APA Corporation

Thank you for standing by. Welcome to the APA Corporation's first quarter 2025 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 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 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, Ben Rogers, Senior Vice President of Finance and Treasurer, please go ahead.

Good morning, and thank you for joining us on APA Corporation's first quarter 2025 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO John Chrisman. Steve Riney, President and CFO, will then provide further color on our results and outlook. Tracy Henderson, Executive Vice President of Exploration, is also on the call and available to answer questions. We will start with prepared remarks and allocate the remainder of time to 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 in the most directly comparable GAAP financial measures can be found in the supplemental information provided in 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 will turn the call over to John.

Good morning and thank you for joining us. Today, I will provide an overview of our first quarter results, share an update on our cost reduction initiatives, and provide details on how significant improvements in operating performance or allowing us to protect our free cash flow outlook despite the current commodity price volatility. We delivered strong first quarter results with inline production and lower capital investment relative to guidance. In the Permian, oil production was within our guidance range despite a 1,000 barrel per day larger impact from third party and weather-related downtime than was anticipated when we gave guidance. Capital came in below guidance largely due to significant improvements in drilling performance. In Egypt, we are highly encouraged by the prospectivity for natural gas. First quarter gas production exceeded guidance due to outperformance from our recent development program, along with continued efforts to optimize existing infrastructure. Despite shifting activity to gas, oil drilling is progressing well and we continue to see positive results from our water flood implementation programs where we see additional running room with very favorable returns. In the North Sea, volumes were ahead of guidance, primarily driven by strong operational efficiency at Barrel. On the exploration front, we announced our second discovery, Sockeye 2, in the Brookian play across our 325,000 acre footprint. The King Street One discovery in 2024 initially confirmed a working hydrocarbon system approximately 90 miles east of the peak of development, with high-quality pay in two separate hydrocarbon zones. Earlier this year, the Sockeye 2 well encountered 25 feet of net oil pay with an API oil gravity of approximately 28 degrees and a GOR of 720 across one consistent sand package. with seismic amplitudes supporting the stratigraphic feature across 25,000 to 30,000 acres. We subsequently conducted a flow test that confirmed anticipated rock properties much better than regional analogs, including an average permeability of 100 to 125 millidarces and a 20% porosity. Technical evaluation is underway to determine next steps for both the exploration and appraisal programs. I will turn now to our cost reduction initiatives, where we are making significant strides. Commensurate with our simplified portfolio, we are committed to sustainably reducing our controllable spend across capital, LOE, and overhead. Our overall progress on these initiatives has been impressive, giving us the confidence to increase both our 2025 targets for realized savings to $130 million and the annualized run rate savings by the end of the year to $225 million. Of note, capital efficiencies are getting captured much faster than we expected. Permian drilling efficiencies are the largest driver of capital savings. We are also making good progress on both completions and facilities. Overall, our objective is to achieve top quartile operational performance in the Permian and we are confident we're on track to deliver that. In Egypt, we are also seeing savings in drilling costs driven by continued refinement of our operating practices. Moving to LOE. In the Permian, while we continue pursuing near-term opportunities to reduce certain operating costs, we are experiencing upward pressure on other cost areas in the short term. Material savings will come from structural changes to how we operate, including such items as water handling, compression, and power procurement. We see opportunities for substantial long-term reductions in these costs, but achieving them will require extended execution timeframes. On the international front, we have lowered Egypt operating costs through efforts like accelerating diesel reduction projects and optimizing equipment rentals, and in the North Sea, rationalized offshore activity as we transition to late life operations. On the G&A front, we are accelerating the capture of cost reductions, which is also contributing to our increased savings targets for 2025. These savings not only come from streamlining our organization, but are also realized in multiple areas of discretionary third party spend. This momentum is expected to continue through the year and is proving to be sustainable as we simplify how we manage our assets. As we continue to right-size our organizational structure and work processes to better align with our current portfolio, we're further refining our operating model and leadership structure. Among other things, I would like to personally congratulate Ben Rogers on being named Chief Financial Officer effective next week. Many of you on the call have had the opportunity to interact with Ben over the past few years. and I am eager to work more closely with him as the new head of our finance pillar with a continued focus on managing our cost structure. In the same spirit, I would like to thank Steve and acknowledge his invaluable contributions and thought leadership over financial and strategic matters through the years. I look forward to his continued contributions as he brings the same rigor and focus to our operations and development organizations where his impact has already made a difference since his promotion to president last year. Before discussing our updated 2025 outlook, let me comment on the asset sale we announced in our press release yesterday. Subsequent to the first quarter, we signed an agreement to monetize our New Mexico Permian properties for $608 million. These assets, which contributed approximately 5,000 barrels per day of oil production during the first quarter, represent less than 5% of both our Permian oil production and unconventional acreage position. We intend to allocate most of the proceeds from this divestiture toward debt reduction. This sale fits with the continued streamlining of our portfolio and reflects a full exit from New Mexico, allowing us to focus solely on the Texas side of the basin. The transaction is expected to close late in the second quarter. In keeping with prior practice, Our forward guidance at this time continues to include these assets and will be adjusted post-close. Turning now to our revised outlook for the remainder of the year, let me start by emphasizing the rapidly improving drilling efficiency we are seeing in the Permian. As we progress the integration of Cowan, we reduced activity to eight drilling rigs late last year to sustain flat oil volumes in the Permian. Given the confidence in the operating efficiency gains, we can now hold oil volumes sustainably flat beyond 2025 with 6.5 rigs. Anticipating continual efficiency improvements, we are in the process of reducing to 6 rigs by the end of this quarter and will reduce activity further if oil prices continue to deteriorate. We are also adjusting our frack fleets and completion schedule to better align with the lower rig count going forward. This will result in several wells for 2025 being turned in line later than originally planned, but we still expect to deliver oil volumes within our guidance range of 125,000 to 127,000 barrels per day. The combination of changes in completion timing and significant capital efficiency gains in the Permian is driving the bulk of our $150 million reduction in development capital guidance for the year. In Egypt, with the success of the gas program and the softness of oil prices, we have shifted rig activity to be approximately one-third gas-focused. Our second quarter guidance contemplates continued growth to 470 million cubic feet per day gross gas volumes, and we anticipate ongoing strong performance in the second half of the year. Commensurate with this outlook, we expect our average realized gas price to continue to increase through the fourth quarter and into next year. This highlights how Egypt enhances the diversity of our portfolio and our capital allocation optionality. The new gas price agreement has brought gas-focused development into economic parity with oil drilling at mid-cycle Brent prices, making gas opportunities at today's oil strip more attractive on a relative basis. In addition, the production sharing contract in Egypt provides downside protection through the cost recovery mechanism, a natural hedge against lower Brent oil pricing. In closing, we are making substantial progress on our cost initiatives, particularly in Permian well costs and our overhead cost structure. This has allowed us to more than double our controllable spend savings targets for the year and reduce the capital intensity required to sustain longer-term production volumes. Together, these protect free cash flow in a volatile oil price environment. We will continue to balance the goals of sustaining and growing our business with returns to shareholders and further balance sheet strengthening. Our focus on cost reductions and capital efficiency for the near term will underpin free cash flow through 2027 ahead of Suriname First Oil in 2028. which will significantly accelerate further growth. We believe that the resultant free cash flow growth profile, coupled with our high-quality exploration portfolio, is differentiated from many of our peers and will drive growth in long-term shareholder value. And with that, I will turn the call over to Steve.