Q2 2023 APA Corp Earnings Call
With 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 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand the conference over to.
Your speaker, Mr. Gary Clark, Vice President of Investor Relations the floor is yours Sir.
Good morning, and thank you for joining us on a P. A corporation second quarter 2023 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.
Also on the call and available to answer questions are Dave for cell executive Vice President of development.
Tracy Henderson Executive Vice President of exploration and quite breakfast executive Vice President of operations.
Our 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 had an opportunity to review our financial and operational supplement which can be found on our investor Relations website at Investor <unk> Corp Dot com.
Please note that we may discuss certain non-GAAP financial measures today, 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.
Like to remind everyone that today's discussion will contain forward looking estimates and assumptions based on our current views and reasonable expectations.
Over a number of factors could cause actual results to differ materially from what we discuss today a full disclaimer is located with the supplemental information on our website and with that I'll turn the call over to John .
Good morning, and thank you for joining us.
Today's call, we will review second quarter highlights and discuss our outlook for the rest of the year.
<unk> delivered strong results and made notable progress on a number of fronts during the quarter, most specifically with regard to drilling and completion efficiencies in the U S. In Egypt, a reduction in year over year per unit LOE and G&A costs.
Working capital improvements in Egypt, and the appraisal of <unk>.
We also delivered on our production goals with total adjusted production of 325000 Boe per day coming in at the high end of our guidance range. This was driven by good Permian Basin, and Egypt oil performance, partially offset by price related dry gas curtailments.
In the Permian and unscheduled compressor downtime in the North Sea.
Total adjusted oil production of 154000 barrels per day exceeded our guidance by 4000 barrels per day, driven mostly by the U S.
Capital investments during the period was in line with guidance as our average operated drilling rig count remains steady at 17 in Egypt five in the Permian Basin and one semi submersible in the North Sea.
As previously planned we released the Ocean Patriot in the North Sea at the end of June .
U S oil production increased by 6% compared to the first quarter and we are projecting a similar percentage increase in the third quarter.
Our steady drilling program in the Permian is delivering substantial efficiencies and oil production increases, which we expect will continue though the timing and size of pad completions can result in a lumpy production profile.
Apa's Permian rig activity is directed toward oil development in the southern Midland Basin, where we currently have two rigs operating in oil weighted development in the Delaware Basin, where we currently have three rigs operating.
As we noted on our last call we are deferring additional drilling and completion activity at alpine high until natural gas and NGL prices improve.
That said the most recent wells placed online at Alpine high are performing in line with expectations and we look forward to returning to work there in the future.
Turning now to Egypt gross oil production of 141000 barrels per day was in line with our guidance drilling efficiencies, new well connections re completions and exploration success were all consistent with our expectations for the quarter.
As a result, we are projecting gross oil production will be up 5% in the third quarter to 148000 barrels per day, and we are making good progress toward our fourth quarter guide of 154000 barrels per day.
In the North Sea second quarter production of 42000 BOE per day was well below our guidance due to the previously mentioned compressor downtime we expect.
Volumes to increase in the third quarter to a range of 46 to 48000 Boe per day, driven by higher operating efficiency and the positive impact of our store north well, which went on production in late June .
In Suriname block 58, we are currently focused on appraising last year's crab Daegu discovery. As previously noted we have completed testing at <unk> to our results were consistent with our pre drill expectations at <unk>. Three we are in the pressure buildup phase and data.
Collected thus far is very encouraging.
The <unk> three semi submersible rig is still on location and will be released upon completion of operations.
We believe that no additional appraisal or exploratory drilling as necessary in the <unk> and krabbe Daegu area at this time.
Looking ahead to the second half of the year, we expect growing programs to remain constant in both the U S and Egypt is a steady operational cadence in these areas enables more efficient operations.
That said, we have reduced our full year upstream capital investment outlook to reflect previously noted north sea platform drilling reductions no additional drilling in Suriname This year and some minor service cost declines were.
We're also reducing our full year outlook from $1 5 billion to $1 4 billion.
Which reflects our ongoing success and actively managing these costs down as well as some price decreases associated with shorter cycle items, such as diesel and chemicals.
