Q2 2025 APA Corp Earnings Call
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I would now like to hand, the conference over to your Speaker today Stephane aka director of Investor Relations. Please go ahead.
Good morning, and thank you for joining us on AP corporations second quarter, 2025 financial and operational results conference call.
We will begin the call with an overview by CEO John Christmann.
Ben Rodgers CFO will then provide further color on our results and outlook.
Steve Riney, President and Tracey Henderson Executive Vice President of exploration are also on the call and available to answer questions.
We'll start with prepared remarks, and allocate the remainder of time to Q&A and.
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 that API Corp Dot com.
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.
Consistent with previous reporting practices adjusted production numbers cited in today's call are adjusted to exclude Noncontrolling interest in Egypt, and Egypt tax barrels.
I'd like to remind everyone that today's discussion will contain forward looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss on today's call.
Full disclaimer is located in the supplemental information on our website.
And with that I will turn the call over to John.
Good morning, and thank you for joining us on today's call I will provide an overview of our second quarter results.
For an update on our cost reduction initiatives and provide color on our outlook for the second half of the year.
Overall this was an excellent quarter for IPA showcasing strong operational and financial performance continued capital returns to shareholders and significant debt reduction.
I want to first acknowledge the strides we continue to make and strengthening the balance sheet and improving our capital structure, we reduced net debt by more than $850 million during the quarter and returned approximately $140 million to shareholders through our dividends and buybacks.
We remain firmly committed to shareholder returns and balance sheet strengthening through debt reduction Ben will provide more color on this topic shortly.
Initiatives and provide color on our outlook for the second half of the year.
Turning specifically to second quarter operational performance production volumes across the portfolio generally exceeded guidance, while remaining on plan for companywide capital investment in.
Overall, this was an excellent quarter for APA, showcasing strong, operational and financial performance continued Capital returns to shareholders and significant debt reduction.
In the Permian oil production exceeded guidance, primarily driven by faster turn in lines enabled by efficient field execution cap.
Capital investment came in slightly above guidance largely due to the ongoing capture of efficiency gains across drilling and completions put simply we are delivering more activity with fewer rigs and frac crews.
I want to First acknowledge the strides. We continue to make in strengthening the balance sheet and improving our capital structure. We reduce net debt by more than 850 million dollars during the quarter and returned approximately 140 million to shareholders, through our dividends and BuyBacks. We remain firmly, committed to shareholder returns and balance sheet, strengthening through debt reduction
Last quarter, we noted that these efficiency gains will allow us to keep Permian oil production flat with six five rigs instead of eight.
Ben will provide more color on this topic shortly.
As a result of further progress we are currently delivering flat go forward oil production with six drilling rigs.
Turning specifically to the second quarter, operational performance production volumes across the portfolio generally exceeded guidance or remained on plan for companywide capital investment.
Our continued improvement in drilling performance is evident.
Our D&C cost per foot are now among the lowest in the Midland Basin and in line with offset peers in the Delaware Basin. Our teams are committed to finding new ways to further improve efficiencies across the basin.
In the Permian oil production, exceeded guidance, primarily driven by faster turn-in, lines enabled by efficient field execution.
Capital investment came in slightly above guidance, largely due to the ongoing capture of efficiency gains across Drilling and completions.
In Egypt, we again exceeded our quarterly gas production guidance driven by the strong performance of our recent discoveries and our ability to continue increasing utilization of existing infrastructure.
Put simply, we are delivering more activity with fewer Rigs and Frack Crews.
Oil production declined modestly following our decision to shift rig activity toward increased gas development due to improved gas realizations. However, gross Boe.
Last quarter, we noted that these efficiency gains would allow us to keep puran oil production flat with 6 and a half rigs instead of 8.
As a result of further progress, we are currently delivering flat. Go forward. Oil production with 6 drilling rigs,
Were consistent quarter over quarter reported volumes also exceeded guidance, but adjusted production was slightly lower than guidance due to the impacts of higher oil prices and lower operating costs on our allocated volumes under the production sharing contract.
Our continued Improvement in drilling performance is evident.
our DNC cost per foot are now among the lowest in the Midland Basin and in line with offset peers in the Delaware basin
Our teams are committed to finding new ways. To further improve efficiencies across the basin.
Our capital efficiency in Egypt is benefiting from small refinements across our drilling and infrastructure programs.
Which collectively result in meaningful time and cost savings.
In Egypt, we again exceeded our quarterly gas production, guidance driven by the strong performance of our recent discoveries and our ability to continue increasing utilization of existing infrastructure.
For example on the drilling side on average we are delivering wells more than two days faster compared to last year.
Lastly, North Sea production was ahead of guidance a testament to the continued optimization of field operations and maximizing run time as we manage these late life assets.
Oil production declined, modestly following our decision to shift rig activity toward increased gas development due to improved gas realizations. However, gross boies were consistent quarter over quarter
Our focus remains on safety operating efficiency and cost management as we prepare for decommissioning.
Reported volumes also exceeded guidance, but adjusted production was slightly lower than guidance due to the impacts of higher oil prices and lower operating costs on our allocated volumes under the production sharing contract.
Turning now to our cost reduction initiatives.
At the start of the year, we set forth some important goals for reducing controllable spend over the next three years.
Our Capital efficiency in Egypt is benefiting from small refinements across our Drilling and infrastructure programs.
which collectively result in meaningful time and cost savings.
<unk> outlined some of the significant capital efficiency improvements, we are making in the Permian and Egypt, Ben will provide further details on other cost initiatives, which have also advanced considerably since our last update.
For example, on the drilling side on average, we are delivering Wells, more than 2 days faster compared to last year.
Lastly, North Sea production was ahead of guidance.
We now anticipate capturing at least $200 million in savings in 2025 up from our prior estimate of $130 million and plan to exit the year at an impressive $300 million.
A testament to the continued optimization of field operations and maximizing runtime. As we manage these late life assets,
Why and cost management as we prepare for decommissioning.
Annual savings run rate.
Turning now to our cost reduction initiatives.
We are now on a path to achieve our $350 million run rate target sometime in 2026 versus year end 2027.
Moving forward over the next two years, we see considerable opportunities to further streamline our business and simplify the way we operate given the magnitude of these opportunities. It is clear we have upside to our three year goal.
At the start of the year, we set forth some important goals for reducing controllable spend over the next 3 years. I just outlined some of the significant Capital efficiency improvements. We are making in the puran and Egypt.
Ben will provide further details on other cost initiatives, which have also advanced considerably since our last update.
As we began implementing these initiatives we will address the scale of that upside in the future.
Looking ahead to the second half of 2025, our supplement released last night outlined our expected Permian activity and production for the third and fourth quarters adjusted to reflect the recent asset sale that closed in mid June.
we now anticipate capturing, at least 200 million dollars in Savings in 2025 up, from our prior estimate of 130 million and plan to exit the year, at an impressive, 300 million annual savings run rate,
We are now on a path to achieve our 350 million dollar run rate target sometime in 2026 versus year in 2027.
With continued efficiency gains we are delivering our planned number of turn in lines and expected production volumes and we now expect to exit the year with a higher duck inventory than originally planned we will continue to optimize our drilling and completion cadence through the second half of the year to ensure we deliver our revised capital guidance.
