Q1 2021 APA Corp (US) Earnings Call
[music].
Good day, and thank you for standing by and welcome to the EPA first quarter excited for anyone earnings announcement webcast conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question Gary.
And the session you will need to press Star and then the number one on your telephone keypad at least the advice for today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to Mr. Gary Clark Vice President for Investor Relations. Sir. Please go ahead.
Yeah.
Good morning, and thank you for joining us on the Corporation's first quarter 2021 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 and 2021 outlook.
Clay Breccias executive Vice President of operations and Dave for cell Executive Vice President development will also be available on the call to answer questions.
Our prepared remarks will be approximately 15 minutes in length with the remainder of the hour allotted for Q&A.
In conjunction with yesterday's press release I Hope you have had the opportunity to review, our first quarter financial and operational supplement which can be found on our investor Relations website at Investor Dot 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.
This quarter. We have also introduced the term free cash flow, which is defined on page 20, and the glossary of our supplement.
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 discussed today.
A full disclaimer is located with the supplemental information on our website.
And with that I'll turn the call over to John.
Good morning, and thank you for joining us today and my prepared remarks, I will review a PAA corporations first quarter results and discuss our 2021 priorities. Despite.
Despite some significant weather related challenges, we delivered a strong first quarter.
Specifically, our free cash flow generation was over $500 million.
We performed well relative to our production and cost expectations and our safety performance was excellent.
Our total adjusted production exceeded guidance as Permian oil and gas volumes benefited from a faster than expected recovery from the February storm impacts.
And this more than offset lower international adjusted volumes, resulting from the impact of higher oil prices on our Egypt, PSC cost recovery barrels and some extended operational downtime and the north sea.
<unk> stream capital investment and low.
We're considerably below guidance for the quarter.
Together with strong price realizations. These factors contributed to an exceptional quarter of free cash flow generation, all of which is being designated for debt reduction.
Looking ahead, the full year guidance, we provided in February is unchanged and we are clearly off to a good start.
Turning now to our operations and the United States, we reactivated a rig and the Permian Basin, which was previously on standby and picked up one additional rig to drill a four well program and the Austin chalk play of Texas, and Brazos and Washington Counties, We placed 22 wells online and.
And the Permian, including two at Alpine high.
Roughly 5000, and Boe's per day of lower margin Permian production remained shut in at the end of the first quarter.
We are very pleased with the early results and combined with the recovery from Winter Storm Yuri are expecting a significant increase in second and third quarter production.
On Tuesday, we announced an agreement in principle with the Ministry of Petroleum and the Egyptian General Petroleum company to modernize the terms of our current production sharing contracts, which is the result of a process that has been underway for more than one year.
The agreement is comprehensive and when ratified by Parliament will result, and increased activity capital investment and oil focused production growth over the next several years.
Currently we are running a five rig program and Egypt and continue to build quality inventory across our expanded acreage footprint.
And the first quarter, we had another significant oil discovery at our <unk> prospect the details of which are in our financial and operational supplement.
We are projecting Egypt gross production will bottom and the second quarter and trend up and the second half of the year.
And the bottlenecking of certain pipelines and facilities and the addition of compression capacity will enable us to connect roughly 35 wells and the second half of the year compared to only 20 wells during the first half.
These and other 2021 guidance items do not include any potential changes associated with the pending PSC modernization, which we look forward to updating after the agreement is formally approved.
And the North Sea, we have been operating one floating rig and one platform rig crew for just over a year.
At this pace, we are capable of delivering annual production and the range of $55 to 60000 Boe per day for the next several years.
And 2021, we anticipate north sea volumes will be a bit lower as we experienced unplanned compressor downtime and the forties field during the first quarter and will incur extended pipeline downtime and platform maintenance turnarounds during the second and third quarters.
Following this however, we expect a sharp rebound and production during the fourth quarter 2021.
And January we announced the discovery at our fourth exploration well and start on.
On appraisal plan for this well cursed Cassie is forthcoming.
Total has now fully assumed operator ship of block 58, and is running two rigs in the vicinity of the Sop Akara discovery, both rigs are capable of appraisal and exploration drilling which provides ultimate flexibility as we execute our programs and we look forward to providing updates as appropriate.
And the future.
Next I would like to review our priorities for 2021, which we outlined previously on our February conference call.
First we are budgeting conservatively and focusing on free cash flow generation and debt reduction this year, our reinvestment rate is currently tracking below 50%.
Second we are aggressively managing our cost structure and we'll continue to do so regardless of the oil price environment.
Third we are preserving optionality within our portfolio, which will enable us to either develop or possibly monetize certain assets at the appropriate time.
Fourth we are advancing the exploration and appraisal programs and churn on and are now beginning to benefit from our joint venture carry agreement, which is a very efficient funding source for our differential long term opportunity and block 58.
Fifth we are continuing to focus on value creation through organic exploration, we recently announced the hiring of Tracy Henderson to lead our exploration team, which concludes and extensive search that began prior to the COVID-19 pandemic.
Tracy his experience and expertise are a great fit for the existing portfolio and we look forward to her leadership on future exploration strategy and ventures.
And lastly, we are advancing ESG initiatives that are relevant impactful and core to our business.
Broadly defined these fall into three areas of emphasis.
Air water and communities and people.