<unk> remains committed to returning at least 60% of our free cash flow. This calendar year to shareholders. During the first half of the year, we generated $366 million of free cash flow, 94% of which we returned to shareholders via dividends and stock buybacks since the commencement of our share.
Repurchase program in October of 2021, we have repurchased nearly 20% of total shares outstanding at an average price of just under $34 per share.
In closing, we believe the investment case for IPA and the E&P industry is strong and that the longer term outlook for hydrocarbon prices is very constructive.
<unk> has a diversified portfolio and the operational flexibility to quickly respond to commodity price volatility and other externalities.
We are committed to our shareholder return framework and to allocating capital for the long term benefit of investors.
<unk> seeks to produce oil and gas safely and to reduce the environmental impact of our operations.
Last month, we issued our 2023 sustainability report, which highlights recent achievements on these fronts as well as our current ESG goals and initiatives I encourage all of you to review this report, which you can find on our website.
And with that I will turn the call over to Steve variety.
Thanks, John for.
For the second quarter under generally accepted accounting principles.
Reported consolidated net income of $381 million.
Or $1 23 per diluted common share.
As usual. These results include items that are outside of core earnings.
The most significant of which are mark to market appreciation in the value of our kinetic stock ownership and.
And unrealized gain on <unk> basis swaps.
Excluding these other smaller items adjusted net income for the second quarter was $264 million or <unk> 85 cents per diluted common share.
Free cash flow, which for external purposes excludes changes in working capital was $94 million in the quarter.
Through dividends and share repurchases, we've returned 131% of this amount to shareholders during the quarter.
As John noted both operational and cost performance were very good during the quarter.
Compared to the same quarter last year total adjusted oil production was up 14% adjusted.
Adjusted oil mix increased from 44% to 47% and we held lease operating expenditures nearly flat.
G&A expense was $72 million significantly below our underlying actual run rate cost.
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.
Underlying quarterly G&A costs remained stable around $100 million.
Switching to forward looking guidance.
Oil production is expected to increase significantly in the third quarter and all three of our operating regions.
Our full year guidance implies that oil production will increase again in the fourth quarter in both the U S and Egypt.
Declines at the mature customer gas field in Egypt, and at Alpine high where we have deferred drilling and completion activity will result in total company natural gas production continuing to decline through the rest of this year.
Next I would like to provide some color related to our changing guidance for profit or loss on our gas transport obligations.
As most of you know we hold just over 670 million cubic feet per day of Permian basin takeaway capacity.
We sell our produced gas in basin and.
And we manage the transport obligations by purchasing third party gas in basin for resale on the Gulf Coast.
We realized a net trading margin based on the price differentials less the total transport cost.
Since the transport cost is mostly fixed.
This activity will generate a profit when price differentials are wide and a loss when they are narrow in the second quarter. This activity generated a net profit of $13 million.
As we have all seen the differential between Wahaha and Gulf Coast pricing has compressed dramatically since late may.
Based on the forward strip, we anticipate these trading activities will result in a small loss in both the third and fourth quarters and we have adjusted our guidance accordingly.
The flip side of this is that we're now getting higher realizations on our gas produced and sold in the Permian Basin.
We commenced deliveries under our Cheniere gas supply agreement on August 1st at current strip prices. This contract will generate approximately $120 million of free cash flow for the last five months of 2023.
And an estimated $385 million for the full year of 2024.
As you know these cash flows are likely to be volatile from quarter to quarter as.
As a reminder, these projections are net of all costs, including the cost to acquire and transport the gas to Cheniere.
Our complete guidance for both the third quarter and updated full year 2023 can be found in our financial and operational supplement.
Finally, a brief comment on Egypt receivables.
We have a longstanding well functioning relationship with Egypt based on nearly 30 years of working in their country.
Like many parts of the world today, they are experiencing some challenging financial times and we will.
We'll partner with them through that process, just like we have in the past.
Since the first quarter earnings call, we have had very constructive conversations with Egypt.
As a result of steps already taken the receivables balance came down in second quarter and we are confident further steps, we'll keep this on the right track.