Moving forward over the next 2 years. We see considerable opportunities to further, streamline our business and simplify the way we operate.
Given the magnitude of these opportunities, it is clear we have upside to our 3-year goal.
And set 2026 up for success.
As we begin implementing these initiatives, we will address the scale of that upside in the future.
As an additional benefit these efficiency gains enable incremental resource development.
Looking ahead to the second half of 2025.
As previously noted we are moving towards denser well spacing with smaller frac sizes. While this may result in lower average well productivity, our new development patterns should deliver increased EUR at the spacing unit level and lower breakeven prices per barrel of oil.
our supplement released last night, outlined our expected permanent activity in production for the third and fourth quarters adjusted to reflect the recent asset sale, that closed in mid June,
In turn this expands economic inventory counts and increases both overall oil recovery and net asset value.
This is a fantastic outcome.
In Egypt, underscoring, our long term strategic commitment and the ongoing success of our development program. We have recently secured presidential approval for the award of approximately 2 million net perspective acres in the Western desert.
With continued efficiency gains. We are delivering our plan number of turn-in lines and expected production volumes. And we now expect to exit the year with a higher duck. Inventory than originally planned. We'll continue to optimize our Drilling and completion. Cadence through the second half of the year. To ensure we deliver our revised Capital guidance and set 2026 up for success.
As an additional benefit, these efficiency gains enable incremental resource development.
This represents a greater than 35% increase in our acreage position and meaningfully enhances our already substantial footprint in the region.
This acreage benefits from extensive <unk> seismic coverage and considerable overlap with our existing operations presenting compelling prospectively for both oil and gas.
As previously noted we are moving toward denser? Well, spacing with smaller fra sizes, while this may result in lower average, well productivity, our new development patterns should deliver increased EU RS at the spacing unit level and lower Break, Even prices per barrel of oil.
In turn this, expands economic inventory, counts and increases both overall oil recovery and net asset value. This is a fantastic outcome.
We are currently in the final steps of the administrative process and plan to initiate drilling activity before the end of 2025.
We expect to maintain current activity allocations with around one third of our turn in lines expected to be gas focus for the remainder of the year base.
In Egypt. Underscoring, our long-term strategic commitment, and the ongoing success of our development program, we have recently secured presidential approval for the award of approximately 2 million, net prospective acres in the western desert.
Based on our year to date performance, we are once again, raising our guidance for gross gas volumes for the next two quarters.
This also increases our outlook for price realizations as a higher share of volumes will now be subject to the new price negotiated under last year's revised gas sales agreement.
This represents a greater than 35% increase in our acreage position and meaningfully enhances. Our already substantial footprint in the region,
On the oil side, we expect production to stabilize for the remainder of 2025 and hold relatively flat to second quarter levels as our Workovers re completions and our waterflood programs helped mitigate base decline.
This acreage benefits from extensive 3D seismic coverage and considerable overlap with our existing operations, presenting compelling prospectivity for both oil and gas.
We are currently in the final steps of the administrative process and plan to initiate drilling activity before the end of 2025,
Combined with the success and the gas program, Egypt is now poised for 2025 growth in both BOE volumes and free cash flow relative to our expectations at the beginning of the year.
We expect to maintain current activity allocations with around 1/3 of our turn in lines expected to be gas focused for the remainder of the year.
Based on our year-to-date performance. We are, once again, raising our guidance for gross gas volumes, for the next 2 quarters,
In Suriname, the Grand more good development continues to advance toward first oil in mid 2028, I would like to commend our partner total on their execution of the project since announcing <unk> last fall.
This also increases our outlook for price realizations, as a higher share of volumes will now be subject to the new price. Negotiated under last year's revised gas sales agreement.
Manufacturing of the top sides for the Fps. So is currently ongoing in total was able to secure drilling contracts at very attractive rates earlier this year.
On the oil side, we expect production to stabilize for the remainder of 2025 and hold relatively flat. To second quarter levels, as our work overs recomp, completions and water flood programs, help mitigate based decline.
We have updated our full year capital guidance to $275 million to.
To reflect additional milestone and progress payments expected later this year.
This just reflects a simple re phasing of spend patterns and total anticipated project cost remain unchanged.
Combined with the success in the gas program. Egypt is now poised for 2025 growth in both Boe volumes and free cash flow relative to our expectations at the beginning of the year.
Lastly, we announced the discovery and successful flow test at Sakai too and Alaska earlier this spring.
In Surinam, the grand morgood development continues to advance toward first oil in mid 2028. I would like to commend our partner total on their execution of the project since announcing FID last fall.
As a reminder, the Sakai prospect is amplitude supported across 25000, or 30000 acres and discovery well encountered approximately 25 feet of net oil pay in one blocky sand the.
Here.
Subsequent flow tests validated rock properties much better than regional analogues now underdevelopment.
We have updated our full-year capital guidance to $275 million to reflect additional milestone and progress payments expected later this year.
Given the size and extensive prospectively of the block. The next best step is the reprocessed <unk> seismic data across the majority of our acreage position.
This just reflects a simple rephasing of spin patterns and total anticipated project costs remain unchanged.
This will allow us to time multiple surveys together to refine our technical understanding and provide regional context.
Lastly, we announced the discovery and successful flow test at Sakai 2 in Alaska earlier this spring.
This is a key step for both better characterizing additional exploration prospects and for optimizing an appraisal program for Sakai as well as helping to prioritize between the two.
Given the timing of the seismic reprocessing and subsequent technical data integration, we anticipate drilling activity will resume during the 2026 to 2027 winter season.
As a reminder, the Sockeye Prospect is amplitude. Supported across 25,000 to 30,000 acres and the Discovery Well encountered approximately 25 ft of net oil. Pay in 1 block, he sand
In closing I will leave you with the following.
First our operational and financial performance for the first half of the year was outstanding.
The subsequent flow tests, validated Rock properties, much better than Regional analogs. Now under development, given the size and extensive prospectivity of the block. The next best step is to reprocess 3D seismic data across the majority of our acreage position.
This success is due to the collective efforts of our teams and strong alignment among all leaders in the organization our momentum is palpable and sets us up extremely well for the remainder of the year and into 2026.
This will allow us to time multiple surveys together to refine our technical understanding and provide Regional context.
This is a key step for both better characterizing additional expiration prospects and for optimizing an appraisal program for Sockeye, as well as helping to prioritize between the two.
Second our cost reductions initiatives are progressing very well and we are on the path to achieving significant and lasting improvements to our cost structure on.
On the capital side, we are capturing efficiency gains through structural improvements to our operations. This is allowing us to deliver our planned Permian oil production volumes at a reduced rig count and to grow Boe volumes in Egypt at lower capital.
Given the timing of the seismic reprocessing and subsequent technical data integration. We anticipate drilling activity will resume during the 2026 to 2027 winter season.
In closing, I will leave you with the following.
First, our operational and financial performance for the first half of the year was outstanding.
Our operating costs are also trending lower in both Egypt, and the North Sea and we continue to capture significant overhead cost savings through our ongoing simplification efforts.
This success is due to the collective efforts of our teams and strong alignment among all leaders in the organization.
Our momentum is palpable and sets us up extremely well for the remainder of the year and in the 2026.
Third our progress in Suriname, and our successful Alaska further underscores the value of our diverse portfolio of high quality exploration opportunities, which represent material catalyst for the future of the company.