And 2021, we have established goals that address routine flaring freshwater consumption and diversity and inclusion programs.
These goals are linked to the annual incentive compensation of not just management, but all employees, we made excellent progress and each of these areas during the first quarter and I'll look forward to discussing them further as we progress these efforts through the year.
In closing I would like to thank all of our employees across the globe for their hard work and the first quarter and in particular, our field personnel and contractors on the front lines that did an excellent job of safely navigating global pandemic protocols as well as some very extreme weather events.
During the historic freeze and Texas, our teams worked around the clock to maintain and restore the hydrocarbon production systems that are vitally important to ensuring the safety and well being of people and communities during events such as this.
And with that I will turn the call over to Steve Riney, who will provide additional details on the first quarter and our 2021 outlook.
Thanks, John.
As noted in our news release issued yesterday under generally accepted accounting principles.
<unk> Corporation reported first quarter 2021, and consolidated net income of $388 million.
Or $1 <unk> per diluted common share.
These results include items that are outside of core earnings. The most significant of which is a $43 million valuation allowance adjustment for deferred taxes in the quarter.
Excluding this and other smaller items. The adjusted net income was $346 million or <unk> 91 per share.
We had a very good first quarter with most financial results being in line or better than our previous guidance.
Notable exceptions, where north sea production, which John address and G&A expense, which was $83 million.
And while underlying spend was in line with our guidance of around $75 million.
Additional charges were recognized for the mark to market impact on certain stock compensation programs.
First quarter results were significantly influenced by U S natural gas pricing volatility associated with winter storm and here.
The impacts of the storm appear in several places on the income statement.
So let me take you through most of the significant items.
Since it determines the reporting of results ill first remind everyone of how we handle Permian basin gas production.
We sell all of our gas production in the basin, and then manage our long haul transport obligations separately.
We optimize those obligations through the purchase transport and sale of gas from various receipt points and the Permian basin and and the Gulf Coast areas.
Our common practice as we contract for the purchase and sale of gas is to maintain a relatively balance exposure between gas daily and first of month pricing.
As the end of January approach, we had a portfolio of purchase and sales contracts that were heavily skewed to February 1st of month pricing.
As we permanently due and this is the case, we use financial contracts to rebalance that exposure closer to 50 50.
So given the unusually high gas price spike that occurred in mid February this impacted first quarter reporting of results in three ways.
First our underlying sales contracts for produce gas determined the reporting of revenue and realizations.
Since approximately half of our underlying sales contracts for February production, whereas gas daily pricing you will see a significant increase in both natural gas revenues on the income statement and and the average realized price for U S gas for the quarter.
Second our underlying contracts also determine the reporting of revenues and costs associated with our activities to purchase transport and sell gas to fulfill our transportation obligations.
The result of these activities appear and the lines entitled purchased oil and gas sales and purchased oil and gas costs on our P&L.
Combined we incurred a loss of $54 million on net activity in the first quarter, which includes the cost of the transport and the fuel associated with that transport.
And a normal quarter given current differentials, we would expect this loss to be and the $25 million to $35 million range for.
For the first quarter. This loss was compounded by a volume and balance and our underlying purchase and sales contracts.
Which resulted in more gas purchased at the higher February daily prices and more sales at the lower first of month pricing.
And finally, since we used a financial swap to rebalance our underlying contract portfolio.
A good portion of the price Spike benefit appears in the 158 million derivative instrument and gain on the income statement.
If our underlying contract portfolio had been more balance in the first place we would not have used the derivative contract and we would not have this gain instead, we would have reported higher gas revenues and a lower loss on sales and purchase gas.
I know I went through that quickly and it can be confusing. If you have further questions. Please call Gary's team and they can take you through it and further detail.
Free cash flow was also strong and the first quarter exceeding $500 million.
Net cash is being used for debt reduction initially through the paydown of our revolver.
Excluding the consolidated effects of Altus midstream, we reduced net debt by $339 billion and the quarter, mostly through the retention of cash.
If the current price environment holds up we anticipate at least $1 billion of net debt reduction in 2021.
Turning now to some additional comments around our 2021 outlook, our full year 2021 production capital LOE and G&A guidance all remain unchanged.
And assuming the recently announced PSC modernization and Egypt proceeds on course, we anticipate adding some capital activity and Egypt for the second half of 2021.
We will update our guidance for Egypt as we proceed through that approval process.
We have also expanded our guidance to include the anticipated effects of purchasing and selling gas in the U S to fulfill our transport obligations, which I discussed previously.
Lastly for the remainder of the year, we expect our U S. Natural gas realizations will closely approximate wahaha and El Paso Permian pricing.
You will find all of our current guidance items and the financial and operational supplement.
In closing.
We look forward to a very strong year of free cash flow generation of at least $1 billion.
This should take us a good bit of the way toward our previously mentioned leverage target of around one five times debt to EBITDA under our mid cycle pricing scenario.
You should understand however that are more relevant and objective is to return to investment grade credit status.
To that and.
We will continue to budget conservatively focus on costs free cash flow generation and debt reduction and maintain close contact with the rating agencies to ensure that we are taking the appropriate steps to achieve that goal and the timely manner.
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 and the number one on your telephone keypad and Toby draw your question John.
And this question.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of John Freeman from Raymond James Sir Your line is open.
