The paragraph is an introduction to the APA Corporation's First Quarter 2025 Results Conference Call. The operator announces that the call is in listen-only mode and includes a question-and-answer session after the presentation. Ben Rodgers, Senior Vice President of Finance and Treasurer, introduces the call, noting CEO John Christmann will give an overview, and President and CFO Steve Riney will discuss results and outlook. Tracey Henderson, Executive Vice President of Exploration, is also present for questions. Participants are encouraged to review financial supplements on the company’s Investor Relations website. The discussion may include non-GAAP financial measures, and a reconciliation to GAAP measures is available online. The call may contain forward-looking statements that are subject to risks and uncertainties, with a disclaimer available on the website.

In the call, John Christmann discusses the company's first-quarter results, highlighting strong performance in production and cost management despite commodity price volatility. In the Permian, oil production met expectations, with reduced capital investment due to improved drilling efficiency. In Egypt, gas production exceeded projections due to successful development programs, while oil and waterflood initiatives also showed promising results. The North Sea saw higher-than-expected volumes due to efficient operations. Additionally, the company announced its second discovery, Sockeye-2, in the Brookian Play, indicating significant hydrocarbon potential across a vast acreage with promising exploration results.

The paragraph outlines the company's recent exploration outcomes and cost reduction efforts. A flow test showed better-than-expected rock properties, leading to continued exploration and appraisal planning. The company is reducing costs across capital, LOE, and overhead, projecting $130 million in savings by 2025 and an annualized run rate savings of $225 million by year-end. Significant savings are from Permian drilling efficiencies, with additional progress in completions and facilities aimed at achieving top operational performance. In Egypt and the North Sea, cost reductions are achieved through operational improvements and activity optimization. While some operating costs in the Permian face short-term pressures, long-term reductions are expected with structural changes.

The company is focusing on cost reductions and increased savings targets for 2025 by streamlining its organization and reducing discretionary third-party expenditures. They are refining their operating model and leadership, announcing that Ben Rodgers will take over as Chief Financial Officer. The current President, Steve, who was promoted last year, continues to make significant contributions. Additionally, the company announced the sale of its New Mexico Permian properties for $608 million, which contributed less than 5% of oil production. The proceeds are largely intended for debt reduction.

The company is streamlining its operations by exiting New Mexico and focusing on Texas, anticipating closing the sale by the second quarter's end. Despite this transition, current guidance includes all assets until the sale is closed. They have improved drilling efficiency in the Permian Basin, sustaining flat oil volumes with reduced rigs and planning further reductions if oil prices drop. Completion schedules are adjusted, impacting the timing of some wells, but they still aim for oil volumes of 125,000 to 127,000 barrels per day. A $150 million reduction in development capital is linked to efficiency gains. In Egypt, they've shifted drilling focus due to successful gas programs and weak oil prices, with expectations of increasing gas volume and prices later in the year.

The paragraph discusses Egypt's impact on portfolio diversity and capital allocation, emphasizing the economic parity of gas and oil development due to a new gas price agreement. It highlights the protection offered by Egypt's production sharing contract against low Brent prices and details cost-saving initiatives, particularly in the Permian region. These efforts have doubled savings targets, reduced capital intensity, and safeguarded free cash flow amid oil price volatility. The focus on cost reductions and capital efficiency aims to support free cash flow through 2027, with significant expected growth after Suriname's first oil in 2028. This differentiated growth strategy is intended to enhance long-term shareholder value. The paragraph concludes with a transition to remarks by Steve Riney regarding the company's first-quarter performance and cost reduction strategies, reporting a net income of $347 million for the quarter.

The paragraph outlines key financial and operational results for the first quarter, highlighting a $111 million after-tax gain from debt extinguishment and a $76 million charge increasing UK deferred tax liabilities. Adjusted net income reached $385 million, or $1.06 per share. In Egypt, significant past due receivables progress and improved gas production raised the average gas price to $3.19, exceeding predictions. The company maintained activity levels in Egypt, shifting focus to gas drilling. Upstream capital spending was below guidance due to improved drilling efficiencies in the Permian Basin. Additionally, ongoing efforts to reduce costs aim for sustainable long-term savings.

The paragraph discusses the company's initiatives to achieve cost savings, with a focus on drilling efficiencies in the Permian Basin. Initially, they targeted overhead costs but now anticipate significant long-term savings from capital due to improvements in drilling techniques like slim hole drilling and optimized casing designs, which have resulted in $800,000 savings per well. They aim to drive further cost reductions through denser well spacing and smaller fracs to reduce both drilling and completion costs. Additionally, the company plans to rely more on brownfield modifications than new facility builds for further savings in 2026. However, achieving the original cost reduction targets remains challenging.