Second our cost reductions initiatives are progressing very well and we are on the path to achieving significant and Lasting improvements to our cost structure.
Finally, we are committed to our capital return framework, which allows us to further strengthen our balance sheet, while maintaining a competitive payout to shareholders.
On the capital side, we are capturing efficiency gains through structural improvements to our operations.
With that I will turn the call over to Ben.
This is allowing us to deliver our plan permit oil, production volumes at a reduced rig, count, and a grow. Boe volumes in Egypt at lower capital.
Thank you John.
For the second quarter under generally accepted accounting principles.
Reported consolidated net income of $603 million.
Our operating costs are also trending lower in both Egypt and the North Sea. We continue to capture significant overhead cost savings through our ongoing simplification efforts.
Or $1 67.
Per diluted common share.
As usual. These results include items that are outside of core earnings. The most significant of which was a $219 million after tax gain on the new Mexico divestiture that closed in June.
Third, our progress and Surinam and our success in Alaska further. Underscores the value of our diverse portfolio of high-quality exploration opportunities, which represent material Catalyst for the future of the company.
And $106 million unrealized after tax gain on derivatives.
Excluding these and other smaller items adjusted net income for the second quarter was $313 million or <unk> 87 per share.
Finally, we are committed to our Capital returns framework, which allows us to further. Strengthen our balance sheet while maintaining a competitive payout to shareholders.
And with that, I will turn the call over to Ben.
Thank you, John.
LOE came in below guidance, primarily driven by cost savings realized in our international assets.
<unk> was also lower due to continued progress in simplifying our organizational structure.
For the second quarter under generally accepted accounting principles APA reported Consolidated. Net income of 603 million or 1.67 cents per diluted common share.
While the majority of the variance stems from these structural improvements both LOE and G&A were modestly impacted by timing related shifts in spend which are expected to land in the second half of this year.
As usual, these results include items that are outside of core earnings. The most significant of, which was a 219 million after tax gain on the New Mexico devices that closed in June
<unk> generated $134 million of free cash flow during the second quarter, all of which was returned to shareholders through our base dividend and share repurchases.
And a $106 million unrealized after-tax gain on derivatives.
Our free cash flow is expected to be second half weighted driven by Permian capital timing and continued growth in Egypt gas volumes and price realizations.
Excluding these and other smaller items. Adjusted net income. For the second quarter was 313 million or 87 cents per share.
LOE came in below guidance, primarily driven by cost savings realized in our International assets.
During the quarter, we also made significant progress on debt reduction.
We eliminated outstandings on our revolver and reduced net debt by over $850 million.
GNA was also lower due to continued progress and simplifying our organizational structure.
A decrease of more than 15%.
This was driven by proceeds from the new Mexico asset sale and positive working capital inflows, primarily associated with payments from Egypt.
While the majority of the variance stems from these structural improvements both eloe and GNA were modestly impacted by timing related shifts and spent, which are expected to land in the second half of this year.
In total for the second quarter nearly $1 billion was returned to investors through dividends buybacks and debt reduction.
APA generated 134 million of free cash flow during the second quarter, all of, which was returned to shareholders through our base dividend and Sherry purchases,
I would like to take a moment to step back and highlight the meaningful progress we've made over the past several years under our capital return framework.
our free cash flows expected to be second half weighted driven by permanent Capital timing and continued growth in Egypt, gas volumes and price realizations.
Since emerging from the Covid downturn at the end of 2020, API has strengthened its balance sheet by reducing net debt by more than $4 billion.
During the quarter, we also made significant progress on debt reduction.
During that same period, we've returned over $4 billion to shareholders through our base dividend and share repurchase programs.
This underscores our disciplined approach to capital allocation and our ability to consistently navigate commodity cycles, while delivering long term value.
This was driven by proceeds from the New Mexico asset sale and positive working capital inflows primarily associated with payments from Egypt.
Looking ahead, we plan to continue this balanced capital return strategy to reinforce our focus on financial strength, we are establishing a long term net debt target of $3 billion.
In total for the second quarter, nearly 1 billion dollars was returned to investors through dividends BuyBacks and debt reduction.
I would like to take a moment to step back and highlight the meaningful progress. We've made over the past several years under our Capital returns framework.
While we remain committed to returning 60% of our free cash flow to shareholders, providing a debt target reflects our confidence in the durability of our cash flows the resilience of our asset base and our goal of maintaining an investment grade credit profile through the cycle.
Since emerging from the co downturn. At the end of 2020 APA has strengthened its balance sheet by reducing net debt by more than 4 billion dollars.
During that same period, we've returned over 4 billion dollars to shareholders through our base dividend and share repurchase programs.
Maintaining low leverage enhances financial flexibility reduces volatility and positions <unk> for sustainable success.
This approach is not new it's a continuation of the principles that have guided us, allowing us to fortify the balance sheet, while delivering strong shareholder returns.
This underscores our disciplined approach to Capital allocation and our ability to consistently navigate commodity Cycles while delivering long-term value.
Moving now to our controllable spend reduction initiatives, where we continue to significantly exceed the targets established earlier this year.
Looking ahead, we plan to continue this balanced capital return strategy to reinforce our focus on financial strength. We are establishing a long-term net debt target of $3 billion.
This accelerated momentum demonstrates our relentless focus on managing every aspect of our controllable spend across G&A LOE and capital.
While we remain committed to returning, 60% of our free cash flow to shareholders. Providing a debt Target, reflects our confidence in the durability of our cash flows, the resilience of our asset base. And our goal of maintaining an investment grade credit profile through the cycle.
Importantly, these increased targets do not represent a stopping point.
Instead, they serve as key milestones and our consistent pursuit of operational excellence and our ongoing drive to reduce our cost structure.
Maintaining low leverage enhances financial flexibility, reduces volatility, and positions APA for sustainable success.
Slide four of our supplement provides further detail between the various categories of cost savings that we expect to capture this year.
This approach is not new, it's a continuation of the principles that have guided us allowing us to fortify the balance sheet while delivering strong shareholder returns.
While the changes in LOE and G&A savings can be reconciled with the movement in our guidance ranges for those items or capital savings are partially offset by additional activity in the Permian.
Moving now to our controllable spin reduction initiatives, where we continue to significantly exceed the targets established earlier this year.
With the efficiency gains we've achieved we're on pace to end the year with approximately 25% more drilled uncompleted wells than previously planned while remaining within our capital guidance range, which will provide operational flexibility as we head into 2026.
This accelerated momentum demonstrates our relentless focus on managing every aspect of our controllable spend across G&A, LOE, and capital.
Importantly, these increased targets do not represent a stopping point.
On the low upfront costs are trending lower across our international assets in Egypt reductions to date have come from two of our larger categories optimizing equipment use and reducing our diesel consumption through recently completed power projects.
Instead they serve as key milestones in our consistent pursuit of operational excellence and our ongoing drive to reduce our cost structure.
Slide 4 of our supplement provides further detail between the various categories of cost savings that we expect to capture this year.
Moving forward, we expect to further reduce diesel usage as we progress additional power projects into next year.
While the changes in looe, and GNA, savings can be reconciled with the movement, in our guidance, ranges for those items. Our Capital Savings are partially offset by additional activity in the Permian.
