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.

Thank you, John. On today's call, I will review second quarter 2020 results, discuss progress on our cost-saving initiatives, and provide commentary on our free cash flow outlook and debt management efforts. As noted in our news release issued yesterday, under generally accepted accounting principles, Apache reported a second quarter 2020 consolidated net loss of $386 million, or $1.02 per diluted common share. These results include items that are outside of core earnings, the most significant of which are an unrealized loss on derivatives, a tax valuation allowance, and asset impairments, partially offset by a gain on the reperch of outstanding debt. Excluding these and other smaller items, the adjusted loss was $281 million, or 74 cents per share. Adjusted production decreased 7% from the prior quarter. primarily driven by shut-ins and production curtailments of approximately 19,000 BOEs per day at Alpine High and production curtailments of 10,000 BOEs per day in the North Sea and 6,000 BOEs per day for other operations in the Permian. Partially offsetting this was increased Egypt cost recovery volumes due to the lower oil prices in the quarter. Apache's second quarter average realized price on a BOE basis fell 39% from the prior quarter, with oil and NGL prices down materially. International oil price realizations were notably weak, as actual Brent realizations dislocated from the published benchmark price. This discount was driven by unprecedented excess supply on the market, resulting in unusual competitive pricing dynamics. Consequently, second quarter international oil realizations averaged around $5.50 per barrel below the benchmark, which we do not customarily experience. So far in the third quarter, Brent pricing has reconnected with the benchmark, and we do not currently anticipate this changing. Turning now to our cost savings initiatives, we entered 2020 with a goal of reducing annualized overhead and LOE costs by at least $150 million. With the price downturn in March, we took quick action to double that goal to at least $300 million. We have since fully achieved this target and then some. Roughly two-thirds of the targeted savings are coming from overhead reductions and one-third from direct LOE reductions. These are sustainable cost reductions and they are showing up in multiple places on our financial statements. So let me provide some detail. Of the roughly $200 million of annualized overhead cash cost reductions, approximately $100 million will show up as reduced capital investment. $20 million will come in the form of reductions in LOE and exploration expense, and approximately $80 million will show up in lower G&A expense. So our underlying G&A expense, which in the recent past typically ran about $100 million per quarter, should now run around $80 million per quarter. During the first quarter of 2020, you will recall we had a nearly $30 million reduction in G&A expense caused by the mark-to-market effect on share-based compensation plans associated with the significant negative movement in our stock price. During the second quarter, this impact partially reversed, generating a $19 million increase in G&A expense. As a result, second quarter G&A expense was $94 million. Turning now to LOE, we have eliminated approximately $100 million of direct LOE costs on an annualized basis. In addition to these sustainable LOE reductions, we are also seeing cost reductions associated with production curtailments and deferred workovers, as well as the deferral of certain other nonessential activities. While these actions reduce costs in the near term, they are not sustainable, and we expect at least a portion of them to return at some point in the future. As we have previously noted, one of our key long-term objectives is debt reduction. Let me share two views on this objective as we look at the second quarter. With respect to long-term debt, we took the opportunity to repurchase bonds at significant discounts when the debt markets came under pressure. In aggregate, During the second quarter, we repurchased $410 million of face value debt for $263 million, reducing aggregate long-term debt by $147 million. The repurchase debt had an average remaining term of approximately 20 years, and at the purchase price, had an average yield of 9%, making this a very attractive investment. Another view of debt is through the borrowings on our revolver. Between the negative cash flow impacts of the extremely low price environment and the $263 million of bond repurchases, we ended the quarter with $565 million outstanding on the revolver. With an improving second-half price outlook, combined with lower capital investment and reduced operating and overhead costs, we anticipate generating positive free cash flow in the second half and using it to reduce borrowings on the revolver. Before wrapping up, I'd like to note that we did issue third quarter guidance yesterday in our financial and operational supplement on our website, which covers our outlook for capital investment and production, as well as a number of expense items. In summary, although it was a very challenging quarter from a price and cash flows perspective, We took significant actions to reduce our cost structure, protect the balance sheet, and retain asset value for the future. To the extent WTI oil prices remain above $30 per barrel, we look forward to generating free cash flow in the second half of 2020 and using that to reduce leverage. And with that, I will turn the call over to the operator for Q&A.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, the number one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Doug Leggett with Bank of America.

