APA Corporation

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Apache Corporation first quarter 2020 earnings announcement webcast. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference may be recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your speaker today, Mr. Gary Clark, Vice President of Investor Relations. Sir, you may begin.

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 Chrisman. Steve Reine, Executive Vice President and CFO, will then summarize our first quarter financial performance. Clay Breches, Executive Vice President of Operations. And 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 first quarter financial and operational supplement, which can be found on our investor relations website at investor.apachecorp.com. Please note that 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 information on our website. And with that, I will turn the call over to John.

Good morning, and thank you for joining us. As we review our first quarter results today, Many Apache employees around the world are continuing to work remotely as part of our COVID-19 response. I would like to wish all of them and those of you who are doing the same good health as we work through a very trying time. I also want to acknowledge and thank the Apache team for their dedication and hard work in the face of a very challenging economic and operational environment. They are successfully and safely delivering day-to-day business activities in the face of a sudden and unprecedented change to life as we knew it. My heartfelt appreciation goes out to every one of our great Apache employees and contractors, as well as our partners and stakeholders. The global economy and the energy industry have been deeply impacted by COVID-19. As we navigate this crisis, Apache's primary priorities are keeping the health and safety of our employees and the communities in which we operate paramount in our decision-making and preserving the inherent value and optionality of our diverse asset base for the long term. Thus far, our efforts have been successful, and we are very fortunate to have seen only a few isolated COVID-19 cases throughout the organization, We acted quickly to close offices and implement work-from-home processes, as well as stringent operational protocols in the field. We also have in place contingency plans to ensure continuity in the event Apache incurs a more widespread or sustained impact. In the rest of my prepared remarks, I will discuss the primary actions we are taking to preserve the value of our assets and protect our balance sheet. summarize our long-term objectives, which have not changed, and lastly, comment on our outlook for the remainder of 2020. While the current crisis is much more severe and complex, some key lessons learned from the 2014 oil price collapse are informing the decisions we are making today. In late February, we communicated our initial 2020 budget at an assumed WTI oil price of $50 per barrel. This seemed appropriate given prevailing supply and demand fundamentals and strip pricing at the time. In early March, OPEC Plus failed to reach consensus on supply cuts, and it became apparent that COVID-19 would cause an unprecedented amount of demand destructions. Apache responded to the oil price drop associated with these events quickly and decisively. On March 12th, we announced a plan to reduce activity in Egypt and the North Sea and to eliminate all U.S. drilling and completion activity. This resulted in a $650 million decrease in our 2020 upstream capital budget, which is now down nearly 55% from 2019. We also announced a 90% reduction to our dividend, thus preserving $340 million of cash flow on an annualized basis and strengthening our liquidity. To protect cash flow from further downside price dislocation, we entered into substantial oil hedge positions, primarily for the second and third quarters, which we believe have the most volatility risk. We implemented deeper cost-cutting measures, announcing on April 1st an increase in our estimated annualized cost savings to $300 million, up from $150 million a month earlier. Apache benefited from the significant progress already made on our organizational redesign, which commenced in the third quarter of 2019. This enabled us to make the incremental cost reduction decisions confidently, without compromising safety, asset integrity, or our ability to resume activity when warranted. Finally, we have conducted a thorough price sensitivity analysis and operational evaluation of all producing wells across the company, which is now informing the methodical and integrated approach we are taking to rolling production shut-ins and curtailments. This process will enable us to preserve cash flow in this distressed and volatile price environment and protect our assets. All of these actions were carefully planned and none were taken lightly. While very difficult, they were necessary to preserve liquidity and ensure ample runway to return to a more sustainable and profitable price environment. Next, I would like to reiterate our longer-term objectives, which still hold true despite some of the short-term impacts of the current situation. First, Apache will budget conservatively, aggressively manage our cost structure to ensure free cash flow generation, and prioritize debt reduction to strengthen our balance sheet. We will maintain a balanced and diversified portfolio and continue to invest for long-term returns rather than production growth. In the Permian, we will continue building economic inventory and maintain optionality, and in Egypt and the North Sea, we will flex activity to preserve free cash flow generation. Lastly, we will continue to enhance our portfolio through exploration. Our recent success offshore Suriname is a prime example of this strategy, and Block 58 remains a clear priority for Apache. As we look to the remainder of 2020, there are a number of fundamental uncertainties. The most important of these is the timing and magnitude of a recovery in demand for oil if supply response alone cannot solve this problem in the short term. For Apache, the best course of action is to aggressively reduce our cost structure, protect our balance sheet, and manage operations to preserve cash flow. Our diversified global portfolio gives us the ability to optimize capital allocations as market conditions change. Just as we did following the oil price crash in 2014, we have left intact a higher proportion of international capital investment, which offers better returns than the U.S., in a lower price environment. To wrap up, Apache is taking the necessary steps to manage cash flow and protect our balance sheet. We have ample liquidity and a long runway to carry us through to a better price environment, and we'll maintain the flexibility and capacity to increase activity in a thoughtful manner as conditions warm. And with that, I will turn the call over to Steve Reine, who will provide additional details on our first quarter and 2020 outlook.