Q2 2022 APA Corp (US) Earnings Call

August 4, 2022

Okay.

Ladies and gentlemen, thank you for standing by and welcome to the.

Corporations second quarter 2022 results conference call at this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone.

It is now my pleasure to introduce vice President of Investor Relations Gary Clark.

Good morning, and thank you for joining us on a PAA corporations second quarter 2022 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 outlook.

Also on the call and available to answer questions are Dave Pursell Executive Vice President of development, Tracy Henderson Senior Vice President of exploration and Clay branches executive Vice President of operations.

Our prepared remarks will be around 20 minutes in length with the remainder of the hour allotted for Q&A and.

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 that API 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 Noncontrolling interest in Egypt, and Egypt tax barrels.

I'd like to remind everyone that today's discussion will contain forward looking estimates and assumptions based on our current views and reasonable expectations how.

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.

On the call today, I will review, our second quarter highlights and discuss key trends and performance in each of our core operational areas.

Following that I'll provide some color on the 2022 guidance, which we updated last night in our earnings release and supplement.

Over the past few months fears of economic recession, a new wave of Corona virus outbreaks and concern about potential demand destruction have created substantial volatility in commodity prices and the value of energy equities.

However, the pullback in oil prices from the second quarter peak is healthy for both consumers and producers.

We continue to have a positive outlook on the long term fundamentals for natural gas and oil and view Apa's stock is a compelling value today.

As I look at our second quarter results I see several key highlights.

<unk> generated record free cash flow of $814 million.

We repurchased 7 million shares of common stock followed by an additional $6 9 million of share repurchases in July .

Gross oil production in Egypt increased by more than 7000 barrels per day versus the prior quarter, which was our first material quarterly increase in Egypt oil production since 2018.

Our forties field maintenance turnaround in the North sea was executed safely and on budget.

We advanced our program in Suriname, what the successful flow test at <unk>.

And we made excellent progress on upstream flaring reductions in Egypt and are on track to achieve our 40% reduction target by year end.

The second quarter was very good in many ways is our diversified unhedged portfolio benefited from rising oil and gas prices and high margins.

However, we have encountered a few challenges.

In Egypt, although we delivered strong oil production growth in the quarter, we are experiencing some delays and inefficiencies as we scale our active rig count from five to 15.

These include supply chain equipment, and infrastructure related delays longer than expected time to staff and reactivate cold stacked rigs.

Extended drill times, which are primarily a function of new rig and new crew inefficiencies.

And <unk>.

Increased regional competition for experienced national employees.

Well performance in Egypt has been in line with expectations. So these are mostly short term above ground challenges.

We have identified and are swiftly taking appropriate actions that will bring us back up to pace.

And the Austin chalk our delineation program has generated mixed results. Thus far so we have chosen to pause most of our planned drilling and completion activities.

I will talk more about the impact of these items on our second half guidance in a few minutes.

Turning now to some of the details of our second quarter results, our largest spend categories.

Capital investment operating costs, and G&A were in line or less than expected for the quarter. Despite a challenging overall supply chain and cost environment.

Total adjusted production of 305000 BOE per day was down compared to the first quarter, primarily driven by our early March Permian basin minerals divestiture, the impact of high oil prices on our Egypt, PSC volumes, the timing of well connections across the portfolio and seasonal.

<unk> in the North Sea.

We continue to expect our global adjusted production volumes will return to a growth path. This year as our activity has now reached a level that we have not seen since 2019 prior to the Covid pandemic.

In the U S. We continue to run a steady two rig program in the southern Midland Basin.

And recently initiated drilling at Alpine high with a third rig.

In Egypt, we averaged 12 rigs brought online a number of quality wells and achieved a high drilling success rate.

Our strong oil production growth in the quarter was partially offset by a decline in lower margin natural gas production.

In the North Sea, we are in the midst of summer turnaround season, we completed the maintenance turnaround at <unk> on schedule and on budget and have brought that steel back into production at.

A barrel we are wrapping up a platform turnaround and we will return to production in the near future.

On block 58 in Suriname, our partners hotel is drilling the <unk> exploration prospect, which sits roughly eight kilometers northwest of our sop across south discovery.

On the adjacent block 53, we are drilling the bahar exploration prospect with our partners Petro loss and Samsung.

On July 29, we closed on an acquisition of properties around our active development areas in the Texas, Delaware Basin.

This is an attractively valued tuck in acquisition that comes with PDP is a number of wells in the drilling and completion process and a nice inventory of <unk> locations.

It also brings a high quality drilling rig and experienced crew to continued development in this very tight service environment.

There are currently two rigs running on the new acreage one will be released in the fourth quarter and we will retain the other is our fourth U S development rig these.

These assets compete well within our portfolio and integrate nicely into our Permian operations.

Turning now to our outlook for the second half of the year, which we included in our financial and operation supplement last night.

Our Capex program of $1 75 billion remains unchanged for the year.

Steve will have some comments on a few minor changes in other P&L guidance items.

In terms of adjusted production, our new full year guidance range for Egypt is 63 to 65000 Boe per day, which is down about 7% from prior expectations more than half of this decrease is a result of fewer wells being drilled and completed due to the operational challenges I spoke.

Earlier, the remainder is attributable to the PSC impact of higher oil prices.

In the U S. We have a number of moving parts affecting our outlook for the remainder of the year.

First we have removed roughly 8000 BOE a day of Austin chalk production from the second half of the year. Following the decision to defer most of our near term drilling and completions.

Second we expect the Texas, Delaware Basin acquisition properties will average 12 to 14000 Boe's per day of production for the remaining five months of the year we.

We've also encountered some completion delays on Permian operated and non operated wells and recently divested a small package of Permian properties.

In the UK, our near term activity plan and full year 2022 production guidance remains unchanged. Later this month the garden three development well, we will commence production, which should generate a significant volume uplift in the fourth quarter.

I will note that the new energy profits Levy recently became effective in the U K.

This reduces our free cash flow outlook going forward and while it won't affect our 2022 drilling program. We are evaluating the longer term impacts of the tax on our planned investment in the UK.

<unk> top priorities are reducing ghd emissions throughout our global operations and supporting our employees and the people in the communities where we operate.

We have completed several projects across the portfolio.

Most notably in Egypt that enable us to compress and direct previously flared gas to sales.

Thereby increasing revenue and improving our emissions profile.

This puts us well on our way to achieving our goal of reducing upstream routine flaring in Egypt by 40% by year end.

I'm very pleased with our progress on this and many other fronts and there is much more to come.

Also in late July we issued our 2022 sustainability report I.

I Hope you will take a moment to review the report and learn more about our strategy and initiatives to provide affordable reliable energy to the world. While also delivering on rigorous near and medium term ESG goals.

In closing <unk> remains committed to returning 60% of free cash flow through buybacks and dividends as well as strengthening our balance sheet, including paying down debt as it matures.

At current strip prices, we expect to generate approximately $3 billion of free cash flow in 2022.

Which at least $1 8 billion would be returned to shareholders through dividends and share buybacks.

Through July we have returned just under 50% of this amount.

And finally, I would like to extend a personal thank you to John Lowe Apa's, Chairman, who recently announced his retirement after serving nine years on the board.

John has been a great friend and colleague we've benefited greatly from his experience and insights and we wish him all the best.

Lamar Mckay has been elected to serve as Apa's New Board Chairman.

And we will formally take over for John in September Lamar has a wealth of experience that I know will be a tremendous asset to the board room and my leadership team. We are all looking forward to working with him and welcome him into his new role.

And with that I will turn the call over to Steve Riney.

Thanks, John .

