Q2 2020 Apache Corp Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the Apache Corporation second quarter 2020 earnings announcement webcast. At this time all participants are in listen only mode. After the speakers presentation. There will be a question answer session to asked a question during the session you to press star one on your telephone if you're acquiring.
Further assistance. Please press star one zero I would now like to do groceries conference come Siguiri Clark Vice President Investor Relations you may begin.
Good morning, and thank you for joining us on Apache Corporation second quarter financial and operational results Conference call.
We will begin the call with an overview by CEO and President John Chrisman, Steve Riney Executive Vice President and CFO will then summarize our second quarter financial performance.
Clay branches executive Vice President of operations, and Dave Purcell Executive Vice President development will also be available on the call to answer questions.
Our prepared remarks will be approximately 15 minutes in length, but the remainder of the hour allotted for Q in may.
Conjunction with yesterday's press release, I hope you've had the opportunity to review, our second quarter financial and operational supplement which can be found on our Investor Relations web site at Investor doubt Apache Corp Dot com.
Please note that we may discuss certain non-GAAP financial measures 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.
Consistent with previous reporting practices adjusted production numbers cited 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 todays discussions 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 discussed today.
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.
For the last several months world and the global MP industry had been facing order the most challenging environments in recent history.
Apache is responding with decisive actions designed to protect our people our assets our investors and the communities in which we operate.
And I want to take this opportunity to think the many Apache employees and contractors for their hard work and dedication and these tough times.
In my prepared remarks. This morning, I will discuss the progress we made during the second quarter and review, our key objectives and capital priorities going forward.
I'd like to begin with a brief update on our response to the cobot 19 pandemic.
Apache moved quickly to implement a wide range of fit for purpose protocols to ensure a safe and productive work environment in both our onshore and offshore operations.
Thankfully, we have experienced a relatively small number of cobot 19 cases and have incurred no material operational disruptions beyond our intent small production curtailments.
We are prepared to maintain our current work model for as long as necessary.
Since the onset of the pandemic, we have been listening and responding to the specific needs of the communities in which we work and live.
Apache has donated PE and critical medical equipment to hospitals at first responders as well as supporting food banks long distance learning initiatives and shelters for women and children.
From an operational and financial perspective during the second quarter, we executed our planned activity reductions on schedule and delivered upstream capex well below guidance of $240 million.
For the four year, we are now tracking toward the lower end of our capital guidance range of 1 billion to $1.2 billion.
The majority of our organizational redesign has been implemented achieving combined run rate low 80 at overhead savings of more than $300 million as planned.
Net of severance and restructuring costs actual cash savings realized in 2020 are estimated to be approximately $225 million.
Through these and other actions, we have reduced our free cash flow breakeven oil price to be around $30 per barrel on a forward looking basis.
This allows us to protect our current financial position and enables positive free cash flow in the current price environment.
And then bought 58 offshore Suriname during the second quarter, we submitted a plan of appraisal for our first discovery Mockup announced our second discovery at Soffa QARA and supported our third exploration oil clause quality the results of which we announced yesterday in conjunction with our earnings release, we are thrilled.
Old with the results from the cost, causing a lot exploration oil. This is the best well we drilled in the basin to date with the highest net pay in the best quality reservoirs, while we have a lot more work to do a discovery of this quality and magnitude merits a pace evaluation that enables the option of accelerated first per.
Production.
Following clause quality the noble Sam Croft Drillship, we'll move to the fourth well in our 2020 exploration program cast kesey.
After which Apache will transition operatorship of the block to our partner or total.
Turning now to the curtailment program, we have returned our north sea and Alpine high volumes to production along with a portion of curtailed oil volumes in the Permian.
We anticipate that several thousand barrels of higher cost Permian oil production may remain offline for the rest of 2020.
Apache is currently running one exploratory rig concern I am.
Five rigs in Egypt, and one floating rig and one platform rig in the North Sea.
We intend to maintain this activity set for the remainder of the year, if commodity prices do not deteriorate significantly.
At this time in the Permian Basin, we have no drilling or completions activity and no plans to complete our ducs for the remainder of the year.
As we look at the second half of 2020 into the long term.
Our key objectives remain unchanged, despite the extreme price volatility.
We will budget conservatively indirect free cash flow on a priority basis to debt reduction.
Maintain a balanced and diversified portfolio and prioritize investment for long term returns over production growth.
We have spoken frequently about our priority ranking for capital deployment within the portfolio and our thoughts on this are worth reiterating.
At the top of the list is Suriname, which will continue to receive priority funding for both exploration and appraisal activity.
Under the terms of our joint venture the incremental costs to Apache associated with appraisal and ultimately development should be very manageable.
Our second priority is Egypt, where the PSC structure offers more stable returns and relatively low and more volatile oil price environments.
Following that we should look to complete our ducs in the Permian basin and resume drilling with a second platform rig in the North Sea.
And finally, while our Permian operations have been delivering highly competitive economics within the basin.
Other areas within our portfolio offer more attractive investment options in a capital constrained environment.