Good morning gas.
Good morning, John.
Yes.
For the first question I had was just on what Steve said, Dorothy and about potentially working on the new PSC has been on Egypt about adding some additional capital on activity on that on the second half of 'twenty, one and Egypt.
And obviously thats consistent with what you said in the past John about offense for wanting to get the U S on Egypt and <unk>.
And in 'twenty, two and beyond and sort of more of a maintenance level of activity at the least and so and on the past, but let's try and.
The commentary around Egypt had been.
For the five rigs and currently running probably wanting to get currently.
A couple of rigs more of that landscape for that that maintenance level. So on.
And I'll call otherwise by you all of that is that a fair assumption to assume net.
And you wanted to talk to you on Egypt.
And by year end.
Yes, I'll make a few comments on <unk>.
And in general on Egypt, and then I'll have Dave step and a little bit on in terms of just rig count and thanks.
What <unk> seen is finally, we can we can get out and the public about our rails important step and the process that we've been working through and modernizing our PSC and Egypt.
This is something that we started really prior to the COVID-19, pandemic, but I will tell you.
Been negotiating in good faith and in earnest with Egypt.
For more than a year and we're at a point today, where after working with the ministry of Petroleum.
As well as the GPC, we're able and analysis on Tuesday.
It's really a framework that sets the future for Egypt, we've been clear not to touch guidance this year.
And we've now have to go through the approval process and Theres some steps to go through the parliamentary process and ultimately get things ratified.
And then we will be able to talk more about it but as we go through the year, we will be picking up some activity.
There's a there's just a lot of projects and Egypt.
And Ben become noncompetitive because of the terms of the PSC and this is really going to open up some projects that were ready to fund, but I think this is going to be a win win for both the country of Egypt, and Apache and it's going to really put us on a on a much stronger than just maintenance curve for <unk>.
<unk>, so Dave I'll, let you jump in and.
And a little bit more to that yes. Thanks.
Let's step back and I think John you had you framed your question on what we've said before around wanting to maintain the maintain the business and so let's let's think about maintenance capital. So right now we're going to spend this year roughly I'm around these are going to be round numbers $900 million of.
Net capital and Thats and in that mode productions, and a modest decline.
So we think about two places we.
Want to flex capital too.
Arrest that decline that would be and the U S and the Permian basin, primarily on and Egypt.
If you think about a rig line, we've talked about needing potentially.
A full rig on or a partial rig line.
Addition to the two we will have and the second half of this year and the Permian to sustain production and then more rigs and in Egypt and <unk>.
And we've talked about seven to eight rigs needed to sustain or maintain production there and so if you think about a rig line and the Permian and a handful of rigs in Egypt.
Which is roughly $200 million incremental dollars. So on maintenance capital is about 1 billion won and the key here is we're not talking about material growth, we're talking about maintaining production and that gives us some optionality and the portfolio to where we want to add that capital to <unk>.
And just to maintain our global production and so that frames the.
The maintenance capital and I'll throw it over to Steve to.
Add some more color on that.
Yes.
So we entered I think good context for this is that we entered the year as people will recall seems like years ago.
And this year with a plan that was based on $45 <unk> and then head on.
And as Dave.
The development capital and 900 million and development capital. If we just set aside Suriname was about a 60% reinvestment rate and.
At current strip that same amount of capital is less and a 40% reinvestment rate. So clearly this is not a reinvestment rate that's going to sustain and it is not a maintenance level of capital spending.
And so we've got a continued slight decline and production volumes and we've talked about this and the past that the.
And number one priority coming into the year when it still looked.
And like a pretty difficult year was that we needed to get that paid down we needed to get the balance sheet strength and and we needed to start that process and that was the most important financial priority.
But it is it.
It is prudent to.
To spend at a maintenance capital level and to maintain the production volume going forward and we probably need somewhere in the neighborhood of $100 million to $200 million more development capital in order to get into that neighborhood.
And with prices, where they are and if they hold up I think.
We're likely.
To start increasing capital in the second half in order to get to that point and most of that as Dave outlined is going to be in the Permian and Egypt, and especially in Egypt with the modernization.
Or does that proceeds and gets to final approval and.
And I just wanted to echo on that.
The issue there was the old structure of the PSC and how they work for these.
Were very old vintage PSC structures and it has nothing to do with the fact that.
That Egypt actually has.
Some very highly economic opportunities and quite a bit of them and.
And just needed and the PSC structure that enabled.
And the capital investment in that and on.
Just echo once again John's point that none of this is and our guidance, it's not and the capital for guidance, nor is it and the production volume or anything else for guidance and.
And.
And just to reinforce what Dave said.
I would ask that you. Please don't throw us into the bucket of growth because this is not this is not.
And not an aggressive gross spending plan. This is just about a prudent step towards getting to at least a maintenance level of capital spending.
I appreciate that makes a lot of strength.
A follow up.
And related.
And just sort of tied to that is and I see what sort of the activities Brandon and Suriname for the first half of the year, where total made the decision to for.
<unk> focus more on our plainville here in the first half for the year as opposed to immediately taken that second rig up to that bond buying for the exploration program and I guess, we'll just wait and see when when we ultimately get up to bond Bonnie but at the hearing and leased it seems like just given that you are on.