For the second quarter of 2022, API Corporation reported consolidated net income of $926 million.

Or $2 71 per diluted common share.

As is common this quarter. Our results include items that are outside of Apa's core earnings.

The most significant of these was $129 million related to the release of tax valuation allowance for the use of tax loss carryforwards to offset U S income tax expense.

Excluding this and other such items.

Adjusted net income for the second quarter was $811 million or $2 37 per diluted common share.

Our second quarter results underscore apa's robust free cash flow capacity.

$814 million, we generated during the second quarter represents a 21% increase from the preceding quarter and more than double the same period in the prior year.

Cost inflation has become a popular topic and quarterly earnings calls and for good reason.

Oil and gas firms are subject to the same inflationary pressures on labor materials fuel and services as every other industry.

We embedded a substantial amount of cost pressure into the budget, we laid out in February and for the most part cost subtract close to that plan for the first two quarters.

For the second half, we anticipate a bit more inflationary pressure and low than originally planned, especially in fuel costs.

As a result, our full year guidance has moved up a bit higher.

Second quarter G&A of $89 million was considerably lower than first quarter and was also below our guidance.

As we have discussed before.

These cash settled stock based incentive compensation plans.

Require a quarterly mark to market based on movements in our share price.

This introduces some volatility in our quarterly reported G&A expense, which we generally do not attempt to include in our guidance.

For example, API share price increase into the end of the first quarter resulted in higher reported G&A expense and.

And the declining share price into the end of the second quarter resulted in the opposite.

As a baseline our underlying quarterly G&A expense runs around $100 million.

And our full year guidance reflects this for the remaining two quarters of the year.

With the higher commodity prices you will note that both sales and costs related to purchased oil and gas and increase substantially.

As a reminder, where possible we sell all of our production in basin and our marketing organization fulfills obligations on various commercial agreements such as long haul transport contracts using purchased product.

The net impact of these two lines will mostly track the basis differential less transport costs on the Gtx and PHP pipelines.

Finally exploration expense was higher during the quarter as we recorded $32 million and dry hole costs related to the Rasper exploration well in block 53 offshore Suriname.

Turning now to the progress we made during the quarter on the balance sheet.

In the second quarter, we paid down $605 million on our revolving credit facility, which brought our balance down to $275 million on June 30.

Last week, we drew on the revolver to fund the closing of our Delaware Basin acquisition.

So that balance will rise again in the third quarter.

In the fourth quarter, we will pay off the January 2023 bond maturity of $123 million at par.

While we have made great progress strengthening the balance sheet over the last year, we have more to do.

That said it is nice to see the rating agencies recognizing the improvement.

Our long term desire is to return to investment grade through a continued steady pace of debt reduction pay.

Paying off bonds at their maturity combined with the occasional debt tender or open market repurchases.

A couple of other things before we turn to Q&A.

With respect to our full year 2022 guidance there.

There are a few minor changes.

We increased our guidance for LOE and decreased guidance for G&A to reflect some of the impacts I spoke of previously.

We have also updated our guidance for our latest view on the net impact from purchased oil and gas I mentioned earlier.

Our guidance for UK tax expense has increased to reflect $130 million incremental cost for the energy profits Levy.

We will pay this additional 2022 tax in two parts approximately half during the fourth quarter of this year and the remainder in the first quarter of next year.

As John noted previously we are committed to our capital return framework, which means material share buybacks will continue in the second half of 2022.

Ideally all of this would be delivered in a day by day open market repurchase program.

However, there has been and will continue to be periods of time, where the possession of material nonpublic information will preclude open market repurchase of our shares.

During such times, we expect to utilize <unk>, one programs to maintain a minimum underlying pace of buybacks.

This was the case for much of the second quarter and we have established similar plans for the rest of the year.

As always please refer to our financial and operational supplement or follow up with Gary and his team with any questions or if you need any help related to our updated guidance.

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

Thank you.

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

We ask that you please limit yourself to one question and one follow up please.

Please standby, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Doug Leggate with Bank of America.

Thanks, Good morning, good morning, everyone.

John I Wonder if I could hit the 100 pound gorilla in the room, which is in March you laid out a three year plan.

On a couple of quarters into it were $555 million higher.

Spending on your production guidance is lower.

How should we think about Apache management's ability to risk outlook.

And what would you say about the outlook for 2023 at this point.

Doug Thanks for joining us this morning.

First of all.

We feel good about our three year plan.

There has been as we laid out a couple of challenges and we take responsibility for those and hit them head on.

I think the programs are running well, we've got some work to do in Egypt, and we're on it but if you look at.

Did need to take this year's guidance down a little bit.

A lot of that is shifting of Egypt to the right.

But the well performance has been good I think it's premature to look at our 23 and 'twenty four.

And it would be premature to adjust those forecast right now, but in general I think we feel good about the overall delivery over the three year period, and I will say, we baked in a lot of inflation.

On the cost side, and we have not had we've been able to manage that side really well. So I think in general it would be early to do anything with the 23% and 24 years.

So the 23 guidance today, including the contribution from the acquisition.

And so <unk>, obviously, you haven't spoken to 2023, but is it entitled behind it or is it lower because the street doesn't seem to believe that based on where consensus expectations are.

Yeah.

No I would just say today.

We go through a process every year in the fall.

Looking at the next three years.

We will review that will come out with a new three year look in February but in general.

We still feel pretty good about the three year plan, we laid out.

We did did pick up some properties in the U S.

The program has been running strong and.

I think as you look out with the four rigs in the Permian, we're going to be just fine in the U S and Egypt, we're confident in the well results. We've just got to work through some efficiencies there so in general.

We feel good Doug about the three year plan and but it would be premature right now to do anything we've got we've got some work to do in the short term, but we're on it so.

Alright.

On a different note my follow up is on gas.

Should we now think of the alpine high having a dedicated Greg in which case, what does that mean for the production trajectory there and as a related follow up perhaps my understanding is you guys have been kind of rethinking the potential implications of your cheniere contract as it released to the free cash flow outlook. So I'm just wondering if.

You could touch on those two things and I'll leave it there. Thanks.

No great question.

We did not and I'll, let Steve.

Comment on the Cheniere contract.

After I make a few comments on the U S rigs.

We will have four rigs we've had four rigs running in the U S. We will maintain those four rigs you're going to have all four of those in the Permian now.

Two in the southern Midland Basin, we will have two in the Delaware.

We've got a rig that we've recently moved to alpine high.

Following up the results of our Willow well, we're excited to drill some pads there. So I think it will be positive.

So youll see two rigs in that area. The nice thing is having those four rigs in the Permian now we can move them around that.

Based on pads and timing and things, but we do envision.

One of those pretty much stayed at alpine high for the.

The near term.

Steve anything you want to comment on the Cheniere contract, which is not in those three year free cash flow and cash flow numbers. Yeah. Thanks. Thanks, Doug.

So reminder, the Cheniere contract is.

15 year term contract 140 million cubic feet a day.

Cheniere does have the option to start that early with 90 days notice. They can do that at any time at this point.

But at a minimum that contract will begin on <unk> of 2023.

And obviously the.

The.

On the pricing.

LNG GKN and DTF pricing has been amazingly volatile in the last year.

A year or so.

And for that matter here recently, so as Houston ship channel.

Basically the contract is structured as a.

We capture the margin.

A mixture of JK M in TTS LNG pricing over Houston ship channel.

So effectively people can think of it as were going to buy at Houston ship channel, we're going to see.

Sell at a mix of JK M. In TTS, we were going to pay some costs associated with totaling <unk> plant and then we will pay the cost of <unk>.

Transport and.