Doug, you're on mute.

Sorry, guys.

I was on mute. I couldn't get my mute button to go off. I apologize. I apologize. Good morning, everyone. John, this is a great day for your stock, and congratulations on the latest discovery in Suriname. I'm obviously going to focus my two questions on that, if I may. So my first one is your comment in the press release about this deserves perhaps the option of an accelerated first production. My question is, what influence does Apache have over that? How aligned is Total? And what are the parameters within the contract that could get you to that? And I guess what I'm really aiming for is, would you consider that an early production system here? And I've got a follow-up.

Well, Doug, thank you, first of all. You know, I think in the end, it's just going to boil down to the quality of the well and the rock and the play. You know, when you step back and look, Block 58 is 1.4 million acres. To put it in perspective, it's over 250 Gulf of Mexico blocks. We've now drilled three wells and three different fairways, and I use that context to help you understand why you can have three very large fairways. We're going to be moving to another one with Kaskesi once we conclude operations. You know, the comments in the press release kind of speak for themselves, you know, with where we sit. I think that our partner is also excited. You know, we've done some things in the Campanian with this well. We gained, you know, collected some extra data. We're doing some things with an exploration well that you typically would not do, which helps us gain some insight into what we've got. And so we'll, you know, in the end it's going to boil down to us being aligned with our partner and, of course, you know, aligned with Statsoli and the government of Suriname in terms of the pace and moving it forward. But I think in the end it's going to be the quality of the rock and the resource potential that's going to drive that.

Pardon my follow-up on that question, John, but totalitists don't seem to be communicating the same level of, urgency, I guess, as your comment in the press release.

So I just wonder if you could help us bridge the gap between the two, given that they're going to... Well, I think what, you know, all my comment says is that it's of a quality that would, you know, look at an accelerated pace. Yeah, I think in their press release today, they stated that there will be an appraisal and expiration program early next year to appraise our discovery. So, you know, I'll just leave it at that.

Okay, my follow-up is also on cross-quasi, and it's related to the deeper Santhonian. Obviously, you did not disclose anything other than hydrocarbon reservoir. The last time we heard that expression, it was gas condensate at Haimara in Guyana. So I'm just wondering if you can address some concerns out there as to what the hydrocarbon type is, why you didn't release APIs, what you know about scale, and just any other ways you can characterize that deeper horizon, and I'll leave it there. Thank you.

Yeah, the thing I'll say is if you look at the first two wells, you know, the Santonian has been more oily, you know, than the Campanian. So I will tell you everything looks good here. We were in a position because we had done some additional work in the upper zones and set pipe in the Campanian that we had a lot of that, you know, all that information. There was still more that we were collecting here, but we felt like we were at a position with the materiality that we should talk about it. I'll let Dave give a little more color on the San Antonio there.

Yeah, thanks, John. So, Doug, John talked about some additional testing in the campaign, and so it's important from a timing perspective, we did some additional testing deeper investigation-type testing, and it does two things for us. It gives us a composite flow capacity and allows us to see a little deeper in the reservoir than conventional fluid testing allows. So we're through the San Antonio, and we have the conventional wireline logs collected. Based on our experience with the mud logging and the open-hole wireline logging on Maca, Sapacara, and the Campanian in this well, we feel confident that we have oil in a significant portion of the Santonians. So we felt like we were fine with releasing. You know, we still have work to do. We still have to collect fluids and pressures. We have core data to collect, and we anticipate doing some of the additional deeper investigation testing on this interval. So I wouldn't read too much into the fact that we don't have, we didn't release API gravities because we don't have those collected yet.

I understand. Well, guys, congrats again, and I look forward to the next topic.

Thanks. Thank you. Our next question comes from Mike Scala with Spiegel.

Yeah, good morning, everybody, and congratulations as well. I was curious on QuasQuasi, the results there, how those compared to expectations. Was there any indication from your seismic data that this well would have more than doubled the net pay of the other two?

You know, Mike, first of all, thank you. I mean, when you look at the seismic, you know, we knew QuasQuasi was going to be a prolific fairway, as the other two were. You know, it boils down a little bit about the depositional environment. I mean, once again, we're in such a large area, and these wells are so far apart that, you know, you have to drill them to learn that. So, I mean, clearly it exceeded what would have been pre-drill, but we knew there was that kind of potential. And there is, you know, the exciting thing about it is we've got a lot more of this block to explore. But, you know, clearly very excited about it.

