Q4 2024 APA Corp Earnings Call
Thank you. Thank you. Thank you.
Thank you for standing by and welcome to the APA Corporation's fourth quarter 2024 financial and operational results
Speaker Change: At this time, all participants are in listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone.
Speaker Change: If your question has been answered and you'd like to remove yourself from the queue, simply press star 1 1 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Ben Rogers, Senior Vice President of Finance and Treasurer. Please go ahead, sir.
Speaker Change: Good morning and thank you for joining us on APA Corporation's fourth quarter and year-end 2024 financial and operational results conference call. We will begin the call with an overview by CEO John Christmann.
Speaker Change: Steve Riney, President and CFO, will then provide further color on our results and outlook.
Speaker Change: Also on the call and available to answer questions are Tracy Henderson, Executive Vice President of Exploration, and Clay Bretches, Executive Vice President of Operations.
Speaker Change: Our prepared remarks will be about 20 minutes in length with the remainder of the hour allotted for Q&A.
Speaker Change: 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.apacorp.com.
Speaker Change: Please note that we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.
Speaker Change: Consistent with previous reporting practices, adjusted production numbers cited in today's call are adjusted to exclude non-controlling interest in Egypt and Egypt tax barrels.
Speaker Change: 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.
Speaker Change: However, a number of factors could cause actual results to differ materially from what we discussed on today's call. A full disclaimer is located with the supplemental information on our website. And with that, I'll turn the call over to John.
Good morning and thank you for joining us.
On the call today, I will review our 2024 accomplishments.
Speaker Change: share highlights of our fourth quarter performance and provide an overview of our 2025 plan and other key long-term objectives.
Speaker Change: Over the last several years, APA has been strategically reshaped in numerous ways.
Speaker Change: We have enhanced the quality and sustainability of the portfolio in our core areas of the Permian Basin and the Western Desert of Egypt, while also building long-term optionality through a differentiated exploration strategy.
Speaker Change: Throughout this process, we have been strengthening the balance sheet and prudently allocating capital to prioritize returns.
Speaker Change: 2024 was a year of notable further progress on all of these fronts. In the Permian, we continued to strategically refine our position with the acquisition of Cowen and the sale of non-core assets.
Speaker Change: In Egypt, we signed a new gas price agreement, creating the potential for significant additional drilling opportunities with returns on par with oil.
Speaker Change: In Suriname, we reached a final investment decision for our first oil development.
Speaker Change: Lastly, we achieved a BBB- rating from S&P and are now investment grade with all three rating agencies.
Speaker Change: With the significant portfolio changes in the Permian Basin during 2024, our U.S. business is now almost entirely comprised of unconventional assets.
Speaker Change: This strategic shift has solidified the Permian as the cornerstone of our asset base, driving over 75% of our current adjusted production and providing a more predictable and steady business model.
Speaker Change: As seen in our supplement released yesterday, APA's scale of the Permian now stands out, rivaling and surpassing many of our U.S. independent shale piers.
Speaker Change: In Egypt, we successfully returned to more normalized work over and recompletion backlogs, while also improving our PDP decline through water flood activities.
Speaker Change: These efforts have provided a much more predictable oil production profile, increasing the overall efficiency and longevity of our operations.
Speaker Change: In Suriname, we reached a significant milestone when our partner Total announced FID on the Grand Morgue project, with a capacity of 220,000 barrels of oil per day and first oil expected in 2028.
Speaker Change: As you will recall, based on the joint venture agreement we have with Total, our capital spending exposure for the project will be very manageable.
Speaker Change: 2024 also highlighted the value of our gas trading activities, where we realized an annual net gain of nearly half a billion dollars.
Speaker Change: At current strip prices, we believe 2025 will be a similarly strong year.
Lastly, we continue to deliver on our capital return framework.
In 2024, we return 71% of free cash flow.
Speaker Change: through $353 million in dividends and $246 million in share repurchases. This includes $100 million of repurchases executed during the fourth quarter at a price just under $22 per share.
Speaker Change: We continue to believe our shares offer a compelling value, and we will be inclined to lean into the buyback program at such prices.
Moving now to a few highlights from the fourth quarter.
Speaker Change: We delivered production volumes above guidance in all three of our operating regions and did so on a capital program that came in lower than guidance, primarily due to ongoing well cost reductions in the Permian Basin.
Speaker Change: These factors were the main drivers in delivering $420 million of free cash flow during the quarter.
Speaker Change: In November, we added a rig in Egypt to initiate a gas-focused drilling program. We are very pleased with the early results and now expect year-over-year gas production to increase for the first time in over a decade.
Speaker Change: Finally, on December 31, we closed on the sale of our non-core conventional properties
Speaker Change: Let me now turn to the progress we have made with Cowan.
Speaker Change: We acquired Callen primarily to add scale and inventory to our existing Delaware footprint.
Speaker Change: We also anticipated capturing meaningful synergies, most of which we achieved on a sustainable basis by the end of 2024.
Speaker Change: As we took over operations, our focus was on addressing the capital and operating efficiencies required to deliver industry competitive returns.
Speaker Change: By increasing lateral length while reducing total well costs, we were able to lower breakeven oil prices in 2024 to $61 per barrel, compared to Cowen's 2023 breakeven of $78 per barrel.
Speaker Change: We are looking forward to further improvements in 2025 and beyond.
Speaker Change: In the Midland Basin in northern Howard County, our early results have significantly outperformed expectations.
Speaker Change: We plan to return to this area with tighter well spacing on future pads, which will increase inventory counts and capture more resource than we originally anticipated.
