Q3 2023 APA Corp Earnings Call

November 2, 2023

[music].

Yeah.

Good day, and thank you for standing by.

Welcome to the a P. A corporation's third quarter 2023 results conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

And then here an automated message advising you that 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 first speaker today, Gary Clark Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Apa's Corporation's third 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 Pursell Executive Vice President of development, Tracy Henderson Executive Vice President of exploration and Clay breccias.

Executive Vice President of operations are.

Our prepared remarks will be about 10 minutes in length with the remainder of the hour allotted for Q&A.

In conjunction with yesterday's press release, I hope you've had the opportunity to review, our financial and operational supplement which can be found on our investor Relations website at Investor <unk> <unk> 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.

System 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.

A full disclaimer is located with the supplemental information on our website and with that I'll turn the call over to John.

Good morning, and thank you for joining us on today's call. We will review third quarter highlights discuss our outlook for the fourth quarter and provide a high level overview of our capital plan and anticipated production in 2024.

For the third quarter in a row adjusted oil production exceeded the high end of our guidance range, good execution and strong well performance in the Permian are the primary drivers of this trend.

We also achieved the high end of our guidance and the North sea during the quarter, which benefited from the production ramp of the store north well.

In Egypt gross oil volumes grew by approximately 4000 barrels per day, which was a bit below expectations as previously disclosed.

On a total company basis third quarter reported oil volumes were up more than 15% from the same quarter in the prior year and we are very pleased with this progress.

Activity in the U S. In Egypt remained steady while we suspended drilling activity around mid year in the North Sea.

Our investment program in the North Sea is now directed towards safety base production management and asset maintenance and integrity.

In Suriname, we achieved a very important milestone during the third quarter with the completion of a successful appraisal drilling program of crab value on block 58 and.

And the subsequent announcement by our partner total energies plans to proceed with feed work for a 200000 barrel per day Fps. So in the eastern portion of the block.

The planned oil hub is underpinned by an estimated 700 million barrels of recoverable oil resource at <unk> and Krabbe dagger and is targeted.

By the end of 2024.

Turning now to our outlook and Yesterdays financial and operational supplement we issued fourth quarter guidance, which anticipates slightly lower production on a boe basis compared to the third quarter.

The primary contributor is in the North sea or the temporary shut in at Beryl Bravo will result in volume deferrals of about 5000 barrels of oil equivalent per day.

In the U S completion timing will lead to a relatively flat quarter, consisting of unchanged oil production and a small decline in natural gas.

And in Egypt, a combination of higher oil and lower natural gas volumes should deliver Boe growth, but not enough to fully offset the downtime in the north sea.

Let me provide a bit more color on production operations in Egypt.

In February we established a gross oil target of 154000 barrels per day for the fourth quarter. We now estimate that number will be closer to 150000 barrels per day, which is up about 5000 barrels per day from the third quarter.

After successfully working through the challenges associated with ramping our rig count from 11% to 18, our drilling program is now performing as planned. However, we have experienced a growing backlog of workover projects over the last two quarters and a corresponding uptick in barrels offline too.

To address this we have begun to increase our workover activity, which Dave can discuss further in Q&A.

During the fourth quarter, we are opportunistically accelerating the completion of eight Permian wells from January into December and adding a sixth rig in the Delaware Basin.

This will result in an increase in our estimated fourth quarter upstream capital to around $500 million and bringing full year upstream capital to just under $2 billion.

I should note that these investments will not have a material impact on fourth quarter production.

As we typically do at this time of year I would like to provide a high level overview of our 2024 outlook, which we will follow up with formal guidance in February.

Recall that we entered 2023 with a planned upstream capital budget of two point out of $2 1 billion.

As of today, we expect a similar range in 2024, albeit with some changes in regional allocation.

We are targeting low single digit oil production growth next year with expected increases in the Permian and Egypt more than offsetting declines in the north Sea.

<unk> remains committed to returning at least 60% of our free cash flow in this calendar year to shareholders. During the first three quarters of the year, we generated $673 million of free cash flow, 65% of which we returned to shareholders via dividends and stock buybacks.

