Q4 2020 Apache Corp Earnings Call

February 25, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Apache fourth quarter and full year 'twenty 'twenty financial and operational results conference call. At this time, all participants are in a listen only mode.

The speaker presentation that there'll be a question and answer session to.

To ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star Zero I would now like to hand, the conference just speak of today, Gary Clark Vice President of Investor Relations. Please go ahead Sir.

Good morning, and thank you for joining us on Apache Corporation's fourth quarter, and full year 2020 financial and operational results conference call.

We will begin the call with an overview by CEO and President John Christmann.

Steve Riney Executive Vice President and CFO will then provide further color on our results in 2021 outlook.

Clay branches executive Vice President of operations and Dave for cell Executive Vice President of development will also be available on the call to answer questions.

Our prepared remarks will be just over 15 minutes in length with the remainder of the hour allotted for Q&A.

In conjunction with yesterday's press release, I hope you've had the opportunity to review, our fourth quarter financial and operational supplement which can be found on our investor Relations website at Investor Day at 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.

<unk> 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.

And 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 today I will recap apache's 2020 accomplishments discuss our fourth quarter results and provide commentary on our outlook for 2021.

First I want to take a moment to acknowledge the severe weather and devastating power outages experienced here in Texas last week, nearly all of our Texas based employees were directly affected.

Our field staff worked tirelessly to maintain safe operations.

Millions of Texans are employees across the state experienced notable challenges, including a lack of power heat water and many of the modern conveniences, we all rely on.

While it appears that numerous factors played into the situation one thing is certain.

This event has underscored the need for resilient and reliable energy infrastructure and supply.

<unk> 2000 toy brought many unexpected challenges, which required immediate and aggressive actions. Shortly after we issued our initial guidance for the year a confluence of events signaled to clear trouble for near term oil prices the.

The Russians and Saudis and a battle for market share were flooding the market with supply at.

At the same time the spread of COVID-19 was emerging as a significant threat to global demand.

In response on March 12, we announced several important steps designed to protect cash flow in the event of a prolonged adverse oil price environment.

We reduced our capital budget by 37% from our budget, we had laid out just two weeks earlier.

We cut our dividend by 90%.

We initiated a shutdown of all drilling and completions activity in the U S and a reduction of rig activity in both Egypt and the North Sea.

And with the significant reduction in planned capital activity, we decided to double our target for combined G&A and LOE cost savings from $150 million to over $300 million.

While these actions seemed extreme to many they turned out to be necessary and timely.

Throughout 2020 relative to our original plan, we lost over one $3 billion of oil and gas price related revenue and more than $300 million of cash flow to working capital.

Despite this Apache finished the year with low increase in net debt when excluding altus midstream.

We were even in a position to take advantage of volatility in the debt markets to buy back some bonds at a significant discount and.

And later issue 125 billion.

Of new bonds to restructure the debt portfolio and protect near term liquidity.

In addition to these actions our response to the pandemic was equally swift and effective we protected employees and minimized operational disruptions by quickly implementing a work from home program for office staff and changes in field operating protocols to.

To date, there have been no known cases of COVID-19 transmission from one Apache employee or contractor to another.

Also especially proud of the assistance, we provided to the pandemic response in each of the communities where we operate.

Finally, as we look back on 2021 of the key highlights was our exploration program in Suriname, where we commenced activity under our joint venture with total we have now made for significant oil discoveries in our first four exploration tests and recently began the appraisal drilling program.

Turning to the fourth quarter results. We ended 2020 on a strong note, beating our fourth quarter guidance for adjusted production upstream capital expenditures and low.

Oil production in the quarter was slightly ahead of expectations, while gas and NGL production was notably strong as we return all previously curtailed alpine high volumes to production around the end of October.

In the Permian Basin, we resume completions activity in response to significantly lower service cost and improving oil prices.

In Egypt, we continued to leverage our large acreage position and modern seismic program to further enhance our long term exploration and development inventory are.

A recent example of this is the <unk>, north discovery, which encountered 88 feet of high quality oil pay.

We are waiting on pipeline connections to further assess the reservoir extent and potential for additional development locations.

In the North Sea, we made an important oil discovery in the tertiary play with our last gas well offset to Orcher Bp's frasca largest coverage on the Norwegian side of the border and.

In combination with two previously undeveloped Apache discoveries and the tertiary loss Gan as part of a longer term development opportunity that could contribute meaningful incremental volumes, while leveraging existing infrastructure.

Looking ahead to 2021 last night, we announced an upstream capital program of $1 1 billion.

Consisting of approximately $900 million for development activities and $200 million for exploration predominantly in Suriname.

This program is expected to deliver substantial free cash flow under our assumed price deck of $45 <unk> oil and $3 Henry hub natural gas.

In 2020, we directed a higher percentage of our development capital to international projects that generate better returns and a lower price environment with the improvement in oil prices. We are returning to a very modest level of activity in the U S. During 2021.

In the Permian, we are currently running one rig and plan to add a second rig at mid year. This measured approach will advance our objective of mitigating Permian oil production declines, we will likely need to add a third rig at some point to fully arrest the decline.

At Alpine high we have completed two lean gas ducks that are performing very well and we are planning five similar completions. This spring.

There are no specific alpine high drilling plans in 2021, we will continue to monitor commodity prices and remain flexible with this asset.

Following several years without operating activity in East, Texas, We recently added a rig in the Austin chalk play.

This rig will drill a few wells that are necessary to hold our core acreage position and preserve optionality.

We believe the Austin chalk, which is well situated near existing infrastructure will likely merit future capital consideration.

In Egypt, we plan to continue running five rigs this year. Our goal is to stabilize production and ultimately return Egypt growth both of which will require the addition of more rigs. We can quickly flex spending in Egypt as conditions warrant and we will monitor oil prices and cash flow for the appropriate time to do so.

In the North Sea the capital program remains relatively unchanged this year with one floating rig and one platform crew.

While production from the North Sea is lumpy on a quarterly basis. We believe we can generally sustain output and the $55 to 60000 Boe per day range for the next several years at this level of activity.

