Q1 2025 APA Corp Earnings Call
Good day, Thank you for standing by welcome to the a P. A corporation's first quarter 2000, and twenty-five 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 on your telephone you will then hear an automated message advising.
Speaker Change: 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, Ben Rodgers Senior Vice President of Finance and Treasurer. Please go ahead.
Speaker Change: Good morning, and thank you for joining us on API Corporation's first quarter 2025 financial and operational results conference call.
Speaker Change: We will begin the call with an overview by CEO, John Christmann, Steve Riney, President and CFO will then provide further color on our results and outlook.
Speaker Change: Tracy Henderson Executive Vice President of exploration is also on the call and available to answer questions. We.
Speaker Change: We will start with prepared remarks, and allocate the remainder of time for Q&A.
Speaker Change: Junction 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 Dot Corp Dot 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 Noncontrolling 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. However, a number of factors could cause actual results to differ materially from what we discuss on today's call are.
Speaker Change: A full disclaimer is located with the supplemental information on our website.
John Christmann: And with that I will turn the call over to John.
John Christmann: Good morning, and thank you for joining us.
Speaker Change: Today, I will provide an overview of our first quarter results.
Speaker Change: Share an update on our cost reduction initiatives and provide details on how significant improvements in operating performance or allowing us to protect our free cash flow outlook. Despite the current commodity price volatility.
Speaker Change: We delivered strong first quarter results with inline production at lower capital investment relative to guidance.
Speaker Change: In the Permian oil production was within our guidance range. Despite a 1000 barrel per day, a larger impact from third party and weather related downtime that was anticipated when we gave guidance.
Speaker Change: Capital came in below guidance, largely due to significant improvements in drilling performance.
Speaker Change: In Egypt, we are highly encouraged by the prospectively for natural gas.
Speaker Change: First quarter gas production exceeded guidance due to outperformance from our recent development program, along with continued efforts to optimize existing infrastructure. Despite.
Despite shifting activity to gas oil drilling is progressing well and we continue to see positive results from our waterflood implementation programs, where we see additional running room with very favorable returns.
Speaker Change: In the North Sea volumes were ahead of guidance, primarily driven by strong operational efficiency at barrel.
Speaker Change: On the exploration front, we announced our second discovery Sakai too and the Brushy and play across our 325000 acre footprint.
Speaker Change: The King Street, one discovery in 2024, initially confirmed a working hydrocarbon system approximately 90 miles east of the Pico development with high quality pay in two separate hydrocarbon zones.
Speaker Change: Earlier this year, the Sakai to well encountered 25 feet of net oil pay with an API oil gravity of approximately 28 degrees and a <unk> of 720 across one consistent sand package with seismic amplitude supporting the stratigraphic feature across 25000 to 30.
Speaker Change: Acres.
Speaker Change: We subsequently conducted the flow test that confirmed anticipated rock properties much better than regional analogs.
Speaker Change: <unk>, an average permeability of 100 to 125 milligram <unk> and a 20% prosody.
Speaker Change: Nicole evaluation is underway to determine next steps for both the exploration and appraisal programs.
Speaker Change: I will turn now to our cost reduction initiatives, where we are making significant strides commensurate with our simplified portfolio. We are committed to sustainably, reducing our controllable spend across capital low at overhead or.
Speaker Change: Our overall progress on these initiatives has been impressive giving us the confidence to increase both our 2025 targets for realized savings to $130 million.
Speaker Change: And the annualized run rate savings by the end of the year to $225 million.
Speaker Change: Of note capital efficiencies are getting captured much faster than we expected.
Speaker Change: Permian drilling efficiencies are the largest driver of capital savings. We are also making good progress on both completions and facilities overall, our objective is to achieve top quartile operational performance in the Permian and we're confident we're on track to deliver that in Egypt. We are also seeing say.
Speaker Change: <unk> and drilling costs, driven by continued refinement of our operating practices.
Speaker Change: Moving to low.
Speaker Change: In the Permian, while we continue pursuing near term opportunities to reduce certain operating costs, we are experiencing upward pressure on other cost areas in the short term.
Speaker Change: Material savings will come from structural changes to how we operate including such items as water handling compression and power procurement.
Speaker Change: We see opportunities for substantial long term reductions in these costs, but achieving them will require extended execution time frames.
Speaker Change: On the international front, we have lowered Egypt operating costs through efforts like accelerating diesel reduction projects and optimizing equipment rentals and in the North Sea rationalized offshore activity as we transitioned to late life operations.
Speaker Change: On the G&A front, we are accelerating the capture of cost reductions, which is also contributing to our increased savings targets for 2025.
Speaker Change: These savings not only come from streamlining our organization, but are also realized in multiple areas of discretionary third party spend.
Speaker Change: This momentum is expected to continue through the year and is proving to be sustainable as we simplify how we manage our assets.
Speaker Change: As we continue to right size, our organizational structure and work processes to better align with our current portfolio. We are further refining our operating model and leadership structure.
Speaker Change: One other things I would like to personally congratulate bed Rogers on being named Chief Financial Officer effective next week.
Speaker Change: Many of you on the call have had the opportunity to interact with Ben over the past few years and I am eager to work more closely with him as the new head of our finance pillar with a continued focus on managing our cost structure.
Speaker Change: In the same spirit I would like to thank Steve and acknowledge his invaluable contributions and thought leadership over financial and strategic matters through the years I look forward to his continued contributions as he brings the same rigor and focus to our operations and development organizations, where his impact is already.
Speaker Change: Made a difference since his promotion to president last year.
Speaker Change: Before discussing our updated 2025 outlook, let me comment on the asset sale, we announced in our press release yesterday.
