APA Corporation

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.

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.

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.