And in closing our original full year production guidance is unchanged and we have reduced our 2023 budget capital and operating expense in aggregate by about $250 million.
Our balance sheet and debt maturity profile are in good shape.
And this was most recently recognized by Moody's who returned us to investment grade in June .
Since the beginning of 2021, we have significantly improved our capital structure by reducing our outstanding bond debt by $3 2 billion.
While also returning $2 $9 billion to shareholders via share repurchases and dividends.
And with that I will turn the call over to the operator for Q&A.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced so withdraw your question. Please press star one one again.
At a time restraints, we ask that you. Please limit yourself to one question and one follow up question.
These standby, while we come out of compile the Q&A roster.
Our first question will come from the line of Doug Legato.
Bank of America.
Good morning, guys I'll take that but.
Thanks, Good morning, Doug.
Yes, yes.
Yes, more exotic than it probably should be but.
Good morning, John .
So couple of things from me.
So I wanted to ask you about Egypt, not about the working capital progress, which is terrific I think you've addressed start Steve with your commentary but.
Wanted to ask about the confidence in the medium term oil growth trajectory in Egypt.
Does seems to be the only knock on the quarter.
Folks are maybe I'll look questioning whether you can actually deliver that so how is that progressing what is the outlook today and I've got a follow up please.
Yes, Doug.
The nice thing be in early August we have the luxury of seeing a lot of the wells, we've got coming on in the near future.
If you look and you won't see it but our July or July volumes have actually averaged 145000 barrels a day on all sides were up already in July over the second quarter and we've got good line of sight on what.
What's coming and it's going to be a good back half of the year and I'll, let Dave Purcell.
Jump in with a little bit more detail.
Doug as John alluded John said, the gross oil at $1 45 in July gives us confidence that we have a couple of other.
Data points, we've had good success on exploration in both the mature and the other guarantee basins. So we have good line of sight on the well stock remaining through the rest of the year that will come online. If you look at expected wells online in the back half of the year, it's significantly higher than the front. So so just some numbers.
First half of the year, we brought 48 wells online.
Back half of the year, we expect to put over 70 wells online so.
More wells.
High quality good confidence in what those wells look like so again, our confidence in the back half guidance is is very good very high.
And what about beyond 2023, Dave.
Yes, we continue to look at it.
It's a 24 plan.
Too early to give guidance, but we have confidence in the ability to to keep the growth engine moving.
Great stuff. Thank you for that John I apologize I'm going to have to be predictable, but so its hotel is helping us to analyst day at the end of September I think they've given up pretty good sphere that theyre going to have something to say they're on Suriname. So.
No you don't want to front run not but I do want to ask you about resource scale to the extent you can on what you know today and I'll frame. It like this when Liza two is sanctioning Guyana with similar <unk>.
The capacity of the development at 600 million involves 220000 barrels a day.
From everything we know, especially with Baja on the connectivity there tell.
Tell me why resource of that scale is wildly off the mark.
I mean at this point a couple of things Doug number one we still have the rig on location.
It's early.
Number two we came into this year with the primary objective be in appraising, the crab Daegu fairway and.
Had the original discovery well.
If I flip over it's a totally different set of partners and walk 53, but we had when.
When we announced the Bahar discovery, we said it was a down dip low above that fairway. So yes. It does stretch from there all the way now back to crab Daegu three crab.
<unk> three was was 14 kilometers from the discovery well.
And as we've said the results are very very encouraging we do we can confirm its oil.
But it's early for me to comment or say anything at this point, we've got a lot of technical work to do it's a very large fairway and there will be resource in there that youre not going to see from the flow test. So theres just a lot of technical work that we need to do and it will come back in due course with.
Information in the relatively near future.
Thank you one moment for our next question.
And that will come from the line of John Freeman with Raymond James Your line is now open.
Hi, guys.
Good morning, John .
The first topic I wanted to address was on the shareholder return.
131% of free cash flow this quarter.
Last quarter, you did 81% so I'd just be curious kind of your.
