Q3 2022 APA Corp (US) Earnings Call
Hello, and thank you for standing by.
Come through.
Corporations third 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 API Corporation's third quarter, 2022 financial and operational results conference call.
We will begin the call with an overview by CEO and President John Christmann, Steve Riney Executive Vice President and CFO will then provide further color on our results and outlook.
So on the call and available to answer questions are Dave <unk> Executive Vice President of development, Tracy Henderson Senior Vice President of exploration and quite breakfast executive Vice President of operations.
Prepared remarks will be less than 15 minutes in length with the remainder of the hour allotted for Q&A.
In conjunction with yesterday's press release I Hope you have had the opportunity to review, our third quarter financial and operational supplement which can be found on our investor Relations website at Investor Dot Corp Dot com.
Please note that we may discuss certain non-GAAP financial measures a reconciliation of the differences between these non-GAAP financial measures and 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 would like to remind everyone that today's discussion 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.
Full disclaimer is located with the supplemental information on our website and with that I will turn the call over to John .
Good morning, and.
Thank you for joining us.
Call today, I will review highlights from the third quarter provide commentary on our fourth quarter outlook and conclude with an early look at our 2023 plan.
<unk> continues to enjoy a robust free cash flow profile provided by our unhedged exposure to a globally diversified product price mix.
With activity in Egypt, and the Permian basin now at levels capable of driving sustainable corporate production growth. Our free cash flow is also expected to grow assuming flat year over year oil and gas prices.
Turning to the third quarter results. We have had several key highlights global production was in line with our guidance range as outperformance in the U S offset unplanned facility downtime and the North Sea.
Permian Basin assets were strong contributors across the board from our core Midland Basin development program to the newly acquired properties in the Texas Delaware.
In Egypt drilling and re completion programs are progressing closer to our original plans for the year.
New well connections exceeded our revised third quarter guidance and production momentum is picking up into the fourth quarter the challenges.
It is associated with the activity ramp are not totally behind us, but we are making good progress.
The North sea after returning to production from seasonal turnarounds incurred an unusually high amount of unplanned downtime in August and September .
Most of these issues have been mitigated and volumes have returned to a more normalized level as reflected in our forward guidance.
During the third quarter, we generated more than $600 million of free cash flow purchased nearly 10 million shares of common stock at an average price of $33 85 per share and announced a doubling of our annual dividend rate.
In Suriname, we advanced our exploration and appraisal program with the first oil discovery on block 53 at Baja and a successful flow test of the crab Daegu discovery well in block 58.
And on the ESG front I am very pleased to announce that we have successfully delivered on our 2022 goal to reduce flaring in Egypt.
Today, new projects are reducing routine upstream flaring by 40%, enabling us to compress the gas into sales lines and deliver to addiction consumers for cleaner burning affordable fuel.
More information of our third quarter results can be found in the operational supplement posted on our website.
Turning now to our fourth quarter outlook capital investment is projected to be around $450 million and our full year guidance of 175 billion remains unchanged. We expect adjusted production will increase by around 5% from the third quarter driven primary.
Early buy.
An increase in new well connections and re completion activity in Egypt, and a rebound from planned and unplanned platform maintenance downtime in the North Sea.
Given the age and the North Sea facilities, we expect facility run times will generally be lower and more variable than in the past.
As a result, we are now providing our production guidance range to accommodate a broader spectrum of potential future outcomes.
In Suriname on block 58, we are currently participating in the drilling of two wells, a second appraisal well at <unk> and an exploration well at a Lori <unk>.
Results will be provided as they become available.
Despite a few challenges during 2022, we will exit the year in a strong position financially and operationally.
We are on track to generate around $2 7 billion and free cash flow for the year.
Consistent with our 60% capital returns program, we anticipate returning at least $1 6 billion of this and share buybacks and dividends.
While there is more to do we have significantly strengthened our balance sheet, reducing net debt by more than $1 $4 billion through the end of the third quarter and production volumes are now trending sustainably higher in the U S and Egypt.
