Q3 2020 Apache Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to death Patchy Corporation third quarter 2020 earnings announcement webcast conference call.
At this time all participants are in a listen only mode.
After the speakers remarks, there will be a question and answer session to ask a question. During the session you will need to press Star then the number one on your telephone yeah.
He advised that todays conference is being recorded.
Before any further assistance piece press Star Zero I would now like to hand, the conference over to your speaker today, Mr., Gary Clark Vice President of Investor Relations.
Thank you and please go ahead Sir.
Good morning, and thank you for joining us on Apache Corporation third quarter financial and operational results Conference call.
We will begin the call with an overview by CEO and President John Christmas Steve.
Steve Riney Executive Vice President and CFO will then summarize our third quarter financial performance.
Quite Brett, Yes, 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 10 minutes in line.
With the remainder of the hour allotted for Q and a.
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.
Please note that 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.
Consistent with previous reporting practices adjusted production numbers cited in today's call are adjusted to exclude non controlling interest in Egypt, and Egypt tax barrels.
Finally, I'd like to remind everyone that today's 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 discuss 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 on today's call I will review, our third quarter performance provide some preliminary color on our 2021 plan and update our progress insert.
While commodity prices improved and were less volatile during the third quarter macro headwinds continued to persist.
Apache strategic approach to creating shareholder value. However remains unchanged we.
We are prioritizing long term returns overgrowth generating free cash flow strengthening our balance sheet through debt reduction and advancing a large scale opportunity insert.
We are allocating capital to the best return opportunities across our diversified portfolio aggressively managing our cost structure and continue progressing important safety and emissions reduction initiatives Apache believes that energy underpins global progress and we want to be a part.
The conversation and solution a society works to meet growing global demand for reliable affordable and cleaner energy.
As we work to help meet global energy needs, we are focused on developing innovative and more sustainable ways to operate.
Our environmental social and governance framework continues to evolve and early next year, we will communicate more on the enhancements we are making in these areas.
We want to be a partner to the communities, where we live and work and deliver shared value for all of our stakeholders.
Turning now to the third quarter, our upstream capital investment leased operating expenditures and DNA for the quarter were all below guidance.
The organizational redesign we initiated a year ago is delivering combined cost savings in excess of our previous estimate of $300 million on an annualized basis.
In terms of production, we exceeded our guidance in the U.S. and delivered in line volumes internationally.
You asked oil volumes declined 11000 barrels per day or 12% from the second quarter. This was the result of several factors. The most notable of which was our conscious decision to suspend Permian basin drilling and completion activity back in April. Additionally, we implemented a series of intermittent.
Shut ins in the southern Midland basin to assess optimal well spacing.
And lastly, we chose to leave approximately 4000 barrels per day of oil shut in during the quarter, primarily from the Central Basin platform, most of which we do not anticipate returning to production until prices work by early July most of our shut in volumes at Alpine high had returned to production.
Which drove the increase in gas and NGL volumes compared to the second quarter.
We're now seeing very compelling service costs in the Permian Basin and as a result have retained two frac crews to begin completing our backlog of drilled but uncompleted wells. We are mindful of price volatility and will take a flexible approach to the flowback timing of these wells.
Regardless, there will be no impact from this program on our fourth quarter Permian production and minimal impact on our full year 2020 capital guidance, which we have reduced to $1 billion.
Looking ahead to 2021, we anticipate an upstream capital budget of $1 billion or less which is based on a W. T oil price of approximately $40 per barrel and Henry hub natural gas price of $2.75.
In this price environment, our capital allocation priorities will remain unchanged, we envision a stepped up program insert that will include both exploration and appraisal drilling a five to six rig program in Egypt, one floating rig in one platform crew in the North Sea and two frac crews in the Permian Basin.
We do not envision a sustained drilling program in the Permian, but we'll monitor oil prices and service costs for the appropriate time to do so let me be really clear if nymex futures are materially below $40. We are prepared to reduce capital accordingly, as we have demonstrated in.
Past.
As previously noted we plan to drill nearly all free cash flow in 2021 towards debt reduction.
In terms of production trajectory next year, our DUC completion program should stabilize Permian oil volumes at a level consistent with fourth quarter 2020 levels, while Egypt, and the North sea will likely see modest declines.
Turning now to Suriname during the third quarter, we completed operations on our third successful exploration test on block 58 Cross quality, which is our best wells in the basin thus far.
