APA Corporation

Ladies and gentlemen, thank you for standing by, and welcome to the Apache Corporation's second quarter 2020 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 a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then 0. I would now like to introduce your host of this conference call, Mr. Gary Clark, Vice President, Investor Relations. You may begin.

Good morning, and thank you for joining us on Apache Corporation's second quarter financial and operational results conference call. We will begin the call with an overview by CEO and President John Christman. Steve Riney, Executive Vice President and CFO, will then summarize our second quarter financial performance. Clay Breches, Executive Vice President of Operations, and Dave Purcell, Executive Vice President Development, 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 second 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 is 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. For the last several months, the world and the global E&P industry have been facing one of the most challenging environments in recent history. Apache is responding with decisive actions designed to protect our people, our assets, our investors, and the communities in which we operate. And I want to take this opportunity to thank the many Apache employees and contractors for their hard work and dedication in these tough times. In my prepared remarks this morning, I will discuss the progress we made during the second quarter of and review our key objectives and capital priorities going forward. I'd like to begin with a brief update on our response to the COVID-19 pandemic. Apache moved quickly to implement a wide range of fit-for-purpose protocols to ensure a safe and productive work environment in both our onshore and offshore operations. Thankfully, we have experienced a relatively small number of COVID-19 cases and have incurred no material operational disruptions beyond our intentional production curtailments. We are prepared to maintain our current work model for as long as necessary. Since the onset of the pandemic, we have been listening and responding to the specific needs of the communities in which we work and live. Apache has donated PPE and critical medical equipment to hospitals and first responders, as well as supporting food banks, long-distance learning initiatives, and shelters for women and children. From an operational and financial perspective, during the second quarter, we executed our planned activity reductions on schedule and and delivered upstream CapEx well below guidance of $230 million. For the full year, we are now tracking toward the lower end of our capital guidance range of $1 billion to $1.2 billion. The majority of our organizational redesign has been implemented, achieving combined run rate, LOE, and overhead savings of more than $300 million as planned. Net of severance and restructuring costs, actual cash savings realized in 2020, are estimated to be approximately $225 million. Through these and other actions, we have reduced our free cash flow break-even oil price to be around $30 per barrel on a forward-looking basis. This allows us to protect our current financial position and enables positive free cash flow in the current price environment. And in Block 58, Offshore Suriname, during the second quarter, we submitted a plan of appraisal for our first discovery mock-up, announced our second discovery at Sapacara, and sputted our third exploration well, Quas Quasi, the results of which we announced yesterday in conjunction with our earnings release. We are thrilled with the results from the Quas Quasi 1 exploration wells. This is the best well we've drilled in the basin to date with the highest net pay and the best quality reservoirs. While we have a lot more work to do, a discovery of this quality and magnitude merits a pace of evaluation that enables the option of accelerated first production. Following Quas Quasi, the Noble Sam Croft Drill Ship will move to the fourth well in our 2020 exploration program, Keskesi. after which Apache will transition operatorship of the block to our partner, Total. Turning now to the curtailment program, we have returned our North Sea and Alpine high volumes to production, along with a portion of curtailed oil volumes in the Permian. We anticipate that several thousand barrels of higher-cost Permian oil production may remain offline for the rest of 2020. Apache is currently running one exploratory rig in Suriname, five rigs in Egypt, and one floating rig and one platform rig in the North Sea. We intend to maintain this activity set for the remainder of the year if commodity prices do not deteriorate significantly. At this time in the Permian Basin, we have no drilling or completions activity and no plans to complete our ducts for the remainder of the year. As we look at the second half of 2020 into the long term, our key objectives remain unchanged despite the extreme price volatility. We will budget conservatively and direct free cash flow on a priority basis to debt reduction, maintain a balanced and diversified portfolio, and prioritize investment for long-term returns over production growth. We have spoken frequently about our priority ranking for capital deployment within the portfolio, and our thoughts on this are worth reiterating. At the top of the list is CERNOM, which will continue to receive priority funding for both exploration and appraisal activity. Under the terms of our joint venture, the incremental cost to Apache associated with appraisal and ultimately development should be very manageable. Our second priority is Egypt, where the PSC structure offers more stable returns in relatively low and more volatile oil price environments. Following that, we should look to complete our ducts in the Permian Basin and resume drilling with a second platform rig in the North Sea. And finally, while our Permian operations have been delivering highly competitive economics within the basin, Other areas within our portfolio offer more attractive investment options in a capital-constrained environment. Therefore, we don't envision returning rigs to the Permian Basin unless oil prices recover well into the 50s. We have always stated that our best hedge against price volatility is prudent and responsive management of the capital program. To the extent oil prices are sustained at or below $50 per barrel WTI, we do not anticipate a material change in our annual capital budget from the current rate of around $1 billion. For oil prices significantly below $50, capital spending is more likely to be reduced from the $1 billion mark. If oil prices rise above $50, we will be very measured with our capital increases, and the first column at incremental free cash flow will be returned to investors initially with debt reduction. I'd like to close by summarizing Apache's approach to managing the unprecedented challenges thus far in 2020. We implemented successful COVID-19 operating protocols, and work-from-home procedures and helped ease the burden of the pandemic on our host communities in numerous ways. We responded to the sudden price drop by quickly limiting cash outflows to protect our balance sheet. This included a significant reduction in capital, dividends, and overhead and operating costs. These, along with other actions, have enabled us to lower our free cash flow breakeven by such that we now have good visibility to debt reduction. Operationally, we have preserved optionality to reactivate our curtailed production, development programs, and other investment opportunities when appropriate. And we have successfully advanced our exploration program in CERNOM. Through these and other actions, particularly the successful implementation of our corporate redesign, we entered the second half of 2020 a very focused and streamlined organization. The benefits of our diversified portfolio are more evident now than ever as we flex capital towards our international operations. Together with our world-class position in CERNOM, Apache offers a truly differentiated investment opportunity within an industry that has come under tremendous pressure. I would like to again thank all the Apache employees for their commitment, resilience, hard work, and flexibility as we successfully navigate these challenging times. And with that, I will turn the call over to Steve Reine.