This leaves more to do in the fourth quarter, and we will fulfill our minimum 60% commitment for the full year.

One of Apa's core principles is to produce oil and gas safely and to reduce the environmental impact of our operations I am pleased to announce that we recently achieved an important milestone in reducing methane emissions with the conversion of over 2000 nomadic devices in the Permian to lower emitting technologies.

Our programs to identify and eliminate emissions throughout our global asset base are ongoing and we continuously seek to expand and improve them.

In closing we are committed to our strategy of maintaining a diversified portfolio.

And maintaining operational flexibility to respond quickly to commodity price volatility and other externalities.

We are demonstrating this today through the reallocation of capital from the North Sea and in the Permian and Egypt.

We also remain committed to an investment in a portfolio of exploration projects, which have the potential to drive differentiated future growth and competitive full cycle economics.

That I will turn the call over to Steve Ryan.

Thank you John and good morning.

For the third quarter under generally accepted accounting principles <unk> reported consolidated net income and $459 million.

Or $1 49 per diluted common share.

As usual. These results include items that are outside of our core earnings.

The most significant of which was a $93 million release of a valuation allowance on deferred tax assets.

This was offset by a loss on the quarterly mark to market of our genetic stock ownership and unrealized derivative losses on our wahhab basis swaps.

Excluding these and other smaller items adjusted net income for the third quarter was $410 million or $1 33 per share.

Free cash flow, which for external purposes excludes changes in working capital was $307 million in the quarter.

Through dividends and share repurchases, we returned 32% of this amount to shareholders during the quarter.

As John indicated year to date, we have returned 65% of free cash flow to shareholders.

Please refer to Apa's published definition of free cash flow for any reconciliation needs.

In our <unk> earnings pre release, we anticipated G&A expense would be significantly higher than our underlying run rate of cost which is around $100 million.

For the quarter reported G&A was $139 million.

Mostly because of stock price appreciation and the mark to market impact on previously accrued share based compensation.

As we have explained in the past the mark to market of share price movements also impacts low.

Capex and exploration expense.

These items were also higher during the third quarter for the same reason.

North Sea taxes also came in above guidance in the quarter by $46 million.

Was the result of an incremental cargo lifting late in the quarter, which was not anticipated at the time, we provided <unk> guidance in August.

In accordance with generally accepted accounting principles, we've recognized cargo lifting in the quarter they occur which.

Which increases revenue and current tax expense.

Has no impact on reported production volumes.

To be clear, though this is just a movement of revenue and income tax expense from the fourth quarter into the third quarter and has no impact on our anticipated full year North Sea production revenue our income tax expense as previously noted how cheniere gas sales contract commenced on August one and contributed two months.

Free cash flow in the third quarter.

You will find this impact on our P&L in the two line items, which capture the revenue and costs associated with oil and gas purchased for resale.

In the third quarter, the Cheniere contract contributed free cash flow and pre tax income of $32 million.

We currently anticipate it will contribute approximately $90 million in the fourth quarter and $375 million for the full year 2024.

In closing as anticipated the second half of 2023 is poised for improving production and free cash flow versus the first half of the year.

With the improving performance, we're tracking very close to our original full year guidance across most of our key financial and operational metrics for the year.

We will continue to return capital to shareholders through dividends and share repurchases and while our balance sheet is much stronger than a few years ago. We continue to recognize the need for further progress on debt reduction.

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 one on your telephone and wait for your name to be announced.

Please limit yourself to one question and one follow up if you have additional questions. We ask that you disconnect and rejoin the queue.

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

Okay.

And our first question comes from Doug Leggate with Bank of America. Doug. Your line is open. Please go ahead.

Thank you I think Gary just lost a bet on name pronunciation, but thankfully.

Thanks.

Thanks for getting me on.

Guys the North sea.

I Wonder if you can offer a little bit of color on what.

What you see as the decline curve there with no capital when we don't going with this is.

