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spk01: 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.
spk15: 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.
spk08: 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.
spk16: Thank you, John. As noted in our news release issued yesterday, under generally accepted accounting principles, APA Corporation reported second quarter 2021 consolidated net income of $316 million, or 82 cents per diluted common share. These results include items that are outside of core earnings, excluding the second quarter impacts of divestiture gains, movements in our tax valuation allowance, mark-to-market derivative losses, and other smaller items. Adjusted net income was $266 million, or 70 cents per share. Most of our financial results were in line or better than guidance this quarter, with just a few minor exceptions. As we've discussed in the past, we continuously review our portfolio for the right time to monetize assets that no longer compete for funding. In the second quarter, we closed the sales of two such packages in the Central Basin platform. These were mostly lower margin conventional water flood assets, which were producing roughly 2,500 barrels of oil per day. Proceeds from the sales were $178 million. As we look forward to the rest of 2021, we are updating some of our full-year guidance items. We are effectively increasing U.S. production guidance by 4,500 BOEs per day and decreasing international adjusted production guidance by 14,500 BOEs per day compared to the midpoint of the previous respective ranges. This net decrease of 10,000 BOEs per day for the full year reflects the strong underlying performance of our U.S. assets, but it also captures the impact of a few offsets, the unplanned operational downtime in the North Sea, the impact of higher oil prices on Egypt cost recovery barrels, and the recent Permian Basin asset sales. We are reducing full-year DD&A guidance by $125 million. which reflects a combination of price-related reserves additions and the impact of our changing production mix with lower North Sea volumes and higher U.S. volumes. Finally, other than an increase to our expected UK tax expense due to strong commodity prices, there are no material changes to the remainder of our guidance for the year. On a longer-term perspective, one of our most important strategic goals is to return to investment-grade status, which will require a significant reduction in debt. In the near term, progress towards this goal takes priority over the capital program, which today is still below a sustaining level of development capital. In other words, we are willing to underinvest slightly in the short term to build balance sheet strength and financial resilience for the longer term. We entered 2021 anticipating a multiyear process of debt reduction. With this price environment, we're making significant progress more quickly than we thought possible. In the first half of the year, at an average WTI price of $62, we delivered upstream-only free cash flow, which excludes dividends received from Altus Midstream, of $860 million. Assuming current strip prices for the second half of 2021, upstream-only free cash flow for the full year is expected to be around $1.7 billion. The vast majority of this cash will be available for debt reduction. The rating agencies will ultimately decide when we return to investment grade, but we will clearly make significant progress in 2021. With meaningful progress on debt in sight, we would remind everyone that we have a strong portfolio of investable inventory and it would be prudent to at least increase development capital to a production-sustaining level. We estimate this would require around $1.2 billion of annual investment versus the $900 million we are investing in development capital this year. At this investment pace, and assuming prices remain flat with 2021, As we look out to the next several years, APA is capable of generating upstream-only free cash flow of $1.6 to $1.7 billion annually. This is all based on our current portfolio of assets, and to highlight what the current portfolio can deliver, this analysis assumes no further investment or future benefit from Suriname and no free cash flow uplift associated with Egypt modernization, which is still pending. And with that, I will turn the call over to the operator for Q&A.
spk01: At this time, if you'd like to ask a question, simply press star one on your telephone keypad. Your first question comes from the line of Doug Leggett with Bank of America.
spk06: Thank you. Good morning. Good morning, everybody. Good morning, Doug. One for Steve and one for you, John, if that's okay. Steve, thank you, first of all, for clarifying the more than $1 billion of free cash flow. It's much appreciated. The question I have is sustainability of that. The key thing for us is the value of the base business is how long you can sustain that cash flow. You said for a significant amount of time. Can you put some parameters around that so we can kind of back into what the market isn't paying for? And I've got a follow-up, please.
