Q2 2021 APA Corp (US) Earnings Call
[music].
Welcome to the a P. A corporation second quarter 2021 earnings results 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. During the session you will need to press star 1 on your telephone.
Please be advised that today's conference is being recorded if you quantified assistance. Please press star Zero I will now hand, the conference over to Eric Hart, Vice President of Investor Relations. Please go ahead.
Good morning, and thank you for joining us on Apa's corporations second 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 in 2021 outlook.
Tracy Henderson Senior Vice President of exploration Clay Bradshaw Executive Vice President of operations, and Dave Purcell Executive Vice President development will also be available on the call to answer questions.
Our prepared remarks will be approximately 12 minutes in length and 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 second quarter financial and operational supplement which can be found on our investor Relations website at Investor Day, AP a corp dot com.
Please note that we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
Consistent with previous reporting practices adjusted production numbers cited in today's call are adjusted to exclude non controlling interest in Egypt, and Egypt tax barrels.
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'll turn the call over to John.
Good morning, and thank you for joining us today.
In my prepared remarks, I will review a corporation second quarter results and comment on our outlook for the remainder of 2021.
The company is making good progress on several key initiatives, we generated nearly $400 million of free cash flow during the second quarter and at June 30 held approximately $1.2 billion of cash which will be used primarily for debt reduction.
In May we reached an agreement in principle with the Egyptian Ministry of Petroleum and Egyptian General Petroleum Corp to modernize the terms of our production sharing contracts. The final draft of which has now been completed and we will move to a gypsum parliament for ratification in the fall and then to the president for his approve.
<unk>.
We are pleased with the progress thus far and believe that this modernization will return Egypt to the most attractive area for capital investment within our portfolio and we'll put a gypsum oil production back on a growth trajectory.
In Suriname as announced in our press release last week.
We drilled a successful appraisal well in the <unk> area moving us closer to our goal of sanctioning. The first commercial oil development. We are generating strong results from our DUC completion program in the Permian and during the second quarter. We closed 2 smaller scale central basin platform asset sales as <unk>.
We continue to optimize our portfolio.
On the ESG front.
<unk> continues to deliver on our key initiatives and safety metrics.
Most notably at the beginning of the year, we established an ambitious goal of eliminating routine flaring in the U S. In 2021.
And I am pleased to announce that we will achieve this goal in the third quarter.
This is the result of adding compression where appropriate setting clear expectations and rules in the field and improving hydrocarbon processing at locations.
These efforts have also helped to drive down our flaring intensity, which is tracking well below our goal of less than 1% for the year.
We are also making great progress on our water initiatives in the U S. We are currently at 3% freshwater usage, which is also well below our goal of less than 20% for the year.
Turning now to operations total adjusted production exceeded our guidance in the second quarter with the U S benefiting from better than expected performance throughout our Permian Basin DUC completion program.
This more than offset lower international volumes were higher oil prices impacted Egypt cost recovery volume and we experienced extended operational downtime in the north sea.
Upstream capital investment was below our guidance for the quarter, primarily due to timing, while LOE was slightly above expectations, our full year outlook for these items remains unchanged.
In the U S. We placed a total of 27 wells online in the Permian, including 5 at Alpine high.
In aggregate these wells are significantly exceeding internal expectations, driven by a combination of optimization initiatives.
This effectively completes our backlog of Permian Ducks, So you will see fewer well connections during the second half of the year, you'll also see Permian production come down a bit in the second half of the year as our current pace of drilling and completions is not sufficient to offset the initial declines from the DUC completion program.
As previously planned we added a second Permian basin rig in late June, which will enable a steadier pace of completions in.
In the East, Texas, Austin Chalk, we drilled 3 operated wells and are pleased with the results thus far.
We are evaluating the addition of a third drilling rig in the U S. As previously noted which would put us on a path to sustained oil production given.
Given strong oil prices and the recent improvement in natural gas and NGL prices all of our U S asset areas are attractive candidates for this rig addition.
In Egypt, we have increased our rig count to 8 and continue to build high quality inventory across our expanded acreage footprint.
Facilities expansion constrained our ability to connect wells in the first half of the year and contributed to a decline in gross production during the second quarter as.
As we wrap up our facilities work well connections will increase significantly in the second half of the year and gross production will begin trending up.