Speaker Change: Subsequent to the first quarter, we signed an agreement to monetize our new Mexico Permian properties for $608 million. These assets, which contributed approximately 5000 barrels per day of oil production during the first quarter represent less than 5% of both our Permian oil production and unconventional.
Speaker Change: <unk> position.
Speaker Change: We intend to allocate most of the proceeds from this divestiture toward debt reduction.
Speaker Change: This sale fits with the continued streamlining of our portfolio and reflects a full exit from the Mexico, allowing us to focus solely on the Texas side of the basin.
Speaker Change: The transaction is expected to close late in the second quarter.
Speaker Change: In keeping with prior practice our forward guidance at this time continues to include these assets and will be adjusted post close.
Speaker Change: Turning now to our revised outlook for the remainder of the year, let me start by emphasizing the rapidly improving drilling efficiency, we are seeing in the Permian as.
Speaker Change: As we progress the integration of Cowen we've reduced activity to eight drilling rigs late last year to sustain flat oil volumes in the Permian given the confidence in the operating efficiency gains. We can now hold oil volumes sustainably flat beyond 2025 was six five rigs anticipated.
Speaker Change: Continued efficiency improvements we are in the process of reducing to six rigs by the end of this quarter and will reduce activity further if oil prices continue to deteriorate.
Speaker Change: We are also adjusting our frac fleets and completion schedule to better align with the lower rig count going forward. This will result in several wells for 2025 being turned in line later than originally planned, but we still expect to deliver oil volumes within our guidance range of 125000 to 127.
Speaker Change: <unk> thousand barrels per day.
Speaker Change: The combination of changes in completion timing and significant capital efficiency gains in the Permian is driving the bulk of our $150 million reduction in development capital guidance for the year.
Speaker Change: In Egypt with the success of the gas program and the softness of oil prices, we have shifted rig activity to be approximately one third gas focus.
Speaker Change: Our second quarter guidance contemplates continued growth to 470 million cubic feet per day gross gas volumes and we anticipate ongoing strong performance in the second half of the year.
Speaker Change: Commensurate with this outlook, we expect our average realized gas price to continue to increase through the fourth quarter and into next year.
Speaker Change: This highlights how Egypt enhances the diversity of our portfolio and our capital allocation Optionality.
Speaker Change: The new gas price agreement has brought gas focused development and the economic parity with oil drilling at mid cycle, Brent prices, making gas opportunities at today's oil strip more attractive on a relative basis.
Speaker Change: In addition, the production sharing contract in Egypt provides downside protection through the cost recovery mechanism, a natural hedge against lower Brent oil prices.
Speaker Change: In closing, we are making substantial progress on our cost initiatives, particularly in Permian well costs and our overhead cost structure. This is allowed us to more than double our controllable spend savings targets for the year and reduce the capital intensity required to sustain longer term production volumes together these protect.
Speaker Change: Free cash flow in a volatile oil price environment, we will continue to balance the goals of sustaining and growing our business with returns to shareholders and further balance sheet strengthening our.
Speaker Change: Our focus on cost reductions and capital efficiency for the near term will underpin free cash flow through 2027 ahead of Suriname first oil in 2028, which will significantly accelerate further growth. We believe that the result in free cash flow growth profile, coupled with our high quality exploration.
Speaker Change: <unk> portfolio is differentiated from many of our peers and will drive growth and long term shareholder value.
Steve Riney: And with that I will turn the call over to Steve.
Steve Riney: Thank you John.
Steve Riney: I will begin my remarks, with an overview of our first quarter results and then provide further commentary on our cost reduction initiatives and our updated plans for the rest of this year.
Steve Riney: For the first quarter under generally accepted accounting principles HPA reported consolidated net income of $347 million or <unk> 96 per diluted common share.
Steve Riney: As usual. These results include items that are outside of core earnings. The most significant of which was a $111 million after tax gain on the extinguishment of debt and a $76 million charge to increase our deferred tax liability in the U K due to the <unk>.
Steve Riney: This recent increase in the energy profits lending.
Steve Riney: Excluding these and other smaller items adjusted net income for the first quarter was $385 million.
Steve Riney: $1 <unk> per share.
Steve Riney: Let me start my comments on first quarter highlights with a couple of items from Egypt.
Steve Riney: I want to specifically recognize the significant progress that the Egyptian government has made towards normalizing our past due receivables.
Steve Riney: <unk> generated $126 million of free cash flow in the first quarter.
Steve Riney: This does not include the progress we've made on past due balances during the quarter and that progress has now continued into the second quarter.
Steve Riney: Today, our past due balances in Egypt are the lowest they've been since the end of 2022.
Steve Riney: Also in Egypt gas development is going very well and increasing production volumes have led to an average realized gas price of $3 19 in the quarter exceeding our guidance of $3 15.
Steve Riney: This is up from our fourth quarter average of $2 97.
Steve Riney: The combined benefit of substantial recent progress on payments and the new gas pricing agreement have been critical factors in a decision to maintain our planned activity levels into Egypt, albeit with a shift to more gas focused drilling.
Steve Riney: First quarter upstream capital came in quite a bit below guidance. Despite some accelerated spend in Suriname.
Steve Riney: This was a direct result of the outstanding operational results delivered by our Permian drilling teams, we're drilling efficiencies have seen step change improvements compared to 2024.
Steve Riney: Let me now turn to progress on our cost reduction efforts.
Steve Riney: As a reminder, our efforts to rationalize our cost structure began almost a year ago with a primary objective to drive sustainable cost savings for the long term.
Steve Riney: When we spoke about these initiatives on the February earnings call. We did not provide a breakdown of targeted savings between the various cost categories.
Steve Riney: We knew that overhead would be the largest initial contributor because that was the logical first target.
Steve Riney: However, we expected capital would be the largest contributor in the long term.