Good. And then, Stephen, you mentioned about prioritizing or that you want to improve the balance sheet. Obviously, I was wondering how you would prioritize options there. Is it really just using free cash flow to pay down debt or any other options you're considering at this point?

Yeah, Mike, I think, you know, in a more typical environment, you'd see companies selling assets to strengthen the balance sheet to pay down debt. And I think it's clear that in the price environment we're in right now, that just doesn't work. And so for the most part, it is going to be the old-fashioned way of retaining free cash flows, spending a little bit less on capital, which we all ought to be doing. And that just means it'll take some time to get the balance sheet in order unless there's a price spike or some, you know, there will be the occasional one-off opportunities where you have a chance to to do something to reduce debt, similar to what we did in the second quarter with repurchasing some debt at a discount. And we'll take advantage of those from time to time, but I do believe this is just a simple case of prioritizing retaining free cash flow and using it to pay down debt instead of spending it on capital to maybe achieve a different type of growth profile. For us, strengthening the balance sheet is going to be much more important than growing production volume. And I think we're now approaching a period where we're going to be able to do that. As John mentioned in his prepared remarks, we're now capable of running free cash flow neutral at $30 WTI on a point forward basis for the rest of this year with the with the CapEx budget where it is, with the dividend cut, the overhead cuts, the LOE cuts, some of the other things that we've done. We have no intention of raising the capital budget for this year, and that's what we'll do. To the extent that oil price exceeds $30, WTI will use any excess free cash flow that that generates to reduce debt.

Very good. Thank you.

Our next question comes from Bob Brackett with Bernstein Research.

Hi. Good morning. I'm intrigued a bit by the comments around doing some things with an exploration well that you wouldn't typically do and the deeper investigation type testing. Are you performing a mini drill stem test out there, and are there any rates to report?

Yeah. Bob, this is Dave Purcell. Good try. It's something that would be between. If you want to call it a mini drill stem test, that would be a reasonable characterization. It's something between a full drill stem test and what you typically would get from a fluid sampling operation. So, again, what we're getting from this is composite flow capacity of a, instead of a point permeability measurement from a core sample, we're getting a composite flow Flow capacity, and then another benefit is some deeper investigation for pressures into the reservoir. So we're still evaluating that data, but that's what we're doing. And, again, we anticipate performing those tests in the San Antonio as well. Yep.

That's clear. Another question, given the thickness of this recent discovery, what drove the sequencing of the overall exploration campaign, and what might that tell us about the fourth well?

Well, I mean, I think when you step back and look, as we said, we had multiple fairways. I think they're, you know, and you look at the size and, you know, think about this, it's equivalent to 250 Gulf of Mexico blocks. So, you know, moving across there, a lot of it has to do just with how things were deposited. But, you know, we've got a full another, you know, fairway that it'll be testing. So, you know, we're anxious to move over and see. But, you know, everything looks really good on the seismic, so we're anxious to move on to Keskessie after Kwasi Kwasi. I appreciate it.

Thank you. Our next question comes from Charles Amita for Johnson Rice.

Good morning, John, to you and your whole team there.

Good morning, Charles.

I'm going to ask another question on the headline that everyone's focused on, the thickness of the paint that you guys found with this well. I'm curious, is there anything going on with either the dip of these formations or perhaps structurally that's some kind of mitigating factor for that thickness you announced, or is this more the case where you guys just really found a thick stack of pancakes here?

I would just say it's really more depositionally. There's nothing tricky with it. You know, geology is pretty level out here. So it's, you know, it's very exciting. I think it just gets to the quality, you know, in the Cretaceous here, both with the Campanian and the Santonian. So as we've said, you know, there are other play types, you know, that we are still looking forward to testing. You know, the Toronian... is a target we had at MACA. You know, there's more to do. You know, we've really, with the Campanian and San Antonio, we're really only, you know, fully starting to evaluate two of the play types. You know, we think there's seven or eight, so there's multiple targets. So a lot of exploration to do, and obviously we've got a lot of appraisal work to do on these first three discoveries.

