Q1 2023 APA Corp Earnings Call
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Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Gary Clark Vice President of Investor Relations.
Good morning, and thank you for joining us on the Corporation's first quarter 2023 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 Executive Vice President of exploration and Clay Breccias Executive Vice President of operations.
Our prepared remarks will be approximately 12 minutes in length with.
The remainder of the hour allotted for Q&A.
In conjunction with yesterday's press release I Hope you have had the opportunity to review, our first quarter financial and operational supplement which can be found on our investor Relations website at Investor Dot Corp Dot com.
Please note that we may discuss certain non-GAAP financial measures.
A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
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.
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 on today's call. We will review our first quarter highlights.
Our operational progress and comment on our outlook for the remainder of the year for the last several years, we have been navigating a volatile price environment and this has been amplified recently with the ups and downs of global oil prices extreme moves in global LNG pricing and the rapid decline in U S natural gas prices.
Despite this volatility we are constructive on long term prices for oil natural gas and LNG.
Based on this fundamental belief we plan to invest over the long term for sustainable low single digit production growth at attractive returns.
That said, we cannot ignore price volatility and will therefore seek to moderate our investment plans during periods of significant price weakness.
We must also be responsive to changing governmental tax and regulatory regimes within our countries of operations.
Fortunately, our diversified portfolio provides us optionality and we maintain the flexibility to adjust our investment plans relatively quickly.
In 2023, we have demonstrated this by reducing natural gas directed activity and even curtailing production in response to extreme Warhol price dislocations.
We also made the decision to reduce spending in the North Sea is a recently enacted energy profits Levy has resulted in less competitive return opportunities than in the U S. In Egypt. So while you should generally expect us to invest at a steady pace for long term returns and moderate growth you'll also see periods, where we were.
<unk> external influences by adjusting or redirecting capital activity.
Turning now to our first quarter results, which are characterized by strong operational performance and good cost control.
<unk> met or exceeded production guidance in each of our three regions.
Total adjusted production was 4000 Boe's per day above the top end of our guidance range.
Adjusted oil production also exceeded expectations led by performance in the Permian and the North Sea.
Capital investment during the period was slightly below guidance and our average operating drilling rig count remained steady in the quarter was 17 in Egypt five in the Permian Basin and one semi submersible in the North Sea.
In the U S. We connected 17, new wells and as planned most of these went online in the back half of the quarter.
While timing of well connections can drive production variances on a quarter to quarter basis, we're continuing to see significant benefits from the steady pace of our drilling program.
As expected first quarter oil production declined sequentially from the fourth quarter. However, we remain on track to deliver a significant uptick in the second and third quarters.
Permian activity. This year will be concentrated primarily on oil development in the southern Midland Basin and oil weighted development in the Delaware Basin.
At Alpine high we are currently testing a new three well pad at a constrained rate.
Beyond this we are ramping down our planned 2023 lean gas drilling activity in the Permian due to the prevailing weakness in Wuhan natural gas prices. This will result in an upstream capital reduction of approximately $100 million.
But should have no material impact on our full year U S production guidance.
We are pleased with the results at Alpine high and will return with Walmart prices improve.
In Egypt gross oil production increased by approximately 200 barrels per day compared to the fourth quarter, new well connections re completion activity and exploration success were all consistent with our expectations and we are beginning to see positive contribution from our higher activity pace.
For the second quarter. However, we are forecasting that Egypt gross volumes will be roughly unchanged.
Recently experienced some production disruptions most of which are temporary despite this our full year, Egypt production guidance has not changed.
Turning now to the North sea, our production exceeded expectations in the first quarter driven by strong facility operating efficiency. We are projecting second quarter average daily production will be in line to slightly below the first quarter as scheduled platform maintenance and the expected return to more normalized facility operating efficiency will be mostly offset.
By contribution from our new well, which was placed online in late March.
In Suriname, we continue to progress toward an oil hub development project with activity in the first half of 2023 focused on appraising <unk>. We've completed the flow test on the first appraisal well and are currently in the pressure buildup phase results of this well thus far are in line with expectations. The second <unk> appraisal well is currently drilling.
And we will provide more information on next steps in the future.
On the ESG front, we delivered another excellent quarter of safety performance and we're making good progress toward our longer term emissions goal of implementing projects to eliminate 1 million tonnes of cotwo equivalent emissions by year end 2024.
We reduced routine upstream flaring in Egypt by 40% last year, which gave US an excellent start on this goal in 2023, we plan to further reduce flaring in Egypt and focus on converting diesel combustion for power generation to field gas, which will reduce both costs and net emissions.