In the North Sea, we continue to operate 1 floating rig and 1 platform rig crew.
During the second quarter production was impacted by compressor downtime extended platform turnaround work and third party pipeline outages. Some of that is carried over into July and when combined with planned maintenance turnarounds at barrel will lead to only a modest production increase in the third quarter.
Once we conclude this heavy maintenance period production volumes in the North Sea should return to more normalized levels in the fourth quarter.
In Suriname block 58, we are running 2 rigs upon completion of drilling operations at <unk>. The Maersk Valiant will mobilize to the bond Bonnie exploration prospect approximately 45 kilometers to the north.
Following bond Bonnie the Valiant will return to flow test the <unk> South 1 well.
Drilling activities continue at the cash Cassie South 1 appraisal well with the Maersk developer.
On block 53, where API is the operator and 45% working interest owner, we recently signed a contract with noble Corp to secure a drill ship that will commence exploration operations in the first quarter of 2022.
Before turning the call over to Steve I would like to comment on our outlook for the remainder of the year oil prices year to date have average well above our original budgeted level of $45 <unk> and more recently gas and NGL prices have also begun to significantly exceed budgeted levels.
This has created a very welcome amount of incremental free cash flow and will enable substantial progress on debt reduction this year.
More importantly, our 2021 capital program will remain unchanged at $1.1 billion.
Even if we decide to add a third rig in the U S. Later this year.
In June we opened our Houston and Midland offices and began welcoming back the majority of our office staff as permitted by regional guidelines. It has been great to see more in person collaboration and settings that we took for granted prior to COVID-19.
And we will remain diligent with our protocols to keep employees safe.
And with that I will turn the call over to Steve Riney, who will provide additional details on our second quarter and our 2021 outlook.
John.
As noted in our news release issued yesterday under generally accepted accounting principles API Corp reported second quarter 2021, consolidated net income of $316 million or ADT per diluted common share.
These results include items that are outside of core earnings.
Excluding the second quarter impacts of divestiture gains movements in our tax valuation allowance mark to market derivative losses, and other smaller items adjusted net income was $266 million or.
Or <unk> 70 per share.
Most of our financial results were in line or better than guidance. This quarter with just a few minor exceptions.
As we've discussed in the past we continuously review our portfolio for the right time to monetize assets that no longer compete for funding.
The second quarter, we closed the sales of 2 such packages in the Central Basin platform.
These were mostly lower margin conventional waterflood assets, which were producing roughly 2500 barrels of oil per day.
Proceeds from the sales were $178 million.
As we look forward to the rest of 2021, we are updating some of our full year guidance items.
We are effectively increasing U S production guidance by 4500 Boe per day, and decreasing international adjusted production guidance by 14500 Boe's per day.
<unk> to the midpoint of the previous respective ranges.
This net decrease of 10000 Boe per day for the full year reflects the strong underlying performance of our U S assets, but it also captures the impact of a few offsets.
The unplanned operational downtime in the North sea the.
The impact of higher oil prices on Egypt cost recovery barrels.
The recent Permian basin asset sales.
We are reducing full year DD&A guidance by $125 million.
Which reflects a combination of price related reserves additions and the impact of our changing production mix with lower north sea volumes and higher U S volumes.
Finally, other than an increase to our expected UK tax expense due to strong commodity prices.
There are no material changes to the remainder of our guidance for the year.
On a longer term perspective, 1 of our most important strategic goals is to return to investment grade status, which will require a significant reduction in debt.
In the near term progress towards this goal takes priority over the capital program, which today is still below a sustaining level of development capital.
In other words, we are willing to underinvest slightly in the short term to build balance sheet strength and financial resilience from a longer term.
We entered 2021, anticipating a multiyear process of debt reduction.
With this price environment, we're making significant progress more quickly than we thought possible.
In the first half of the year at an average <unk> price of $62. We delivered upstream only free cash flow, which excludes dividends received from altus midstream have $860 million.
Assuming current strip prices for the second half from 2021.
Upstream only free cash flow for the full year is expected to be around $1.7 billion.
The vast majority of this cash will be available for debt reduction.
The rating agencies will ultimately decide when we return to investment grade, but we will clearly make significant progress in 2021.