spk16: Yeah, Doug, and let me actually put some parameters around the whole 1.6 to 1.7 billion of free cash flow that I talked about in my prepared remarks. And John said, and it gets confusing because they're the same numbers, but John talked about 2021 being $1.7 billion of free cash flow, and that's based on first half actual prices plus the second half strip. And that is our internal most current outlook for the business for the full year. In 2022, we say $1.6 to $1.7 billion of free cash flow, and that is sustainable for a run of years, and we can talk about that a bit. I'd put two caveats on that. Number one, you know, we're not attempting in any way to give guidance for 22 and beyond at this point in time. That's a hypothetical case, but I want people to understand that that's a very realistic case. We know our inventory today better than we've ever known it, and we've put together a realistic case based on what we would actually invest in in the current price environments. As I said in my remarks, it is focused on the current portfolio. So we've kind of chosen to eliminate the noise associated with Suriname. It doesn't have any future Suriname CapEx, no future Suriname production or free cash flow. And just to be clear, we don't want that to come across as any reflection on our feelings about Suriname because that doesn't reflect that at all. The prices that we used in that case are exactly the same as the 2021 prices, because I didn't want those to affect comparability of the results. The CapEx, as we know, 2021 is $1.1 billion. In our hypothetical case for 2022 and beyond, it's $1.2 billion. There's a difference, though. The $1.1 billion includes $200 million of exploration spend, which is mostly focused on Suriname exploration and appraisal. So there's only $900 million of development capital in there. The $1.2 billion for 22 is all development capital. And we've talked about a number slightly lower than that, $1.1 billion is sustaining capital development or capital spending. That was when we were talking about sustaining oil production volume. the case that we've put together now sustains, the $1.2 billion sustains BOEs on a per day basis. So it actually is full production sustaining for a run of years. That's adding capital mostly to Egypt and to the U.S. Under this case, there's a slight decline in volume from 21 to 22 on an annualized basis, but then it's sustained from 2022 forward. So, you know, some people might be wondering, okay, you're spending 100 million more of CapEx and you have a lower volume, but free cash flow is roughly the same from 21 to 22. How do you do that? First, there's debt pay down assumed in that, so there's less interest expense because we are going to pay down somewhere in the neighborhood of one and a half billion of debt, a little more than that, including what was on the revolver at the beginning of the year. And then the other thing that people may not fully appreciate is that the forward look, our production mix is changing. The spending will create a decline in gas volume and growth in oil volume. So again, the prior case we talked about was a lower capital because it was just sustaining oil volume. This one's sustaining total volume but growing oil relative to gas. And again, A reminder, that doesn't include anything in there for Egypt PSC modernization, which is going to be meaningful. The specific question that you had about how long this is sustainable, if we want to get into the inventory, I'd let David Purcell take that, and I'll give him a chance to make a comment here quickly. When I say for a run of years, I'll stick with the comment I made last time You asked me this question, Doug, and that is this is at least for five to ten years that we can see out into the future. Dave, do you have anything to add?
spk02: I would just confirm it's well beyond. It's in that kind of ten-year window, well beyond five years. And once you get beyond ten, it's hard to think about anybody paying for that inventory. But it has absolute sustainability to it.
spk06: Well, guys, thanks for the detailed answer. I really appreciate that because that's kind of what I was really trying to get to. I'm going to, you know, I love the tip of the hat. Egypt could be significant. I'm guessing you're not going to answer that question, so I'm going to go to Surinam, John, if you don't mind. You saw what we said about this. It seems to me that if you're 2.5 miles away with pretty much the same thickness on the formation and your oil target in Safakara, you're going to start to get some idea of the time size. I will let you know that we had a chance to speak with the head of Statsoli who talked about this as being quote-unquote massive. So I wonder if you could just offer any thoughts on resource scale at this point and maybe a little bit of an explanation as to why not flow test it at that time. Why do you have to come back to it? I'll leave it there. Thanks.