US production increased slightly from the second quarter as the return of curtailed production volumes, most notably at alpine high more than offset the declines resulting from no drilling activity and only one well completion in the quarter.
Internationally adjusted production was down approximately 6% from the prior quarter.
Primarily driven by the impacts in Egypt of higher oil prices on cost recovery volumes and natural field declines.
This was partially offset by the return of previously curtailed production in the North Sea.
Apache's third quarter average realized price on a Boe basis recovered significantly from the prior quarter up 45% as W. Oil prices averaged around $40 per barrel and Henry hub natural gas prices trended up to nearly $3 per mcf by the end of the quarter.
Gionee expense in the quarter was $52 million well below our guidance of $80 million.
Most of the variance reflects a mark to market change in the value of future cash settled stock awards and a reduction in the estimated value of our 2018 and 2019 performance share programs.
Excluding these types of impacts our underlying gionee expense runs around $75 million per quarter.
As always efforts will continue to lower our DNA costs as we identify more ways to run the company more efficiently.
Lease operating expenses were also below guidance for the quarter on a per unit basis elderly declined nearly 25% from a year ago, mostly as a result of our corporate redesign and cost reduction efforts.
In dollars.
This implies an uptick in fourth quarter capital to around $200 million, which reflects some incremental capital associated with the DUC completion program that is beginning this month.
While we continue to make good progress on our lifting costs reported LLC is expected to rise a bit in the fourth quarter to around $270 million. This.
This increase simply reflects the quarterly variations caused by timing impacts.
In summary, Apache continues to make steady progress on the goals, we set for the year.
While the operating environment remains challenging from a commodity price and cash flow perspective.
We continue to take every possible action to reduce our cost structure protect the balance sheet and retain asset value for the future.
And with that I will turn the call over to the operator for Q and a.
Thank you and as a reminder to ask the question you will need to press Star then the number one on your telephone withdraw your question. Please.
Please stand by while we compile the QNX roster.
Our first question comes from the line of Mr., John Freeman of Raymond James Your line is now open.
Hi, guys.
Good morning, John.
Yeah the.
The first question.
Just on on Suriname.
When you all mentioned that you're nearing the award of the two rigs for for 2021, I just want to make sure that.
Thinking about this the right way that doesn't doesn't necessarily imply that you're just going to have the one exploration one appraisal rate for next year Thats just thats. What you are currently in the process, but there could be additional activity as you progress through 21.
In Suriname.
Yes, John what we've got as you know, we've said there'll be two programs both on exploration and appraisal program.
We're currently on our last.
Well guess kesey with the rig that we're operating the noble Sam Croft that will be released once that well is concluded.
But we're in the middle of the tender was total now and they're going to be picking up two rigs early next year and there will be a combination of exploration and appraisal was those two rigs.
And then as you go through the rest of 21, I guess, when you decide whether or not you in total if you're going to add additional rigs to to the plan is that driven.
In some ways just by the timing of receiving approval on these appraisal plans on the first three wells.
It will just be a decision we make based on which wells you want to pull forward and how you want to play it so.
You know the two rigs we're going to be a minimum for next year.
Okay, and then just the one follow up on Suriname on maybe just some additional color on.
What went into choosing beata location on the on the bond Bonnie well, obviously have to this point youre kind of in the mid moving in kind of a a west to east direction across the block is this now I assume we're set up to kind of go from a north to south kind of direction.
Yes, John if you step back I mean, thats kind of been the plan from the get go and was always the plan.
The first four wells, we had lined up to kind of go across just one direction or they are on trend with the wells that have been drilled on the blocks. Both you know to our east and west.
Is there is now a rig running in though on the other side of us.
You just got to step back and realize just a perspective and just how big block 58 is in and even walk 53, it's the equivalent of over 250 Gulf of Mexico blocks. So.
So just working our way one direction is pretty good.
A big move.
Obviously, we've said there is a lot of depth. These are all independent separate features that run outward and.
So we're we're anxious to kind of get out there as we have announced bond Bonnie will be the fifth well it'll be drilled early next year, a total we'll drill that well and we're anxious to move out more towards the kind of the north central part and start to show just that dimension of this.
In terms of the block so it's a it's exciting.
We've said there will be a continuation next year on the the exploration pace.
