APA Corporation

Good day. My name is Christy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation first quarter 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. If you would like to withdraw the question, press the pound key. I will now turn the call over to Gary Clark, Vice President of Investor Relations. Mr. Clark, you may begin your conference.

Good morning and thank you for joining us on Apache Corporation's first quarter financial and operational results conference call. We will begin the call with an overview by CEO and President John Christmann. Tim Sullivan, Executive Vice President of Operations Support, will then provide additional operational color and Steve Riney, Executive Vice President and CFO, will summarize our fourth quarter and full year financial performance. Also available on the call to answer questions are Apache Executive Vice Presidents Mark Meyer, Energy Technology, Data Analytics, and Commercial Intelligence, and Dave Purcell, Planning Reserves and Fundamentals. Our prepared remarks will be approximately 25 minutes in length with the remainder of the hour allotted for Q&A. In conjunction with yesterday's press release, I hope you have had the opportunity to review our first quarter financial and operational supplement which can be found on our investor relations website at investor.apachecorp.com On today's conference call, we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website. Consistent with previous reporting practices, Adjusted production numbers cited in today's call are adjusted to exclude non-controlling interest in Egypt and Egypt tax barrels. Finally, I'd like to remind everyone that today's discussions will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discussed today. A full disclaimer is located with the supplemental data on our website. And with that, I will turn the call over to John.

Good morning, and thank you for joining us. On today's call, I will provide an overview of Apache's first quarter results, discuss our production outlook, and comment on our first exploration well in Suriname, review our upstream capital budget and Apache's commitment to return incremental cash flow to investors, and highlight our progress on non-core asset sales. Apache had an excellent first quarter in terms of execution, well performance, and delivery against our production and capital guidance. We exceeded our U.S. production target by 5,000 BOEs per day and our international target by 7,000 BOEs per day on a capital budget of less than $600 million. In the Permian Basin, we maintained oil production near fourth quarter levels, despite placing one of our two completion crews on a frack holiday for the entire first quarter. At Alpine High, where we also had a relatively low number of completions, production was up significantly from the fourth quarter and was in line with our guidance of 70,000 BOEs per day. Overall, we delivered a 5% sequential quarterly increase in Permian Basin volumes, This is an impressive accomplishment given that we placed only 39 wells online in the first quarter compared to 60 wells during the fourth quarter. Strong operational execution and well performance coupled with minimal facilities downtime drove these results. International production was up 6% compared to the fourth quarter. In the North Sea, We benefited from strong early production rates from two wells at Garten and Caleder, a continuation of good results from our revamped water flood program in the 40s field and high facilities uptime across our operations. In Egypt, gross production was down slightly in the quarter, but adjusted production net to Apache was up, primarily due to the timing of cost recovery around year end. Looking ahead, Second quarter Permian oil production is projected to be down slightly due to completions timing with growth anticipated in the back half of the year as the number of completions increases significantly. At alpine high, production volumes will be impacted in the second quarter by the voluntary gas deferrals we discussed in our press release last week. I would note, however, that temporary deferral of this production is expected to improve our short-term net cash flow. Construction of Altus Midstream's first two cryogenic plants is proceeding ahead of schedule, with the first plant currently commissioning and expected to flow gas this month. The second plant is expected to be fully in service during July, and a third plant remains on schedule for the fourth quarter. By year end, Altus will have a total 600 million cubic feet of nameplate rich gas processing capacity capable of producing more than 60,000 barrels of NGLs per day. Kinder Morgan's GCX pipeline is also expected to be in service beginning in October, which will give Apache access to Gulf Coast pricing on 550 million cubic feet per day of gas from the Permian. These processing and transportation catalysts will drive a significant uplift in alpine high liquids production, revenue, and cash flow, on which Steve will provide more detail in a few minutes. On the international side, production will decrease in the second quarter as planned. The North Sea will experience natural declines from high production wells at Garton and Caledon, while only one new well is being brought online during the quarter. In Egypt, we expect gross oil production to increase as we ramp up activity in our new East Baharia concession. However, the impact of higher oil prices on our production sharing contracts, coupled with natural gas production declines, will result in lower volumes net to Apache. Looking out to the end of the year, our projected growth rate guidance from fourth quarter 2018 to fourth quarter 2019 is unchanged. We continue to expect 6-10% growth on a total company-adjusted basis, consisting of 12-16% growth in the U.S. and a 2-4% decline internationally. Permian oil production is still expected to grow 5%. In Suriname, we have contracted a drill ship and continue to anticipate sputting the first well on Block 58 in Suriname around mid-year. The Noble Sam Croft, which is working in the Gulf of Mexico, will deploy to Suriname upon completion of its current assignment. We have secured this drill ship for a one-well commitment and have an option on three additional wells. While Apache is preparing to drill the first well on Block 58 at 100%, we have received and are evaluating numerous proposals from potential partners. Turning now to CAPEX. Our first quarter upstream capital investment was below guidance and was down 27% from fourth quarter levels. We began preparing for an activity reduction back in November, which was critical to enabling such a material change in our activity pace in less than one quarter. As planned, our second quarter CapEx will increase slightly from the first quarter as a result of Increased completion spending in the Permian associated with the return of our second frack crew in the Midland Basin and the timing of large pad completions at Alpine High. The timing of exploration spending, mostly in Suriname, but also related to some activities in the Lower 48 and lease payments at Alpine High where we are exercising some extension options due to the slower drilling activity. Despite some inflationary headwinds related to the rise in oil prices, we remain on track to deliver our 2019 planned activity set for $2.4 billion. We are experiencing cost increases in labor, trucking, fuel, and chemicals, but have thus far been able to offset these through efficiency gains. We previously stated Apache's commitment to returning at least 50% of our incremental cash generation from all sources to investors before increasing our planned activity set. In keeping with this commitment, our 2019 planned capital activity and budget remains unchanged, and we will begin returning incremental cash to investors in the coming months. This is, of course, in addition to our current regular dividend. Steve will elaborate further. With the success of our organic growth and exploration program, we find ourselves with some assets in the portfolio that we do not envision funding over the next several years. These assets will be more valuable in the hands of different owners. Accordingly, we recently entered into sales agreements totaling approximately $300 million, most of which is related to an exit of the scoop stack which will close in the second quarter. In summary, 2019 is progressing very well. Overall production was strong in the first quarter and we are demonstrating excellent capital discipline and cost control. The North Sea and Egypt continue to deliver robust free cash flow with their leverage to premium Brent crude prices and higher natural gas and NGL netbacks. In the Permian, we are poised to deliver attractive oil growth and a substantial cash flow uplift at Alpine High in the second half of the year. We will also be advancing our differential exploration initiatives, most notably in Cerno. In closing, Apache continues to deliver on the strategy we established four years ago, which is to fund a capital program capable of delivering long-term returns and sustainable growth. Live within cash flow at reasonable oil prices and continue to return meaningful capital to shareholders. We can accomplish this due to our high-quality drilling inventory and attractive exploration portfolio, relatively low base decline rate, and continuous focus on improving capital productivity and efficiency. With that, I will turn the call over to Tim Sullivan, who will provide some operational details on the quarter.