With meaningful progress on debt insight, we would remind everyone that we have a strong portfolio of investable inventory and it would be prudent to at least increased development capital to production sustaining level.
We estimate this would require around $1.2 billion of annual investment versus the $900 million, we are investing in development capital this year.
At this investment pace and assuming prices remain flat with 2021.
As we look out to the next several years.
Is capable of generating upstream only free cash flow of 1.6 to $1.7 billion annually.
This is all based on our current portfolio of assets and to highlight what the current portfolio can deliver this analysis assumes no further investment or future benefit from Suriname, and no free cash flow uplift associated with Egypt monetization, which is still pending.
And with that I will turn the call over to the operator for Q&A.
At this time, if you'd like to ask a question simply press star 1 on your telephone keypad.
Your first question comes from the line of Doug Leggate with Bank of America.
Thank you good morning.
Good morning, everybody.
Good morning.
Yes.
1.1 for Steven 1 for you John Thomas Okay, Steve.
Steve. Thank you first of all for qualifying more than $1 billion of free cash flow is much appreciated.
The question I have and sustainability of that.
The key thing for us.
The volume of the base business.
How long you can sustain that cash from <unk> for a significant amount of time can you put some parameters around that so we can kind of backing into what.
The market isn't team for glaucoma.
Yes, Doug and let me actually.
Put some parameters around the whole.
<unk>.
1.6 to $1.7 billion of free cash flow.
And then I talked about in my prepared remarks.
And John said it gets confusing because they are the same numbers, but John talked about 2021 being $1.7 billion of free cash flow and that's based on <unk>.
First half actual prices plus the second half strip.
And that is that is our internal most current outlook for the business for the full year in 2022.
We say 1.6 to $1.7 billion of free cash flow.
And that that is sustainable for a run of years and we can.
Talk about that a bit.
Put 2 caveats on that number 1.
We're not attempting in any way to give guidance for 'twenty 2 and beyond at this point in time, that's a hypothetical case, but I want people to understand that that's a very realistic case, we know our inventory today better than we've ever known.
And we've put together a realistic case based on what we would actually invest in the crude price environment.
As I said in my remarks, it is focused on the current portfolio and so we've.
We've kind of chosen to eliminate the noise associated with Suriname doesn't have any future Suriname capex no future soon.
Production or free cash flow and just to be clear, we don't want that to be.
Come across is any reflection on our feelings about Suriname because.
That doesn't reflect that at all.
<unk> that we used in that case are exactly the same as the 2021 prices.
Because I didn't want those to affect the comparability of the net.
The results the Capex as we know.
2021 is $1.1 billion.
In our in our hypothetical case for 'twenty, 2 and beyond it's 1.2 billion. There is a difference though.
1.1 billion includes $200 million.
Exploration has been which is mostly focused on Suriname exploration and appraisal so theres only $900 million of development capital in there.
The $1.2 billion for 'twenty 2 is all development capital.
And we've talked about.
A number of slightly lower than that $1.1 billion as sustaining capital development capital spending.
That was when we were talking about sustaining oil production volume.
The case that we put together now sustains the $1.2 billion sustained Boe.
On a per day basis. So it actually is full production sustaining.
For the for a run of years, that's adding capital to mostly to Egypt and to the U S.
Under this case there is a slight decline in volume from 'twenty, 1 to 'twenty 2 on an annualized basis, but then it has sustained from 2022 forward.
So some people might be wondering okay, you're spending $100 million more of Capex and you have a lower volume, but free cash flows roughly the same.
From 'twenty, 1 to 'twenty 2 that he would do that.
First there is debt pay down to assumed in that so theres less interest expense because we are going to pay down somewhere in the neighborhood of 1.5 billion of debt a little more than that including what was on the revolver at the beginning of the year.
And then and then the other thing that people may not fully appreciate is that.
The forward look our production mix is changing the spending will create.
Declining gas volume and growth in oil volume. So again prior case, we talked about was a lower capital because it was just sustaining oil volume. This 1 sustaining total volume, but growing oil relative to gas.
And again, a reminder that doesn't include anything in there for for Egypt PSC modernization.
Which is going to be meaningful.
The specific question that you had about the.
How long this is sustainable if we want to get into the inventory I would let David per se will take that and I'll give him a chance to make a comment here quickly, but but this is when I say for run of years I'll stick with the comment I made last time.