Obviously, you've got some I believe the gas compressor DC assets I guess, you are going to take it off the platform and so on that's going to come back on.

Obviously production will decline because you're not spending any money, but my question is.

How does the decline look versus the free cash flow in the North sea. It strikes me that the free cash flow in a declining curve could actually be higher.

Go ahead Doug.

It's a good question as well.

We're in the process right now working through the 2024 plan.

Clearly, we've got some downtime that we've announced in the North sea in the fourth quarter as we do have a compressor that we had to hold.

I'm sure we will get that back on.

Sometime early next year, and then you'll be back at your base decline.

Both for <unk> and barrel 40, as you know is under water floods, what's got.

Much slower decline in barrel, but we do not have the rig will continue to focus on maintenance integrity.

<unk> It will come back early next year with.

With a detailed look when we give out the 24 plan.

But is it fair to say that versus 2023, when you were spending capital.

Free cash flow could be hydrogen.

I think it's early on.

Okay.

Yes, Doug.

Yes, I think it's as John was about to say I think it's a bit early to state that for 2024, it's certainly a possibility, but let's let's get to February we will have a detailed plan.

And we'll know kind of what what type of price environment, we're looking at as well.

We'll have a better better analysis on that at that point in time.

Alright, Thank you John my follow ups in Suriname.

To get a read on it its hotels analyst day this year.

Patrick a very specific question about timing.

And I wanted to get your perspective on this what my understanding is that the 2028 schedule for first oil assumes a 42 months.

Newbuild Fps, so but since the announcement.

I understand the SPM has been selected with an early hull.

In other words, the EDA earlier on that timeline with some 70% expected to be contracted at the time of RFID.

You're not the operator, but I wonder if you could confirm or offer any color around those.

Those points.

Yes, I would just say for now.

The official timeline as if by the end of 'twenty four and first of all about 2020, but obviously.

There is incentive and motivation to try to accelerate that and I would expect that they will do everything they can to do so.

Fair enough. Thanks, guys. Thank you.

Yes.

Standby for our next caller.

And that is John Freeman with Raymond James John Your line is open. Please go ahead.

Good morning, guys.

John.

Yes. The first question I had on the sixth rig.

Other than the Permian.

Plan for that rig to operate.

Exclusively in the Delaware or potentially cargo between.

Delaware in Alpine high.

John its a spot rig we're picking up it will kind of go pad to pad. It will start in the Delaware on some oil pads, but then there's flexibility and we'll come back in February with a little more detail obviously on the two.

2024 plan and how that would sit.

Okay.

Okay and then just my follow up question I appreciate the.

Preliminary sort of outlook on 2024.

Kind of what you said about the budget being in that kind.

Kind of flattish versus <unk> versus 'twenty, three and I think about like the fixed rate debt, that's largely funded with the north Sea Capex reduction.

<unk> said previously as kind of a status quo next year.

And so it seems like just of your.

Three main operating areas, that's kind of flattish in the Wildcards kind of exploration was your commentary about kind of a flattish budget does that is that all and does that include.

The exploration side, if you can kind of just walk us through kind of how you see the exploration in a year, where there is probably a step down in activity and turn on my head.

Yes, John it's a great question, yes. It it includes about $150 million of exploration.

Thank you laid it out pretty accurately youre youll see a full year without drilling in the north sea.

You will see an increase in the Permian relatively stable drilling lines in Egypt.

And you will see a 100 about 100 and half in terms of explorations, what we're sketching out at this point so.

Relatively stable program with continued exploration investment like we've done over the last several years.

Thanks, John I appreciate it.

You bet. Thank you.

Our next question comes from Bob Brackett with Bernstein Research Bob Your line is open. Please go ahead.

Yes, good morning, you've talked about.

Terms of the Permian, if we think about 12 net completions and <unk> kind of driving flat production Q on Q and <unk> 20, net completions and <unk> allowed you to grow the following quarter and it sounds like you've already connected 12 wells in October.

With 18 coming in the rest of the Q does that imply a pretty strong cadence into sort of <unk> of next year in terms of the Permian.

