Q3 2019 Earnings Call
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It is now my pleasure to hand, the conference over to Mr., Gary Clark. Please go ahead Sir.
Good morning, and thank you for joining us on Apache Corporation's third quarter financial and operational results conference call.
We will begin the call with an overview by CEO and President John Chrisman.
Due to a personal matter Tim Sullivan is unable to join US today, So Dave Purcell Executive Vice President of planning reserves and fundamentals will provide additional operational color.
Following that Steve Riney, Executive Vice President and CFO will summarize our third quarter financial performance.
Our prepared remarks will be approximately 20 minutes on line.
With the remainder of the hour allotted for culinary.
In conjunction with yesterday's press release I Hope you have had the opportunity to review, our third quarter financial and operational supplement which can be found on our investor Relations website at Investor Dot Apache Corp Dot com.
On today's conference call, we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
Insistent with previous reporting practices adjusted production numbers sided in today's call our adjusted to exclude non controlling interest in Egypt, and Egypt tax barrels finally, I'd like to remind everyone that today's discussion will contain forward looking estimates and assumptions based on our current views on reasonable expectation.
Once however, a number of factors could cause actual results to differ materially from what we discussed today.
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 on todays call I will discuss apache's approach to delivering value in the current environment provide high level direction on our 2020 capital budget.
Conclude with some comments on our third quarter performance and fourth quarter outlook.
The market has come to view, the lower oil and gas price environment that has been in place since 2014, the structural in nature and unlikely to improve for the foreseeable future.
Compounding this investors are frustrated with excessive capital investment by U.S. producers in pursuit of growth, which has come at the expense of both return on and return of capital.
For these and other reasons the broad energy sector is out of favor and there is very little investor interest and publicly traded M. P companies.
In response as an industry, we must generate more free cash flow and return it to investors on a more consistent basis, while continuing to operate responsibly and increasing our focus on emissions reduction.
In this regard apache's primary objectives or simple and straightforward.
Deliver competitive risk adjusted returns with a long term moderate pace of growth.
Improve or free cash flow yield to levels consistent with other mature industrial sectors and progress or sustainability initiatives.
As we have done for the last several years Apache will budget using a conservative price deck and flexible capital program in response to price volatility.
We have taken a number of steps to adapt to the lower commodity price environment of the last five years. These include streamlining our portfolio, making substantial improvements to our capital allocation process and significantly reducing overhead costs.
Apache has historically employed a decentralized a region focused approach to operations in recent years, we have centralize certain key activities and today see an opportunity to capture greater efficiencies by taking further steps in that direction.
To accomplish this we have initiated a comprehensive redesign of our organizational structure and operations that will position us to be competitive for the long term.
This process, which began in late summer should be largely completed by the into the first quarter.
We are targeting at least $150 million of combined annual savings and look forward to updating you on our progress in the future.
As we look ahead to 2020, our capital planning process is underway and we will disclose a final budget with our fourth quarter results in February .
Based on current strip prices, we anticipate a 2020 upstream capital budget that would be 10% to 20% below this year's program of $2.4 billion.
This will enable apache to generate organic free cash flow the covers the dividend and puts us on pace to fund a multi year debt reduction program, while also delivering modest year over year oil production growth.
We anticipate directing the vast majority of our Permian capital in 2020 to more oil weighted projects in the Midland and Delaware basins.
In Egypt, we have taken significant steps to build and enhance our drilling inventory and are assessing the potential for increased investment in the future.
And in the North Sea, we intend to maintain a consistent level of activity year over year.
Turning to Surinam, where retain the noble Sam Croft drilled the second and third wells on block 58 in 2020 with an option still outstanding on a fourth well.
We were planning to drill these wells at 100%, but that May change should we choose to farm down our interest.
As we progressed through the 2020 planning process, we continue to monitor commodity fundamentals and evaluate multiple capital allocation scenarios under a number of different price decks across our diverse portfolio.
We look forward to providing details on our outlook in February .
Next I will comment briefly on our third quarter performance and fourth quarter outlook before turning it over to Dave for more details.
In the Permian Basin, our oil production in the second half of the year has been moderately impacted by some unplanned downtime events and delays in our completion schedule and well maintenance timing.
Consequently, we're now projecting fourth quarter Permian oil volumes of approximately 100000 barrels per day.
And alpine high we have reduced our drilling activity to two rigs that have chosen to defer some fourth quarter completions into 2020. This lower activity said combined with a decreased production outlook on one of our multi well pads has resulted in an approximate 5% reduction.