Speaker Change: This has a positive read-through to offset legacy APA acreage as well, and we will revisit these opportunities in the future.
Moving on to our 2025 plan.
Speaker Change: Our 2024 achievements helped lay the foundation for an efficient activity set and more predictable production profile in 2025 and beyond.
Speaker Change: We expect to run an 8-rig program in the Permian and a 12-rig program in Egypt.
Speaker Change: This activity set results in a combined development capital budget of $2.2 to $2.3 billion and reflects more than a 20% year-over-year reduction in development capital in the Permian when adjusting for Cowen's first quarter 2024 spend.
Speaker Change: Adding $200 million for Suriname development and $100 million for exploration capital, primarily in Alaska, we expect our total capital budget to be $2.5 to $2.6 billion dollars.
Speaker Change: With this lower development capital budget, we expect to deliver higher total adjusted production in 2025 compared to 2024.
Speaker Change: While this includes the benefit of no planned gas curtailments, it also underscores the progress we are making on capital efficiency through the integration of Cowen and the stabilization of Egypt volumes.
Speaker Change: Lastly, I want to touch on the cost reduction initiatives we announced in our earnings release yesterday.
Speaker Change: In the fourth quarter, we launched an effort to analyze cost-saving opportunities across three core areas that drive a majority of our annual controllable spend. Capital, LOE, and overhead.
Speaker Change: We are focused on identifying opportunities to streamline the business, improve the way we operate, and control our costs.
Speaker Change: The first step in simplifying the organization was announced in January when we reduced our corporate officer count by over one-third.
Speaker Change: Earlier this month, we initiated additional overhead decreases as part of a broader streamlining effort across the organization.
Speaker Change: These initial reductions, coupled with the targeted savings in capital, LOE, and additional overhead spend, are expected to generate at least $350 million in annualized savings by year-end 2027.
Speaker Change: These efforts will drive free cash flow expansion over the next several years.
Speaker Change: In closing, APA made significant continued progress in 2024 to streamline our portfolio and establish a core asset base that can underpin a sustainable activity set and predictable production profile from the Permian and Egypt for the long term.
Speaker Change: In the short to medium term, we will work to reduce our controllable spend.
Speaker Change: This is our path to meaningful free cash flow growth in the 2025 to 2027 time frame ahead of Suriname first oil in 2028 which will underpin a further step change in free cash flow into the next decade
We believe that this cash flow growth profile
Speaker Change: Coupled with our high-quality exploration portfolio is differentiated for many of our peers and will drive growth in long-term shareholder value.
Steve Riney: And with that, I will turn the call over to Steve.
Steve Riney: Thank you, John. For the fourth quarter, under generally accepted accounting principles, APA reported consolidated net income of $354 million, or $0.96 per diluted common share.
Steve Riney: As usual, these results include items that are outside of core earnings.
Steve Riney: the most significant of which was a $224 million U.S. Deferred Tax Benefit related to the write-off of APA's investment in our U.K. subsidiaries and a $190 million increase in our net liability on the former Fieldwood properties.
Steve Riney: excluding these and other smaller items adjusted net income for the fourth quarter was two hundred and ninety million dollars or 79 cents per share
Steve Riney: Fourth quarter dDNA expense was higher than guidance primarily due to accelerated depreciation at Alpine High.
Steve Riney: With negative WAHA gas prices for the second and third quarters of 2024, SEC Reserve Guidelines required that substantially all of the Alpine High Reserves be written off.
Steve Riney: As a result, one-third of the Alpine High carrying value was depreciated in the fourth quarter, and there will be a similar impact in the first quarter of 2025.
Steve Riney: Fourth quarter lease operating expense also came in slightly higher than guidance, largely due to an extra North Sea cargo lifting in the quarter.
Steve Riney: The timing of North Sea cargo liftings has no impact on reported production, but it does affect the recognition of both sales revenue and LOE.
Steve Riney: APA generated $420 million of free cash flow in the fourth quarter, the highest of any quarter in 2024.
Steve Riney: Through dividends and share repurchases, we returned 46% of this amount to shareholders in the quarter.
Steve Riney: For the full year, we generated $841 million in free cash flow, of which we returned 71% to shareholders.
Steve Riney: Please refer to APA's published definition of free cash flow for any reconciliation needs.
Steve Riney: In 2024, we made significant progress strengthening our balance sheet and are close to returning to pre-calend debt levels only nine months after closing the acquisition.
Steve Riney: Recognizing the lower net debt levels and increased scale achieved last year, S&P upgraded our credit rating to BBB- in October.
Steve Riney: Our ultimate objective is to achieve BBB, or Better Ratings, one notch above our current ratings at all three rating agencies.
Steve Riney: Wrapping up commentary on 2024, let me address the $190 million increase in the net contingent liability for the fieldwood properties.
Steve Riney: This increase does not reflect any change in the anticipated costs to plug in abandoned wells or to remove facilities and seafloor infrastructure.
Steve Riney: In 2021, as a result of the Fieldwood bankruptcy ruling, an independent third party was required to own and manage the assets.
Steve Riney: In this capacity, the third party operates the producing assets and maintains and monitors the non-producing assets awaiting abandonment.
Steve Riney: We believe the third party's cash costs for these activities remain too high.
Steve Riney: Until we take actions to directly reduce these costs, the resultant reduction in future net cash flows increases the contingent liability on our balance sheet.
Steve Riney: With a large portion of the security utilized, we are now free to explore all avenues to manage these assets and to enable a more prudent cost management system. We expect resolution to this later this year.
