APA Corporation

Good day and thank you for standing by and welcome to the APA first quarter 2021 earnings announcement webcast conference call. At this time, all participants 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 and then the number one on your telephone keypad. 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 Mr. Gary Clark, Vice President for Investor Relations. Sir, please go ahead.

Good morning, and thank you for joining us on APA Corporation's first quarter 2021 Financial and Operational Results conference call. We will begin the call with an overview by CEO and President John Chrisman. Steve Riney, Executive Vice President and CFO, will then provide further color on our results and 2021 outlook. 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 first quarter financial and operational supplement, which can be found on our investor relations website at investor.apacorp.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. This quarter, we have also introduced the term free cash flow, which is defined on page 20 in the glossary of our supplement. 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'll turn the call over to John.

Good morning, and thank you for joining us today. In my prepared remarks, I will review APA Corporation's first quarter results and discuss our 2021 priorities. Despite some significant weather-related challenges, we delivered a strong first quarter. Specifically, our free cash flow generation was over $500 million. We performed well relative to our production and cost expectations, and our safety performance was excellent. Our total adjusted production exceeded guidance as Permian oil and gas volumes benefited from a faster-than-expected recovery from the February storm impacts. This more than offset lower international adjusted volumes, resulting from the impact of higher oil prices on our Egypt PSC cost recovery barrels and some extended operational downtime in the North Sea. Upstream capital investment and LOE were considerably below guidance for the quarter. Together with strong price realizations, these factors contributed to an exceptional quarter of free cash flow generation, all of which is being designated for debt reduction. Looking ahead, the four-year guidance we provided in February is unchanged, and we are clearly off to a good start. Turning now to operations in the United States, we reactivated a rig in the Permian Basin, which was previously on standby, and picked up one additional rig to drill a four-well program in the Austin Chalk Play of Texas in Brazos and Washington counties. We placed 22 wells online in the Permian, including two at Alpine High. Roughly 5,000 BOEs per day of lower margin Permian production remained shut in at the end of the first quarter. We are very pleased with the early results and combined with the recovery from winter storm URI are expecting a significant increase in second and third quarter production. On Tuesday, we announced an agreement in principle with the Ministry of Petroleum and the Egyptian General Petroleum Company to modernize the terms of our current production sharing contracts, which is the result of a process that has been underway for more than one year. The agreement is comprehensive and, when ratified by Parliament, will result in increased activity, capital investment, and oil-focused production growth over the next several years. Currently, we are running a five-rig program in Egypt and continue to build quality inventory across our expanded acreage footprint. In the first quarter, we had another significant oil discovery at our Hadid prospect, the details of which are in our financial and operational supplement. We are projecting Egypt gross production will bottom in the second quarter and trend up in the second half of the year. De-bottlenecking of certain pipelines and facilities in the addition of compression capacity will enable us to connect roughly 35 wells in the second half of the year compared to only 20 wells during the first half. These and other 2021 guidance items do not include any potential changes associated with the pending PSC modernization, which we look forward to updating after the agreement is formally approved. In the North Sea, we have been operating one floating rig and one platform rig crew for just over a year. At this pace, we are capable of delivering annual production in the range of 55,000 to 60,000 BOE per day for the next several years. In 2021, we anticipate North Sea volumes will be a bit lower as we experienced unplanned compressor downtime in the 40s field during the first quarter, and will incur extended pipeline downtime and platform maintenance turnarounds during the second and third quarters. Following this, however, we expect a sharp rebound in production during the fourth quarter 2021. In January, we announced a discovery at our fourth exploration well in Suriname. An appraisal plan for this well, Keskesi, is forthcoming. Total has now fully assumed operatorship of Block 58 and is running two rigs in the vicinity of the Sapacara discovery. Both rigs are capable of appraisal and exploration drilling, which provides ultimate flexibility as we execute our programs. We look forward to providing updates as appropriate in the future. Next, I would like to review our priorities for 2021, which we outlined previously on our February conference call. First, we are budgeting conservatively and focusing on free cash flow generation and debt reduction. This year, our reinvestment rate is currently tracking below 50%. Second, we are aggressively managing our cost structure and will continue to do so regardless of the oil price environment. Third, we are preserving optionality within our portfolio, which will enable us to either develop or possibly monetize certain assets at the appropriate time. Fourth, we are advancing the exploration and appraisal programs in Suriname and are now beginning to benefit from our joint venture carry agreement, which is a very efficient funding source for our differential long-term opportunity in Block 58. Fifth, we are continuing to focus on value creation through organic exploration. We recently announced the hiring of Tracy Henderson to lead our exploration team. which concludes an extensive search that began prior to the COVID-19 pandemic. Tracy's experience and expertise are a great fit for the existing APA portfolio, and we look forward to her leadership on future exploration strategy and ventures. And lastly, we are advancing ESG initiatives that are relevant, impactful, and core to our business. Broadly defined, these fall into three areas of emphasis, air, water, and communities and people. In 2021, we have established goals that address routine flaring, freshwater consumption, and diversity and inclusion programs. These goals are linked to the annual incentive compensation of not just management, but all employees. We made excellent progress in each of these areas during the first quarter, and I look forward to discussing them further as we progress these efforts through the year. In closing, I would like to thank all of our employees across the globe for their hard work in the first quarter, and in particular, our field personnel and contractors on the front lines that did an excellent job of safely navigating global pandemic protocols, as well as some very extreme weather events. During the historic freeze in Texas, Our teams worked around the clock to maintain and restore the hydrocarbon production systems that are vitally important to ensuring the safety and well-being of people and communities during events such as this. And with that, I will turn the call over to Steve Reine, who will provide additional details on the first quarter and our 2021 outlook. Thanks, John.