As we plan for 2023, our objectives remain the same we will maintain capital discipline target moderate production growth worked tirelessly to mitigate rising costs and continue to deliver meaningful emissions intensity reductions.
Our capital budget next year will be around 2.1 to $2 1 billion.
This assumes five rigs in the Permian basin and up to 17 rigs in Egypt, while activity in the North Sea and Suriname is projected to remain consistent with 2022 levels.
Similar to our approach in 2022. This early view incorporates what we believe is an appropriate view of inflationary impacts on the capital program. The majority of the expected inflation is associated with U S rig and frac costs as contracts are renewed at the higher current rates.
Inflationary pressures in our international portfolio should be more muted.
Despite the planned increase in capital investment and our like for like price environment, We estimate apa's free cash flow will grow in 2023.
Note. This excludes any uplift from our cheniere gas supply contract commencing in the second half of the year Steve.
Steve will provide more details on this contract, which gives us access to premium natural gas price points in Europe and Asia.
Following three years of production decline since the beginning of the Covid pandemic, we look forward to returning to growth in 2023.
At the corporate level, we're targeting mid single digit year over year growth driven primarily by higher oil production across all assets.
In the third quarter, our Permian Basin results were particularly strong due to a variety of factors, including good underlying base production and new well performance, the timing and number of new completions and relatively minimal maintenance midstream and weather related downtime.
As we look into the fourth quarter of 2022, and the first quarter of 2023, we expect Permian production will be flat to down as we experienced a lull in new well connections and reflect the potential for winter weather related downtime in our outlook.
Planning for next year's continues and we will have much more detail to provide with our fourth quarter results in February .
At closing, we have a constructive outlook on the long term demand for natural gas and oil this hasn't changed despite the potential near term demand impacts of a recession and the ongoing debate over the pace of global de Carbonization trends, we continue to plan our business using relatively conservative commodity price.
This scenarios allocate capital to our highest return projects and target long term single digit sustainable production growth.
API will continue to return 60% of free cash flow to shareholders through buybacks and dividends, while also continuing to strengthen the balance sheet.
Lastly, we remain committed to reducing emissions within our operational footprint.
We will be introducing specific cotwo equivalent emissions intensity goals around this objective in the near future.
And with that I will turn the call over to Steve variety.
Thank you John for.
For the third quarter of 2022, API Corporation reported consolidated net income of $422 million or.
Or $1 28 per diluted common share.
Our quarterly results include items that are outside of Apa's core earnings.
Most significant of these was a $275 million charge for the impact of the UK energy profits Levy. This was partially offset by a $93 million release of tax valuation allowance due to the use of tax loss carryforwards during the quarter.
Excluding these and other smaller items adjusted net income for the third quarter was $651 million.
Our $1 97 per diluted common share.
Most of our financial results in the third quarter were in line or better than guidance for the quarter. We reported a net gain of $12 million on the sale of oil and gas purchased for resale.
This was better than the guidance, we provided in August of a $10 million loss.
As a reminder, we sell our gas in basin at ball hub or El Paso, Permian based pricing on.
Our marketing organization fulfill the obligations on various commercial agreements, including our long haul transport contracts using purchased product.
The reported gain or loss on the sale of oil and gas purchased for resale as a result of this ladder activity.
In the fourth quarter based on recent strip pricing. We expect this activity to result in a net gain of approximately $70 million.
GPT expense, which is costs incurred for gathering processing and transmission was above guidance for the third quarter.
This has been a trend for much of 2022 and is primarily a result of the higher natural gas prices in the U S.
GPT expense increases with gas price because some of our gas processing contracts are based on the percentage of proceeds and the accounting for such contracts results in costs going up and down with movements in gas price.
G&A of $69 million was considerably below our guidance as with prior quarters. This was primarily the result of the required quarterly mark to market of our cash settled stock based compensation plans.
Underlying G&A for the quarter was around $90 million, a little lower than average.
Turning to the balance sheet, you will notice that our total debt increased $244 million to $5 5 billion in the third quarter as we utilize the revolver to partially fund the closing of the Texas, Delaware Basin acquisition at the end of July .