Steve Riney: Turning to our 2025 outlook, let me provide a few more details with respect to our guidance for the year.
Steve Riney: Starting with our capital spending cadence, you should expect our spending to be front-half weighted primarily due to the timing of Suriname capital calls and our exploration activities in Alaska.
Steve Riney: Despite a planned steady activity level, Permian is also first half weighted, primarily due to the timing of facility spend in the basin.
Steve Riney: Looking at production, 2024 oil volumes for the U.S. adjusted for the effects of asset sales and the first quarter callon production were 128,000 barrels of oil per day.
Steve Riney: Total U.S. volumes should increase mid-single digits as we do not anticipate any price-related production curtailments this year.
Steve Riney: In Egypt, adjusted production is expected to grow slightly year over year with a modest decline in gross volumes.
Steve Riney: On the gas front, we initiated drilling activity in the fourth quarter and have seen very encouraging results.
Steve Riney: As John indicated, we now expect gross gas production to grow year over year. Our average realized gas price is expected to increase from $2.96 per MCF in the fourth quarter to at least $3.15 per MCF in the first quarter.
Steve Riney: Average realized price will continue to grow through the year with the full year average expected in the $3.40 to $3.50 range.
Steve Riney: As we look beyond 2025, success in the gas program will determine our ability to continue growing gas production and will highlight any need for additional infrastructure investment.
Moving to lease operating expense
Steve Riney: For the U.S., we expect operated LOE per BOE in the Permian to be about 20% lower than 2024.
Steve Riney: This step change in operating efficiency reflects the progress we have made streamlining our U.S. portfolio and harvesting synergies from the acquisition of Cowen.
Steve Riney: The return of curtailed gas volumes also contributes to the improvement in our per unit LOE.
Steve Riney: In terms of our guidance related to GNA, it may appear that overhead costs are increasing significantly in 2025.
Steve Riney: Total overhead costs are in fact going down, but it is difficult to see that comparing 2024 actual G&A expense to 2025 guidance.
Steve Riney: Recall that overhead costs are allocated to multiple areas including capital investment, exploration, LOE, and GNA.
Steve Riney: The relationship between G&A expense and total overhead costs is impacted most significantly by allocation methodology and the mark-to-market impact for long-term incentive compensation.
Steve Riney: 2024 was a strong year for our third-party gas trading business.
Steve Riney: and 2025 is shaping up to perform at a similar level. This year the Waha basis spread remains advantageous and we have seen appreciation in international LNG prices benefiting APA through our Chenier gas supply contract.
Steve Riney: Given current strip prices, we anticipate generating a combined net gain of $600 million for 2025.
Steve Riney: Lastly, I would like to end with some additional color around our cost reduction initiatives. We are targeting 350 million dollars in annualized cost savings by the end of 2027.
Steve Riney: Our goal is not just to capture some quick hit opportunities to lower costs, although that is certainly a near term focus.
Steve Riney: Our goal is to right-size our entire cost structure to achieve a long-term, purposeful, and sustainable outcome.
Steve Riney: In the near term, this will naturally focus on efforts which are simply a matter of choice and discretion. Much of this is in our overhead cost structure and in day-to-day field operating practices.
Steve Riney: In the intermediate term, it will address our capital cost structure for things like drilling incompletions and facilities, as well as operating practices such as life of field resource management and field automation.
Steve Riney: For the longer term, it will address more deeply ingrained structures like IT systems and infrastructure and accounting applications and procedures.
Steve Riney: This is why we have set longer term targets out to 2027. Some of these things are happening quickly and others will take more time and effort.
Steve Riney: In 2025, our objective is to achieve run rate savings of $100 to $125 million by the end of this year. At this point, we anticipate an in-year capture of around $60 million of actual savings, which is something we hope to improve upon as we go through the year.
Steve Riney: Our cost reduction targets are an important effort for the entire organization and are therefore included in both our short-term and long-term incentive compensation programs.
Steve Riney: Already this year, we have made good progress on restructuring our organization, starting with the reduction in our officer count that John mentioned.
Steve Riney: This was followed by a greater than 10% reduction in our global overhead structure in February.
Steve Riney: The combined annual run rate savings with these two simplification steps is approximately $35 million per year of salaries and benefits.
Steve Riney: In closing, the ongoing enhancement in the quality and sustainability of our core portfolio combined with the right sizing of our cost structure will lay a foundation for growing free cash flow over the next three years.
Steve Riney: Suriname First Oil in 2028 will then carry that free cash flow growth into the next decade.
Steve Riney: Over that same time period, free cash flow per share increases even more significantly as a result of the share buybacks built into our capital returns framework.
Steve Riney: And with that, I will turn the call over to the operator for Q&A.
Speaker Change: Certainly. And ladies and gentlemen, we'd ask that you please limit yourself to one question and one follow-up. You may get back in the queue as time allows. And one moment for our first question.
Speaker Change: Our first question comes from the line of Doug Leggett from Wolf Research. Your question please.
Doug Leggett: Thanks. Good morning, everybody. John and Steve, I think looking at your share performance,
Speaker Change: Whether we take a 25 year to date, a 24, or a 23, something's clearly not clicking in terms of...
Speaker Change: You know, the $420 million of free cash flow in the fourth quarter, the $600 million of gas trading
Speaker Change: The cost cutting, it all adds up to big numbers, but yet your share price continues to, frankly, get decimated relative to your peer group.