Therefore, we don't envision returning rigs to the Permian basin, unless oil prices recover well into the fifties.
We have always stated that our best hedge against price volatility is prudent and responsive management of the capital program to the extent oil prices, our sustained at or below $50 per barrel WT.
We do not anticipate a material change at our annual capital budget from the current rate of around $1 billion.
For oil prices significantly below $50 capital spending is more likely to be reduced from the $1 billion smart.
If oil prices rise above $50, we will be very measured with our capital increases in the first call on that incremental free cash flow will be returned to investors initially with debt reduction.
I'd like to close by summarizing apache's approach to managing the unprecedented challenges thus far in 2020.
We implemented successful cobot 19, operating protocols and work from home procedures and helped ease the burden of the pandemic on our host communities in numerous ways.
We responded to the sudden price drop by quickly limiting cash outflows to protect our balance sheet.
This included a significant reduction in capital dividends and overhead and operating costs.
These along with other actions have enabled us to lower our free cash flow breakeven such that we now have good visibility to debt reduction.
Operationally, we have preserved optionality to reactivate our curtailed production development programs and other investment opportunities when appropriate.
And we have successfully advanced our exploration program in Suriname.
Through these and other actions, particularly the successful implementation of our corporate redesigned we entered the second half of 2020, a very focused and streamlined organization.
The benefits of our diversified portfolio or more evident now than ever as we flex capital towards our international operations.
Together with our World class position in Suriname Apache offers a truly differentiated investment opportunity within an industry that has come under tremendous pressure.
I'd like to again, thank all the Apache employees for their commitment resilience hard work and flexibility as we successfully navigate these challenging times.
And with that I will turn the call over to Steve Riney.
Thank you John on today's call I will review second quarter 2020 results discuss progress on our cost saving initiatives.
And provide commentary on our free cash flow outlook and debt management efforts.
As noted in our news release issued yesterday under generally accepted accounting principles Apache reported a second quarter 2020, consolidated net loss of $386 million or one dollar two cents per diluted common share.
These results include items that are outside of core earnings the most significant of which are an unrealized loss on derivatives.
Tax valuation allowance.
On an asset impairments, partially offset by a gain on the repurchase of outstanding debt.
Excluding these and other smaller items.
The adjusted loss was $281 million or 74 cents per share.
Adjusted production decreased 7% from the prior quarter, primarily driven by shut ins and production curtailments of approximately 19000 Boe per day at Alpine high.
Production curtailments of 10000 BOE per day in the North Sea and 6000 BOE per day for other operations in the Permian, partially offsetting this was increased Egypt cost recovery volumes due to the lower oil prices in the quarter.
Apache second quarter average realized price on a daily basis fell 39% from the prior quarter with oil and NGL prices down materially.
International oil price realizations were notably weak.
As actual current realizations dislocated from the published benchmark price.
This discount was driven by unprecedented excess supply on the market, resulting in unusual competitive pricing dynamics.
Consequently, second quarter international oil realizations averaged around $5.50 per barrel below the benchmark.
Which we do not customarily experience.
So far in the third quarter, Brent pricing has reconnected with the benchmark and we do not currently anticipate this changing.
Turning now to our cost savings initiatives, we entered 2020 with a goal of reducing annualized overhead and lowi costs by at least $150 million.
With the price downturn in March we took quick action to double that goal to at least $300 million.
We have been fully achieved this target and then some.
Roughly two thirds of the targeted savings are coming from overhead reduction and one third from direct allawi reductions.
These are sustainable cost reductions and they are showing up in multiple places on our financial statements. So let me provide detail.
Of the roughly $200 million of annualized overhead cash cost reductions.
Approximately $100 million will show up as reduced capital investment.
$20 million will come in the form of reductions in elderly and exploration expense.
And approximately $80 million will show up in lower DNA expense.
So our underlying DNA expense, which in the recent past typically ran about $100 million per quarter should now run around $80 million per quarter.
During the first quarter of 2020, you will recall, we had a nearly $30 million reduction in DNA expense caused by the mark to market effect on the share based compensation plans associated with the significant negative movement in our stock price.
During the second quarter this impact partially reversed generating a $19 million increase in DNA expense.
As a result second quarter DNA expense was $94 million.
Turning now to LLC.
We have eliminated approximately $100 million of direct eloise costs on an annualized basis.
In addition to the sustainable Lowi reductions, we're also seeing cost reductions associated with production curtailments and deferred workovers as well as the deferral of certain other non essential activities.
While these actions reduced costs in the near term they are not sustainable and we expect at least a portion of them to return at some point in the future.
As we have previously noted one of our key long term objectives is debt reduction.
Let me share two views on this objective as we look at the second quarter.
With respect to long term debt, we took the opportunity to repurchase bonds at significant discounts when the debt markets came under pressure.
In aggregate during the second quarter, we repurchased $410 million at face value debt for $263 million, reducing aggregate long term debt I $147 million.
The repurchase debt had an average remaining term of approximately 20 years and at the purchase price had an average yield of 9%, making this a very attractive investment.
Another view of debt is through the borrowings on our revolver.