Asked me this question, Doug and that is at least for 5 to 10 years that we can see out into the future.
Dave you have anything to add.
I would just confirm that it's well beyond its in that.
10 year window, well beyond 5 years and once you get beyond 10, it's hard to.
It's hard to think about.
Anybody paying for that inventory, but it.
It has to stay it has absolutely sustainability to it.
Okay.
Well guys. Thanks for the detailed answer I really appreciate it because thats kind of what I was really trying to get to.
I'm going to.
<unk>.
The tip of the heart to Egypt should be significant im guessing youre not going to answer that question. So on clinical and certain non John if you don't mind.
You saw what we said about this it seems to me that 2.5 miles away with pretty much. The same statement from the formation of new oil targets.
Youre going to start to get some idea.
<unk>.
We'll likely know that we have a chance to speak with the head start solely about this as being important.
<unk>, So I wonder if you could just offer any thoughts on the resource scale at this point maybe.
A little bit of an explanation as to why not flow test.
Nobody ought to come back and I'll leave it there.
Yes.
No Doug I appreciate the question.
We're in the middle of the appraisal.
As we said we have not flow tested <unk>.
Unfortunately, just to clarify.
The the testing equipment on the volume is damaged and Thats why otherwise we would.
B flow test from that thing now.
But it's going to take some time to repair that equipment and that's why the share.
<unk> got to sell on up to bond, Bonnie and get onto the exploration well that we're excited about but we need we need flow test there and we're in the middle of appraisal. So we have not put out volumes yet clear.
Clearly, we're fine tuning things and working with things and we've talked about this being an important step.
Towards potentially NFIB, but it's just a little bit premature.
Get into areas and those things until we gather a lot more data and we will do that as we continue to appraise and analyze what we've collected but we're clearly excited about it.
Having 30 meters of 1 blocky sand full to base.
High quality is the type of thing that you can you can build around because you've got your age there, but there is a lot more to do here and a lot more appraised.
John will be out to lunch from the current mobile offer 1 billion barrels.
Okay.
Repeat that but you cut out on me, Doug I did not hear are.
Are we out to lunch.
On our tank orders to suggest.
Order magnitude with mobile oil water contact you could be sitting on 1 billion barrels of more costly.
Just not going to comment at this point, we've got more appraisal I appreciate.
The question and.
I'm going to I'm going to stick to where we are it's early we're appraising and.
But we're clearly excited about it.
But I'm not going to comment.
On your question there.
10 blame me for trying thanks fellas.
Not at all.
Yes.
Your next question comes from the line of John Freeman with Raymond James.
Good morning, guys.
Good morning, John.
The first first question just wanted to clarify 1 thing on on Egypt. If you had the 5 rigs last quarter Youre now running 8 rigs.
When we sort of think about the the PSC being approved and obviously helpful.
Vocal in again on this call about that wants it to prove that that's going to see an increase in activity I'm just trying to make sure that.
I'm using the right baseline so that the incremental 5 rigs to 8 rigs.
There's always some ethanol activity planned in the second half, but as the 8 rigs.
<unk>, we're supposed to use ahead of P&C or was there any maybe additional rigor that was added sort of in anticipation of the P&C being approved just want to make sure I'm thinking about 2022 modeling and I'm using the right starting point.
Well I mean, clearly we're taking some steps.
<unk> agreed with them, but in terms of your baselines for capital and those items I think were in the fairway to stay where we are of Dave anything you want to add.
John I think it's a good question, we've said I think hinted in the past that.
We think we need 8 to 9 rigs to keep oil production flat in Egypt, and I think you'll see the 8 rigs get get us pretty close to that.
And then we will see what.
Where we go after modernization, but I think I think John as Steve talked about post monitoring modernization could put us on a path to path to grow.
In Egypt so.
8 rigs sustain that debt.
<unk> is a pretty good baseline on your model.
Okay, Great and then just wanted to follow up.
In conjunction Steven detailed response, you gave to John.
Just a question when sort of hypothetically thinking about 2022, so if I take what you just said on Egypt, and the 8 rigs were already and sort of maintain levels and we'll just assume something north of that so like Egypt post PSC would be growing at north <unk> previously talked about.