The paragraph discusses the company's progress and challenges in cost management, noting inflationary pressures in areas like compression and water disposal, which may delay LOE (Lease Operating Expenses) savings. They are focusing on streamlining overhead costs by eliminating low-value activities, simplifying workflows, and expanding technology use. Progress is exceeding expectations, boosting their 2025 savings targets. The updated guidance reflects reduced controllable spending and overhead, distinct from timing-related changes, aiming for sustainable savings. In Egypt, a significant focus on gas activities is expected to boost gross gas volumes, with fourth-quarter volumes anticipated to be the highest of the year, reaching around 500 million cubic feet per day.

The paragraph discusses APA's projected increase in gas price realizations from $3.40 in the second quarter to $3.80 in the fourth quarter, reaching the high end of their guidance. APA profits from US gas marketing by selling Permian gas production in-basin and transporting gas from Waha to the Gulf Coast. Profits from firm capacity contracts and an LNG sales contract with Cheniere are included in guidance as purchased oil and gas sales and costs. APA has entered into basis swap agreements for 2025, securing about $450 million in income, and updated their guidance for income from third-party oil and gas marketing to $575 million. Additionally, APA has changed its definitions for upstream capital and free cash flow, removing ARO and leasehold acquisitions from upstream capital and listing them separately in financial reconciliations, without affecting free cash flow reporting.

In the Q&A section of a call, John Freeman from Raymond James asks about the cost savings achieved, specifically regarding the original target of $350 million in savings by the end of 2027. John Christmann responds that the company is ahead of schedule, increasing their run rate savings from $125 million to $225 million and in-year savings from $60 million to $130 million. While he anticipates the $350 million target will increase in the future, they are currently keeping that target unchanged. Freeman also asks about rig usage in the Permian, noting the company can now maintain production with fewer rigs—down from eight to 6.5 rigs.

In this discussion, John Christmann explains that the company initially planned to maintain production in the Permian with eight rigs but now believes they can achieve this with just six due to efficiency gains. This change allows them to reduce costs faster than anticipated, with savings that were initially planned for later already being realized. Doug Leggate questions these cost efficiencies and how they compare to initial targets, particularly in terms of rig usage and costs per well. Christmann responds by highlighting their ability to drive down costs more quickly than expected, suggesting they anticipate even more savings in the future.

The paragraph discusses insights about Apache's oil exploration in Alaska, focusing on recent well developments and resource potential. The company has 325,000 acres of land and has seen promising results from discoveries like King Street, which confirmed high-quality reservoir sands. Apache revisited Sockeye due to strong seismic data, and the discovery there revealed better-than-expected reservoir quality with high permeability. The company is reprocessing seismic data on their largest prospect area and doesn't plan to heavily invest capital immediately. Additionally, there's a query about potentially funding the Alaska development by monetizing assets in Suriname.

The paragraph discusses the strategic approach to appraising and selecting future drilling sites, with a particular focus on Suriname. Tracey Henderson highlights the high reservoir quality, which is significantly better than similar fields. The immediate focus is on reprocessing seismic data and developing an appraisal strategy, including the number of wells and development scenarios. The well's initial flow rate was 2,700 barrels per day without stimulation, indicating good potential. Considerations for future development include possible waterflooding and horizontal wells. Winter access is noted as a limiting factor, so careful planning is emphasized. The goal is to assess strategies that will define the resource size and development approach.

The paragraph involves a discussion between Doug Leggate and John Christmann, and later between Scott Gruber and John Christmann, concerning the sale of assets in New Mexico. John explains that while the New Mexico assets have good rock, they represent less than 5% of the company's production and are scattered, with some being non-operated. These factors, alongside the competitive market interest and favorable price, motivated the sale. The proceeds from the sale are intended to go towards debt reduction. Ben Rodgers adds that the transaction yielded a solid valuation in the mid- to high 5s on an EBITDA multiple.

The paragraph discusses plans to use proceeds to address debt and focus on the Texas side of the basin, highlighting that this area hadn't received much capital in past years. Steve Riney mentions the challenges with inflation and costs associated with compression and water disposal in the Permian, and the need for longer-term initiatives which may require capital investment or commercial negotiations. Despite slower progress and inflationary pressures, the aim is to achieve significant cost savings of $350 million in the next three years, with improvements expected later this year and into 2026. Scott Gruber appreciates the detailed explanation.

In the paragraph, John Christmann and Steve Riney discuss their plans for evolving completion designs in the Permian Basin, following a merger with Callon. Initially, they relaxed well spacing to allow for larger fracs, but are now moving towards tighter spacing with smaller fracs to efficiently develop resources. This strategy is part of an overall evolution in the basin as drilling costs decrease. Steve Riney adds that they are in the process of thoroughly evaluating their Permian inventory, including newly acquired assets from Callon and remaining legacy Apache assets, to increase inventory density.