And from the negative cash flow impacts of the extremely low price environment and the $263 million a bond repurchases. We ended the quarter with $565 million outstanding on the revolver.
With an improving second half price outlook, combined with lower capital investment and reduced operating and overhead costs.
We anticipate generating positive free cash flow in the second half and using it to reduced borrowings on the revolver.
Before wrapping up I'd like to note that we did issue third quarter guidance yesterday in our financial and operational supplement on our website, which covers our outlook for capital investment and production as well as a number of expense items.
In summary, although it was a very challenging quarter from a price and cash flows perspective.
Significant actions to reduce our cost structure protect the balance sheet and retain asset value for the future.
To the extent Debbie its oil prices remain above $30 per barrel, we look forward to generating free cash flow in the second half is 2020 and using that to reduce leverage.
And with that ill turn the call over to the operator acuity.
Ladies and gentlemen question or comment at this time. Please press the star than the one key on your Touchstone telephone. If your question has been answer newer similar yourself from the Q. Please press the pound key.
Our first question comes from Doug Leggate with Bank of America.
Thank you I'm sorry, guys I was on mute Couldnt get my New book to go off I apologize good morning, everyone.
John This is this also great day for your stock and.
Congratulations on the leases discovery in Suriname.
Im obviously going to focus my two questions on and find me. So my first one is you a common in the press release about this.
Deserves perhaps the auction of an accelerated first production.
My question is what influence because of punchy hobbled, where that has aligned this was title on one of the parameters within the contract that could get you today and I guess, what I'm really aiming for is would you consider that on average production system here and I've got a follow up.
Well. Thank you first of all.
Yes, I think EMEA and it's just going to boil down to the quality of the show the well in the rock in the in the play.
When you step back and look.
Block 50, Eight's 1.4 million acres.
From a to put it in perspective, it's over 250 Gulf of Mexico blocks.
You know, we've now drilled three wells in three different fairways.
And I use that context to help you understand why you can have three very large fairways, we're going to be moving to another one with cast kesey once we conclude operations.
No the comments in the press release kind of speak for themselves.
You know with where we sit I think that to our partner is also excited.
Yes.
We've done some things in the campaign Ian.
With this well we game collected some extra data we're doing some things with an exploration well that you typically would not do which helps us gained some insight into what we've got and.
So we'll look.
In the end, it's going to boil down to us being aligned with our partner and of course.
Aligned with the stat solely in the government assertive in terms of the pace and moving it forward, but I think any and it's going to be the quality of the the rock in the resource potential.
That's going to drive that.
Yeah.
Pardon my follow up on this side question, John but so Tom just still seems to be communicating to see any level of.
Urgency I guess as you are common in the press release, So just wonder if you could help us but to the gap between given as well so I think what.
All my comment says is that it's up a quality that would the.
Look at an accelerated pace.
Yeah, I think in their press released today. They stated that there will be at appraisal and exploration program early next year to appraise our discovery so.
Ill just leave it at that.
Okay. My follow up is also on course, causing.
And as related to the deeper some Tony in obviously, you did not disclose anything other than hydrocarbon reservoir. The last thing we heard dot expression it was gas condensate.
Hi, moderate in Guyana, So I'm just wondering if you can address some concerns out there to support the.
Hydrocarbon type is wanting you didnt really cpis, what you north of scale on just any of any other ways you can cover priceless deeper horizons and I'll leave it there. Thank you yeah. The thing I'll say is if you look at the first two wells.
You know the San Antonio and has been more oily.
You know they on the campaign in so I will tell you everything looks good here. So we're in a position because we had done some additional work in the upper zones and sub pipe in the campaign in.
We had a lot of that all that information there were still more that we're collecting here, but we felt like we were at a position with the materiality that we should talk about it.
Let Dave you have a little more color on the.
On the San Antonio There, yes, thanks, Sean So so Doug John talked about some additional testing in the campaign in so it's important.
Timing perspective, we did some additional.
Deeper.
Investigation tight testing into does two things for us it gives us a come a composite flow capacity and allows us to see a little deeper in the reservoir than conventional for testing allowance.
And so we've worked through the sand Tony we have the conventional wireline logs.
Selected.
Based on our experience with.
With the med logging in the open a wireline logging on Mako Sapa car and the campaign in in this well.
We feel confident.
We have oil.
In in significant portion of the of the sand Tony and so we felt like we're we're fine with with releasing we still have work to do.
We still have to correct fluids and pressures we have core data to collect and we anticipate doing some of the additional.
Deeper investigation testing.
On this interval so.
I wouldn't read too much into the fact that we don't have we didnt really sad gravities because we.
We don't have those collected yet.
I just on you guys. Congrats again and I look forward to next update thanks. Thank you.
Our next question comes from Mike Balow Stifel.
Yes, good morning, everyone congratulations as well.
Was curious on cost causes the results there.
How those compared to expectations was there any indication premier size that data that.
This well would have more than doubled in that facility.
You know Mike first of all thank you I mean, the when you look at the seismic.
We knew.
Cross quality was going to be a prolific fairway as the other two were.