And obviously were anxious to start appraising.
So it's.
It's going to be fun.
Thanks, John I appreciate it.
Thank you.
Our next question comes from the line of Gail Nicholson of Stephens. Your line is now open.
Good morning, everybody I just have a question in regards to Sarnia. When you guys look at what you have done well in block 53 can you just talk about what you learned there and those original wells drilled and how that has helped you in fluid.
Your decision process on the exploration activity.
Well Gail if you go back to early 2015, we were drilling our first well pull buckeye.
And it was actually drilled ahead of the Liza well in the Stabroek block. So you know you go back in time.
The main thing that.
Okay I did for US was it helped us inform us that one we wanted to go ahead and pickup block 58. So that's the first thing.
I would say secondly.
Actually we're able to drill the thing all the way down through the source on a roll and gain a lot of information with it.
The second well Colibri was further outbound.
You know really drilled some some really really high quality sands and told US a lot about that so I think block 53 is highly perspective.
I think.
The well that's being drilled next door to us will be very informative I think our cast kesey well, we'll be very informative.
And also borrow money. So you know we've got one.
Well commitment.
Left it to you know in block 53, but.
I think that holds a lot of promise.
For the future. So its it sit mice I think with the work we've done sensors. There is a lot of potential block 53.
Great. Thank you and then just looking at the incremental cost savings that you guys have achieved but the portfolio optimization, where are you guys thinking that breakeven. It is today on the asset.
Yes, I mean, if you if you go back to last quarter, we talked about with where our volumes were.
We have moved kind of from a 50 to low thirtys kind of go forward this year.
Next year, it'll take a little higher.
Because our volumes are going to be down but.
Yes, I think generally we're in a pretty good place and we continue to surprise ourselves by what we're able to drive out of the cost structure I mean, we've driven another $100 million out.
Steve I'll, let you hop in and provide a little bit more color, yes Gail.
I'd just add to that that we have.
We have.
We continue to make efforts on the cost cutting and cost focus and.
The most surprising thing to us this year is the pace at which we're actually to able to capture them in the current year. So we're we're around 400 million now of annualized savings and we'll get at least $300 million of that and probably more in the current year and so as John says you know we've got.
We've got declining production volume as we as we round the corner into 2021 and that works against the cash flow breakeven flattening in the U.S. oil as we've talked about.
But.
The that will tend to be offset by the annualized benefit as a cost savings going into next year, but the the breakeven and $30 per barrel on a cash flow basis is going to go up a bit as we round the corner into 21.
Okay I appreciate the clarity thanks, very much great quarter.
Thank you.
Our next question comes from the line of Mr., Doug Leggate of Bank of America. Your line is now open.
Well, thank you and good morning, John Good morning, everybody.
And Doug Jones.
Maybe a follow up to gail's question, if I may on on pool can.
Give me a minute to us this support for Kaiser I understand it was a title.
But our discussions this thought certainly suggest that the failure mechanism was reservoir quality.
It's kicked off some control oversee.
And though we Havent got any data in the first three wells you drilled so I wonder if you could put to rest and talk to us about reservoir quality in the three wells.
I'd like to remind you obviously that the Mako well you did say you saw it capable of prolific wells any data you can give as to two thought to rest on the street discoveries I've got a follow up please well number one we have not released a lot of data or the data on pulp Buckeye and it was tight and I'll tell you the key to that was.
Record the source animal so.
You know there was not an issue with reservoir quality.
You know in any of the of the zones. It.
Some other factors, but it was the key for there was it gave us a lot of the key data.
And when was that we were able to core the source said, a role which helped us with the maturity, which quite back into block 58. So that was the key there I think that.
Doug from our perspective the.
The information that we've released what.
Total has been agreed between the two parties on everything we released the net pace.
For what have been you know the both campaigning and San Antonia numbers.
No they're not our estimate not there as to what the agreed.
So we feel really good about those numbers I think in general the you know the quality is is good.
But you know for us to really get into a lot of detail we've got to get into the appraisal work and that's you know.
The Oh, we're going to be very deliberate with the steps in the information that we put out but I can assure you that.
Some of the the rumblings, we heard of porcelain nights.
It's not a mistake you'd make or is that not something you'd find.
You know with the logging suite and the detailed the core analysis and all the work we're doing so we feel good about the reservoirs, but we really need to to follow the appraisal work to be able to start putting out more information. This isn't to conventional play and there is a reason you go to those next.
