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Operator
Conference Call Operator
Good day, and thank you for standing by. Welcome to APA Corporation's second quarter financial and operational 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 will 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 first speaker today, Gary Clark, Vice President of Investor Relations. Please go ahead.
Operator
Conference Call Operator
Good morning, and thank you for joining us on APA Corporation's second quarter 2024 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO John Christman. Steve Riney, President and CFO, will then provide further color on our results and outlook. Also on the call and available to answer questions are Tracy Henderson, Executive Vice President of Exploration, and Clay Breccias, Executive Vice President of Operations. Our prepared remarks will be less than 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 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 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. 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 discuss on today's call. A full disclaimer is located with the supplemental information on our website. Please note that the CALIN acquisition closed on April 1st. Accordingly, our full year 2024 guidance reflects first quarter APA results on a standalone basis, plus three quarters of APA and CALIN combined. And with that, I will turn the call over to John.
John Christman
CEO
Good morning, and thank you for joining us. On the call today, I will review APA's second quarter performance, discuss the calendar integration, and review our activity plan and production expectations for the remainder of 2024. Our second quarter results were strong across the board, with higher than expected production in all three operational areas. CapEx was lower than expected, mostly due to timing of spend. In the U.S., oil volumes of 139,500 barrels per day were up 67% from the first quarter as we incorporated Cowan into our operations. Production and costs were significantly better than expected on a BOE basis after adjusting for asset sales and discretionary natural gas and NGL curtailments. Our Permian Basin continues to perform at a high level. and we marked our sixth quarter in a row of meeting or exceeding U.S. oil production guidance. On a BOE basis, oil now comprises 46 percent of our total U.S. production following the Callen transaction. With this increased exposure, APA's cash flow sensitivity to a $5 per barrel change in oil price is approximately $300 million annually. In Egypt, production also exceeded expectations. We saw positive contribution from new wells, improved results from recompletions, and continued strong base production. Base production is particularly benefiting from the implementation of several new water injection projects. We are also beginning to see a decrease in offline oil volumes waiting on work over, as we moderate the drilling rig count to free up work over rig resources. Turning to the North Sea, operations were relatively smooth in the second quarter, with better than forecast facility runtime driving higher production. Our ongoing focus in the North Sea is rightsizing our cost structure for late life operations. In Suriname, our partner, Total, recently announced that it has secured the FPSO hole for our first offshore development and we remain on track for FID before year end and first oil in 2028. And in Alaska, we are still working through options for the upcoming winter drilling season and look forward to returning to exploration activities. Turning now to the Cowan Acquisition. Note that in last night's release, we increased our estimate of annual Cal and cost synergies from 225 million to 250 million as we leverage economies of scale of the combined APA and Cal and Permian businesses. Steve will speak in more detail about some of the specific initiatives driving these cost reductions. More importantly, we are just beginning to implement drilling unit design and operational changes that we expect will create substantial value on the Callen acreage via improved well performance and capital efficiency. Our preliminary estimate is that we can drill a standardized two mile lateral for roughly $1 million less than Callen was spending in 2023. We recently spud our first APA designed drilling unit on Callen acreage the five-well Coleman unit in the Midland Basin and should begin to see initial flowback results in the fourth quarter. Turning now to our activity plans and outlook for the second half of 2024. In yesterday's release, we provided guidance for the third and fourth quarters, which contained some notable positives. In the U.S., we will average nine to 10 rigs for the remainder of this year, consisting of approximately five rigs in the Delaware and four rigs in the Midland. We plan to run three to four frack crews and complete about 90 wells by year end. This sets the stage for strong oil growth in the second half of the year. Accordingly, we are increasing fourth quarter U.S. oil guidance to 150,000 barrels per day, which is up 1,500 barrels per day after adjusting for the impact of asset sales closed in June. This represents organic production growth of roughly 8% compared to the second quarter. We also expect an increase in natural gas and NGL production, driven primarily by fewer discretionary curtailments than in the first half of the year. In Egypt, we expect a continuation of the operational progress that we made in our second quarter. There will be some volume impacts from the rig count decrease, but this should be mitigated by strong base production performance and increased work over capacity to remediate wells offline. By year end, we project that backlogged oil production will be closer to more normalized operating levels. On our May call, we said that adjusted production in Egypt would remain relatively flat in 2024, while gross oil production would be flat to slightly down through the remainder of the year. While there are a number of moving parts to the program in Egypt, we see no material variances to our May outlook, and therefore guidance is unchanged. Similarly, our four-year production guidance in the North Sea is unchanged. though we now expect a bit larger decrease in third quarter volumes associated with maintenance and turnaround activity at Barrel, and a slightly larger subsequent rebound in the fourth quarter. In closing, second quarter was an excellent quarter operationally, and we continue to execute at a high level in the Permian Basin. We are realizing greater than expected cost savings from the Cowan acquisition, and have a clear pathway and plan to improving capital efficiency on those assets. Egypt also had a very good quarter and is beginning to deliver significant capital efficiency improvements. Though our drilling rig count is coming down, continued strength in base production and the return of wells offline will help sustain volumes in the near term. At current strip pricing, the second half of the year is setting up to deliver a substantial increase in free cash flow compared to the first half. And lastly, I am very proud of our teams for delivering these results while remaining on track to achieve our safety and environmental goals for the year. For a detailed review of APA's safety and environmental performance, I encourage you to review our recently published 2024 sustainability report, which can be accessed via our website. And with that, I will turn the call over to Steve.