Our fourth quarter Alpine high guidance.
Internationally third quarter production was in line with guidance and our outlook for the fourth quarter is unchanged.
Egypt continues to deliver excellent well results and a high drilling success rate.
In the North Sea, we have a significant exploratory success coming online at store this month and a second well at garten coming online around year end the log on the garden well shows a much larger than expected hydrocarbon column and should generate positive production momentum as we enter 2020.
In Suriname, we spud the Maka central number one in late September and expect to TD, the well in November and a depth of approximately 6325 meters as measured from the deck of the drillship.
Well as designed to test multiple targets as located roughly seven miles from the Suriname Guiana Maritime border.
With the recent exercise our option to drill a second and third well on block 58 in conjunction with some optional future well commitments Apache has the ability to retain the entirety of block 58 with no relinquishment requirements until June of 2026.
This provides sufficient time to execute a comprehensive exploratory program over this large block and initiate development activities as warranted.
In closing we are taking numerous decisive actions to improve our performance and positioning in this difficult macro environment.
Apache has several key differentiators that enhance our investment proposition.
Our diversified portfolio affords the flexibility to allocate capital across all three hydrocarbon streams and among conventional and unconventional assets as warranted by market conditions.
We have a deep and diverse acreage position across the Permian basin.
Our international assets generate strong and stable free cash flow driven by a premium pricing for oil gas and Ngls. The returns generated by these assets are highly competitive within our portfolio and tend to be less sensitive to downside commodity price volatility.
And lastly, Apache has excellent organic exploration opportunities in each of its three key regions as well as a potentially transformational position offshore Suriname.
With that I will turn the call over to Dave Purcell, who will provide some operational details on the quarter.
Thanks, John and good morning, our strong operational results for the third quarter reflect the benefits of a diversified portfolio adjusted production of 391000 barrels of oil equivalent is nearly flat with the previous quarter, which included approximately 25000 barrels of oil equivalent per day from assets in the mid continent region that we divested during the same.
Second quarter.
We are advancing a number of exploration programs, both internationally and in the US and development activities continue at a steady pace in our legacy us North Sea in Egypt regions.
During the third quarter, we drilled and completed 64 gross wells 48 in the U.S. 14 in Egypt into in the North Sea.
US third quarter production totaled 266000 barrels of oil equivalent per day.
In the Midland Basin, we continue to drill high productivity oil wells, our third quarter activity included an 11, well 1.5 mile padded Azalea located in Midland County. This pad produces from the lower Spraberry shale Wolfcamp, a and b and lower client formations, the lower Cline well tested in new landing zone with favorable results achieving.
The average 30 day IP of 1270 barrels of oil equivalent per day is 72% oil plans are underway to drill feature lower Cline wells to further delineate decline potential across our Midland basin acreage.
In Reagan County, we drilled to five well two mile pad in the heart of area producing from the Wolfcamp B, one and before formations 30 day IP is averaged 1150 barrels of oil equivalent per day was 79% oil with DNC cost, averaging a very efficient $7.2 million per well.
And then the Delaware Basin, we drilled five wells with one mile laterals that dixieland at an average cost per well of less than $5.3 million.
As we outlined last quarter, we are still feeling the effects of completion timing on our Permian oil production.
We are on pace to put all 88 plan Midland in Northern Delaware Basin Wells online that many have been pushed back throughout the year. We have 25 wells scheduled with online dates in November or December which based on their timing will add only minimal production to the fourth quarter.
At Alpine high we brought 15 wells online during the quarter.
This included several wells from or 14, well black foot Barnett pad in the northern flank.
We have now drilled four large multi well pads in this area and this most recent Barnett pad has thus far underperformed relative to the adjacent Mont Blanc Barnett Pat.
All 14, Blackfoot wells were completed sequentially before commencing flowback operations as a result, the significant volume of Frac water was pumped into a small area. The reservoir, which may have impacted well productivity. We took advantage of shut in period to soak. This pad for approximately 60 days.
The wells have been returned to production at higher rates additional modeling is underway to better understand the performance of these wells.
Maybe turn international regions adjusted production came in a little higher than projected at 125000 barrels of oil equivalent per day.
In Egypt following up on the discovery announced last quarter in our new E spot Korea area. We have received a development lease and have drilled a second well the Cobra number two which is producing approximately 3000 barrels of oil per day.
Currently drilling a third well with plans for fourth well later this year.