Phases, but.
There is a lot a lot of zones I mean, we're in a super basin.
It's large we've got a lot of really really good rock and.
We're very pleased with where we are I mean, it's it's but we're still on our fourth well across one dimension and it's just really early to.
To start talking about things you typically do after you've gone into your full appraisal when you can come back with concrete information.
No evidence from the logs I guess, just a clarification point real quick when you announced cost Qlogic. Obviously, that's 19 homes did you lose circulation until the reservoir I'm not I'm not well.
What we what we said was we got into higher pressure.
Below our target in the in the lower San Antonio.
Not a matter of losing circulation. The trick was was what do we need to do to put the cement plugs and so we had to put a lot of fluid end in the well to a you know from the other direction and so that's why we compromise to the ability to actually get the fluids out of the San Antonio and because we had an open hole that we had the balloon.
You know overtime so.
Yes, it was more a function of the drilling operations.
Thank you and lot less why wasn't it wasn't cementing problems Doug It was that we had to set to see ma'am. Please let me just real clear on that there were no see many problems. We just had to set to cement plugs below the San Antonio and because of the pressure that we had and we had the open hole above us which compromise.
As to other we'd already run logs on it but it compromised there.
The ability later to get fluids.
Just to be clear the reason im asking the question that was a roundabout way of trying to get that reservoir question answer because it seems to me a few over pressured the reservoir last month into the reservoir.
Core is permeable reservoir housewives, asking the question.
My My my follow up real quick is born Bonnie.
I guess I'd say, you, perhaps at that any any source or migration differences in the depositional set top there geologically compared to what Youre drilling what your first three targets looked like and of course, we'll talk has looked like and I'll leave it there. Thank you.
Thank you Doug.
Nobody is exciting.
We'll have the boat.
Both the campaign and the San Antonio and targets or others are also an opportunity to go a little bit deeper into some other things so.
Same setting these.
These are you know it to but a good distance out and I think it just you know it's going to give us another ability to explore the other dimension of this block.
Which we're quite excited about but.
The the primary targets are going to be similar in.
And you're going to see.
Those targets as we continue in these next several wells a lot of its going to be about the campaign in the <unk> and the San Antonio, but I do want to remind you. We've got some other targets that at some point, we'll get to.
Great stuff, we call. This the next week John Thanks, So much yep. Thank you.
Our next question comes from the line of Mr., Bob Brackett of Bernstein Research. Your line is now open.
Good morning, Thanks for taking the question kind of repeating on the similar theme. If we think about block 53, I note that you've been cleaning it back again into some of the materials, you've got a single well remaining to meet your commitment.
Are your partners aligned with potentially drilling a well in 21 or 2022.
Yeah Bob.
Also partners would love for us to get back in there and it's not that we ever excluded. It. It's just we've been focused on 58.
53 is something we made a well commitment on that we've got to actually drill before the spud before the end of the second quarter of 2022.
And it's up more we're very excited about we've got 45% of it.
Going to promise should two of our partners one of them is in the well that's being drilled but you know south of there right now.
So, yes, they're anxious and yeah.
We will get to it in due course, we're anxious to but there is a lot of you know there's a lot of activity that's going to be very informative on the potential in block 53.
Great. Thanks for that and a quick follow up the water depth for bond Bonnie I can probably look it up off the industry, but if you have that handy.
Don't have that off top of my.
My fingertips here, it's not okay, it's not real crazy, it's got to be deeper.
But it's not something crazy I'm looking down or clay you know operationally do you know yet but.
It's not I don't think it's crazy.
Well.
Gary can follow up with that okay. Thanks for that.
Thank you.
Our next question comes from the line of Mr., Scott Gruber of Citigroup. Your line is now open.
Yes, good morning.
Good morning, Scott.
In the Permian, how many ducs you have you how long can you keep two frac crews working without adding any rigs down there.
Yes, Scott This day Purcell, we have about 45 ducs in the Permian will pick two factories that here late later in the quarter and those will stay busy through the middle of.
Next year.
Got it and then you also mentioned a flexible approach to flowback timing on those completions, obviously post completion of the well cost is basically so.
How do you think about Slovak strategy on is yes.
I assume this oil price threshold, you're you're thinking about that but some color there would be great.