Yes.

It's a good question.

Timing of completions drives the quarterly production cadence this is Dave for sale by the way.

The.

Remaining completions this quarter will be weighted more towards December and then we'll provide you in February with what.

The cadence of completions looks like in <unk>.

In 'twenty four and as you can imagine.

There'll still be some lumpiness.

And it will provide that in February once we get the plan.

Finalized.

Okay quick follow up.

If there is an <unk>.

In 2004 around Suriname does that change that capex budget of two hour to one or it's kind of a rounding error.

No at this point, we've factored that in.

Bob.

Okay very clear thank you. Thank.

Thank you.

Our next question comes from Neal Dingmann with Truest Securities. Neil Your line is open go ahead.

For the time John My first question is just on Egypt I'm just wondering if the 24 plans will continue to have sort of a similar level of exploration and development activity and if so should we assume somewhere around that would be in your estimate.

That sort of same drilling success next year.

Yes.

Neil program, it will be pretty stable, we're running 18 rigs in Egypt.

It is a steady diet of both development and exploration.

And I anticipate that to be very similar next year.

Do you expect to be able to continue to show good growth in Egypt.

Very good and then my second John asked a little bit on this but just on the Permian gas plans I'm just curious if your decision if and when they go back and boost activity is that based more on how those gassy well economics compete against your oil the southern Midland or Delaware economics or is it just simply if those gas returns.

Right.

Certain certain rate of return.

Yes, I mean, it's really more a function of stability.

Stability of the wall Hot pricing in.

The wells we've drilled this year have been strong and very competitive I mean, I think at $3 Warhol, they're very very competitive with Permian oil so.

But it's really more a function of when we believe we will have stability there at Walmart.

You can produce some into the infrastructure.

Perfect. Thanks, Sean.

Our next question comes from Scott Gruber with Citigroup Scott. Your line is open go right ahead.

Thanks.

Can you just coming back to Egypt, you mentioned growth next year is that going to be on a year over year basis or do you think the exit to exit will be up as well.

Yes.

We will give you the details when we rollout.

Plan in February, but we will show growth.

<unk>.

Okay.

We will show growth most likely year over year end exit, but let us let us.

Give you those details in February.

Okay.

And then just thinking about the next few years.

<unk> that'd be moving forward in Suriname, and obviously you have the carry from total.

These are the $1 billion of sale commitments can you just speak to.

Whether that impacts your capital allocation across the rest of the <unk>.

Portfolio on a multiyear basis.

Yes, I mean, we look at the multi year plan and Thats. The beauty of the carry is it's going to keep at a very very manageable place from where we've been so.

Yes, I mean, we basically structured that deal.

Banking on success and you'll see that start to.

Follow through if we move to the next phases. So it'd.

It'd be a project first but.

But thats, where the carry will kick in.

Got it I appreciate it thank.

Thank you.

Our next question comes from Roger read with Wells Fargo Securities. Roger Your line is open go ahead.

Yes, thanks, good morning.

Just a follow up Egypt.

Lease of capital or working capital this quarter, just how do you think that looks going forward.

And also in Egypt, given that they've had some gas issues related to imports.

And the med any interest or pressure from Egypt to have you increased gas production, there or is that something that could occur in 'twenty four thats not really a reasonable assumption given the locations of fields and.

Takeaway capacity et cetera.

There is no doubt Egypt.

Needs more gas production were flow on everything we can into the grid, which is where our gas goes.

Our program has been focused on oil as.

As we received $2 65, Periman beta you there but.

Short term there is not anything we can do to increase gas production, but.

There are some longer term projects, but we would need to work on a higher gas price there.

And then capital.

Yes on the working capital this is Steve.

So we did have an increase in working capital.

In the quarter in Egypt.

We will see in the supplement.

So the receivables did go up during the quarter, but receivables from <unk>.

Actually went down during the quarter and if we go back to first quarter of this year.

I think the.

The concern about.

The payments from the GPC.

Kind of surfaced at that point in time with the first quarter results in May.