Steve Riney: Given the progress achieved through Permian drilling efficiencies savings on capital will now provide the vast majority of our controllable spend reductions this year.
Steve Riney: Since the beginning of the year, we have captured an impressive $800000 in cost savings per well in the Permian.
Steve Riney: And we still see additional room for improvement going forward.
Steve Riney: We've made significant improvements, including slim hole drilling modifying casing string designs and utilizing fit for purpose directional tools that have considerably shortened our drilling durations looking.
Steve Riney: Looking ahead to the rest of the year, we see additional improvements that are expected to drive further momentum into 2026.
Steve Riney: Completions and facilities costs also represent large reduction opportunities for us and we are beginning to see progress as we continue to optimize economic resource recovery a number of development patterns will shift toward a combination of denser well spacing per DSW with smaller fracs.
Steve Riney: Leading to additional drilling cost savings due to fewer rig moves as well as lower completion costs due to the smaller frac loading.
Steve Riney: On the facility side through 2023, and 2024 and into 2025, we built a number of new facilities in areas, where drilling activity is going to be growing for.
Steve Riney: For the remainder of this year and into 2026, we will be much more dependent on brownfield modifications instead of new builds resulting in additional capital savings relative to the recent past.
Steve Riney: On LOE as John mentioned, our original targets contemplate it in an aggregate level of cost reduction that is proving challenging to achieve.
Steve Riney: While we are making good progress in some areas. We're also seeing some underlying pressure and others.
This includes items like compression and water disposal, where we have experienced some inflationary pressures.
Steve Riney: As a result, we expect more meaningful progress on LOE savings will likely come later this year and beyond.
Steve Riney: Finally on overhead costs, while our initial focus centered primarily on head count rationalization.
Steve Riney: We are now also looking to streamline some of our more complex workflows.
Steve Riney: In particular, we are eliminating lower value activities, standardizing and simplifying routine work processes.
Expanding the use of more efficient technologies.
Steve Riney: Broadening leadership spans of control.
Steve Riney: While some of these efforts will take more time to implement we are.
Steve Riney: Progressing faster than previously anticipated, which is also contributing to our increased 2025 savings targets.
Speaker Change: Moving now to our outlook for this year, John touched on a number of topics related to our forward outlook. So I will comment on a few other items.
Speaker Change: The progress we have made on reducing controllable spending capital and overhead more than doubles, our expected realized cost savings in 2025, despite increases in low <unk>.
Speaker Change: We've updated our guidance to reflect these changes while purposefully segregating activity reductions deferrals and other items, excluding them from our accounting for savings on controllable spend.
Speaker Change: While these types of items will support free cash flow in 2025, we want to clearly distinguish sustainable reductions from timing related differences for the year. Please.
Speaker Change: Please refer to our supplement for further details.
Speaker Change: In Egypt with over a third of this year's activity geared towards gas, we expect gross gas volumes to continue growing from first quarter levels.
Speaker Change: Despite some planned downtime due to plant maintenance, we expect gross gas volumes in the fourth quarter to be the highest of the year and we anticipate exiting the year around 500 million cubic feet per day.
Speaker Change: Gas price realizations will steadily increase in line with this trajectory from approximately $3 40.
Speaker Change: In the second quarter to $3 80 in the fourth quarter, putting us at the upper end of our prior guidance of $3 40 to $3 50.
Speaker Change: Per mcf for the full year.
Speaker Change: Turning now to use gas marketing part of our business that has proven particularly profitable for us over the last few years.
Speaker Change: As a reminder, apa's sells all Permian gas production in basin and holds approximately 750 million Btu a day of firm capacity on various gas pipelines every.
Speaker Change: Every day, we buy gas at Wahaha and transport that gas to the Gulf Coast, where it is sold at various price points.
Speaker Change: Based on current Wahaha differentials. This is a very profitable activity.
Speaker Change: Income generated from our firm capacity contracts, along with our LNG sales contract with Cheniere.
Speaker Change: Reflected in our guidance and financials as purchased oil and gas sales and costs.
Speaker Change: <unk> has entered into basis swap agreements for the second through fourth quarters of 2025 on roughly two thirds of our firm transport capacity, including actual profits in the first quarter. This locked in approximately $450 million of income for the year.
Speaker Change: Our 2025 guidance for income from third party oil and gas marketing has been updated to $575 million inclusive of these basis hedges.
Lastly, I would like to quickly touch on some changes we have made to our upstream capital and free cash flow definition around the treatment of arrow and leasehold acquisitions.
Speaker Change: Previously cash <unk> expense and leasehold acquisitions were included in our definition of upstream capital.
Speaker Change: Starting in 2025, we have removed both aro and leasehold from upstream capital and are now, including these as individual line items and a reconciliation to free cash flow.
Speaker Change: Note that these changes have no impact on how we report free cash flow and.
Speaker Change: And we have provided the new definitions along with a reconciliation of the changes in our supplement please.
Speaker Change: Please reach out to our IR team if you require any clarification.
Speaker Change: And with that I will turn the call over to the operator for Q&A.
Speaker Change: Sir.
Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please limit yourselves to one question and one follow up please standby, while we compile our Q&A roster.
Operator: Our first question will be coming from John Freeman of Raymond James John Your line is open.
John Freeman: Thanks, I wanted to dig in a little bit more to the cost savings achieved already on our controllable spend.
John Freeman: The original guidance you all gave last quarter.
John Freeman: Getting one of the $3 7 billion or $350 million run rate savings by the year end 2007.
John Freeman: Given the fact that.
John Freeman: Basically doubled what you thought youre going to achieve this year do we just think of it is that original sort of timeline that you also last quarter. It just got pulled forward, but youre not necessarily increasing the obsolete target of $350 million run rate savings by year end 2007.
John Freeman: Having achieved quicker, but is there any thought of that number potentially moving higher.