In closing.
Has the portfolio and the operational flexibility to respond quickly to near term commodity price volatility we are managing our capital activity Accordingly.
We remain committed to returning a minimum of 60% of our free cash flow to shareholders. This year via dividends and share repurchases lager.
Longer term despite many crosscurrents, we believe the investment case for IPA and the E&P industry is strong and the outlook for hydrocarbon prices and fundamentals is very constructive.
And with that I will turn the call over to Steve Riney.
Thanks, John .
For the first quarter under generally accepted accounting principles.
Reported consolidated net income of $242 million or.
<unk> 78 per diluted common share.
As usual. These results include items that are outside of core earnings. The most significant of these items was a $174 million charge related to the remeasurement of our deferred tax liability in the U K caused by the most recent increase in the energy profits Levy.
This was partially offset by the release of a valuation allowance on our U S deferred tax assets.
Excluding these and other smaller items adjusted net income for the first quarter was $372 million or $1 19 per diluted common share.
Free cash flow as we define it which excludes changes in working capital was $272 million in the quarter, 81% of which we returned to shareholders through dividends and share repurchases.
As John noted it was a strong quarter for production and costs were a good bit under plan.
G&A expense was $65 million significantly below both the prior quarter and the same quarter last year.
This is a result of apa's lower stock price at quarter end and the mark to market impact on previously accrued share based compensation.
Excluding this mark to market impact underlying quarterly G&A costs remained stable at roughly $100 million.
<unk> also came in a good bit below expectations, primarily due to the previously mentioned mark to market impact of stock based compensation programs.
As well as foreign currency impacts in Egypt.
Switching to forward looking guidance items in the U S oil production growth is expected to return in the second quarter.
It should ramp further in the third quarter.
Injunction with completion cadence.
Our U S natural gas production outlook is more muted as we are responding to week wahhab pricing with lean gas drilling reductions.
In addition, we could see further lean gas production curtailments, but.
But to be clear further curtailments are not contemplated in our U S production guidance.
All of this is consistent with our bias towards managing for cash flow and long term returns not production growth.
The $100 million reduced drilling activity, John noted will occur mostly in the second half of this year.
With that our full year capital budget has been reduced to one $9 billion to $2 billion.
Next I would like to highlight our two material gas trading activities that are truly differential for.
Our gas transport obligations and entrepreneur gas supply contract.
Our gas transport contracts provide significant cash flow benefits during periods of dislocated Permian gas prices.
We hold just over 670 million cubic feet per day of Permian basin takeaway capacity.
We purchased third party gas in basin for resale on the Gulf Coast Realizing.
Realizing a trading margin whenever the price differentials are greater than the transport cost.
In the first quarter this activity generated a net profit of $23 million.
Based on current strip prices, we have increased our full year guidance for net profit from such activity to $100 million.
The Cheniere agreement, which will commence on August 1st is another important commercial trading activity.
This arrangement provides upside exposure to world LNG margins over Houston ship channel.
On 140 million cubic feet of natural gas per day.
For 2023 projected cash flow from this contract is coming down a bit from our prior guidance due to the decline in European and Asian LNG prices.
Over the past few months, we have provided potential outcomes of annualized free cash flows at different price levels related to this contract.
Can find those in the appendix of our financial and operational supplement.
At current strip prices, the Cheniere contract will generate an expected $175 million of free cash flow for the last five months of 2023.
All of our guidance for both the second quarter and updated full year 2023 can be found in our financial and operational supplement.
One final item I would draw your attention to <unk>.
Looking at the balance sheet, you will notice that our revolver debt increased by a little over $400 million in the first quarter.
This was driven by an approximate $500 million increase in working capital.
Primarily due to the pay down of accrued liabilities from December 31.
But it also includes increasing accounts receivable and Egypt overall, we had a very good quarter to start the year, we're benefiting from relatively stable activity levels within our portfolio that allows us to generate free cash flow and invest in the long term sustainability of our business.
And with that I will turn the call over to the operator for Q&A.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile for Q&A roster.
Our first question comes from John Freeman of Raymond James.
Good morning, guys.
Good morning, John .
I believe the original plan.
After the three well pad GAAP, Brian Amit at Alpine high in the first quarter that was going to be kind of a break and then now it can be five additional wells that we're going to come out at the end of the year. So is that the $100 million reduction in the budget basically just coming from the removal of those five.
Hi, wells or is there more to it.
Okay.
Yes, John this is Dave for cell.
You may have had more than five wells planned for the middle of the year, but if youre trying to there are some moving parts in the Permian budget, but the effect is yes.