And then my true basin, the Bahraini number one X well tested 5000 barrels of oil per day from the H E. B six reservoir, let's 6 million cubic feet a gas in 228 barrels of condensate per day from the suffer reservoir. We're currently drilling an offset net future expansion potential.
And then the Shoeshine basin, we had a recent exploration success, the anti onex, which tested 47 million cubic feet and 1700 barrels of condensate per day from the Shifa formation.
Turning to the North Sea third quarter production was impacted by annual turnaround maintenance for which we expect a significant production rebound in the fourth quarter.
We've had an extremely successful drilling campaign this year, having drilled 10 producers with no dry holes, our latest north sea success as the garden number two which encountered approximately 1200 feet of net pay and the prolific barrel reservoir across three fault blocks.
This compares favorably to the garden, one which came online in November 2018 to 30 day IP of 13000 barrels of oil and 17 million cubic feet of gas per day from 700 feet of pay.
The garden number two is expected to be online around year end.
Apache holds a 100% working interest in the garden complex, which will have several follow on wells. The first well at our store development is scheduled for initial production next month. This is a high rate gas condensate, well, which we anticipate will initially produce over 30% oil the well, we'll be tied back to existing infrastructure that connects to the barrel Alpha platform.
We plan to drill set that can production wellness store later next year more detailed drilling pad and well highlights can be seen in our third quarter financial and operational supplement.
Thank you and with that I'll now turn the call over to Steve.
Thank you Dave on todays call I will review third quarter financial results.
Provide a few updates to our 2019 guidance and briefly share some thoughts on 2020.
As noted in the press release issued last night under generally accepted accounting principles Apache reported a third quarter 2019, consolidated net loss of $170 million or 45 cents per diluted common share.
These results include a number of items that are outside of core earnings which are typically excluded by the investment community in their published earnings estimates.
The most significant difference was a $53 million valuation allowance for deferred income tax benefits.
Excluding this and other smaller items adjusted earnings for the third quarter, we're a loss of $108 million or 29 cents per share.
Production volumes were strong oil and NGL realizations weakened during the quarter.
Gas prices increased a bit with some improvement at waha hub, but generally remain very low.
All major expense items were in line with or below our guidance for the quarter.
With the exception of DNA, which rose to $17.30 per Boe.
This was primarily due to reduced proved reserves at alpine high associated with the recent deterioration in NGL and natural gas prices.
Both the Gtx gas pipeline and the Chinook NGL pipeline were commissioned during the third quarter.
With transport capacity on both of these pipelines.
Patchy now has access to attractive marketing margins over and above the pipeline tariffs.
In terms of full year 2019 guidance, we're increasing our annual DNA to $15.25 per Boe.
For the impacts previously described.
There are few other smaller changes to full year 2019 guidance.
All of which can be found in our financial and operational supplement.
As John indicated we're deep into the planning process for 2020 and beyond.
As in past years, we will take a conservative approach to pricing assumptions.
We will plan for free cash flow over and above our normal dividend.
At current strip pricing this would indicate a 10% to 20% reduction in capital from 2019.
Through the pricing cycle. We believe this approach can combine and attractive free cash flow yield with a moderate pace of production growth.
For the next few years, most free cash flow will be used to reduce debt.
Our debt maturity profile is now in good shape with just under $1 billion of debt maturing in the 2021 to 2023 timeframe.
Our plan is to retire all of this debt as it comes due.
As a reminder for reporting purposes, Apache consolidates altice as long term debt.
This debt as nonrecourse to Apache and amounted to $235 million at the end of the third quarter.
So as we look forward to 2020 Apache is in a good situation.
While the gas and NGL price environment will cause a slow down at alpine high we have a well diversified portfolio to allocate capital toward more oil focused opportunities.
We will continue to be long term returns focused with an appropriate balance of free cash flow and moderate growth.
And with that I will turn the call over to the operator for Q.
At this time, if you'd like to ask an audio question you may do so by pressing star in the number one on your telephone keypad again that is far one.
First question comes from the line it does get with Bank of America.
Thank you good good morning, everybody.
John I Wonder if I could.
A couple of things first of all at a high level understand you haven't given guidance for 2020, yet, but when you see modest growth was up mean.
We're going to see modest at this point they are Doug we're in the middle of our planning process.
Kind of a pace, we bid on and what does leave it at modest.
Okay. So I thought I would be a quick answer but so appreciate you trying to do a at least not answering the question.