Lastly in Suriname, we began the transfer of block 58, operator ship to total at the beginning of the year.

They are an excellent operator, and we look forward to this year's exploration and appraisal programs.

On the exploration side, our fourth well cash Cathy is continuing to explore deeper objectives in the near Cobian as previously announced we have selected the location for our fifth exploration well bond, Bonnie which will be in the northern portion of the block.

Total spud the first appraisal well in block 58 earlier, this month, which will be appraising aspects of both the clause quasi and <unk> discoveries.

I would like to close by discussing apache's oil production trajectory and provide some perspective on maintenance capital levels. As previously noted we chose to significantly reduce capital spending in 2020 and plan to maintain a conservative investment approach in 2021.

One of the outcomes of this choice is our global adjusted oil volumes decreased by 17% from the fourth quarter of 2019 to the fourth quarter of 2020.

This year, we're projecting a much more moderate decline of around 1% to fourth quarter of 2021.

This implies the $900 million of capital investment, we have earmarked for production and development activities as just a bit shy of the spin required to sustained global oil production at fourth quarter 2020 levels as we look to 2022 and beyond our goal is to establish a development capital investment budget that will.

At a minimum sustained production volumes for the long term.

While we have experienced a very welcome oil and gas rebound over the last three months, our strategic approach remains centered around capital discipline and flexibility.

As such we are continuing to prioritize the retention of free cash flow to reduce debt.

A focus on long term returns over short term growth.

Aggressive cost structure management.

The advancement of our exploration and appraisal activities in Suriname, and continuous improvement in our ESG practices and metrics.

In 2020, we increased the weighting of ESG goals, and our short term compensation calculation to 20% and refined our focus areas to air water communities and people.

During the year, we emphasized robust employee safety programs related to COVID-19, assisting our communities impacted by the pandemic and advancing programs that foster a more inclusive workplace. We also made good progress on the environmental front with enhanced greenhouse gas data collection and expanded disclosures, particularly.

With regard to Tcf P.

We plan to continue to build on these efforts in 2021 with ESG goals that tie directly to compensation and include specific emissions and water usage targets and enhance our employee experience. These include delivering less than 1% flaring intensity in the U S achieving freshwater consumption less than 20%.

Of total water consumed.

And further progressing our diversity and inclusion programs.

And with that I will turn the call over to Steve Riney, who will provide additional details on our results in 2021 outlook.

Thank you John.

I'd like to provide a bit more color around apache's fourth quarter results debt management efforts in 2020, and our outlook for 2021.

As noted in our news release issued yesterday under generally accepted accounting principles Apache reported a fourth quarter 2020, consolidated net income of $10 million.

On a fully diluted basis, we incurred a loss of $16 million or <unk> <unk> per diluted common share.

These results include items that are outside of core earnings. Excluding these items. The adjusted loss was $20 million or <unk> <unk> per share.

Company wide adjusted production for the quarter was 365000 Boe's per day.

7% decrease from the third quarter.

This was driven by declines in the Permian Basin in Egypt, where we felt the impacts of reduced activity levels. After the first quarter cut in capital spending.

These declines were partially offset by increased north sea production, primarily associated with the timing of Workover activity.

Lease operating expenses of $269 million for the quarter were below guidance, but did rise a bit from the third quarter.

G&A expense of $76 million.

It was at the low end of our guidance range.

This was also an increase from the third quarter, but mostly due to mark to market accounting treatment of certain stock compensation programs.

Entering 2021 of our key financial goals for the year was to retain free cash flow to reduce debt.

While the collapse in oil prices made this significantly more challenging the decisive actions, we took to reduce our capital program cut operating and overhead costs decrease our dividend and numerous smaller actions enabled apache to avoid further leveraging its balance sheet.

We also took some important steps to rearrange the bond maturity profile and to create a cleaner runway for the next few years.

Through a combination of discounted open market repurchases tender offers and call options, we reduced shorter term bond maturities by $600 million.

With only minor changes to our average maturity profile and coupon rate.

We now have only $336 million of bonds maturing before November of 2025.

We still intend to reduce debt levels through free cash flow retention, and if oil and gas prices sustain anywhere near current levels, we will make substantial progress in 2021.

Further to the 2021 outlook as John stated, we are planning an upstream capital budget of approximately $1 $1 billion with the primary goals of advancing our exploration and appraisal activities in Suriname and stable as in global oil production around fourth quarter 2020 levels.

At this point it looks like our planned capital program, we will fall just a bit short of stabilizing oil production, but we continue to look for ways to get more out of those investments.

Where specifically to our production profile for 2021, we expect U S oil output to decline in the first quarter.

This is primarily attributable to nine days, an extensive Permian basin shut ins during the recent freeze event as well as the timing of Permian DUC completions during the quarter.

Sequentially, we expect a significant rebound in U S oil volumes during the second and third quarters before backing off a bit in the fourth quarter to a rate similar to fourth quarter of 2020.

Internationally, we anticipate continued declines for the year compared to fourth quarter 2020 levels as upstream capital investment remains below maintenance levels and.

We will incur more downtime in the north sea for scheduled maintenance turnarounds.

In 2021, we are projecting low to rise approximately 7% year over year, which primarily reflects the impact of some cost deferrals from 2020.

This includes items, such as increased workover spending and platform maintenance and the North Sea.

Also expect to see some higher foreign currency exchange impacts associated with the weakening U S dollar.

G&A will also rise a bit this year to a run rate of around $75 million per quarter.

In closing we are cautiously optimistic for a year of improved oil and gas prices.

Even if we fall a bit from the current strip with.

With a very conservative approach to capital budgeting, we should generate significant free cash flow for debt reduction.

And with that I will turn the call over to the operator for Q&A.

Thank you as a reminder to ask a question you will need to press star one on your telephone.

With John a question post Apache please.

Please standby will be compared to 10 day roster.

Our first question comes from Doug Leggate with Bank of America. Your line is now open.

Alright. Thank you guys I appreciate all the color this morning.

One set of questions on Suriname, one on Workovers, if I may.