Speaker Change: The guidance that is persistently getting missed and I'd like to ask you
Speaker Change: What confidence do you have through these cost-cutting measures that that control over your guidance and visibility is going to get better?
Speaker Change: Doug, I appreciate you jumping on, I appreciate the question. I think if you step back, number one...
Speaker Change: you know if you look at what we're doing on the cost structure side and you look at the portfolio
you know, over the last several years, we've really...
Speaker Change: transformed, you know, our two anchor assets, Permian and Egypt, into two businesses that we believe now, you know, have sustainable and durable inventory and a future with them, right? So, and if you look back over the last
Speaker Change: 7-8 quarters. We've actually done pretty well on hitting targets on the guidance.
Speaker Change: As far as the cost reductions, you know, you go back to the middle of last year.
Speaker Change: as we're, you know, we're always focused on the cost structure and what can we do to generate more free cash flow. Now that we've got two businesses that, quite frankly,
Speaker Change: You know, we don't feel like you need to grow with Suriname now coming on in 2028.
Speaker Change: We started looking at how do we moderate and put some, you know, sustainability and predictability in those, which is why you saw us ratchet the capital down in the back half of the year. We've now got programs in Egypt, the 12 rigs and Permian with eight that we feel like we can, you know, we can, you know, deliver.
Speaker Change: and it's all about cost structure. And so we started, you know, stepping back and looking at that, you know, hard and, you know, took a very deliberate approach.
Speaker Change: You know starting at the top of the organization. I think we've laid out. You know 350 million dollars over the next three years
Speaker Change: We're getting after it. You know, we've already got, you know, 35 of it kind of already identified and captured, and so I feel really confident that we set meaningful targets that we will deliver, and I think we've got the asset base in a place today where it will also deliver.
Speaker Change: I know it's a tricky one to answer, John. We're all going to have to watch what happens.
John Christmann: You know, you and I and Steve have talked about this often, but if I could kind of replay back to you a couple of things you said in your opening remarks about, you believe your stock is compelling value, you're going to return 60% of your...
Speaker Change: free cash flow to shareholders. Your yield is almost five percent.
Speaker Change: Your capital structure is getting close to 45% debt. I don't really care too much about the rating agency say about it your equity holders are
Speaker Change: You know, they're what's left after net debt. Why are you continuing to buy, prioritize share buybacks when you can easily confirm...
Speaker Change: transfer of value from debt to equity by paying down your debt because you've been buying black shares for three years and your share price is down 57%.
Speaker Change: I would say Doug we've also, I mean you look at the returns framework, we've also been buying back debt and I think we've made meaningful progress on both fronts and I think with the framework that we have in place today you know we will make progress on both fronts, both on the on the share side and the debt side.
Thank you.
Speaker Change: Yeah, Doug, I'd just say the same thing. We're working both sides of that and, you know, you have a $40 price target on us and, you know, with that kind of
Speaker Change: potential appreciation buying back shares is leveraging to our current shareholder base and a number of our shareholder base actually support the the buyback pretty heavily.
Speaker Change: I've got to defend myself very quickly. Let me just say one thing and I'll pass it on.
Speaker Change: That assumes a normalized discount rate Steve, which you're not going to get with this capital structure given the volatility in your business So if you don't fix the capital structure, your discount rate is not going to normalize That's kind of the thesis, but I'll leave it there. I appreciate you answering the questions. I know it's not easy But thanks for your time
Speaker Change: Thank you. Our next question comes from the line of Charles Meade from Johnson Rice. Your question please.
Charles Meade: Good morning John and Stephen and the rest of the APA team there.
Good morning, Charles.
Speaker Change: John, I want to ask a couple of questions about what's going on with the asset base and I guess the first one would be can you give us an update
John Christmann: on what's going on in Alaska, specifically with the Sockeye Exploration Well, where you are on the progress, what you've seen, and particularly...
Speaker Change: how that, I guess, interacts or have it in reference to the activity you guys did in the last drilling season.
Speaker Change: Yeah, what I would say, Charles, is I think the big difference is the operations are going extremely well and going very smoothly.
Speaker Change: You know, we are not in a position yet to comment on anything, as we're not into the...
Speaker Change: the pay zones yet, but I can tell you that things are on track and things are going extremely well operationally and it's been very smooth from that standpoint. So, you know, obviously we're anxious to see the results and, you know, they'll be forthcoming. So, so far so good.
Speaker Change: got it so just stay tuned there and then John going back to some of your prepared comments about the Permian specifically Howard County I think you said that that you guys have seen you're seeing better productivity in some zones and you're looking at some future
Speaker Change: downspacing. My understanding of Howard County, you know, of course it varies as you go from west to east but that
Speaker Change: and Howard to get to the same kind of EURs. But I wonder if you could talk about where in Howard County, what more specifically you're seeing with the higher productivity, whether it's just related to longer laterals, and perhaps if this is a different zone up or down the column where you're seeing these positive results.
Speaker Change: Charles, what I would just say is that you're starting to press the northern boundaries.
Speaker Change: You know, and we did space these a little wider, and quite frankly, the results have been fantastic. So, you know, we're excited about that. I don't want to comment too much, but we've got some offset acreage.
Speaker Change: So, there's some other ramifications there, but we're very pleased with the results. They've been fantastic, and like I said, we will be coming back, and fortunately, we're going to be able to space the wells on tighter spacing, but we'll come back with that, right? But we're very, very excited about the potential up there.
Okay, well stay tuned on that too. Thanks, John.
You bet, Charles.
Speaker Change: Thank you. And our next question comes from the line of Scott Hanold from RBC. Your question please.
