year. This past January, for example, it paid $205 million for 5,200 net acres in Reeves, Pecos, and Ward Counties Texas, or about $40,000 an acre. Before that, the company bought up 14,197 net acres in Reeves and Ward Counties for $144 million, or about $10,000 an acre. Finally, Diamondback Energy (NASDAQ:FANG) paid a whopping $2.4 billion to buy Brigham Resources and gained control over its more than 76,000 net acres in Pecos and Reeves Counties. That price tag infers that Diamondback Energy paid more than $30,000 an acre for land near Apache's.

Apache's ability to acquire so much land for a minimal cost created immediate value for investors given the resource potential underneath its acreage. According to the company, the 2,000 to 3,000 identified well locations have a net present value range of $4 million to $20 million per well. That suggests a net present value of $8 billion to $60 billion that the company picked up for a mere $399 million. While analysts don't give it quite that much credit, an analyst from Stifel did think Alpine High is worth $18 per share for Apache, or about $6.8 billion, which is still a significant value for an asset the company purchased for such a low price.

Investor takeaway

Apache took a contrarian approach during the oil market downturn and focused on finding organic growth opportunities as opposed to making expensive acquisitions. That approach paid off when the company's hunch that there was oil in an underexplored part of the Delaware Basin turned out to be correct. Because of that, it was able to lock up a vast swath of acreage for a great price, positioning itself to create value for its investors for years to come as it begins developing those wells.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.