Steve Riney
President and CFO
Thank you, John. For the second quarter, under generally accepted accounting principles, APA reported consolidated net income of $541 million, or $1.46 per diluted common share. As usual, these results include items that are outside of core earnings. the most significant of which were a $216 million after-tax gain on divestitures and $98 million of after-tax charges for transaction reorganization and separation costs, mostly associated with the Callan acquisition. Excluding these and other smaller items, adjusted net income for the second quarter was $434 million, or $1.17 per share. During the first half of the year, we generated roughly $200 million of free cash flow and returned $311 million to shareholders, nearly half of which consisted of share repurchases. That's a lot compared to the $200 million of free cash flow, but we liked buying at those share prices, and we anticipate free cash flow will be much higher in the second half of the year. That said, the balance sheet remains an important priority and I will talk about plans for further debt reduction in a few minutes. Now let me turn to progress on the Calend integration. As John noted, we increased our estimate of annual synergies to $250 million. Since we announced the Calend acquisition, we have categorized synergies into three buckets, overhead, cost of capital, and operational. We are now increasing our estimate of expected annual overhead synergies to $90 million. Most of this was captured by the end of the second quarter on a run rate basis, and the remainder will be done by year end. At this time, we anticipate that our quarterly core G&A run rate, as we enter next year, will be approximately $110 million. With that, we will have eliminated about 75 percent of calendar overhead cost, so no material further synergies are likely. Our cost of capital synergy estimate of $40 million annually Assume terming out Cowen's $2 billion debt at APA's lower long-term cost of borrowing. At the closing, we used cash from the revolver and a $1.5 billion three-year term loan to refinance this debt. Instead of terming this debt out, our current intention is to use asset sales and free cash flow to simply pay off the loan before the end of its three-year term. This would represent a significant step forward in the goal to strengthen the balance sheet and to fully realize these synergies. And lastly, we are increasing our operational synergies to $120 million annually, approximately 60 percent of which is associated with capital savings and 40 percent attributable to LOE. To reiterate, these cost synergies do not include capital productivity benefits associated with uplifting type curves and improving well economics through spacing, landing zone optimization, and frac size. We believe this will be a source of material long-term value accretion. Turning to our 2024 outlook, John has already discussed our activity plans and production guidance, so I will just add a few items of note. We now expect that our original full-year capital guidance of $2.7 billion may start trending down a bit. A number of factors could contribute to this, including further synergy capture from the Callen combination, lower service costs, improving capital efficiency, and potential minor reductions in the planned activity set, mostly in the U.S. For purposes of third quarter U.S. VOE production guidance, we are estimating further Permian gas curtailments of 90 million cubic feet per day. This would also result in the curtailment of 7,500 barrels per day of MGLs. As most of you are aware, our income from third-party oil and gas purchased and sold can change significantly from quarter to quarter. This is primarily driven by the volatility in differentials between Oaxaca and Gulf Coast gas pricing, regardless of the absolute pricing levels. It's important to note that APA's gas marketing and transportation activities are generally more profitable when Oaxaca gas price differentials are wider. For example, the Waha differential was very wide in the second quarter. While Gulf Coast gas prices averaged around $1.65, Waha gas prices averaged closer to negative 34 cents. Because of the nearly $2 differential, income from our third-party marketing and transportation activities was well above expectations. At current strip gas pricing, we expect a similar dynamic in the third quarter. Accordingly, we are raising our full-year estimate of income from third-party oil and gas purchased and sold by $120 million to around $350 million. Approximately half of the full-year estimate is attributable to the Chenier gas supply contract, and half is attributable to our marketing and transportation activities. Lastly, APA is now subject to the U.S. alternative minimum tax, And accordingly, we are introducing new guidance for current U.S. tax accruals of $95 million for the year. And with that, I will turn the call over to the operator for Q&A.
Operator
Conference Call Operator
Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw the question, please press star, one, one again. You may ask one question and one follow-up question. Please stand by while we compile the Q&A roster. Our first question comes from Doug Legette of Wolf Research. Your line is now open.
Doug Legette
Wolf Research
Hey, guys. I'm still getting new moniker, so... Bear with me. Thanks for having me on.
John Christman
CEO
Welcome back into the frame, Doug.