Scott Hanold: Yeah, thanks. If we could stick with the permit for a minute. Could you talk through a couple things? One, I guess in your presentation deck you talked about delineating
Scott Hanold: some zones there. Can you just give a sense of exactly what you're looking at and how much capital you're allocating to that this year? And secondarily,
Scott Hanold: Just in your Permian guidance, it does seem a little softer than sort of initial indications during the third quarter conference call. Just help me square the circle on that.
Scott Hanold: Scott, I would just say in Permian now, we've got eight rigs, they're lined out pretty well. That's why we will come back. There are some areas, you know, as always is the case.
Scott Hanold: you're testing new zones and landing zones because we're always trying to build, you know, future inventory. So the tests up in Howard County were two of those, you know, later last year and, you know, we always sprinkle a few of those in. In terms of
Scott Hanold: The overall guide with Permian, we were looking high level as you looked at last year. You're coming off of us and Callan combined running 11 rigs. We ran those. We started to drop down in the third quarter. You've seen us now level off at 8 rigs.
Scott Hanold: Yeah, Scott, if I could maybe give a little bit more detail, and John was right, we weren't
Scott Hanold: Typically in the third quarter results, we give directional guidance. We weren't trying to give guidance for
Scott Hanold: for 2025 for the Permian but I understand why some people may have taken it that way. What we were basically saying is that
Scott Hanold: 2025 wasn't, since we had already come down to eight rigs by that time, 2025 was not going to...
Scott Hanold: look like the fourth quarter, it was going to look more like the third quarter.
Scott Hanold: but we were just kind of, we were trying to give some directional view on that as opposed to...
Scott Hanold: precise guidance, but if I think it for for you to be able to Understand what's going on in our in our Permian assets You kind of have to understand the pattern of activity and the volumes associated with that and John talked about it in the first half
Speaker Change: We were running 11 rigs and we were turning in line on average 17 wells per month. Some of that included a little bit of duck activity and some of it was drilling complete.
Speaker Change: In June we started dropping rigs. We dropped one in June, we dropped one in July. Pretty quickly we were down to eight rigs and by the time we got to the end of the year we'd finished the duck population and we'd gotten down to where we were turning in line 11 wells per month.
Speaker Change: And so, we came into the fourth quarter really at a peak of production volume, and if I talk about numbers that exclude our Central Basin platform that we sold on December 31st,
Speaker Change: And the exit rate in December, rather balanced between those two numbers, was 128. We exited at that. So that's the 134 average, which was the average for the fourth quarter.
Speaker Change: So the 128 was where we entered the first quarter. We've had some weather, kind of some uncharacteristic amount of weather downtime so far in the quarter. That brings us down to, you know, we believe our first quarter is probably going to average 125 to 127.
Speaker Change: With that, though, I think what we've gotten to is we've gotten to a base of production volume with the eight rigs running.
Speaker Change: for the most part since about September that we're at a base production volume that we believe is sustainable through the year, and that's why our average guidance for the year, for the full year, is 125 to 127,000 barrels a day as well.
Speaker Change: So hopefully that gives a little bit more of the color behind why that's the why that's the case.
Speaker Change: Yeah, no, I appreciate that. That's good color. I mean, a lot of tough questions you guys are answering today, but I think you guys, you know, know what you need to do.
Speaker Change: Let me turn my second question to Egypt. Obviously, you know, the gas opportunity is encouraging.
Speaker Change: And can you give us a sense of, when you look at your, I think it's 12 rigs you're going to be running this year there, how do you balance those between oil and gas, you know, gas drilling, and is that going to change? And maybe a little color round.
Speaker Change: you know what kind of infrastructure do you need to support you know the the growth that could occur over the next couple years in gas?
Speaker Change: Scott, we had you cut out when you said, how do you balance, I'm assuming, how do you balance the rig count?
Speaker Change: And then at the tail end, I heard you reference infrastructure. Can you just reframe that real quickly to make sure we answer the right question? Yeah.
Speaker Change: You know, what kind of infrastructure do you need to add to really get, you know, a lot more gas growth going forward if the returns are pretty strong under the new contract?
Speaker Change: Yeah, I'll step back, and number one, we're off to a really good start, and with the 12 rigs, we mentioned we picked up a rig in November, we dedicated that to gas, and we kind of went after some things that we knew were lower risk, that were high gas yields.
with also some liquids, some condensate.
Good.
Speaker Change: We've been able to drill a couple of really good wells.
Speaker Change: We've been able to bring them into the infrastructure, which is why we're running.
Speaker Change: you know, pretty strong on the gas side. We are because they're high pressure.
Speaker Change: We have backed out some lower pressure gas in some areas because of the infrastructure requirements right now.
but it's got us very confident in the gas program.
Speaker Change: and what you're likely to see us do is shift another rig or two.
Speaker Change: two gas this year, so we'll probably maintain the 12 rigs.
Speaker Change: but we could run, you know, two to three rigs on the gas program.
Speaker Change: And quite frankly, we're anxious to get to some of the exploration targets as well. But the first thing to do is let's go ahead and go after some of the targets that we know we can get online.
Speaker Change: get those flowing through. And that's why you're seeing the, you know, our kind of our average gas price starting to creep up as we're bringing on some of that new strong gas.
Speaker Change: The nice thing, you step back across the five million acres, we've got good infrastructure.
Speaker Change: At times, we've delivered, you know, this is the first time in a dozen years really where we've been able to start to flatten or bring our gas curve up.
So, there is infrastructure.