My second one is on Suriname, much and you're going to get low on this but I wanted to ask a very specific issue around seven on joint.
You said for some time the pot she had a differentiated view of the block.
My question is that you never released the results of the pool Conwell.
But you're a couple of your engineers that talk about the pool changed your view.
Both the thermal maturity of your block so I wonder if I could ask you to characterize what are the type of targets you're looking for an address specifically whether you believe this this is predominantly gas for an area that you're testing and any color around the but specific issue to do.
Really appreciate it.
Well the first thing I'll say Doug is.
Uh huh.
The team was very impressed with the work that you did.
From a data that's out there. So we thought you did a fantastic job and on your report.
We've said that.
We have several to seven different play types on block 58.
The market number one central well is going to be targeting two of those play types.
There are there in the Cretaceous and.
I would just suggested to.
We obviously feel like CEO , we would be in an oil window.
Well, we wouldn't be placed the well there.
I appreciate a lot less one very quickly as I wonder if you could just address the recent management change and for that implies your capabilities in Suriname and I would note that I believe you, saying the PSC before Mr. Keenan joined Depace. So if you could just over some clarification that'd be great.
Well two things I actually.
Hey, we picked this walkup in 15, Steve had been onboard with us, but he was not working.
The conventional exploration stuff at that time. So this is something that actually we do under my watch.
Early in 15 before any of the results were down.
No in Guiana Orwell's so.
Steve did not have anything to do with those getting into.
Sure Lambert or taking this block.
Secondly, I want to thank Steve for his time here. He made great contribution to the organizations and the is truly a world class six four.
It is we disclose on the call today I've been thinking about a long term vision for the company and working on some significant organizational changes.
Steve's remaining tenure was shorter than the time I was planning for.
So that required here not to have a conversation around succession.
I propose the an appropriate transition and very simply can you just elected to resign, but it had nothing to do with the with Sirona.
Appreciate the answer your question Thanks, John .
Next question is from the line of John Freeman with Raymond James.
Hi, everyone.
Good morning, John .
Hi, John .
First one on just sort of the initial commentary that you provided.
2020, so just it sounds like from I guess, a high level. When we think about capital allocation. You basically said you know just assume kind north sea would be kind of flat year over year.
Based on the success you've had I assume.
Information, you're getting from the seismic shoot.
Should see an increase investment there and then it just sounded like.
In terms of kind of the Permian flush alpine high it's just more of a.
Shifting of capital from anymore they are areas.
Delaware, So when I think about just as a overall region. When I think historically are kind of 70 30 kind of U.S. International just I guess, how much that kind of change.
As it sounds like just really international the only one kind of directionally going up.
Yes, I would say John Reno first and foremost the we spent more money at alpine high and the you know that capital is going to come down so that that in itself will change those the percentages of that pie.
The exploration spend in Suriname could be.
A little larger as well so that also with tilt the international but and then we stated that the Permian capital.
It was going to come down but in general the oil based drilling is going to go up so.
Great and then just a follow up until were given any additional information can we just continue to assume.
For these additional these other to Suriname wells around that 60 to 65 million per well somewhere to the first.
Yes, I mean, they spread shouldn't be changing much I mean, we've got you know the noble Sam Croft.
Rates were negotiated and.
There was actually is another extension we could take in the just preserve that option for the future. So it'd be pretty similar a lot of that will just depend on what we do and how long were on the wells and how much testing and all the.
Those things will drive that cost.
Great I appreciate it John Thanks.
The next questions from the line of Bryan singer with Goldman Sachs.
Thank you good morning.
Good morning, Brian .
I wanted to see just a follow up on John's question there more.
More bigger picture, if you could paint a picture of how Suriname success or lack of excess is going to impact your capital allocation strategy. So in a success case would you finance development solely an entirely via drilling down a stake it would they be open its outspending cash flow would you need to issue equity would you think about just.
Elsewhere in the portfolio and in a lack of success case, what would be your interest or need for inorganic portfolio replenishment.
Well, Brian we feel good about the portfolio with or without Sorenstam. So I mean, I think we've got a very diverse portfolio. We've got great Optionality, we've got lots of the onshore.
Unconventional inventory that is all weighted.
As well as some optionality on the on the rich gas side.
We've got good inventory both in our international areas, obviously Sorenstam offers a new playground for us. So we feel good about the inventory and feel good about the direction of the company I think Thats. One thing if you look back over the last four years from where we sit today from where we were we have a lot more inventory.
Than we had on all fronts.
So as far as.