Doug Legette
Wolf Research
Thanks, John. So I guess there's so many things on the quarter that I could go after. I'm going to just try a couple. But, Steve, it looks to us that your CapEx run rate exit, call it fourth quarter, looks like you're going to be around $600 million today. which would be about a 10% decline year over year if that held into 2025. Is the objective after you grow, you know, you've got the momentum from Callan, is the objective to hold that flat? In which case, should we be thinking something around 2024, 2025 for next year?
Steve Riney
President and CFO
Yeah, Doug, I'd be careful just using fourth quarter. We're probably going to be a little longer on completion activity in the fourth quarter because a lot of that has been bunched into second quarter and third quarter this year just because of the timing of availability of wells for completion. So I think the easier way to do that would be to look at a full year spend take out the first quarter, which is just APA, and then, you know, I would probably first adjust that for the exploration spend, and then just divide it by three quarters, because the quarter was high. Third quarter is going to be about average-ish, and fourth quarter is probably going to be a little low.
Gary Clark
Vice President of Investor Relations
And then I think you'll get a number of something close to around 700 per quarter.
Doug Legette
Wolf Research
Okay. All right. That's really helpful, guys. Sorry.
Steve Riney
President and CFO
If you take out the exploration, you'll probably get something closer to 675 million a quarter of capital spend on basically the U.S. onshore and in Egypt. There's not a whole lot of capital activities going on in the North Sea.
Doug Legette
Wolf Research
Okay, that's what I was trying to get at. That's really helpful. John, I wonder if you've not wanted to be drawn on inventory depth since the Callen deal, but I'm guessing you're getting your hands around that now. So when you look at the drilling pace with, I guess, you're going to be at nine rigs in the second half. What are you thinking with the upspacing and so on? What are you thinking about your inventory depth looks like now in the lower 48? I'll leave it there.
John Christman
CEO
Yeah, Doug, it's a great question. It's one we're, you know, we're working every day. What I would say is if you look at the existing, you know, U.S., Permian run rate we've always said kind of end of the decade with the rig rate we're at um and when we said we bring a calendar in pretty similar uh duration um i think there's one upside on the calendar is that if we can drive the productivity improvements that we think we can then there will be more inventory that comes into play that we did not you know pay for in our acquisition um so That's something we're currently working on. You know, if you look at where we sit today, we've got a lot of flexibility going into next year. We're going to grow Permian a very strong clip from second quarter to fourth quarter, you know, on nine to 10 rigs, about 8%. And so it gives us a lot of flexibility, you know, going into next year pace we want to go. And we've had plenty of, you know, inventory that we have visibility on now to carry us to the end of the decade. And, you know, we'll keep working that.
Steve Riney
President and CFO
Yeah, just a bit to add on, Doug, to what John just said, just to enhance that a bit. You know, when we were working on the acquisition, of course, we were looking at a lot of outside service providers that look at inventory counts, and most of them probably would have said that Cowan had more running room, more inventory, more years of inventory than we did, based on our analysis, as John said, which is fairly significant. a fairly conservative view of the world. We said now it's probably more similar to ours in duration. And as John indicated, the more we can get capital efficiency, capital productivity into the right place on the Cowan acreage, the more that inventory quantum could grow back to what some of the other people thought it was, which is something that would extend beyond the end of this decade.
Doug Legette
Wolf Research
Got it. Thanks, guys. I'll see you next week. Thank you.
Operator
Conference Call Operator
One moment for our next question. Our next question comes from John Freeman of Raymond James. Your line is now open.
John Freeman
Raymond James
Good morning, guys. Good morning, John. Just kind of following up on some of Doug's questions. I mean, the Permian and Egypt both exceeding guidance and you know, specifically on Egypt, you know, pretty solid job of getting that turned around. And I'm just trying to make sure that, you know, I'm thinking about this right where you've got, you know, you average 16 rigs in the first half of the year, you're going to drop down to 11 rigs in the second half of the year. And am I kind of reading it right that even at that lower rig cadence in the second half of the year, because of all the steps that y'all outlined in terms of the improved kind of base production management, uh catching up on the recompletions you know resolving kind of that backlog of oil offline um in the back half of the year is that 11 rigs sort of cadence in the second half of the year i mean is that like an acceptable number to kind of maintain volumes just trying to make sure i understand kind of what's the moving pieces it's a great question john and uh you know you're you're you're on the right track i'd say that uh
John Christman
CEO
You know, the benefit we've had by dropping the rigs is it's been able to free up the work over rig time, which is critical because we have a lot of recompletions. And really, we also have a lot of CTIs, which are conversion to injection projects that we've been able to get to. And so, you know, when we were running, you know, 20 work over rigs and 18 drilling rigs, there's not much slack. By ratcheting that back, it's freed up the time and it's letting us get to some very meaningful, you know, projects that are making a huge impact. Is 11 rigged? You know, this year we kind of guided to flat to slightly down. Is 11 the right number? It's early to tell on that front. But, you know, just having gotten back from Egypt, there's also a lot of other projects that we're talking to Egypt about, you know, for example, some gas drilling and other things, too, which could be pretty impactful as well. So, you know, there's lots of flexibility there. And, you know, we'll be working through that as we work through the planning cycles.