It bowls down a little bit about the depositional environment I mean once again, we're in a such a large area in these wells were so far apart.
But to you know you have to drill them both to learn that so I mean, clearly it exceeded what would have been pre drill.
But we knew there was that kind of potential and there is you know the exciting thing about it is as we've got a lot more this block to explore.
But.
Clearly very excited about it.
Good then Stephen you mentioned about prioritizing.
You want to improve the balance sheet. Obviously I was wondering how you would prioritize option that or is it really just using free cash flow to pay down debt or any other options you're considering at this point.
Yes, Mike I think.
In a more typical environment.
See companies selling assets to to strengthen the balance sheet to pay down debt.
And I think it's clear that in the price environment. We're in right now that just doesn't work and so for the most part it is color.
Is it going to be the old fashioned way of retaining free cash flows spending a little bit less on on capital, which we all ought to be doing.
And that just means it'll it'll take some time to get the balance sheet in order unless unless theres, a price spike or some.
There will be the occasional one off opportunities that were you have a chance to to do something to to reduce debt similar to what we did in the second quarter with repurchasing says debt debt at a discount.
And we'll take advantage of those from time to time, but I do believe this is just simple case of.
Prioritizing.
Retaining free cash flow.
And and and using it to pay down debt instead of spending it on the capital to to maybe achieve a different type of growth growth profile clearly.
For us strengthening the balance sheet is going to be much more important than in growing production volume and I think we're now.
Approaching a period, where we're going to be able to do that weve as John mentioned in his prepared remarks, we're we're now capable of running.
Free cash flow neutral at $30 WT fleet forward basis for the rest of this year with the.
With the Capex budget, where it is with the dividend cut the overhead cuts. The other we cut some of the other things that we've done we have no intention of raising the capital budget for this year.
And that's what we'll do it to the extent that that oil price exceeds $30 W will use any excess free cash flow that that generates two two to reduce debt.
Very good thank you.
Okay.
Our next question comes from Bob Brackett with Bernstein Research.
Hi, good morning, I'm intrigued a bit by the comments around.
Gain some things with an exploration well that you wouldn't typically do and deeper investigation tight testing are you performing in many drill stem test out there and are there any rates to report.
Yes.
Bob This is Dave for cell good good try.
We it's something that would be between if you want to called a mini drill stem test that would be a reasonable characterization in something between.
A full drill stem test and what.
You typically would get from a fluid sampling operation. So again, what we're getting from this.
His composite flow capacity of the instead of a point permeability measurement from a core sample we're getting a composite.
Capacity in the another benefit is some deeper investigation.
For pressures into the reservoir, so we're still evaluating that data but.
That's that's what we're doing and we had again, we anticipate performing those test in the San Antonio and as well.
Now let's clear.
The question given the thickness of this recent discovery what drove the sequencing of the overall exploration campaign.
And what might that tell us about the fourth well.
No I mean, I think when you step back and look as we said we had the multiple fairways.
I think there.
And you look at the size and think about this it's equivalent 250 Gulf of Mexico block So.
Moving across there.
Lot of it has to do just with how the how things were deposited.
But.
We've got a full nother.
Fairway that it will be testing so.
We're anxious to move overrun in seat or but you know everything looks really good on the seismic so we're anxious to move on to cast kesey after costs Waltzing.
I appreciate it.
Thank you.
Our next question comes from Charles and we've been Johnson Rice.
Good morning, John do you and your whole team there.
Good morning, Charles I'm asking another question on the on the relieved that the the headline that everyone is focused on the thickness of the paid that you guys found with as well.
Curious is there anything going on with either.
The dip of these formations or perhaps structurally that some kind of mitigating factor for that for the thickness you announced or is this more the case, where you guys. Just really found up six stack of pancakes here.
I would just say, it's really more depositional theres nothing tricky with it.
No its geologies pretty pretty level out here.
So it's it's very exciting I think it just goes to the quality.
You know in the Cretaceous here, both with the Campos campaigning and and the San Antonio So as we've said there are other play types.
You know that we are still looking forward to testing.
Terronera in.
As a target we had a maka there's more to do we've we've really even with the campaign in San Antonio were really only fully starting to evaluate two of the play types, we think there's seven or eight.
Multiple targets so.
A lot of exploration to do and obviously, we got a lot of appraisal work to do on these first three discoveries.
John do you anticipated my follow up question on the Tierone because I remember back you guys certainly have.
Plenty say grace over here, but going back to that first well the Mako wells that you guys had some encouragement.
With the Turonian. So does is that something that we should.
Anticipate you guys are going to our game, maybe test with the next well or is that something that's that's where you found nothing the campaigning and San Antonio that that that's kind of receded into 21 or beyond.
So they have just the timing of how we you know if you look Charles.
We're really still moving across one direction across this block with these first four wells.
We have an even started to move you know the other direction, which would be north and south.
So we're going to Kashi, obviously, you know moved to the other side, a clause or road Sop a car.
So, we'll we'll talk about the with the future exploration wells.
Got it thanks to the color John.