spk08: No, Doug, I appreciate the question. I mean, we are in the middle of the appraisal, and, you know, as we said, we have not flow tested Sopicar South. You know, unfortunately, just to clarify, the testing equipment on the valiant is damaged, and that's why otherwise we would, you know, we'd be flow testing that thing now. But it's going to take some time to repair that equipment, and that's why the You know, the ship's going to sail on up to Bombani and get on to the exploration well that we're excited about. But we need flow tests there, and we're in the middle of appraisal. So, you know, we have not put out volumes yet. I mean, you know, clearly we're fine-tuning things and working with things. And, you know, we've talked about this being an important step. towards potentially an FID, but it's just a little bit premature to get into areas and those things until we gather a lot more data. And we'll do that as we continue to appraise and analyze what we've collected. But we're clearly excited about it. You know, having 30 meters of one blocky sand that's, you know, full of base, high quality is the type of thing that you can, you know, you can build around because you've got your H there. But there's a lot more to do here and a lot more to appraise. John, are we out to lunch on our tank model half a billion barrels?
spk06: Repeat that. No, you cut out on me, Doug. I did not hear. Sorry. Are we out to lunch today? on our tank audit to suggest order magnitude with no oil-water contact, you could be sitting on half a billion barrels on that prospect.
spk08: I'm just not going to comment at this point. We've got more appraisal. I appreciate the question, and, you know, I'm going to stick to where we are. It's early. We're appraising, and, you know, but we're clearly excited about it, but I'm not going to comment, you know, on your question there.
spk06: Don't blame me for drying. Thanks, fellas. Yep.
spk08: Not at all.
spk01: Your next question comes from the line of John Freeman with Raymond James.
spk07: Good morning, guys. Good morning, John. The first question, I just wanted to clarify one thing on Egypt. So if you had the five rigs last quarter, you're now running eight rigs. when we sort of think about the PSC being approved and obviously up in vocal and again on this call about that would, you know, once it's approved, that's going to see an increase in activity. I'm just trying to make sure that I'm using the right baseline so that the incremental five rigs, the eight rigs, I know there was always some incremental activity planned in the second half, but is the eight rigs the baseline that we're supposed to use ahead of PSC or was there any maybe additional rig or two that was added sort of in anticipation of the PSC being approved. Just want to make sure when I'm thinking about 2022 modeling that I'm using the right starting point.
spk08: Well, I mean, you know, clearly we're taking some steps that we've, you know, agreed with them. But in terms of your baselines for capital and those items, I think we're in the fair way to stay where we are. Dave, anything you want to add?
spk02: John, I think it's a good question. We've said, I think hinted in the past, that we think we need eight to nine rigs to keep oil production flat in Egypt. And I think you'll see the eight rigs get us pretty close to that. And then we'll see where we go after modernization. But I think John and Steve both talked about post-modernization could put us on a path to growth. So, you know, if eight rigs sustain, that's a, I think, is a pretty good baseline on your model.
spk07: Okay, great. And then just my follow-up, and it's in conjunction, Steve, with the detailed response. You gave Doug's question when sort of hypothetically thinking about 2022. So if I take what, you know, you just said on Egypt and, you know, the eight rigs would already have sort of maintained levels and we'll just assume something changes North of that, so like Egypt post-PSC would be growing. The North Sea, I've previously talked about, you know, one way, one platform can kind of maintain, you know, volumes at that 55,000 to 60, 55,000 to 60,000 range. Obviously, first half of this year, due to the extended maintenance, you know, you're a good bit below that. So just by default, the North Sea is going to be up a decent bit in 22 versus 21. And then the Permian... it sounds likely, you know, the base case sounds like it would be to add the third rig and the permanent here in 21, which gets that back to sort of a flattish sort of sustained sort of profile. So X CERN on the line, just hypothetically thinking about those regions, right?
spk16: Yeah, I think directionally, John, that's about right. You know, most of the... Most of the increased capital will be going to Egypt and a bit to the U.S. as well. Probably not a whole lot of additional capital in the North Sea, if any, but it'll be better production in the North Sea simply because of the downtime that we've had this year, which is both planned and unplanned has been pretty material for second and third quarter. But again, I'll just remind you, John, that, you know, this is a hypothetical case. We're not trying to give any type of guidance or rolling out, you know, specific capital plans for 2022. That's still ahead of us for later this year. We'll talk about that some probably with third quarter earnings.
spk07: No, understood. Yeah, it's the knucklehead analyst like us that will be doing the speculating. But I appreciate all the answers, guys.
spk08: Thank you, John.
spk01: Your next question comes from the line of Bob Brackett with Bernstein Research.