John Freeman: Yeah, John you're exactly right I mean at this point.
John Freeman: We are way ahead of schedule, obviously now we've gone from 125 at year end on a run rate basis to $2 25, So we're well on our way.
John Freeman: I do anticipate that number will get raised at a later date, but today, that's we're going to leave that intact and keep working away. The other thing of note is if you look at in year savings, we have gone from $60 million and year to now a $130 million in year.
John Freeman: So we're we're making really really good progress and I do anticipate at some point in the future Youll see that $3 50 number go up but today, we're going to leave it intact.
Speaker Change: Understood and then my follow up question.
Speaker Change: In the Permian, where you talked about being able to now go from what used to be eight rigs needed seemed to hold production.
Speaker Change: Production flat you can now do with six rigs Im sorry, with six five range with yours plan to go down to six rigs in.
Speaker Change: I think that's likely lasting knowledge.
Speaker Change: You basically can't hold production flat at that level or you think that.
Speaker Change: At some point later this year, you're going to have additional efficiency gains in that six five now becomes six to halt production a little.
Speaker Change: More color on that.
Speaker Change: Yes, that's exactly where we are we came into the year with eight rigs.
Speaker Change: Today, we think we can hold the 125 to 127000 barrels a day in the Permian.
Speaker Change: That was six and a half, but we're seeing signs of further efficiencies, which is why we're confident we can go ahead and dropped two rigs.
Speaker Change: Go on down to six which we believe will hold it flat and quite frankly, we think we can do so well and the 2026.
John Christmann: That's great. Thanks, John appreciate it.
Speaker Change: Thank you. Thank you.
Speaker Change: And our next question will be coming from Doug Leggate of Wolfe Research. Your line is open Doug.
Speaker Change: Okay.
Speaker Change: Thank you guys.
Speaker Change: Sorry, John to pound on this topic.
Speaker Change: John just to survive, but I'm just wondering when we think about.
Speaker Change: The pace of the cost delivery that youre, not especially the capital side of it.
Speaker Change: Why did you originally assumed when you gave us the 350 and.
Speaker Change: In terms of rig cadence.
Speaker Change: I guess the $100000 per well you talked about I mean, what are those in your original 350 numbers or is this a moving target.
Speaker Change: Got a few formidable youre not willing to give us a new number today what was embedded the non original target versus what you've done so far as quickly as you've done it.
Speaker Change: Yes, I mean, I'd say, we set aggressive targets. The 125 that we plan to capture by year end, we've set some aggressive targets and you saw that in in the low numbers.
Speaker Change: Obviously, the overhead was a piece we said the capital was the biggest piece, but we thought that would come later.
Speaker Change: It's coming earlier, so we knew we could drive cost down so I would say.
Speaker Change: Those savings were in that $3 50.
But they are just coming faster and.
Speaker Change: And we think theres more to do.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: <unk>.
Speaker Change: My follow up is I wanted to take advantage of Tracy being on the call.
Speaker Change: Ask a question about Alaska.
Speaker Change: I know, it's very early days, but.
Speaker Change: You've got a couple of wells.
Speaker Change: Fairly well up there fairly well apart on some pretty good analogs. If you look at P. Cal flow rates from global wind up essentially tested.
Speaker Change: Those wells is understandable fractured yours was not so can you offer any insight as to what youre thinking in terms of resource size and if I can add the part B. This is a bit of an obtuse one.
Speaker Change: I think there's a concern that okay. Here. We go we've got another major capital development Apache is 50% of how would you plan on funding it would.
Would you ever consider monetizing part of Suriname to fund Alaska.
Speaker Change: Okay.
Speaker Change: Doug if you step back we've got a 300 and I'll, let <unk> chime in in a couple of minutes, but we got 325000 acres.
Speaker Change: State lands with the King Street Discovery last year. It did two things it prove we had high quality reservoir Sands 90 miles east of Pico.
Speaker Change: We went back to Sakai this year, because we had the best seismic image over there it is not the largest.
Speaker Change: Feature by by any means but it was the one we felt pretty confident would test geologic geophysical model and as well as.
Speaker Change: The whole acreage position.
Speaker Change: Obviously, it came in but I'd say the surprise in there.
Speaker Change: The quality of the reservoir sands, which are actually better.
Speaker Change: Unexpected so it's a material discovery, it's high quality oil low <unk> 720, but its one continuous packages sand, 20% porosity, but the big kicker and here is the permeability.
It was $100 million to $125 million, CS, which is quite a bit better.
Speaker Change: Then the developments that are taking place I think the thing you look at now.
Speaker Change: A big portion of our acreage we are in the process of reprocessing that seismic.
And quite frankly, the largest prospect sits on the area. We are reprocessing. So we're not going to be going at this hard on the capital side, we are going to be really smart about how we appraise and quite frankly, what we would drill next on the exploration side.
Speaker Change: But if you look at timing on your second part B question Youll look at timing on Suriname, Youre going to have sort of coming on well before you would have meaningful capital spend here. So.
Speaker Change: Tracy you can jump in on the reservoir quality, a little bit more about it geologically.
Tracy Henderson: Sure John Thanks.
Speaker Change: One of the things. We're most encouraged by really is the reservoir quality as John mentioned and where we know we have something to work with our permit permeability are easily two to four times better than analog field to the west and Thats critical for how we go about developing fields. So our focus right now is on reprocessing the data as John.
Speaker Change: But also developing an appraisal strategy, which will include things like number of.
Speaker Change: Well development scenarios.
Speaker Change: You saw in the press release, the well flowed 'twenty 700 barrels a day on stimulated and that was limited by <unk>. So we'll be looking at things like potential for waterflood, which is a possibility given the reservoir quality that we have horizontal wells those will all be things that we need to think about and what development scenarios will look like so we've got a lot to.