Since that time from first quarter in the first quarter to the end of the third quarter.

Edp see receivables have gone down so have the past due receivables from <unk>. So I think we're in good shape. There we've made making progress we've made some good progress it as John always says we're.

Constant contact with the highest level.

In Egypt about managing that receivable balance.

We're making some good progress there more to go but we're making good progress.

The.

The issue with where.

The reason why receivables went up in the third quarter is because we were exporting more cargos.

Selling them to third parties and those third party receivables have gone up during the quarter. Because we were third party receivables were low at the end of the second quarter and higher at the end of the third quarter.

Those are receivables that are just paid under normal terms from our normal.

Creditworthy and on time paying.

Purchasers of the oil coming out of Egypt and export cargos.

And Thats.

In that situation just normal.

Seasonal or mark to model kind of changes nothing to read into that presumably.

Right right.

And Youll see there is.

At the corporate level not just in Egypt.

What level of theirs.

A meaningful increase in working capital during the quarter and that also is just seasonal type things.

Had some payables in particular, a large one around taxes.

Large cash payment of taxes in the UK that comes in the third quarter or so.

A lot of seasonality to working capital movements for the company as a whole.

I appreciate the explanation.

And our next caller is Charles Meade with Johnson Rice welcome Charles Your line is open.

Hi, Good morning, this is Michael Ferro actually filling in for Charles.

Hello, Michael.

Okay. Just one question for me regarding Suriname.

<unk> is not expected until late in 2024, and this might be a bit premature, but when do you think that further exploration could occur within block 58 on.

And I recognize that totality operator here, so maybe a better way to frame it would be wynwood.

Like to further explore block 58, and maybe if you could even speak on block 53.

No.

A great question.

Focus this year was appraisal of crab Daegu. So we could start a project in terms of getting it moving into the next phase and we're in a position to do that now we.

We do see.

Several high quality low risk prospects in block 58.

A lot of the program at <unk>.

Obviously appraised.

Fair way also derisked in our mind a lot of prospects.

There is no urgency in terms of getting to them.

<unk> 24, but we will be working through those.

With our partner and when I look at the two blocks.

We see more prospectively in 58 over 53.

We're working with our various partners there on the <unk>.

Next steps at Baja.

But.

I think there is.

We would.

You see more prospecting 58 over 53 at this point.

Alright, I appreciate that color. Thanks for your time.

Please standby for our next question.

And our next question is from Scott Hanold with RBC capital markets Scot Your line is open.

Yes. Thanks.

My question is going to be on just general exploration I mean, obviously, you got surname going on but.

More recently you've.

Kind of farmed into position in Alaska.

And on top of that obviously, you have got different things in Uruguay in Dominican Republic can you tell us in general just first maybe starting with the Alaska and then how you think about these other prospects moving forward for <unk>.

No.

Alaska fits.

Our exploration strategy and that is trying to build a high quality portfolio.

We've got a proven operator.

At state lands very very prospective acreage and it's something we look forward to sharing more in February and it's all about our portfolio in the exploration side and having choices to high grade.

Drill the best things.

We're going to create the most shareholder value.

So when I think of EPA and look I mean, it seems to be in contrast, with some of I guess your U S.

Even just E&P peers were.

There's a lot of I guess M&A going on therefore domestic shale, but it looks like EPA is taking a little bit different angle or is there still a desire to potentially maybe even bulk up in the Permian or other focus areas.

Where you do have.

More I guess proven production at this point.

Yes, I mean, I think we like to look at both avenues, both the organic and inorganic.

And.

We stayed committed to an exploration program and youre seeing that pay off in the.

Sorry.

And longer term, but I also think you saw us last year bolstered some.

Some acreage in the Delaware so.

It's a diet of both that Youre constantly looking at.

You've got to continue to focus on adding to the assets as well as what can create value for your shareholders.

So when you look at the Permian Basin do you all feel with the add of $5 six rig pace you've got.

What you would say ample inventory of tier one stuff.

Yes, I mean, I think with where we sit today, 5% to six rigs David saved.