Thought process on kind of how you will determine when it's the appropriate time to kind of really lean in to shareholder returns like you did obviously that was more than double the minimum 60% target that youll have just sort of how you all think about when it's when it's appropriate time to kind of lean into these things.
Yes, John this is Steve.
Sorry, just if I step back and take a look at the year.
We always plan that the second half free cash flow would be greater than the first half.
And.
That's going to that's going to come from production growth that's going to come from the Cheniere contract is going to come from a lower amount of capital spending that we'll have in the second half.
And now as we look at that.
Actual prices for the first half than anticipated prices for the second half price will also be.
That's been a factor there.
So.
Two.
Address one potential concern that maybe we've done most of our share buybacks in the first half I'd say the second half Theres still plenty.
Plenty of buybacks today plenty of capacity to do that we've always said the 60% as a minimum.
I think every time period that we would look at.
We've exceeded that minimum we did in the fourth quarter of 'twenty. One we did it for the full year of 2002, and certainly doing it first half of 'twenty three.
Just say, we we did front end, we chose to obviously, obviously to front end load the.
Buyback program in 2023.
Just say that we're very happy with the share prices that we got especially in the second quarter.
Yes, we will.
We'll see what what the second half of the year brings for us.
Okay, and then my follow up just.
Following on to Doug's questions on Egypt.
Just sort of what you all identified in terms of the.
You've got some mature natural gas field and declining to that oil mix as we've seen now for the last three quarters just keeps.
It looks like just ballpark.
For 2020 for like something in that 65% kind of oil mix would be with a possible just sort of any commentary about how you all see that.
Oil makes sort of continue to evolve as it continue to ramp up.
John It's a great point I mean, it is cost continued to decline.
You will see our oil mix in Egypt rise and if you go back cost or the legacy large field three Ts.
It's been on decline.
And it is declining and so as costs continue to decline and our programs are in the more oily driven.
Areas Youll see that mix rise and so it is early I don't want to get into 'twenty four but it wouldnt surprise me and I would probably anticipate that the oil mix will be higher in 'twenty four than it is in 'twenty three.
Thank you one moment our next question.
Okay.
That will come from the line of Neal Dingmann with <unk> Securities. Your line is open.
Hey, good morning, guys, John can I ask maybe one more on Egypt, specifically given the ample I'm. Just wondering are you seeing ample equipment and personnel there continue to run the 17 rates.
So given the strong results strong balance sheet any thoughts to boost activity next year.
It took us a little bit of time last year with training programs to kind of get the program, where we wanted it we are there today.
So we feel good about that we've put a lot of training in place.
I think right now.
17, 18 rigs is a pretty good number I think thats about all the same country and from a staffing perspective. So I think we're in a pretty good place.
<unk> finally get the.
The results in the.
Efficiencies, where we were hoping we would get to so we feel like we're in a good place and right now thats, what I see for the foreseeable future.
Very good and then Mike.
And my second for you guys is just on the southern Midland could you speak to now have you changed or are you walking up the average size of lateral length seems like some of your peers are to continue to go to larger wells larger pads to try to get more efficiencies. So I'm just wondering if you drop the same months yes.
Yes, we came into this year really with our programs focused on the longer laterals a lot of two and three milers. So Dave I think you have got little more colors or some statistics there yes. So just on the Permian in general we continue to work lateral links.
If you look at last year, we averaged just over 10000 feet.
This year, we're going to average closer to 10500 feet foot per lateral again theres variance there some three milers and theres. Some one five but on average the program's getting longer and in 2024, we anticipate.
So links will continue to inch a little bit longer as well and I think on the frac size, we've tended to lean to a little bit looser spacing and larger individual frac stage size and have had good success with that and so I don't know that we'll get any bigger but we've.
We're pretty comfortable with where we are on our completion designs at this point.
Thank you one moment our next question.
That will come from the line of Scott Gruber with Citigroup. Your line is open.
Yes, good morning.
Most here around the corner a little bit too here into 24 in the U S side.
Implied in the full year guidance that your U S oil production.
The decline in <unk>, and maybe get into the mid eighties.
Should we think about 'twenty four at this juncture in terms of oil growth in the U S.