At $100 million is essentially all of the alpine.
Drilling completion and facilities capital.
Rounds up to 100.
Perfect and then just my follow up question.
I know.
Some point there was some discussions about kind of following the release of.
On the Ocean Patriot next month.
Yes, there is going to be some use of that kind of freed up copper it might've been to add an additional rig in the Permian.
I guess first of all is that would that be the case, if you were going to increase activity anywhere in the portfolio.
Not likely.
Where it would go and sort of what commodity environment would you likely need to see to potentially add.
Another rig in the Permian at some point in the future.
Yes, John I mean, we did add some more way to drilling in the Permian with that.
Was contemplated and then Youre CNS dropped some of the gas were to drilling at alpine so.
Two effects there.
Okay.
Okay.
One moment.
Our next question.
Okay.
Our next question comes from Doug Leggate.
Bank of America.
Okay.
Hi, sorry, guys can you hear me now.
Okay Doug.
Alright, sorry about that I'm sitting in an airport I had my mute button on I apologize John .
Guys. My first question is for Steve <unk>, Steve I Wonder if you could just elaborate a little bit on your comments about the increase in receivables in Egypt.
Obviously, I think some concern the events over there to the devaluation and so on.
Do you have an impact in your ability to get cash out of the country. So I'm just going to hit that by upfront and ask if you can walk us through what Youre seeing currently and further about working capital Bill doesn't fight through addressable.
Okay.
Yes.
Let me, let me just start with <unk>.
Working capital level and more work into that.
Egypt receivables impact on working capital so.
We.
And in my prepared remarks that.
We've got about a $500 million increase in working capital.
In the first quarter.
$300 million of that was a decrease in accrued compensation and benefits. So as you might imagine through the year, we accrue.
Primarily incentive compensation, both short term and long term.
EMEA recruited that through the year, we do that every year.
And then we pay it off in the first quarter of the following year.
So thats exactly what happened that was a redo that every year.
It was a little bit larger going from the end of 'twenty two accrued liability to what was paid off in 2023 because of.
The performance number one but also because of the share price because it does include the long term incentive comp, which is share price based and because of.
It's a three year three years of programs and because the share price had improved over those years that raised the cost of that so $300 million of the $500 million. There was another $100 million decrease in the general accounts payable.
Steph for operating expense and capital expenditures things like that.
And so that's $400 million out of the $500 million increase in working capital and all of those things are very common as we go through fourth quarter of one year to the first quarter of the next now there were a number of other small mostly kind of $50 million in smaller items moving in and out of work.
<unk> capital.
That includes a $50 million increase in accounts receivable.
No.
Again I provided this in my prepared remarks, just to be completely transparent with folks because I know there's probably.
Some some amount of concern over what's going on in Egypt.
In the spirit of transparency I indicated that.
Accounts receivable in Egypt had increased to $180 million.
If you look at our supplement Youll see a working capital increase for Egypt of $224 million that includes a number of other things like inventory and stuff like that.
$80 million in Egypt, and I know John you want to.
Hey, Jason Allegiant on Egypt, I'll, just just a couple of minutes here Doug.
One we've been in the country for more than almost 30 years and we partnered with.
Egypt and.
Andy GPC and the highest levels of government the whole time.
I'd say over that time period, Egypt's been through a number of challenges.
And successful reforms.
The best thing that we can do to help Egypt, and our stakeholders is to deliver oil production growth and Thats, what were doing while reducing our emissions.
Egypt like many other places in the world today is going through a challenging economic time with inflation.
This does have some flow through to us, but not anything that we haven't had to work through in the past and in fact, there has been more difficult times in the past.
Specifically they are dealing with the after effects of our currency devaluation in January .
We are currently helping our Egyptian national employees through this as we have also done in the past.
Maintaining very deep and long standing relationships with our Egyptian stakeholders.
Both of the GPC and within the government at the highest levels. All say, yes, we are confident that they will work through this and we are also having very constructive conversations on how to address the receivables over time currently so we feel good.
Our track record here.
If I could just.
To add to John's comments, there a bit.
So we are we did go up $180 million in.
In the first quarter.
I would say that.
That the receivables we have from Egypt are higher than historical averages we no doubt.
Some of that is price and some of it is.
Is the delay in payment.
But I'd just comment that John .
John talked about the 30 years of history, we've been in this position several times this level of receivables from Egypt does not unprecedented.
It's never a good time to have this happen, obviously, but I would say, it's not overly concerning at this point.
Egypt credit rating has been pretty stable since it got upgraded in 2015, we watch the situation extremely closely and as John said.