The.
Financing or a success case its earn am.
We still have 100% equity in that block.
And we've made a very clear that our intent would be to likely.
Bring in a partner and we feel like that.
That would play a role and how that would be funded so not in a position to give you a lot more color than that but I don't see us having to stop some of the other things that would be doing or significantly strengthening our balance sheet, Steve do you want to add anything.
Nope I think thats good job.
Great and then.
The follow up is with regards to the odd the onshore inventory you mentioned some improved performance or economics on the Cline can you just talked too.
What you're seeing in terms of supply costs coming down either by cost reduction or improved performance in the Permian and then any update on exploratory exploratory efforts in the in the onshore.
At this point, we do not have anything that we're prepared to update on the onshore exploratory side.
I will say in general.
Costs or it's kind of a mixed bag some things are coming down as some of the some of the services or theres been some slowdowns. Some of its remains tight so we're managing that so it's really a function of the individual services I think what you're seeing Mo is having been in kind of a development mode with those pads.
A lot of those synergies and things were driving out or in the costs are really more a function of just efficiencies.
The come with the larger scale pad developments, where do you have all the infrastructure in place and I'll flip it over to Dave to comment on the Cline.
Yes, thanks, Sean the Cline, well, just a little more color than in the prepared remarks, it's it's one well, but it's it's been online for 120 days, we're happy with this performance.
We look at our portfolio when we think we have opportunities under a couple of the fields at least in so you'll be hearing more about that.
As we kind of get to the ended 2020.
Thank you.
The next question is from the line of Bob Brackett with Bernstein Research.
Good morning, I'm looking at that Ted TVD of the market central at 6325 meters. That's considerably say several thousand feet deeper than high Mark which is maybe your closest offset well from the industry does that suggest you're trying to tap the top of the Jurassic or is that land.
Being somewhere in the Cretaceous.
I will just say at this point, Doug most of our targets are the two plays will be testing here or in the Cretaceous So yes.
Bob here, but I appreciate the complement a quick question then.
What about the Miocene you you Didnt mention that is one of the play types.
At this point, where you havent gone through a full valuation of all the play types.
So Bob that's that's where we are I mean it. This is two in the Cretaceous okay.
I stick in a very nice sticks section yes.
Concurred in terms of the modest oil production growth that you highlighted.
Should I say, specifically it to focus on oil production growth and the gas would be sort of flat or down or does the gas track would that oil.
Yeah, we would be emphasizing the modest oil pace.
Gotcha. Thanks much.
Thank you.
Your next question is from the line of Charles Meade with Johnson Rice.
Good morning, John you and your team there.
Good morning Charles.
What did you understand theres a lot of lot of focus on this first well, but I'm wondering if I could get you to up to talk a little bit more about about these next two wells debt debt or that are going to come after.
My guess would be that since you've already got the.
The rig going to drill these back to back that you already have.
Already have those two.
Locations mapped out in that they're going to be independent of you've results on this on this first well, but can can you talk about whether thats right or how you're.
How how this next few wells are going to go.
Well, Charles we actually permitted nine different well so there's multiple multiple targets.
I'll just say we've since it is.
The first well in this area that will be gathering data and there are some decision tree things will do based on the data we collect so we've got a pretty good idea, where we want to go but information and couldn't confirmation of certain things will drive the exact.
Selection process.
Got it Thats helpful. And then if I could go back to the.
To the Blackfoot pad in the Alpine high Dave I appreciate the.
The comments you made about that and prepared remarks, but I was curious you mentioned I believe are you mentioned that did you lift the frac water soak on those on that path I think six days and can you talk about is that is that a has that been a standard procedure alpine high or is that something new or different view, you chose to do or maybe.
Just maybe was just the timing could but can you talk about what.
Thats the standard plan, whether as a one offering and.
And what you're going to learn going forward from us.
Charles Good question, we we've had some opportunities in the past to soak wells.
Really due to facility constraints. So what we found in some cases, the well performance improved post so when we when we frac to 14, well Blackfoot pad remember it was the wells were all completed sequentially. So we put a lot of produced water into a relatively compact part of the reservoir.
And we thought well, let's let's take into the advantage of low commodity prices initiate a 60 day so.
Really.
Trying to understand is that a relative permeability issue or what are sent what what are the mechanisms for the underperformance.
We've had the pad back on line for about 30 days now the gas rate came back above.
