The APA Corporation held a Second Quarter 2023 Results Conference Call, led by Vice President of Investor Relations Gary Clark, with CEO and President John Christmann and other executives providing an overview of the results and outlook. The call was recorded and the financial and operational supplement can be found on the Investor Relations website. Non-GAAP financial measures were discussed and adjusted production numbers were adjusted to exclude non-controlling interest in Egypt and Egypt tax barrels. The remainder of the hour was allotted for Q&A.

APA delivered strong results in the second quarter, with total adjusted production of 325,000 BOE per day and notable progress in drilling and completion efficiencies in the US and Egypt. US oil production increased by 6% compared to the first quarter, and the company's average operated drilling rig count remained steady at 17% in Egypt, five in the Permian Basin, and one semisubmersible in the North Sea. APA is expecting a similar percentage increase in the third quarter, driven by steady drilling in the Permian Basin and oil production increases.

APA has two rigs operating in the Southern Midland Basin for oil development and three rigs in the Delaware Basin. Production at Alpine High is performing in line with expectations, and production in Egypt is expected to be up 5% in the third quarter. In the North Sea, production was below expectations due to compressor downtime, but is expected to increase in the third quarter. At Block 58 in Suriname, the Krabdagu discovery has been tested and pressure buildup is encouraging, so no additional appraisal or exploratory drilling is necessary at this time.

APA is expecting steady drilling programs in both the US and Egypt and has reduced its full year upstream capital investment and LOE outlooks. They have also returned 94% of their free cash flow to shareholders via dividends and stock buybacks. APA believes the long-term outlook for hydrocarbon prices is very constructive and that they have the flexibility to respond to commodity price volatility. They have also issued a 2023 sustainability report which highlights their environmental goals and initiatives.

APA reported consolidated net income of $381 million for the second quarter, with adjusted net income of $264 million and free cash flow of $94 million. G&A expense was $72 million, significantly lower than the underlying run rate cost. Oil production is expected to increase in the third and fourth quarters, while natural gas production will continue to decline. Lastly, APA has changed their guidance for profit or loss on gas transport obligations.

In the second quarter, Permian Basin takeaway capacity generated a net profit of $13 million due to wide price differentials. However, due to the compressed price differentials since late May, trading activities are expected to result in a small loss in the third and fourth quarters. The Cheniere gas supply agreement will generate approximately $120 million of free cash flow for the last 5 months of 2023 and an estimated $385 million for the full year of 2024. Egypt is experiencing some challenging financial times, but the company will continue to partner with them through the process.

The company has had constructive conversations with Egypt and have taken steps to lower the receivables balance in the second quarter. They have also improved their capital structure by reducing their outstanding bond debt and returning money to shareholders. The company's original full year production guidance is unchanged and their debt maturity profile is in good shape. In July, their oil production had already increased over the second quarter and they have good line of sight for what's coming in the back half of the year.

Dave Pursell elaborates on the success of exploration in the Indiscernible Basin, noting that 48 wells were brought online in the first half of the year and 70 wells are expected to be brought online in the second half. John Christmann then adds that they still have the rig on location and their primary objective this year is to appraise the Krabdagu Fairway. He notes that it is too early to give guidance beyond 2023 but they have confidence in the ability to keep the growth engine moving.

Steve Riney explains that the company planned to have higher free cash flow in the second half of the year due to production growth, the Cheniere contract, and lower capital spending. He further explains that the company will lean into shareholder returns when it is appropriate.

John Christmann discussed how the oil mix of the company will likely rise in 2024 due to declining costs and an emphasis on oil-driven programs. He noted that the oil mix in 2024 will likely be higher than in 2023, as the legacy large field 3 Ts continues to decline.

John Christmann and Dave Pursell of Apache Corporation discuss their operations in Egypt, where they have 17 rigs running with good results and a strong balance sheet. They have implemented training programs to get the program to where they want it and feel they are in a good place. They are continuing to focus on longer laterals with an average of 10,500 feet this year and anticipate the links will continue to inch a little bit longer in 2024.

John Christmann of Apache Corporation expects a fairly level activity set for 2024 with a higher base in terms of volume growth. He believes the program will be strong and continuous in both the US and Egypt, and that deflation in service costs could lead to more drilling or greater free cash.

John Christmann discussed the plans for the program and the service side for the coming year. He mentioned that there is some softening in certain areas, but the capital will be determined by what happens in the back half of the year. Charles Meade then asked about the plans for appraisal in Waha, and whether it is a shelf slope target or if they are transitioning into basin four fans.

John Christmann and Tracey Henderson discussed the geology of Waha in Block 53, which is operated by Total. They discussed the system of slope channels from Krabdagu 1 to Krabdagu 3, which is 25 kilometers away. Roger Read then asked John Christmann about the financial aspects of working in Egypt.

John Christmann and Steve mentioned that Egypt is going through some difficult times, but from a business standpoint, it has been normal. Dave Pursell then discussed how the drilling team is doing a good job of getting wells down efficiently, and productivity has improved due to longer lateral lengths, relaxed spacing, and bigger fracs. 2023 is looking good compared to 2022.

John Christmann and his team are continuing to work to increase productivity per foot to push into 2024. When they fully evaluate the Krabdagu 3 results, they will move towards declaring commerciality and making a FID decision. Total has increased the SURF package scope to over $1 billion, which could potentially mean a larger boat size. The appraisal program was designed to better understand the resource potential at Krabdagu 3.

Apache Corporation has a diverse portfolio and is currently using the Ocean Patriot in the North Sea for six months. However, they need to see stability in the regime before investing more capital in the North Sea. Apache is currently focused on Suriname, where they have found significant oil in Krabdagu, but will not be drilling for the rest of the year.

John Christmann and Dave Pursell discussed the possibility of continuing the drilling program in the Krabdagu and Sapakara area as well as the potential to extend the five-rig program on their Tier 1 Permian acreage for the next three to five years. They noted that the oil performance in the US wells has been more consistent and that the acreage footprint has evolved over the last two years.

Dave Pursell answered a question from Jeffrey Lambujon about the Midland and Delaware Basins in the US, specifically discussing the flexibility of the Delaware Basin and how Matterhorn coming online in the back half of next year will affect decisions. He then followed up with a question about the North Sea, with the Ocean Patriot being released next year and what that means for CapEx.

John Christmann discussed the estimated 800 million barrels of resources in Suriname, which was composed of 600 million barrels from a second well and 200 million barrels from the discovery well at Krabdagu. He added that the philosophy change would not affect the timing of abandonment, which is still in the early 2030s. Christmann also mentioned that they would be managing the asset for free cash flow and that they would not expect to recover more than 50% of the resources.

Dave Pursell and John Christmann discuss the recovery factors and GORs of the Sapakara and Krabdagu discoveries. Pursell does not have the gas percentage or oil percentage at the tip of his fingers, but Christmann notes that Sapakara had a GOR of 1,100 and the discovery well at Krabdagu had a range from the high-teens to the high 2000s. Finally, Pursell states that three mile wells make up a relatively small percent of the total work plan, but they are happy with the results from them.

Dave Pursell explains that the operating team has been successful in managing costs across all areas, including diesel and chemicals, and that these small changes are adding up to material numbers. John Christmann adds that the M&A landscape in the Permian has seen high valuations, and the company is focused on organic opportunities.

John Christmann thanked participants for joining the call and highlighted the asset teams' success, the quality wells scheduled for the second half of the year, and the progress in Suriname. He also reiterated the company's commitment to their capital return program and promised to keep participants apprised of their progress.

This summary was generated with AI and may contain some inaccuracies.