And for 12, 5% on appraisal Hearst and 70% on exploration and it seems like that created a little bit of slack in the budget and unless I'm reading too much Sandra and Theres at least a little flak because just by definition. It seems like John on budget from where you started the year is probably a touch lower just given the.
On the Marvel skewed toward appraisal versus exploration at least through the first half of the year.
Yeah, and I guess, John and we look at the CERN on budget, we really havent touched that right I mean, it's just a timing thing.
And our bond money will be the next exploration oil, we're obviously anxious to.
And to go drill it and it is 45 kilometer to the north so.
And give you an idea of just the scale and scope. So we arent shifting dollars, they're consuming any of that we've left the sirona and budget kind of where it is but it's just to kind of timing and.
Quite frankly, we had a pretty good idea of what their cadence was going to be as we entered this year anyways.
Great I appreciate it guys.
Thank you.
Thank you. Our next question comes from the line of Doug Leggate from Bank of America. Sir Your line is open.
Thank you and good morning, everybody.
And I'm going to pound and John a little bit on Egypt.
To run the last Johns questions.
Steve I Wonder I know youre going to give us details later on but I was just wondering if I could touch on a couple of aspects.
Why this could be a big deal for you guys. I think it is 10 years and strip pushed our framework on this believe it or not.
On the cost pool and the potential for extension.
And the implications of that seismic shoot you've been doing particularly over the.
And the oil play and the Western Desert.
All for any quantified can you quantify perhaps what new ring fence and can do to the cost recovery on the cost per what you have that standing there and whether you would get an extension on those concessions as part of this agreement.
No I mean, Doug Great question, and you'll have to just wait and.
Till we get thanks, finally approved for us to really dive in and give any a lot of details on it but I'll just say stepping.
Stepping back it's a holistic approach. This is something that will be good for Egypt. We've looked at things very carefully. This has been a process that has been very lengthy and very thorough and very comprehensive and it really is in line with the ministers objective on modernizing.
The oil field, and Egypt, and I think it's going to have some some benefits. So it's going to enable us to direct more dollars and to the drilling programs and and to the volumes, which youre going to generate more revenue and so we've got a deep inventory.
We're seeing good early results off of the seismic.
With the <unk>.
And the announcement that we had this within the supplement this go around so we're excited about Egypt and.
And quite frankly.
This really puts us in a position where we can fund some projects that are ready to go.
Forgive me for getting technical on this John but I just wanted to make sure you understand my question do you have isolated cost recovery pools that you couldnt recover because they will ring fence and.
And I'm just trying to understand if you could you share the production could go up sort of overnight and as a consequence of being able to tap into those cost recovery calls without any incremental capital.
Fully understood your question.
And I'll, just say again I can't get into a lot of details until.
And until we close but this is going to be a win win for both us and Egypt, and it's going to it's going to let us put more dollars on the ground.
And then raise on investment Steven you want to yes, I would just say, Doug we applaud and respect the effort.
We just can't get into details because it's still got quite a bit of process to go but we've made a major milestone here.
With the with the agreement in principle and.
And so we're on our way and I would just like to reiterate.
Egypt is a fantastic country to do business and and it's got some of the best underlying opportunity and our entire portfolio.
And long legs on that net.
Inventory is we're proving with the seismic and some of the activity going on on the exploration side and.
And all we're accomplishing this.
As the.
Is getting rid of.
And old outdated PSC structure that created artificial barriers.
To being able to access some of that really attractive opportunity and.
Yeah.
We'll give a lot more details as we get closer to this.
And I don't want to hold the coal guidance always obviously my first question and my second one on go to soon on this time, but I'd like to ask you Steve about free cash flow.
Look obviously $500 million John.
And for working capital of $1 billion for the year at current strip Theres, something something not adding up there and I just wonder if you could just frame for us what you think the scale of the moored on $1 billion could look like and more importantly, and.
And a relatively complex portfolio on some people's view, what's the longevity ex tsunami of sustaining that free cash flow from the current portfolio and I'll leave it there. Thanks.
Yes, great, Doug and I think that.
I was probably a bit too understated and my prepared remarks, and the point of that was really just to highlight.
Where we've gotten two and one quarter from from the plan that we laid out to all of you in February.
Our original plan as I said, we reported $45 <unk>.
And it had somewhere around $350 million of free cash flow.
And the point of the.
And my prepared remarks was just indicate that it's over $1 billion now.
And and maybe I could do a little bit better than that and say that at the current strip it will be well over $1 billion.
We.
The only thing I would say about that those we don't give we.
Don't give guidance on free cash flow, we haven't done that and the past and and I don't want to start that process.
On an iterative basis at this point.
Mainly because theres so many different measures out there and what people call free cash flow and we've defined what ours is so we're very clear about that but we're going to continue not to give guidance on it and and the second thing I would say is if I. If I go back to my comments earlier around maintenance capital.
On the if we just if you just set Suriname aside.
We're somewhere.
And yet yes, we continue to invest.
$200 million in Suriname.
You only need about 100 somewhere between 100 $200 million more to get to a maintenance level of capital on the development side. So we're not far from that.
And then and so that's what you're you're you're difference as it requires $100 million to $200 million more in order to sustainably access this.
And I would call well over $1 billion of free cash flow in this price environment for an extended period of time and I think what we've shared in the past is that.