In the North Sea, we've been streamlining vendors and optimizing the size of our offshore organization as we manage late life operations.
Furthermore, while maintaining our commitment to safety, we have shifted the scope of our maintenance activities to accommodate shorter more focused pit stops versus extended platform turnarounds.
With the efficiency gains. We've achieved were on Pace to end the year with approximately 25% more drilled uncompleted Wells than previously planned while remaining within our Capital guidance range, which will provide operational flexibility as we head into 20126.
In the Permian, while we expect the bulk of our LOE savings to become evident in 2026, we are already seeing early signs of improvement this year.
On the lower front, costs are trending lower across our international assets in Egypt. Reductions to date have come from two of our larger categories: optimizing equipment use and reducing our diesel consumption through recently completed power projects.
Additionally, we are progressing multiple projects in the back half of this year that will deliver meaningful benefits in 2026 and beyond.
Moving forward, we expect to further reduce diesel usage as we progress additional power projects into next year.
These projects include but are not limited to utilizing owned and operated saltwater disposal facilities that will reduce reliance on third party providers.
In the North Sea, we have been streamlining vendors and optimizing the size of our offshore organization as we manage late life operations.
Consolidating field compression to larger centralized compression stations and reducing our Workover fleet based on improved workover rig efficiencies.
Furthermore, while maintaining our commitment to safety, we've shifted the scope of our maintenance activities to accommodate shorter more focused, pit stops versus extended platform. Turnarounds
Across our entire operated asset base, we have moved decision, making authority closer to operations, which enables field personnel to swiftly identify and implement cost savings without compromising safety or performance.
in the Permian, while we expect the bulk of our eloe savings to become evident in 2026, we are already seeing early signs of improvement this year.
This has gained traction unlocking a steady stream of small scale opportunities that collectively drive meaningful financial impact.
Additionally, we are progressing multiple projects in the back half of this year that will deliver meaningful benefits in 2026 and Beyond.
Turning to overhead our initial focus was on executing quick win opportunities.
These projects include but are not limited to utilizing owned and operated saltwater disposal facilities, that will reduce Reliance on third-party providers.
Primarily through selective cost cutting decisions.
We implemented the bulk of those near term actions, which drove the additional $35 million in realized savings since our last update.
Consolidating field compression to larger, centralized compression stations.
And reducing our work. Over Fleet based on improved, workover rig, deficiencies.
Looking ahead, we are advancing several work streams to rethink and reshape broader organizational processes and workflows with a focus on streamlining the business.
These efforts along with other simplification initiatives are expected to deliver further savings in 2026 and beyond.
Across our entire operated asset base, we have moved decision-making authority closer to operations, which enables field personnel to swiftly identify and implement cost savings without compromising safety or performance.
With all of these initiatives gaining traction across the organization, we're confident in reaching our $350 million run rate savings target within 2026, a significant change from our prior timeline of end of 2027.
This has gained traction unlocking, a steady stream of small-scale opportunities that collectively Drive meaningful Financial impact.
Turning to overhead. Our initial Focus was on executing quick win opportunities.
We also see meaningful upside beyond that original target.
Implemented, the bulk of those near-term actions, which drove the additional 35 million and realized savings. Since our last update,
Which we will quantify at a later date.
What's clear is that the entire organization is aligned and committed in just six months, we've made real strides toward positioning.
looking at several work streams to rethink and reshape broader organizational processes and workflows with a focus on streamlining, the business
<unk> as a cost leader.
The focus is relentless and the results speak volumes.
These efforts, along with other simplification, initiatives are expected to deliver further Savings in 2026 and Beyond.
Shifting to our oil and gas trading portfolio.
At current strip pricing, our full year guidance reflects $650 million and pre tax income from our trading operations.
$75 million increase from our May update.
This is a key value driver for us and the forward curve for 2026 shows favorable LNG pricing and spreads.
With all of these initiatives, gaining traction across the organization, we're confident in reaching our 350 million dollar run rate savings Target within 2026. A significant change from our prior timeline of end of 2027.
We also see meaningful upside beyond that original Target.
Which we will quantify at a later date.
Enforcing these activities as a meaningful differentiator for API.
I will close by discussing several changes to our U S and UK tax estimates.
What's clear? Is that the entire organization is aligned and committed in just 6 months. We've made real strides toward positioning APA as a cost leader.
Following passage of the one Big Beautiful Bill Act, we expect to benefit from two changes to the U S tax code the first being 100% bonus depreciation for taxable income, which is effective as of January 20th of this year.
The focus is Relentless and the results speak volumes.
Shifting to our oil and gas trading portfolio.
The second being the ability to deduct intangible drilling costs for corporate alternative minimum tax which comes into effect at the beginning of 2026.
at current strip pricing, are fully your guidance, reflects 650 million in pre-tax income from our trading operations, a 75 million increase from our May update
For 2025, we expect a significant reduction in our U S. Current tax expense driven by bonus depreciation changes and the recently passed legislation.
This is a key value driver for us and the 4 curfew.
Changes in 2020 for tax estimates and other smaller items.
I will close by discussing several changes to our us and UK tax estimates.
This reduction is largely offset by an increase in UK current tax expense were higher revenues and lower operating costs have increased our taxable income.
Following passage of the 1. Big beautiful, bill act. We expect a benefit from 2 changes to the US tax code.
Starting in 2026 at current strip prices, we do not expect our UK operations to generate meaningful taxable income.
The first being 100% bonus depreciation for taxable income, which is effective as of January 20th of this year.
Combined with the expected benefits from the one big beautiful Bill.
The second being the ability to deduct intangible drilling costs for corporate Alternative, Minimum Tax, which comes into effect at the beginning of 2026.
Our total U S and UK current tax expense will be significantly lower compared to this year.
With that I'll turn the call back to the operator for Q&A.
For 2025, we expect a significant reduction in our U.S. current tax expense, driven by bonus depreciation changes and the recently passed legislation.
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.
Changes in 2024 tax estimates and other smaller items.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
This reduction is largely offset by an increase in UK current tax expense for higher revenues and lower operating costs have increased. Our taxable income.
Please standby, while we compile the Q&A roster.
Our first question comes from John Freeman with Raymond James Your line is open.
Starting in 2026, at current strip prices, we do not expect our UK operations to generate meaningful taxable income.
Thank you and good morning.
Combined, with the expected benefits from the 1, big, beautiful bill.
Good morning, John Adulation. Good morning, Congratulations on the continued progress on the cost savings initiatives.
Our total us and UK current tax expense will be significantly lower compared to this year.
Along those lines.
With that, I'll turn the call back to the operator for Q&A.
3 billion.
Long term net debt target.
<unk> been outlined.
As a reminder to ask a question, please press star 1, 1 on your telephone and wait for your name to be announced.
Timeline for achieving that target.
Maybe if you could provide some detail on the plan.
To withdraw your question. Please press star 1 1 1 again.
And whether or not divestitures might be used as a tool to kind of accelerate that timeline or possibly exceed.
In the interest of time, we ask that you please limit yourself to one question and one follow-up.
Please stand by while we compile the Q&A roster.
That target kind of on the heels of what you did with the recent new Mexico.
Our first question comes from John Freeman, with Raymond James, your line is open.
Thank you. Good morning.