Speaker Change: Due to frame the path forward.
Speaker Change: The appraisal program will be what will ultimately inform how we what we will come out with in terms of size of the resource here and so we've got a lot of work to do but we are very excited.
Speaker Change: One of the limiting factors that we have really as winter access so we really need to be measured in how we plan our activities and the work we're going to be focused on in the near term is going to be seismic reprocessing and looking at appraisal strategies and we need to do that work. So we understand how we want to appraise and look at development scenarios going forward.
Speaker Change: Okay, everyone I'll give everyone a giggle here when I would think you are.
Speaker Change: Partner Bill Armstrong has described the overlooked areas.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Bookings in play as the next Guyana.
Speaker Change: We are watching with a lot of interest we'll see and then thanks very much indeed, guys I appreciate the answers.
Speaker Change: Thank you Doug.
Speaker Change: Inc.
Speaker Change: And our next question will be coming from Scott Gruber of Citigroup. Your line is open Scott.
Scott Gruber: Yes, good morning.
Scott Gruber: I wanted to come back to the asset sale.
Scott Gruber: As part of the motivation to sell the new Mexico positioning there beyond the.
Scott Gruber: Non op aspect.
Scott Gruber: Part of the motivation there what youre seeing across the rest of the.
Scott Gruber: Permian portfolio, it's been about a year since the Cowen closed you alter the development program. There. So is that acreage surprises the positive or the drilling efficiencies, making legacy acreage even more attractive maybe it's both system.
Scott Gruber: Color there.
Scott Gruber: Yes, if you step back on the.
Scott Gruber: The new Mexico assets, what we had remaining asset in Mexico is good rock, but it's very small it's less than 5% of our production is less than 5% of our.
Our acreage.
Scott Gruber: It's scattered.
Scott Gruber: Some of it was non op for us it was a package that we didn't have to sell but we put in the market. It was highly contested.
Scott Gruber: And so.
Scott Gruber: Lot of interest and quite frankly, we felt like because of the price. It made sense to transact we felt like we got full price.
Scott Gruber: Obviously Permian resources is happy with it as well, but we think it's a good transaction.
Scott Gruber: Especially for us in the proceeds you're going to predominantly go to debt Paydown.
Scott Gruber: Dan anything you want to add yes, I will just say we.
Scott Gruber: Outside of the strategic reasons for.
Speaker Change: Getting out of new Mexico, you think about value here.
Scott Gruber: And as John said, a very competitive process.
Scott Gruber: When you look at it bunch of different valuation ways to look at it but kind of.
Scott Gruber: In the mid to high fives on an EBITDA multiple really good value for us.
Scott Gruber: Use of proceeds to pay down debt and focus on the Texas side of the basin.
Scott Gruber: Yes.
Add to that.
Scott Gruber: This is an area that really got sparing capital allocated to it for the last several years and it's one that just didn't compete with the core.
Scott Gruber: Other Permian basin assets that we have in the Delaware and then the <unk>.
Scott Gruber: Southern Midland Basin for capital.
Speaker Change: Yes, So I was curious with the rest of the portfolio getting better.
Scott Gruber: And then maybe turning to.
Scott Gruber: The low side of things you mentioned.
Scott Gruber: The need to take some longer term initiatives to address some of the inflationary and compression and water just some more color on those initiatives, whether there is capex associated and what kind of timeline should we think about to see the benefit.
Scott Gruber: Yes, if I could just maybe step back a bit on Permian LOE.
Scott Gruber: We coming into the year, we set a plan that perhaps was a bit ambitious with some some embedded savings already built into it and those are materializing, a little bit slower than we had hoped.
Scott Gruber: <unk>.
Scott Gruber: In addition to that is as I mentioned in my prepared remarks, we are seeing some some.
Scott Gruber: Some inflationary pressures too.
Scott Gruber: Compression costs and water disposal, and particular ones, where we're seeing those in.
Scott Gruber: So we're going to we're going to get there on LOE in the Permian.
Scott Gruber: Might take a little bit longer we're looking at all options that some items might involve some capital investment.
Scott Gruber: Some probably did not some of them might be just commercial negotiations and getting after.
Scott Gruber: The embedded cost structure, both in our assets' historical and and and the Cowen assets as well, but we certainly believe at this point just like G&A and.
Scott Gruber: And the Capex, it's going to be low he is going to be a meaningful part of the 350 million of cost savings that we've targeted for the next three years.
Scott Gruber: We're just going to take a little bit more more time to get there we'll be getting there later this year and into 2026.
Speaker Change: Got it I appreciate the color. Thank you.
Scott Gruber: Thank you.
Speaker Change: Our next question.
Speaker Change: Our next question will be coming from Arun Jairam of Jpmorgan Securities. Your line is open.
Speaker Change: Yes, good morning.
Speaker Change: I wanted to go through your plans to kind of evolve or migrate your completion design in the Permian I know when you guys announced the Permian.
Speaker Change: Colin.
Speaker Change: Merger, John Steve one of the first steps to that you did was to maybe relax spacing.
Speaker Change: And your Dsos. So I wanted to see if you could elaborate on maybe the decision to move to tighter spacing is this in the Delaware and maybe just give us some thoughts around that decision.
Speaker Change: I think Arun, it's just overall in the basin I mean, we did relax spacing.
Speaker Change: The wider spacing and larger fracs on the Cowen side, I would say over time, though.
Speaker Change: As we look in the areas, we're starting to move more to a little tighter spacing.
Speaker Change: Smaller frac scenarios.
Speaker Change: So I think it's more of the evolution of the basin and as we look at it today a lot of the areas, where we're focusing our capital we are drilling on tighter spacing than what we have historically.