Well, John, you anticipated my follow-up question on the Toronian, because I remember back, you know, you guys certainly have plenty to say grace over here, but going back to that first well, the Maka well, that you guys had some encouragement with the Toronian. So is that something that we should anticipate you guys are going to maybe test with your next well, or is that something that's, that's where you found enough in the Campanian and San Antonio that that's kind of receded into 21 or beyond?

Well, just the timing of how, you know, if you look, Charles, we're really still moving across one direction across this block with these first four wells. We haven't even started to move, you know, the other direction, which would be north and south. So, you know, we're going to, you know, Kessie obviously has you know, move to the other side of Sapacara. So, you know, we'll talk about that with the future exploration wells.

Got it. Thanks for that color, John.

Thank you.

Our next question comes from Jeannie Way with Barclays.

Hi. Good morning, everyone.

Good morning.

Morning. I've got two questions on Suriname. Shocking. But I guess my first question is just on the reservoir quality and the second is just on the accelerated first production commentary. So based on what you've seen so far from the cost of coffee well, can you provide a little more color on what makes the reservoir one of the best quality reservoirs that you've ever seen in the basin? And is it primarily just the net fee to pay or are there other characteristics that you can elaborate on?

I just say in general it's it's better. It's better if, you know, you look at the one net fee to pay both in the San Antonio and in the Campanian are greater than we had in the first two wells combined. So that's one element. But I'll also tell you the quality looks fantastic. So at this point, that's all we're going to say about it.

Okay. I can appreciate that. And then my follow-up question, in terms of the potential for accelerated fresh production, Relative to the current plan, which to our understanding, I think there's something around four development wells and four exploration wells a year. Is the thought that maybe you could shift some exploration CapEx to development CapEx, or do you envision doing more than the four plus four wells? I know it's so early, but I'm also not sure if there's anything in the PSD that allows for some timing flexibility.

Yeah, I mean, what I would say is I don't, you know, I don't know where the, four appraisal or four development wells came from. You know, we're drilling four exploration wells this year. Under the terms of our joint venture, us and our partner can each propose four exploration wells, so there could be eight, you know, going forward. What we've stated is there will be, you know, both an appraisal program and an exploration program in 21, and we plan to try to get started as early as we can. So clearly, you know, the comment is, you know, with what we've got and some of the things we're doing here, this is of a quality and magnitude that it would warrant trying to look at could it be accelerated is all we're saying.

Okay, great. Thank you very much.

Thank you. Our next question comes from John Friedman with Raymond James.

Hi, guys. Good morning, John.

Good morning.

So I wanted to focus on the cap allocation. You all have been pretty clear about, you know, the balance sheet being the first priority and then, you know, kind of CERNOM, Egypt, North Sea, Permian, sort of that order. And, you know, the slide that you all have got in your presentation sort of lays it out at different kind of price decks, how that capital gets allocated. And, John, you were very clear, you know, in your prepared remarks that it's going to take, you know, an oil price well over 50 to put, you know, a rig back to work in the Permian area. But I guess I'm curious with sort of where the current strip is, which is just barely above 40, it's kind of right on, you know, the line there between, you know, if you do anything in the North Sea, if you would potentially draw down ducks in the Permian. And I guess what I'm going towards is with this, you know, continued success in Suriname and everything you all want to do there and the continued run in Egypt, if maybe the gap is sort of widened between, you know, those two assets versus the other two to where maybe, you know, at a low price it's just barely above 40, it maybe doesn't, you know, make sense maybe to put the capital at those last two relative to the others. Like is there part of the pie now getting bigger, I guess?

Yeah, John, a really good question. You know, I think the first thing I would say is, you know, in my prepared remarks I laid out too that, You know, where the strip is today, CapEx probably comes down, you know, for the whole N21. And that's just because of how we prioritize things. As it relates to the pie, you know, CERNOM, the way we structured our joint venture, it really doesn't change how much capital we have to put into CERNOM. So, you know, clearly it's just going to boil down to how much capital do we want to spend. And, you know, with where the strip sits today, I really think that the CapEx budget is going to come down because, you know, we're going to want to generate some free cash flow that, you know, can go towards reducing our debt.

Great. And then just the last question for me was this latest result, you know, in CERN arm and everything you're doing there, Just internally relative to how you were thinking about the mix of kind of appraisal and expiration and CERN on next year, does this change that mix? I'm not telling you to give me, you know, the actual breakdown because you haven't probably determined that yet, but just does it change your thought process of how that mix would have been prior to this result?