Speaker Change: But, you know, it's going to depend on what we find and how successful the program is.
Speaker Change: as to where we need to, you know, eliminate the, what I'll call bottlenecks for capacity or find ways to pipe the gas into areas where we can treat it.
Speaker Change: or if we do have to build new infrastructure. But in general, a good backbone of infrastructure, very promising results.
Speaker Change: And quite frankly, you know, we found a lot of gas in the western desert when we were looking for oil, so I'm really anxious to see as we start looking into some of the areas that we avoided because we knew they were gas rich, just what the capability would be.
Appreciate it. Thank you.
You bet.
Thank you.
Speaker Change: you and our next question comes from the line of Leo Marineri from Roth. Your question please.
Leo Marineri: I wanted to follow up a little bit more on Egypt, just wanted to get a sense of what the receivable situation is these days, have you started to see a little bit more substantial pay down of that and what's the outlook for that in 2025 in terms of getting some of your cash out?
Speaker Change: Yeah, Leo, we were just in Cairo and we're fortunate enough for the Egypt show. I did a keynote there and I was actually able to meet with the president. So, you know, if you go back and look over the last two years.
Speaker Change: The pass-due balance has been moving within a pretty tight band due to timing.
Speaker Change: And so, when you step back and look at it, they've been pretty much staying current on what they owe and the past due has not been...
you know, really growing or shrinking.
Speaker Change: But we do have, you know, reason to believe that we'll make some progress on that. They're committed to making some progress on that. And, you know, so I think we should see some progress made this year.
Speaker Change: Yeah, Leo, if I could just add one thing to that. In our supplement we have a number of non-gap reconciliations in the back and some people tend to look at those.
Speaker Change: for Working Capital Movements. It's not a pure Working Capital Movement analysis, but it's somewhat.
It's characteristic of working capital movements.
Speaker Change: and if you if you look at the Egypt portion of that non-gap reconciliation you might believe there was a big increase in receivables
Speaker Change: in the quarter. That is not correct. Receivables were basically flat in the quarter.
Speaker Change: what happened was we had a we had a an increase in drilling long leads so it's just inventory for the drilling program. That's the working capital movement in Egypt.
Speaker Change: Okay, appreciate that. I wanted to jump over to the purchased oil and gas sales here. You guys are guiding to $600 million in 2025. You obviously referenced, you know, strip prices.
Speaker Change: I was hoping maybe you could kind of give a little bit of a breakdown there in terms of roughly how much is from the Chenier contract versus how much is kind of from your domestic gas optimization business.
Thank you.
Yeah, no problem.
Permian Basin to the Gulf Coast was about 330 million.
Speaker Change: and the LNG contract was about $170 million for a total of $500 million.
for 24.
Speaker Change: Pretty similar ratio for 25 at this point, according to strip prices, and there's lots of strip prices you gotta
Speaker Change: You've got to watch in all of that, obviously. The $600,000 breaks down to about $400,000 on the gas trading around the pipeline contracts and about $200,000,000 on the Chenier LNG contract.
Okay, thank you.
Speaker Change: Thank you. And our next question comes from the line of Betty Jiang from Barclays. Your question, please.
Speaker Change: Hello, good morning. I want to go back and talk about the cost-cutting initiative because that's really a big part of the free cash flow extension for the next few years.
Speaker Change: I just want to understand, is there anything structurally changing how the organization is being run?
Speaker Change: or the milestones that's being set to just give us a bit of comfort around your ability to hit on these targets, like how much the breakdown between capital cost savings versus operating GNA savings.
Speaker Change: and maybe just give us a bit more color on how you are thinking about executing on those targets.
Speaker Change: Yeah, I'd say, Betty, if you step back and you look at, you know, our three buckets, the biggest bucket is obviously going to be the capital.
Speaker Change: The next one's going to be the LOE, and then the next one's going to be the GNA. And when you look at...
Speaker Change: immediate impact that you can address, it's kind of in the reverse order, which you can address the the DNA, first and foremost. And so there's a lot of confidence in those numbers, we've already gotten off to a pretty darn good start.
As we mentioned, in early January, we reduced the officer...
count by one-third. We followed that on here recently.
Speaker Change: with some of the support staff, you know, as well. So I think the GNA piece is one that we're getting on to. And then some of the other ones take more time as you really get into how are we running the business, how are we, you know, leveraging synergies.
Speaker Change: and how are you driving the cost out? And some of that's with.
Speaker Change: changes in technology and things that are taking place, you know, as you're seeing across corporate America today.
Speaker Change: you know with this data and infrastructure and software we spend a lot of money on those types of things and so
Speaker Change: I mean, it takes a little bit longer on some of those.
Speaker Change: and then the efficiencies on the capital program are the ones that also take a little bit of time but I you know we're dead set on you know on the benchmarking side and what do we need to do to drive us up into top quartile you know on the cost performance.
Speaker Change: Yeah, and Betty, if I could just add a few things to that, you know, where did the $350 million target come from? I would emphasize it's at least $350 million. And as John alluded to, it did come from some fairly rigorous
Speaker Change: both internal and external benchmarking efforts. So we didn't just make the number up, it's actually got some science behind it.
Speaker Change: and we do believe it is something that we should be able to attain at least.
Speaker Change: but some of that is going to take longer than just a year, and that's why we've set this up as a three-year program. We are not, at this point, providing a breakdown of that between capital and LOE and GNA, but as John said, by the time we get to the end of the three-year period,
Speaker Change: Most of it's going to come from capital, and then LOE and GNA will probably be competing for second and third, probably somewhat similar amounts. We do believe that $350 million is probably on the conservative end, but we're going to be talking about this.