<unk> fuel loss and things like that so there's some costs in between that but.

But that would tell you what the what the margin structure is on that contract.

Again, it will begin July one of 2023, we believe that is the date that it will begin for the reason I'm about to tell you and that is that.

To purchase at Houston ship channel.

If you look at the forward strip.

Not even today's prices, which are even higher but if you. If you look at the forward strip for second half of 'twenty three.

This contract.

Uplift, the <unk> and TTM over Houston ship channel less the costs would generate about $750 million of.

Free cash flow in the six months for the second half of 2003.

Most not in the free cash flow numbers in this three year plan, Steve and that is not in any of the free cash flow numbers that we put forward in February and in February . We just assumed all of that there was zero margin over Houston ship channel for that contract.

Alright, thanks, so much to the clarity I appreciate it guys.

Yes.

Thank you Doug.

Thank you and our next question comes from the line of John Freeman with Raymond James.

Good morning, guys.

Good morning, John .

First question I had.

A follow up.

Doug first question I realize incentives.

Premature to look at 'twenty, three but we've had.

This earnings season.

More and more operators have talked about how their happiness secure.

Next year with spring 2023, and kind of services and materials a lot sooner.

We would have had in years past just given the supply chain will change pricing et cetera.

I realize it's easier for some of the peers of yours that can cover.

Single Basin type portfolio versus you all of our global diversified portfolio, but can you just sort of talk about what you are able to do to try and secure some things ahead of time Kevin.

You, obviously have a lot more kind of unknowns than many of your peers.

Now on to what <unk> will look like next year.

I got the windfall profit tax in the North Sea I guess sort of how you manage.

In this environment trying to secure favorable kind of lock things vantage borrowing advantage of corn, given kind of a global portfolio Youll have.

John Great question.

Yes. The thing I would say is we typically try to stay about a year ahead of our programs and so we've been working on 'twenty started working on 'twenty three as soon as the calendar turned and we continue to do that and they are starting to get pretty good visibility.

The thing I would say about our guidance when we put it out our three year guidance, we bumped our capital quite a bit this year as youll recall, it took a pretty material increase.

Most of that covered where we are today and that's why you didn't see us have to bump our capital again this quarter. So I think we've got a pretty good handle on things and I'll just say, we built in quite a bit of inflation in 'twenty three 'twenty four for next those next two years when we put out that outlook in February so.

It's early to to come back with hard numbers for 'twenty three 'twenty four but I think we built a lot of where we sit today on the inflation side.

Thanks, Sean and then.

Final question for me on churn when you got the digital shift then I'll move back to <unk>.

To block 58 after after drilling the Bahar prospect and then you'll end up having.

To two rigs in block 58.

Now following the Baja exploration prospect and take off.

Where those wells will be located in I guess more importantly, thats from a financial modeling perspective, if those wells are likely.

We continue to be exploration.

Or some combination.

Yes, no John Good question, what we typically do and you can understand.

Those rig lines or dynamics, you've got some things that are dependent some things are independent.

In terms of wells on orders and so.

<unk> of that we've typically waited until we're ready to move the rigs to tell you where they are going.

Sure.

Total has the value of their drilling the <unk> prospect right now.

That is an exploration well.

Clearly, we've got the jewelry to Susa in block 53, where we're drilling an exploration well that well, we'll meet we'll be moving.

Back to block 58, two total.

With the two rigs, but im not in a position today to tell you, which rig is going where.

<unk>.

With both of them right now.

That's great I appreciate the answers John .

You bet. Thank you.

Thank you.

And our next question comes from the line of Jeanine Wai with Barclays.

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

Good morning, good morning.

John .

Our first question maybe for Steve here on.

On the balance sheet and cash returns.

Did the quarter with $275 million on the revolver and that kind of stands out relative to peers. So just wondering can you talk about how youre thinking about balancing maybe upside to the 60% minimum payout this year versus paying down debt versus being opportunistic either with.

And the buyback pretty hard on stock dislocations are bolt ons like what you've kind of announce now.

Yes, Jeanine, obviously theres a lot of embedded questions in that.

We're we're focused on both of those things we've still got as I indicated in my prepared remarks, we've still got work to do on the balance sheet.

If youll recall.

We did the $1 $1 billion debt tender earlier, this year and put quite a bit of that on the revolver.

So we use the revolver for things like that and we use it quite a bit more than we have in the past.

That's why you have the revolver frankly.

We used it again this quarter for the.

For the Delaware Basin acquisition.

And so.

Again, that's the point of having a revolver you use it from time to time to take.

Some of those material type of steps in this case it was just.

The tuck in acquisition, but we've got to be we've got to be focused on continuing to pay down debt, we'd like to get the revolver balance as low as possible by the end of the year. They are probably still be a bit left on it.

But at the same time, we want to balance that with.

With doing the share repurchases.

In a thoughtful manner.

Again as I said in my prepared remarks, we.

We were in possession of material nonpublic information for quite a bit of the second quarter. So we couldnt, we couldnt be in the market using open market repurchases for sure. So we had to use the <unk> programs.

We have set in place earlier in the year and we let those run.

Just to make sure that we had a continuing pace.

And then when we announced the results.

<unk> flow test.

We're able to.

Re engage in open market repurchases and you saw what we did in the month of July and so we're going to.

We're somewhat constrained a bit from time to time with the material nonpublic information on what we can do on the share buybacks, but I think youre going to see us continue to focus on that and try to be as thoughtful as possible on that for the rest of this year well.

Continuing to balance it with the.

With continued to strengthen the balance sheet.

I don't know if all of that answered your question or not hopefully and then thank you for all that color.

Maybe moving to Suriname for second question John Your partner recently indicated that you'll have to have an answer on maybe how to incorporate or monetize associated gas by year end.

I think one of the prior option that was discussed with may be targeting initial development that was maybe more black oil focus and that could help fast track. The project Gibson go online are there any updated thoughts on this from your end and I know there is nothing special about retailer.

During the first half of the year or any or anything like that but any update here. Thank you.

No Janine I think we're on track today, I would say, we envision a hub.

That would really set up between <unk> crab Daegu in that area kind of a centralized hub.

We're still targeting.

It's predominantly a black oil lower <unk> development today.

I do believe we have found that a significant amount of gas in the block as well and I think longer term, we will want to look at gas alternatives and gas auctions, because theres quite a bit of a resource there, but today. Our focus has been predominantly on a on a hub that would be a lower <unk>.

Alright, thank you.

Okay.

Thank you.

And our next question comes from the line of Bob Brackett with Bernstein Research.

Good morning. Thanks, a question on the Delaware Basin Tuck in could you give us some color I'm thinking in terms of a larger acquisition, where you might talk about.

<unk> drilled location, what does that inventory look like what did you pay in terms of the free cash flow yield those sorts of metrics that drove the deal and how they might inform future similar deals.

Doug Bob Thanks.

It's a nice tuck in inside our Texas, Delaware Basin.

It has good inventory with long laterals and fits nicely.

If you look strategically we've been selling in the in the Permian and I think we've sold over $1 billion and so this is a nice ability to take and pick up some properties in an area that we know well where we've been running programs.

Got some production that comes with it has got a lot of wells that will be coming online and it's got some good inventory.

Dave anything you want to add.

I think it's just some follow on John talked about it we've got some some wells that have just come online we have a handful that are coming online later this month.

This will drive production through the end of this year. We also have two rigs finishing out a pad it will add a substantial number of ducks that will likely complete in the first quarter of 'twenty three so theres a lot there is a.

There I think.

In the current I think when you think about the opportunity set here.

We've got a number of intervals.

Yes.