It really doesn't because, I mean, we've been, you know, I think we understand the potential there. You know, clearly there's things you're going to want to try to move forward on an accelerated pace if we can, but we also have a very large block that we have to continue to explore. And so we're going to want to continue exploring. I think the exploration pace will be pretty similar to what it is today, and then it will just be a function of what we need to do on the appraisal side with our partner.

Thanks, John. I appreciate it, and congrats.

Thank you. Our next question comes from Gail Nicholson-Stevens.

Good morning. Congratulations on another great Suriname WOW.

Thanks, Gail, and good morning to you.

When you guys look at Egypt activity in the second half of the year, could you just talk about any exploration targets that you guys are looking forward to tackling?

I mean, Gail, we continue to work Egypt hard. We've shot a big, very large 3D there. You know, we continue to high-grade our inventory. We do have some interesting things that are on the schedule that we're anxious to drill, some stratigraphic targets. And, you know, at some point, if, you know, they work like we think they could work, then there will be some things to talk about.

Great. And then, Steve, in the first quarter call, you talked about a cash flow sensitivity for every dollar move in oil was roughly in the $50 million to $60 million range. Is that still a good proxy to use, or has that improved?

No, that's still a pretty good proxy to use for every dollar, probably close to the $60.

Great, thank you.

Thank you, Gail. Our next question comes from Arun Jaira with JPMorgan Chase.

Yeah, good morning. John, I was wondering if you could maybe, as a follow-up to John's question, just give us some thoughts on your plans to delineate the three discoveries you've announced thus far and thoughts on potentially bringing in additional drilling rig to the theater, call it next year or beyond.

Yeah, Ray, I'll just say, you know, we have a kind of a procedure through the concessions that we follow. And, you know, we have submitted the appraisal plan for MACA. We are working on the appraisal plan for SAPACARA. You know, there will be one that follows cross-quasi, and clearly there's going to be an appraisal program, you know, that starts in early 21. And at this point, that's all I'm at liberty to really say. But we look forward to getting after it.

Great, great. And just to follow up, regarding Egypt, you guys have talked about the new licensing areas. I was wondering if you guys have processed seismic on your legacy position as well, and perhaps a little bit more detail on when you plan to test. the stratigraphic trap play concept that I think you've identified in the Pita and Berenice discoveries back in 2014.

Yeah, I mean, that's really, it's Pita and Berenice that really, you know, kicked off this whole effort. You know, prior to drilling those wells, you know, we'd shot new 3D in 2013. They were on our, you know, legacy acreage position called Offset. You know, it really opened our eyes to, to the fact that we needed to start looking stratigraphically, not just structurally in Egypt. We had found some things that were stratigraphic in nature through some of the wells that we had drilled in the past. But it really had us design the 3D, which we've been shooting. And obviously, we picked up new acreage and are shooting that over a lot of our old legacy as well. So a lot of prospectivity. We've got some wells that we're pretty excited to drill. The nice thing about those is they're vertical, they're onshore, and they're wells we're drilling, so we can do them pretty quickly. It's just a matter of working through all the details and prioritizing. The rig count there we've also reduced. We're currently at five. We'd like to spend more there if we could. Great. Thanks a lot.

Our next question comes from Scott Hanold with RBC Capital Markets.

Yeah, thanks. You know, on Suriname, you know, and, you know, great discovery, and congratulations, by the way. Does that, you know, does that discovery, you know, really say anything about the positioning or your read of the seismic that you have over, you know, some of the other fairways, like the Maka, for example? You know, i.e., is there the chance that you guys now see the opportunity for thicker structures other places? Is there anything unique that you found with that well?

Well, I mean, Scott, good question. I mean, I think what you're learning, too, and is what we're learning, we've still got work to do. We'll continue to reprocess seismic. You know, there are some carbonates and some things that make it harder. You know, we're fairly deep here, as you saw with the TD that we announced in this well. So we're going to continue to work that. I mean, it's, you know, I think what it really points out is just the the vast size as you move from these first three wells between them and the size of the block. We're going to get smarter with the reprocessing to better understand everything and put it all together. But the good news is we've got a massive hydrocarbon system. It's working, it's oil, and we've got good reservoir in the San Antonio and in the Campanian. And, you know, we'll learn more as we go. And as we, you know, really start to drill wells, we've just drilled three. So, you know, we'll learn more as we go.