John Freeman
Raymond James
Great. And then just my follow-up, John, you mentioned that you'd see the The gas volumes on the U.S. side actually grow some, and it had to do with sort of the – well, one of the drivers was the fact that you'd have less curtailed gas volumes potentially in 4Q. So in the current guidance, does it assume any curtailments in 4Q? I mean, obviously, y'all, you had some in 2Q. You have even more in 3Q. I'm just trying to get something that's built into that for your guidance.
John Christman
CEO
Today, 4Q – you know, fourth quarter does not have any curtailments built in. But obviously, we had to up, you know, the third quarter with September with where Oaxaca sits.
Steve Riney
President and CFO
Yeah, and just, you know, second quarter actuals, the amount that was curtailed, we had 78 million cubic feet per day of gas and 7.6 thousand barrels of NGLs curtailed during the quarter on an average day. You know, that's nearly 21,000 BOEs per day. Our forecast for third quarter, what we've effectively left out of our guidance is 90 million cubic feet per day of gas and 7.5 thousand barrels of NGLs. That's 22 and a half thousand BOEs per day. Those are really large numbers, as you might imagine.
John Freeman
Raymond James
Appreciate it, guys. Nice quarter.
Gary Clark
Vice President of Investor Relations
Thank you, John.
Operator
Conference Call Operator
One moment for our next question, which comes from Neil Dingman of Truist. Your line is now open.
Neil Dingman
Truist
Hi, morning, guys. Nice update. John, maybe sticking with on the Permian or the Callan, specifically the Callan acreage development, really just wondering here, you all talked about, I think pretty openly, potentially upspacing a little bit. I'm just wondering besides potentially future upspacing, is there any sort of material other changes either on the completion or other side? going forward you could see potentially doing in this point?
John Christman
CEO
Yeah, as I said in the prepared remarks, Neil, that one of the advantages too is we're seeing impacts on the combined business just from the supply chain, how we design the wells. We think we can drill a standard two-mile lateral for about a million dollars less than what Calum was spending last year, which is 20%. So we're anxious to see those numbers start to come through. But, you know, excited about what we're seeing. And quite frankly, we're just now starting to spud some of the Apache plan pads on the Callan Acres. So, you know, excited to see those results. But things are going extremely well on the integration side.
Neil Dingman
Truist
Yeah. Go ahead, Steve.
Steve Riney
President and CFO
Yeah, the only thing I would add to that on the completion side, you know, with the Callan drilled wells or Callan spud wells, since they were spaced, quite a bit tighter than we would space them. We haven't really changed the profit loading much on those. We did on a few, but not many. But we significantly increased the fluid loading on those fracks. As we get to our wells, the ones that we drill, obviously, the profit and fluid loading will be quite a bit larger.
Neil Dingman
Truist
Great, great. And then maybe, Steve, for you, just a second question on shareholder return. Specifically, your show return continues to be quite active. I think it was down a little bit sequentially this last quarter. I'm just wondering, can we anticipate a large step up for remainder of the year? How would you like to think about the program for remainder 24 to 25?
Gary Clark
Vice President of Investor Relations
I tend to think of that on an annual basis, a calendar year basis. We've got at least 60% of free cash flow
Steve Riney
President and CFO
through dividends and through share buybacks, both with April 1st acquisition using shares, the outlook of dividends and for free cash flows changed quite a bit. But the framework doesn't change. 60% at a minimum. We're obviously way ahead of that in the first half of the year. And You know, we'll see what the second half brings. We I think we've demonstrated in the past that we're not afraid to go over well over the 60% and work. But let's you know, we also recognize there's continued need for balance sheet strengthening way after the. And so we're going to we'll balance that on a, you know, quarter by quarter, really day by day basis.
Gary Clark
Vice President of Investor Relations
We'll see where we are as we go from one year to the next. Very good. Thank you.
Operator
Conference Call Operator
Our next question comes from Charles Mead of Johnson Wright. Your line is now open.
Charles Mead
Johnson Wright
Good morning, John and Steve and the rest of the APA team there. Good morning, John. Yeah, thank you. I'm wondering, maybe you didn't surprise the whole market, but you surprised a few people at least with these last couple of asset sales. And I'm curious... If you can share, or you might want to share what is next, and I guess I'm thinking most prominently about the Central Basin Platform, which is an asset or an area that we don't really talk about much anymore, and it doesn't seem like you guys are deploying capital there.
John Christman
CEO
No, Charles, I mean, you know, we typically wait to talk about property sales, but, you know, there's a chance there's other things that we're looking at. that are not core to us in places that we're not putting capital. So, you know, you may have some decent intel out there.
Charles Mead
Johnson Wright
Fair enough. Thank you, John. And then I have a question about the shut-ins and the marketing in the Permian. As I think about how I would manage that, you know, the production, given that you have that valuable firm transport to the coasts, I guess I'm surmising that that 90 million a day and 7,500 barrels of NGLs, is that essentially all of your dry gas and some of your liquids-rich gas? Or is there more that you could curtail if that basis got wider?
