APA Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Apache Corporation Third Quarter 2020 Earnings Announcement Webcast Conference Call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star then the number one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Mr. Gary Clark, Vice President of Investor Relations. Thank you, and please go ahead, sir.

Good morning, and thank you for joining us on Apache Corporation's third quarter financial and operational results conference call. We will begin the call with an overview by CEO and President John Christman. Steve Reine, Executive Vice President and CFO, will then summarize our third 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 10 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 third 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 interests 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. On today's call, I will review our third quarter performance, provide some preliminary color on our 2021 plan, and update our progress in Surlum. While commodity prices improved and were less volatile during the third quarter, macro headwinds continued to persist. Apache's strategic approach to creating shareholder value, however, remains unchanged. We are prioritizing long-term returns over growth, generating free cash flow, strengthening our balance sheet through debt reduction, and advancing a large-scale opportunity in CERN. We are allocating capital to the best return opportunities across our diversified portfolio, aggressively managing our cost structure, and continue progressing important safety and emissions reduction initiatives. Apache believes that energy underpins global progress, and we want to be a part of that conversation and solution as society works to meet growing global demand for reliable, affordable, and cleaner energy. As we work to help meet global energy needs, we are focused on developing innovative and more sustainable ways to operate. Our environmental, social, and governance framework continues to evolve, and early next year we will communicate more on the enhancements we are making in these areas. We want to be a partner to the communities where we live and work and deliver shared value for all of our stakeholders. Turning now to the third quarter, our upstream capital investment, lease operating expenditures, and G&A for the quarter were all below guidance. The organizational redesign we initiated a year ago is delivering combined cost savings in excess of our previous estimate of $300 million on an annualized basis. In terms of production, we exceeded our guidance in the U.S. and delivered in-line volumes internationally. U.S. oil volumes declined 11,000 barrels per day, or 12% from the second quarter. This was the result of several factors, the most notable of which was our conscious decision to suspend Permian Basin drilling and completion activity back in April. Additionally, we implemented a series of intermittent shut-ins in the southern Midland Basin to assess optimal well spacing. And lastly, we chose to leave approximately 4,000 barrels per day of oil shut in during the quarter, primarily from the Central Basin Platform, most of which we do not anticipate returning to production until prices warrant. By early July, most of our shut-in volumes at Alpine High had returned to production, which drove an increase in gas and NGL volumes compared to the second quarter. We are now seeing very compelling service costs in the Permian Basin, and as a result have retained two frack crews to begin completing our backlog of drilled but uncompleted wells. We are mindful of price volatility and will take a flexible approach to the flowback timing of these wells. Regardless, there will be no impact from this program on our fourth quarter Permian production, and minimal impact on our four-year 2020 capital guidance, which we have reduced to $1 billion. Looking ahead to 2021, we anticipate an upstream capital budget of $1 billion or less, which is based on a WTI oil price of approximately $40 per barrel and a Henry Hub natural gas price of $2.75. In this price environment, our capital allocation priorities will remain unchanged. We envision a stepped-up program in Suriname that will include both exploration and appraisal drilling, a five- to six-rig program in Egypt, one floating rig and one platform crew in the North Sea, and two frack crews in the Permian Basin. We do not envision a sustained drilling program in the Permian, but will monitor oil prices and service costs for the appropriate time to do so. Let me be really clear. If NYMEX futures are materially below $40, we are prepared to reduce capital accordingly, as we have demonstrated in the past. As previously noted, we plan to direct nearly all free cash flow in 2021 toward debt reduction. In terms of production trajectory next year, our debt completion program should stabilize Permian Oil volumes at a level consistent with fourth quarter 2020 levels, while Egypt and the North Sea will likely see modest declines. Turning now to Suriname. During the third quarter, we completed operations on our third successful exploration test in Block 58, Kwas Kwasi, which is our best well in the basin thus far. We are currently working with our partner, Total, on an appraisal plan, which will be submitted to Satsoli before year end. Following Quas Quasi, we commenced drilling our fourth exploration well, Keskesi, in mid-September. We have also selected our fifth exploration well, Bonboni, which will be situated in the north-central portion of Block 58. Apache is in the process of transitioning operatorship of Block 58 to Total, who will conduct all exploration and appraisal activities subsequent to Keskesi. I want to close by thanking our employees worldwide for maintaining safe operations, delivering on our key business goals, and helping to minimize the spread of the coronavirus in our workplace and communities. Our field personnel have done an exceptional job instituting operational protocols that enable business continuity and our office staff successfully adapted to the remote work environment. That said, we look forward to returning Apache employees to the office in the future. And I will now turn the call over to Steve Reine.