Speaker Change: And with the well cost coming down and smaller fracs.
Speaker Change: Can more efficiently develop the resource, but I'll, let Steve jump in on a few points as well. Yes. This is the type of thing that comes up.
Speaker Change: Every time, we get questions associated with our Permian inventory and we haven't come to the market for quite some time with the <unk>.
Speaker Change: Transparent view.
Speaker Change: A thorough view of our of our inventory in the Permian and we are working on that we've talked about that in the past.
Speaker Change: We're deep in the process of characterizing everything that we've gotten with the Catlin acquisition.
Speaker Change: We're also characterizing some remaining legacy Apache.
Speaker Change: Inventory that we haven't gotten to yet.
Speaker Change: And and all of that inventory the quantum of inventory as is increasing with what we're planning to do on the density side and.
Speaker Change: That is actually turning out now to be a bit of shooting at a moving target.
Speaker Change: Density side, because every time, we get cost reductions it naturally will increase the density the economic density of drilling in the Permian and every time you.
Speaker Change: You increase the density of the wells Youre increasing.
Speaker Change: Not just the well count and the drilling unit, but also the EUR in the drilling unit and so the more you drive down costs.
Speaker Change: What we've achieved on the 800000 per well in the first quarter of this year.
Speaker Change: You do that the more youre going back and saying well. This further increases the density possibility of drilling in the Permian and and that's what we're looking at and we will what we've said in the past and we will do this we will come out probably later this year or early next year with a more thorough view of all of our inventory.
Speaker Change: But just recognize that for everybody that that is a that is a moving target as you drive costs down.
Speaker Change: Things.
Speaker Change: That were uneconomic or marginally economic before become economic in that process right.
Speaker Change: Great and I know investors would welcome that type of analysis, Steve So look forward to that.
Ben Rodgers: Maybe one for Ben.
Speaker Change: It looks like the the proceeds from the.
Speaker Change: The new Mexico asset sale will be targeted towards debt reduction so maybe looking for some color Ben how you think about repurchasing debt I think some of your debt is trading at.
Speaker Change: 25% discount to par.
Speaker Change: But you obviously have some other.
Speaker Change: Items, such as repaying the term loan or taking out debt as it matures. So where's your head at in terms of.
Speaker Change: Using asset sales proceeds in terms of the debt stack.
Speaker Change: Sure. So we paid off the <unk> term loan in the first quarter with a mix of <unk>.
Speaker Change: Cash we had on hand, and some revolver borrowings so the revolver balance that you see.
Speaker Change: At the end of the quarter, which was a mix of revolver borrowings and commercial paper.
Speaker Change: As a result of fully paying off the Cowen term loans. So thats good had some interest expense savings on that.
Speaker Change: When we look really for the rest of the year and through.
Speaker Change: Our maturity profile through 2030.
Speaker Change: That's where a lot of our focus is going to be.
Speaker Change: We do recognize that there is some debt that's trading below par and that's inclusive of that time period, even between now and the end of 2030.
Speaker Change: So well with <unk>.
Speaker Change: Pay down the revolver and have a bunch of liquidity, we've got a lot of different options that we can look at we think of it.
Speaker Change: And a lot of different ways, one way is on a yield basis. So to your point with those bonds trading below par that yield is higher than the cost of us to borrow on our revolver. So we'll be opportunistic as we as we go through the year.
Speaker Change: And have a lot of tools because of the liquidity pickup from paying down the revolver.
Speaker Change: Great. Thanks, a lot.
And our next question will be coming from Betty Jang of Barclays. Your line is open Betty.
Betty Jang: Hi, Good morning, Thank you for taking my question.
Speaker Change: I think it will be really helpful to get some color.
Speaker Change: Rocket Sound Lane.
Speaker Change: Back on the cost optimization.
Speaker Change: 130 million average saving for the year to the $225 million Bryan Bryan expect it for year end 'twenty five.
Speaker Change: What's driving that increase in run rate over the course of the year. So.
Speaker Change: Specifically im wondering if youre already seeing as your point 8 million save.
Speaker Change: Savings on the Permian well costs to date are you, assuming that's going to double for her.
Betty Jang: Yes, so good question Betty.
Speaker Change: We increased the 60 realized this year by $70 million to capture 130.
John Christmann: To get to the run rate to the $2 25, that's just expecting that as we get into 'twenty six a lot of the capital savings that we have by running just the six rigs and.
John Christmann: An additional progress we will make on overhead and then to Steve's point on the low side, we'll make some progress on LOE. This year, but really expect a lot of that to come in 'twenty six 'twenty seven and so that's what's implied in that run rate of 225 is that a continued acceleration of capturing those cost savings.
John Christmann: Again by reduced activity in the Permian, while still holding production flat.
John Christmann: And then and then continuing to capture savings with overhead and pickup in low <unk>.
John Christmann: Yes.
John Christmann: The 800000 of savings per well is delivering the majority of that increase to 225000 run rate at the end of the year.
John Christmann: And the other factor is as well.
John Christmann: No.
John Christmann: Back half of the year anything we capture now will be full year for 'twenty six and so the captured in year number now going from 60 to 130.
John Christmann: You are actually at a higher run rate on an annualized basis going forward and so it's really what's captured inside this year versus what the run rate on the overall program will be going into next year.
Speaker Change: Got it that's helpful seems like it's been.
Speaker Change: Driven by the overhead in L. E. Maybe my follow up is just on the LTE front could you give some specific example on what you were expecting to see on the OE side to offset the inflationary pressure that you have seen to date.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: They're going to be a lot of things that we're going to be looking at everywhere from.
Speaker Change: The basic day to day route optimizations of pumper.
Speaker Change: All the way to that.
Speaker Change: Contracting of.
Produced water disposal and compression we have we have contracts for things like that that come due.