<unk> has that are low risk, we know the rock around existing infrastructure. So we think.

Think about high quality low risk opportunities again, yet probably have several years of of.

Drilling just on those and there is some upside potential there is a number of zones that we're testing in our existing.

Footprint and we'll continue to test those and we'll likely test those zones here on our new acreage and again Thats all upside that.

Hopefully, we'll be able to talk about as we go through 2023 and the other thing I would add Bob is it brings a hot rig I mean, thats something that if you look a.

A year ago, we were looking to add a rig in the Permian and we started in the third quarter and really have showed up in April and the nice thing about this is we've got a really high quality rig it's been performing well with good group, yes, and again, we're not we're not going to talk about the development pace here, but if you can think about conceptually.

One rig on this for the next couple of years. This is free cash flow positive from day one.

And continues to generate.

Free cash flow.

I think that Thats intriguing the idea that an efficient rig ready to go in the Permian is actually an asset my.

The follow up would be if I think about the Austin chalk and I might've misheard, you, but with a six well program for 2022 and the revised production guidance was.

Based on the mixed results was for 5000 barrels a day.

Can you talk about sort of what the pre drill expectations were and some of the learnings on why you didn't hit that number.

Yes.

We probably had more wells than that baked into the into the plan, but just to frame the chalk to make sure everybody is.

Airbus familiar we have.

Non off an operated position in Washington County, which is Western College station.

What we've put the pause on was a 20000 acre piece East of college station on the eastern edge of Brazos County.

And that 20000 acre piece the first well we drilled was it was an outstanding result, we went into delineation mode. As we were trying to delineate. This 20000 acre piece and we ended up with a lot more variability in the results than we had anticipated.

The thought was.

Let's set pushed pause on this we've reduced the number of wells.

That we're going to put online this year, we're actually going to defer some completions as well while we study the results.

And the point is this capital is better spent in the Permian. So we're going to pause it and we'll let you know what we what we come up with.

And sometime in 2023.

Thanks.

Thank you.

A reminder to ask a question.

What we what we come up with.

Probably in sometime in 2023.

Thanks.

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

Our next question comes from the line of Neal Dingmann with truest.

Good morning.

My first question is on Egypt, I'm, just wondering John if you'd maybe a bit more detail maybe talk about broad comments on what youre seeing on returns there.

Including maybe just an idea of how natural gas prices a trend in the area as well.

Yes, Great question first of all our natural gas prices fixed $2 65 a M.

For Btu.

So gas prices fixed as you know, we make our money through the profit oil and the splits of the PSC is designed so.

Okay.

The other thing I would say is if you look at the overall market.

Here, we are increasing our rig count threefold.

Time, when the rig count in Mena has been growing at about a 20% clip.

So we found ourselves in a pretty unusual situation, where there has been high demand for a lot of our trained Egyptian yes.

Talent National talent and.

We're in the process at one point I think we had 75 folks that we've had to replace effectively and backfill for and so it's an interesting time and it just gives you a little bit of a clue into the competition.

We're from National talent in the area today and.

Good news is we're on it and addressing it but.

What it's done is it's the safe the safety statistics have been good but it's manifested in just some delays in terms of getting wells drilled getting.

Getting the rigs up and running.

And then getting wells connected and so.

Lot of its mainly just in the reactivation of the cold stacked rigs and it's something we've done before but it's just taken a little bit longer and we'll get it ironed out and we're working collectively with.

The folks on the ground, there and some more sort out do you see it.

In our supplement if you look at what we had planned to bring on in the second quarter of <unk> 24 wells, we actually only got to Lebanon.

But you see the pace with third quarter and fourth quarter picking back up so.

It's kind of a short term above ground.

Setback, but it's something we will recover from in terms of the well performance has been good.

In line with performance so no no issues on the well performance side.

Okay, Great details and then just moving to alpine high. Thank you moving to re grow moving a rig there will that rig stay and maybe if you could just comment on.

What do you think the overall pace of activity might be.

Later, this year and into next year.

Yes for now we see it there we've got some pads lined out to drill with one rig it takes some time to drill those pads. So I think it will be late late this year already next year before you might see some production from that but.

The plan is is to leave that rig in there for now and.

For the most part stay there it might.

After a pattern to jump over and pick up a well or two in the Delaware, but for the most part it's going to stay at Alpine high.

Thanks for the time guys.

Thank you.

Thank you and our next question comes from the line of Leo Mariani with MK and partners.

Hey, guys just wanted to ask a little bit of update the U S growth trajectory I think.

Lee I think you guys had expected the oil volumes to kind of start to grow.

By the fourth quarter on an organic basis, but realize you made an acquisition be clearly took some volumes out of the chalk just any updated thoughts when you resume organic oil growth again in the U S. That's still this year or is that maybe sliding into next year.

No I think we will get back on track pretty quick.

We did pull out the chart, but that is greater than 50% gas. There. So when you look at that 8000 BOE a day.

You could think of that probably has been about 3.003 million barrels a day at about 30 million cubic feet of gas a day right. So.

But with the addition of moving the rig back to the Permian Theyre going to be a little more oily than north of chalk was.

I think we will get back on track.

Here pretty quickly.

Okay. That's helpful.

And then just wanted to ask on Egypt real quick. So you mentioned in your prepared comments, but your gross gas volumes were down quite a bit in the second quarter versus the prior quarter. I think you. All had previously talked about several months back about trying to hold gas volumes kind of flattish in 2022 was there anything anomalistic, there where maybe.

Plant went down for maintenance or something that caused the drop just trying to get a sense of some of those volumes are going to come back or maybe you just had some some well maybe.

The decline a lot or something.

No I mean, <unk> got two big things there we've been focused on more oil focused drilling with the current rig program and then you've got costs or which was a big gas field that we found along many many years back and it's been on gradual decline so theres.

There's time periods, where youll see the kosher impact.

In those numbers.

Okay. Thanks, guys.

<unk>.

Thank you.

I'll now hand, the call back over to Chief Executive Officer, John Christmann for any closing remarks.

Andrew It looks like we have one more.

Analysts who has a question.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Yes.

Thanks, Tim I appreciate it so two quick questions for me first isn't in Suriname.

Has been some talk.

Okay.

Annualized geopolitical tensions, but definitely political uncertainty.

Down there and so how does that affect the way that you and your partners are thinking about investing in the region and the other isn't in the North Sea can you guys give.

Give us an update of how you're thinking about that basin and the profitability.

Particularly in light of firm natural gas prices, but also.

Round around the risk risk of windfall taxes. Thank you.

Now to two really good questions.

Dress Suriname first big.

Big picture, we feel really good about it Neil.

<unk>.

Where offshore which is a big plus in terms of where the operations are taking place.

It just underscores how important development of resource would be for the country of Suriname and so that's always been there a long time, they've got a great track record.

<unk>.

We look forward to working with them and help them try to to bring some energy and some GDP growth into the country. So I think it's a positive from that perspective.

It just shows you that in today's world. There are some challenges out there with inflation or other things going on and a lot of countries are addressing that including Suriname.

In the North Sea.

I think we've got a very very strong business. There. We've always characterized our assets is kind of two different plays in two different two totally different assets 40 were obvious forties, we're obviously managing it into the later phases of its life.

Looking to manage that margin and.

As you see it wind down we still see that happening.

Early next decade.

And you see.

The profits levy there starts to impact timing of some of those things and so in the prepared remarks.

My comments this isn't helpful. Sometimes for future investment and it may actually shorten the life of some things, but we're not facing that today.

With where it is and then the other asset up there that we have.