And effectively, as far as Keskeski goes in terms of where that was positioned, is there any chance that shifts a little bit as you, you know, continue to get closer to that? Or is that location pretty well set at this point?

No, I mean, you know, as we stated, we had, I think, nine wells per minute. We knew we would drill three for sure. Likely the fourth was the option we exercised. So, you know, we've got five other locations out there that were picked. Could be appraisal, could be others. So, you know, other exploration targets. But, you know, we've sticking with where the original wells were on most of these. I mean, it's Sapakara. We've moved over one. So, you know, as you go and you learn more, you know, you set yourself up to try to get smarter. But it's going to take some more work with the seismic to really change, you know, some of the interpretation that we did on the front end.

Understood. Appreciate it. Thank you.

Our next question comes from Brian Singer with Goldman Sachs.

Thank you, and good morning. Good morning, Bob. Sticking with CERNAM, how many combined appraisal wells at the three discoveries do you think are needed between moving forward with a codified development plan? And when you think about the appraisal plus the time to get to FID and any government approvals, what's a realistic timing for when we could see early production startup and a realistic timing if we see more normal production startup?

Well, I mean, I'd say that, number one, you know, we'll determine the number of appraisal wells that we need through the program, and we're working on that. So I really don't have anything to say other than there's going to be a program, and, you know, obviously we've got three discoveries to appraise, and there will be contingency wells as we work through those appraisal programs that you'll, you know, have with those. Timeline? You know, we've said normal process, you're probably in the four to five range in terms of years. You know, obviously there's, you know, there are ways that that could be accelerated, but I'm not ready to comment on anything at this point in terms of, you know, putting anything out there. I mean, it's all fresh. We've got the log. We're working through this with our partner. You know, we're working on right now the Sapa Cara appraisal plan, and then we're going to get after the Klaus Kwasi appraisal plan following that, you know, pretty quickly, so.

Great. And then my follow-up is with regards to the gas condensate. As you get more data on the gas condensate potential, how are you and your partner considering the potential, if at all, for gas condensate development and economics? And is there any scale benefits from discoveries that you've made as well as in the Stabrook-Brock of Guyana for larger industry partnerships?

Yeah, Brian, this is Dave Purcell. I think it's premature to go down any details on that. But, you know, the way I think you could think about it is the, you know, oil is going to drive the initial development here. And then, you know, gas or gas condensate development is beyond that kind of a phase two, if you will. And, you know, obviously there would be some scale benefit there. you know, in the basin if that were an option. But there's a long fairway between here and that determination.

Makes sense. Thank you.

Our next question comes from Richard Tulch with Capital One Securities.

Hey, thanks. Good morning. And John, congratulations on the big discovery. Two quick questions. You know, with no plans to resume domestic activity until oil prices are considerably higher, what are your current views on, you know, potentially monetized in any of the U.S. assets at this point?

I mean, I'd just say with portfolio, you know, we're always working the portfolio. We're always looking at how we improve. You know, when we look at our acreage positions, you know, Out in the Permian specifically, the good news is we don't have a lot of wells we have to drill to hold acreage. In fact, most everything is HPP. We've been looking at working swaps and things to improve our lateral feet in terms of drillable lateral feet. We're always watching and looking and evaluating the portfolio. I'll just say what we typically do is come back and talk to the market after we've done things rather than you know, setting out expectations or anything on the front end.

All right. Thank you. And then just lastly, I know we've been provided, you know, a good bit of information on the thickness of the three discoveries. Any initial thoughts on the aerial extent of any of the three discoveries at this point?

You know, thoughts are that, I mean, it's worth, you know, they're very sizable, but we haven't given any color. We haven't started to put any you know, acreage size on any of these at this point. And I think it's premature. You know, that's something we'd come back with, you know, after we've done the appraisal programs.

Okay. Well, that's all from me. Thank you.

Thank you.

Our next question comes from Neil Digman with SunTrust.

Hello, Neil. John or Steve, my question is just wondering, would the pace of next year's appraisal plan at Suriname, would that have any impact on your decisions on domestic or international play spending?