We're in active conversations.
This specific issue.
And we're doing that at the very highest levels in the country. So we feel confident about this.
Okay, just to be clear guys.
Our balance you talked about and receivables are you get are you able to get cash out of the country or was that an accumulation of basic.
Basically because it is the highest free cash flowing asset in your portfolio currently is at.
Are you able to get cash out of the country currently.
Yes, we are still able to get cash out of the country that that's not the problem.
Okay. Thank you my follow up is.
John has a few teasers in the deck about the status of Suriname moving towards.
Potential hub development I think because of the expression and you said you've got the results of that at least the first appraisal well at club target.
I Wonder if I could ask a question like this you said the result is in line with expectations. So what were the expectations.
And what would you need to move forward by way of resource upside to the more than 800 that you identified in the deck today.
I would just say Doug.
We're still getting results from <unk> two we're in the buildup phase.
To put things in perspective.
I'm not going to give you our pre drill expectations, but the oil was in line, but I will remind you that the crab that go to <unk>.
<unk>.
And kilometers from the discovery well.
And <unk> three is 10.3 kilometers from the discovery well.
So when you look at that map, sometimes you forget just how large of an area that is.
And obviously, we're very pleased with.
The early data and the results we have from the appraisal well, but you know our history has been able to come back with connected volumes and we're not ready to do that yet because we're still collecting pressure data.
Okay fair enough guys. Thanks, so much for taking my questions.
Thank you.
Please standby for our next question.
Yes.
Okay.
Our next question comes from Bob Brackett Bernstein Research.
Hey, good morning, I'll stick on the Egypt topic, one is just to refresh my memory that in Egypt natural gas flows domestically sort of towards the high ROE base scenario, whereas oil to flow North and you export it and capture those revenues am I remembering that correctly.
Yes.
Okay. The follow up would be you mentioned that you expect Egypt to be flattish <unk> versus <unk>, you mentioned production disruptions some of which are temporary.
Being too much of a lawyer to suggest then that some of those are not temporary and could you maybe give some color in terms of the cadence of getting oil year through the year you've guided.
60% oil for Q1 rising towards 64% for a full year average.
Yes.
Rob I'd say the first thing is you know we've got a very large asset base there that stretches really from Cairo almost of the Libyan border and we've got a number of fields and I'll, let Dave walked through.
Some of the temporary things and then another minor issue, yes, yes, so counselor when we think about this.
The capital programs performing as expected so new wells and re completes those are those are on track we've had slightly lower based production. So a series of things and we will highlight a couple of the big ones.
We have an unplanned downtime at a gas plant, which will impact condensate production.
Had some ESP failures on some of our larger oil producers those are the temporary issues.
We've done some injection conversions taken producers to waterflood injection and that takes some time to see the oil production benefit from those.
And then one of our mature fields, our Capri deep field.
<unk> experienced an increase in water cut.
Late first quarter and put that in perspective, it's a 3000 barrel a day feel thats now producing close to 1000 barrels a day so.
It's not a big producer, but on the margin that loss of 2000 barrels a day impacted.
Second quarter, it actually had a slight impact on the first quarter as well.
So when we look at the second quarter, we just felt like given those events.
It was probably appropriate to guide conservatively flat.
I will tell you that.
The team is expecting to beat that so we'll see but we want to guide conservatively and.
And we'll see as we go through the quarter.
Some of the temporary issues will get back I think it's important to highlight given the pace of new well.
New well drills the quality of those wells the re completes.
We remain confident in our ability to grow production in the back half of the year. So.
No no change to guidance for 'twenty three.
Great. Thank you.
Yes.
Thank you.
Please standby for our next speaker.
Our next question comes from Charles Meade of Johnson Rice.
Yeah.
Good morning, John to you and the whole team there.
Good morning Charles.
John .
I'm wondering if we could talk a little bit about the timeline for these crap.
Crap you appraise rules.
Maybe I was.
Maybe I was off on the wrong track, but but I thought we were going to get the <unk>.
Some of these appraisal results a little earlier, but I find myself wondering maybe.
Maybe these these these wells you've designed them to be eventual producers and so they took longer to drill. So could you could you comment on I guess both of those things what the timeline is and whether the current timeline is.
Fits with what you expected.
Whether these are going to be producers in.
When you think youll be in a position to share.
Sure that.
Connected volume estimate.
Yeah, Charles I don't know, whether you got any ideas on timeline because it wouldn't have been from us but.
Just because the hotels operate.
Sure.
I would say the <unk> two well move to a pretty much as expected. We're just in a period now where we're gaining data through the buildup.