Steve Riney
President and CFO
Yeah, Charles, so there's – yeah, we can – we can actually curtail quite a bit more than that, a little more than twice that amount. And so what that is is that's an average for the quarter, but it's in anticipation of there being periods of time where we're curtailing quite a bit of gas and dipping into the rich gas. We'll especially do that when prices go negative or significantly negative. When prices are just low, we'll typically just go with lean gas and not dip into the richer gas. So we do that based on a price basis. We have specific prices. We move from one tranche to another. We've got four specific tranches of gas going from lean to richer gas that we can shut in different pricing mechanisms. And so I just want to make sure that we're really clear about one fact, and that is that the curtailment of gas volumes in the Permian Basin and in Alpine High in particular is totally independent of our marketing activities because marketing is something that we have to do because we have firm transport on two large pipelines, more pipelines now with gallon. And we have to fulfill those transport obligations. And we do that with purchased gas in the Permian Basin, which we then sell on the Gulf Coast. And we have various access points, both in the Permian and on the Gulf Coast, to be able to buy and sell that gas. So we don't have a choice of doing that. If we choose not to transport gas, we have to pay the transport fee anyway.
Charles Mead
Johnson Wright
It's a nice piece of business to have. Thanks for that detail, Steve.
Operator
Conference Call Operator
Thank you. Our next question comes from Roger Reed of Wells Fargo Securities. Your line is now open.
Roger Reed
Wells Fargo Securities
Hey, good morning. Good morning, Roger. Yeah, I'd like to maybe follow up on some of your discussions on Egypt just to understand, like, what... where's the decision coming from on the switch from drilling to workovers? Is that, you know, all the partners, is that your decision? Is it Egypt's decision? And then how should we think about that? Maybe reversing as we exit 24 into 25 to the extent you can offer any sort of guidance that way.
John Christman
CEO
Well, I mean, you know, we have a joint venture there. We have a one third partner with Sinopac, but, uh, you know, we never have issues in terms of direction, what we think is the right thing to do and have full support. And I think the good news is the performance has been strong. The projects are very impactful and, you know, it just shows that getting that work over rig and drilling rig, you know, balance into play really gives us a lot more flexibility. I would just say there's, It would be our choice in terms of adding activity, and there is flexibility to do that. We were recently over there, met with President Sisi, met with some of his new cabinet members, very impressed with the new minister and excited to work with him, and outlined some frameworks under which we could think about bringing on some other volumes of things. very constructive meetings, and it's just something we'll factor in as we go into the planning process.
Roger Reed
Wells Fargo Securities
Okay, appreciate that. And then just to come back around on the Cal and integration, understand the changes and the synergies and all, but if you were to just give us an idea in the old baseball terms or football game quarters or whatever, as you think about the integration and the understanding of, you know, what Callen really brings to the Apache family. Like, are we early, we mid, are we late in the process of really kind of understanding all that?
John Christman
CEO
Yeah, I think it's probably more like going through fall camp. There's phases that get ahead early and phases that you're still developing, right? But, you know, in terms of the organization and so forth, we've worked through that very quickly with the integration of the assets into the portfolio. We've worked through that quickly. You know, obviously the piece that's the most exciting is still to come is going to be what can we drive on the productivity improvements and what does that do in terms of inventory and location. So, you know, we're just now getting to the first paths and spotting our first Apache planned wells and, you know, obviously anxious to get on with those results. Yeah.
Steve Riney
President and CFO
characterize it using the baseball analogy. I think, you know, going through the synergies and going through the headcounts and all of that, getting the organization integrated, that's kind of the pre-game warm-up. And, you know, as John said, we've just drilled our first well out there on Callan Acreage. So, you know, I would say that we're, you know, we're at bat the first inning and we haven't taken the first pitch yet. So, It's just starting. Game's just beginning.
Roger Reed
Wells Fargo Securities
I appreciate that. Thank you.
Operator
Conference Call Operator
Thank you. Our next question comes from Scott Hanold of RBC. Your line is now open.
Scott Hanold
RBC
Thanks. I was wondering if we could pivot to CERNM and, you know, what are your high-level thoughts on how you look at activity maybe spending in 2025? I know it may be a bit early and your partner has an upcoming analyst day and we're going to get more color there, but, you know, what is your understanding at this point?
John Christman
CEO
Yeah, Scott, I mean, we've been pretty consistent since this time last year that You know, after we finished the crab-dagu appraisal, that we were highly confident we were going to have a project. And we stated we, you know, planned to have an FID by year end 24. And obviously, we remain on track. It's consistent with the message that Totale has now put out. I think that is the next step. And, you know, once we get to that step, then we can obviously talk a lot more about what that means and all of that. But things are going extremely well. Teams are working very well together, and they are doing their thing. So, you know, right now I'd say we remain on track for year-end FID and first of all by 2028, and they're working hard to accelerate those.