1 rig 1 platform from kind of maintain volumes at that 55000 to 60.55 to 60000 range. Obviously first half of this year to the extended maintenance.
Good day below that so just by default and the North sea is going to be up a decent debt in <unk> versus 'twenty, 1 and then the Permian It sounds likely the base case, it sounds like it would need to add the third rig in the Permian. It at year end, 'twenty, 1 which gets that back to sort of a flattish sort of a sustained sort of profile.
<unk> on the line just hypothetically thinking about those regions right.
Yes, I think Directionally John.
That's about right most of the.
Most of the increased capital will be go into Egypt, and a bit to the north sea is to the U S as well probably not a whole lot of additional capital in the North sea, if any but it will be.
Better production in the North sea simply because of the downtime that we've had this year, which is both planned and unplanned has been pretty material for second and third quarter.
But again.
I'll just remind you John net.
This is a hypothetical case, we're not trying to give any type of guidance are rolling out.
Specific capital plans for 2022, that's still ahead of US for later this year, we will talk about that some probably with third quarter earnings.
No no understood yes the.
Knucklehead analysts like ethanol that'll be done on the speculating, but I appreciate all the answers guys.
Thank you John.
Your next question comes from the line of Bob Brackett with Bernstein Research.
Good morning, all thanks for taking my question I might be over interpreting this but the fact that the maersk developer is going to come back and appraise KED Kennedy South does that mean that if you get a successful result on the well test. That's all the information you will need on top of car to move it forward.
When would you expect more appraisal wells there.
At this point Bob.
It clearly needs to come back we need to flow test, but.
I'll just say we are still are appraising and.
We may need more appraisal.
So I wouldn't read into it anything more than that.
So there are multiple opportunities to move forward in the appraisal pipeline.
Correct Okay.
Thanks for that.
Net.
Your next question comes from the line of Michael CLO with Stifel.
Good morning, everyone and thank you for taking my question. This is actually stepping in for Mike I.
I was wondering if you could provide some additional color on the CBP asset sales.
You foresee to monetize more non core assets like this 1 are there any other assets in the U S that you would want to increase their preference.
I mean, I think we've always looked at the portfolio as something Thats kind of influx, we're always looking for things that make sense.
To monetize I'd.
I would characterize what we sold is pretty high water cut.
Higher lifting cost from properties, we've had in the portfolio for quite some time and quite frankly, it's time to move those.
Along the food chain to somebody else that.
We will put more focus attention on them and quite frankly, a little cheaper cost structure.
Sure.
At this point nothing major planned as always is the case, we like to report on these after we've done things, but we're constantly looking at a number of things so.
But nothing major planned at this point.
Okay.
Thank you and my follow up maybe on the inflation are you seeing them.
Inflation in.
Great. Thanks.
Turning to add that third rig. So I was just wondering if you would foresee a more expensive rate them on that additional rig.
I think in general on the inflation side, we had a lot of our.
The key items secured for this year I think you would get into the into 2022, and we are seeing some uptick in things that are around the commodities people things like that but.
Anything particular day 1.
On rig contracts you want to comment on.
I think if youre looking for places for inflation the completion side pressure pumping in Frac is where youll see.
See more inflation, we have that dialed into our to our forward anything that.
It has to do with commodities, whether it's steel or.
John Lowe with chemicals and diesel usage, obviously price price.
This inflation there but.
When we look at our forward plan, we think we have it adequately captured.
That's helpful. Thank you that's it from me and congrats on the quarter.
Your next question comes from the line of Neal Dingmann with terrorist.
Oh, sorry about that I was on mute.
You guys did 2 quick ones if I could first just on <unk>.
Capital allocation and how Youre thinking about things like my question is I guess <unk>.
You start ramping up in Egypt is that going to simultaneously then would that would that take capital away from the U S and others or I'm. Just wondering could you talk about the thoughts about win when that happens kind of how you view that activity versus what youre thinking domestically.
Well I mean, I think we've got a pretty good base run that we're running right now and that's where we've been we've been pretty consistent.
We did pick up.
The first 2 rigs early this year, we added a second rig in the Permian, we had a a rig drilled 4 wells in the chalk and East Texas.
In the U S but.
In North Sea has been pretty constant Egypt, we've kind of moved from 5 or 6 rigs up to 8 but in general.