So on Suriname John.

No.

Incremental information, partly coming from your partner.

And as you pointed out in your release.

The likelihood of an RFID this year of course volume by 2025.

And then your sales talk about an appraisal program debt appears to tapping both cross quasi and soccer camera.

So I wonder if you could just walk us through what's going on in the appraisal and what scale might be over.

The development in your mind.

No. Thanks for the question. So the first thing I'll say is I really don't want to add a lot of color too.

Our partners commentary a long time line I mean, we're aligned with them.

What I would say is as it.

Given that when we made the press release after the <unk> discovery, we said that.

It did.

Consideration for fast track and it had those key ingredients. So it shouldn't come as a surprise that the very first appraisal well is doing exactly that.

We've always talked about the first four wells and then I'll go back and talk about marker <unk> across quality and now cash chassis is theres really four different kind of deepwater.

Turbine channel systems.

They are placed where potentially you could do some overlap and so forth.

As you start to think about development. So the nice thing about where.

That first well is placed <unk> west number two.

Is it will be appraising, both aspects of <unk> and we get to see some other cros quasi.

So.

Yes.

Shouldnt come as a surprise and we're obviously.

Anxious to get the results when we think about the appraisal program is just the next step following exploration and in terms of scale.

Those are the things we wanted to determine through the appraisal program.

I don't want to get into discussions on that at this point, but.

Going to be looking to determine things like flow rates connectivity.

Those types of things boundaries things, we might see as you work through this so we're anxious to get on with it and quite frankly excited with how quickly totals grabbed a hold and is running with it.

So we're kind of accounts press you on scale John.

Got it.

We'll take it one phase at a time, but we're in appraisal mode.

Okay.

I'll, let someone else ask about but I do want to ask about the maintenance capital.

Just the trend that you had there I mean, it seems kind of remarkable to us that youre monitoring to hold the decline at <unk>.

As you are.

Presumably some of that capital is currently from going to work over cost in places like the North Sea. So I was just wondering if you could kind of walk us through how you think about the dynamics of workover through our physical capital I'm really going to kind of drive what do you think that sustaining breakeven oil prices for that decline.

You seem to be able to hold into 2021.

Yes, I mean, the thing I would say is as you know.

Im really proud of what our teams our asset teams at our operation staff.

<unk> been able to accomplish in a really tough environment with COVID-19, and a lot more protocols added.

I cannot say enough good things about our organization and all the hard work that has taken place and you see that you saw it in our cost structure reductions.

Our reductions you see it in these numbers.

Not only did we reduce all the drilling rigs in the U S. We dramatically cut the workover rigs.

In the U S and then the other areas as well and it just goes to show you with the focus and the effort we're putting on it.

This year.

We did pick up a rig in the Permian.

One that made a lot of sense to P.

We plan to add another rig mid year, and we're going to be just short as I've said in the.

The commentary, we probably need to add another one, but we don't plan to do that right now.

To be able to kind of hold our oil production.

We're just short of the activity levels in Egypt to kind of hold it.

And North Sea.

There's going to be lumpy and we're kind of in that range now where we think we can manage it between $55 60 is just going to be a lumpy profile.

With the turnarounds and the.

The types of projects, we're bringing on through subsea tie backs in the barrel area.

But really kind of hats off to the operational staff on the asset teams.

Because we are really managing things on cash flow and.

In managing the cost structure really hard and it's amazing what thats done as a result to the to the oil curve.

Okay. The details offline, John but I appreciate the answers. Thank you.

Thank you. Our next question comes from Bob Brackett with Bernstein Research. Your line is now open.

Morning, Unsurprisingly I'll follow up a bit on Suriname.

If I think about the $200 million exploration budget that seem to have three buckets of small amount going to Austin chalk some going to Suriname exploration and then the remainder going to appraisal in Suriname, where youre paying $12.05 on the dollar effectively because of the JV.

Can you break those out any more for us or should we just kind of think of it as one big lump.

Well, Bob what I would say is number one the chalk money was not appraisal right.

Development capital.

We are.

It's in an area, where we've got leases that are expiring and we had some wells we had to make a decision their day to drill those wells are what the acreage go.

It's not exploration capital. So we feel good about we've been participating in offset wells. So the first thing I would say there, though when we look at CERN.

Youre right there are two buckets.

But it really will hand, John the types of wells that we're drilling.

The exploration wells will be 50 50.

This phase of our joint venture.

The appraisal wells will be 12, 5%.

So we really didnt break that bucket out.

Clearly.

The first appraisal well.

We're paying 12, 5% up and where they were paying 50% of cash Cassie.

The dollar amount doesn't change much from where it's been last year. When we were running a rig at $50 50, the whole price.

Okay interesting.

A quick follow up would be.

What's the timeline for stats only deciding whether to backend for 20% and any thought on where their heads are.

Well I mean, they actually have that election at the time UNFI D. A project.

So we've got some time there.

Yes, I think they would like to participate and that's what we've always planned volume from the get go but we would obviously be in a position to take additional interest if you get there so but thats.

They would come in on a point forward basis at <unk>.

Okay, that's clear.

I was here and maybe hop in the queue. Later thanks. Thank you.

Here.

Thank you.

And our next question comes from Jeanine Wai with Barclays. Your line is now open.

Hi, good morning, everyone. Thanks for taking our questions.

Good morning, Janine good morning.

First question is on the anti Tony one Capex budget and Youre anchored at very Conservative 45, and three and so what's your appetite for incremental activity. The strip ends up playing out. We know you said you would be very conservative and you're going to watch things and be very measured.

But you said that.

You ultimately need a third rig in the Permian interest decline you have some really good opportunities in Egypt, and you maybe need a little more activity there to mitigate the kind as well. So I guess, where are you where is your appetite on all of that and where are you most likely to add that incremental activity. If it could be done this year.

Yes, Julien right now our appetite is generating free cash flow that we can set aside for debt repayment and.

We're just pointing out that really.

A really stabilized Permian.