As we've discussed on prior calls the revolving credit facility is an asset that can be utilized when attractive opportunities arise.
We've demonstrated this over the past two years using the revolver to fund timely debt tenders share repurchases and asset acquisitions.
Over time, we will look to pay down the revolver with available free cash flow that is not committed under the capital return framework.
A few other things before we turn to Q&A.
Please refer to our financial and operational supplement which includes additional information related to our third quarter results as well as our updated guidance for the fourth quarter of 2022.
This can be found on our website.
2022 will be a very strong year for free cash flow at API.
As John mentioned previously at comparable prices, we expect to see increasing free cash flow in 2023.
This excludes any financial benefit from our Cheniere gas supply contract.
At recent strip pricing the anticipated benefit to 2023 would be around $570 million.
Assuming the latest possible start date of August <unk>, which is a slightly later date than we've spoken of previously.
One final note on U S income taxes at.
At this time barring any contrary guidance that may be issued by tax authorities.
Do not expect to be subject to the new 15% corporate alternative minimum tax until 2024.
Thus, we currently anticipate no U S cash income taxes for 2023 as.
As accumulated Nols should more than offset projected taxable income.
As always please follow up with Gary and his team with any questions or if you need any other health related to our updated guidance.
And with that I will turn the call over to the operator for Q&A.
Thank you.
A reminder to ask a question you will need to press star one one on your telephone.
And due to time constraints, we ask that you. Please limit yourself to one question and one follow up.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Doug Leggate with Bank of America.
Right.
Hey, good morning, everybody. Thanks for taking my questions.
Good morning, Doug Good morning, John .
I got one on Suriname to kick us off and then I'll go to one of the financial questions. If thats okay.
I realized that you've got a couple of wells drilling right now but.
But most are aware of that.
Hess and shell.
Shell is the oil price or how the discovery that looks on trend if I'm not mistaken underlying.
With Yoda Huawei prospect, So I'm wondering if you can characterize or Lori.
Your expectations over the current status is and for that I'm reading that right that there might be some read through from.
Confirmation of a working hydrocarbon system.
<unk> has not really.
Any details as to whether that was a success or not but it looks like they are reviewing that as we speak.
No Doug the well we're drilling in the kind of the northwest portion of our block is Laurie.
You will remember bond Bonnie it's 25 kilometers west of bond money, where we found.
Give a working hydrocarbon system.
It appears that they have a working hydrocarbon system north of us as well. So I think that's all good news.
The big thing here will be trap, and but Tracy hendersons here and I'll, let tracey provide a little bit more color.
Good morning, Doug I think your comments are really spot on.
We are sort of hidden trend from zander right well.
We know as much as you do in terms of what's been in the public domain, but it sounds like a positive result at least with respect to the petroleum system.
What this does do as John mentioned, we had seen bond Bonnie in the upper or oil in the upper part of bond Bonnie previously. So what this does is basically pushed in mature proven kitchen further north into block 42, so well north of our block 58, northern boundary, which is good news for the petroleum system and I would say it.
Also increases the search area into block 58.
About 58 northern prospect.
I would counter that with saying deep.
Deepwater fans.
All along sort of the entire margin the biggest critical risk factor is trap.
So we will still need to be very focused on what our trapping geometries are a bit from the petroleum system standpoint, and if you have a working track. This is good and it increases your confidence that you can charge them.
Yes.
I hate to do a kind of part one b, but just while we're on the topic of serving them.
Do you have any color on <unk> at this point.
As it relates to whether that can then help inform and F E in 2023.
Well couple of things I'd say, Doug on Sofia car ourselves number one.
Strongly supported side from seismic perspective, and it's an up dip test of <unk>.
Our operations are ongoing and I'll say it could be it could be a very material add to that area. So we're very excited about it.
In terms of.
And so forth, we've got the appraisal at <unk>, South which is ongoing.
We also got appraisal at crab, Daegu, which will follow.
Some time early next year. So we're excited about that and we'll just have to get with you when we're ready.
Thank you for that.
Follow up is Steve and I guess, Steve I'm going to try and layer in a couple of things to this I guess, but.