Sure John.
When we outlined that target we thought it was responsible really to commit to this specific target and not really a date, which could move around and ostensibly be artificial.
Good morning John. Congratulations. Good morning. Congratulations on the uh, the continued progress on the, the cost savings initiatives. Um, along those lines would be uh, the new 3 billion. Uh,
Theres a lot of macro volatility and regulatory shifts that could just distort short term move in optics and that so we just thought that putting a target out there. It was more prudent now that being said.
At what we think is mid cycle pricing, which is pretty close to what we have seen last year and this year.
We will achieve that target.
Long-term, net debt Target, uh, that that been outlined. Do you have a, a timeline for achieving that Target and uh, maybe if you could provide some details on the planned, uh, and whether or not the vestures might be used as a tool to kind of accelerate that timeline or possibly exceed uh, kind of that debt Target kind of on the heels of what you did with the the recent New Mexico still
Likely by close to the end of this decade.
So call it in the next four plus or minus years.
If prices are higher than that can be accelerated and we might be able to achieve that earlier call. It in a couple of years and if prices for that entire time period or below then it could take a little bit longer call. It five years, but we expect to do that just through our organic free cash flow generation and really a.
<unk> of that 40%, that's not being returned to equity being directed towards getting our net debt down and it's just going to provide a lot of flexibility.
That still includes us managing our aero and decommissioning spend and we're getting that liability managed that allows us to invest in the future for exploration and other.
Other projects that we see necessary to continue to.
Help the future of Apache and so.
We didn't want to put a specific time on it we just feel very confident in the durability of our cash flows that.
We will be able to achieve it like I said call. It in the next three to five years.
Thanks for that Ben and then shifting gears and looking at kind of what you've outlined on slide 11.
Egypt, given the impact of the <unk>.
Gas pricing agreements.
The outperformance on the production side along with it.
The recent award of the additional 2 million acres.
<unk> can you sort of look out.
Next year, we would would this sort of indicate that there might be a shift to a larger percentage of the total cap.
Capex budget being allocated to Egypt.
Yes, John if you just step back and look Big picture at Egypt, I'll, just give it as a big award in.
Um, if prices are higher then that can be accelerated and we might be able to achieve that um earlier call it in a couple years. And if prices for that entire time, period are below. Um, then it could take a little bit longer call it 5 years but we expect to do that. Just through our organic um, free cash flow generation and really a commitment of that 40%. That's not being returned to equity being directed towards um, getting our net debt down and it's just going to provide a lot of flexibility. Um, you know, that still includes us managing our Aro and decommissioning spend and we're getting that liability managed. Um, it allows us to invest in the future for exploration and other um other projects that we seem necessary to continue to, um, you know, help the the future of Apache. And so um we didn't want to put a specific time on it. We just feel very confident in the durability of our cash flows that uh we'll be able to achieve
it, like I said, call it in the next 3 to 5 years
Thanks for that Ben and then uh, shifting gears.
I'll give a little bit of context.
We've been in the Western Desert now for over three decades and for those first three decades. We spent the majority of that time looking for oil.
Along the way we found some gas in some material gas feel like costs are over three Tcf and then a lot of associated gas in some rich gas and so we spent three decades looking for oil and trying to really stay away from gas.
At 11, uh, with Egypt giving the, uh, the impact of the, you know, the recent gas pricing agreement, uh the consistent outperformance on the production side along with uh the recent Award of the additional 2 million Acres uh in Egypt. When, when you sort of look out, um, to next year would
If you look at the Western Desert <unk> got 15 to 18000 feet of stacked pay it's all sand it's high quality.
With this sort of indicate that there might be a shift to a larger percentage of the total capex budget being allocated to Egypt.
We knew drilling deeper you would find it so.
If you go back what changed for Egypt, as they went from an export of LNG to an importer of LNG.
And.
With the change in the New Minister last summer early on we set a goal in place to let's put auto gas price in place it would incentivize us to get after drilling and we also had our eye on some acreage that is prospective for both oil and gas. So we worked through that direct award.
Yeah. John if you, if you just step back and look big picture at Egypt, uh, I'll just give you know. It is a big award and um I'll give a little bit of context. Uh we've been in the western desert now for over 3 decades. And for those first 3 decades, we spent the majority of that time looking for oil.
We've gotten after the program and.
Steve can talk a little bit about the impact we're having on the gas program and then I'll, let Tracey talk about what she sees as longer term upside for gas in the Western Desert, which we think.
Um, along the way, we found some gas and some material. Gas feels like costs are over 3T CF, and then a lot of associated gas and some rich gas. And so, you know, we spent three decades looking for oil and trying to really stay away from gas. If you look at the Western Desert, you've got 15,000 to 18,000 feet of stacked pay; it's all sand, it's high quality. You know, we knew if drilling deeper, you would find it. So,
Hey perspective.
Yes. Thanks.
John.
John said historically, we've we've been we've.
We've done what we could for the last 30 years to avoid gas, but we have encountered gas sometimes in large enough quantities that was worth developing sometimes rich enough with enough associated liquids that it was worth developing but sometimes we left it either undeveloped are underdeveloped.
Simply because the gas price that prevailed at the time it wasn't economic enough to deliver to develop the asset when we had more oil opportunities.
If you go back, you know what changed for Egypt is they went from an exporter of LNG to an importer of LG and uh, you know, with the change in the new Minister last summer, early on we set a goal in place to let's put a new gas price in place that would incentivize us to get after Drilling. And we also, you know, had our eye on some acreage that is prospective for both oil and gas, so we worked through that direct award. Um, we've gotten after the program and uh, you know, Steve can talk a little bit about the impact we're having on the gas program.
And.
Nine months now we've focused on on going back after those opportunities, mostly things that we left undeveloped or underdeveloped.
and then I'll let Tracy talk about what she sees is longer term upside for gas in the western desert which we think
Perspective.
And the results have been quite striking.
Where there are more known opportunities to go so there is more to do in that space.
And the good thing is that through that we're actually de risking what I would call kind of a minor step out type of if you want to call. It exploration step out opportunities beyond what we know is there we're derisking those and theres quite a bit of those for the near term future as well.
So the obvious question is well how long can this type of performance run and actually potentially for for quite some time, but at the same time. We're also stepping back and Tracey's team is looking at let's just step back and look at the whole regional geology around this seven 5 million acre position that we have now.
Yeah. Thanks John. You know, as John said historically we've we've been, we've done what we could for the last 30 years to avoid gas. Uh but we have encountered gas sometimes in large enough quantities. That was worth developing sometimes Rich enough uh with enough Associated liquids that it was worth developing but sometimes we left it either undeveloped or underdeveloped um simply because the the gas price that prevailed at the time, wasn't economic enough, to deliver to develop the asset. When we had more oil opportunities and
You know, in 9 months, we've focused on going back after those opportunities, mostly things that we left undeveloped or underdeveloped.
And what's the potential for even larger scale gas opportunities and I'll, let tracey talk about that.
Sure. Good morning, John So with the new acreage additions, we're going to be really well positioned to both expand our existing proven plays for both oil and gas and testing new concepts to add inventory and so for example in the western portion of our acreage and the cigar Shushan region. We've had some recent success by drilling.