End of the decade pretty easily.

And thats focused on higher quality longer laterals, and we're always we've got a nice footprint. There we're always moving inventory from one category of up into the high grade.

We continue to test and <unk>.

Find ways to make it all work so.

I appreciate the color. Thanks, you bet.

Our next question comes from David Decal Baum with TD Cowen.

David Your line is open.

Thanks for taking my questions guys.

John I wanted to just ask.

Are you able to tell US yes, the $150 million of earmarks for exploration next year, I guess to be more pointed about it.

How much of that is included for ex Suriname exploration.

At this point will.

We'll come back with more color next year on the program.

It's a placeholder.

We're working through there is there are some other things we'll be doing <unk> got exploration in Egypt, we've always funded as an <unk>.

Some other things, but we will come back with more color in February.

I appreciate that.

Maybe if I could just follow up on Egypt, you talked about the growth trajectory in the next year and I, certainly know that U S oil as anticipated growing next year.

Can you give us a little bit more color just on whats happening with the increased work over activity.

What's driving that and are there any alterations being made that this won't be a drag into next year or is this being factor then with greater frequency now that you have this increased rig count.

Yes, I mean, it's a situation where we've always had.

I'll call it a wells or a volume offline thats requires workover, we have a lot of sub pumps.

In Egypt, and we've had some inquiries from our failures and in a few areas and that number has ticked up and Dave can get into some more color, but we've just got more barrels offline that we need to get to on the workover side and we're addressing that so.

We're jumping all over yeah. So just to follow on what John said.

We're working on a root cause analysis just to understand are we seeing a structural change in well failure well failures. We have seen a reduction in ESP run times and were but were doing a broader a broader look at that and to put some numbers on on John's comment on <unk>.

Base level of Workover inventory that typically represents about 5000 barrels a day of production offline at any given time we.

We've seen that increase to over 10000 barrels a day really from the end of the second quarter through today.

So we've added a workover rig or doing some other things to start working that where can that backlog down.

Overtime.

Is that an coincident with where you are developing right now or is it just sort of.

Now just circumstantial to occur.

Across the entire area.

It's across the entire western desert and work in the root cause on that just to understand are there any specifics, but right now we haven't identified any.

Thank you guys.

Yes.

As a reminder to ask a question just press star one one on your telephone and wait for your name to be announced.

And our next question comes from Leo Mariani with Ross MK M. Lee. Your line is open go ahead.

Hey, guys just wanted to follow up briefly on Egypt here.

I think you guys, maybe adding a rig recently I think you were at 17 earlier in the year, if I sort of got it right. So just curious is that just because of lower north sea activity, you would just kind of reallocating dollars here.

And then I guess just in general obviously, there's been significant instability, there kind of in that Sinai Peninsula area bordering Israel there with the.

The conflict that's happening right now I mean, do you guys have any concerns over potential spillover into Egypt and have you been kind in contact with Egypt government regarding that.

Yes, it's something that.

It's interesting we're coming up on our 30 <unk> anniversary of being in Egypt. So.

So we've got a great history, there we've been there a long time and we've been through watched Egypt go through a lot of trying times.

This year has been difficult for them and it's really been driven more by inflation and currency devaluation and some of those factors.

We're closely monitoring the situation.

I think the good thing from our perspective is our operations are all west of Cairo into the Western Desert.

And if you go back in history, even over the Arab spring.

We have not had any shut ins are a major interruption in our operations. So yes, I think the good news areas as the government continues to prioritize oil and gas operations. They know they need the in country production.

And we've been watching things very very closely.

Okay.

Okay. That's helpful.

And then in terms of the $150 million in exploration next year don't want to beat a dead horse here, but.

As you kind of looking at that high level in your mind does that include some dollars in Suriname at this point or is that just sort of the kind of still open ended proposition.

It's in general right now, it's a placeholder for the things we want to do but.

There is.

Their seismic that'll be is being shot in Suriname and the.

Where would be the development area some other things so.

It will capture our exploration spend for next year.