Pretty pretty level loaded pretty constant and I think it will be pretty consistent as building blocks going forward you will post modernization see some some changes to Egypt, but it will not impact cash flow or the.
Capital in the other areas in a negative way.
Okay.
I assume that is good to hear that John and then just a follow up for you Steve.
To me given what appears to be a strong transparency you continue to have with free cash flow. When do you all think about I don't know either call it, notably youre materially boosting dividends or free cash flow. In addition to that Youre solid debt repayment program that you continue with.
I mean I think.
First priority is exactly that we came in.
<unk>.
This year with too much debt and we plan to pay.
Pay debt down as Steve's made very clear I think once we make progress. There then you can start to think about the dividend, but the first priority has been the debt and clearly we're on a much faster pace than we would have envisioned at the start of the year, but anything you want to add Steve.
No no.
I would just say that.
When do we think about it we think about that all the time.
[laughter].
We did realize it is a.
It's important and we need to do that.
So I'm sure with the amount of debt pay down that we're going to accomplish this year.
We will be talking about that in due course.
But again.
Certainly moving forward not backwards.
That clearly you can see thank you. Thank you all.
The next question comes from the line of Paul Cheng with Scotia Bank.
Hi, good morning, guys.
Good morning, Paul.
John 2 quick Hudson.
The second quarter effective tax way on the adjusted debt.
Operating running seems slow.
1 off items.
Dale what quantity to that seems like less than 30% effective tax rate.
Secondly, just curious I mean, I think a lot of people will argue use you'll have too many operators.
In the U S shale, we don't need all the oil operators. So wondering debt for Apache does it make sense for you to trying to fund.
Company with the nearby.
Land position and former boss schemes, John mentioned put everything together.
Everyone still have to equity ownership. So the 1 thing Andy equity premium so anyone.
But by doing it this way you can drive much better efficiency and cost improvement than.
We can perhaps that the company could be able to do so is that something that you guys would entertain or you think that is.
Does that make sense for Apache.
Yes, I'll, let Steve address the effective tax rate question first and then I'll come back to your.
The second part.
Yes.
I think I understand the question around the effective tax rate.
As Youll recall.
We have we have put a 100% valuation allowance.
On the tax benefit.
Our.
Net operating loss carryforward in the U S on the balance sheet normally carry a deferred tax asset on the balance sheet.
<unk>.
But a complete valuation allowance on that reducing that asset on the balance sheet to zero, even though we do have.
Pretty significant.
Tax net operating loss carryforward, and what we do in periods of time like this in the second quarter. When we have book income in the U S than we would normally recognize.
A tax expense, we release enough of that valuation allowance just to offset the tax expense for that quarter and youll see that youll see the $60 million and our non-GAAP reconciliation from from net income to adjusted earnings in that.
The appendix in our supplement.
So that will have the effect of lowering the effective tax rate quite a bit.
I see so so as long as debt.
These cloud commodity price. It then U S spending a fair amount, we should assume that the effective tax rate would be substantially lower.
And what.
Stay under a more normal tax rate would suggest.
Correct.
Okay.
Thank you.
And Paul Your second question, it really just boils down to value I mean, I think the nice thing about our assets, we've got high working interest.
We now have 2 rigs operating in the Permian.
I think it boils down to scale efficiency and value added and then.
Some areas that could make a lot of sense summary is it may not make sense.
But we're open to looking at things.
As always the case, but today I think we like where we are we like the pace, we like what we're doing I think.
Our wells are very competitive and the performance is very strong and I think were putting attention on the right assets within our portfolio to day for us.
Alright, thank you.
Hmm.
Your next question comes from the line of Gail Nicholson with Stephens.
Good morning.
My discussion about alpine with the scenario that you laid out and keeping now equivalent volume flat is it fair to assume that alpine potentially gets more capital on the 22.4 timeframe and how can you just talk about the 5 completing and how that compare to previous Wow.
Yes.
I'll, let Dave.
Touch on the dock performance from those and as Steve.
<unk> Gail.
It's holding boe's flat, but we actually are going to be growing oil and offsetting some of the gas so.
In those cases.
I'll, let Steve handle that and then Dave you can talk about the Alpine index, yes, Gail so just to be clear again.
We're not trying to say what exactly our capital program is going to be in 2022 and beyond.