It's early in terms of numbers I mean, we typically don't start getting into 'twenty four I can tell you. We're working the 24 plan and a lot of detail right now that do we start getting into a review on that and so forth in the fall I would anticipate.
Pretty level activity sets from where we are today.
And so if you look at that.
With the programs that we're delivering and the types of laterals, we're drilling and I would expect fairly similar increments of growth.
Maybe at a little higher base in terms of the.
Volume that we're growing this year, but.
It's always lumpy when youre running five rigs with the timing and so I don't know how the timing of the lineup year over year fourth quarter over fourth quarter. Some of those numbers, but I would expect a very strong continuous program.
In the U S and in Egypt for 2024.
And.
It's deflation were on service costs.
Here in the states is that.
Turns out to be more material.
And recycling that back into into more drilling or would you kind of keep the program. The same even in light of that deflation will.
Yes.
Medical benefits in terms of free cash.
I mean, I would say right now.
The plans would be to.
The program will let the program dictate.
Yeah.
Five rigs were working with one five frac crews, we're in a pretty good cadence there.
It's hard to just add.
Incrementally without going up and stair step function. So.
I'd anticipate that.
The service side, whatever benefits there would come to free cash flow and the program will be pretty stable.
We do try to go in every year with a pretty set framework on the capital side and so.
A lot of what's going on this fall will dictate what our service costs will look like.
For the portions that we will try to lock down for next year. So.
We will just have to wait and see how things play out.
<unk> had a little bit of softening in some areas right now, but I think everybody is waiting to kind of see what prices due to the back half of the year to really steer next year's capital. So.
Thank you one moment our next question.
That will come from the line of Charles Meade with Johnson Rice. Your line is now open.
Good morning, John to you and your whole team there.
Good morning Charles.
John .
Im eager too.
As I'm sure you guys all are too to see all the or to learn about all the appraisal results at <unk>, but I recognize we're going to have to wait a little bit so.
So I Wanna instead ask about Baja.
And specifically.
What your plans are what the considerations are for appraisal there I recognized that you guys said it's up.
In the same depositional system as a craft to go in and perhaps as part of talking about your plan for appraisal could you also address it is is it also one of these shelf slope kind of targets or has it is are you maybe starting to hit the transition into the <unk>.
Basin floor fans out there.
Okay.
Tracey and our second get in a little bit to the geology, but what I will just tell you first on Bahar. It is a discovery that we discovered the discovery well in block 53.
We have a separate set of partners as opposed to a block 58, where it's us in total we are the operator of block 53, So I can't say a lot at this point other than we've got a lot of work to do in terms of does baja potentially flow into.
On oil hub and walk 58 or does it make up its own project in block 53, So at this point.
Can't say a lot there other than obviously theres a lot of work being done in a lot of different angles looked at.
And Tracy I'll have you.
Chime in a little bit on the geology.
Good morning Charles.
Great question on the Fairway and your your initial assessment there about being sloped channel systems, what we've discussed in the past. So what we're describing is a fair way and as John mentioned in his remarks, something we've defined now thats roughly 25 kilometers from Baja <unk> III, So you've got a very.
Robust system, that's coming through here in a series of slope channels that you can tell from our original release it crab Daegu, one which are stacked systems.
So correct in your assessment, we're seeing slipped channel systems as John said, we've got more technical work today, we still got a well on location.
A lot of work to integrate going forward.
Thank you Tracy. Thank you John that's it for me.
You bet.
Thank you one moment our next question.
That will come from the line of Roger read with Wells Fargo. Your line is now open.
Yes, Thank you and good morning.
Good morning, Roger.
Morning, John just like to ask about Egypt, and not from an operational standpoint, but it's been.
More financial I don't know if I'd call it risk or just it's Egypt being Egypt, but I was just curious how things are going in terms of your ability to fund the operations in the country return capital out of the country as needed or as desired and.
Anything else, we should be watching there.
No I mean as.
As Steve mentioned in his prepared remarks that Egypt, and a lot of places around the world right now are going through some difficult times there is stress.
Stress in the system, if you look at wheat prices and things, but from a standpoint of our business.