Thank you.
Our next question comes from Genie way with Barclays.
Hi, good morning, everyone.
Good morning.
Morning.
Thank you questions I'm sorry.
Shopping, but I guess my first question is this on the reservoir quality in the second stuff.
Nothing commentary.
So based on what you've seen so far.
Can you provide a little more color on what makes reservoir at one of the best quality reservoir that you've never seen innovation and.
I really just pay or are there other characteristics that you can elaborate on.
I'd just say in general it's better.
It's better if you look at the one net fee to pay both in the San Antonio and in the campaigning are greater than we had in the first two wells combined.
So that's one element, but also to quality looks fantastic. So.
At this point, that's all we're going to to say about it.
Okay excellent. Thanks for that and then my follow up question.
The potential for accelerated production relative to the current plan, which I understand.
Well our development wells for exploration wells here.
This is not that maybe you could shift.
There are some capex and does not mean capex or do you envision doing more than the core plus four wells I know, it's still early but im not sure. If there's anything that you see that allows for some timing.
Yes, I mean, what I would say is I don't.
You know I don't know where the.
For appraisal or for development wells came from.
We are drilling for exploration wells this year.
Under the terms or our joint venture us in our partner can each proposed for exploration wells. So there could be eight.
Going forward. What we've stated is is there will be.
You know both an appraisal program and an exploration program in 21, and we plan to try to get started as early as we can.
So clearly.
The comment is is a you know with what we've got as some of things. We're doing here. This is of a quality of magnitude that it would warrant trying to look at could it be accelerated this all we're saying.
Okay, great. Thank you very much thank you.
Our next question comes from John Freeman with Raymond James.
Hi, guys.
Good morning, John.
So I wanted to focus on the capital allocation pumping pretty clear about the balance sheet first priority and then kind of Suriname, Egypt, North Sea Permian sort of that order on.
This slide that you've got in your presentation sort of lays it out at different kind of price stacks, how that that capital gets allocated.
And John you were very clear on your prepared remarks that it's going to take in our oil price well over 50 different rig back to work in the Permian, but I guess I'm curious what sort of where the current stripping is when she's just barely above 40, it's kind of right on the line there between.
He do anything in the North sea, if he would potentially dry docks.
In the Permian and I guess what.
Going towards the end to end this continued success.
In Suriname, and everything else I want to do there and what.
Continuing London in Egypt, if maybe to GAAP is sort of widen between those two assets versus the other team to where maybe.
And when prices just barely about 40 and maybe doesn't.
Make sense, maybe put the capital it does.
Last two relative to the I mean like is there part of the pie now getting bigger I guess.
Yes, just a really good question I think the first thing I would say is as you know in my prepared remarks are laid out to that.
For the strip is a day capex probably comes down.
You know for the full a hole in 21.
And that's just because of how we prioritize things as it relates to the pie.
Suriname the way, we structured our joint venture it really doesnt change.
How much capital we have to put into Suriname. So.
Clearly it to its just got a bold down to how much capital do we want to spend.
And.
With where the strip sits today I really think that the capex budgets going to come down because we're going to want to generate some free cash flow that to you know can go towards reducing our debt.
Great and then just the last question for me.
Well.
The this latest result in Suriname, and everything you're doing there.
Just internally relative to how you were thinking about the the mix of kind of appraisal and exploration churn on next year does this does this change that next I'm not Tony to give me the actual burnt down because you haven't probably to terminate yet just doesn't change our thought process and how that mix what have been prior this result.
It really doesn't because I mean, we've been you know.
I think we understand the potential there.
You know clearly there's things you're going to want to try to move forward.
On an accelerated pace if we can.
But we also have a very large block that we have to continue to explore and so we're going to want to continue exploring I think the exploration plays pace will be pretty similar to what it is today.
And then it'll just be a function of what we need to doing the appraisal side with our partner.
Thanks, John appreciating congrats thank you.
Our next question comes from gold nickel some Stevens.
Good morning, congratulations on another great very well.
Thanks jail and good morning view.
When you look at E jets activity and the second half of the year can you talk about any exploration targets that are you guys you better looking forward to link.
I mean deal where we continue to work Egypt hard we've shut a big one very large three d. there.
We continue to high grade our inventory, we do have some.
Some interesting things that are on the schedule that we're anxious to drill.
Some stratigraphic targets and.
Some point of.
They work truck, we think they could work than there'll be some things to talk about.
Great and then the first quarter call you talked about asset sensitivity there for every dollar moving oil within the right roughly in the $50 million to $60 million range. That's still a good proxy to use or has that increase.
No that's still a pretty good proxy to use for every dollar round.
Around probably close to the $60.
Great. Thank you.
Thank you Jill.
Our next question comes from Marine jar around with JP Morgan Chase.
Yeah good morning.
I was wondering if you could maybe add maybe as a follow up to John's question, just give us some thoughts on your plans to delineate the three discoveries announced thus far and.
Thoughts on potentially bringing in additional drilling rig to the theater call. It.
Next year beyond.
Yeah, I'll, just say, we we have a kind of a procedure through the.