And, and the results have been quite striking, um, where there are more known opportunities to go. So there there is more to do in that space. And the good thing is that through that we're actually de-risking what I would call kind of minor step out type of of, if you want to call it, exploration the step out opportunities beyond what we know is there. We're de-risking those and there's quite a bit of those for the near-term future, as well.
And so the obvious question is well, how long can this type of performance run? And and actually potentially for for quite some time.
Deeper to the Paleozoic and have encountered some really good discoveries for gas.
We're really building on that success, thereby extending the Paleozoic plays both to the west into south into the direct award acreage, where we believe we have mature gas pump source rocks in the Paleozoic. So we see that deep play continuing and we think we've got a lot of running room, because thats a very under explored play in a mature area.
But at the same time, we're also stepping back and Tracy's team is looking at. Well, let's just step back and look at the the whole Regional geology around this 7 and a half million acre position that we have now. And what's the potential for even larger scale gas opportunities? And I'll let Tracy talk about that.
And in the AG base, and which was in the southern central portion of our acreage and this is one area, where we have previously focused and only limited ourselves to oil prospects in the shallower and shallower Cretaceous targets and now this is a big area for us for big gas and a big focus.
And so we're quite excited about this because this is an area that has a proven basin.
But it's been under explored because we've been avoided drilling for gas and so the gaslog portions of this basin. We think we have a lot of running room in and.
The last area.
And then I'll touch on is the acreage to the east.
Which will allow us to expand extend our oil plays as well. So we've picked up a block there with only eight wells drilled in it. So it's very under explored for a very sizable area and we see evidence on seismic that some of our proven.
Positioned to both expand our existing proven place for both oil and gas and tests and New Concepts to add inventory. Um, so for example, in the, in the western portion of our acreage, um, in the far shushan region, we've had some recent success by drilling deeper to the Paleozoic and have encountered some really good discoveries for gas. So we're really building on that success there. By extending the Paleozoic plays both to the west, and to the South into the direct award acreage, where we believe we have mature gas, prone, Source, rocks in the Paleozoic. So we see that deep play continuing and we think we've got a lot of running room, because that's a very underexplored play in a mature area,
Cretaceous plays in the Western Desert expand into this area and so we've got some new play tests there as well. So we're really encouraged by what we're seeing on three D seismic and we'll be testing some of those later this year. So we're in a really good position to both leverage what we know in the desert and testing new concepts and Im really optimistic on what we're going to be able to delay.
And in the AG Basin, in which was in the southern central portion of our acreage. Um, this is 1 area where we've previously focused and only limited ourselves to oil prospectivity and the shallow shallower Cretaceous targets. And now this is a big area, um, for us for big gas and a big Focus. Um, so we're quite excited about this because this is an area, that's a proven Basin. Um, but it's been under explored because we've been avoided drilling for gas. Um so the gas pump, portions of this Basin? We think we have a lot of Running Room in
In Egypt for the exploration program.
Um, the last area.
If I could just wrap that up I mean, we're.
Then I'll touch on is the acreage to the east.
We're operating now in a seven 5 million acres in what's obviously, a hydrocarbon rich basin.
And with the.
With the new gas price agreement.
We can actually operate in a way, where we don't have to avoid certain types of hydrocarbons.
Hydrocarbons, we can just.
We can just pursue the best prospects and.
And we were really almost indifferent overtime to whether it's oil or gas.
Which will allow us to expand. Expand our oil place as well. So we picked up a block there with only 8 Wells drilled in it. So it's very underexplored for a very sizable area and we see evidence on seismic that some of our proven uh, Cretaceous plays in the western desert expand into this area. Um, so we've got some new play test there as well. So we're really encouraged by what we're seeing on 3D seismic and we'll be testing some of those later this year.
Thanks, everyone I really appreciate all the detail.
So we're in a really good position to both, you know, leverage what we know in the desert and test some new Concepts. And I'm really optimistic on what we're going to be able to deliver in Egypt for the expiration program.
Thank you. Thank you John.
Our next question comes from Doug Leggate with Wolfe Research Your line is open.
Thanks, Good morning, everyone.
You know, if I could just thanks wrap that up. I mean we're you know, we're we're operating now in a 7 and a half million acres in what's obviously a hydrocarbon-rich basin.
John This is starting to look a lot like a turnaround so congrats on the quarter, but there is a lot of things to dig into I'm going to take two if I may.
and with the
And Thats the one sore point, perhaps with the market, which is there is still no visibility on inventory in the Permian. So you Havent commented on not in quite some time.
With the new gas price agreement. Um we can actually operate in a way where we don't have to avoid certain types of of hydrocarbons we can just
we can just pursue the best prospects.
I Wonder if you could address that.
And we, we're really almost indifferent over time to whether it's oil or gas.
The associated run rate comparable we should expect for that maintenance of the new production level that you highlighted in your comments.
Thanks everyone. I really appreciate all the details.
You are. Thank you, John.
Yeah, Doug I'll jump in and the first thing I'll say is.
Our next question comes from Doug. Luggage with wolf research. Your line is open.
We're always culturally looking for how do we continuously improve and drive innovation and now if you look at the impact you're seeing on the capital efficiency today in the Permian. Those are results that are really a credit to both the technical teams and the field staff for really focusing on operations excellence over the last two years.
We've continued to build a lot of momentum youre seeing those results come in and quite frankly, there's a lot of upside and more we still see to bring forward.
In my prepared remarks, I outlined how our Permian development strategy is evolving.
Oh, thanks. Good morning everyone. Um, John. This is starting to look a lot like a turnaround, so, uh, congrats on on the quarter. But um, there's a lot of things to dig into. I'm going to take 2, if I met. Uh, and it's the 1 sites, there's still no visibility on inventory in the Parian. So you haven't commented on that in quite some time. So I wonder if you could address that and the associated run rate Capital, we just we should expect for that maintenance of the new production level that you highlighted in the in your comments.
And a lot of areas now, where we're drilling more wells per section with smaller fracs and thats really a function of getting the cost down and being able to drive the capital efficiencies.
And where we are we're in the process of characterizing all of our inventory at all of the upside zones in the Permian.
I've seen what I'd call the core inventory.
And where we historically, what I've said to the end of the decade I can tell you today looking at what I would call core development inventory, we're now well into the 20 <unk> with run rate in terms of existing pace and time and Theres a lot more we're still working on it is a very iterative process.
Yeah, Doug. I'll I'll uh, I'll jump in. And, you know, the first thing I'll say is, you know, we're always culturally looking for how do we continue to improve and drive Innovation. And, you know, if you look at the impact you're seeing on the capital efficiency today in the Permian those are results that are really a credit to both the technical teams and the field staff who are really focusing on operations Excellence, over the last 2 years. Uh, We've continued to build a lot of momentum. You're seeing those results come in and, and quite frankly, there's a lot of upside and more. We still see to bring forward um, in my prepared remarks, I outlined how our Parian development strategy is evolving.
The teams have been working hard on it and we should be in a position either late this year early next year to give some more color on that but it's progressing I am excited about the impact we're seeing.
Uh, in a lot of areas now where we're drilling, you know, more wells per section with smaller fracks. And it's really a function of getting the cost down and being able to drive the capital efficiencies.
And Steve can get into some of the results, but if you look at some of the pads. We're drilling today, we've gone back into Overfill areas and are having fantastic results. So.