We do need to add another rig there may be an opportunity in Egypt, but right now I mean, we're like I said, we're going to be very disciplined on the capital.

And we would just be very measured and right now the appetite to generate free cash flow for debt repayment.

Okay.

Free cash flow and debt repayment that's good.

And then my second question, maybe just following up on Bob's question, just now I might've missed part of it in that $200 million in exploration Capex. That's primarily Suriname is there anything in there for offshore Dominican Republic.

Thank you all were finalizing something on that a few months ago.

Yes, there is a small bit there.

Jeanine I mean, where we are.

Starting to go through the work scope on out our three D. Seismic shoot so there is a little bit of money in there but.

<unk>.

It's not a lot.

But it would be captured.

Great. Thank you.

Thank you.

Our next question comes from.

Bob Brackett with Bernstein Research your line is now open.

Wow.

I'd hopped out of the queue and I guess, you've put me back in I was going to let other people get a chance, but Bob I don't know what I don't know what happened because there is a list here.

So I would say the operator puts you back in but.

If you wanted to ask one since we've done it I would say ask it all under the check, but we werent trying to step over anybody else, but okay. Because there is a list here.

So I guess I'll say.

Day on that Suriname theme, which is talking about getting to <unk> is.

Is there a drill stem test planned for the year.

I'm, just kind of surprised by the speed at which you can go from no appraisal to F.

Less than 12 months is there something you can do to give us comfort on that timeline.

Yeah, I would just say.

Our partner is pretty confident in Iraq and.

I mean, it's I'll just leave it at that.

We've got four exploration wells now we've been taking our time with those collecting a lot of data, we've got and sidewall cores and we've done a lot of pvt analysis.

Theyre not wellbore as we intend to use but we've been gathering a lot of data as we've gone along and we've been doing a lot of lab work subsequent so.

Yes, I'll just leave it at that I mean, clearly we will be doing flow tests.

With the appraisal program is the other piece Bob.

I'll leave it there I don't want to you know.

By no means we want to do anything but state we're going to the next phase.

And I don't want to try to add any commentary to the total timeline that our partner has talked about but.

We are moving on the appraisal wells that we think could be fast tracked.

Great Thanks for that.

Thank you.

And our next question comes from Henry Hub back with Raymond James Your line is now open.

Good morning.

Looking at total towels relief and they said around nine wells are expected. This year, you sort of a rough estimate from the timing of barrel with someone.

They can expect Brazil, and kind of just the rough split for exploration and appraisal wells going forward.

All will really say here is there's two two rigs I would say that.

That nine wells is their whole portfolio, but we've got two rig programs here that I would say.

We drilled three three plus wells with one rig line last year.

Uh huh.

The exploration front.

Some of the appraisal wells could go quicker because youre.

You've now got penetrations in the basin, but some of these might take longer because of flow tests and things. So.

I would just say we haven't given that color. We've just said kind of think of it as a an exploration rig line with program and an appraisal program and we're going to move out to move on them concurrently.

Great. Thanks appreciate that and then.

Looking at the U S. What does and maintenance nodes sort of program look like including Alpine high and the.

Return to alpine high stacking up.

To the Austin chalk, but there are other Permian steps, just with the moving propane and ethane prices lately.

Yeah, Hey, this is Dave per cell on the so when we think about maintenance in the Permian, we're thinking about it on the oil side and so when we talked about three rigs we're thinking about what it takes to keep keep oil production flat and we haven't run those that math it at Alpine I think when you look at the forward curve.

On gas and Ngls.

Even though we are preliminarily positive results from the two ducts that are flowing back now.

Given where oil prices are it's unlikely in a limited capital budget that those compete within the Apache budget, but if they're economic we're open to.

Think about partnering with someone to help us.

Move outs line forward.

Great I appreciate you all taking my questions.

Thank you. Our next question comes from Michael <unk> with Stifel. Your line is now open.

Good morning, everybody. Thank you for taking my Mic.

Actually again I'm stepping in for Mike.

Wondering if you could provide additional color on.

In the U S.

You mentioned youre, adding a second rig, but just to confirm.

To hit your guidance number will you need that third rig or are your comments on adding that third rig or.

I'm showing some upside potential to your guidance.

No I mean, we do not have a plan that is not in the plan and obviously that's not in the plan it wouldn't be in our guidance. So we were just making the reference point that where we are.

Just shy.

On the oil side, and we would likely need one more rig in the Permian, which right now we do not plan to add I don't want to be really clear there.

Okay, and it's not in our guidance.

Okay. Thank you for that Gary.

And that going forward, you mentioned that maintenance mode.

Fair to assume a slight growth in the U S to upset international volume or should it be maintenance all across the board.

Yes, I think we are.

Really when we talk about this for talking about maintenance across the board.

Okay. Thank you and then last one for me I suppose asking Chuck a competitive barrier.

Your standard.

And what performance that could compete with the Permian.

Similarly expectations for those wells.

Yes. This is this is Dave again Guillermo.

We've been patient as we've watched this play developed we have a big acreage position. So legacy we participate in some non op wells and we have high expectations, which is why we're drilling these but again John said it.

It allows us to preserve the optionality of this.

<unk>.

Bring in some additional capital if we if we choose to.

Thank you very much that's it for me.

Okay. Thank you.

Thank you. Our next question comes from Gail Nicholson with Steven Your line is now open.

Good morning, Steve in your prepared remarks, you mentioned that there was no cost deferrals on the OE side in 'twenty that are hitting in 'twenty. One could you quantify that amount and then what are the more normalized rate look like post 'twenty one.

Yes, I don't have a sorry, Gail I don't have a clue.

Unification of the amount that was deferred.

From 2020, nor how much of that is.

Actually showing up in 'twenty and 'twenty one.

Uh huh.

Maybe just suggest that you can follow up with Gary after the call and maybe we can get an estimate of that but I think it's.

I don't think its a material amount.

But it's certainly contributing to the 7% rise in LOE from one year to the next.

Sorry, what was the second part of the question.

I just wanted to know.

So did that amount what would the normal allo.

Run rate look like.

Yes, obviously.