Concessions that we follow and though we have submitted the appraisal plan for Mako.
We are working on the appraisal plan for Sapa Carla.
There will be one that follows clause clauses and clearly there was going to be an appraisal program.
That starts in early 21 and at this point, that's all I'm at Liberty to really say.
You know, but we look forward to have to get into you'll get an effort.
Great Great and just a follow up.
Regarding Egypt, you guys have talked about the new licensing areas. I was wondering if you guys have a process seismic on your legacy position as well and perhaps a little bit more detail and when you plan to test the stratigraphic trap play concept that I think you've identified in the PK and bear in eastern.
Kevin is back in 2014, Yeah, I mean, thats really as Peter mentioned Ace. It really you know kicked off this this whole effort.
Prior to drilling those wells, which out new threed in 2013.
We're on our.
Legacy acreage position call offset.
You know that it really opened our eyes to the fact that we needed to start looking at Stratigraphically not just structurally in Egypt.
We had found some things that were stratigraphic in nature through some of the wells were drilled in the past, but it really had US design the three D, which we've we've been shooting.
And obviously, we picked up new acreage in are shooting that over a lot of our old legacy as well so.
A lot of Prospectivity.
You got some wells that were pretty excited to drill and.
Well the nice thing about those as our vertical there onshore in the other wells. We're drilling so we can do and pretty quickly. It's just a matter are working through all the details and prioritizing the rig count there. We've also reduced we're currently at five we'd like to spend more there.
If we if we if we could so.
Great. Thanks, a lot.
Our next question comes from Scott Hanold with RBC capital markets.
Yeah, Thanks, Suriname and integrate discovering Craig congratulations by the way.
Does that it does that discovery really say anything about the positioning or your redid. The seismic that you have over some of the other fairways like the market for example.
Is there the chance that you guys now see the opportunity for ticker structures. Other places is there anything unique that you found with that well.
Scott Good question I mean, I think what you're learning to and is what we're learning we've still got work to do we'll continue to reprocess seismic.
There are some carbonates and some things that too that make it harder we're fairly deep here as you saw what the TD that we announced in this well.
So we're going to continue to work that I mean, it's a you know I think what it really points out is just the you know that size as you move from these first three wells between them and the size of the block. So yes, we're going to get smarter with the reprocessing to better understand everything and put it all together, but the good news is we've.
Got to.
Massive hydrocarbon system is working its oil and we've got good reservoir in the San Antonio and in the Campania. So.
We'll learn more as we go and as we really start to drill wells, we've just drilled three.
So what we'll learn more as we go.
In effectively as far as kids Caskey goes in terms of where that was positioned.
Is there any chance that shift a little bit as you continue to get closer to that or is that does that location pretty well set at this point.
No I mean, we these.
As we stated we had I think nine wells per minute.
We know we would drill three for sure likely the four puts it was the option. We exercised so you know there we've got five other locations out there that were picked could be appraisal could be other so no other exploration targets, but.
You know weve sticking with where the original wells were on most of these I mean, its sapa Carla we moved over one so you know as you go when you learn more you you set yourself up to try to get smarter.
But it's going to take some more work with the seismic really change you know the some of the interpretation that we did on the front end.
Understood appreciate it thank you.
Our next question comes from Bryan singer with Goldman Sachs.
Thank you and good morning.
Morning.
Sticking with that sticking with Suriname, how many combined appraisal wells at the three discoveries do you think are needed between moving forward with the codify development plan and when you think about the appraisal plus the time to get to F.I.D. and any government approvals whats a realistic timing for when we could see early production start up in it.
Let's take timing, if we see more normal normal production startup.
Well I mean, I'd say that number awarded the you know will determine the number appraisal wells that we made through the program. So.
And we're working on that so I really don't have anything to say other than there was going to be a program.
And obviously, we've got three discoveries of to appraise and there will be contingency wells as we as we work through those appraiser appraisal program to choke have with those timeline.
You know, we've said normal process, you're probably in the four to five range in terms of years.
Obviously, there's a there are ways that that could be accelerated but not ready to comment on anything at this point in terms of putting anything out there I mean, we're we're it's all fresh we've got the log we're working through this with our partner.
You know, we're working on right now the Sop a car appraisal plan.
And then we're going to get after the call's quality appraisal plan following that to you know pretty quickly so.
Great.
And then my follow up is with regards to gas condensate.
As you get more data on the gas condensate potential how were you in your partner considering potentially at all for gas condensate development in economics and is there any scale benefits from discoveries that you've made as well as a in a steeper crop buck of Diana for larger industry partnership.
Yeah, Brian This is Dave Purcell and it gets it's premature to to go down any details on that but.
The way I think you could think about it is the oil is going to drive the initial development here and then.
Gas or gas condensate development.
Is beyond that kind of the phase two if you will end.
Obviously there'll be some scale benefit.
In the basin if that were were.
We're an option that were.
There's a.
[laughter], there's along fairway between here and that.
Determination.
Makes sense. Thank you.
Our next question comes from Richard Tullis from capital One Securities.