Yeah, we will look at a number of factors in is we may as we bring the wells back on line. Some of these we have five three milers. It we're bringing back and we'll keep those facility constrained for a while but really we're going to look at the forward curve on price and and.
And how the wells are flowing back in and just see how we want to how aggressive we want to be with the chokes through the end of 21. So we.
We just want to.
Keep some optionality out there given the volatility in.
The oil price.
Okay.
Got it appreciate the color. Thank you.
Our next question comes from the line of Mr., Paul Cheng of Scotia Bank. Your line is now.
Thank you good morning.
Good morning, Paul.
John for that.
Bump on me.
Do you have what is the that that that you have to kill people with a C bench to reach TD.
Yes, I actually think shallow.
You know as we move that direction Paul.
Also the targets are actually going to be a little shallower.
You know below the sea for then what we're sitting that.
You know it to mock across cross, causing any even kept guessing so as to Shallowing, which is actually a.
Pretty good things from a maturity standpoint.
Okay.
And that.
For next year that they can't make up one thing and for maintaining the U.S. pedestrians fat and modest decline in North Sea and you get that of course that benefits on that so.
So without that benefit what's that number I mean look like.
Yes, I mean, you know Claire.
Well, there's two things Paul number one you have to look at we're spending quite a bit of money on exploration and our capex and so we're making a conscious decision.
To put the money into Suriname, which we could be putting into that base business, but I can assure you the money going into Suriname is more than what it will cost to run those two frac crews so.
You step back and think about the decision were making on the.
Exploration investment.
You know that that's capital, we're putting into just could be put into the base, but we're making a long term decision because we think there's going to be much much greater benefit when you get three or four years out.
No phone end to stand that decision, but just curious what that number yet we saying that.
In 2021 on the sustaining capex, probably dependent popped up and also on Sunday My thought total carry you for 87 in the hall so.
Your capex to that shouldn't be that much is that.
Well, but the you know the total carry actually kicks in.
On the appraisal work and so we're going to have two rigs running so there will be exploration activity at a pace that's pretty similar to what we've been spending this year right.
And then the appraisal capital kicks in and on that we will be paying 12.5%.
On the appraisal work.
Okay.
Final question.
Yes, yes.
Oil price and mix, yes swing much better than that 40, Donna Duffy Keith <unk> based budget.
How that May impact Yep Yep Thats on your 2021, Capex and activity level, and then well let me ask one day.
Yeah go ahead.
Yeah, I mean, clearly where our priorities there is going to be debt repayment I mean, there's more you know.
With the billion dollars or less number we've kind of laid out for for 2021.
Thats predicated on 40, if prices are higher you're going to see us continue to prioritize debt repayment.
But there are some things we'd like to get to a more capital in Egypt is is something that would be a priority for us.
But that's got to be the Big thing and then I think you'd have to get quite a bit higher before we start thinking about rig lines in the Permian.
Okay I find the one.
I thought you actually even though that price and then very depressed, but they try yet.
Hi in multiple campaign to Mozart MPP is.
It's a mix and some debts then on to use data when it teeth.
In currency to acquire a company.
We paid maybe thats on near term cash flow and balance sheet. I mean, I don't think you need to acquire a company book Wells.
But that may allow you to have additional one off cost reduction and also improve your balance sheet also in a more maybe on Saturday anyway.
No. It's been a busy time and we've seen a lot of transactions happen out there on the M&A front I think you know as you allude to with how we're trading we're in a pretty unique position, where we've got a potential company changing exploration block.
That to you know we feel like actually there is a lot more potential there than is reflected on our share price.
You know is we think about things clearly we're focused on paying down debt you see we're really aggressively managing our cost structure you.
Working on the Breakevens, but I think from our perspective, we've got to make sure something would really make sense for our shareholders and protect the shareholders because we see a lot of upside potential on a relative basis with our share price just because of the potential in Suriname. So.
No you can't stick your head in the sand you have to keep your eyes open, but we're going to be very cognizant of shareholder value.
Thank you.
Mhm.
Our next question comes from the line of Mr., Charles Meade of Johnson Rice. Your line is now open.
Good morning, John to you the whole team there.
Oh, Charles I have one quick question and then maybe a bigger follow up John I Didnt hear you addressed it in your prepared comments I apologize if I missed but did you give a timeline for when we expect a decision or announcement on your kids Catsix well you're on right now.