Still some great programs in and see some future development is in the tertiary at barrel and we've had some good strong programs and look forward to that but I think you do have to just step back.

And look at your future capital, how it fits within the portfolio, but today, we see the north sea playing a key role.

Okay.

Thank you.

I'm now showing no further questions so with that I'll hand, the call back over to CEO , John Christmann for any closing remarks.

Thank you for joining us today I'd like to leave you with the following closing thoughts.

We remain very focused on generating free cash flow in 2022. This will be approximately $3 billion, we will return at least 60% or $1 8 billion to shareholders.

Our new properties in the Delaware Basin are additive to this framework is an attractively priced tuck in acquisition and cash flow accretive from day one.

And Egypt, well performance has been good and we are actively addressing the above ground inefficiencies to get well tie ins back on schedule.

Operator, I will now turn the call over to you.

Okay.

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

Okay.

The conference will begin shortly to raise your hand during Q&A you can dial one one.

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Ladies and gentlemen, thank you for standing by and welcome to the <unk> corporations second quarter 2022 results conference call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

One one on your telephone.

It is now my pleasure to introduce vice President of Investor Relations Gary Clark.

Good morning, and thank you for joining us on a PAA corporations second quarter 2022 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 outlook.

Our prepared remarks will be around 20 minutes in length with the remainder of the hour allotted for Q&A and.

Consistent with previous reporting practices adjusted production numbers cited in today's call are adjusted to exclude Noncontrolling interest in Egypt, and Egypt tax barrels.

I'd like to remind everyone that today's discussion will contain forward looking estimates and assumptions based on our current views and reasonable expectations How's.

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.

On the call today, I will review, our second quarter highlights and discuss key trends and performance in each of our core operational areas.

Following that I'll provide some color on the 2022 guidance, which we updated last night in our earnings release and supplement.

Over the past few months fears of economic recession, a new wave of Corona virus outbreaks and concerned about potential demand destruction have created substantial volatility in commodity prices and the value of energy equities.

However, the pullback in oil prices from the second quarter, Pete is healthy for both consumers and producers.

We continue to have a positive outlook on the long term fundamentals for natural gas and oil and view Apa's stock is a compelling value today.

As I look at our second quarter results I see several key highlights.

<unk> generated record free cash flow of $814 million.

We repurchased 7 million shares of common stock followed by an additional $6 9 million of share repurchases in July .

Gross oil production in Egypt increased by more than 7000 barrels per day versus the prior quarter, which was our first material quarterly increase in Egypt oil production since 2018.

Our forties field maintenance turnaround in the North sea was executed safely and on budget.

We advanced our program in Suriname, what the successful flow test at crab Daegu.

And we made excellent progress on upstream flaring reductions in Egypt and are on track to achieve our 40% reduction target by year end.

The second quarter was very good in many ways is our diversified unhedged portfolio benefited from rising oil and gas prices and high margins.

However, we have encountered a few challenges.

In Egypt, although we delivered strong oil production growth in the quarter, we are experiencing some delays and inefficiencies as we scale our active rig count from five to 15.

These include supply chain equipment and infrastructure related delays.

Longer than expected time to staff and reactivate cold stacked rigs.

Extended drill times, which are primarily a function of new rig and new crew inefficiencies.

And increased regional competition for experienced national employees.

Well performance in Egypt has been in line with expectations. So these are mostly short term above ground challenges.

We have identified and are swiftly taking appropriate actions that will bring us back up to pace.

And the Austin chalk our delineation program has generated mixed results. Thus far so we have chosen to pause most of our planned drilling and completion activities.

We'll talk more about the impact of these items on our second half guidance in a few minutes.

Turning now to some of the details of our second quarter results, our largest spend categories.

Investment operating costs and G&A were in line or less than expected for the quarter. Despite a challenging overall supply chain and cost environment.

And seasonal maintenance in the North sea.

We continue to expect our global adjusted production volumes will return to a growth path. This year is our activity has now reached a level that we have not seen since 2019 prior to the Covid pandemic.

In the U S. We continue to run a steady two rig program in the southern Midland Basin, and recently initiated drilling at Alpine high with a third rig.

In Egypt, we averaged 12 rigs brought online a number of quality wells and achieved a high drilling success rate.

Our strong oil production growth in the quarter was partially offset by a decline in lower margin natural gas production.

In the North Sea, we were in the midst of summer turnaround season, we completed the maintenance turnaround at 40 is on schedule and on budget and have brought that field back in production at.

A barrel we are wrapping up a platform turnaround and we will return to production in the near future.

On block 58 in Suriname, our partners hotel is drilling the <unk> exploration prospect, which sits roughly eight kilometers northwest of our sop across south discovery.

On the adjacent block 53, we are drilling the bahar exploration prospect with our partners Petro loss and Samsung.

On July 29, we closed on an acquisition of properties around our active development areas in the Texas, Delaware Basin.

This is an attractively valued tuck in acquisition that comes with PDP is a number of wells in the drilling and completion process and a nice inventory of unreal locations.

It also brings a high quality drilling rig and experienced crew to continued development in this very tight service environment.

There are currently two rigs running on the new acreage one will be released in the fourth quarter and we will retain the other is our fourth U S development rigs. These.

These assets compete well within our portfolio and integrate nicely into our Permian operations.

Turning now to our outlook for the second half of the year, which we included in our financial and operation supplement last night.

Our Capex program of $1 75 billion remains unchanged for the year.

Steve will have some comments on a few minor changes in other P&L guidance items.

Earlier, the remainder is attributable to the PSC impact of higher oil prices.

In the U S. We have a number of moving parts affecting our outlook for the remainder of the year.

First we have removed roughly 8000 Boe's a day of Austin chalk production from the second half of the year. Following the decision to defer most of our near term drilling and completions.

Second we expect the Texas, Delaware Basin acquisition properties will average 12 to 14000 Boe's per day of production for the remaining five months of the year.

We've also encountered some completion delays on Permian operated and non operated wells and recently divested a small package of Permian properties. The.

The net effect of these items is a slight downward revision to our full year 2022 U S production guidance.

In the U K, our near term activity plan and full year 2022 production guidance remains unchanged. Later this month the garden three development, well will commence production, which should generate a significant volume uplift in the fourth quarter.

I will note that the new energy profits Levy recently became effective in the U K.

This reduces our free cash flow outlook going forward and while it won't affect our 2022 drilling program. We are evaluating the longer term impacts of the tax on our planned investment in the UK.

But in general new taxes are not effective incentives for increased investment.

Steve will share more details about the tax impact in his remarks.

Turning now to an update on our ESG initiatives.

<unk> top priorities are reducing <unk> emissions throughout our global operations and supporting our employees and the people in the communities where we operate.

We have completed several projects across the portfolio.

Most notably in Egypt that enable us to compress and direct previously flared gas to sales, thereby increasing revenue and improving our emissions profile.

This puts us well on our way to achieving our goal of reducing upstream routine flaring in Egypt by 40% by year end I am very pleased with our progress on this and many other fronts and there was much more to come.

Also in late July we issued our 2022 sustainability report I.

I Hope you will take a moment to review the report and learn more about our strategy and initiatives to provide affordable reliable energy to the world. While also delivering on our rigorous near and medium term ESG goals.

In closing <unk> remains committed to returning 60% of free cash flow through buybacks and dividends as well as strengthening our balance sheet, including paying down debt as it matures.

At current strip prices, we expect to generate approximately $3 billion of free cash flow in 2022.

Of which at least $1 8 billion would be returned to shareholders through dividends and share buybacks.

Through July we have returned just under 50% of this amount.