We certainly are confident we can do that for five to 10 years and.
We're always looking for opportunities to be able to do that for an extended period of time beyond that.
Steve I was really helpful. It means tsunami and the scope for free and I appreciate the answer.
Thanks for the question.
Gave me the opportunity to.
I think it'd be a little less conservative on the on the free cash flow.
Appreciate it guys. Thanks, so much thank.
Thank you Doug.
Thank you. Our next question comes from the line of Michael CLO from Stifel. Sir Your line is open.
Thanks, Good morning, everybody.
John You mentioned in your prepared remarks about potential non core sales.
Wanted to see if you could talk about that anymore, maybe what assets might be included there and.
How far along on the process are you is there a formal data room plan for that or.
Where are you on that process.
Mike Thanks for the question.
And we typically wait to talk about portfolio.
Transactions and things after we've announced them and so for so.
But I don't think it's any big secret we've had a per.
Pretty small package and the Permian, it's and the market.
And it's non core some some higher cost.
Waterflood type stuff that.
And we may be and are positioned to transact on we'll see we're kind of working through that now.
And I think the point is.
And we've got the.
The rig running and the chalk.
And we're open to looking at what we will and will not be investing in and as we make progress on things like modernization and Egypt.
It's a continual process for us so.
A lot of key things going on.
But we are open and always looking at various things with the portfolio.
Okay. Thanks.
Wanted to ask on Cerner and I'm, just kind of a follow up on the.
The deeper test that just because you ran into the <unk>.
Pressure issues before you could test and <unk>.
I think you said in your release.
Nevertheless, help validate your geologic model I just wanted to see if you could add any any color on on that and what you saw and that process.
Well with <unk> there were a couple of things that happened there that I think for key.
And number one we got down below the on conformity I think number.
And prove that we had charge and hydrocarbons and that's obviously why we had to stop and.
And then the other key fact that was important was it that depth. We proved that we could have quality reservoir and the.
And those carbonates and so and it also was very very rich hydrocarbon not just on dry gas so.
We're encouraged by that.
It's a it's a prospect and a play that's going to need to be tested but.
But it's also going to take a different well design and what we had we were very close to getting down to the first target. There were two targets that we're going after but we had to call. It early and we did.
But that's something we'll be working with our partner total on the come back with a and exploration well that will test those near <unk> and targets at a later date because both of US we're encouraged by what we had seen.
Leading up to getting very close to the first target.
Great. Thanks, John.
John.
Thank you. Our next question comes from the line of Zheng Huang from Barclays. Ma'am. Your line is open.
Hi, good morning, everyone and thanks for taking my question.
Good morning Jeanine.
Thanks for the time.
Okay.
And medium term plan for adjusting the balance.
Got it and kind of free cash flow on Orion and so there's a lot of off.
And do you.
And to retire debt that comes due or other opportunities.
For the refinancings earlier.
Yes Jeanine.
So this is Steve yes, we've talked about the fact that we are we've talked externally about.
We're targeting.
And at least getting down to one five times debt to EBITDA.
We may need to move lower than that.
Certainly the direction things have been moving and general overtime.
John.
We believe so.
And at or below that number as is.
B, what's required to get back to investment grade and as I said in my prepared remarks that that's ultimately the real underlying goal is to get back to investment grade and we're going to do.
It takes to do that.
Were clearly, making some tremendous progress there.
This year.
And by our estimation at the current strip.
We will have net debt to EBITDA down to approaching two about $2 one times debt to EBITDA at the end of this year.
Even if you adjusted that to what would what would happen if we were and a $55 price environment for 2022.
Still only be slightly higher than the $2. One maybe two two or two three so it doesn't move up considerably so.
And we've made tremendous progress or will make tremendous progress. This year if prices hold up as far as how we're going to do that we haven't gotten into the details of exactly how we're going to do that but it obviously has to result in and.
And paying off some of the bonds.
Historically and what we.
We've generally said is we're going to do it the same way we've done it in the past and we've done combinations of of open market repurchases, we've done and <unk> ones.
And we've done tender offers refinances and we will do all of the above.
Don't believe at this point and time I don't believe Youll see a material amount of refinances going forward until we get to back to investment grade.
And we've got about.
On a little over $335 million of debt maturing and the next couple of years and that will just be paid down as it matures.
Okay.
And then following up on nickel and to get back to investment grade.
How do you use that for.
Good day.
Dividend.
Thank you.
Thank you.
And at the same time.
Okay.
Yes.
Obviously, both of those are important I think we have to get the balance sheet and order and get that down and get at least at a minimum and get back closer to a point, where we think we can achieve investment grade before we start looking at the dividend again and.
Sure.
As we've discussed before and I think we've talked with you specifically about it we look at debt pay down is a return to shareholders. Because every dollar of debt that we can get off the balance sheet today and will add more than $1 to the to the market cap of the company. We believe because we think that the debt level.
<unk> is actually weighing on the share price and so while it's not the same as a dividend and we recognize that.
It does benefit shareholders directly with debt Paydown and.
And.
We havent made any specific plans as to what we're going to do we've got it.
Okay quite a bit still to accomplish on the debt pay down.
Effort.