Well, the way we structured our joint venture, we've kind of got, you know, everything worked in and planned around. I mean, that was the main reason we held on to 100% of this block and really, you know, farmed down 50 because we were really setting ourselves up for success. because we believed there was a tremendous amount of potential and thought very likely we would find ourselves in this position. And so that's how we structured it. So it's really not going to create an incremental capital call that we can't fund it, you know, really at any price. You know, now you get into second quarter where we got, you know, all bets are off. But, you know, really in an even sub-$30 world, you know, we will be focused on paying down debt and funding Suriname.

Got it. And then just last question, just on Egypt, I'm just wondering, you mentioned that you'd probably stay the course at Price and State around here. I'm just kind of wondering if you could talk about any price sensitivity that would cause you to change that.

No, Egypt works really well. I mean, quite frankly, the driver there is how much free cash flow do we think we can spend and invest there. I would like to spend more, you know, because we've got a lot of prospectivity there and it works quite well. So, You know, we'll be looking to try to spend more money in Egypt if, you know, if we possibly can.

Thank you. Our next question comes from Leo Marini with KeyBank.

Hey, thanks, guys, here. Just wanted to kind of get a little bit more color around some of the comments you made with respect to CapEx. I think you guys specifically said that at, you know, $50, you'd spend, you know, at or below, you know, the billion dollars as we work our way into next year. And I just wanted to get a sense, I mean, it seems to me that at that level of capital, you're going to see, you know, steady production declines in all three of your areas, sort of Egypt, North Sea, and Permian. Just wanted to kind of confirm that with you guys, and then if that is the case, then are you guys just feeling comfortable with that just because of the great initial success in Suriname, where you just think that the long-term economics in Suriname are going to be so good, you're fine letting things blow down for a handful of years until this kind of kicks in?

No, Leo, I mean, I think the point is we're managing the company for free cash flow in long-term returns. And it's not about production growth. I mean, you know, obviously... You know, we're not spending at a level today that, you know, would be maintaining production. You know, we do know from past history that as you go forward with us with our decline rates, some of these conventional assets really start to arrest that decline. So it would take more, you know, in the future. But it's a matter of priorities of how we're managing the company. And I think some of these other assets, some of the things you talked about, they're going to hold up pretty well in, you know, with underinvestment.

Okay. And I guess just with respect to your third quarter production guidance here, you guys have the kind of adjusted international production of 135,000 B-week per day and kind of the upstream CapEx of 190. I want to see if you guys could provide those numbers on a kind of fully consolidated basis. So what would those be if we didn't make those kind of downward adjustments for the Egypt non-controlling interest and midstream and other things?

Yeah, Leo, I don't have those numbers to hand, so I'd suggest maybe you call Gary to take a look at the reported volumes. We typically talk about adjusted because those are the ones that have a true economic effect for Apache shareholders. But I understand the desire to know what the reported numbers might be. So if you want to talk to Gary about that, that would be probably the best source.

Thank you.

Our next question comes from David .

Morning, guys, and congrats. Thank you. Just curious, you've spoken quite a bit about, obviously, Suriname. You talked about your capital allocation priorities as commodities improve and the emphasis on free cash. You know, there were reports, I guess, earlier in the month or perhaps last month about Apache's potential interest in some other North Sea assets. If we think about Apache just as a portfolio company now, should we be expecting you to look at opportunistic acquisitions that would increase your free cash per share scale or just given the immense resource that might be in front of you, would that be something that would be off the table right now?

No, I would just say that, you know, number one, we typically, you know, as a rule, don't comment on rumors. And, you know, as we think about portfolio and changes, we typically talk about them after we've done things, right? So, you know, if you look at us today, you know, we've always believed in a portfolio. We believe in diversity. We think we've got strong international assets. You know, we maintain those at a time when there was push to try to move to more of a pure plate model. And so, you know, we've always maintained the balance. We believe in having exposure to all the commodities and multiple strong legs to the stool that keeps it strong.

Appreciate that. And then just the last one for me is, You talk about priorities and accelerating, you know, appraisal and potentially development, particularly in Block 58. How do you feel now or how are you thinking now about exploring in some of the other blocks, namely 53? And if there were, you know, some leases that opened up towards the end of the year and more of that southern extension in the basin, would we expect Apache to be present in those areas?