Obviously senior doesn't want to stop this contract as soon as it is that you would like at this time I think I was pretty clear given LNG prices, but but I guess, what I'm really trying to get to is your comments about <unk>.
<unk> cash flow you said.
I'm not mistaken.
The free cash flow the cash flow to be higher next year and a similar price deck, excluding cheniere, if I heard that correct.
<unk> also flipped this wahaha trading contract or gathering contract.
Almost a $300 million run rate on revenues so.
When you wrap all that together.
Excuse me that looks like.
It looks towards the free cash flow could be up even.
At a substantially lower commodity deck. So can you help me understand if I'm reading that correctly.
Yeah, Doug I think.
I think we are.
Just going to have to be probably be patient two to finish the planning process for 2003.
And two.
We'll get to that in February and we will give all the details on that but.
As John indicated if we if.
If we have if we end up with a capital program, that's kind of similar to where we've been running for the last two years or two years two quarters.
Which would be the two to $2 1 billion, if we allocate that similarly to the way we've been allocating and delivering activity for those last two quarters.
If we ended up in a price environment similar to.
2022, then we will be up on free cash flow for next year.
There have been some things that have.
Have changed a bit since the last time, we talked about 23, which was in February .
We've got a little bit more activity, that's leading to.
That increase in capital spending because we do have an extra rig in the Permian, We've got a couple of extra rigs.
Going into 'twenty three in in Egypt.
There is some there are some new taxes.
In particular, the energy profits Levy.
In.
In the UK and there is talk now about possibly increasing the rate on that.
That we did say, we don't believe we're going to be subject to the U S alternative minimum tax in 2023.
And that would certainly be be good if we can defer that until 2024.
And so there are.
We've talked about.
The North sea.
Perhaps being a little less predictable in terms of production volume, so having a wider range of possibilities in.
And we know that Egypt has gotten off to a little slower start in 'twenty two than we had hoped for and therefore that will carry over a bit into 2023.
So we've tried to be really transparent about it.
Where we are going into 2023.
Relative to the last time, we talked about it in February .
We think we've got very good momentum, we're fixing some of the issues that.
Debt that we had in the second quarter, certainly looks better than third quarter results.
Going into the fourth quarter, better and I think we'll go into 2023 better so.
A long winded way of saying, let's wait until February for the details on our capital program and the capital allocation and what that means for production volume, but we feel we feel very good we feel like the.
The plan that we laid out last February is still very much intact with the with the transparency of a few things that have changed since then.
Wait until February . Thank you Fellows and will soon we will see you next month or next week.
Thank you and our next question comes from the line of John Freeman with Raymond James.
Good morning.
Good morning, John .
Just a follow up on the last line of question.
We appreciate the early look on 2023 understanding thats, great Crystal some moving parts, but if I just wanted to.
To tack on to what your sales team or if youre running kind of in aggregate in the U S. In Egypt, it looks like on a year over year basis, maybe an incremental four five rigs versus like.
You did this year is there a way to sort of parse out of the two to $2 1 billion Capex number how much of that kind.
Kind of year over year increase in kind of activity driven versus cost inflation.
Yes, I would say that.
And John might have some comments on this as well, but I'd say look at the last two quarters.
Where we've.
Especially fourth quarter, we're going to be running basically at what we're planning for for 2023 preliminarily.
Most of that was the same in the third quarter. We did have a bit of time, where we didn't have the ocean patriot in the north sea in the third quarter.
But on the <unk>.
Last two quarters, we've been running just a little under.
This last quarter and next quarter, we're running a little under $500 million a quarter.
That would give you a $2 billion on an annualized spend rate.
So thats the preliminary view with maybe a little bit of inflation.
Built into that.
Go into possibly two one.
And that's.
Thats just thats the preliminary view, we are still early days on the planning process and I would just caveat that with that could change.
So, let's wait and see in February , but I would characterize it broadly as.
The bulk of the of the change in capital spending is because of the change in activity.
Okay, Great and then my follow up question on Egypt, you all did a really good job of a plant.
And catch up getting the completion cadence in the second half of the year.