Speaker Change: Throughout the year.
Speaker Change: And throughout the years.
Speaker Change: Every time that one of those comes available you have the opportunity to renegotiate. So a lot of this stuff is going to be internally focused.
Speaker Change: How we work operating practices, how we work out in the field, how we manage.
Speaker Change: Day to day activity and then others other aspects of it will be externally focused negotiating with vendors.
Speaker Change: Taking from chemicals to all other forms of services.
Speaker Change: Great No I appreciate the color.
Speaker Change: Thank you.
Speaker Change: And our next question will be coming from Paul Cheng of Scotiabank. Your line is open Paul.
Paul Cheng: Hey, guys good morning.
Speaker Change: Good morning, Paul.
Speaker Change: John wondering that I mean, you're saying that way now.
Speaker Change: The gas development.
Speaker Change: Very attractive comparable to the oil and.
Speaker Change: So should we assume that you have for <unk> from here that we'll be making you're going to ship more often linked to the gas on the other hand, you have only price rise above declined and therefore, you've gone to ship that Morgan to oil.
Speaker Change: And also that for alpine high will kind of gasoline and diesel.
Speaker Change: It will make you say now I mean, now that we would be able to move some of the capital back to alpine high.
Speaker Change: That's the first question.
Speaker Change: Yes, Paul I mean, if you look at Egypt, we came into the year running one rig.
Speaker Change: Obviously, we've been ratcheting that up.
Speaker Change: <unk>.
Brent.
Crude oil has softened so.
Speaker Change: It puts us in a nice position and we've also had capacity in.
Speaker Change: And the infrastructure to be able to add and shift and as we said we should see volumes north of 500 by year end. So it does give us optionality in Egypt, but you have to work kind of within the constraints of what we have in terms of facilities and inventory.
Speaker Change: In.
Speaker Change: The oil's still works nicely because of the cost recovery mechanisms in the PSC in Egypt, but.
Speaker Change: Those are at par kind of at mid cycle, Brent prices, so with crude softening.
Speaker Change: Definitely a tilt to the gas side in Egypt.
Speaker Change: And I'll, let John comment on the U S gas well and I would just add on Egypt on the oil side.
Speaker Change: There's been some concern expressed that both shifting more towards gas means less oil production actually.
Speaker Change: Most of the gas in the Western Desert of Egypt is very rich gas.
Speaker Change: And it comes with a lot of condensate so.
Speaker Change: We've been on.
Speaker Change: What we've called a slight decline in oil gross oil volumes in Egypt and between the condensate that's coming with the gas program and also the improvements coming from the waterflood programs.
Speaker Change: Stemming base decline.
Speaker Change: I would still characterize oil volume decline as being on very slight decline and it's on the.
Speaker Change: So as we look at the outlook for gross oil volume in Egypt.
Speaker Change: Say its on the slightest of declines as we go through second through fourth quarters.
Speaker Change: Ste.
Speaker Change: <unk> and <unk>.
Speaker Change: Hi, Ken I asked that on Egypt, I think for oil you sort of need to Workover rig for one tuning zinc in the gas falling is it still a similar ratio or that some.
Speaker Change: Because I think part of the issue.
Speaker Change: Last year. The last couple of years is that you don't have you can't find enough off the vocals of week that for you to increase the.
Speaker Change: <unk>.
Speaker Change: Yes, we're still running a similar number of Workover rigs today as we were before but.
Speaker Change: You've got to remember on the gas side part of the gas comes from costs or field and part of it is associated gas with the oil wells on oil production.
Speaker Change: And all of this incremental new gas that's coming on.
Speaker Change: Certainly hope, we're not going to be spending a lot of time and effort and money on workovers on those wells. These are brand new wells should be producing for for quite some time and typically maintenance on gas wells tends to be a little less intensive than on oil wells.
Speaker Change: Okay.
Speaker Change: On the on Alpine high Alpine high is.
Speaker Change: Obviously, a lot of gas there and very economic guests at certain types of prices.
Speaker Change: But we run the economics on alpine high and decide whether we're going to drill there or not based on <unk> pricing.
Speaker Change: The transport activity is completely separate from that and we purchase gas and sell it on the Gulf coast and so.
Speaker Change: The money that we make on the gas trading what we call gas trading is completely independent of Alpine high Alpine high has to stand economically and drilling in alpine high has to stand economically on wahhab pricing and a perceived forward view of Wahhab pricing, obviously with pipelines being built.
Speaker Change: The occasional pipeline maintenance shutdowns and things like that Baja is still extremely volatile right now and we've seen even this year, we've seen wahhab pricing to a point, where we have actually curtailed volumes and we thought that that would not be the case coming into this year.
Speaker Change: With all of that when we're at a position where we believe.
Speaker Change: <unk> pricing is adequate to support economic drilling in alpine high that is as good or better than drilling for oil in the Permian Basin. Then, we'll we'll shift the rig from oil focused drilling to gas focused drilling or will add another rig for alpine high one of the.
Speaker Change: Got it.
Speaker Change: I see.
Speaker Change: A final a second one hopefully with.
Speaker Change: John at what oil price that you would say at a restaurant here or there.
Speaker Change: And so you would take a more chance to cut in capital program as well as allow.
Speaker Change: Allow to only put us into Tom thumb on yourself trying to hold us flat yes.
Speaker Change: But that you have in mind.
Speaker Change: Okay.
Speaker Change: Obviously, we will keep an eye on things that we've set ourselves up where we're positioned.
Speaker Change: If need be to respond, but I think you'd have to see <unk> get down into the very low <unk>.
Speaker Change: At this point.
Speaker Change: And obviously, the first step would likely be dropping a couple of rigs in the Permian and a frac crew, maybe in Egypt, but we'll.