Speaker Change: pretty much every quarter now for the next three years as we go through this process. So there's still a lot to unfold here and we'll give more and more detail as we go through quarter after quarter, especially during 2025.
That's great. I'll look forward to that.
those metrics. My follow-up will be on the
Speaker Change: inventory duration that you see in the Permian as you start fully incorporating the Calen assets.
Speaker Change: What is your current assessment of your years of involuntary life in both the Delaware and Midland today? Like how many years do you have of similar quality development if you continue at the current eight week pace?
Speaker Change: Yeah, Betty, if we look at that today, we're confident we can see through 2029, right into the next decade.
Speaker Change: And I think the track record, and quite frankly, there's still a lot of stuff to characterize that we're working through.
Speaker Change: You know, we're confident that, you know, each year we tend to add more locations and we drill, and that's something that we're working on, and, you know, you're starting to see a lot of the stuff, results come in on Cowan, which have been good, and so we're confident that we'll continue to add to that, as is always the case.
Speaker Change: But we've got really, really good visibility, you know, to the end of this decade with the program that we're running today.
Speaker Change: Yeah, again, if I could just add a bit to that, you know, the reason why John alluded to 2029 is on the free cash flow per share chart that we provided in the supplement.
Speaker Change: and basically what we've got embedded in the assumptions underneath that growing free cash flow per share is that Permian roughly holds flat.
Speaker Change: through that time period, and we're very confident we can do that and probably beyond 2029.
Speaker Change: We still have a lot of work to do on the on the Kellan acreage and for that matter on our own acreage and getting fully characterized.
Speaker Change: all of the acreage that we have and all of the potential landing zones. So, and we know that the market is wanting to hear more about that. We're working on that. Still...
Speaker Change: Still kind of fully digesting the Cowan acquisition in that regard and we'll come back probably later this year with a more detailed look at our
Speaker Change: our full view of what our portfolio looks like and inventory looks like in the Permian and how long that will last, but we're confident certainly beyond the it'll last beyond the range of that free cash flow chart.
Great, look forward to that. Thank you.
Speaker Change: Thank you and as a reminder ladies and gentlemen if you do have a question at this time please press star 1 1 on your telephone and our next question comes from the line of Bertrand Dons from Truist. Your question please.
Bertrand Dons: Hey, morning guys. Just following up on slide four. Assuming you keep the 60% shareholder return program in place, which I believe is the plan, it looks like this could result in, you know, repurchasing a substantial portion of the shares. Just want to understand how we should think about that.
Bertrand Dons: you know that level of growing free cash flow versus the probably the natural desire to to maybe increase activity a little bit or look externally to grow through you know acquisition just how do you balance those two? Thanks.
Bertrand Dons: Yeah, so maybe I just take this opportunity to go through a number of the underlying assumptions on that free cash flow per share chart, because I think they're important. It does assume that we capture and sustain 350 million of cost reductions.
and, frankly, 2025 and through to 2027.
Bertrand Dons: Free cash flow per share is driven primarily through that 350 million of cost reductions. It is after tax cost reductions.
and then obviously 2028 begins.
Suriname Block 58 Production Volumes.
Bertrand Dons: As I indicated, Permian volumes are held relatively flat through that five-year time frame. Egypt, though, is actually on decline, similar to what we saw in 2024 and similar to what we're
we're giving guidance to for 2025, and actually...
Bertrand Dons: It does not include, the Egypt production volumes in that do not include any of what we're seeing on the gas side right now because that's kind of fresh.
pretty fresh data.
Bertrand Dons: It includes all ARO and DCOM spend. It includes exploration spend. As is clear on the chart, we assume $300 million per year annually for the third-party trading activity and the Chenier contract.
to get to the answer on your question.
The underlying assumptions in there are that we would...
Bertrand Dons: In that five-year period, we would pay down $2.2 billion of debt.
Bertrand Dons: That's just the, that's the term loan that's existing now, anything on the revolver.
Bertrand Dons: and it includes bond debt that is maturing during that time frame.
Bertrand Dons: It would include $1.7 billion in dividends during that time frame, and it would include share buybacks of around 52 million shares. We have a price...
Bertrand Dons: with the free cash flow increasing over time, those 52 million shares are bought back at an average price over the five years of $33.65. So that's about 1.75 billion of share buybacks during the five-year period.
Speaker Change: That's helpful. I guess more to the question is, you know, if you're staring down, you know, this kind of free cash flow and if you don't see a price response in the shares, do you continue to buy back shares or do you shift your strategy towards, you know, either production growth or external growth through acquisition?
Speaker Change: I mean that today you're going to continue to buy back stock and you know as we believe in the asset base and you look at what's coming on in the free cash flow so you know I think you you continue to invest in in yourself under those circumstances
Speaker Change: Understood. And then just shifting gears, I appreciate the ARO disclosure for about $100 million this year. Just wondering if you could walk us through how that changes over time, maybe ARO and decommissioning costs over the next few years, just directionally, if that's all you can share. Thanks.
Yeah, so...
So the hundred million of ARO this year is...
Speaker Change: it's broken down it's it's about 40 million in legacy Gulf of America abandonment
Speaker Change: It's about 30 million of North Sea and it's about 30 million of onshore U.S. That's the hundred. And then in addition to that, we'll spend about $70 million this year on fieldwood decom.
Speaker Change: I expect, other than the North Sea, I expect most of those to stay relatively flat. You'll spike from time to time just based on activities, but I think the North Sea will grow over time. We've talked about the profile of that.
