APA Corporation

Thank you for standing by, and welcome to the APA Corporation's fourth quarter, 2024 Financial and Operational Results. At this time, all participants are in listen-only mode. After this 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. If your question has been answered and you'd like to remove yourself from the queue, simply press star 1-1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Ben Rogers, Senior Vice President of Finance and Treasurer. Please go ahead, sir.

Good morning, and thank you for joining us on APA Corporation's fourth quarter and year-end 2024 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO John Chrisman. Steve Reine, 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 Breches, Executive Vice President of Operations. Our prepared remarks will be about 20 minutes in length, with 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 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. And with that, I'll turn the call over to John.

Good morning, and thank you for joining us. On the call today, I will review our 2024 accomplishments share highlights of our fourth quarter performance, and provide an overview of our 2025 plan and other key long-term objectives. Over the last several years, APA has been strategically reshaped in numerous ways. We have enhanced the quality and sustainability of the portfolio in our core areas of the Permian Basin and the Western Desert of Egypt, while also building long-term optionality through a differentiated exploration strategy. Throughout this process, we have been strengthening the balance sheet and prudently allocating capital to prioritize returns. 2024 was a year of notable further progress on all of these fronts. In the Permian, we continued to strategically refine our position with the acquisition of Cowan and the sale of non-core assets. In Egypt, we signed a new gas price agreement creating the potential for significant additional drilling opportunities with returns on par with oil. In Suriname, we reached a final investment decision for our first oil development. Lastly, we achieved a triple B minus rating from S&P and are now investment grade with all three rating agencies. With the significant portfolio changes in the Permian Basin during 2024, our U.S. business is now almost entirely comprised of unconventional assets. This strategic shift has solidified the Permian as the cornerstone of our asset base, driving over 75% of our current adjusted production and providing a more predictable and steady business model. As seen in our supplement released yesterday, APA's scale in the Permian now stands out, rivaling and surpassing many of our U.S. independent shale piers. In Egypt, we successfully returned to more normalized workover and recompletion backlogs, while also improving our PDP decline through water flood activities. These efforts have provided a much more predictable oil production profile, increasing the overall efficiency and longevity of our operations. In Suriname, we reached a significant milestone when our partner Total announced FID on the Grand Morgue project with a capacity of 220,000 barrels of oil per day and first oil expected in 2028. As you will recall, based on the joint venture agreement we have with Total, our capital spending exposure for the project will be very manageable. 2024 also highlighted the value of our gas trading activities, where we realized an annual net gain of nearly half a billion dollars. At current strip prices, we believe 2025 will be a similarly strong year. Lastly, we continue to deliver on our capital return framework. In 2024, we returned 71% of free cash flow through $353 million in dividends and $246 million in share repurchases. This includes $100 million of repurchases executed during the fourth quarter at a price just under $22 per share. We continue to believe our shares offer a compelling value, and we will be inclined to lean into the buyback program at such prices. Moving now to a few highlights from the fourth quarter. We delivered production volumes above guidance in all three of our operating regions, It did so on a capital program that came in lower than guidance, primarily due to ongoing well cost reductions in the Permian Basin. These factors were the main drivers in delivering $420 million of free cash flow during the quarter. In November, we added a rig in Egypt to initiate a gas-focused drilling program. We are very pleased with the early results and now expect year-over-year gas production to increase for the first time in over a decade. Finally, on December 31st, we closed on the sale of our non-core conventional properties in the Permian Basin. Let me now turn to the progress we have made with Cowan. We acquired Cowan primarily to add scale and inventory to our existing Delaware footprint. We also anticipated capturing meaningful synergies, most of which we achieved on a sustainable basis by the end of 2024. As we took over operations, our focus was on addressing the capital and operating efficiencies required to deliver industry competitive returns. By increasing lateral length while reducing total well costs, we were able to lower breakeven oil prices in 2024 to $61 per barrel, compared to Cowan's 2023 breakeven of $78 per barrel. We are looking forward to further improvements in 2025 and beyond. In the Midland Basin in Northern Howard County, our early results have significantly outperformed expectations. We plan to return to this area with tighter well spacing on future pads, which will increase inventory counts and capture more resource than we originally anticipated. This has a positive read-through to offset legacy APA acreage as well, and we will revisit these opportunities in the future. Moving on to our 2025 plan. Our 2024 achievements helped lay the foundation for an efficient activity set and more predictable production profile in 2025 and beyond. We expect to run an eight-rig program in the Permian and a 12-rig program in Egypt. This activity set results in a combined development capital budget of $2.2 to $2.3 billion and reflects more than a 20% year-over-year reduction in development capital in the Permian when adjusting for Cowan's first quarter 2024 spend. Adding $200 million for Suriname development and $100 million for exploration capital, primarily in Alaska, we expect our total capital budget to be $2.5 to $2.6 billion. With this lower development capital budget, we expect to deliver higher total adjusted production in 2025 compared to 2024. While this includes the benefit of no planned gas curtailments, it also underscores the progress we are making on capital efficiency through the integration of Cowan and the stabilization of Egypt volumes. Lastly, I want to touch on the cost reduction initiatives we announced in our earnings release yesterday. In the fourth quarter, we launched an effort to analyze cost-saving opportunities across three core areas that drive the majority of our annual controllable spend, capital, LOE, and overhead. We are focused on identifying opportunities to streamline the business, improve the way we operate, and control our costs. The first step in simplifying the organization was announced in January when we reduced our corporate officer count by over one-third, Earlier this month, we initiated additional overhead decreases as part of a broader streamlining effort across the organization. These initial reductions, coupled with the targeted savings in capital, LOE, and additional overhead spend, are expected to generate at least $350 million in annualized savings by year-end 2027. These efforts will drive free cash flow expansion over the next several years. In closing, APA made significant continued progress in 2024 to streamline our portfolio and establish a core asset base that can underpin a sustainable activity set and predictable production profile from the Permian and Egypt for the long term. In the short to medium term, we will work to reduce our controllable spend. This is our path to meaningful free cash flow growth in the 2025 to 2027 timeframe, ahead of Suriname First Oil in 2028, which will underpin a further step change in free cash flow into the next decade. We believe that this cash flow growth profile, coupled with our high-quality exploration portfolio, is differentiated for many of our peers and will drive growth in long-term shareholder value. And with that, I will turn the call over to Steve.