Speaker Change: We will watch things and we're in a really really good place right now and quite frankly with the activity set that's running and the progress we're making on the cost structure.
Speaker Change: That number is going lower everyday.
Speaker Change: Great. Thank you.
Speaker Change: Yes.
Speaker Change: And our next question comes from Leo Mariani Mariani of Ralph Your line is open Leo.
Speaker Change: Yes, Hi, I wanted to just.
Leo: Touch base on the buyback here, obviously oil prices have softened quite a bit you did a significant buyback 100 million bucks or so in the first quarter.
Leo: Just kind of at that $60 level do you guys see the buyback being a little bit more lemonade with more focus on debt pay down you, obviously elected to sell an asset.
Leo: And this market seemed like you certainly want to deliver on some debt pay down goals. This year in light of the weaker macro. So can you just talk about how that buyback kind of plays into your thinking.
Leo: At this oil price or even a little lower.
Speaker Change: Yes, I'll, let I'll, let Ben jump in in just a second but in general we.
Speaker Change: We sold the asset because we are opportunistic on the price I mean, it wasn't something that we felt like we had to do but we put it in the market and got numbers that we thought were fantastic and so we transacted.
Speaker Change: We're in the process of transacting.
Speaker Change: It does let us take the revolver down and bank can talk about those but I think it puts us in a position where we can also still be very opportunistic on the buyback if need be.
Speaker Change: Yes, just a quick follow up we set the 60, 60% returned to shareholders within our framework, we've exceeded that every year.
Speaker Change: And so.
Speaker Change: As we go through the year as John said, we will have.
Speaker Change: We'll be opportunistic around that and with a zero revolver balance will look at both the debt side and being an opportunistic on the equity side as well.
Speaker Change: Okay.
Speaker Change: Wanted to follow up a little bit on Egypt oil volumes.
Speaker Change: Steve you basically said it can be a very very slight decline there on gross oil volumes, if I heard you right.
Speaker Change: Just looking at first quarter, they were down I would say a little bit more than kind of slight decline maybe there was some timing issues there as sort of an anomaly there, but I'm just trying to kind of get a sense should this gross volumes continue to decline off of <unk> levels or is there maybe something anomalous there in <unk>.
Speaker Change: There was a bit of unexpected downtime in <unk>, but I think that you can expect.
<unk> slight decline through.
Speaker Change: Through the quarters.
Speaker Change: Okay. Thanks, Chris soil.
Speaker Change: Thank you.
Speaker Change: And our next question will be coming from Oliver Huang of Tpa <unk> Company Oliver Your line is open.
Speaker Change: Good morning, John and team and thanks for taking the questions.
Speaker Change: My first question Oliver just one.
Speaker Change: For my first question just wanted to ask about breakeven as we think about the revised program with some of the cost outs from the savings initiatives you all have accelerated what sort of oil price are you. All now looking at in terms of covering your capex and base dividend with internally generated free cash flow.
Speaker Change: Yes, Oliver if you look at where we sit today and.
Speaker Change: When you factor in the savings we've got planned at the $3 50 annual run rate, we can fund Suriname exploration program. The <unk> run six rigs in the Permian 12 rigs in Egypt, and still pay the dividend.
Speaker Change: At $50 <unk> with very reasonable assumptions on the marketing side. So.
Speaker Change: Making really really good progress.
Speaker Change: And those are were funding some programs are actually going to provide longer term growth.
Speaker Change: Makes sense. Thanks for that response, and just had a follow up question to <unk> earlier question, just really trying to better understand the progression of the denser well spacing well spacings you all talked about in the prepared remarks.
Speaker Change: Understand there are many variables as Steve mentioned earlier with the shooting at a moving target analog but.
Speaker Change: Is there any way to quantify how this is transitioning from say 24 to 2025 and how this might look going forward into 2026, or if theres, a better way to just kind of understand what percentage of the program. This year is seeing that denser spacing design.
Speaker Change: Yes, I mean, if you look today, a great percentage of it is and.
Speaker Change: Part of it is we did a lot of work last year and then you.
Speaker Change: We pre purchased a lot of our tubular materials and things.
Speaker Change: We're running with slimmer casing and so you've got to set these programs up and let them run a little bit but we're.
Speaker Change: It moved a lot of the program and a lot of the areas were drilling.
Speaker Change: Seeing really really good results and so we'll continue to tweak that but it's it's a dynamic process.
Speaker Change: We're going to continue to look to optimize.
Speaker Change: We go forward, but a greater percentage, especially in the areas, where we're focused right now.
Speaker Change: Youre seeing a little tighter spacing than what we've done historically.
Speaker Change: And also some smaller fracs.
Speaker Change: Perfect. Thanks for the time guys.
Speaker Change: And I'm showing you bet.
Speaker Change: And I am showing no further questions at this time I would now like to turn the call back to John Christmann CEO for closing remarks.
Speaker Change: Yes. Thank you in closing let me leave you with the following thoughts we are making significant strides in drilling efficiencies in the Permian and we are on track to deliver our full year production volumes at a lower capital budget, we have reduced average well cost by $800000 per well from the 2024 levels.
Speaker Change: And this is on top of the $1 billion savings, we had achieved on the Cowen properties and we believe these cost savings to be structural and sustainable.
Speaker Change: In Egypt, we are very encouraged with strong performance from the gas program, where we're shifting an increasing proportion of the activity for this year, we have visibility to increasing average gas realizations in line with this outlook with fourth quarter expected to average $3 80 per Mcf.
Speaker Change: Finally, our overhead cost reductions are proceeding ahead of schedule and we are well on the way to delivering our targets for 2025 and beyond this will sustainably improve our cost structure and long term free cash flow generation with that I will turn the call back to the operator.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Speaker Change: Okay.
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