We did not Charles I'm. We're we're you know we're drilling ahead.
We did run into some whole stability.
Problems on the upper portion.
We've we've sense sidetracked, we've set pipe and.
You never get ready to move ahead, we have not got down into any of the pay zones yet.
The wells in really good shape, and we're anxious to move forward, so but yes.
No, we're not going to lay out a timeline.
But you know it's things are going well.
Good I appreciate that color Thats helpful. John and then the follow up back to this up to this bond Bonnie and as you can measure we will have a lot more questions than you probably want to answer about it right now, but you've already paid a little bit of of the picture here in that it's the same campaigning same Tony.
Intervals, you're targeting there, but they're in a shallower there.
Theres your shalwar because it so you get some some I guess basin bidding going away.
Can you talk about are you also mentioned that they are kind of the same setting. So could you talk about whether these are I would expect these are more.
A really large basin for features as you move in that northeast direction, but is that a fair inference to makers or anything else you could talk about the different kind of play versus what you've established already with your string of four wells.
No I mean I can.
Answer you know one of the questions on the water depth I think what about 2000 meters of water with Bambanani. So what Youve got happening is we said there are very significant and these independent features you've got you know I'm turbidite fan systems, but to.
So what's your what you're giving up is a little bit of the your kind of trade and some of the water depth.
You know for death of the formation. So they do shallow a little bit, which we think is going to be a positive for maturity.
But they're they're they're big.
Charles and the units that's what we want to say at this point, we need to go out and explore right, but we're excited about them a they look fantastic on seismic.
They are sizable and.
There's just a lot of ground to cover between Mako across Crosby Sop a car in cask ezi in as you start to move out just that direction.
You know to to Bonnie so but.
Campaigning in San Antonio in little shallower.
Very large features and then there are some things down below that we might be able to get to as well got.
Got it that's out will be fun to watch thanks John.
Our next question comes from the line of Mike Go see Allo of Stifel. Your line is now open.
Yes, hi, good morning.
Has mentioned on its call it the other five penetrations in the San Antonio San Antonio and in the Basin Youre three and then two on the Stabroek block.
And it sounds like are currently drilling that's on exploration well in Guyana is expected to test both the San Antonio and the Peroni and just curious if you're sharing any data with your neighbors there and if so anything you can say about what you've learned there about those deeper zones.
Mike we have not at this point just because it you know it after or other than what hi, Mara might have done for US you know it hasn't been beneficial to us.
You know the.
I think it just shows you the depth and the you know the number of targets. We've got I mean, it's you know the Guiana basins, turning out to be a super basin.
Got to you know a maturity in source multiple source rock, that's working you've got multiple targets.
They are high quality and.
We've we've penetrated the both the campaigning and and the San Antonio and.
You know with all of ours and I think a lot of that work will come back with you know through appraisal when we start to really get into more details about what would be our plans.
As you move to post the of the appraisal plan, but.
It just shows you the thickness. It shows you the the sands, we had over 900 feet and.
Across quality between the two zones. So it just shows you the depth in the hand, just what you know how a target rich this environment is for both.
Very good and that skewed.
Excuse me can you talk about your decision to complete the ducs in the Permian rather than the.
Generate more free cash flow and we'll all those be in the Midland basin or are you playing in a.
On completing any at alpine high if gas prices continue to improve.
Well actually I think the first three are going to be alpine high so.
There will be three there and then mainly in the Midland Basin, but I think the big reason to start. This now is really we see an opportunity on the service costs I mean costs are down significantly from where they were in the first quarter and.
I guess, just as we see it as an opportunity to go ahead and get after and getting completed and then it gives us a little bit of flexibility in terms of how you know how and when you bring them back. So this is driven off of the cost side and there are wells that you ultimately are going to complete and you know we we just see it as a good window to commit put two frac crews to work and.
Lock these out.
Makes sense, thanks, John <unk>. Thank you.
Our next question comes from the line of Mr., Brian singer of Goldman Sachs. Your line is now open.
Thank you good morning.
Good morning, Brian.
Oh further on Suriname, you made a couple of references here to deeper examiner zones.
One of the San Antonio and I wondered if you could talk any more about that and whether what you would potentially down the road or as part of this well it's on Bonnie test, how flexible that sounds or how perspective those onto could be yeah across block 58, and then separately.