And finally, I would like to extend a personal thank you to John Lowe Apa's, Chairman, who recently announced his retirement after serving nine years on the board.

John has been a great friend and colleague we have benefited greatly from his experience and insights and we wish him all the best.

Lamar Mckay has been elected to serve as Apa's New Board Chairman.

That I will turn the call over to Steve Riney.

Thanks, John .

For the second quarter of 2022, API Corporation reported consolidated net income of $926 million or $2 71 per diluted common share.

As is common this quarter. Our results include items that are outside of Apa's core earnings.

The most significant of these was $129 million related to the release of tax valuation allowance for the use of tax loss carryforwards to offset U S income tax expense.

Excluding this and other such items adjusted net income for the second quarter was $811 million or $2 37 per diluted common share.

Our second quarter results underscore apa's robust free cash flow capacity.

$814 million, we generated during the second quarter represents a 21% increase from the preceding quarter and more than double the same period in the prior year.

Cost inflation has become a popular topic in quarterly earnings calls and for good reason.

Oil and gas firms are subject to the same inflationary pressures on labor materials fuel and services as every other industry.

We embedded a substantial amount of cost pressure into the budget, we laid out in February and for the most part cost subtract close to that plan for the first two quarters.

For the second half, we anticipate a bit more inflationary pressure and low than originally planned, especially in fuel costs.

As a result, our full year guidance has moved up a bit higher.

Second quarter G&A of $89 million was considerably lower than first quarter.

It was also below our guidance.

As we have discussed before we used cash settled stock based incentive compensation plans.

Required a quarterly mark to market based on movements in our share price.

This introduces some volatility in our quarterly reported G&A expense, which we generally do not attempt to include in our guidance.

For example, <unk> 80, a share price increase into the end of the first quarter resulted in higher reported G&A expense and.

And the declining share price into the end of the second quarter resulted in the opposite.

As a baseline our underlying quarterly G&A expense runs around $100 million.

And our full year guidance reflects this for the remaining two quarters of the year.

With the higher commodity prices you will note that both sales and costs related to purchased oil and gas and increase substantially.

The net impact of these two lines will mostly track the basis differential less transport costs on the Gtx and PHP pipelines.

Finally exploration expense was higher during the quarter as we recorded $32 million and dry hole costs related to the Rasper exploration well in block 53 offshore Suriname.

Turning now to the progress we've made during the quarter on the balance sheet.

In the second quarter, we paid down $605 million on our revolving credit facility, which brought our balance down to $275 million on June 30.

Last week, we drew on the revolver to fund the closing of our Delaware Basin acquisition.

That balance will rise again in the third quarter.

In the fourth quarter, we will pay off the January 2023 bond maturity of $123 million at par.

While we have made great progress strengthening the balance sheet over the last year, we have more to do.

That said it is nice to see the rating agencies recognizing the improvement.

Our long term desire is to return to investment grade through a continued steady pace of debt reduction.

Paying off bonds at their maturity combined with the occasional debt tender or open market repurchases.

A couple of other things before we turn to Q&A.

With respect to our full year 2022 guidance there.

There are a few minor changes we.

We increased our guidance for LOE and decreased guidance for G&A to reflect some of the impacts I spoke of previously.

We have also updated our guidance for our latest view on the net impact from purchased oil and gas I mentioned earlier.

Our guidance for UK tax expense has increased to reflect $130 million incremental cost for the energy profits Levy.

We will pay this additional 2022 tax in two parts approximately half during the fourth quarter of this year and the remainder in the first quarter of next year.

As John noted previously we are committed to our capital return framework, which means material share buybacks will continue in the second half of 2022.

Ideally all of this would be delivered in a day by day open market repurchase program How's.

However, there has been and will continue to be periods of time, where the possession of material nonpublic information will preclude open market repurchase of our shares.

During such times, we expect to utilize <unk>, one programs to maintain a minimum underlying pace of buybacks.

This was the case for much of the second quarter and we have established similar plans for the rest of the year.

As always please refer to our financial and operational supplement or follow up with Gary and his team with any questions or if you need any help related to our updated guidance.

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

Thank you.

<unk> to ask a question you will need to press star one one on your telephone.

We ask that you please limit yourself to one question and one follow up please standby, while we compile the Q&A roster.

Okay.

And our first question comes from the line of Doug Leggate with Bank of America.

Thanks, Good morning, good morning, everyone.

John I Wonder if I could hit the 100 pound gorilla in the room, which is in March you laid out a three year plan.

On a couple of quarters into it were $555 million higher.

And spending on your production guidance is lower.

How should we think about Apache management's ability to risk outlook.

What would you say about the outlook for 2023 at this point.

Yes, Doug Thanks for joining us this morning.

First of all we.

We feel good about our three year plan.

There has been as we laid out a couple of challenges.

We take responsibility for those and hit them head on.

I think the programs are running well, we've got some work to do in Egypt, and we're on it but if you look at.

We did need to take this year's guidance down a little bit.

A lot of that is shifting of Egypt to the right.

The well performance has been good I think it's premature to look at our 'twenty three and 'twenty four.

<unk> side, and we have not had we've been able to manage that side really well. So I think in general it would be early to do anything with the 23% and 24 years.

So the 23 guidance today, including the contribution from the acquisition.

It does not and still intact do you have and obviously you haven't spoken to 2023, but is it in tight because of higher is it lower because the street doesn't seem to believe that based on where consensus expectations are.

Okay.

No I would just say today.

We go through a process every year in the fall.

Looking at the next three years.

We will review that will come out with a new three year look in February but in general.

We still feel pretty good about the three year plan, we laid out.

We did did pick up some properties in the U S.

The program has been run on strong end.

We feel good about the three year plan and but it would be premature right now to do anything but we got we got some work to do in the short term, but we're on it so.

Alright.

On a different note my follow up is on gas.

Should we now think of the alpine high having dedicated rig in which case, what does that mean for the production trajectory there and as a related follow up perhaps my understanding is you guys have been kind of rethinking the potential implications of your cheniere contract.

As it relates to the free cash flow outlook. So I'm just wondering if you could touch on those two things and I'll leave it there. Thanks.

No great question.

We did not and I'll, let Steve.

Comment on the Cheniere contract.

After I make a few comments on the U S rigs.

We will have four rigs we've had four rigs running in the U S. We will maintain those four rigs you're going to have all four of those in the Permian now.

<unk> in the southern Midland Basin, we will have two in the Delaware.

Got a rig that we recently moved to alpine high.

Following up the results of our Willow well, we're excited to drill some pads there. So I think it will be positive.

So youll see two rigs in that area. The nice thing is having those four rigs in the Permian now we can move them around that based on pads and timing and things, but we do envision.

One of those pretty much stayed at alpine high for the fifth.

The near term.

Steve anything you want to comment on the Cheniere contract, which is not in those three year.

Free cash flow and cash flow numbers, yeah. Thanks, Thanks, Doug.

So reminder, the Cheniere contract is a 15 year term contract 140 million cubic feet a day.

Cheniere does have the option to start that early with 90 days notice. They can do that at any time at this point.

But at a minimum that contract will begin on my first of 2023.

And obviously the.

The.

The pricing.

LNG GKN and DTF pricing has been amazingly volatile in the last year or so.

And for that matter here recently, so as Houston ship channel.

Basically the contract is structured as a.

Yes, where we capture the margin.

A mixture of JK M in TTS LNG pricing over Houston ship channel.

So effectively.

Can you think of it as were going to buy at Houston ship channel, we're going to.

Sell at a mix of JK M. In TTS, we were going to pay some costs associated with totaling <unk> plant and then we will pay the cost of of <unk>.

Transport.