The more normal well I think actually that 2021 amount is probably the more normal amount.

Because what we've done is we've just deferred some stuff.

Out of 2020 into 2021, we're not necessarily doubling up a lot of stuff.

There could be a little bit in there so you're probably in the low single digits in terms of the band of are there in terms of doubling up some some expense from into into 2021, I don't think it's got a material effect there.

Okay, Great and then in the supplement you guys talked about the gypsum decline rate is expected to moderate in 2021 can you talk about where it is per day, and where you think it will be by year end and what is driving that moderation.

Yes.

This is Dave again, I think when you look at it particularly in the Permian you look at it the way unconventional behave.

Yes I'm.

I am sorry in Egypt.

Sorry, I misunderstood the question, yes in Egypt, it's a combination of activity and where we're focused.

We have a.

Pretty significant Workover program there that it is also really bringing in behind pipe.

Resource so as production as production declines you tend to have an easier time holding it early it's stable so thats the real.

The math works there in Egypt.

Okay, great. Thank you.

Thank you Gail.

Thank you. Our next question comes from Scott Hanold with RBC capital markets. Your line is now open.

Thanks, if I could move back to maybe discussing alpine high I mean do you all think theres some latent value that's.

Debt associated with the infrastructure or even maybe the gas the <unk>.

All in the gas production opportunity here.

That's the case is there opportunities for you guys too.

Do something to get some of that value recognized in specifically to on the infrastructure side with what you all have there as well as your joint venture agreements.

Scott There is no doubt I mean, <unk> got resource there we've got in in <unk>.

John a couple of docs, which we said they were the first two we've done they're performing very nicely I.

I think we've got five more docs that we'll finish the DUC program with later this spring.

So there is opportunity there.

To potentially bring in some capital I mean, what we've got right now with where our capital budget is it's pretty tight. So we don't plan to add any but there is opportunities to potentially look at some things out there.

Okay. Okay is that an initiative for you all or is that just something that that could happen.

I mean, I'd, just say that there is a lot of things we always work on that you don't spell out as you know but.

I'll just leave it at that.

Yes.

It's something that we might be working on or we'd be thinking about but there's nothing we've got set up a plant in the activity set.

No problem. Thanks for that and then my next question is if you all could remind me in Egypt, with the POC and higher oil prices like.

At what point do you start getting to sort of that cap on the value or are we a ways away from there obviously I think the strip is.

Moved up pretty nicely and you know there is obviously some conversation out there whether we get into next oil Super cycle, and just kind of wanted to remind me the sensitivity to higher oil prices with debt PSC.

No I mean the returns there are good it's just things shift as you move higher right and you get to a point in there where.

Inventory in the U S in the Permian actually spends over and be even more attractive so.

As you know.

We're not in that range I mean, we're at a point today is if you go back and look.

Last year, we put out some priority sheets that kind of showed investment.

Levels and with some price decks and kind of at 50 was really considered Permian.

You know I mean, theres nothing thats changed off of that are those priorities that we put out there.

Understood. Thank you.

Thank you.

Yes.

Right.

Before we go to the next one if I could just add a bit to that I would say that.

In the <unk>.

In the $50 to $60 <unk>.

$60 Brent range we've.

We've still got plenty of running room, where price continues to add meaningful amount of value to the Egypt opportunities. So we're not we're not near any type of ceiling on value opportunities in Egypt, there were nowhere near that.

Okay.

Thank you. Our next question comes from Brian singer with Goldman Sachs. Your line is now open.

Thank you and good morning.

Hello, Brian.

To follow up on a couple of other topics first maybe starting with debt with Suriname exploration appraisal budget debt.

The large component of $200 million in.

In a continued success scenario.

And reflective.

The less demanding capital contracts as part of the joint venture how do you see.

Ferdinand Capex evolving in years to come and how does the optionality of the call on Suriname capital impact your willingness to flex other assets like Egypt Alpine high in Permian.

Yes, Brian I mean, the nice thing is as you've you start shifting more dollars into appraisal and development with the carriers really kicking in so.

Those numbers don't go up so it doesn't hinder I mean thats part of why we structured the deal in the first place.

Really the exploration rigs that drive because of the 50 50, but yes.

Obviously.

As you shift into development.

Yeah.

Assuming you'd Fid's something then your dollars will go up but it's not going to be something we can't manage that's not something that's going to take away capital from other areas.

Okay.

Got it thanks and then.

Follow up just trying to piece together some of the comments from.

From your opening remarks, as well as other questions.

As it relates to the Capex flexibility that you were very nimble in flexing capex to the downside in 2020, there seems to be a consideration to be nimble on the upside and I was wondering if you could quantify if you were to.

Stabilized production in the Permian with a third rig stabilized production in Egypt and yes.

Pricing in Ngls and natural gas warranted, some greater activity in alpine high what the combined incremental capital would represent to make that happen.

Yes, I mean, I'd say today, Brian we're not thinking about trying to be nimble, there and add right I mean report our plan.

Actually the rig we picked up in Permian, we've been paying standby rates on so it made a lot of sense for us to pick that rig up.

When we when we reduced last year, we drastically reduced in fact like I said, we were paying some standby rate so.

We're not really motivated right now to try to be nimble and pick up incremental capital.

We're just pointing out kind of where those things would be but I mean right now.

No I think Steve, especially he wants to see some some dollars come in.

That we can earmark for debt repayment.

Great. Thank you.

Yes.

Thank you. Our next question comes from Leo Mariani with Keybanc. Your line is now open.

I just wanted to follow up here.

On Suriname.

Just wanted to dive a little bit into the neo come in.

Zone here.

What can you kind of tell us about that particular zone does that present any other three discoveries and then in general as it present cost per block or maybe just other areas.

Of the basin.

If anyone else had any penetrations potentially elsewhere.

So in this particular zone.

Yes, great question.

When we talk about block 58 in the first place we laid out more than a handful of different play types.

And quite frankly, our first three play types are all upper Cretaceous campaigning in San Antonio The first two and then the third one actually is Coronium, which is also upper Cretaceous.

