APA Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Apache Corporation fourth quarter 2019 earnings announcement webcast. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker for today, Gary Clark, Vice President, Investor Relations. You may begin.

Good morning, and thank you for joining us on Apache Corporation's fourth quarter financial and operational results conference call. We will begin the call with an overview by CEO and President John Christmann. Steve Riney, Executive Vice President and CFO, will then summarize our fourth quarter and full year financial performance. Dave Purcell, Executive Vice President of Development, Planning, Reserves, and Fundamentals, will also be available on the call to answer questions. Our prepared remarks will be approximately 15 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 fourth quarter financial and operational supplement, which can be found on our investor relations website at investor.apachecorp.com. Thank you for joining us. 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 information 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 recap Apache's 2019 accomplishments, discuss our fourth quarter performance, and conclude with an overview of our strategic approach for the next few years. For Apache, 2019 was a year of both progress and challenges. Our most significant challenges were associated with Alpine High, which I will discuss in a few minutes. Our progress, however, was on many fronts. We took steps to advance key environmental, social and governance initiatives, met our corporate goals around capital spending reduction and cash returns, further streamlined and repositioned our portfolio, and strengthened our balance sheet. Specifically, over the last year, we enhanced our global sustainability efforts by linking ESG goals directly to short-term incentive compensation initiated alignment of ESG disclosures with SASB and TCFD recommendations and began to earmark capital specifically for ESG projects. We launched a comprehensive corporate redesign to further align our organization, work processes, and cost structure with lower long-term planned activity levels, and we reduced upstream capital investment by 23% We also delivered cash return on invested capital consistent with our corporate incentive compensation target of 19% and continued to streamline our portfolio with the divestment of assets in Oklahoma and the Texas Panhandle. Internationally, we generated a substantial inventory of new, drill-ready prospects in Egypt through our recent seismic and acreage evaluation initiatives. We sustained production levels in the North Sea with a 100% drilling success rate and achieved first production from our store discovery, which was on time and on budget. And at year end, we signed a joint venture agreement with Total in Block 58, Suriname, which brought in a world-class offshore operator and established a substantial capital access framework. This enabled Apache to retain a 50% working interest in the block while significantly reducing our exposure to potential large-scale appraisal and development spending. Moving now to the fourth quarter, oil production in the Permian Basin exceeded guidance and averaged the highest quarterly rate in Apache's history. Since mid-2017, we have operated our unconventional oil-focused program at a relatively steady and deliberate pace. This has generated highly competitive well results Thank you for joining us. A further investment in Alpine High. In the second half of 2019, extended flow data from key spacing and landing zone tests indicated disappointing performance of our multi-well development pads. While these tests are not fully conclusive for the entirety of Alpine High, given the prevailing price environment, further testing is not warranted at this time. As a result, we dropped the remainder of our drilling rigs in the fourth quarter and chose to defer some previously planned completions. In Egypt, gross production in the fourth quarter was relatively flat with the third quarter. Adjusted production volumes in the quarter were adversely impacted by a one-time cost recovery settlement agreed to by our partner in one of our non-operated concessions. This should have no ongoing impact on future production volumes. Strong drilling results in Egypt during the quarter position us well for 2020 and we look forward to testing some high-impact oil prospects on both new and legacy acreage beginning around mid-year. Production in the North Sea increased significantly following seasonal platform maintenance turnarounds in the third quarter and first production from our store discovery in November. Startup of the Garten 2 well was delayed into the first quarter as previously disclosed. This well is now online and will drive a further production increase in the first quarter of 2020. Turning now to Suriname, we drilled our first well in Block 58, the Maka Central No. 1, during the fourth quarter, and subsequently announced a significant oil discovery in January. We are now working with our partner, Total, on an appraisal plan which will be submitted to the state-owned oil company Stazzoli in the coming months. In January, the noble Sam Croft drill ship moved from Macca to our second exploration prospect, Sapacara West. As we noted in last night's press release, the Sapacara well is drilling ahead to the Santonian interval as planned and we are encouraged by what we have seen thus far. Following Sapakara, we will drill a third and likely a fourth exploration test in Block 58. Looking longer term, Apache's differentiated asset portfolio and disciplined approach gives us confidence in our ability to continue to improve returns and deliver competitive share price performance relative to our peers. As demonstrated over the last few years, we clearly have a significant inventory of Thank you for joining us. that would otherwise be directed toward shorter cycle growth opportunities elsewhere in the portfolio. As a result, our near-term production growth will be a bit slower than it otherwise could be, but we believe the long-term potential far outweighs any short-term impacts. Over the coming years, our strategic approach will center around retaining free cash flow in excess of the dividend for the purpose of reducing debt, Continuing to prioritize long-term returns over growth, aggressively managing our cost structure, and advancing our exploration and appraisal activities in CERNOP. One of the primary financial objectives is to reduce debt over the next several years. We will do this with cash that is primarily sourced from operating cash flow. As a result, our upstream capital investment will be determined by the oil price environment. For 2020, we are budgeting $1.6 to $1.9 billion, which allows for an uncertain price environment centered around a $50 WTI oil price. In terms of capital allocation, Alpine High will receive minimal to no funding, and we are shifting some capital from Permian Oil Projects to Egypt, which is better insulated from weak oil prices due to the production sharing contracts. With this plan, in 2020, we expect to maintain our current dividend payment, which is yielding approximately 3.5%, retain free cash flow to initiate progress on our debt reduction goals, allocate approximately $200 million to expiration, and invest $1.6 to $1.9 billion of capital, including expiration, which will result in flat to low single-digit corporate oil production growth year over year. To the extent oil prices continue to fall, capital will be reduced, as will our near-term production outlook. That said, if oil prices move materially higher, we will prioritize further debt reduction over increasing capital activity. Moving now to our corporate redesign initiative. We are well down the road with the process of both rightsizing and reorganizing our technical, operational, and corporate support functions. The rightsizing is a recognition that we will not be returning to past levels of capital activity and need to make a permanent reduction in headcount. The new model, which is enabled by a more focused portfolio, is more centralized and will tie incentives to asset team performance rather than to regions. It is designed to enhance collaboration and enable greater mobility of technical personnel as capital is redirected across the portfolio. We expect to achieve at least $150 million of annual savings from overhead and operating cost reductions associated with this initiative. Over the coming months we will provide more information around the structure of the new organization. And with that I will turn the call over to Steve Riney who will provide additional details on our 2019 results and 2020 outlook.