As I said, we will accomplish quite a bit of that hopefully this year, we will need to do more of it in 2022, and and an appropriate time, and we'll reconsider whether we need to bring the dividend back or whether we want to start bringing the dividend back.
And we will certainly hold out the option that we can start looking at the dividend prior to actually getting investment grade that's clearly an option for us.
Thank you for all the detail appreciate it.
Thank you. Our next question comes from the line of Charles Meade from Johnson Rice, Sir Your line is open.
Good morning, John to you and the rest of your team there.
They're more on Charles.
And I'm wondering if I could go back to Egypt.
And just to ask a question I think I know the answer but in principle.
I recognize you can't talk about the details yet but in principle or are we talking about that there is there is some opportunities there are obvious to you.
And obvious to Egypt, but but it's also obvious to Egypt that youre not pursuing them because of the maybe some oil price thresholds that are quite low and this PSC and so so that's the win for them do I have the right framework.
Yes, I'll, just say that there were some projects that the PSC was making them less competitive right and.
And by modernizing the PSC is there for those projects that move up the queue that we can fund and we'll be looking forward to so there's no doubt.
It is a critical step and this is not.
It's not uncommon and you got to understand these PSC as we've been in Egypt for over two decades now.
And a lot of these fields have been operated since the mid nineties, and so stepping back and going through this this is just the evolution that's required.
And in oilfield right. So.
Yes, that's right and I imagine if you'd asked the people who had written them if they would.
And for all time, they would've said absolutely no.
Yes.
If I can ask the second question about <unk>.
You'd mentioned in your prepared remarks, and you guys put out a press release about bringing Tracy Henderson on to head up Youre. Your exploration. So she has she has.
And some experience drilling offshore Suriname.
And I'm wondering if you could just talk a little bit about more a little more about where you see her.
Getting Robert and the road are really helping your process both on the near term and the long term I know that youre still the operator of block for 53, if I'm not mistaking. So that's one obvious place and the near term, but can you can you talk a little bit about how and how you expect your to fit in and contribute.
And I think it's all about building the.
The executive leadership team that we want for long term.
And Trey.
Tracy brings a wealth of experience and.
And our wonderful skill set.
And she has worked and small publicly traded companies. So she understands where they had to explore for a living.
I think she'll bring a lot of expertise a lot of experience she has built.
Exploration teams I think we've got a lot of key pieces here that she'll be able to come in and hit the ground running and work with and a portfolio that that for.
Fits a lot of her expertise so.
She was absolutely our number one candidate and we're thrilled to have her.
And we're join us.
Thank you for that color John.
You bet.
Thank you. Our next question comes from the line of Gail Nicholson from Steven Ma'am. Your line is open.
Good morning.
We came in slightly below guide for <unk> can you talk about the drivers here and the ability to ramp up.
Any of those <unk> savings going forward.
Yes, Gail this is clay branches and with regard to the low <unk>.
Master pool performance by our operations folks and the field. They did a great job. They understood. The task that was and hand last year. We went through some significant cost cutting exercises, we identified the areas, where we could cut cost we knew that those needed to be sustainable, especially when we're looking at.
Commodity prices and 2020, so we had an all hands on deck approach to this there was a lot of bottoms up initiatives that led to this low reduction and it wasn't short term. It wasn't just deferral of expenditures maintenance et cetera, there was some of that.
And it wasn't significant the big issues here and LOE reduction had to do with those initiatives that took place. If you take a look at where we had the most significant reductions it was in the Permian a lot of that had to do with the wells that we shut in and we have a lot of wells that are what we call frequent Flyers wells.
Go down a lot.
We took those out of service and those are still shut in because they cost us a lot of money and theyre not economically economic to run.
Furthermore, a lot of our waterflood properties that just werent, providing the economics and we went through and looked at these on a on a well by well field by field basis.
Theres, a lot of water and thats not being injected right now because it's really expensive to inject that water.
We still have approximately 300000 barrels a day of water that we don't inject which saves us a lot on electricity and a lot on main maintenance a lot on personnel overall, so in general and sushi approach that we took we want to maintain that that's something that we talk about us and operations group on a regular.
Basis, how do we maintain this low low profile as we go forward.
In light of the fact that commodity prices are increasing we do have concern about inflation and service cost. So we focus on making sure that we keep that low down continue to strive to find initiatives that are going to keep the low down and flat in light of the fact that we know that there's going to be some inflationary pressures.
Going forward, so really again, just kudos to our operations team for getting us to where we are and maintaining and those levels.
Great I appreciate the clarity and then just moving on the ESG front and regards to carbon capture from on your North Sea peers are looking at carbon capture project are you and the process of potentially doing anything in that vein and where do you see any potential for carbon capture project on your north Sea portfolio.
Dale on the ESG front.
And we've emphasized there's really three areas we're focused on.
Fairwater communities and people right and I think the key for US too is we're focused on near term projects that we can do that can make an impact and I think the area. We're focused on right now mainly is.
And as flaring.
And in the <unk>.
Basically and the U S, where we're committed to eliminating our routine flaring by year end this year as well as delivering less and 1% flaring intensity. So key.
He goes there we're looking at things and the North Sea.
But as far as right now the near term things, we're looking at some of the low hanging fruit that we can we can get after and I don't know clay do you want to add anything on the carbon side and the North Sea.
No.