Speaker Change: I think we talked about that extensively on the third quarter call, and so the North Sea will grow and others will stay relatively flat here for the next four or five years.
Thanks, guys.
Thank you. Bye.
Speaker Change: Thank you. And our next question comes from the line of David Dekelbaum from TD Cowan. Your question please.
Thanks for taking my questions, guys.
David Dekelbaum: I just wanted to follow up just on, I appreciate it, I just wanted to follow up just for clarification on the Egypt gas agreement, just to confirm, this pertains to new drilling activity and I'm just wanting to get a sense of, you know, the comparative economics that you see relative to oil opportunities there and how long the duration of this contract is for.
Now, it is on new gas.
and it's set up, David, to...
David Dekelbaum: where it's on par, right? We put gas on par with oil and that's why we're comfortable shifting the rigs. And, you know, quite frankly, Egypt's short gas.
David Dekelbaum: We've been on decline on the gas side and so it truly is a win-win and you're seeing that impact. So it puts gas on par with oil, it's on incremental gas above an agreed decline curve.
David Dekelbaum: and, you know, you're seeing the impacts of that new gas, you know, come into our weighted average price.
David Dekelbaum: It has built into it the anticipated costs of any infrastructure build-out that we might need to do if we were to be meaningfully successful in the gas exploration program.
David Dekelbaum: I guess it's still like I guess my follow-up is just to confirm I know in the past we've looked at sort of logistical constraints in Egypt around you know kind of be getting beyond the current rig count.
David Dekelbaum: So should we think of this like overall as the top line recount and that you'll just be allocating between guests and oil opportunities here?
David Dekelbaum: I mean I don't think so. I think we're in a good place today where we've been able to work the, you know, the work over projects and recompletions down to kind of a steady state.
David Dekelbaum: You know, with the 12 rigs we're running today and the 20 work-over rigs, we're in a pretty darn good place. That's not the constraint here would be top-line rig count. It's really just going to be getting to the opportunities.
and initially what we can do with the infrastructure, right?
David Dekelbaum: What we need to do is do exactly what we're doing. Bring on the low-hanging fruit, which we're going after.
David Dekelbaum: and then we need to get some of the nicer prospects drilled which would give us some clues into what we want to do on the infrastructure in the future.
Thanks, John.
Speaker Change: Thank you. And our final question for today comes from the line of Neil Mehta from Goldman Sachs. Your question please.
Neil Mehta: Yeah, good morning, John and team. I just want to spend some time on
Neil Mehta: Suriname, I guess this year is more about securing some long lead time items and recognizing the operator probably has a little bit more color here, but what are you focused on, John, in terms of the milestones at that development for 2025 specifically?
Neil Mehta: No, I mean, I think we're off to a good start. As we said, capital first quarter is a little heavy, you know, just because of some of the long leads that we've already.
Neil Mehta: purchased some of the things with the FPSO and things, so...
Neil Mehta: We're tracking things well. Total is doing a fantastic job. We're digging in on the development plan and those things and continuing to look at the block's future potential in terms of exploration and those things.
Neil Mehta: In general, it's going to be a year of good progress, and I'd say Total's off to a really good start and doing an excellent job.
Neil Mehta: John, on the Permian, you've talked about a pretty flattish profile in terms of the production here. Is there a scenario where you could accelerate production in that time horizon? Do you feel like you have the inventory depth to do it, or do you want to run this business plateau?
Neil Mehta: I mean, you know, Neil, there's no doubt, I mean, we, if you look at what we were doing last year with 11 rigs.
It was at a much, much higher rate.
Neil Mehta: And we feel like, you know, ratcheting down, running this at eight, we can run it relatively flat, which is the plan for, you know, you know, for more than just, you know, 2025.
Neil Mehta: And so it puts us in a pretty good spot, and that's why we've kind of ratcheted down to this level. Clearly, there's inventory.
Neil Mehta: that you could ramp up, but quite frankly we want to get in here and get into execution mode and deliver where we can drive some of the cost efficiencies out of the cost curve and really improve the free cash flow while running it flat.
Speaker Change: Yeah, if I could just add a bit to that, the
Speaker Change: The thing that we talked about last year, probably on the third quarter call, was that
have strategically
Speaker Change: We have a differentiated strategy around exploration, and with that type of a strategy and the investment that it requires,
Speaker Change: the You don't need to be growing the base production volume in the Permian or in the in Egypt
Speaker Change: If you're successful on the exploration side, the exploration provides the growth for the future.
Speaker Change: We just have this period of time, 25 to 27 now, that...
Speaker Change: seems to be, if we're producing flat from our core foundational portfolio,
Speaker Change: then our free cash flow is going to be flat for three years and that's part of the impetus around the cost initiative was to get that free cash flow per share moving up during that time frame as opposed to just waiting for Suriname growth to come across the hill in 2028.
Speaker Change: Yeah, that makes sense and then driving your share count down in the process.
us.
Thank you.
Speaker Change: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to John Christmann, CEO, for any further remarks.
John Christmann: Thank you. Over the last several years we have transformed the portfolio by building sustainability and duration in our two foundational assets, the Permian and Egypt.
John Christmann: This will be complemented by our world-class development in Suriname with first oil expected in 2028. We have set meaningful cost reduction targets we are confident we can deliver and see the potential to exceed these targets over time.
John Christmann: This puts us on a path for substantial free cash flow growth in both the near and long term. With that, I will turn it back to the operator.
John Christmann: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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