It's been pretty much normal course in terms of.
Movements and things like that and you've seen us.
Working constructively with Egypt to make progress.
And we're seeing that so.
Okay I'll take that as a good answer and then my other question is just as you look at operations in the Permian what would be the broader description of sort of productivity and efficiency gains youre seeing sort of leaving any service cost inflation or.
<unk> aside, but just what youre seeing in terms of performance on the drilling side on the completion stages things like that.
Yes, Roger this is Dave.
So on the on the drilling side, we continue to.
To improve our drilling performance.
Again, there is any number of metrics, which I won't bore you with but.
The drilling team is doing a good job of getting our wells down.
In a very efficient.
Manner, where where I think you might be going is on the productivity side.
Lateral lengths as I talked about earlier and getting a little bit longer and that helps but on a lateral length adjusted basis.
Relax spacing and bigger Fracs.
Been a benefit to us in getting those.
Lateral length adjusted productivity numbers to continue to improve and it's always hard to forecast are we going to keep getting better, but we're happy with the program. So far 23 looks pretty good compared to 22 in the team we have.
Pretty good or very good subsurface team that continues to try to push the envelope.
On productivity per foot or we're striving to continue to move that into 2024.
Thank you one moment for our next question.
And that will come from the line of Arun Jairam with J P. Morgan Securities. Your line is open.
John Good morning, I wanted to get your thoughts on how the process you think will move.
Once you're fully evaluated the crab Daegu three results towards.
The declaration of Commerciality, and perhaps an FID decision.
Yes.
Arun It first of all it's like we said were rigs still on location and so we've got a lot of technical work to do but we will come back at some point with more data.
That is exactly what you just mentioned would be the steps you would take.
And we've got a lot of work to do to be in a position to do that and obviously, we will be working with our partner total so.
Sure.
Got it got it I just wanted to maybe follow up there.
Total has a frame agreement with the subsea provider John as you know.
They've raised the scope of the surf package.
Over $1 billion from previously was $2 50 to 500.
Anything to read into that in terms of potential boat size at this point.
No. The only thing I would say and I'm going to defer OLED hotel handle lows.
Relationships and that's what they're there'll be operator right.
Just leave it at that but I would say we came into this year.
With the goal to appraise crab Daegu, because we said it could impact scope scale.
And clearly we've had a positive result of <unk> III. So.
Yes that was one of the objectives with with the appraisal program in the <unk>.
Three well was designed for a very large step out to better understand potentially what type of resource we're going to have there. So I'll, let the technical teams do the work but.
That was the objective coming into this year.
It was to help better understand scope and scale.
Great a quick follow up on the North Sea, John oil prices Brent to now moving eclipsed 80, what do you think needs to happen for the North sea to attract capital next year.
And.
And then maybe just thoughts on the broader portfolio, if we get into a situation where the north sea. So as not competitive are you just comfortable with call. It two legs of the stool.
Sir not at this point.
<unk>.
Obviously, the nice thing is is having a diverse portfolio, where we've got places to put capital in.
We basically ran a program in the North sea with the Ocean Patriot for six months.
You see us in a good position in terms of sustaining and growing the company. So as we look at next year.
We will factor in what makes sense, but right now more and more importantly from the North Sea perspective.
You'd need to see some stability.
And the regime to make long term investments and right now we have not seen any stability.
And so I would not anticipate us.
<unk> prices are up and decided to put a lot of capital in the North Sea at this point.
What we need to do for maintenance and integrity and safety.
Okay.
Thank you one moment our next question.
That will come from the line of Leo Mariani with Ross.
Ma'am your line is now open.
Hi, guys just wanted to follow up quickly on Suriname here. So certainly seems as though you guys are found.
<unk> all here crab to do based on the comments you've made I understand there is more technical work to go but I'm, just curious a little bit kind of around the thought process on stopping.
Stopping drilling for the rest of the year I mean, it feels like you've got great momentum. There you found a lot of oil at the end of the day.
Why get rid of the rig for the last call. It four to five months of the year why not sort of building that momentum drove some of the other exploration targets.