Back up pretty meaningfully after that growing pain in the second quarter, but.
John you mentioned that it's not totally behind us in terms of some of the.
What you are going through in Egypt can you just sort of maybe give a little bit more color to what you're you're speaking kind of completion cadence. It looks it looks really good we are going to kind of exit the year at in Egypt.
Yes.
We're in pretty darn good shape, but we worked hard to get here in a pretty short time period in.
A lot of it is just dress addressing manpower issues in training.
<unk>.
So we're in pretty good shape John in.
We are.
We're close to where we wanted to be but you're still working through.
Some things there, but we're in pretty good shape.
Great. Thanks, guys I appreciate it.
Thank you.
Thank you.
And our next question comes from the line of Neal Dingmann with truest.
Good morning, all thanks for the time John .
First question a little bit on what Tim was just asking John My first question is on production girls, specifically you all I think characterize 20 threes potentially seen I think would you deem as kind of moderate growth, but to me looking at your 23 domestic Egyptian activity plans. It seems like production could be even maybe a bit better than that and then moderate.
I know you don't have 23 guide, yet, but I guess, what I'm wondering.
How you view sort of next year's contributions incrementally.
When you think about Egypt versus domestically given to me all the domestic opportunities, including the new play there.
Yes, I would just say Steve went into pretty good detail on an update of the early look over a three year plan and it's very dynamic and we're working that will come back in February but in general.
Youre still still looking at.
Mid single digit solar VOA basis at the corporate level is what we're looking at in and Thats going to be driven.
By oil and Egypt.
We should have cleaner run next year in the North sea, although we're going to have a range.
And then obviously we've had really good performance in the U S. Specifically in.
In the Permian.
Okay, Great details John and then secondly, just on shareholder return and I was just wondering which I'll say youre still leaning in the stock buybacks I guess, what I'm trying to get a sense of that one six buyback plan what remains.
Year to date.
I would just say <unk>.
Under score we're committed to the return framework.
And we will deliver a minimum of 60%.
So I was hoping to hear thanks, Sean.
You bet.
Thank you Andrew.
Our next question comes from the line of Bob Brackett with Bernstein.
Good morning, I had a question on the Cheniere gas supply contract you mentioned the scale of $570 million opportunity could you break that down for us in terms of the volume implied and maybe the price differential between Henry hub and whether you think about TTM for J P. M.
Yes, Bob.
So the contract is 140 million a day.
And the $570 million.
I won't recall exactly what day, but it's it's based on strip pricing.
Sure.
And we assumed an 80% TTM, 20% JK.
Mix.
Which we have the.
The right to elect.
And that was versus the same period strip for Houston ship Channel and then it has all of the deducts that we get from that contract for.
Liquefaction for shipping for a shrinkage in for re gas and things like that.
Very clear and that sort of starting up in September through the 140 million a day is four months or five.
It would be five months the bi contract the latest contract can start as August 1st.
Could start earlier.
<unk> my breath.
Got it thanks, so much.
Thank you.
And our next question comes from the line of Jeanine Wai with Barclays.
Hi, good morning, everyone. Thanks for taking our questions.
You bet Janine good morning, John .
Maybe we just go to the North Sea here you mentioned in your prepared remarks.
More and more available run times, just kind of given the age of the asset now we potentially have some higher epo kind of overhang here.
<unk> 'twenty three outlook as it stands today is you said the north the activities should be consistent with 2022, but we're just wondering what the potential range of outcomes could be there whether it's related to changes in the regulatory environment or by your choice and we know it doesn't quite work like Hell, but what kind of base decline is in north sea on thank you.
Yes, Jeanine this is Dave Purcell I don't have the the.
The numbers in front of me.
But think about the two different assets, we have <unk>, which is a mature waterflood that's going to be on.
The base decline there is can be on a high single digit annual decline. These are.
High water cut low decline low decline wells.
Barrels a bit a bit different there is water there's pressure maintenance through water injection in many of those assets, but youll see more conventional type declines.
In in barrel, so there'll be higher than <unk>, and so we can circle back and get you the blended number but.
It's going to be somewhere in the mid mid to high teens.