spk14: Good morning, all. Thanks for taking my question. I might be over-interpreting this, but the fact that the Maersk developer is going to come back and appraise Keskesi South, does that mean that if you get a successful result on the well test, that's all the information you'll need on Sapakara to move it forward to FID? Or would you expect more appraisal wells there?
spk08: At this point, Bob, it clearly needs to come back. We need a flow test. But I'll just say we still are appraising. And, you know, we may need more appraisal. And so I wouldn't read into it anything more than that.
spk14: Okay. So there's multiple opportunities to move forward in the appraisal pipeline. Correct. Okay. Thanks for that. You bet.
spk01: Our next question comes from the line of Michael Cialis, default.
spk13: Good morning, everyone, and thank you for taking my question. This is actually for Mike. I was wondering if you could provide some additional color on the CBP asset sale. You foresee to monetize more non-core assets like this one, and are there any other assets in the U.S. that you would want to increase your presence on?
spk08: I mean, I think we've always looked at the portfolio as, you know, something that's kind of, you know, in flux. We're always looking for things that make sense, you know, to monetize. I'd characterize what we sold as pretty high water cuts, you know, higher lifting costs, some properties we've had in the portfolio for quite some time, and quite frankly, it's time to move those you know, along the food chain to somebody else that, you know, will put more focus, attention on them, and quite frankly, you know, a little cheaper cost structure. But, you know, at this point, nothing major is planned, as always is the case. We like to report on these after we've done things, but, you know, we're constantly looking at a number of things. So, but nothing major planned at this point.
spk13: Thank you. My follow-up might be on inflation. Are you seeing inflation in the grilling rates? You're planning to add that third rate, so I was just wondering if you would foresee a more expensive rate on that additional rate?
spk08: I think in general on the inflation side, you know, we had a lot of our key items secured for this year. I think you get into, you know, into 2022, and we are seeing some uptick in things that are around the commodities, people, things like that. But I don't know anything particular, Dave, on rig contracts you want to comment on?
spk02: Yeah, I think if you're looking for places for inflation, the completion side, you know, pressure pumping and frack is where you'll see inflation. More inflation, we have that dialed into our forward plan. Anything that has to do with commodities, whether it's steel or on LOE with chemicals and diesel usage, you'll obviously see price inflation there. But when we look at our forward plan, we think we have it adequately captured.
spk13: That's helpful. Thank you. That's it for me, and congrats on the quarter.
spk01: Your next question comes from the line of Neil Dingman with Truist.
spk03: Oh, sorry about that. I was on mute. I guess two quick ones if I could. First, just on sort of capital allocation, how you're thinking about things, my question is, I guess, once you obviously start ramping up in Egypt, is that going to simultaneously then with that Would that take capital away from the U.S. and others? Or I'm just wondering, could you talk about the thoughts about when that happens, kind of how you view that activity versus what you're thinking domestically?
spk08: Well, I mean, I think we've got a pretty good base run that we're running right now, and that's where we've been. We've been pretty consistent. You know, we did pick up the first rig, two rigs early this year. We added a second rig in the Permian. We had a rig that drilled four wells in the chalk in East Texas last in the U.S., but North Sea's been pretty constant. Egypt, we've kind of moved from five or six rigs up to eight, but in general, you know, pretty level-loaded, pretty constant, and I think it'll be pretty consistent as building blocks going forward. You know, you will post-modernization see some changes to Egypt, but it will not impact cash flow or the capital in the other areas in a negative way, so...
spk03: Okay. I assume that it's good to hear that, John. And just to follow up for you, Steve, you know, to me, given what appears to be the strong transparency you continue to have with free cash flow, when do you all think about, you know, I don't know, either call it notably or materially boosting dividends or free cash flow in addition to that, you know, your solid debt repayment program that you continue with?
spk08: I mean, I think the first priority is exactly that. We came in to this year with too much debt, and we plan to pay debt down, as Steve's made very clear. I think once we make progress there, then you can start to think about the dividend. But the first priority has been the debt, and clearly we're on a much faster pace there than we would have envisioned at the start of the year. But anything you want to add, Steve?