Given how.
Yes.
And at this point in time.
Yes Ali I mean, you've got we've got a large block we've got a lot of time for other prospect areas and so forth, but I think the key was coming in.
Been a focus on let's let's get too.
A project in an all development and that was what the focus was this year and.
There are other prospects.
In the <unk> area.
But at this point, we don't think it's necessary to drill those right now so.
Okay.
And then just in terms of the you asked well performance you guys talked about this a little bit.
It sounds like there had been some changes to the completion design potential year win.
Kind of wider spacing, but it seems like the oil performance. There has been a lot more consistent you guys basically said that it looks like 23, well performance is a little better than 'twenty. Two just kind of wanted to get a little sense of what do you think the kind of running room here is on kind of the tier one Permian acreage.
If you look out a handful of years you guys have kind of an estimate on how long you can kind of keep five rigs running and kind of how much inventory you have maybe in terms of kind of rig years or something.
Yes.
We've talked about kind of our visibility is kind of through the end of the decade on.
This run rate in this program.
No change to that.
So we're pleased with we're looking at a three to five year plan and pretty happy with.
Because what we have in there so stay tuned.
Yeah, and the other thing I would add is if you look at the evolution of the program a lot of the stuff we're drilling today Thats tier one two years ago, we had at a tier two tier three right. We've got a nice acreage footprint and so youre always also looking to to see the evolution of the resource.
So we've got strong confidence in.
The U S inventory at these.
At this program rates.
And thank you one moment for our next question.
And that will come from the line of Jeffrey Lam Bouchon with Keybanc. Your line is open.
Good morning, guys. I. Appreciate you taking my questions I wanted to ask my first one on U S activity just wondering if the two Midland and three Delaware splits get to assume as part of that base case steady activity and if you can talk about how you think about toggling that in the near term if at all whether in terms of inventory contained.
Or any other factors I would imagine the flexibility of the Delaware in terms of proximity to Alpine high plays into some degree. If you could also maybe speak to what you want to see there on the macro or from the wells So add back any sort of capital there.
Yes, Jeff.
Good question on the Midland versus Delaware split.
<unk>.
If you again as you know rigs are fungible, we could there's no magic in Delaware rig could move over to the southern Midland Basin, but if you think about.
The next 18 months or so.
Two in SMB and three in Delaware Basin tends to make sense and then the question on Alpine it's really about not just gas price, but what gas price does it take for those wells to be competitive.
<unk> oil rig line, either in SMB or Delaware.
Those are the decisions, we'll be looking at us.
Matterhorn comes online some time.
Back half of next year.
Okay, great and that makes sense and then maybe just a quick follow up on the North Sea and Thats already a relatively small part of the budget and getting smaller just looking into next year with the release of the Ocean Patriot as you guys highlighted but can you talk about what sort of operations. We should think about there just in terms of steady state going forward and what that means for <unk>.
For Capex it seems like year over year, it could maybe be looking at something like maybe half the spend that was originally budgeted for for this year.
Yes, I mean, I think if we look at the back half of 'twenty three we got around $50 million of capital in the North Sea.
And that's probably what you would assume going into <unk>.
For each half of next year I would say so $100 million give or take is what it would look at like today roughly.
The biggest thing there is is just philosophy change I mean, we're going to be operating for safety and integrity and managed and decline in managing free cash flow.
There's still a lot of life left I think the important thing is even by Poland Patriot out it doesn't really change our.
Our timing on when we see abandonment and I think we are still well into the early 2000 <unk> and so.
We're going to do as good a job of that asset managing it.
Free cash flow.
Yes.
Thank you one moment for our next question and that will come from the line of Paul Cheng with Scotiabank. Your line is open.
Thank you good morning, guys.
John maybe I'll give one but I think at one corner that among that Paul campagna showing named so pump at this company.
800 million in bandwidth just wanted to clarify if that is the right number.
That pays off we couple way and what I assume thats not including the.
That kind of latency.
Latest peso.
And just want to see that the geology to make what Tom reasonable we couple of little way.
Pace that we should assume any reason that yet.
We come up more than 50% of we saw some pace.