So that is the most important information in terms of connected volumes.
I will say the crab <unk> three well is running a little behind but that also was a brand new rig that was brought in the basin and so there's been some fits and starts.
The drilling of the third well, so I wouldn't read too much into that other than it just has taken a little longer than anticipated.
Okay. Thank you for that for that detail and then.
Going back to the U S onshore in natural gas specifically.
I want to commend you guys for for turning the dial.
Back on that it's.
I know it maybe sometimes seems easier to do from from.
Seems like mind, and then the actual reality of or for you guys, but if we had to your comments about being being bullish on the longer term outlook for natural gas.
Can you give us a sense of what kind of price or what or how long at a certain price you would need to see natural gas before you would up when it turned the dial back up on U S lean gas activity.
As we said in the prepared remarks.
We're seeing good results from our program there.
There is no reason to invest the capital today.
This.
The price environment, and so I think we want to see the infrastructure kind of get resolved and get through this.
Feel like we're in a good place because we're making long term investment decisions here.
Very pleased with the results, but we won't clear pathway on a more constructive.
The environment for guests.
Yes.
If I can just remind people also John .
We sell all of our gas produced in the Permian Basin in the Permian Basin, and so we're getting wahaha, our El Paso Permian prices for that gas and we have our transport obligations to the Gulf coast, but we.
By gas and sell that on the Gulf Coast, we make that margin.
Regardless of whether we produce a molecule of gas in the Permian or not so everything has to be evaluated on the basis of.
We're selling this at <unk> not at the Gulf Coast.
Right, but but no nothing you're prepared to share about what <unk> needs to be for.
Some duration before you.
Decided to put dollars back there.
Well I think the simple thing would be to say that <unk> has to be.
Attractive enough to compete with more oil drilling.
Right next door.
Yes.
Thank you for that Steve Thank you John .
Thank you.
Please biopharm next question.
Okay.
Okay.
Our next question comes from Paul Cheng Scotiabank.
Good morning. Thanks.
Gentlemen.
Can we go back into Permian.
I think that youre going to maintain fine ranked and I'll go into two additional well again alpine climbing so we assume in the second half.
The number of wells you are going to bring on in the Permian going to be higher than what your payments near soon.
<unk> <unk> based on your fourth quarter presentation.
We may be talking about 'twenty.
<unk> well in the third quarter in <unk> in the call certainly assuming it's going to be higher.
Also a day in the second quarter.
With 21, well one we thought a production will be higher than what you saw here with at the time.
Many of the well coming on stream, it's winning in the knee in the quarter. Thank you.
Yes, Paul I'll, let Dave jump in but it is timing we said most of the wells came on late in the first quarter in the Permian and then effectively youre well counts are going to be pretty similar because we're dropping.
The gas weighted drilling in the Permian and we're adding some oil weighting. So it shouldn't have a big impact on the numbers I wouldn't believe but Dave I'll, let you.
Yes.
Calendar year 'twenty three it won't have a big number the numbers, we're looking at or a little bit higher than what you have Paul but not not materially I think when you look at the 21 wells in the second quarter.
Theyre big pads and those pads come online the Delaware pad for example is.
11 wells on our.
Titus acquisition and.
So we'll be bringing that online it will come on at pace, but backend weighted towards the end of the quarter and not the beginning.
Okay.
And on the second question the gross production fall Nikkei can you just remind us that what you're.
Full year expectation now that and also over the next several years, what kind of budget and won't outgrow weight that you have in mind.
On the on the gross with Hudson.
Yes.
We had talked about 10% exit to exit.
On gross in Egypt, and the goal would be to Tim.
In the next couple of years.
Thinking about something in that range.
And what's the risk.
What's the biggest risk that you will not be able to achieve that.
For this year.
For this year, yes.
Hey, guys certainly looked at the first quarter and second quarter, It's Stephanie.
Upon stay in general what you have been looking at and so unique to step up.
And some of the comments I mean, it seems like it's going to clinical medical away. So.
I mean, how big is the accretion when you're talking about a 10% yield.
<unk> exit rate.
Yes, I think for US we have pretty good visibility on that we have really good visibility on the.
The program and that program consists of.
New well drilling as well as re completions in both of those have a significant impact on the ability to grow production. So we have.
Again, we still have confidence in our ability to hit that that growth rate.
And do you have a budget that you can share for the next several years, we Nathan Nathan D J.
To achieve that.
Time.
We haven't we haven't shared that yet Paul.
Okay alright, thank you.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from Neil <unk> at Chewy Securities.