Attempted to get down to the <unk>.

With marker, but we were unable to do to pressure.

With the economy and it is actually a lower Cretaceous targets.

You don't want to talk about the upper Cretaceous.

Campaigning in San Antonia and Theyre really deep water channel and Levy turbidite, but maybe a comment as lower Cretaceous and its more shallow water carbonate reef buildups.

And so.

Others are I will tell you that.

We're not through the first two targets, we've got to near <unk> targets.

Test in cash Cassie.

<unk> is what we had to do is swap out the <unk> and so we're in the process of doing that and we'll be back to drilling, but these are carbonate raves theyre pretty visible on the seismic.

But this will be the first test for us and this is the with an optimal place to go on down through.

The source rock to the near chromium and <unk>.

Thanks, just to see but it is exploration.

They're visible there.

If it were to work and you know better the right fluids, then it sets up.

A whole string of these that are down there. So it's a play concept tests.

And this just was the logical best placed.

Do the first test for the near chromium.

So just to confirm you guys. Certainly believed this is present across your block and potentially in other areas in Suriname and is this kind of the first task that youre aware of in the basin.

I'd say when we've got multiple doesn't mean across the block I mean, you've got what you've got to understand is what the geology here play types that are present in as you start thinking about other products <unk>.

<unk> portion of the block that are present in some areas, but not everywhere. So it gets back down to what the settings, where like when it was laid down and I've said this has lower Cretaceous it's more.

Shallow water carbonate reef buildups, and so theres, probably a trend of those.

There is a trend that moves across our block.

But we're focused mainly on our block.

This is the first one I'll just say that it's exploration. So obviously the you know the chance of success you put.

In there that it's it's you know, it's likely not going to work but.

If it does work it does set up some more targets for us, but we are it is an exploration of oil for a reason.

It's a play concept, but if it happens to work. We've got you know more of these on the block that would be additive and potentially could become part of whatever you did.

In terms of in FY day somewhere down the road.

That's very helpful color for sure I, just wanted to shift over to Egypt here.

You guys, obviously made a discovery at alpine or it sounds like you're waiting on.

Hi, there.

Just wanted to get it.

Sense of when you guys might be able to get back out there just a high level timeframe is that something that we talk about this in a matter of months. We can go out there and get a better look at the appraisal or is this something that could be longer term that might get pushed into next year.

No it would be pretty quick.

Yes, I was thinking about Western Desert is we've got good infrastructure I think the most important thing with Thai am as it proves concept with the new seismic.

Because it is something that we would not have seen without the new seismic and while it's a it's a very nice discovery, we need to do some flow testing and things to figure out.

If theres offsets and how many.

Most importantly, it's.

It's proof of concept and.

We've got some other key wells that are on the rig schedule that.

And other theyre coming pretty soon so we're.

It's just further validation of the time, we've invested over the last few years.

So altogether more acreage shooting the seismic and really refining some of our interpretation skills on what we're doing there so.

It's just a lens into the rock that you would have seen otherwise and that's what we're excited about.

Okay, great color. Thanks.

Yeah.

Thank you.

To ask a question you will need to press star one on your telephone.

Next question comes from Neal Dingmann with tour Securities. Your line is now open.

Good morning, John and team and thanks for squeezing me in maybe before Bob's third one so a quick question for you looking at Slide 12, just on the operating cash margins John meat items. So you continue to have great margins on North sea among among the others I'm just wondering given the type of margin as you continue to see there.

Why not push that even even further.

Well I mean, I think the key there is we're in a pretty good rhythm. If you look at what we did last year, we had two platform crews.

They're actually in a wallet barrel and on at $4. When we started alternate knows.

Yes, we're in a pretty good cadence of projects.

With the one rig we have been doing what we could do in terms of prioritizing we've got a really nice discovery there with law scan.

So yes, I think we're in a good place with where we are a really good cadence and.

When you look at our other types of opportunities across the portfolio, while the margins are really good there.

I think where we're investing and we're showing good work and now we've got a tertiary project that we're.

We're working on not ready to talk about yet, but I think we're in a good cadence in the North sea.

Okay and then just lastly can you talk just on Egypt, but that being still is it free cash flow independent I assume John and we will continue to be.

Oh, yes, no I mean, we've got a good solid business there we built it over 25 years now.

We are you know, we we reduced activity with when we had to everywhere.

I think theres the opportunity as Steve mentioned, we've got a lot of opportunity in Egypt, I think the new seismic and the new acreage is going to open some things up and theres more to do there.

But we're always working on preserving cash flow and those cash margins.

Everywhere and that's something we've been working on across the entire portfolio.

Perfect. Thank you.

You bet.

Thank you. Our next question comes from David Heikkinen with Heikkinen Energy. Your line is now open.

Good morning, and first and foremost I hope all of you and yours fared well through the freeze and thaw. It sounded like you did so that sounds good. Thank you Dan.

And then.

Also just a couple of quick hits kind of good luck with the new chromium Permian It sounds like I could characterize it as a string of pearls type prospect a trend, but you hit this one and then you'll have other high spots that are just going to follow along.

At the same depth debt position.

Yes, I mean, I would say debt.

You could think about it right I mean, there are definitely a <unk> carbonate.

Carbonate roofs work on a shelf shallow water environments with Joe Thats, what youre seeing so youre seeing that type of string of pearls is what I was getting at.

There's multiple multiple targets that this would set up but.

It's deep.

Good.

And there's risk right so.

But we'll do it we'll see what happens.

And then just Dave you kind of hit on some of the base decline tempering and you had it in the slides.

I think I heard an answer as far as that you've got the sustainably low level of Capex and you have a base to oil declined tempering in 2021 can you put any numbers to that tempering as you as you roll into 2022.

Sustaining capex it sounds like it might go down and your operating expenses don't sound like they would go up some I'm trying to think of.

How things temper through the year.

Yes, I think let's talk about the Permian for a minute we've given some some numbers on base decline in the past I don't have those at the tip of my fingers, but how unconventional work.

As you anniversary in the Big first year production decline you start to.