The pre pre set of great and it's actually holding in pretty flat, which which says there was some some impact and the condensate rate came up higher than the pre so great. So what we're doing Charles we're evaluating that we have a team of folks doing some detailed work on on the black foot and all.
All of the multi well pads that we drilled and completed to date.
Got it thanks for that color.
The next question from the line of Gail Nicholson with Stephens.
Good morning, everybody.
Thank you guys had a really nice result, there this quarter.
Let's look at it had 22000 capex.
Yes.
Maintenance Capex in Egypt would be to keep.
Adjusted for the 70000 barrels flat.
You know gale.
We've got results from the new three data, we're starting to cease for our prospect inventory should should improve as what is what we're excited about so we don't really look at rig count to keep things flat.
Because we're just working on which projects are going to be the best on in terms of the allocation, but as we've said.
With the new inventory and the things we're seeing the I think there's the potential to actually return Egypt on the oil side to to growth and so.
We're excited about that.
And then just looking at the recent exploration.
Bob deep while in the gap.
The how does that I guess, maybe change future potential development.
Well, we've got a lot of infrastructure from costs are and so you know there the nice thing about small things as they can be tied in.
Most of our drilling will be focused on oil.
But.
We do have a lot of gas infrastructure in capacity. So it's not a big deal and if we find it and it's still very.
Economic for US is we get about to 65 of them for that.
Great Thanks, great quarter.
Thank you.
The next question from the line of my scholar with Stifel.
Hi, good morning, John .
Good morning, Mike.
Just want to see if theres anything you could say about what you've seen so far in the.
Mark a central wells at this point.
I'd say, we're drilling ahead.
No we are now in the shallower targets.
And Mike the only thing I'll say to this point is that we have not seen anything that would be unexpected.
Okay.
We'll stay tuned there.
Thank you.
Well the CV give any more color on.
The organizational initiatives that you've been please.
Yes, I think we see an opportunity to reduce kind of or take $150 million out of the system I.
I think it's going to enable us to deliver more proactive planning and improved capital allocation, which is something we strive to continually do I.
I think it's going to enable us to advance our resource progression from access to exploration to development in you know and operations.
It's going to weather is right sized both the corporate and regional offices to more efficiently support.
The new organization, we're going to minimize duplication eliminate some redundancies and it also is going to help us really.
Enable the collaboration on the value, adding technology in adoption.
Great. Thanks, John .
Thank you Mike.
Your next question is from the line of Neal Dingmann with Suntrust.
Hi, John team.
My question is based on the early strong lower Cline test that you've seen in that driver shot pad drill it plans to increase activity targeting this zone or I guess, maybe I'll ask it definitely could you all just maybe discuss your upcoming multi zone development plans around the Midland Basin.
Yes, I think we've got our inventory so lined out that it doesn't impact.
The next couple of pads, but what it does is we're constantly dipping down and testing things.
We can add in the future and so we can jump around next pad a move here I mean, we've really got this machine lined out and we're in an execution mode. So, but we factor that in we're testing things that we think at and material inventory and then we will start planning that into our future pads is the way I.
Think about that in the why it's kind of away we approach things.
Okay, and then just one follow up could you will discuss.
Any upcoming lease requirements that you might have an all time highs you slow down activity in the play.
Yes, I mean, I think that's one of the big things, we've kind of challenged the team to do at his work through a plan that helped determine what acreage we want to maintain for optionality purposes.
So thats the process, we're working through and we will be very deliberate and.
Worked through what it is we think we ought to maintain for Optionality in the future growth very good. Thanks John .
The next question is from the line of Leo Mariani with Keybanc.
Hey, guys on just if they will.
Yep.
Just wanted to follow up a little bit there on alpine high.
Obviously, you guys are kind of coming back activity, but so looks like you have a pretty nice.
Growth ramp here into fourth quarter, just kind of want it get a sense.
With two or two rigs out there in 20, how should we think about alpine high production, obviously got significant production. There I mean, that's something that can kind of be maintained kind of it sort of year end 19 levels or would you start to see some declines there with a couple of rigs.
Well it.
We'll come back in February with the when we have a better view exactly what the plans going to look like but.
I do know we've deferred some completions in the early 20, and we've got some ducs. So.
Yes.
It's it's not going to I'm going to drop massively.
But we'll come back with a shape for the curve next year, that's commensurate with the activity level that will go forward with.
Okay. That's not that's helpful and I guess obviously.
There are significant infrastructure there and.