Just based on on memory, but we can we'll tighten that up.
Okay, great. Thank you.
And then maybe turning to the revolver.
I think Steve you said do you consider to be an asset to utilize and theres attractive opportunities youll look to pay down over time.
Sure.
Our question is how much is too much on the revolver and how.
Does this really factor into your appetite for future bolt ons. Thank you.
Yes, I know.
Our controller won't like me, calling that an asset.
We view it as such.
And the non accounting sense.
And for that it's for that very reason and we can we used it for the the bolt on acquisition in July and in the Delaware Basin, we use it for.
For for debt tenders, we've used it for share buybacks in particular, we use it during periods where.
We have we have a <unk>.
<unk>, where we have no material nonpublic information and we can use it for open market repurchases.
Of shares.
Periods, where we can be a little more selective at the pace at which we.
We buy back shares during those periods of time so.
The revolver it comes in very handy.
Times.
We especially with the price environment that we're in we're pretty comfortable with.
The revolver, where we've got it now and where it's been for most of the year, but.
But we do need to get that paid down and preserve it longer term for that optionality around potential.
Potential bolt on acquisitions, if we find the good opportunities.
Great. Thank you for the detail.
Thank you Andrew.
Next question comes from the line of Charles Meade with Johnson Rice.
Good morning, John and Steve and the rest of the <unk> Journal.
John .
Yes.
Im hoping that gets you to.
To elaborate a little bit more your you're thinking on.
On <unk> south to an end and what kind of piece of the puzzle this might be my understanding is.
You can drill you could go appraisal wells in many locations, but you take a look at the location you do because you are hoping it will it will answer some questions for you and move you towards the.
Towards sanctioning of projects. So can you talk about what the what.
The goals were with with dislocation I think you've mentioned it's up dip.
And how that could play into the.
Moving the project forward in 'twenty three.
Yes, the thing I would say if you look at <unk> South it was very very high quality discovery.
You had <unk>.
30 meters.
Pay actually 32 meters.
The base.
<unk>.
Around 1100.
And you had really really high Perm, one three to $1 five D'arcy rock at the time of that we announced a connected volume, which we later updated to more than 400 million barrels. So.
<unk> South is really world class rock.
We also said at the time that we believe there was additional resource there.
It needed to be appraised.
That's exactly what this well is doing its moved up dip and we are appraising and.
We've got really really good seismic support we think the seismic is working.
And they could add materially to that Suffolk ourselves discovery.
Okay.
It will be interesting to you.
To catch up whenever you guys have the information to share there.
And second question I think this is perhaps for Steve, but maybe few Jonathan I think Neil was up was joined.
Joining at this a little bit earlier, putting the pieces to get it in your press release.
You guys say that youre going to return at least $1 6 billion of cash in the form of dividends and buybacks and then you guys had a.
Helpful. Slide in your presentation, where you say you are at kind of one one right now and <unk> got it.
130, actually you're right one right now and you've got maybe another 130.
Dividends are getting from <unk>, so that if I'm doing the math right that's about.
$450 million for.
For the last or actually maybe.
You did $80 million.
On the order of 400 million for November and December .
That's a big chunk or are you guys going to be able to are you guys going to have to enter into some kind of a tender to get those shares and or is it something that you think you can do.
<unk>.
<unk>.
And in the regular.
Daily bid.
Yes, Charles let me.
I'll just run quickly through the similar math that you were going through we do expect now.
Recent strip prices that free cash flow this year will be $2 7 billion as John said.
So that would imply a minimum committed returns of $1 6 billion.
Year to date, we've done $127 million of dividends.
We've bought back 26 million shares at 34 Bucks, So thats $884 million of buyback and as you said Thats just over.
$1 billion, so far this year.
Since inception by the way that's 15% of the company that we bought back at a little over 31 Bucks a share.
So at $2 7 billion of free cash flow that would imply for the fourth quarter.
Total returns of $600 million.
The dividends will be about $80 million and setup.
It implies buybacks of $520 million.
In.
We've done right around $80 million of that.