spk16: You know, Neil, I just say that, you know, when do we think about it? We think about that all the time. And we do realize it is a, it's important and we need to do that. And so I'm sure with the amount of debt pay down that we're going to accomplish this year, we'll be talking about that in due course. So it's certainly moving forward, not backwards.
spk03: that clearly to see. Thank you. Thank you all.
spk01: Our next question comes from our line of Paul Chang with Scotiabank.
spk05: Hi. Good morning, guys. Good morning, Paul. John, two quick questions. First, the second quarter effective tax rate on the adjusted operating earnings seems low. Is there any one-off items in there or what contributes to that seems like less than 30% effective tax rate? Secondly, just curious, I mean, I think a lot of people will argue US still have too many operators in the US shell. We don't need all the operators. So wondering that for Apache, does it make sense that for you to try to fund a company with the nearby land position and form a large-scale joint venture and put everything together? everyone still has their equity ownership, so no one paying any equity premium to anyone, but that by doing it this way, you can drive much better efficiency and cause improvement than the individual need perhaps that the company could be able to do. So is that something that you guys were entertained or you think that doesn't make sense for Apache?
spk08: Yeah, I'll let Steve address the effective tax rate question first. And then I'll come back to your, you know, the second part.
spk16: Yeah, Paul, I think I understand the question around the effective tax rate. As you'll recall, we have put a 100% valuation allowance on the tax benefit of our net operating loss carry forward in the U.S. on the balance sheet. You'd normally carry a deferred tax asset on the balance sheet. And we've put a complete valuation allowance on that, reducing that asset on the balance sheet to zero, even though we do have a pretty significant tax net operating loss carry forward. And what we do in periods of time like this in the second quarter when we have book income in the U.S. and we would normally recognize a tax expense we release enough of that valuation allowance just to offset the tax expense for that quarter. And you'll see that. You'll see the $60 million in our non-gap reconciliation from net income to adjusted earnings in the appendix in our supplement. So that'll have the effect of lowering the effective tax rate quite a bit. I see.
spk05: So as long as we have discount commodity prices and U.S. is earning a fair amount, we should assume the effective tax rate would be substantially lower than what, say, under a more normal tax rate would suggest. Correct. Okay. Thank you.
spk08: And, Paul, your second question, it really just boils down to value. I mean, I think the nice thing about our assets, you know, we've got high working interest. You know, we now have two rigs operating in the Permian. You know, I think it boils down to scale, efficiency, and value added. And in some areas, that could make a lot of sense. Some areas, it may not make sense. But, you know, we're open to looking at things is always the case. But today I think we like where we are. We like the pace. We like what we're doing. I think, you know, our wells are very competitive and the performance is very strong. And I think we're putting attention on the right assets within our portfolio today for us.
spk05: Thank you.
spk01: Our next question comes from a line of Gail Nicholson with Stevens.
spk10: Good morning. When you guys want to discuss about alpine, with the scenarios you laid out and keeping now equivalent volumes flat, is it fair to assume that alpine potentially gets more capital in the 22-4 timeframe? And can you just talk about the five ducts that you're completing and how those compare to previous wells?
spk08: Yeah, I'll let Dave touch on the duct performance on those. And as Steve outlined, Gail, It's holding BOEs flat, but we actually are going to be growing oil and offsetting some of the gas. So, you know, in those cases, it's all that Steve handled that, and then, Dave, you can talk about the Alpine Ducks.
spk16: Yeah, Gail, so just to be clear, again, we're not trying to say what exactly our capital program is going to be in 2022 and beyond. The hypothetical case that we used did not contain oil. funding of additional drilling in Alpine High, so it's more oil-focused than gas-focused, thus gas volumes going down into the future, oil volumes going up. But we look at that all of the time, certainly with gas and NGL prices improving in the recent months and could continue to improve. That'll be something that we will evaluate, and, you know, as we finish up this year and roll into next year, we'll get into the actual capital program for 2022, which very well could include some capital for Alpine High.