First question.
Yes, so Paul.
You get to the 800 as we've disclosed at <unk>.
The original well the second well, we had more than 600 million barrels of connected resource so.
That's where six of it comes from in the original 200 was from the discovery well from the flow test we did there at crab Daegu. So.
The 800 number.
As would be a connected resource in place.
And it's not a recoverable number but it also does not include <unk> two or <unk>.
<unk> three and the integration work that's going on now.
We will come forward so.
And Dave you might referenced just.
Really high quality rock.
And it would be early to talk about actual recovery factors, but you can give some insights there yes.
Paul I think if you can just look at historical recovery factors in big deepwater.
Discoveries to put a range on it.
February factors are a function of the field development plans that you have we're going to have gas injection here and.
Again, there'll be a lot of pressure maintenance.
These are our high quality reservoirs. So I think you would expect.
High recovery factors, but at this point, it's way premature to to try to put it.
Put a number on that.
Okay.
Do you have a rough estimate once the gas cut.
And that May come from India.
Yes.
Talking about gas cut Paul Yeah, yeah, what's the gas percentage or what's the oil percentage either way.
Yes, I don't have that at the tip of my fingers, but we put the <unk> in the prior press releases on.
The <unk> and the <unk> discovery, and we've not disclosed anything yet on <unk> two or three.
<unk> was 1100, you're roughly.
And the discovery well at Krabbe dog, who had a couple of different ranges from around.
The high teens too.
Hi, 2000.
Okay great.
On Permian.
Yeah.
The number of female wells. So just wanted to see if any is that a number you can share.
What percent of your inventory backlog that you could do three months and what percent of your web program for the next couple of years and it's going to be in the green lines. Thank you.
Yes, Paul this is Dave I don't have that number it's a relatively small percent of the total work plan.
We are happy with the results from our three Milers, It's really just a question of where does the acreage footprint.
Yes.
Allow that.
Allow us to drill the three milers. He can tell just spun the numbers I threw out earlier most of what we're drilling our two milers.
But the team anytime we get a chance to drill three mile or we will do it.
And Thats, just acreage footprint, but from a from a modeling standpoint.
It's probably best to just assume they're all two milers in the program.
Thank you as a reminder, if you would like to ask a question. Please press star 111 moment for our next question.
That will come from the line of human child Derby with Goldman Sachs. Your line is open.
Hi, good morning, and thank you for taking my questions.
You bet. My first question is on on the $100 million savings from your operating cost management program.
Talked about diesel and chemicals driving some savings to add any additional color you can provide in terms of any other buckets, which is driving.
Those savings.
Yes. This is Dave if you look at it it's really just across the board.
It's a lot of things and really it's the operating team has shown really good cost discipline.
Through the year, we came into the year with some inflationary headwinds and the team kind of took that as a challenge.
And really is doing a great job in all the areas Egypt.
North sea in the U S and trying to keep those costs in check and so its decently chemicals are easy to see that everything else is just a lot of little things that add up to two material numbers.
Okay.
Thank you.
I would echo <unk> comments from earlier are excited to see more onsite and I'm done.
Down the road, but separately would just love your thoughts around the M&A landscape and how does that.
And how does that compare versus some of your organic opportunities.
I think in general you've seen a couple of deals take place in the Permian they've traded at what we viewed as pretty high.
Valuations.
Yes look obviously, we've been focused organically, but.
You've always got to be on the lookout for things that could make sense.
And obviously, that's that's where we are and what we do we come in everyday to try to make this company more valuable and more attractive so.
Yes.
Thank you I'm showing no further questions in the queue. At this time I would now like to turn the call back over to Mr. John Christmann for any closing remarks.
Yes, thank you for participating on our call today.
I want to close with the following thoughts.
Our asset teams are executing at a high level and we have a high number of quality well scheduled for the back half of the year, which gives us confidence in achieving our full year production guidance. We are progressing in a positive direction in Suriname, and we remain committed to our capital return program. We look forward to keeping you apprised.
<unk> of our progress.
Thank you.
Thank you all for participating. This concludes today's program you may now disconnect.