Well it will get I guess, another gas pipeline in Permian Highway coming sometime in early 21, I mean, I guess, what type of kind of future gas and NGL prices do you guys kind of want to see to where you may harvest kind of more that resource any color on that'd be helpful.
Thank you just step back.
Late 2018, we went into more of what I call development stage and as Dave mentioned in the prepared remarks, we initiated pad drilling on for multi well pads.
You know concurrently.
This spring, we had the natural gas and NGL prices really moved materially lower and that happened as we started to bring on some of the infrastructure. So we've got the pads devaluate.
And we'll does come back with that you know view as well.
That's helpful. I guess, just lastly on Egypt.
Certainly I noticed that youre gross liquids volumes, primarily in the oil side in the third quarter were kind of down.
Versus Twoq, you kind of roughly 9% on my math here just wanted to get a sense. It there was any anything anomalous going on in Threeq you on the gross oil volumes are in Egypt.
It may have driven that reduction yet Leo this is Dave Purcell.
Really what drove that were declines in.
Costs are in Bernice.
Okay, Yes. It remember those just just for some color those those fields of have been producing for a while now and have held up.
Much better than anticipated so we're expecting declines at some point and that we saw him here in the third quarter.
Alright, thank you.
Your next question comes from the line of Richard Tullis with capital one Securities.
Hey, good morning, Thanks for taking my questions just a couple more on alpine high.
John .
You talk a little bit about the reserve write down that you took in the quarter related to the lower commodity pricing.
Yeah. This is Dave Purcell, So you will will there'll be more color.
At the end of year on the in the K and there may be some some commentary in the queue, but what you see any any price revision.
Was was.
Primarily on gas and Ngls in the Permian Basin.
There were very modest or.
Performance or vision, so the the price revisions were due to the low.
Basin gas and NGL prices.
Then primarily focused in the Permian basin.
Dave do you expect any.
Additional year end write Downs in addition to what you referenced in the Threeq.
Yes, I think if you yeah. It's good question. If you look at the trailing four quarter four quarter pricing, we are still benefiting somewhat from a high fourth quarter 18 price. So as we roll forward. If you look at the futures prices for the fourth quarter of 19.
We lose the benefit of the of the one high quarter that's in the in the averaging right now so.
If the forward prices hold we would envision there'd be some additional price revisions in the fourth quarter again still so hard to quantify those till we get the actuals in but.
That's kind of where we where we see it now.
Thats helpful. Thank you just the my last question also related to Alpine high do you have any sort of minimum volume commitments with altice that have to maintain.
No.
Acreage acreage dedication okay. Okay, alright, that's all for me. Thank you.
Thank you.
The next question is from the line of Scott Gruber with Citigroup.
Yes, good morning.
Good morning, Scott.
So circling back on the Capex split between Us and international just back of envelope here. It appears that the for Q shift will see the U.S. International split move towards 60 535 based upon the updated annual guide for 2019 is that broadly how we should think about the split in 2020 over.
I would yield a modest spending growth abroad year on year is that how we should think about it.
I mean, what I would say is hey, Debbie look just at a one quarter right because things move around but I would say in general our capex is going to come down as we said.
You are going to see less rich gas drilling at alpine high.
Yes, and youre liable to see pretty flat pace in the north sea compared to where we are and we actually have some exploration wells that are going to it carries that number may have come down a little bit.
Egypt should be.
Flat to slightly higher and our and our oil projects in the us.
Or going to be a little higher as well so.
We'll give you a more color.
In February when we come out with our final 2020 plants.
Got it.
And then just on the UK given the production momentum heading into next year.
What do you guys looking at in terms of production over the full course of 20 I can you generate some growth from the UK next year.
Good.
Once again, we'll hold off on the 20 specifics.
Well, we come out with a plan, but we're very excited about the program they've done a tremendous job this year.
Garden to absolutely exceeded our expectations, we've got a entire fault block there that looks just fantastic we had upside in the store wells.
So we've got some big things coming on and it sets up as Dave said in his prepared remarks sets up some additional drilling garden in the future. So.
The shape of the curve going into 2020 is going to have a lot of momentum for the north sea.
Very good appreciate the color. Thank you. Thank you.
The next questions from the line of Ryan Todd with Simmons energy.
Yes. Thanks.
Maybe a.
Follow up question on Alpine high in this in particular I mean, given the.
Given the reduction activity and outline I know you don't have mbcs, but how do you think about the go forward options.
Altus longer term in terms of.
But your capital spend on the GMP side potential options to address the value.
Structure of the entity.