Scott Hanold
RBC
Okay, understood. And, you know, my follow-up question is, you know, back to, you know, kind of the Permian inventory runway, you know, you talk about being, you know, competent to the end of the decade at this point in time, you know, do you all think that's a strong enough position? And so what I'm trying to get to is like, what is your appetite for further consolidation? Do you feel comfortable with that position now or are there other opportunities there for you?
John Christman
CEO
You know, today we feel very comfortable with where we sit. I We're talking about long laterals with, you know, extremely high, you know, PIs. So it's high-quality inventory. As you know, we've got a large acreage footprint in the Permian. We're always working on how we bring, you know, more acreage into drillable prospects. It just takes time as you march through, and you've got a lot of tests along the way. But today, we're very comfortable with our inventory. You know, we know there's a lot more inherently to do there, and we will get to that and prove that as time goes on. um i think when it comes to you know transactions and things you've got to continue to have a very high bar um you know we've had one we've been very patient you know we saw a lot of opportunity in cowan which is why we moved on it um but today you know we're very content with where we sit and believe that there will be even more to do than what we you know have visibility into today thank you one moment for our next question
Operator
Conference Call Operator
Our next question comes from Bob Brackett of Bernstein Research. Your line is now open.
Bob Brackett
Bernstein Research
Good morning. A bit of a follow-up on Suriname. Two interesting things that I interpret from your update. One is you all have gone out and with the partners secured a state-of-the-art slot on an FPSO from a leading contractor. That's about the most expensive long lead item I can think of. Does that tell for your conviction in an FID or am I overreaching?
John Christman
CEO
Bob, I think we've been really confident we'd have a project, right? So, but we still need to get to FID. So, you know, it just tells you the seriousness and the timeline that, you know, that they're looking to accelerate, but it's, You know, they did declare commerciality earlier this year. You know, we just got a lot of work, technical work it takes to get to an FID decision. But, you know, we've said year end, and I wouldn't change that now, but just know we're trying to accelerate that.
Bob Brackett
Bernstein Research
And then the second issue is you've disclosed that the field development area is agreed upon for kind of a joint Sapakara-Krabdegu development area. if I sharpen my crayon and draw a ring fence around Sapa Cara through crab to go, I could capture the vast majority of all your discoveries out there, ring fence that, and then under the PSC cost, recover that and have a pretty good cost pool for future work. Am I thinking correctly there?
John Christman
CEO
I would just say when we, you know, when we talk about Sapa Cara, um, You know, it's pretty much the fine field as we have it defined today. When we talked about appraising Crab Dago, we talked about appraising a fairway and seismically driven, right? And so, and if you go back to the comments when we announced the Crab Dago appraisal wells, we said that not only did it confirm and appraise Crab Dago, but it obviously de-risked a lot of other prospects. so um you know at this point let's uh you know the next step will be an fid and we need to get there but um you know you're you're definitely you know starting to think about things you know directionally in the right way good thing and i'll just throw a last one in which is to say you guys increased your acreage in alaska by 20 percent
Bob Brackett
Bernstein Research
That suggests that you see something interesting there, or perhaps the option value of that acreage is pretty low. Is that a good way to think of it?
John Christman
CEO
I would just say we're excited about Alaska. The King Street discovery is proof of concept. It proves the play that we're chasing sits 80 to 90 miles east of where it's been proven. um so you know we're in a good area we said it was a high quality discovery uh oil uh high quality sands um so you know we are anxious to get back and continue exploring uh in alaska in you know in the near future thanks for that thank you thank you
Operator
Conference Call Operator
Our next question comes from Leo Morani from Ross. Your line is now open.
Leo Morani
Ross
Yeah, guys, wanted to quickly follow up here on Egypt. So I know you reiterated your comments from May where you thought that gross oil would be flat to slightly down in Egypt. Certainly noticed that gross oil in the second quarter was up a little bit, you know, versus the first quarter. Just trying to get a sense, I know the rig count's coming down a little bit in the second half, but do you think you can maybe hold that second quarter gross oil run rate in Egypt, or do you think it's more likely that it comes down by the end of the year with some of the lower rig activity?
John Christman
CEO
Yeah, I would just say we'll stick to what we said in the script. Clearly, second quarter was strong. Things were going well in Egypt, but at this point, we didn't see any reason to alter our guidance.
Leo Morani
Ross
Okay, any update on the receivable situation there in Egypt that you guys can share?
John Christman
CEO
Yeah, I'd say we just got back from, you know, from being over there. As I said, had a good meeting with the president, got to meet, you know, some of his new cabinet. You know, things are going well in Egypt. I mean, I think if you step back and look at it, you know, President Sisi has done a really good job of managing a fairly difficult situation. So, We've been impressed with that. You know, we have been receiving some payments this year. So, you know, all in all, things are going well and they continue to, you know, work through a difficult situation. But, you know, we see no reason to be concerned at this point. And a lot of positive things on numerous fronts. Steve? Yeah, I know.
