APA Corporation

Welcome to the APA Corporation Second Quarter 2021 Earnings Results 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'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I will now hand the conference over to Gary Clark, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on APA Corporation's second quarter 2021 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 provide further color on our results in 2021 outlook. Tracy Henderson, Senior Vice President of Exploration. 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 12 minutes in length and the remainder of the hour allotted for Q&A. In conjunction with yesterday's press release, I hope you've had the opportunity to review our second 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. 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. And 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 second quarter results and comment on our outlook for the remainder of 2021. The company is making good progress on several key initiatives. We generated nearly $400 million of free cash flow during the second quarter and at June 30 held approximately $1.2 billion of cash, which will be used primarily for debt reductions. In May, we reached an agreement in principle with the Egyptian Ministry of Petroleum and Egyptian General Petroleum Corporation to modernize the terms of our production sharing contracts. The final draft of which has now been completed and will move to Egyptian Parliament for ratification in the fall and then to the President for his approval. We are pleased with the progress thus far and believe that this modernization will return Egypt to the most attractive area for capital investment within our portfolio, and will put Egyptian oil production back on a growth trajectory. In Suriname, as announced in our press release last week, we drilled a successful appraisal well in the Sapakara area, moving us closer to our goal of sanctioning the first commercial oil development. We are generating strong results from our duct completion program in the Permian, And during the second quarter, we closed two smaller-scale central basin platform asset sales as we continue to optimize our portfolio. On the ESG front, APA continues to deliver on our key initiatives and safety metrics. Most notably, at the beginning of the year, we established an ambitious goal of eliminating routine flaring in the U.S. in 2021 – and I am pleased to announce that we will achieve this goal in the third quarter. This is the result of adding compression where appropriate, setting clear expectations and rules in the field, and improving hydrocarbon processing at location. These efforts have also helped to drive down our flaring intensity, which is tracking well below our goal of less than 1% for the year. We are also making great progress on our water initiatives. In the U.S., we are currently at 3% freshwater usage which is also well below our goal of less than 20% for the year. Turning now to operations. Total adjusted production exceeded our guidance in the second quarter, with the U.S. benefiting from better-than-expected performance throughout our Permian Basin duct completion program. This more-than-offset lower international volumes were higher oil prices impacted Egypt cost recovery volumes, and we experienced extended operational downtime in the North Sea. Upstream capital investment was below our guidance for the quarter, primarily due to timing, while LOE was slightly above expectations. Our four-year outlook for these items remains unchanged. In the U.S., we placed a total of 27 wells online in the Permian, including five at Alpine High. In aggregate, these wells are significantly exceeding internal expectations and driven by a combination of optimization initiatives. This effectively completes our backlog of Permian ducts, so you will see fewer well connections during the second half of the year. You will also see Permian production come down a bit in the second half of the year, as our current pace of drilling and completions is not sufficient to offset the initial declines from the duct completion program. As previously planned, we added a second Permian basin rig in late June, which will enable a steadier pace of completions. In the East Texas Austin Chalk, we drilled three operated wells and are pleased with the results thus far. We are evaluating the addition of a third drilling rig in the U.S. as previously noted, which would put us on a path to sustained oil production. Given strong oil prices and the recent improvement in natural gas and NGL prices, all of our U.S. asset areas are attractive candidates for this rig addition. In Egypt, we have increased our rig count to eight and continue to build high-quality inventory across our expanded acreage footprint. Facilities expansion constrained our ability to connect wells in the first half of the year and contributed to a decline in gross production during the second quarter. As we wrap up our facilities work, well connections will increase significantly in the second half of the year and gross production will begin trending up. In the North Sea, we continue to operate one floating rig and one platform rig crew. During the second quarter, production was impacted by compressor downtime, extended platform turnaround work, and third-party pipeline outages. Some of this carried over into July, and when combined with planned maintenance turnarounds at barrel, will lead to only a modest production increase in the third quarter. Once we conclude this heavy maintenance period, Production volumes in the North Sea should return to more normalized levels in the fourth quarter. In Surinam's Block 58, we are running two rigs. Upon completion of drilling operations at Sapakara, the Maersk Valiant will mobilize to the Bonboni Exploration Prospect, approximately 45 kilometers to the north. Following Bonboni, the Valiant will return to flow test the Sapakara South One Well. Drilling activities continue at the Keskesi South 1 appraisal well with the Maersk developer. On Block 53, where APA is the operator and 45% working interest owner, we recently signed a contract with Noble Corporation to secure a drill ship that will commence exploration operations in the first quarter of 2022. Before turning the call over to Steve, I would like to comment on our outlook for the remainder of the year. Oil prices year-to-date have averaged well above our original budgeted level of $45 WTI, and more recently, gas and NGL prices have also begun to significantly exceed budgeted levels. This has created a very welcome amount of incremental free cash flow and will enable substantial progress on debt reduction this year. More importantly, our 2021 capital program will remain unchanged at $1.1 billion even if we decide to add a third rig in the U.S. later this year. In June, we opened our Houston and Midland offices and began welcoming back the majority of our office staff as permitted by regional guidelines. It has been great to see more in-person collaboration in settings that we took for granted prior to COVID-19. and we will remain diligent with our protocols to keep employees safe. And with that, I will turn the call over to Steve Riney, who will provide additional details on the second quarter and our 2021 outlook.