Ryan I'll I'll ask if it's not too big of them, an inconvenience to just hop on the Altus call. This afternoon I want to clock.
And we'll let clay and the team there handle all of those questions directly.
Okay.
Got you.
Maybe one.
One follow up on Egypt that I mean, you mentioned the possibility to generate long term growth.
As opposed to just holding volumes flat in the region I mean, what would you need to see the move in that direction.
Do you need to see continued exploration success have you seen enough already.
There anything out there would dictate kind of how aggressive you would or could be there.
No I mean, it's we've got a very large physician right and we've got a very large base.
I think the technology that we're playing in the the new acreage we picked up.
With the new three D. puts us in a position for some pretty interesting looking inventory and I think it's going to be more driven off of the inventory and the opportunity set a minute anything.
Okay, great thanks to though.
The next question is from the line of Jeanine Wang with Barclays.
Hi, good morning, everyone.
Good morning give.
I just wanted to follow up in some of the either question to make sure I got some of your remarks correct. So in your prepared remarks, you indicated that you're building and enhancing drilling inventory there and so can you provide us with an update on what the current capital efficiency looks like because that might have changed over the past couple of years you spending below.
Maintenance and then how productive the first call and incremental capital sounds like because it seems like there could be exploration I know you said, there's already some gas facilities, there, but not sure.
Is there an oil side in order for you to increase production.
Yeah, Jeanine I think if you look at Egypt, I don't you know I don't think we've been under investing so as the first thing I'd say I think we've been investing inappropriate pace.
We had a very large discovery and costs or.
Many many years ago, which is pretty unique and so if you take that out and look at the portfolio. We've been on a really good pace.
Look at the peak Tom bearing these discoveries we add in late 14 early 15.
Things have been going quite strong so.
We've got a big footprint, we vendor a long time, we were spread out over a very very large area and my point on the other tie ins is we just have a lot of capacity there for before for more gas yields and.
So I believe they I think things are going going quite well and we do see the potential to improve our productivity with the new inventory.
Okay, Great Thats really helpful.
One question is on the Alpine high.
In terms of pivoting away from Alpine high Capex to replace what commodity prices do you think that alpine high can be to Catherine I guess, what we're thinking is just that your take away contracts, specifically for alpine high for NGL and crude or the acreage dedications EBITDA flexibility there the gas takeaway I believe.
He has mbcs, but I'm pretty sure that you wouldn't have an issue RB node out. So I just don't really figure out what the question Paul is on Capex allocation to that play.
I mean is purely going to be the forward look at the incremental economics.
Okay, great. Thanks, very much thank you.
Our final question will come from the line of Michael Hall, with Heikkinen Energy Advisors.
Thanks.
A lot of been addressed I guess, maybe going back to serve them now that you've got the you've got the Mako location out there is there any additional color you can provide as to.
Why this was the first of the tests of the nine wells should permit in.
Any additional color on the thought process there.
Well I mean, its first will in the block right. So in that it's oil that we liked some of the prospects. There is its ability to test two of them and and that's why we chose it.
Can we are there any any risks in the other wells that you are mitigating with the selection of this well.
With exploration.
And you're going to your first oil in it's a it's a process right. So there's since it has a word exploration, but theres always risks, but to your assessing and you learn from and.
So, but this was the show the order the first where we thought we should drew and from there.
We've got numerous options to go too so but there is not as we've said all along there's seven different play types, there or you know many many significant very good looking prospects. So we just had to get started somewhere.
Okay fair enough.
Helpful color and I guess.
Just to come back on the Alpine high economic side of things I think in the past you've talked about mid 20 sent ethane or.
Seven handle on propane as kind of how level to think about where alpine high would compete for capital are those still fare levels to watch.
Michael will come back on that I mean, I once again, we've got.
Four pads that we are evaluating it really is going to boil down to now that we are the infrastructure in place it's more about the incremental economics relative to two or other portfolio opportunities.
Okay. Thank you.
Thank you.
And with no further audio questions I'll hand, the floor back to John Crishman for closing remarks.
So thank you and closing.
Patchy is taking significant steps to lower our cost structure and to further optimize our capital allocation.
Our goal is to improve free cash flow yield inclusive of the dividend increase returns and continue apace of Madit moderates a modest all growth.
We have some very attractive exploration opportunities throughout the portfolio that make Apache a differential investment opportunity.
Thank you and happy Halloween.
This does conclude today's conference call. We thank you for your participation and ask that you. Please disconnect your line.