Separately as you think about 2021 can you just remind us on where you see the ratio of exploration wells versus versus appraisal wells.
Well you know, it's the likely going to be more appraisal than exploration, but you're going to see a similar pace you know with two rigs and you know.
So there's going to be multiple exploration wells is the best way to say it but you know we're going to have the flexibility with both those rigs to do both so you'll start to see the programs kind of blended as we kind of go up you know prioritize things.
One other thing I would say is when we started out and then all of our all the work we've seen eight different play types on.
On block 58 and to date, we've tested two or two of those the first two where the campaigning and and the San Antonio.
And you know Weve seen all both of those and all the first three wells, we attempted to get down to the tierone in but we ran into too much pressure in the San Antonio.
You know at Mako.
And so that is clearly the turonian would be one of the next targets that we'd like to to get to and it's just a matter of figuring out you know when and which one we want to do that with we think there's great potential there.
And then there's really five other types.
Start to get pre and post unconfirmed and some other things or even a little bit deeper.
But you know that's for a later conversation.
You know later down the road.
But theres Theres just a lot here in this block.
Great. Thanks, and then my follow up is with regards to the.
Cockeyed cash costs, you talked about some of that volatility from quarter to quarter and how strong cash cost Hello, we won this quarter, but that that's not necessarily sustainable can you just remind us again kind of where you see that path and what you kind of see as a sustainable Ela, we relative to this last quarter and your guidance for the fourth quarter.
Yes, Brian I think.
I think that that's a question that's probably.
In terms of specific numbers best left for when we talk about.
2021 in more detail typically in February, but what I would say is that we got afterward, DNA costs pretty quickly because we knew what we were going to do on the organizational restructure.
And we we implemented the vast majority of that in the first quarter and so you saw a significant drop in DNA pretty quickly after we.
Takes a bit longer to get organized around that to started attacking the cost and start to see the benefits of that showing up but clearly we're seeing significant.
Reduction in L. we.
As we're going through as we went through the third quarter and into the future years to see more of that.
There are some more run rate type of cost that we need to get after and I think you'll see continued benefit of that as we round the corner into 2021, and even beyond especially if we stay in this type of price environment.
The thing about Ela, we as you know, it's just a bit lumpy and so you get you get the impacts of things like like maintenance spend in turnarounds and pace of Workover activity and things like that just a affect operating costs a lot more than gionee, which tend to be more steady.
Then on the DNA side, we just get the weird little accruals that we have like this quarter, but I, just I think instead of giving an.
An accurate number where we're going on opex elderly.
On a quarterly basis, let's let's see where we're at in February and we'll give some good.
Context and guidance on 2021 at that point.
Great. Thank you.
Our next question comes from the line of Mr. Leo Mariani of Keybanc. Your line is now open.
Hey, guys just wanted to follow up a little bit on Suriname here.
You certainly talked about starting to.
Get after and appraisal program in 2021, you also talked a couple times about somebody deeper zones or do you think that the deeper zones and particularly the Toronto in R&D part of the appraisal plan already here as you look at that you know a few of the wells Maka soccer on cost quality is that contemplated already for 2001.
At this point, Yeah, Leo we don't have we havent explored or gotten down to the droning and so yeah. It would be early to call that appraisal until we can get out and actually you know successfully explore so we'll find a place maybe you know you might take an appraisal well that we decide to deepen and put an exploration tail on it.
But we'll just see how we work through that but right now were all the appraisal work is going to be in appraise discoveries, which we've already quantified.
Okay. That's helpful and I guess you guys, obviously laid out a plan to hold your your 14 20 pre.
Permian oil volumes flat.
Next year.
Talk about kind of modest declines in north Sea and Egypt, just trying to get a sense Johnny.
Running and quite a few rigs in Egypt. There. If you can kind of help us out with any kind of you know we.
Order of magnitude and those declines are we talking kind of 10% kind of single digit swing you guys thinking here or see any get next year.
Yeah, I mean, I think you look at our base overall decline both both areas is kind of like where North America is it you know it's all around 25% North America is a combination of the our unconventional which is higher than our you know conventional which is lower.
North Sea is fortys is going to be lower barrels a little higher but it's in the 25% range, but we will be active there. So its modest as we said and then Egypt is also a you know it's really good because much rock on average our decline rates, probably close to 25% in Egypt.