You said, obviously, there is a price on carbon and the north sea, which creates opportunities and anytime you have a price on carbon.
And that creates some economic incentives to study carbon capture so we will take a look at that anywhere that we see a price on carbon and.
It is something that we are paying attention to and the north Sea and like John said, what we're focused on right now from an ESG standpoint are those areas that we have control and which are going to be impactful for Apache. So the really big initiative for us from an ESG standpoint is to and our routine flaring and the.
The us onshore by the end of 2021 and <unk>.
We think this is really significant you hear a lot of ESG claims out there that talk about.
Some type of initiative Thats aimed at 2000, 32040, 2050, but were doing and saying, we're going to and routine flaring by the end of this year and we think that's really significant.
And it represents a significant commitment by Apache to do the right thing and to produce responsibly and we've shown that over and over if you take a look at the investment that we have made and midstream solutions to make sure that we were performing responsibly.
Not only with Altus midstream with those gathering and processing assets that we have and the Delaware basin, but also on a significant investment and the Gulf Coast Express pipeline Permian Highway pipeline.
Are those are moving over 4 billion cubic feet of natural gas out of the Permian basin, not only serves Apache and serve as a base and in general getting that gas out of there and creating opportunities for others to get gas that otherwise would be flared out of the basin. So we've put a lot of investment and those pipes.
We've put a lot of commitment in terms of firm transportation to anchor those pipes. So we feel like we're really doing a lot that impacts the gas flaring and ESG initiatives and real time.
Great. Thank you and great quarter, and looking forward to the back half of the year.
Thanks Yale.
Thank you. Our next question comes from the line of Paul Cheng from Scotiabank, Sir Your line is open.
Thank you and good morning, guys.
Good morning, Paul on Ken.
And I just get some maybe.
And your intention.
For Egypt, and Permian over the next several years.
I mean, we know that you most 90 day or not.
And that topic on to raise that.
<unk>.
And to the sustaining level for.
For those two area, but over the next several years that we go into trying to maintain and flat or that you were trying to grow.
And if that in any shape or form tied that to Europe that we touched on pocket for that.
And that decision, making on what at that.
Process, it's going to be.
That's the first question.
Second question your same store and name.
Total have indicated with sense and the first development this year.
Coming on stream in 2025 and the tie off.
You can put y.
And that which discovering its going to be pocket and what did that you will be doing similar to what Exxon Liza.
And these are one using a small net shape.
Hey, good assay early production system trying to learn.
The recipe and then.
And the whole operation.
For you go to the coupon on operation.
Yes.
Paul Thanks.
Two good questions I'd say first of all.
When we look at the portfolio, we've said for 2021 and not to touch guidance or anything right now so.
Modernization on Egypt is going to have a big impact for us.
Is going to enable us to put Egypt back on a track for we can grow those volumes and I think it's going to be very beneficial and I think in Permian and we've got one rig running today, we're planning to pick up a second rig mid year.
And as David said, we need to grab another rig there to kind of maintain our Permian volumes.
And that would be and the objective of ours, but I think as we look going forward beyond that we don't see trying to ramp up to a big activity pace and try to grow aggressively that we think we want a modified.
Moderate investment pace, where were investing very wisely, and very making very capital efficient use of that capital.
On your question on Suriname.
Clearly we're underway with his total as operator, they've got two rigs running in the vicinity of oil.
And the <unk> discovery.
We have not put out any timelines on I don't see.
Anything magical about when you need the <unk> project I think the key for US is us doing the appraisal work and collecting the data. So we can ultimately via project.
Theres lots of Optionality, you're very likely looking at potential.
<unk> like whats been done next door, but its just really premature.
To get into anything there I don't see anything magical about a year and timeline.
To make our first oil 2025, and I think that could easily slide into next year and still make that type of timeframe.
So we're not not pressing for and a hurdle there you want to do the work you want to do it right and then you want to be and are positioned to FY data projects, when you're ready to FY day the projects.
Hey, John.
Just to go back into the first question that you say you are not going to incur.
The increased activity on non and trying to have a matrix.
Major growth.
That's a function to deal with that.
The reduction pocket that because you have and which that yet or that is just because you think the worst is more oil even though the commodity price is strong.
No I think.
Paul I think and the short term, it's a function of.
Needed debt reduction, but I think longer term, that's just and it's part of the function of.
More cash flow for per shareholders and.
We've been and.
We have been and are positioned for quite some time the growth was not an objective that was worth chasing and and of itself and.
And that this business needs to be something thats, returning cash to investors.
Need to get the balance sheet fixed first in order to do that as I mentioned earlier, we think we think reducing debt is a return to shareholders just a different type.
But longer term.
And when we get that where it needs to be we're not.
And to be looking for double digit growth, we're going to be returning cash to investors.
And Steve I just want to.
And we affirm that and I think earlier you guys set that.
Going to add a rig in.
And that's not including and the current budget and same net debt.
Paul Permian and you cant.
And to maintain has effect, but that's what and so we go into depots and that means that overall capex for this year and it's going to be Hyatt and $1 1 billion anyway.
Yes.
But let's be clear one more time.
We are not changing our guidance at this point and time, we just said that if prices hold up and we continue to make progress on the Egypt modernization, we may be looking at some further capital spending or capital activity and the second half of the year.