The hypothetical case that we use did not contain.
The funding of additional drilling in alpine high so its more oil focused than gas focus.
Gas volumes going down into the future oil volumes going up but.
But we look at that all of US all of the time, certainly with gas and NGL prices improving.
Yes.
In the recent months.
Could could continue to improve.
That'll be something that we will evaluate and.
As we as we finish up this year and roll into next year, we'll get into the actual capital program for 2022, which very well could include some capital for Alpine high.
And Gail on the performance. So we've completed 7 ducks just to level set 2 early in the program and 5 kind of more in the meat of the program.
The wells.
I think all the wells are.
Meaningfully.
Outperforming our expectations and prior well results from.
Offset wells that we would have completed in the 2019 timeframe. So very excited about the results. The last the most recent 5 still still early.
They are producing net cleaned up and they are producing well, but we want to continue to watch the what's the performance curve before we.
From a respectable.
Great and then just from the exploration.
So tremendous amount of potential in Suriname, but you've also had success in other areas like the tertiary in the North sea with long Dan that you disclosed earlier. This year I'm. Just wondering how you guys are thinking about exploration outside of Bergen over the next couple of years.
Yes <unk>.
Hi, Gail I think we.
We are very excited about <unk> and as you mentioned and I think we will be looking further opportunities I think we are in a very opportunity rich environment for exploration. So it's early days.
<unk> been with Apache now just right at 2 months.
You'll hear more about that as we go forward.
Definitely we will be looking at other opportunities.
Great, Thanks, guys and excellent quarter.
Thank you.
Your next question comes from the line of Leo Mariani with Keybanc.
Hi, guys just wanted to follow up a little bit on Suriname here you guys mentioned that you are in the process of picking up a rig to drill a well Apache operated on block 53.
Just wanted to kind of get a little bit more information about that.
Is this kind of a day mandatory well to hold the block and just kind of a 1 off exploration well as you see it.
And I guess is it just kind of.
Short term re deal as a result, and we will be the rough capital net to Apache to go and execute that.
Yes.
We've actually got 1 rig or 1 well required.
To continue to hold the block and so we've got to spud a well by June of next year.
And we're excited about that I think there is a lot of prospecting and block 53.
In terms of where you look at where the costs are going today.
Well costs are probably going to be close to $100 million would be my guess for.
Gross and we've got about 45% working interest in there but.
I'll, let tracey talk a little bit about.
What we see exploration wise.
We've got both slope and more of a deepwater setting.
Block 53, like we do a buck with day.
Yes.
Yes.
Leveraging on what John just said.
It's certainly not a 1 off exploration or seen as a mandatory well I think what we've learned is an incredible amount with the exploration wells that we've drilled across 58 and the petroleum systems within the basin continues right into block 53. So we're actually very excited and we see some prospecting thats very analogous to what we've been.
Drilling and block 58, and what we've just seen with some of the recent appraisal wells and I think we've learned a lot and those learnings will be leveraged into what we see in block 53, because we do see very analogous systems.
Okay. That's helpful color and I guess, just given kind of the.
The substantial plants that are existing in block 58, which I assume is going to involve at least a couple of rigs every year for the next several years.
I know you have to get a well done by June but can you give us a sense of if you are successful.
Here in block 53.
Is this kind of just add another leg of the stool, where this can kind of that block.
There will be a block that has the current activity over the next couple of years in parallel with block 58, how do you think about the success case here.
No I mean, the nice thing is we've got 2 partners here, we've got 45%. So I think it gives us a lot of optionality as we start to think about it we are the <unk>.
Operator of block 53, we.
We did do the joint venture and hand, it over operations in block, 58% total.
But I think it just builds up more optionality and more flexibility.
For us to look for different ways to continue to advance.
Some longer term very meaningful programs.
Okay. That's helpful and I guess, just lastly on this potential for the third rig that you've talked about here.
Obviously, you decided to add some activity in Egypt, I think you guys had strongly alluded to the fact that day.
Third rig and kind of show up in the Permian just trying to get a sense of whats kind of a decision point there is it really just about.
Sustained higher capital commodity prices in the year end and if that occurs is that third rig pretty much kind of coming for next year to try to hold.
Flat with oil up in gas down a little.
No we have not made a decision on a third rig I want to make it really clear.