We'll come back with more details in February.

Okay. Thanks.

And our.

Our next question comes from Jeff Jim.

Daniel Energy Partners go ahead, Jeff.

Hey, guys. Thanks for taking the question.

Really my question is around U S oil production, which looks like it's taken a pretty impressive step change job.

Obviously, you completed some more wells, but.

Obviously, several quarters, where I was just kind of locked into the seventies now we've taken this 8000 barrel a day step up in Q Q3.

And I'm wondering.

What changed in <unk> B.

If there is something that's happened that is kind of prompted this decision to add another rig in the Delaware.

I mean, it's really just a continuous program I mean, we're seeing the benefit of the.

The deliberate approach we've taken we've been focused on long laterals and really walking the.

The rig lines down and given the team's time to execute.

And Youre seeing that we've continued to drill long laterals and we're continuing to have good results. It's really just a function of the timing of the completions.

In terms of adding the six rig it's really more allocation of capital from the North Sea.

And of the Permian.

But we look forward to continuing to deliver strong results and if you look.

Fourth quarter's a little flattish compared to third quarter, a lot of Thats because third quarter is running ahead.

Versus fourth quarter running behind so.

Very very pleased with the.

The execution level in the U S.

Excellent thanks, guys I appreciate it.

I am showing no further questions at this time. So this concludes the question and answer session I would now like to turn it back to John Christmann, President and CEO for closing remarks.

Yeah. Thank you for participating on our call. This morning, I want to leave you with the following thoughts.

We've completed a successful appraisal program in Suriname at <unk> and Krabbe Daegu.

Advance the project through the through the feed process during 2024 and.

In Egypt gross oil production continues to increase on the success of our drilling program and lastly, we continue to deliver outstanding results in the Permian, where we've added a sixth rig which will add to the momentum as we enter 2024, we look forward to telling you more about the things in February and the thank you for the call.

And this does conclude the program you may now disconnect.

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Good day, and thank you for standing by and welcome to the AP Corporation's third quarter 2023 results conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

Glenn here, an automated message advising you that 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 first speaker today, Gary Clark Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us on Apa's Corporation's third 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 <unk> Executive Vice President of development, Tracy Henderson Executive Vice President of exploration and Clay breccias.

Executive Vice President of operations.

Our prepared remarks of the about 10 minutes in length with the remainder of the hour allotted for Q&A.

Please note that we may discuss certain non-GAAP financial measures.

<unk> 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.

Over a number of factors could cause actual results to differ materially from what we discussed today.

A full disclaimer is located with the supplemental information on our website and with that I'll turn the call over to John.

For the third quarter on a row adjusted oil production exceeded the high end of our guidance range.

<unk> and strong well performance in the Permian are the primary drivers of this trend.

We also achieved the high end of our guidance and the North sea during the quarter, which benefited from the production ramp of the store north well.

In Egypt gross oil volumes grew by approximately 4000 barrels per day, which was a bit below expectations as previously disclosed.

On a total company basis third quarter reported oil volumes were up more than 15% from the same quarter in the prior year and we are very pleased with this progress.

Activity in the U S. In Egypt remains steady, while we suspended drilling activity around mid year in the North Sea.

Our investment program in the North Sea is now directed towards safety.

<unk> production management and asset maintenance and integrity.

In Suriname, we achieved a very important milestone during the third quarter with the completion of a successful appraisal drilling program of crab value on block 58, and the subsequent announcement by our partner total energies plans to proceed with feed work for a 200000 barrel per day Fps. So.

In the eastern portion of the block.

The planned oil hub is underpinned by an estimated 700 million barrels of recoverable oil resource at <unk> and <unk> and.

And as targeted.

By the end of 2024.

The primary concern areas in the north sea or the temporary shut in at Beryl Bravo will result in volume deferrals of about 5000 barrels of oil equivalent per day.

In the U S completion timing will lead to a relatively flat quarter, consisting of unchanged oil production and a small decline in natural gas.

And in Egypt, a combination of higher oil and lower natural gas volumes should deliver BLA growth.