Thanks, Good morning, and John Congratulations on the Big Discovery.
Two quick questions with no plans to resume domestic activity until oil prices are considerably higher.
Current views on potentially monetize in any of the U.S. assets at this point.
Well made I'd, just say with portfolio you know, we're always working the portfolio. We're always looking at how we improve.
When we look at our acreage positions.
You know out in the Permian specifically the good news is we don't have a lot of wells, we have to drill to hold acreage.
In fact were most everything is HBP, we've been looking at working swaps and things to improve our VR lateral feet in terms of drillable lateral feet.
Well I mean, it's you know, we're always watch and then looking and evaluating the portfolio.
I'll just say what we typically do is come back and talk to the market. After we've done things rather than the you're setting out expectations or anything on the front end.
Alright. Thank you and then just lastly, I know we've been provided competitive information on the stickiness of the three discoveries any initial thoughts on the aerial extent of any of the three discoveries at this point.
You know thoughts are there I mean, it's we're you know there very sizeable but we haven't given any color we haven't started to put any.
Though acreage size on any of these at this point and I think it's premature at something we'd come back with.
After we've done the appraisal programs.
Okay. Let's also me thank you.
Thank you.
Our next question comes from Neal Dingmann with Suntrust.
Well now.
I understand my question is just wondering would the pace of mixtures appraisal planets are non would that have any impact in the decisions on domestic or international place spending.
And the way, we restructured our joint venture, we've we've kind of got everything.
Worked hand in planned around me that was in the main reason, we held onto 100% of this block.
And really farm down 50, because we are really setting ourselves up for success. Because we believe there was a tremendous amount of potential and thought very likely we would find ourselves in this position.
So thats, how we structured it so it's really not going to create.
An incremental capital call that we can't funding you know really at any price.
Now you get into second quarter, where we got all bets are off but.
You know really in a even sub $30 a world.
We will be focused on paying down debt and funding serve them.
Got it and then just lastly, my last question just on Egypt, I'm, just when you mentioned.
You'd probably stay the course at prices stayed around here is there just kind of wondering if you could talk at any price sensitivity will cause you to change that.
He's it works really well I mean, and quite frankly that but that you know the driver. There is how much free cash flow do we think we can spend and invest there I would like to spend more.
You know because we've got a lot of prospectivity, there and it works quite well so we'll be looking to try to spend more money in Egypt if.
If we possibly can.
Thank you. Our next question comes some legal Marie.
With Keybanc.
Hey, Thanks, guys here.
Just wanted to kind of get a little bit more color around some of the comments you made with respect to cap accident, you guys, specifically said that it.
$50 that spans.
At or below that billion dollars as you work our way into next year in.
I just wanted to get a sense to mean seems to me that at that level of capital you're going to see steady production declines in all three of in the area is sort of Egypt North Sea in Permian just one it's kind of confirm that would you guys and then if that is the case then I guess just feeling comfortable with that just because of that the great initial.
Success in Suriname, we just think that the launch our economics and start am I going to be so good you find lane things slow down for a handful years until this kind of kicks in.
No Leo I mean, I think the point is we're we're managing the company for free cash flow.
And long term returns and the is not about production growth I mean, obviously.
Do you know, we're not spending at a level today that would be maintaining production.
We do know from past history that as you go forward with us with our decline rate. Some of these conventional assets really start to arrest the decline so it would take more.
You know in the future, but it's a matter of priorities of how we're managing the company.
I think some of these other assets and I think you talked about they're going to hold up pretty well.
And with the under investment.
Okay, I guess, just with respect to your third quarter production guidance you guys have the kind of adjusted international production and 135000 theory per day.
Kind of the upstream Capex of 190 once you guys could provide those numbers on a kind of fully consolidated basis. So what would those be if we didnt make those kind of downward adjustments for that you get non controlling interests in midstream and other things.
Yes.
I don't have those numbers to hands, so I'd suggest maybe call Gary.
To to take a look at to.
Reported volumes, we typically talk about adjusted because those are the ones that have a true economic effect.
For Apache shareholders, but I understand the desire to to know what the reported numbers might be so if you want to do as how scary about that that'd be probably would probably the best source.
Okay. Thank you.
Our next question comes from David Deckelbaum accounts.
Morning, guys and congrats.
Thank you.
Just curious if you've spoken.
Quite a bit about obviously suriname.
Talked about your capital allocation priorities.
As commodities improves and the emphasis on free cash.
You know there were reports I guess earlier in the months or perhaps last month.
About Apache has potential interest and some other north sea assets. If we think about Apache just as a portfolio company now should we be expecting you look at opportunistic acquisitions that would increase your free cash per share scale or just given the immense resource that might be in front of.
View I would that be something that that would be off the table right now.
I would just say that you know.
Number one we typically you know, whereas a real don't comment on.
Rumors and with the.
As we think about portfolio and changes.
We typically talk about them after we've done things right. So.
If you look at us today.
You know we've always believed at a portfolio we believe in diversity.
We think we've got strong international assets.
We maintain those at a time when there was pushed to try to move to more of a pure play model.