Very excited we'll be at the Permian on our existing portfolio for a long time.
Yes, John.
If people will indulge me a bit with a bit of time.
I think if you.
Just step back capital efficiency changes everything and our industry and Thats always been true in our industry.
Lower cost leads to the ability to access more resource and all you have to do is look at the history of the Permian conventional to see that we're as cost came down people went from 40 acre spacing to 20 acre spacing to 10 acre spacing.
Increasing well density and even promoting resource from economic to.
Uneconomic to economic status.
Drilling today, we've gone back into overfill areas and are having fantastic results. So um, very excited. Uh, we will be, you know, at the Parian on our existing portfolio for a long time.
In the unconventional space in Permian.
Increasing well density also enables as you alluded to lowering frac intensity, which then further compounds the lower cost structure that you have on a per well basis.
Yeah, John, just if people will indulge me a bit with a bit of time um,
you know, I think if you just step back Capital efficiency changes everything in in in our industry and that's always been true in our industry and
So for us.
Capital efficiency has really led to here recently to a step function change in our capital efficiency and.
<unk> is leading to pretty meaningful changes in our development patterns and I don't I don't use the term step function change very lightly either because I think thats adequate descriptor of what we've done over the last several quarters.
Uh, that lower costs leads to the ability to access more resource and all you have to do is look at the history of the puran conventional to see that. Where as costs came down, people went from 40 acres, spacing to 20 acres spacing to 10 acres spacing
Uh, you know, increasing well, density and even promoting resource from economic to econ, to uneconomic to, to economic status.
We are increasingly well count we're decreasing frac intensity as you alluded to that generally lowers average well productivity, yes, but at the <unk> level drilling spacing unit level.
In the unconventional space and Permian that increasing well density. Also enables as you alluded to lowering Frac intensity, which then further compounds the lower cost structure that you have on a per. Well basis.
and so, for us,
Our increasing total resource access and lowering breakeven oil prices, we talked about in count in Cowen and 2023 Cowen had a $78 <unk> oil breakeven price in 2024, we lowered that to $61.
Currently in the Permian, we are running on average in the low forties across the entire Permian in terms of a WTO breakeven oil price.
In Midland Basin, we are running in the high Thirty's and in the Delaware Basin were in the low fifties and most of that Delaware basin stuff is talent.
So Cowen has come down in 2023 from a $78.
Breakeven oil price to low 50 is at this point.
All of this is increasing net asset value and and increasing inventory duration as you alluded to.
And while I say average well productivity is lower I think.
You know, Capital efficiency is really led to Here recently to a step function change in in our Capital efficiency and and is leading to pretty meaningful changes in our development patterns. And I don't, I don't use the term step function change, uh, very lightly either because that I think that's a an adequate descriptor of what we've done over the last several quarters. Uh we're increasing. Well count. We're decreasing Frac intensity as you alluded to that generally. Lowers average well productivity, yes, but at the DSU level the drilling spacing unit level we're increasing Total Resource access and lowering Break, Even oil prices. We talked about in count in Kalen, in 2023. Carolyn had a 78, WTI oil Break, Even price in 2024. We lowered that to 61
Its.
Focus on average well productivity is actually not the right metric you really have to focus on the spacing unit because wells in a spacing unit are interdependent.
Currently in the Permian we are running on average in the low 40s across the entire Parian in terms of a WTI Break Even oil price.
And it's the spacing unit that actually matters, just a couple of years ago.
Well followed industry Analyst group noted that Apache have.
Apache's wells have 30% more EUR than industry average.
In the Midland Basin, we're running in the high 30s, and in the Delaware Basin, we're in the low 50s. Most of that Delaware Basin stuff is counted. And so, Ken has come down in 2023 from a 78.
And I was just a couple of years ago and these were highly productive wells.
Break Even oil price to low 50s at this point.
But at today's cost structure that we have that development pattern with the wider spacing and larger fracs would actually leave a pretty meaningful amount of economic resource behind.
And so today, our development patterns as you said.
Much tighter.
Uh, all of this is increasing net, asset value and and increasing inventory duration as as you alluded to and and while I say average well productivity is lower I think it's you know, a focus on average. Well, productivity is actually not the right metric. You really have to focus on the spacing unit because wells in a spacing unit, are interdependent
Smaller fracs, they're lower EUR per well lower productivity per well, but more inventory more resource more NAV.
Lower breakeven oil price and so if you look at some of our most recent wells.
Using new development patterns. These are delivering these wells are delivering as we planned.
And it's the spacing unit that actually matters just a couple years ago. Um, a well, followed industry analyst group, noted that Apache have apache's wells, have 30% more eular than industry average. And I was just a couple years ago and these were highly productive Wells.
Some are over plan some are under plan Thats always the case.
But importantly, some of these ones that are under plan, we're actually learning from those and improving its not just because they can't be improved its because there are things that we're learning and improving along the way.
But, at today's cost structure that we have, that development pattern with the wider spacing and larger fracks would actually leave a pretty meaningful amount of economic resource behind.
and so today, our development patterns as you said,
And I think some some really important context that might not be visible to the market, especially related to.
Uh, much tighter. Um,
Some of these recent wells that we've been we've been drilling is that theres been some temporary constraints or curtailments on the productivity impacting perceived well produce ability.
Smaller fracks, they're lower EUR per well, lower productivity per well, but more inventory. More resource, more NAV, lower break-even oil price. And so, if you look at some of our most recent wells,
A few examples of that in the Delaware basin at the <unk> facility.
Using new development patterns, these are delivering these ones are delivering as we plant.
As we noted in the fourth quarter, we were actually curtailing production on those intentionally because of the low oil price that wasn't going to last very long it was because of.
Some pipeline maintenance that was going on at a really low price at Wahaha and so we intentionally curtailed production for a while.
Um some are over plan, some are under plan as that's always the case. Um but importantly, some of these ones that are under plan were actually learning from those and improving. It's not just because they, they can't be improved. It's because there are things that we we're learning and improving along the way.
Drilling and completion and the Gahr area also actually.
And I think some really important context that might not be visible to the market, especially related to...
Significantly outpaced our facility logistics.
Facility just wasn't completely ready for that that was that's been fixed since then.
Some of these recent Wells that we've been, we've been drilling, is that there's been some temporary constraints or curtailment on the productivity impacting perceived well, producibility.
Also in the Delaware Basin, there's a facility called Wild Ginnie.
We currently have 14 producers into the wild Ginnie facility.
<unk> been producing for the last few months if.
If you looked at the production that those of those wells you say well that's not that's not really very exciting.
But again facility logistics drilling and completions going faster than facilities.
Have also constrained those wells productivity for the last few months, we actually like the underlying performance and we think the rock quality of those wells are actually really good.
Place at Waha. And so, we intentionally curtailed production for a while.
Uh, drilling and completion, and in the GAR area also, actually.
We've got 24 more turn in lines into the Wilds Ginnie facility by the end of this year.
We significantly outpaced our facility logistics, and the facility just wasn't completely ready for that. That's been fixed since then.
The production from those wells, even though that might lie on paper might not look all that great.
The production from those are actually de risked those 24 turn in lines. The facility is being worked on as we speak being debottleneck and being completed actually.