But not enough to fully offset the downtime in the north sea.

Let me provide a bit more color on production operations in Egypt and.

In February we established a gross oil target of 154000 barrels per day for the fourth quarter.

Now estimate that number will be closer to 150000 barrels per day, which is up about 5000 barrels per day from the third quarter.

After successfully working through the challenges associated with ramping our rig count from 11% to 18, our drilling program is now performing as planned. However, we have experienced a growing backlog of workover projects over the last two corners, and a corresponding uptick in barrels offline too.

To address this we have begun to increase our workover activity, which Dave can discuss further in Q&A.

During the fourth quarter, we are opportunistically and accelerating the completion of eight Permian wells from January into December and adding a sixth rig in the Delaware Basin.

This will result in an increase in our estimated fourth quarter upstream capital to around $500 million.

And bringing full year upstream capital to just under $2 billion I should note that these investments will not have a material impact on fourth quarter production.

As we typically do at this time of year.

To provide a high level overview of our 2024 outlook, which we will follow up with formal guidance in February.

Recall that we entered 2023 with a planned upstream capital budget of.

To point out a $2 1 billion.

As of today, and we expect a similar range in 2024, albeit with some changes in regional allocation.

We are targeting low single digit oil production growth next year with expected increases in the Permian and Egypt more than offsetting declines in the north Sea.

<unk> remains committed to returning at least 60% of our free cash flow in this calendar year to shareholders.

The first three quarters of the year, we generated $673 million of free cash flow, 65% of which we returned to shareholders via dividends and stock buybacks.

This leaves more to do in the fourth quarter, and we will fulfill our minimum 60% commitment for the whole year.

One of <unk> core principles is to produce oil and gas safely and to reduce the environmental impact of our operations I am pleased to announce that we recently achieved an important milestone in reducing methane emissions with the conversion of over 2000 nomadic devices in the Permian and lower emitting technologies.

Our programs to identify and eliminate late emissions throughout our global asset base are ongoing and we continuously seek to expand and improve them.

In closing we are committed to our strategy of maintaining a diversified portfolio and maintaining operational flexibility to respond quickly to commodity price volatility and other externalities.

Demonstrating this today and the reallocation of capital from the North Sea and in the Permian and Egypt, we are.

Also remain committed to an investment in our portfolio.

We owe a exploration projects, which have the potential to drive differentiated future growth.

<unk> full cycle economics.

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

Thank you John.

Good morning.

For the third quarter under generally accepted accounting principles.

Reported consolidated net income of $459 million.

Our $1 49 per diluted common share.

As usual. These results include items that are outside of our core earnings.

Significant of which was a $93 million release of a valuation allowance on deferred tax assets.

This was offset by a loss on the quarterly mark to market of our kinetic stock ownership.

And unrealized derivative losses on our Wahhab basis swaps.

Excluding these and other smaller items adjusted net income for the third quarter was $410 million or.

Or $1 33 per share.

Free cash flow, which for external purposes excludes changes in working capital was $307 million in the quarter.

Through dividends and share repurchases, we returned 32% of this amount to shareholders during the quarter.

As John indicated year to date, we have returned 65% of free cash flow to shareholders.

Please refer to Apa's published definition of free cash flow for any reconciliation needs.

In our <unk> earnings pre release, we anticipated G&A expense would be significantly higher than our underlying run rate of costs, which is around $100 million.

For the quarter.

Ported G&A was $139 million.

Mostly because of stock price appreciation and the mark to market impact on previously entry share based compensation.

As we have explained in the past the mark to market of share price movements also impacts low.

Capex and exploration expense.

These items were also higher during the third quarter for the same reason.

North Sea taxes also came in above guidance in the quarter by $46 million.

It was the result of an incremental cargo lifting late in the quarter, which was not anticipated at the time, we provided <unk> guidance in August.

In accordance with generally accepted accounting principles, we've recognized cargo listings in the quarter, they occur which increases revenue and current tax expense. It has no impact on reported production volumes.

A free cash flow in the third quarter.