In October so your math was pretty darn close that would all of that if you landed right on 60% would.
It would be about $440 million of additional <unk>.
Share buybacks historically, we've delivered those buybacks through <unk>, one programs and through <unk>.
As I said, we use.
<unk> when we don't have material nonpublic information. We are we are drilling two wells in Suriname, So we do understand that situation and.
The risk associated with that.
As John said, we're committed to that program. So you should assume that we have plans in place to make sure that that will be delivered and because it will be delivered by the end of December .
Got it so.
I appreciate you're correct in my math, Steve and it's kind of.
Wait and see but you guys have a plan to get there if I'm understanding correctly.
That's correct.
We will get.
Thanks, Steve.
Thank you.
A reminder, if you have a question. Please press star one one on your telephone.
Our next question comes from the line of Paul Cheng with Scotiabank.
Hey, guys good morning.
Two questions.
The first one is is there anything else there.
Jason John when you're talking about mid single.
Mid single digit.
OE production global nicotine.
Based on the full quarter, therefore based on full year 2022 level because it pays on pool.
Pulled yet.
2000.
<unk> levels that suggest that while next year or so they've been.
Lower than the fourth quarter landfill and that with the increase.
The increase at <unk>.
And is there any reason why that the average.
<unk> will be lower on the Oi growth for next year and the fourth quarter LIFO.
That's the first question and second one is really simple on the Permian, you're saying you're going to one five weeks that opinion <unk> anything in the Alpine high and then what's your view.
Given the current commodity prices between.
Gas well and volume only wafers.
Okay.
So.
Number one.
23 is a work in progress. So we're working on that we said we'd come back in February but in general we said will be up mid single digit is going to be driven by oil.
Yes.
As year over year is but.
We will come back with that in details thats really pretty much the shape of the three year plan that we put out last February .
When we look at the Permian five rigs, yes today, we've got two in the Midland Basin three in the Delaware.
We'll be activity at alpine high.
And.
We do like the mix and we think those wells compete very well today with the.
The gas price deck is in the oil price deck.
John should we assume youre going to have at least one <unk> FY <unk>.
With that yes.
Not necessary and maybe I would say today.
Today, just assume that it's likely three in the Delaware and Alpine high will be part of that program.
Okay. Thank you you.
You bet. Thank you.
Thank you and our next question comes from the line of Leo Mariani with <unk> partners.
Hey, guys I was hoping to jump back to the North Sea here real quick.
Just kind of looking at the production over the last couple of years, certainly you guys had been hit.
And a lot of downtime there youre forecasting higher production here.
Fourth quarter, just wanted to get a sense. If there is like some some things you are doing different operationally, where youre kind of feeling more comfortable that youre going to be able to kind of deliver maybe some higher rates here going forward in north sea.
Just say a lot of it is we're coming out of our maintenance turnaround season.
We've had to play catch up in 'twenty, two for 2020 one.
Covid years hit pretty hard there and we were limited on what we could do on the tars and you've just got aging infrastructure.
When things go down it takes a little longer to get things back up but.
I think we've got a lot of that behind us.
We will be guiding with wider ranges in the future but right.
Right now we've got good momentum and things are running fairly smooth.
Okay.
And just jumping over to Egypt here, just looking at your kind of gross oil volumes I think those were down a little bit here in <unk> versus <unk>.
Can you just give us some communications is beginning to kind of 41 early next year, you think <unk> was below point on that gross oil volumes in the Santana the nice growth into kind of the end of the year.
And then DTC kind of what type of growth do you see when you get next year would you see that driving a lot of that overall production growth of the company.
Yes, I think some of that is just timing of well connections. We had this quarter and we've got good momentum really across the whole portfolio going into the fourth quarter, we're off to a good start.
We had some wells that have come on and things. So we do think Egypt is going to be one of the big drivers in 'twenty three and beyond.
Okay. Thanks, guys.
You bet.
Thank you.
Our next question comes from the line of David <unk> with Cowen.
Thanks for taking my question guys.
Just wanted to ask if I could.
Following up quickly just on the North sea.
Hi, John I think your comments were just on the age aging infrastructure is there sort of a.