Steve Riney
President and CFO
The only thing I would add to that, John, is that the, you know, the new minister of petroleum, as a set of priorities and high on that list of priorities is to get the oil companies paid off. And, you know, we sit down and discuss all of that with him as well. And he's serious about his list of priorities. He's anxious to get started on those.
Leo Morani
Ross
Okay, I know that's really helpful. And you guys intimated in your comments that there could be some opportunities from additional gas there. I know Egypt's been short gas this summer. It sounds like they're a little desperate to get back at it. Would you anticipate some opportunities and then potentially, you know, that could be associated with a price change on some of the gas going forward?
John Christman
CEO
Yeah, I would just say, you know, historically we have explored for oil in the And, you know, we've mainly focused on oil. We do produce a lot of gas. You know, we had a very large discovery in Kossar a couple of decades ago. You know, there is gas in the western desert, and we've had some conversations about what it would take to, you know, maybe go after some gas projects that could be helpful to the country. So it's something that, you know, we're discussing with them. But it's early, and, you know, obviously, uh you know you'd probably look at something that made more economic sense with a higher price for future you know gas exploration but um it's early but definitely something uh that could come into play in the future okay thank you thank you our next question comes from scott gruber of citigroup your line is now open yes good morning i want to come back
Scott Gruber
Citigroup
to the upside on the Cal and acreage. So as we think about the productivity improvement potential from upspacing and the completion redesign, will there be a material improvement in 30-day IPs, or will the improvement manifest more over time in the 6- and 12-month CUNEs? I'm just wondering if the shift in the completion design targets a shallower decline and what that means for the 30-day IP improvement potential versus the longer-term CUNE improvement potential.
John Christman
CEO
Yeah, Scott, we just need to get some down. But I mean, obviously, with the changes we'd be looking at, we're pumping a lot more fluid. I think you could see increases there. But also, with a little wider spacing, you should see better longer-term performance. So we just need to get some wells down and talk from delivered results at this point, which we're getting onto and anxious to demonstrate. OK.
Scott Gruber
Citigroup
OK. And then just another follow-up on Egypt. So you guys spent about $135 million a quarter running 16 rigs on average in the first half, and that'll drop to 11 in the second half. Roughly, you know, how much will the fiber reduction drop Egyptian CapEx net to you?
Steve Riney
President and CFO
Yeah, I don't have that number to hand. It should be relatively proportional, but we're running 20 work over rigs and that some of that work is capital as well, and that doesn't change.
Gary Clark
Vice President of Investor Relations
So, you could probably get with Gary. He could give you some data on that. Okay. Okay. Just curious. Okay. I'll follow up. Thank you.
Operator
Conference Call Operator
Thank you.
Operator
Conference Call Operator
Our next question comes from Arun Jairam. of JP Morgan Securities LLC. Your line is now open.
Arun Jairam
JP Morgan Securities LLC
Good morning. John and Steve, I wanted to get your thoughts on how should we start thinking about spending in 2025. You mentioned maybe a run rate of 675 per quarter, you know, heading into next year. And I was wondering, as we think about some of your exploration activities in Alaska, as well as assuming an FID at Suriname. I was wondering if you could maybe help us think about, you know, maybe a placeholder for CapEx for areas outside of your base, you know, DNC program.
Steve Riney
President and CFO
Yeah, so first of all, let me make sure I was clear about the 675. That was a number that, you know, it was about 2024 capital spending. And that was how do you get a, it was a conversation about how do you get a grip on how much are we actually spending on a run rate basis, you know, with the current structure of the company, with Cowan included as well, exploration, excluding exploration activity. And so that's what the 675 was. That's about how much we're spending on average between second, third, and fourth quarter of 2024. if you exclude Suriname and Alaska exploration type of activity. As far as, and so the point being that that was not an indication that that's what our run rate's going to be going into 2025, just to be clear about that. And I think that, you know, I think the best thing that we can do as we normally do is, you know, we're in the middle of the planning process right now. The great thing about our portfolio, John mentioned earlier, we've got a huge amount of optionality. It's a complex portfolio, actually, and you've got to make a lot of capital allocation decisions with a view of where you would be allocating capital, where the best returns are going to be throughout the portfolio. And so that's why we typically run our planning process starting in midsummer through the fall, We have an upcoming conversation with the board about that plan, a preview of that plan. And, you know, we've got a process that we run through. We typically, in November, give a high-level view of what 2025 will look like, and then all of the details we typically give in February.
Arun Jairam
JP Morgan Securities LLC
Okay, great.
John Christman
CEO
If you look at what Steve was saying on the 675, Permian's actually growing at about 8% the back half of this year. So there's a lot of room in terms of moderating if we choose to what is the right plan going into next year. And that's a lot of what we'll put into the decision-making process.