Our moderate.

The declines on the unconventional and then we have obviously big legacy position so think about.

Third or more of our Permian production is very shallow decline debt.

The Central Basin platform.

Type wells. So we have advantaged position, we never got into that Super sized growth mode in the Permian So.

<unk>.

The first year declines that we that we anniversary day and weren't as big as other so when we look at.

The capital required for for sustaining production, it's kind of in that three rig mode or three rig.

Level and Youll see Youll see a similar analysis, if we look at it Egypt as well, it's a bit more.

Conventional declines, but youll see as overall production declines.

Iterate it becomes easier to hold production at those levels. So.

Don't have numbers in front of me, but thats.

Directionally, where the while the maintenance capital.

It is probably lower today than than what we've talked about in the past.

Okay, and then just an absolute debt level target do you have one for this year post the use of cash.

No not necessarily a specific debt level target.

My target is as low as possible so.

Longer term, where we're trying to get we've said this before we're trying to get back to you.

Something below two approaching one five times.

Debt to EBITDA.

We were getting close to 19.

And then 2020 happened.

It looks like this year.

Yes.

At $55 <unk>, we're going to be we're going to be approaching two again.

At strip at the current strip, we would actually be below two.

So and that's with the current level of debt.

We.

We should be able to generate a significant amount of free cash flow at anything $55 or above theres going to be a huge amount of free cash flow.

We're planning on being free cash flow positive.

For a few hundred million dollars at $45. So.

Absolutely absolutely 2000, twentyish collapse in oil price, we're going to generate quite a bit of free cash flow. This year. So.

I think we're going to get debt to EBITDA back in the right direction by the end of this year.

B B.

Would be quite a bit stronger by the time, we enter 'twenty two.

Thank you guys that's very helpful.

Thank you I'm not showing any further questions at this time I would now like to turn the call back over to CEO, John Christmann for closing remarks.

Yes. Thank you.

I really want to close by the following key points.

Despite the recent run in oil prices, our priorities have not changed we remain focused on funding projects that provide the best returns over the longer term.

Maintaining a balanced portfolio generating free cash flow to pay down debt and continuing to move our Suriname program forward.

We are taking a very measured approach with our 2021 capital program and you've seen that through the Q&A today, we ended 2020.

With zero rigs in the Permian and the combination of higher <unk> prices and lower service costs make this an appropriate time to restart a very modest drilling program. Our goal is not to pursue growth, but to sustain oil production beyond 2021.

Our program in Suriname is progressing well the transition to total as operator has gone smoothly and we are aligned with our partner on both the appraisal and exploration programs and most importantly, the objective of achieving first oil as quickly and as safely as possible.

Look forward to updating you on our continued progress throughout the year. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Yes.

Okay.

[music].

Good question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you acquire any further assistance. Please press star zero.

I would now like turn the conference to your Speaker today, Gary Clark Vice President of Investor Relations. Please go ahead Sir.

Good morning, and thank you for joining us on Apache Corporation's fourth quarter, and full year 2020 financial and operational results conference call.

We will begin the call with an overview by CEO and President John Christmann, Steve.

Steve Riney Executive Vice President and CFO will then provide further color on our results in 2021 outlook.

Clay branches executive Vice President of operations, and Dave <unk> Executive Vice President of development will also be available on the call to answer questions.

Our prepared remarks will be just over 15 minutes in length with the remainder of the hour allotted for Q&A.

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.

<unk> production numbers cited in today's call are adjusted to exclude non controlling interest in Egypt, and Egypt tax barrel.

And finally, I would 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 today I'll recap Apache's 2020 accomplishments discuss our fourth quarter results and provide commentary on our outlook for 2021.

First I want to take a moment to acknowledge the severe weather and devastating power outages experienced here in Texas last week, nearly all of our Texas based employees were directly affected.

Our field staff worked tirelessly to maintain safe operations.

Millions of Texans are employees across the state experienced notable challenges, including a lack of power heat water and many of the modern conveniences, we all rely on Paul.

While it appears that numerous factors played into the situation one thing is certain this.

This event has underscored the need for resilient and reliable energy infrastructure and supply to.

2000 toy brought many unexpected challenges, which required immediate and aggressive actions. Shortly after we issued our initial guidance for the year a confluence of events signaled to clear trouble for near term oil prices the.

The Russians and salaries and a battle for market share were flooding the market with supply at.

At the same time the spread of COVID-19 was emerging as a significant threat to global demand.

In response on March 12, we announced several important steps designed to protect cash flow in the event of a prolonged adverse oil price environment.

We reduced our capital budget by 37% from our budget, we have laid out just two weeks earlier.

We cut our dividend by 90%.

We initiated a shutdown of all drilling and completions activity in the U S and a reduction of rig activity in both Egypt and the North Sea.

And with the significant reduction in planned capital activity, we decided to double our target for combined G&A and LOE cost savings from $150 million to over $300 million.

While these actions seemed extreme to many they turned out to be necessary and timely.

Throughout 2020 relative to our original plan, we lost over $1 $3 billion of oil and gas price related revenue and more than $300 million of cash flow to working capital.

Despite this Apache finished the year with no increase in net debt when excluding Altus midstream.

And we were even in a position to take advantage of volatility in the debt markets. The buyback some bonds at a significant discount in line.

<unk> issue 125 billion.

Of new bonds to restructure the debt portfolio and protect near term liquidity.

To date, there have been no known cases of COVID-19 transmission from one Apache employee or contractor to another.

Also especially proud of the assistance, we provided to the pandemic response in each of the communities where we operate.

Finally, as we look back on 2021 of the key highlights was our exploration program in Suriname, where we commenced activities under our joint venture with total we have now made for significant oil discoveries in our first four exploration tests and recently began the appraisal drilling program.

Turning to the fourth quarter results. We ended 2020 on a strong note, beating our fourth quarter guidance for adjusted production upstream capital expenditures and low.

In the Permian Basin, we resume completions activity in response to significantly lower service cost and improving oil prices.