It's not in the budget this year.
I think it's important because we've been under investing.
<unk> sustaining levels to kind of articulate what it would take in as.
Steve said in his prepared remarks, we're prioritizing debt paydown in the balance sheet first which is why we've been under investing but the third rig will be required to get to a sustaining level in the U S and so we've got pretty attractive options for that so that's why that's framed that way.
But it is not.
It.
It's not a foregone conclusion that we're bringing it we have not made that call and capital main at the $1.1 billion for 2021.
Okay. Thanks.
Your next question comes from the line of Jeffrey Lambeth, John with Tudor Pickering, Holt <unk> co.
Good morning, everyone. Thanks for taking my questions. My first 1 just a follow up on U S. Upstream obviously throughout the first half year U S volumes have been more than offsetting the planned and unplanned international downtown which you see more about.
Your guide as well even net of the CVP sales. So just hoping you could talk more about what you've been seeing in non alpine high Permian now that we're through the first half of the year and how that might influence capital allocation within non alpine high production specifically.
Yes, Jeff.
Jeffrey this is Dave.
Good thanks for the question.
We're seeing.
Meaningful uplift in our performance.
On the Permian ducks outside of alpine as well and it's.
We're optimizing on a number of different different variables. We're excited about that program and so when we I think I think Steve talked about it in his prepared remarks.
Look at our U S portfolio, we have multiple places where.
That could compete for the capital for that third rig and that would be.
The chalk it could be in third rig in the oily Permian and possibly the.
A third rig in alpine so we're evaluating those but we're we're very excited about the performance.
So we've seen and the improvements that we continue.
Okay.
Got it. Thank you and then second just to try on the Egypt, PSC modernization and understanding you cant speak to specific terms is there anything you can share at this time, maybe just talking about.
Mechanics are in flux that will help to increase capital allocation to that region.
No I mean, I think you've just got to look at it in terms of modernizing its.
We've got a lot of concessions will be collapsing those merge in joint ventures. I mean, there is a lot to do there administratively thats going to make it easier and it will effectively keep us from trapping capital but.
We're not in a position to elaborate more than more than that today.
It's going through the approval process.
Should be in a position to talk about it.
Later this year for sure.
Great. Thank you.
Your next question comes from the line of David Heikkinen with Pickering Energy.
Good morning, guys and thanks for the hypothetical frame market. It is helpful and we won't hold you to it from.
From your budget.
1 of the things that we are curious Bob.
On the gas side have you all thought about joining any of the oil and gas methane partnerships certifying and natural gas are moving in any of that direction.
To really quantify it.
Improvements youre showing around emissions.
Yes, I think we're a member of 1 future.
<unk>.
I think our approach has been to take real tangible projects and steps that we can take.
We're in the middle right now of working on our sustainability report, which will be coming out.
Later in the year like we always do and what we're monitoring all those things.
I think the key for US is trying to focus on award of the material things. We can do in our business that are going to lower those emissions.
And drive performance stripe and so those are the things we're focused on.
And then as you think about your operations globally.
Would you move towards quantifying carbon equivalent emissions per barrel for the North Sea, Egypt U S operations.
Yes.
We'll stay tuned and monitor.
Where things are going I mean for.
For us we recognize we have.
We need to continue to lower our footprint.
We need to be in a position and continue to monitor and measure those.
And take those steps.
And then we will be making the determining.
Determining how what's the best way to show it in the best.
Best way to quantify it and also how to attack it in the end it's about lowering emissions.
Okay. Thanks, guys.
Yes.
At this time there are no further questions I'll turn the call back to John Christmann.
Thank you so before ending today's call.
I'd like to leave you with 3 points. The first 2 of which are important catalysts.
First we are very encouraged with the progress in Suriname.
Look forward to having further results later this year.
Second the PSC modernization in Egypt will have an immediate positive impact for both the country and IPA and we were very pleased with how things are progressing.
Finally, the free cash flow capacity of our base business is robust and sustainable and this will materialize and returns to investors.
Thank you for participating in our call today, operator over to you.
Thank you ladies and gentlemen that concludes today's conference call you may now disconnect.
Okay.
[music].
Yes.
[music].
Yes.
Yes.
Yes.
[music].
Yes.
Yes.
[music].
Sure.
[music].