The paragraph discusses the increasing economic density of drilling in the Permian Basin due to cost reductions, which enhance the feasibility of previously uneconomic or marginally economic drilling. The company plans to provide a detailed inventory update later this year or early next year. Arun Jayaram acknowledges investor interest in this analysis. The discussion then shifts to Ben Rodgers, who outlines strategies for using proceeds from a New Mexico asset sale, emphasizing debt reduction, including repurchasing debt at a discount and repaying a term loan, which has led to interest expense savings.

The paragraph discusses a company's financial strategy and outlook, focusing on managing debt and optimizing costs. The company plans to address debt trading below par by paying down a revolver and leveraging increased liquidity for various financial opportunities, including yield-based options. Betty Jiang of Barclays asks about reconciling the current cost optimizations with a projected run-rate increase by the end of 2025. Ben Rodgers explains that the increase is due to additional capital savings and overhead progress expected as the company continues to operate with fewer rigs. Further cost improvements, especially in operating expenses, are anticipated in 2026 and 2027.

The paragraph discusses the cost savings strategy of a company operating in the Permian, highlighting a target run rate of $225 million by the end of the year. Steve Riney mentions achieving $800,000 savings per well as a significant contributor to this increase. John Christmann explains that any additional savings captured in the latter part of the year will benefit the full year of 2026, suggesting an improved annualized run rate. Betty Jiang asks about offsetting inflationary pressures on LOE (Lease Operating Expenses), to which Steve Riney responds that the company is focusing on internal efficiencies, such as route optimizations for pumpers, and renegotiating contracts for services like water disposal and compression to manage costs. The focus is on both internal practices and external negotiations with vendors.

In the conversation, John Christmann and Paul Cheng discuss the company's strategic shift in Egypt towards gas development, due to the softened Brent crude oil prices. This shift allows for increased gas production while leveraging the existing infrastructure and capacity. Steve Riney adds that despite a focus on gas in Egypt's Western Desert, which is rich in condensate, the oil production decline is minimal due in part to enhancements in waterflood programs. The company maintains flexibility in operations, balancing between oil and gas depending on market conditions and facility constraints.

The paragraph discusses the outlook for oil and gas production in Egypt and at Alpine High. It notes a slight decline in gross oil volume in Egypt but mentions that the number of workover rigs remains similar, despite past challenges in securing enough rigs. The new gas wells in Egypt are expected to require less maintenance compared to oil wells. Regarding Alpine High, the paragraph highlights its significant gas reserves and economic potential, particularly given certain pricing conditions. The profitability of operations at Alpine High relies on Waha pricing, independent of the gas trading activities related to the Gulf Coast. The paragraph also notes the volatility of Waha pricing due to new pipelines and occasional maintenance shutdowns.

The paragraph discusses the company's strategy regarding drilling and capital spending in response to oil and gas pricing. Waha pricing for natural gas has led to a potential shift from oil to gas drilling in Alpine High if it becomes economically viable. John Christmann, responding to Paul Cheng's question, indicates that a significant drop in oil prices, specifically WTI dropping into the low 50s, might prompt reductions in drilling activity, including dropping rigs and a frac crew in the Permian, and possibly in Egypt. However, due to current progress on cost structure, this threshold might decrease. Leo Mariani from ROTH questions the company's buyback strategy, noting substantial buyback activity in the first quarter despite softened oil prices, and asks if the company plans to focus more on debt reduction given current market conditions.

In the paragraph, John Christmann and Ben Rodgers discuss their company's strategy regarding debt paydown and share buybacks in light of current oil prices and macroeconomic conditions. They mention selling an asset opportunistically at a favorable price, which allowed them to reduce their revolver balance. They emphasize their commitment to returning 60% to shareholders and being opportunistic on both the debt and equity sides. Additionally, Steve Riney addresses a question from Leo Mariani about a slight decline in Egypt's oil volumes, attributing the more significant drop in the first quarter to unexpected downtime, and suggests a continued slight decline in the coming quarters.

In this dialogue, John Christmann responds to Oliver Huang's questions regarding the company's financial breakeven point and exploration strategies. Christmann explains that, due to their cost-saving initiatives, they can sustain operations and pay dividends at a $50 WTI oil price, while investing in exploration and long-term growth projects. When asked about the transition to denser well spacing, Christmann notes that a significant portion of their current program includes denser spacing design due to pre-purchased materials and slimmer casing, and they are observing positive results from these changes.

The paragraph summarizes closing remarks from John Christmann, CEO, highlighting the company's progress in drilling efficiencies in the Permian and achieving lower capital budgets for the year. They've reduced average well costs significantly, including savings on Callon properties. In Egypt, they're seeing strong performance from the gas program, with increased activity and higher average gas realizations expected. Additionally, overhead cost reductions are ahead of schedule, set to improve the company's cost structure and long-term free cash flow. The remarks conclude with thanks, and the operator ends the conference call.

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