Hey, good morning, all thanks for the time, John My first question is on capital discipline and specifically.
Just in broad strokes wondering how you all think about manage all this.
To ensure we are generating sort of free cash flow at about volte bottled tape like we are in.
Sure.
Think more about maybe.
Sure.
Im not complete any wells that don't.
High return thresholds.
Yes.
Cutting out a little bit on the question. So I didn't I think.
It's about capital discipline, I would say I think in general we feel good about where we are.
Most of our capital costs are under contract.
It's about cost control and execution.
We've made some choices to move some things around and you're seeing the impacts of those and Thats. Some of the flexibility of the portfolio, but everything's within wine and really we don't plan to drill wells that we wouldn't want to complete and Thats why you see us.
Canaccord tailing the drilling.
On the gas weighted.
<unk> programs in the U S.
Great details and then my second just on Oss inflation, we've heard a number of people talk about domestic softness just wondering if you're seeing the same thing some of your international areas.
I would just say it's early right everything is still under contract I think where you'd start to see that as we start looking at.
Thinking about the 24 pricing and so forth as you start pricing that and towards the middle of the year into next year, but right now as you know the cost structure always lags.
So we haven't seen any real direct softness today.
Thank you.
Thank you.
Please standby for next question.
Our next question comes from around Xyrem at JP Morgan Securities.
Yes, good morning.
Maybe Steve I wanted to ask you a little bit about the working capital build in the quarter in Egypt, and the U S and just thoughts on the drivers of that and would you expect that to reverse.
In QQ over the balance of the year.
Yes.
Yes.
Indicated earlier that there was a $500 million working capital increase 300 of that was because of a pay down of accrued compensation obligations that were accrued through the 2022 calendar year and 100 of that was due to the pay down of other payables other.
Counts payable.
And then there were a bunch of other small items ups and downs that amounted to the full $500 million.
And I did indicate that buried within that was the $180 million increase in Egypt accounts receivable I think that.
Most of that is going to reverse during 2023 as every quarter we accrue.
The incentive compensation that would be payable.
In the first quarter of the following year. So a lot of that is just going to.
Going to reoccur as we go through calendar year 2023.
Great and just my follow up maybe for David.
David in order to hit the midpoint of the full year oil guide.
The business would have to average.
Oil production.
The upper 100, <unk> for the back half of the year.
Those levels because the midpoint is $1 59 for oil.
Are we talking Egypt gross.
Just for your oil.
Yes, I think yes. So I think there is a if you will.
Without getting into the granularity of each of each asset we feel we feel confident in the ability to hit the Egypt exit to exit the U S is going to grow.
21 wells coming online in the second quarter, we have more than that in the third quarter.
A fair number of the wells that were brought online in the first quarter were three milers that were brought on towards the end of the quarter.
So we feel good about the U S ability to.
To execute and then on the North Sea, which is kind of because of the EPL everyone's kind of forgot about that but we're actually having a pretty good operating success. So far this year in the north sea both with.
Platform operating efficiency, but we also brought on a really nice well.
At the end of the first quarter and we have another well to Stuart's last subsea well.
Ocean Patriot drilled.
It'll be online here relatively quickly.
That's going to be a little bit higher gas mix.
Which in the North Sea is not a bad thing right now so we feel we feel really comfortable with.
Our ability to hit the portfolio growth targets.
Great. Thanks, a lot.
Thank you.
Please standby for our next question.
Our next question comes from Leo Mariani at Ross.
And.
Yeah.
Hi, guys just a question here on Suriname.
Obviously, you guys are still going through the appraisal process in <unk>.
Okay.
Well there you look at it.
<unk> and what <unk> already done appraisal wise.
I kind of enough to move forward.
And I would call a oil here.
Yes, you are cutting out for most of your question. So.
I think it's do we have enough, but I think the answer is that we've said.
All along with <unk>, we're looking at.
On oil hub, which incorporates both <unk> and <unk>.
We've been focused on trying to give scope and scale right. So.
At this point, that's all I'll say.
No.
Connected original in place we put in the documents. This morning does not include the appraisal work from <unk>, yet so we're making good progress.
Okay. That's helpful. And then just on the U S side.
Hi, you've got you have three wells you kind of mentioned that you're pleased with the progress I was hoping to maybe get a little more color on those three wells in terms of maybe how long you've been flow testing and then I guess is there any update on the Austin chalk for NPA.
At this point no update on the chalk.
All the alpine wells were flowing them back at constrained rates, but we're very pleased with the deliverability and the early results.
Okay. Thank you.
Thank you.
Please standby for our next question.