spk02: Yeah, and, Gail, on the performance, so we've completed seven ducts just to level set, two early in the program and five kind of more in the meat of the program. The wells... I think all the wells are meaningfully outperforming our expectations and prior well results for offset wells that we would have completed in the 2019 timeframe. So very excited about the results. The last, the most recent five, still early. They're producing, they've cleaned up, and they're producing well, but we want to continue to watch the watch the performance curve before we spike the ball.
spk10: Great. And then just on the exploration front, you know, there's a tremendous amount of potential on Saranam, but you've also had success in other areas like the Tertiary and the North Sea with Long's Dam that you disclosed earlier this year. I'm just wondering how you guys are thinking about exploration outside of Saranam over the next couple of years.
spk08: Tracy, I'll let you first.
spk09: Hi, Gail. I think, you know, we are very excited about CERN-M, as you mentioned, and I think we'll be looking for other opportunities. I think we are in a very opportunity-rich environment for exploration. So it's early days. You know, I've been with Apache now just right at two months. So, you know, you'll hear more about that as we go forward. But definitely we'll be looking at other opportunities.
spk10: Great. Thanks, guys. An excellent quarter.
spk06: Thank you.
spk01: Your next question comes from the line of Leo Mariani with KeyBank.
spk11: Hi, guys. Just wanted to follow up a little bit on Suriname here. You guys mentioned that you're in the process of picking up a rig to drill a well. Apache operated on Block 53. Just wanted to kind of get a little bit more information about that. Is this kind of a mandatory well to hold the block? Is this kind of a a one-off exploration well as you folks see it? And I guess is it just kind of a, you know, a short-term, you know, rig deal as a result? And what would be the rough capital net to Apache to go and execute that?
spk08: Yeah, Leo, we've actually got one rig or one well required to continue to hold the block. And so we've got to spread a well by June of next year. And, you know, we're excited about that. I think there's a lot of prospectivity in Block 53. You know, in terms of where you look at where the costs are going today, well, costs are probably going to be, you know, close to $100 million would be my guess for gross. And, you know, we've got about 45% working interest in there. But, you know, I'll let Tracy talk a little bit about what we see exploration-wise and is we've got both slope and more of a deep water setting, you know, on Block 53 like we do at Block 58.
spk09: Yeah, you know, leveraging on what John just said, you know, it's certainly not a one-off, you know, exploration or seen as a mandatory well. I think what we've learned is an incredible amount with the exploration wells that we've drilled today across 58. And, you know, the petroleum systems within the basin continues right into Block 53. So we're actually very excited and we see some prospectivity that's very analogous to what we've been drilling in Block 58 and what we've just seen with some of the recent appraisal wells. I think, you know, we've learned a lot and those learnings will be leveraged into what we see in Block 53 because we do see very analogous systems.
spk11: Okay, that's helpful, caller. And I guess just given kind of You know, the substantial plans that are existing in Block 58, which I assume is going to involve at least a couple rigs every year for the next, you know, several years. And I know you have to get it well done by June. But can you give us a sense of, you know, if you are, you know, successful, you know, here in Block 53, you know, is this kind of just another leg of the stool where this can kind of – It will be a block that has concurrent activity over the next couple of years in parallel with Block 58. How do you think about the success case here?
spk08: Well, I mean, the nice thing is we've got two partners here. We've got 45%. So I think it gives us a lot of optionality as we start to think about it. We are the, you know, operator of Block 53. We did do the joint venture and, you know, handed over operations in Block 58 to Total. But I think it just, you know, builds out more optionality and more flexibility for us to look for different ways to continue to advance, you know, some longer-term, very meaningful programs.
spk11: Okay, that's helpful. I guess just lastly on this potential for the third rig that you've talked about here, obviously you decided to add some activity in Egypt, and I think you guys have strongly alluded to the fact that a third rig can kind of show up in the Permian. Just trying to get a sense of, you know, what's kind of the decision, you know, point there? Is it really just about, you know, sustain higher commodity prices into your end, and if that occurs, is that third rig pretty much kind of coming for next year to try to hold, you know, BOEs flat with oil up and gas down a little?