In Egypt, we continue to leverage our large acreage position and modern seismic program to further enhance our long term exploration and development inventory. A recent example of this is the <unk> north discovery, which encountered 88 feet of high quality oil pay.

We are waiting on pipeline connections to further assess the reservoir extent and potential for additional development locations.

And the North Sea, we made an important oil discovery in the tertiary play with our last gas well, an offset to offer bp's proscar discovery on the Norwegian side of the border.

In combination with two previously undeveloped Apache discoveries and the tertiary law scan as part of a longer term development opportunity that could contribute meaningful incremental volumes, while leveraging existing infrastructure.

Looking ahead to 2021 last night, we announced an upstream capital program of $1 $1 billion consisting.

Consisting of approximately $900 million per development activities and $200 million per exploration predominantly in Suriname.

This program is expected to deliver substantial free cash flow under our assumed price deck of $45 <unk> oil and $3 Henry hub natural gas.

At Alpine high we have completed two lean gas docks that are performing very well and we are planning five similar completions. This spring.

There are no specific alpine high drilling plans in 2021, we will continue to monitor commodity prices and remain flexible with this asset.

Following several years without operating activity in East, Texas, We recently added a rig in the Austin chalk play this.

This rig will drill a few wells that are necessary to hold our core acreage position and preserve optionality we.

We believe the Austin chalk, which is well situated near existing infrastructure will likely merit future capital consideration.

In Egypt, we plan to continue running five rigs this year. Our goal is to stabilize production and ultimately return Egypt to growth both of which will require. The addition of more rigs. We can quickly flex spending in Egypt as conditions warrant and we will monitor oil prices and cash flow for the appropriate time to do so.

In the North Sea the capital program remains relatively unchanged this year with one floating rig and one platform crew.

Production from the North Sea is lumpy on a quarterly basis. We believe we can generally sustain output and the $55 to 60000 Boe per day range for the next several years at this level of activity.

Lastly, and Suriname, we began the transfer of block 58, operator ship to total at the beginning of the year.

They are an excellent operator, and we look forward to this year's exploration and appraisal programs.

On the exploration side, our fourth well cash Cathy is continuing to explore deeper objectives and the Nicole Meehan as previously announced we have selected the location for our fifth exploration well bond, Bonnie which will be in the northern portion of the block.

Total spud the first appraisal well in block 58 earlier, this month, which will be appraising aspects of both the clause quasi and <unk> discoveries.

I would like to close by discussing Apache as oil production trajectory and provide some perspective on maintenance capital levels. As previously noted we chose to significantly reduce capital spending in 2020 and plan to maintain a conservative investment approach in 2020 oil.

One of the outcomes of this choice is our global adjusted oil volumes decreased by 17% from the fourth quarter of 2019 to the fourth quarter of 2020.

This year, we are projecting a much more moderate decline of around 1% to fourth quarter 2020 on.

This implies the $900 million of capital investment, we have earmarked for production and development activities as just a bit shy of the spin required to sustain global oil production, our fourth quarter 2020 levels as we look to 2022 and beyond our goal is to establish a development capital investment budget that will.

At a minimum sustained production volumes for the long term.

While we have experienced a very welcome oil and gas rebound over the last three months, our strategic approach remains centered around capital discipline and flexibility as.

As such we are continuing to prioritize the retention of free cash flow to reduce debt.

A focus on long term returns over short term growth.

<unk> cost structure management.

The advancement of our exploration and appraisal activities in Suriname, and continuous improvement in our ESG practices and metrics.

In 2020, we increased the weighting of ESG goals, and our short term compensation calculation to 20% and refined our focus areas to air water communities and people during.

With regard to Tcf P.

We plan to continue to build on these efforts in 2021 with ESG goals that tie directly to compensation and includes specific emissions and water usage targets and enhance our employee experience. These include delivering less than 1% flaring intensity in the U S achieving freshwater consumption less than 20 <unk>.

Sent a total water consumed.

And further progressing our diversity and inclusion programs.

And with that I will turn the call over to Steve Riney, who will provide additional details on our two results and 2021 outlook.

Thank you John.

Like to provide a bit more color around apache's fourth quarter results debt management efforts in 2020, and our outlook for 2021.

As noted in our news release issued yesterday under generally accepted accounting principles Apache reported a fourth quarter 2020, consolidated net income of $10 million.

On a fully diluted basis, we incurred a loss of $16 million or <unk> <unk> per diluted common share.

These results include items that are outside of core earnings. Excluding these items. The adjusted loss was $20 million or <unk> <unk> per share.

Company wide adjusted production for the quarter was 365000 Boe's per day.

7% decrease from the third quarter.

This was driven by declines in the Permian Basin, Egypt, where we felt the impacts of reduced activity levels. After the first quarter cut in capital spending.

These declines were partially offset by increased north sea production, primarily associated with the timing of Workover activity.

Lease operating expenses of $269 million for the quarter were below guidance, but did rise a bit from the third quarter.

G&A expense of $76 million.

It was at the low end of our guidance range.

This was also an increase from the third quarter, but mostly due to mark to market accounting treatment of certain stock compensation programs.

Entering 2021 of our key financial goals for the year was to retain free cash flow to reduce debt.

We also took some important steps to rearrange the bond maturity profile and to create a cleaner runway for the next few years.

Through a combination of discounted open market repurchases tender offers and call options, we've reduced shorter term bond maturities by $600 million.

With only minor changes to our average maturity profile and coupon rate.

We now have only $336 million of bonds maturing before November of 2025.

We still intend to reduce debt levels three of free cash flow retention and if oil and gas prices sustain anywhere near current levels, we will make substantial progress in 2021.

Further to the 2021 outlook as John stated, we are planning an upstream capital budget of approximately $1 1 billion with.

With the primary goals of advancing our exploration and appraisal activities in Suriname, and stabilizing global oil production around fourth quarter 2020 levels.

At this point it looks like our planned capital program will fall just a bit short of stabilizing oil production, but we continue to look for ways to get more out of those investments.

More specifically to our production profile for 2021, we expect U S oil output to decline in the first quarter. This.