Okay.
Okay.
Our next question comes from Roger read at Wells Fargo Securities.
Yes.
Thank you and good morning.
I guess, maybe follow up a little bit on some of the.
Oilfield inflation deflation issues.
Beyond the U S.
Take a look at what the currency issues might portend for the cost structure in Egypt or does that not matter given the overall structure of the contract there in terms of a net barrel performance.
Well number one there's not a lot of competition for rigs or services in Egypt, right. So we've seen pretty stable cost.
With the devaluation, it's actually help cost structure now.
As I've said.
Earlier, we are assisting our nationals and doing some things to help with the inflation.
So no no you.
You wouldn't expect a net reduction given.
Like you said that will not be devalued.
<unk> issues.
The U S.
Okay, and then in the U S. You mentioned, obviously contract structure in place, but I was just curious are you looking at indexed contracts when's. The next time, we should see any potential for an inflection up or down in terms of the next contract rollovers, we think about the rigs in the surfaces.
We keep a portfolio where some are on long term some are onshore.
Some are multi year and so it's a constant process.
Re jigger moes.
That's kind of underway now and we will continue but it's not going to have a near term material impact on our current cost structure of this year's capital program.
Okay. So it will really start to show up in the $24 next year.
I appreciate it.
Thank you.
Please standby for our next question.
Okay.
Okay.
Our next question comes from David Depo, Bob at TD talent.
Thanks for taking my questions John Stephens, Inc.
You bet I just wanted to follow up a little bit on just the alpine high.
And the decision obviously to reduce activity there makes sense in light of commodity pricing, but how should we think about fulfilling contracts like the cheniere contract and others are you content to just fill with third party gas or is there a certain level of organic gas that you'd like to maintain.
Out of out of Alpine high is again 24.
Now for quite some time, our practice is that every molecule of gas we produced in the Permian Basin is sold in the Permian Basin.
Our trading organization, we will take care of both the long long haul transport obligations.
<unk> and selling gas and we'll also take care of the Cheniere contract with purchase gas.
Got it and then maybe if I could just wrap up on Suriname.
I guess as we think about moving towards an investment decision.
You anticipate that we'll have enough data points, just given some of the <unk> delineation and appraisal work.
In combination with what we already know it's not the car to reach a decision this year or is that in line with your internal thinking.
I would just say we're waiting to see results right I mean, we're making good progress.
As I've said, a number of times, we're kind of focused on potential scope and scale.
But what that first project could look like as far as incentive for everybody to see.
Size upwardly, but.
Well, we'll know when we get there.
Alright, Thanks, John Best of luck.
Thank you.
Please standby for our next question.
Our next question comes from Kevin Mccurdy at Pickering Energy partners.
Hey, good morning.
There's been much discussion this earning season about potential deflation on shale well costs, but I'm curious what you're seeing on the international side.
Outside of the increased receivables what is your view on raw materials and services in Egypt, and the North Sea and how is that trending relative to last year.
Well in general we like I said, a few minutes ago, we don't have a lot of competition for services in Egypt. So it really kind of goes with the commodity.
Fuels up for the most part chemicals.
In the North Sea, we're going to be BOP on the ocean Patriot So.
If anything capital spending is dropping there but.
Nothing major nothing surprising in Ohio.
International service side.
Great and congratulations on reducing your 2023 Capex budget.
Going back to the Ocean Patriot rig.
Are the savings from dropping that rig already built into your updated budget you released yesterday.
Or have those savings effectively been redirected to the Permian.
Although we're in the plan for.
Because we plan to drop that rig mid year at the start of the year.
Okay.
Got it so it's in your budget.
Thank you.
Thank you.
Please standby for our next question.
Our next question comes from Neil Mehta at Goldman Sachs and Cao.
Thank you good morning, John and team.
Jonathan If you started off in your remarks, Theres a lot of uncertainty in the near term as it relates to the commodity price and the global economy.
I'd Love your perspective on how you as an organization are building downside resilience. If there is a harder landing and what are the lessons learned from your experiences in 2015 to 2020 that you can carry forward and one of the things that I think you guys have made terrific progress.
That has been.
Really cleaning up the balance sheet and taken out $3 billion worth of debt. So maybe you could speak to where you are in that Sir yes.
Well I'll say, a few comments and I'll, let Steve jump in on the balance sheet.
Yeah, I'd say first and foremost the best flexibility you have is being able to reduce your activity.
Yeah.
<unk> seen us do that with the oil and gas drilling in the U S.
We must do that in the North sea.
So when it's time to stop investing you need to stop investing in.
Those are the lessons we've learned.