And fewer loss and things like that so there's some costs in between that.

But that would tell you what the what the margin structure is on that contract.

Again, it will begin July one of 2023, we believe that is the date that it will begin for the reason I'm about to tell you and that is that.

To purchase at Houston ship channel.

If you look at the forward strip.

Not even today's prices, which are even higher but if you. If you look at the forward strip for second half of 'twenty three.

This contract.

Uplift, the <unk> and DTF over Houston ship channel less the costs would generate about $750 million of.

Free cash flow in the six months in the second half of 2003.

No it's not in the free cash flow numbers in this three year plan Steve.

Is not in any of the free cash flow numbers that we put forward in.

In February we just assumed all of that there was zero margin over Houston ship channel for that contract.

Alright, thanks, so much for the clarity I appreciate it guys.

Thank you Doug.

Thank you and our next question comes from the line of John Freeman with Raymond James.

Good morning, guys.

Good morning, John .

First question I had.

A follow up.

First question I realized incentives, it's kind of premature to look at 'twenty three but we've had as we've.

<unk> gone through this earnings season, we've got more and more operators have talked about how there have been a secure.

Next year, the spring 2023, and kind of services and materials a lot sooner.

We would have had in years past just given the supply chain will change pricing et cetera.

I realize it's easier for some of the peers of yours that can cover.

Single Basin type portfolio versus you all of our global diversified portfolio, but can you just sort of talk about what you are able to do to try and secure some things ahead of time Kevin.

You, obviously have a lot more kind of unknown than many of your peers.

Now on to what <unk> will look like next year.

I got the windfall profit tax in the North Sea, Egypt, I guess sort of how you all manage.

In this environment trying to secure favorable kind of lock things average borrowing advantage of claw given kind of a global portfolio you'll have.

John Great question.

The thing I would say about our guidance when we put it out our three year guidance, we bumped our capital quite a bit this year as youll recall and took a pretty material increase.

It's early to to come back with hard numbers for 'twenty three 'twenty four but I think we built a lot of where we sit today on the inflation side.

Thanks, Sean and then the.

Final question for me on churn when you got the digital shift then I'll move back to <unk>.

Block 58 after after drilling the Bahar prospect and then you'll end up having.

To two rigs in block 58, do you know.

Following the Baja exploration prospect and take off.

Those wells would be lumpy and I guess more importantly, thats from a financial modeling perspective, if those wells are likely.

We continue the exploration.

Or some combination.

Yes, no John Good question, what we typically do and you can understand.

Those rig lines or dynamics, you've got some things that are dependent some things are independent.

In terms of wells on orders and so.

<unk> of that we've typically waited until we're ready to move the rigs to tell you where they are going.

<unk>.

Total heads the value of their drilling the <unk> prospect right now.

That is an exploration well.

Clearly, we've got the jewelry d'souza in block 53, where we're drilling an exploration well that well, we'll meet we'll be moving.

Back to block 58, two total.

And I'll, just say youre going to see a mix theres appraisal to do at <unk> South Theres also appraisal to do at crab Daegu and there are also some other exploration wells. So when you see the rigs move youre going to see probably a combination of exploration and appraisal.

With the two rigs, but I'm not in a position today to tell you, which rig is going where.

<unk>.

With both of them right now.

That's fair and I appreciate the answers John .

You bet. Thank you.

Thank you.

Our next question comes from the line of Jeanine Wai with Barclays.

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

Good morning, good morning.

John .

Question, maybe for Steve here.

On the balance sheet and cash return you ended the quarter with $275 million on the revolver and that kind of stands out relative to peers. So just wondering can you talk about how youre thinking about balancing maybe upside to the 60%.

Minimum payout this year versus paying down debt versus being opportunistic either with.

And the buyback pretty hard in fact dislocations are bolt ons like what you've kind of announce now.

Yes Jeanine.

Obviously, theres a lot of embedded questions in that.

We're we're focused on both of those things we've still got as I indicated in my prepared remarks, we've still got work to do on the balance sheet.

And if you'll recall.

Call.

We did the $1 $1 billion debt tender earlier, this year and put quite a bit of that on the revolver.

So we use the revolver for things like that and we use it quite a bit more than we have in the past.

That's why you have the revolver frankly.

We used it again this quarter for the for the Delaware Basin acquisition.

So.

Again, that's the point of having a revolver you use it from time to time to take.

Some of those material type of steps in this case it was just a.

Tuck in acquisition, but we've got to be got to be focused on continuing to pay down debt, we'd like to get the revolver balance as low as possible by the end of the year. They are probably still be a bit left on it.

But at the same time, we want to balance that with.

With doing the share repurchases in a thoughtful manner.

Again as I said in my prepared remarks, we.

We were in possession of material nonpublic information for quite a bit of the second quarter. So we couldnt, we couldnt be in the market using open market repurchases for shares. So we had to use the <unk> programs that we have set in place earlier in the year and we let those run.

Just to make sure that we had a continuing pace.

Then when we announced the results of the <unk> flow test.

We were able to.

Okay.

Re engage in open market repurchases and you saw what we did in the month of July and so we're.

Continuing to balance it with the with continued to strengthen the balance sheet.

I don't know if all of that answered your question or not.

Thank you for all that color.

Maybe moving to Suriname for second question John Your partner recently indicated that you'll have to have an answer on maybe how to incorporate or monetize associated gas by year end.

And I think one of the prior options.

Discuss with May be targeting initial development that was maybe more black oil focus and that could help fast track the project Gibson.

Mine are there any updated thoughts on this from your end and I know Theres nothing special about reaching BRL.

Year end during the first half of the year or anything like that but any update here. Thank you.

No Janine I think we're on track today, I would say, we envision a hub.

<unk>.

Would really.

Set up between <unk> crab Daegu in that area kind of a centralized hub.

<unk> targeting.

Predominantly a black oil lower <unk> development today.

I do believe we have found that a significant amount of gas in the block as well and I think longer term.

We will want to look at gas alternatives and gas options, because theres quite a bit of a resource there, but today. Our focus has been predominantly on a on a hub that would be a lower <unk>.

Great. Thank you.

Mhm.

Thank you.

And our next question comes from the line of Bob Brackett with Bernstein Research.

Good morning. Thanks, a question on the Delaware Basin Tuck in could you give us some color I'm thinking in terms of a larger acquisition, where you might talk about.

Drilled location, what does that inventory look like what did you pay in terms of the free cash flow yield those sorts of metrics that drove the deal and how they might inform future similar deals.

Doug Bob Thanks.

It's a nice tuck in inside our Texas, Delaware Basin.

It has good inventory with long laterals and fits nicely.

Your line and it's got some good inventory and Dave anything you want to add yes, I think it's just some follow on John talked about it we've got some some wells that have just come online we have a handful that are coming online later this month.

Which will drive production through the end of this year. We also have two rigs finishing out a pad that will add a substantial number of ducks that will likely complete in the first quarter of 'twenty. Three so there is a lot there.

There is a lot there I think.

In the current I think when you think about the opportunity set here.

We've got a number of intervals.

This zone has that are low risk, we know the rock around existing infrastructure. So we think think about high quality low risk opportunities again, yet probably have several years of of.

Drilling just on those and there is some upside potential there is a number of zones that we're testing in our existing.

Footprint and we'll continue to test those and we'll likely test those zones here on our new acreage and again Thats all upside that.

Hopefully, we'll be able to talk about as we go through 2023 and the other thing I would add Bob is it brings a hot rig I mean, thats something that if you look a.