spk08: Well, we have not made a decision on a third rig. I want to make that really clear. It's not in the budget this year. I think it's important because we've been under-investing below sustaining levels to kind of articulate what it would take. And as Steve said in his prepared remarks, we're prioritizing debt pay down in the balance sheet first. which is why we've been underinvesting. But the third rig would be required to get to a sustaining level in the U.S. And so, you know, we've got pretty attractive options for that. So that's why that's framed that way. But it is not a foregone conclusion that we're bringing it. We have not made that call. And, you know, capital remain at the $1.1 billion for 2021. Okay, thanks.
spk01: Your next question comes from the line of Jeffrey Lamberjohn with Tudor Pickering Hold & Co.
spk04: Good morning, everyone. Thanks for taking my questions. My first one is just a follow-up on U.S. upstream. Obviously, throughout the first half here, U.S. volumes have been more than offsetting the planned and unplanned international downtown, which you see more about in the full year guide as well, even net of the CBP sales. So just hoping you could talk more about what you've been seeing in non-alpine high Permian now that we're through the first half of the year and how that might influence capital allocation within non-Alpine high Permian specifically.
spk02: Yeah. Jeffrey, this is Dave. Thanks for the question. We're seeing meaningful uplift in our performance on the Permian ducts outside of Alpine as well. And it's you know, we're optimizing on a number of different variables. We're excited about that program. And so when we, I think Steve talked about it in his prepared remarks, when we look at our U.S. portfolio, we have multiple places that could compete for the capital for that third rig, and that would be the chalk. It could be in third rig in the oily Permian and possibly the third rig and alpine so we're we're evaluating those but we're we're very excited about the performance that we've seen and the improvements that we continue got it thank you and then second uh just to try on the egypt psc modernization and you know understanding you can't speak to specific terms
spk04: Is there anything you can share at this time, maybe just on what mechanics are in flux that will help to increase capital allocation to that region?
spk08: No, I mean, I think you've just got to look at it in terms of modernizing. You know, we've got a lot of concessions. We'll be collapsing those, merging joint ventures. I mean, there's a lot to do there administratively that's going to make it easier for and it will effectively keep us from trapping capital. But, you know, we're not in a position to elaborate more than that today. You know, it's going through the approval process, and, you know, we should be in a position to talk about it, you know, later this year for sure. Great. Thank you.
spk01: Your next question comes from the line of David Hickenen with Pickering Energy. Thank you.
spk12: Good morning, guys, and thanks for the hypothetical framework. It is helpful, and we won't hold you to it for your budget. One of the things that we're curious about, and on the gas side, have you all thought about joining any of the oil and gas methane partnerships or certifying your natural gas or moving in any of that direction to really quantify the improvements you're showing around emissions?
spk08: I think we're a member of one future. I think our approach has been to take real, tangible projects and steps that we can take. We're in the middle right now of working on our sustainability report, which will be coming out later in the year like we always do. We're monitoring all those things. I think the key for us is trying to focus on what are the material things we can do in our business that are going to lower those emissions and and dry performance, right? And so those are the things we're focused on.
spk12: And as you think about your operations globally, would you move towards quantifying carbon equivalent emissions per barrel for the North Sea, Egypt, or U.S. operations?
spk08: Yeah, I think we'll stay tuned and monitor that. you know, where things are going. I mean, you know, for us, you know, we recognize we've, you know, we need to continue to lower our footprint. You know, we need to be in a position and continue to monitor and measure those and take those steps. And then we'll just be making the, you know, determining how, what's the best way to show it and the best way to quantify it and also how to attack it. In the end, it's about lowering emissions. Okay. Thanks, guys.
spk01: At this time, there are no further questions. I'll turn the call back to John Chrisman.
spk08: Thank you. So before ending today's call, I'd like to leave you with three points, the first two of which are important catalysts. First, we are very encouraged with the progress in CERNOM and look forward to having further results later this year. Second, the PSC modernization in Egypt will have an immediate positive impact for both the country and APA, and we are very pleased with how things are progressing. Finally, the free cash flow capacity of our base business is robust and sustainable, and this will materialize in returns to investors. Thank you for participating in our call today. Operator, over to you.
spk01: Thank you, ladies and gentlemen. That concludes today's conference call. You may now disconnect.
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