Steve Riney
President and CFO
Yeah. Yeah, that's a great point, John. You know, a lot of people talk about, well, okay, what's it take to run flat going into 2025? And we had a little bit of a conversation about that around Egypt. We're running 11 rigs. Can you hold flat, Egypt flat with 11 rigs? And, you know, we're down to 11 rigs because we had to create the workover capacity to get back at the, to get at the recompletions and workover backlog. And, We're also using that time to do some convert to injection for water injection on a number of these fields. So can 11 rigs hold Egypt flat? Maybe, maybe not. It might be a little low, but we were running 18 rigs earlier this year, and running flat in Egypt is much closer to 11 rigs than it is to 18. 18 was clearly more than we needed to be running in Egypt. And as John said, in the Permian, we're running 9 to 10 rigs for the second half of the year. And we're growing 8% from second quarter to fourth quarter. So clearly, the number is below that in terms of how many rigs do you have to run in the Permian to stay flat.
Arun Jairam
JP Morgan Securities LLC
Great. And just my follow up. This year's financials are obviously benefiting from weak Waha prices and your ability to arbitrage that along the Gulf Coast. Steve, how do you think about maybe a more normalized earnings picture for that midstream, call it, piece when you have Matterhorn on and maybe some other pipes? So just wanted to think about how you think about kind of the normalized earnings potential there.
Steve Riney
President and CFO
Well, I don't know what normalized is anymore after the last several quarters. But, you know, in general, you know, market dynamics would tell you that, you know, a balanced situation would be that differentials between Oaxaca and Gulf Coast they meet the normalized would be that that should for time we're basically just making money uh on the permian end by buying something slightly below uh waha pricing because we've got multiple receipt points and we can we can take best price we typically do but you're talking about pennies per mcf and then on the gulf coast side multiple delivery points where you can sell for pennies maybe above Houston Ship Channel, here or there, and you can squeeze a few pennies out on both ends, but on 674 million cubic feet a day, that makes a difference over time. And it just pays for the transport and fuel costs. But in that oil and gas purchase for resale, remember, that still includes the Chenier contract, which, of course, has nothing to do with Waha differentials.
Gary Clark
Vice President of Investor Relations
Okay, thanks a lot.
Operator
Conference Call Operator
Thank you. Your next question comes from Jeff J. of Daniel Energy Partners. Your line is now open.
Jeff J
Daniel Energy Partners
Hey, guys. Just wanted to get some clarification on the DNC savings you guys talked about. I mean, kind of $100 a foot per gallon two-mile. I guess those are like $72 million of the total synergy. Just wondering kind of, you know, if you can give me any more granularity about what's in there, and are there any service cost deflation numbers in that figure? Thanks.
Steve Riney
President and CFO
Yeah, so what we've included in the $150 million of annualized synergies excludes the benefit of lower rig rates for a frack like that.
Gary Clark
Vice President of Investor Relations
We have some integrity and I like the synergies of a trend that that is excluding any market synergies.
Steve Riney
President and CFO
So while John talked about a million dollars cheaper or lower cost to drill a single well, that includes the market benefit, but we only took about 70% of that number because 30% of that is some of the market benefits on steel, on rigs, on frack and other things. What is But what is included in the $250 million is about $60 million of annualized run rate for the lower drilling costs on these wells. And what that $60 million is, is basically with 9 to 10 rigs running in the Permian Basin, that's about how many callum wells we would drill in a given year. And so that's how we got to that number. We're obviously not drilling 60 wells this year, so it's not like we're going to capture a full 60 million of benefit in calendar year 24. But if we keep running at a similar rate that we're running these days, then we'll probably capture something near that in 2025. Excellent.
Gary Clark
Vice President of Investor Relations
Thanks. That's very helpful.
Operator
Conference Call Operator
Thank you. Our next question comes from Paul Chang of Scotiabank. Your line is now open.
Paul Chang
Scotiabank
Hey, guys. Good morning. Good morning. Just one real quick one. Alaska. John, can you share with us what's the drilling plan over there? I mean, how many wells are you guys going to drill, whether it's all exploration or just going to be doing some appraisal on the King Street? And how much spending that we may be talking about? Thank you.
John Christman
CEO
Yeah, Paul, it's early. I mean, we're working through plans with a partner. So at this point, no update on Alaska specifically for plans other than that we will be doing some more drilling up there.
Paul Chang
Scotiabank
Okay. All right. We do. Thank you. Yeah.
Operator
Conference Call Operator
Thank you. This concludes the question and answer session. I would now like to turn it back to John Christman, CEO, for closing remarks.
John Christman
CEO
Thank you, and to wrap up, really just a couple points here. Number one, we're delivering strong results in the Permian and the Cal integration is going extremely well. Secondly, freeing up the work over rigs in Egypt is letting us do two things. One, implementing some very impactful water flow initiatives. Two, reducing the backlog of wells waiting for work over and re-completion, and the results of both of those are very visible. And lastly, we are raising four-year oil production guidance while seeing a downward bias to our four-year capital. And with that, I'll turn it back to the operator. Thank you.
Operator
Conference Call Operator
Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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