And so we've you know we've we've always maintained the balance we believe in having exposure to all the commodities and in multiple strong legs to the stool that keeps a strong so.
Appreciate that and then just the last one for me is you talk about priorities and accelerating you know appraisal and potentially development, particularly in blocks 58.
How do you feel now or how are you thinking now about exploring in some of the other blocks, namely 53, and if there were some some leases that opened up towards the end of the year and more of that southern extension in the basin would we expect Apache they'd be prison those.
Yeah, I mean, when you look at 58, it's it's a lot to cigarettes over for us.
You know, we're obviously, we it was important to us to restructure our joint venture, where we could maintain you know 50% of the profitable.
We're thrilled to have block 53.
I think Directionally, we're way things are moving it bodes well for 53.
So at this point.
We've got quite a bit to say grace over.
In that part of the world, but them.
Fair enough. Thank you guys congrats.
Thank you.
Our next question comes from David Heikkinen with documentary.
Good morning, and thanks for taking my question and congratulations on the success in Suriname.
Kind of triggered some memories of many DST look for term pore pressure and then boundaries with that thickness can you talk about how many DT media sees you're running.
What are you thinking about as far as detecting boundaries and are there any analogies that in other basins are the Gulf of Mexico that you could point us to to to think about what those results will be as they come in.
Yes, yes, Dave to stay per sounds good good.
Thanks for the question.
Yes, when I think about a mini DST the.
Probably the most important piece of information because in many DST is the composite flow capacity, so again that aggregate kind of near Wellbore perm across a thicker interval.
The the deeper reservoir investigation is an added benefit that we still you start getting out as far as you would in a in a true conventional.
Drill stem test so what what this is going around and.
The number tests, we're we're going to perform is dependent on a lot of factors on on sickness and and number of things, but what what the results are really going to allow us to do is be.
They are able to be more thoughtful in the appraisal program.
As we come in and design more more than traditional drill stem test.
And so it's a it's a really good piece of information that's going to again make a smarter during appraisal.
Yeah, so really near Wellbore, probably won't get enough.
Distance to see any boundaries and that's that's really setting up for your future DST is not.
Anything more than that and theoretically yes, that's probably the that's the way to characterize it.
That's helpful perfect. Thank you.
Our next question comes from Paul Chang with Scotiabank.
Thank you good money.
Two quick question, one in saying that this company seems to be close enough.
You should be able to do extend to horizontal well in ties back into one production up.
Is that what you intend to do all what that yes, there will be set of yes seems like picking up that you mean.
Anyway that you sound maybe too.
Yeah, So 50 miles.
Yes, Paul its or it's just early I mean clearly.
You know the.
The benefit of having these fairways and things as you're going to have all sorts of options.
The key is having the resource oil.
You know as you work through that and that's some of the some of the stuff that will go into the planning of how we appraise and.
And ultimately make those decisions, but theres a lot of optionality to how you do it.
And okay.
Last question that you saw the honestly it before but let me try and lack of weight off.
Turning quickly looking at different business segment. So I mean, you would be extremely PNC into second half of this decade in poppy hackman, good growth and so when you're looking at something like that Youre coming off that you can see thats. It.
Deal a long term coal portfolio.
Well what that yes mode. We may consider that sent longtime California on what you can see today.
No I mean, we like our assets in the Permian I think we've always believed it was like you know a key pillar.
You know I think what to in this price environment today.
We've just got places that are going to get capital before thats going to get it and I'll just leave it at that.
Thank you.
Our next question comes from Jeffrey Campbell with Tuohy Brothers.
Good morning, and congratulations I'll jump in on the Suriname success that congratulations real quick question. There I just wanted to confirm who will operate.
Coming forth exploration well.
Apache will operate the Kasey will after that well is when you know we've already started transitioning with with our partners Hotel and I will say, we chose the right partner.
For a lot of reasons and we're excited to continue working with them and let them to.
Like the ranges operator.
Right well nail superstitious wouldn't mind sand you guys go long haul so glad to hear that.
Quick question I was just tell me how many Permian Ducs do you actually have right now in the Q.
Let me look we've got but yeah. It's about 50, it's about 50 outside of Alpine high.
Okay, great. Thank you.
And I'm not showing any further questions from like turn the call back over to John for any closing remarks.
Thank you operator.
And thank you to everyone that as dialed in today to close the call I'd like to leave you with three key takeaways.
First Apache have responded quickly and aggressively to the volatile price environment, thus far in 2020.
We were exceeding our cost and capital reduction goals and we'll continue to relentlessly work these initiatives.
Second we are laser focused on free cash flow generation debt reduction and investing for long term returns not production growth.
And lastly, we have a differentiated portfolio that offered attractive investment options in this volatile oil price environment. The long term future that portfolio is underpinned by Suriname, where our success rate. Thus far indicates a very large high quality oil resource we look forward to sharing our progress.
As we continue to appraise, our discoveries and explore for additional oil and with that we will conclude the call.
Ladies and gentlemen, does conclude todays presentation. You may now disconnect have a wonderful day.