APA Corporation

Welcome to APA Corporation's fourth quarter 2022 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gary Clark, Vice President of Investor Relations. Please go ahead.

Good morning and thank you for joining us on APA Corporation's fourth quarter and full year 2022 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 and outlook. Also on the call and available to answer questions are Dave Purcell, Executive Vice President of Development, Tracy Henderson, Executive Vice President of Exploration, and Clay Bratches, Executive Vice President of Operations. 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 fourth quarter and full year 2022 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 supplement 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. I'd like to remind everyone that today's discussion 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 the call today, I will review our key accomplishments in 2022, comment on fourth quarter performance, and provide an overview of our 2023 plans and objectives. Ahead of the pandemic in 2019, we established a pragmatic long-term plan for our business that emphasized returns-focused investment, strengthening the balance sheet, right-sizing the organization and activity levels to deliver moderate sustainable production growth, conservative budgeting, and the selective pursuit of differentiated opportunities for value creation, most notably, exploration. The world oil demand and commodity price dislocations that followed in 2020 and 2021 required some difficult and necessary actions to preserve our business. After a few years of hard work, we have returned to and are delivering on this long-term plan. In 2022, we generated the second highest annual free cash flow in the company's 68-year history, which we allocated primarily to debt reduction and cash returns to our shareholders. We also increased our rig activity to a pace that is now capable of generating sustained production growth in both Egypt and the U.S. Some of the more notable achievements of the past year include free cash flow generation of $2.5 billion, 66% of which was returned to shareholders, the repurchase of $1.4 billion of common stock at an average price of less than $40 per share, and the doubling of our annual dividend. a $1.4 billion or 23% reduction in outstanding bond debt, an increase in adjusted oil production from the fourth quarter 2021 to the fourth quarter 2022, which represents our first exit rate to exit rate oil production increase since 2018. The successful integration of our Texas Delaware Basin tuck-in acquisition, which complements our legacy Delaware position, and continues to exceed expectations. And importantly, on Block 58 in Suriname, the flow test of two appraisal wells at Sapakara South, which indicated a combined resource in place of more than 600 million barrels of low GOR oil. At Krabdagu, the discovery well was also successfully flow tested, and appraisal is now underway with two rigs. Additionally, in Block 53, The first oil discovery was made at Baja, which is on trend with Krabdago. And lastly, on the ESG front, routine upstream flaring in Egypt was reduced by more than 40%. This is a significant step toward our goal of eliminating 1 million tons of annualized CO2 equivalent emissions by the end of 2024. Moving on to fourth quarter results. Following some operational delays in Egypt and unexpected facilities downtime in the North Sea in the first three quarters of the year, we ended 2022 on a strong note. Fourth quarter production and costs were in line with guidance, while CapEx for the period was slightly above expectations due to some small shifts in activity timing. U.S. production exceeded guidance on continued strong performance from our Midland and Delaware Basin oil properties. Oil volumes in Egypt strengthened as we continue to improve drilling efficiencies and project execution, and North Sea production benefited from a substantial improvement in facilities runtime. Looking forward to 2023, we will continue to focus on managing costs and driving efficiencies, while also taking advantage of the optionality within our portfolio to respond to commodity price movements. Specifically, with regard to the recent and substantial drop in natural gas prices, we are managing the portfolio for cash flow and not production volume. Accordingly, our growth in 2023 will be entirely driven by oil. We are reiterating our capital budget of $2 to $2.1 billion, which is consistent with what we indicated back in early November. and remain confident in our ability to deliver within this range. At this investment level, and assuming current strip prices, we anticipate year-over-year adjusted oil growth of more than 10% and BOE growth of 4% to 5%. This is consistent with the preliminary BOE guidance we discussed on our November call. Oil volumes in Egypt and the U.S. will be the primary contributors to growth, more than offsetting a decrease in natural gas production in both regions. As we also noted on our November call, we are expecting a sequential decrease in U.S. production from fourth quarter to first quarter. This is primarily driven by our Permian Basin oil well completion cadence. However, natural gas curtailments at alpine high and liquids volume reductions associated with ethane rejection during the month of January are also significant contributors. Importantly, our Permian oil well completion cadence will accelerate in the second half of February, which should lead to significantly higher U.S. oil production in the second quarter through the fourth quarter. Turning to the North Sea, we anticipate a moderate production rebound this year, with three new wells coming online in the first half and shorter scheduled maintenance turnaround times. We plan to release the Ocean Patriot semi-submersible drilling rig around mid-year, following completion of a scheduled drilling campaign in the North Sea. The permanent reallocation of this capital to other areas is being evaluated as the recent tax changes in the UK have made returns less attractive than other investment opportunities within our portfolio. In Suriname, first half 2023 activity is focused on the two appraisal wells drilling at Crab Dago and subsequent flow testings. Following that, another exploration test on Block 58 is also planned. While average oil and gas prices are trending down relative to 2022, APA's free cash flow this year should be bolstered by our gas sales contract with Chenier. Steve will provide more detail around the expected impact of this contract in his remarks. We remain fully committed to returning at least 60% of our free cash flow to shareholders. through a mix of dividends and share buybacks. Strengthening our balance sheet also remains a priority, and we anticipate that most or all of the free cash flow not returned to shareholders will be used to reduce debt. In closing, while the industry is experiencing considerable short-term oil and gas price volatility, we have a constructive outlook on the long-term supply and demand for hydrocarbons. Over the next several years, our plan is to maintain a relatively constant activity level, yet remain flexible to shift capital within the portfolio to the highest value opportunities. Through the cycle, we also plan to continue allocating an appropriate percentage of our capital budget to high-quality differential exploration opportunities. APA's investment case and portfolio are unique. Within the Permian Basin, we can allocate capital investment to oil or natural gas and generate growth from either or both commodities. Additionally, we hold considerable long-term gas transportation capacity, which our marketing team utilizes to purchase and resell third-party gas for a profit. We have gas sales to Chenier commencing this summer that will provide long-term access to international index pricing. Our Egypt operations offer exposure to premium Brent oil prices, modernized PSC terms, and an opportunity to generate consistent growth in an area with tremendous potential. And in CERNOM, our joint venture partnership enables the appraisal and potential development of large-scale projects on Block 58 with limited capital investment. We believe APA is well-positioned to help profitably deliver hydrocarbons that the world needs for the next decade and beyond. We are committed to doing this while reducing carbon intensity and being good environmental stewards. And with that, I will turn the call over to Steve Riney.