More of an outsized maintenance capex spend that goes into north sea in 'twenty. Three is there is there an eminent need to upgrade facilities.
And how does that sort of square with.
Production would be in the fourth quarter are we back to a more sustained level ex downtime.
Heading into next year.
No I don't think its any outsized I think we really played catch up in 'twenty, two and 'twenty three.
There are always decisions that you make as you get into later years like at $40 on equipment and those are decisions, we make routinely going forward, but.
Those are all things youre constantly weighing the pros and cons of as Youre looking at.
Operating facilities as they get later in their life, but don't anticipate anything.
Significantly outsized from normal.
And we should be in a period today with most of that behind us.
Where things are going to run a little smoother so.
I appreciate that.
Maybe if I could just ask for a little bit more color on the cheniere contract.
I think you all had marked today based on the strip pricing can you give us a sense on just how those those net backs work are the costs that are coming out of those LNG contracts on a fixed or variable basis.
What's a good ballpark to apply on sort of an M M btu basis for costs relative to where the headline tcf price might be.
Yes, Unfortunately, its difficult to give a kind of a.
A generic approach to figuring it out because some of the costs like shrinkage.
Fuel and things like that will come out effectively at that.
It is the loss of volume so it comes out at the TTS and JK and price.
And some of them are contractual dollar amount costs.
Yep.
Do have some provision for inflation over time.
So a good example of that would be the liquefaction fee.
So it's it's not that easy to give a kind of a generic rule of how it will work through different prices of.
Of.
Of LNG or Houston ship channel for that matter.
That's why we just give it as a.
As a margin over Houston ship channel.
I mentioned earlier in my prepared remarks that.
Yet.
We actually sell all of our product that we produce in basin in the Permian.
<unk>.
We enter into pipeline contracts and things like that primarily.
As a participant in the industry to keep.
Less liquid.
Markers like one hub more attached to the bigger more liquid markets.
And then we have a marketing organization that manages those contractual obligations.
For that reason we.
We look at the Cheniere contract as a margin over purchased product because we will we will purchase product on the Gulf coast.
<unk>.
Deliver that to Cheniere the pricing that we get is that netback calculation.
And they buy the product they take title to it at their plant inlet. So we don't have any tie.
Title to product as it goes through their plant or the liquefied product as it comes out we don't we don't manage shipping or anything like that we don't do the selling they do all of that for us.
Okay. Thanks for the color there.
Okay.
Thank you.
Our next question is a follow up from Doug Leggate with Bank of America.
I'm, sorry, guys for lining up again, but John I guess I'm listening to all the questions about the north sea.
Im listening to higher when the full tox risk.
Less predictability.
The life expectancy of the field et cetera, et cetera, and I guess the obvious question to me seems to be.
Is this a core asset for Apache as a point of which.
Whether it would be.
Another.
Core area in Suriname, perhaps at some point.
So as the north sea become surplus to requirements basically is it for sale.
Yes, I mean, the thing I would say Doug is that today North Sea is a core asset for us.
Obviously, you've had some factors out there today that.
Impact the ability to invest future.
You have to continually way and that we benefit from the Brent pricing.
Net backs in the free cash flow.
But you also have a portfolio that is dynamic and so youre always looking to expand your ability to invest in other assets.
As things change.
Sometimes out of your control it shrink some of that so but today.
It is core.
We are always taken into account as we're laying our future plans.
I appreciate it John Thank you.
Thank you.
Thank you.
And I'm showing no further questions. So with that I will hand, the call back over to President and CEO , John Christmann for any closing remarks.
Thank you for joining us on our call today, we started the fourth quarter with strong momentum across our global operations, which will carry into 2023.
And Suriname, where drilling an appraisal well at <unk> south in an exploration well at <unk>, we will share results when they are available.
We remain on track to deliver on our capital return framework, we will deliver at least 60% of 2022 free cash flow to our shareholders through dividends and buybacks. Our teams continue to work on our plans for the 2023 program and longer and we look forward to providing.
More details to you in February operator, I will now turn the call back to <unk>.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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