A year ago, we were looking to add a rig in the Permian that we started in the third quarter and really have showed up in April and the nice thing about this is we've got a really high quality rig it's been performing well with good group, yes, and again, we're not we're not going to talk about the development pace here, but if you can think about conceptually.

One rig on this for the next couple of years. This is free cash flow positive from day one.

And continues to generate.

Free cash flow.

I think that Thats intriguing the idea that an efficient rig ready to go in the Permian is actually an asset my.

Follow up would be if I think about the Austin chalk and I might've misheard, you, but with a six well program for 2022 and the revised production guidance was.

Based on the mixed results was for 5000 barrels a day.

Can you talk about sort of what the pre drill expectations were and some of the learnings on why you didn't hit that number.

Yes.

We probably had more wells than that baked into the into the plan.

Just to frame the chalk to make sure everybody is.

Airbus familiar we have.

Non off an operated position in Washington County, which is Western College station.

What we've put the pause on was a 20000 acre piece East of college station on the eastern edge of Brazos County.

The thought was.

Let's set pushed pause on this we've reduced the number of wells that.

That we're going to put online this year, we're actually going to defer some completions as well while we study the results.

And the point is this capital is better spent in the Permian. So we're going to parse it and we'll let you know what we what we come up with.

And sometime in 2023.

Thanks.

Thank you and as a reminder to ask a question.

What we what we come up with.

Probably in sometime in 2023.

Thanks.

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

Our next question comes from the line of Neal Dingmann with truest.

Good morning.

My first question is on Egypt, I'm, just wondering John if you'd maybe a bit more detail just maybe talk about broad comments on what youre seeing on returns there.

Including maybe just an idea of how natural gas prices our trend in the area as well.

Yes, Great question first of all our natural gas prices fixed $2 65 a M.

For Btu.

So gas prices fixed as you know, we make our money through the profit oil and the splits of the PSC is designed so.

Right.

The other thing I would say is if you look at the overall market.

Here, we are increasing our rig count threefold.

Time, when the rig count in Mena has been growing at about a 20% clip.

So we found ourselves in a pretty unusual situation, where there has been high demand for a lot of our trained Egyptian yes.

Talent National talent and.

For National talent in the area today and.

Good news is we're on it and addressing it but.

What it's done is it's the safe the safety statistics have been good but it's manifested in just some delays in terms of getting wells drilled getting.

Getting the rigs up and running.

And then getting wells connected and so.

Lot of its mainly just in the reactivation of the cold stacked rigs.

Yes, it's something we've done before but it's just taken a little bit longer and we'll get it ironed out and we're working collectively with.

The folks on the ground there and such.

We'll sort out do you see it.

In our supplement if you look at what we had planned to bring on in the second quarter of <unk> 24 wells, we actually only got to Lebanon.

But you see the pace with third quarter and fourth quarter picking back up so.

It's kind of a short term above ground.

Setback, but it's something we will recover from in terms of the well performance has been good and kind of in line with performance. So no no issues on the well performance side.

Okay, Great details and then just moving to alpine high. Thank you moving to re grow moving a rig there will that rig stay and maybe if you could just comment on.

What do you think the overall pace of activity might be.

Later, this year and into next year.

Yes for now we see it there we've got some pads wind out to drill with one rig it takes some time to drill those pads. So I think it will be late late this year already next year before you might see some production from that but.

Plan is is to leave that rig in there for now and.

For the most part stay there it might after.

After a pattern to jump over and pick up a well or two in the Delaware, but for the most part it's going to stay at Alpine high.

Thanks for the time guys.

Thank you.

Thank you and our next question comes from the line of Leo Mariani with <unk> partners.

Hey, guys just wanted to ask a little bit update the U S growth trajectory I think previously I think you guys had expected the oil volumes to kind of start to grow.

By the fourth quarter on an organic basis, but realize you made an acquisition, but equally took some volumes out of the chalk just any updated thoughts when you resume organic oil growth again in the U S. That's still this year or is that maybe sliding into next year.

No I think we will get back on track pretty quick.

We did pull out the chart, but that is greater than 50% gas. There. So when you look at that 8000 BOE a day.

You could think of that probably has been about 3.003 million barrels a day at about 30 million cubic feet of gas a day right. So.

But with the addition of moving the rig back to the Permian Theyre going to be a little more oily than north of chalk was and I think we'll get back on track.

Here pretty quickly.

Okay. That's helpful.

And then just wanted to ask on Egypt real quick. So you mentioned in your prepared comments, but your gross gas volumes were down quite a bit in the second quarter versus the prior quarter.

I think you all had previously talked about several months back about trying to hold gas volumes kind of flattish in 2022 was there anything anomalistic, there, where maybe a plant went down for maintenance or something that caused the drop just trying to get a sense of some of those volumes are going to come back or maybe you just had some some well that maybe.

The decline a lot or something.

No I mean, you've got two big things there we've been focused on more oil focused drilling with the current rig program and then you've got costs or which was a big gas field that we found along many many years back and it has been on gradual decline so.

There's time periods, where youll see the kosher impact.

In those numbers.

Okay. Thanks, guys.

Thank you.

I'll now hand, the call back over to Chief Executive Officer, John Christmann for any closing remarks.

Andrew It looks like we have one more.

Analysts who has a question.

Yes.

Our next question comes from the line of Neil Mehta with Goldman Sachs.

Yes.

Thanks, Tim I appreciate it so two quick questions for me first isn't in Suriname.

Has been some talk.

Okay.

Andrew I think your political tensions, but definitely political uncertainty.

Down there and so how does that affect the way that you and your partners are thinking about investing in the region and the other isn't in the North Sea can you guys give.

Give us an update of how you're thinking about that basin and the profitability there.

Here, particularly in light of firm natural gas prices, but also.

Round around the risks risk of windfall taxes. Thank you.

Now to two really good questions.

Dress Suriname first big.

Big picture, we feel really good about it Neil.

<unk>.

Where offshore which is a big plus in terms of where the operations are taking place.

It just underscores how important development of resource would be for the country of Suriname and so that's always been there a long time, they've got a great track record.

<unk>.

We look forward to working with them and help them try to to bring some energy and some GDP growth into the country. So I think it's a positive from that perspective.

It just shows you that in today's world. There are some challenges out there with inflation or other things going on.

A lot of countries are addressing that including Suriname.

In the North Sea.

I think we've got a very very strong business. There. We've always characterized our assets is kind of two different plays in two different two totally different assets 40 were obvious <unk>. We're obviously managing it into the later phases of its life.

Looking to manage that margin and.

As you see it wind down we still see that happening.

Early next decade.

And you see.

The profits levy there starts to impact timing of some of those things and so in the prepared remarks.

My comments this isn't helpful. Sometimes for future investment and it may actually shorten the life of some things, but we're not facing that today.

With where it is and then the other asset up there that we have.

Still some great programs in and see some future development is in the tertiary at barrel and we've had some good strong programs and look forward to that but I think you do have to just step back.

And look at your future capital, how it fits within the portfolio, but today, we see the north sea playing a key role.

Okay.

Thank you.

I'm now showing no further questions so with that I will hand, the call back over to CEO , John Christmann for any closing remarks.

Thank you for joining us today I'd like to leave you with the following closing thoughts.

We remain very focused on generating free cash flow in 2022. This will be approximately $3 billion, we will return at least 60% or $1 8 billion to shareholders.

Our new properties in the Delaware Basin are additive to this framework, it's an attractively priced tuck in acquisition and cash flow accretive from day one.

And Egypt, well performance has been good and we are actively addressing the above ground inefficiencies to get well tie ins back on schedule.

Operator, I will now turn the call over to you.

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

Q2 2022 APA Corp (US) Earnings Call

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