We came into the year running about 10 rigs there and 10 years is a 10 rigs you're closer to kind of keep it it may be growing it.
When we went through the capital costs, we dropped down to five so five to six is not a lot for when you consider the size of our position how much production, we're making there.
In terms of the volumes and so forth where it really is a it's not a lot of activity just for the size scale scope of that business, but you know when we say modest that means it's less than what our natural base declines would be.
Okay. Thanks, guys.
Thank you.
Our next question comes from the line of Mr. Neal Dingmann of Q with Securities. Your line is now open.
Hi, good morning, trying to stay away from starting to make with cover it that on my question is on Egypt, you've run it pretty much been running a five hybrid plan now for some time is that.
Due to economic sort of favor that continuous plan could you see maybe even adding more activity as you talk maybe a little bit about just just activity in that play.
Yeah, it's actually Neil we came into the year with 10, so we dropped to five when we had to cut capital because we cut everywhere right.
It's clearly we've got more activity than you know, we've got cash flow right now to put in Egypt. So the appetite would be for more but as we're going to you know as we said we're prioritizing free cash flow are prioritizing debt repayment and we're doing that at the corporate level.
So you know Egypt is contributing some free cash flow, that's an area, where we could you know easily double that rig count but.
But it's going to have to fit into the big mix of how much can we free up to put into Egypt.
No. Okay makes sense and then same thing would just allocation the I guess the way priced gas prices are running any any thoughts or just any comments you can make around potentially even.
Minimally revisiting the alpine high.
Yeah, I mean like I said, we've got you know on the Ducs, we're going to go knock out I think three ducs at Alpine high first.
Good things look pretty good right now from that perspective, but I think in the U.S.. It's a you know it's the place we would get to in a higher higher price environment.
You know we have optionality there.
But its going to boil down to once again, you know prioritizing debt repayments and free cash flow before we start to put incremental capital back to work over what we'll lay out early next year, but clearly.
You know there is a portion of alpine high that to is you know hinges on Henry hub or long haul pricing, which.
Which has definitely improved and you've seen that in the numbers this quarter.
There is a big chunk of it that's really hinges on NGL prices, you know as well so it's nice to have that optionality in the portfolio. It will just have to kind of look at to if we were to put more activity work to work in the Permian based on price decks, where it would go in into the oil plays in our Midland Delaware or.
You know into the gas with Ngls.
Okay. Thanks for the time John.
Thank you.
Our next question comes from the line of Mr., David Deckelbaum of Cowen. Your line is now open.
Hi, Thanks, guys I'll spend answer today I just wanted to follow up a little bit just on on the docks at Alpine high are those all in the lean gas window that he'll be completing in the first quarter here.
Yes.
Okay.
You know offices has proposed a significantly higher dividend pretty substantial payment back to Apache.
Does any of that value creation changed the way that you think about developing alpine high as an operator over the next couple of years.
But I think you just got to step back and factor everything in yeah, clearly things are Ah have improved out there and we will just have to kind of factor all that into our math of where we would put capital back to work, but right.
Right now we don't have anything laid out as we laid out the early look for 2021 at 40 and 275.
You know you're not likely going to see a you know any sustained rig.
Rig programs in the U.S.
I appreciate it guys. Thank you.
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There are no further questions at this time I would now like to turn the call over to Mr., John Pittman for concluding remarks.
Thank you operator.
I'd like to leave you with the following key thoughts.
Oil and gas when produced and delivered in a safe and environmentally conscious manner dramatically improves the quality of life around the world and lifts hundreds of millions of people out of poverty.
His energy production systems continued to evolve a robust competitive innovative and cleaner U.S. energy industry will be necessary for decades to come.
Apache plans to remain focused on its core business and we will work continuously to deliver positive impacts on the air water and communities in which we live and operate.
While our industry continues to face many short term macro headwinds Apache strategy has not changed we are maintaining a flexible capital allocation approach across our diversified portfolio.
Generating free cash flow.
Reducing debt and continuously working to lower our cost structure.
And lastly, we are choosing to fund a differential large scale opportunity in Suriname, rather than invest in short cycle projects that maintain or grow production in the short term.
As current commodity prices do not offer attractive enough returns to justify doing so.
Thank you for joining our call we look forward to sharing our progress in the future.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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