<unk> focused our cost and maintain that flexibility to invest in the projects that are going to.
Continue to generate the long term returns.
Yes.
Just to add that.
Yes.
Yes.
Once a quarter years.
We've reduced.
Debt by $3 $2 billion, while also.
$2 $4 billion worth.
Of equity.
The biggest thing I think we accomplished in there.
And the bond reduction of debt.
Dr.
Cause.
In the near term.
Near term maturities.
We've got.
30% of our bond debt that matures.
Here in the next well between now and 2030.
Moving around $350 million of that matures in the next five years.
So we don't have much of a runway to worry about and then 70% of our debt is 2037 and beyond.
We've got some we've got a really a good profile for debt maturities as well and then the last thing I would add.
As cost management.
John talked about the ability to reduce the capital budget, but we've been very disciplined on managing our cost structure as well keeping that low helps certainly build resiliency.
Yeah.
Okay.
And remind us where you are in terms of skin care investment grade with all the agencies and given what you've done with the balance sheet of GLA here.
Close.
Any perspective.
Yes, maybe you could come and help US next time, we go talk to the rating agencies.
Mike I appreciate that but we feel like well, we talked to the rating agencies at least twice a year.
We are investment grade with Fitch now and we're on positive outlook for.
And an increase to investment grade.
S&P and Moody's.
We have talked to them recently, we will see what happens.
<unk>.
I think we are.
As you kind of alluded to there I think we are due for an upgrade hopefully that comes in 2023.
I think we trade.
We benchmark very well.
Very well compared to some of our peers that are already investment grade. So I think we are due for that.
Yes, it makes a lot of sense. Thanks, guys.
Thank you.
Please standby for our next question.
Okay.
Our next question comes from Jeffrey language on at <unk> and Cao.
Good morning, everyone and thanks for taking my questions maybe a few on the Permian next Alpine high My first one is just on what your outlook is for productivity out of your Midland and Delaware. This year, just relative to the last few years and relative to internal expectations for what's left on inventory and then what aspects of the program operationally.
We're spending the most time on today from a design perspective, I think you noted that three milers earlier, so I'd be curious on how you think about the mix of those in the program over time and how much inventory that might apply to any cancer. If you are thinking about any other areas, where we're spending time on.
Yes, so Geoffrey good questions. This is Dave.
On the three mile or question first we tend to like to drill three milers, where the acreage is set up for that.
That's very capital efficient, we've been able to execute those really well both on the drilling and the completions, so where it's where it's where it's where it's possible. We'll do that but I think you should think of as the majority of our portfolio or two mile laterals. So.
The typical wells going to be a two miler.
On productivity, we continue to the.
The teams work and study and try to.
Squeeze out productivity gains.
On every pad we get on.
And we continue to have pretty good results with that so.
Sure.
I don't know how you think about that externally if if.
If.
We've got some.
Pretty good process in place and feel comfortable with it we've got a good methodical pace of drilling and completions and are pleased with that that pace at this point.
Great I appreciate that detail. My next one is just on the sustainability of that productivity that you're seeing today that you can frame inventory depth as we look at the Midland and Delaware individually. If we just kind of assume maybe that current pace for starters on an annual basis and then I'd also be interested in how to think about.
Steady state quarterly run rate activity as we think about next year just given the shape of the program. This year that was referenced earlier in the Q&A with that dynamic in Q3 completion count in the low <unk> in Q4 going into the low teens or a little bit lower exiting the year.
Yes, so inventory we've consistently said we've got line of sight.
At the end of the decade, and we keep adding things to it in that number.
It will move around over time.
At the current cadence I think you could look at the second and third quarter.
Activity pace in and roll that through into 'twenty, four, but we haven't really given guidance yet on 24 and what the.
The capital program and activity would look like.
We're assuming that we we kind of hold serve on on productivity gains, but again the aspiration is to continue to squeeze more.
Out of each completion.
Okay.
Great I appreciate it.
Thank you.
I would now like to turn it back to John Christmann for closing remarks.
Thank you before closing the call I want to leave you with the following thoughts first our asset teams are executing well safety performance continues to be good and contributions from our drilling programs are strong.
Managing the portfolio to optimize returns and near term cash flow and are keenly focused on cost control.
We continue to make good progress on our appraisal program in <unk> and look forward to sharing more information in the future.
Lastly, we remain committed to returning at least 60% of annual free cash flow to investors through dividends and buybacks and believe our stock is a compelling investment we plan to participate in a number of investor events over the next two months and look forward to seeing you. Thank you.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Okay.
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Okay.
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