Yeah, I mean, when you look at 58, it's a lot to say grace over for us. You know, we're obviously, you know, it was important to us to structure our joint venture where we could maintain, you know, 50% of the profit oil. We're thrilled to have Block 53. You know, I think directionally the way things are moving, it bodes well for 53. So, you know, at this point... You know, we've got quite a bit to say grace over, you know, in that part of the world.

Fair enough. Thank you, guys. Congrats.

Thank you. Our next question comes from David Heikkinen with Heikkinen Energy.

Good morning, and thank you for taking my question, and congratulations on the success in Saranam. Kind of triggered some memories of many DSTs that looked for PERM, really poor pressure, and then boundaries. With that thickness, can you talk about how many DSTs you're running? You know, what are you thinking about as far as detecting boundaries, and are there any analogies that in other basins or the Gulf of Mexico that you could point us to to think about what those results will be as they come in?

Yeah, Dave, this is Dave Purcell. Thanks for the question. Yeah, when I think about a mini DST, the Probably the most important piece of information, because it is a mini-DST, is the composite flow capacity. So we're getting that aggregate kind of near wellbore perm across a thicker interval. The deeper reservoir investigation is an added benefit, but you're still not getting out as far as you would in a true conventional drill stem test. So what this is going to allow – The number of tests we're going to perform is dependent on a lot of factors, on thickness and a number of things. But what the results are really going to allow us to do is be able to be more thoughtful in the appraisal program as we come in and design more traditional drill stem tests. And so it's a really good piece of information that's going to, again, make us smarter during appraisal.

Yeah, so really near wellbore probably won't get enough distance to see any boundaries, and that's really setting up for your future DSCs, not anything more than that. Yeah, that's probably the way to characterize it.

That's helpful. Perfect. Thank you.

Our next question comes from Paul Chang with Scotiabank.

Thank you. Good morning. Two quick questions. One, concerning the discovery seems to be close enough you should be able to do extended horizontal well and tie back into one production half. Is that what you intend to do or that the reserve is seems like big enough that you may anyway that use maybe two the FPSO to develop it.

Yeah. Paul, it's just early. I mean, clearly, you know, the benefit of having these fairways and things is you're going to have all sorts of options. You know, the key is having resource, oil, and, you know, as you work through that, and that's some of the stuff that will go into the planning of how we appraise and ultimately make those decisions. But there's a lot of optionality to how you do it.

And last question that you sort of answered it before, but let me try another way to ask. In Fermi, if we're looking at given the success in CERNI, you will be extremely busy in the second half of this decade and probably have very good growth. And so when we're looking at something like in your Fermi asset, do you consider it still a long-term core portfolio? or that is not really considered as a long-term core portfolio from what you can see today?

No, I mean, we like our assets in the Permian. I think we've always believed it was, you know, a key pillar. You know, I think what in this price environment today, we've just got places that are going to get capital before that's going to get it, and I'll just leave it at that. Thank you.

Mm-hmm.

Our next question comes from Jeffrey Campbell with Tui Brothers.

Good morning and congratulations. I'll jump in on the Suriname success, so congratulations. Real quick question there. I just wanted to confirm who will operate the upcoming fourth exploration well?

Apache will operate the Keskesi well. After that well is when, you know, we've already started transitioning with our partner Total and You know, I will say we chose the right partner for a lot of reasons, and we're excited to continue working with them and let them, you know, take the reins as operator.

Right. Well, being a little superstitious, wouldn't mind seeing you guys drill one more well, so glad to hear that. The other quick question was just how many Permian ducks do you actually have right now in the queue?

Yeah, it's about 50 outside of Alpine High.

Okay, great.

Thank you. And I'm not showing any further questions at this time. I'd like to turn the call back over to John for any closing remarks.

Thank you, Operator, and thank you to everyone that has dialed in today. To close the call, I'd like to leave you with three key takeaways. First, Apache has responded quickly and aggressively to the volatile price environment thus far. in 2020. We are exceeding our cost and capital reduction goals and will continue to relentlessly work these initiatives. Second, we are laser focused on free cash flow generation, debt reduction, and investing for long-term returns, not production growth. And lastly, we have a differentiated portfolio that offers attractive investment options in this volatile oil price environment. The long-term future of that portfolio is underpinned by CERNOM, where our success rate thus far indicates a very large, high-quality oil resource. We look forward to sharing our progress as we continue to appraise our discoveries and explore for additional oil. And with that, we will conclude the call.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.