If we were committed to doing that we would be looking at contracting rigs and we would be telling you we're changing guidance, but we're not doing that right now.
Perfect. Thank you.
Thank you. Our next question comes from the line of Leo Mariani from Keybanc, Sir Your line is open.
Yeah, Hey, guys just wanted to follow up a little bit on Egypt here.
In terms of the <unk> discovery can you, maybe just give us a little bit more color around that and is this something that arose out of the.
New concessions and new seismic that you folks shot.
When do you see first production.
From that potential discovery here and then additionally.
Do you think that this discovery unlocked a bunch of other drilling opportunities for you late this year and into 2020 two.
Yes, Great question. It is a result of the new seismic.
And it was 2013, when we shot our last vintage and then we started shooting.
And this new seismic and really the 18 19 and still shoot and process out there.
And it's given us more clarity, where we can see things that are more subtle and we're starting to move really from just drill and big bumps to things that have a stratigraphic element to them.
This is a trend where it sets up multiple wells within the discovery area, but it also sets up very similar looking prospects that look much like it so.
Sure.
It really gives you some insight into the lens, we have now and the opportunity that we know sits out there that we now can start to crystallize.
As we continue to drill more wells off of the new seismic and refine that process. So.
And on timing I don't have that for you today.
And I can look I think quake and jump in on that on actually on the <unk> well, yes. So Leo this is clay branches and on the timing for the deed, we're laying pipeline right now and we're making sure that we have a pipeline that is sized for appropriately for the <unk>, but also for growth opportunities just like what John said.
Based on <unk>.
Follow on wells in and around the deed and at that.
Pipeline is being laid right now.
And should be and service in the fourth quarter of this year.
Okay. That's helpful and just wanted to jump over to the North Sea here.
And you guys certainly had some unplanned downtime and the first quarter, but you're also saying theres going to be it sounds like some more of that and the second quarter and then maybe some normal planned turnarounds and in third quarter could you give us a little bit color on how you see north sea volumes progressing would you expect second quarter net to go down further it would be more flat with first quarter.
And then just kind of what's.
For the cadence into into third quarter or is it down further and I think you guys were saying that fourth quarter production should be up a lot and just wanted to understand.
Thanks for the quarters, Yes, I mean, it's all planned activity.
And second and third quarter oil from the get go plan is pretty heavy maintenance periods.
We were unable to do some of it last year, so theyre going to be a little heavier this year.
And then youre going to have a really strong rebound and.
And Q4 and as we bring everything back on line. So I think the.
Our guidance for the year as we.
And we reiterated that.
And I don't know Dave is there anything else on shape or anything for Qs two and three for North Sea, Yes, just to reiterate what John said the charge in the second and third quarter, and probably a little larger than normal because.
They were abbreviated last year because of COVID-19 issues.
And so.
And we'll see.
Second and third quarter impacts.
Rough order of magnitude those are kind of and the 6500 barrel Boe per day range expected through the quarter for second and third quarter, just on those impacts and.
We will see a rebound in the fourth quarter.
Again, as John said, no change to the guidance.
Okay. Thank you.
Yes.
Thank you. Our last question comes from the line of Neal Dingmann from Chu with Securities. Sir Your line is open.
Thanks for squeezing me in guys.
John It's my last question that I don't know that anything about this but I'm just wondering we've seen a nice run continue not only in dollars and oil and gas any thoughts on potential incremental activity and alpine this year early next.
Yes. This is Dave for cell.
Yes.
From a from.
From an activity standpoint, we have five ducks that we're completing as we speak we completed two earlier and the year were going to evaluate the performance of those but given where oil prices are and we've got a as we've talked about on this call. We have a constrained capital budget with oil and the <unk> Thats hard for.
For.
For alpine to compete.
With oil your capital in the Permian and and Egypt. So.
And our view is let's let's evaluate the performance of the Ducks and then we'll decide and evaluate.
Evaluate potential third party capital.
Sure. It makes a lot of sense, then just lastly quickly and <unk> seen any.
Just on SaaS or their cost inflation, not only domestically, but I'm just curious internationally do you see much over it on the two plays.
Well capital so far the answer is no we would we're looking for it we'd anticipated.
We're we're looking at steel to see if we see inflation on the CTG side of it and I think where we're feel on the inflation and clay talked about it.
On the lease stuff on your basic operating.
Chemicals and diesel costs. So we're seeing a little more real time inflation on the <unk>.
Low level and less net.
The capex level right now.
Very helpful. Thanks, again for squeezing me in.
Yes, you bet.
Thank you and there are no further questions on queue I will now turn the call back to John Christmann, Sir. Please go ahead.
Yes. Thank you.
I'd like to leave you with the following parting thoughts.
Delivery was very good and the first quarter and we have reiterated our full year guidance commodity prices continued to be constructive and we have clear visibility into at least $1 billion and free cash flow this year.
And we're seeing the benefits of our diversified portfolio is increasing volumes and the Permian over the next two quarters will more than offset the seasonal planned maintenance downtime and the north sea active.
Activity will also be picking up and Egypt, as we move into the back half of the year.
We have successfully transitioned operator ship on block 58 to our partner total with two rigs conducting very active appraisal and exploration programs for 2021.
We look forward to updating you on our continued progress throughout the year.
That concludes our call today.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
Okay.
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