Also in the Delaware Basin, there's a facility called Wild Jenny. We currently have 14 producers in the Wild Jenny facility, and they've been producing for the last few months.
And we expect that all 38 of those wells will flow unconstrained or nearly unconstrained by the end of this year.
And perhaps most importantly in the Midland Basin.
In the wildfire area, we've got the silver belly facility and wildfire is the area, where we're going back in and drilling what we call over sales, which is we're drilling drilling a shallower zones, where we in prior years developed.
If you looked at the production that those of those Wells, you say, well that's not, that's not really very exciting. Um, but again facility Logistics Drilling and completions going faster than facilities. Um have also constrained those Wells productivity for the last few months. We actually like the underlying performance and we think the rock quality of those Wells are actually really good. Um we've got 24 more turn-in lines into the wild Jenny Facility by the end of this year.
On the wider spacing with what we call Mega Fracs at the time and there is there is some doubts or concerns out there about well what are these wells going to produce with those mega fracs down below than that's been producing for a few years.
And the production from those wells, even though it might not on paper, might not look all that great.
Well at the silver ability facility, we've had delays we had delays in delivering power to the facility and we have electric compression there so that actually constrained early production from those wells as well.
Yeah, the production from those has actually de-risked those 24 turning lines. The facility is being worked on as we speak, being the bottleneck, and is actually being completed. We expect that all 38 of those wells will flow unconstrained, or nearly unconstrained, by the end of this year.
and perhaps most importantly, uh, in the Midland basin,
The wells were ready, but the facility wasn't completely ready.
That power is now online the electric compression is up and running and the performance of those wells have actually improved significantly. So the point to all of this is that it's a bit hazardous looking at either comparing well productivity today to two years ago. When we were developing at a much different pattern.
It's also a bit hazardous looking at short term production from new wells when there might be constraints.
And the Wildfire area. We've got the silver belly facility and a wildfire is the area where we're going back in and drilling what we call overfill which is we're drilling drilling shallower zones where we in Prior years developed um on The Wider spacing with what we call, Mega fra at the time. And there's there's some doubts or concerns out there about. Well what are these Wells going to produce with those Mega fracks down? Below them that have been producing for a few years.
Or other reasons that facilities, we look at the wildfire production and the wells that are online today.
Well, at the Silverbelly facility, we've had delays in delivering power to the facility, and we have electric compression there. So, those that actually constrained early production from those wells as well.
And we actually believe that that's derisked quite a bit of quite a bit more drilling in that area.
Very thorough answer Steve and I appreciate that I wonder if I could just put a bow on it what is the sustaining capital in the Permian.
Production, what is the spending run rate into 'twenty six.
Doug I think if you looked at us today.
Six rigs and if you adjust our numbers for the <unk>.
The Mexico sale. This year, we're in the low 120 range. So I would say going into 'twenty six right now.
Uh, the wells were ready, but the facility wasn't completely ready. Uh, that power is now online, the electric compression is up and running, and the performance of those wells has actually improved significantly. So, the point to all of this is that, you know, it's a bit hazardous looking at either comparing well productivity today to two years ago when we were developing at a much different pattern. Uh, it's also a bit hazardous looking at short-term production from new wells when there might be constraints.
Rigs 120, and I think you need to look at our capital number back half of this year will be lighter than that so.
Uh, or other reasons that facilities, uh, we look at the Wildfire production uh and the wells that are online today, and we actually believe that that's de-risked quite a bit of more quite a bit more Drilling in that area.
You are probably more in the six rigs.
Range, Ben Yes, I think Doug just if you annualize second quarter through fourth quarter of this year that'll give you a decent proxy.
Very thorough answer, Steve, and I appreciate that. I wonder if I could just put a bow on it. What is the sustaining capital on the Parian?
For next year.
Which is lower than 25% full year.
As expected with the cost savings initiatives, and we think there's even upside to that but just from where we sit right. Now if you annualize our second quarter through fourth quarter spend this year that will give you a decent proxy for what to look out for next year on U S capital.
Alright, guys I have more questions, but you've taken a long time to answer this one so I'm going to turn it back someone else jump on that thanks, so much.
Thank you Doug.
Thank you. Our next question comes from Michael CLO with Stephens. Your line is open.
Yeah.
Good morning, everybody.
No.
<unk> pushed back on their second quarter call and the possibility. They were ahead of schedule.
Production, what is the spending run rate into 26? I mean that no, I think if you looked at us today, uh, you know, 6 Rigs, and if you had just our numbers for the, uh, the New Mexico sale this year, we're in the, the low, 120 range. So, you know, I, I would say going in to 26 right now. 6, rigs, 120. And I think you need to look at a, you know, a capital number, you know, back half of this year will be lighter than that. So, um, you're probably more on the 6 uh, range. Then, yeah, I think Doug just, um, if you annualize second quarter through fourth quarter of this year, that'll give you a decent proxy, um, for for next year, um, which is lower than 25 full year.
Surname.
Sticking with the first oil in mid 2008, but is it fair to say that.
The fact, youre, increasing the budget for <unk> milestone payments reflects.
As expected with the cost-saving initiatives, and we think there's even upside to that. But just from where we sit right now, if you annualize our second quarter through fourth quarter spend this year, that'll give you a decent proxy for what to look at for next year on U.S. Capitol.
That project's moving more quickly at least than you anticipated.
Mike What I'd say is first of all I really want to complement the hotel I mean, they stepped in and we did this thing last fall.
All right, guys. I had five more questions, but I’ve noticed it’s taken a long time to answer this one. So I’m going to turn it back and see if someone else can jump on. But thanks so much.
Thank you, Doug.
<unk> got after it and they're really validating that we pick the right partner.
Thank you. Our next question comes from Michael ciala with Stevens. Your line is open.
<unk>.
Morning everybody. Uh,
What I would say is overall project is.
As moving as scheduled.
Actually moved.
From early next year payments to this year you are seeing some milestones on some of the things like the Fps, So moving a little quicker, but nothing thats going to change. The overall project at this point or increase the overall costs. So it's just some of the noise I would call it between a calendar year of what's getting <unk>.
No, uh, Hotel pushed back on their second quarter call and the possibility they were ahead of schedule and, uh, CM, and you're sticking with the first oil and mid-28, but is it fair to say that?
The fact that you're increasing the budget for Grand Moru milestone payments reflects,
Moving more quickly, at least in new anticipated.
Paid.
Because as you complete certain aspects of the.
The infrastructure and things to those or do so no real change at this point, but things are progressing very very well.
Okay. It sounds good.
Under asked on an Alaska, you gave a little bit of.
Detail on that.
Yes.
I guess and the technical work that's being done there did I hear you correctly that.
It's just seismic reprocessing for a while and no drilling until.
$26 seven winter.
Wanted to get <unk>.
Progress report, there and what Youre looking at that with the reprocessed Mike.
If you step back two years ago, and our partner originally spud three wells three prospects on the block there.
Mike what I'd say is, you know, first of all, I really want to complement total. I mean, they stepped in. We FID this thing last fall, and they have gotten after it and they're really validating that we picked the right partner. Uh, you know, for Surinam, what I would say is overall project is uh you know, is moving is scheduled. What's actually moved? Is it you know from early next year payments to this year, you're seeing some Milestones on some of the things like the fpso, moving a little quicker but nothing that's going to change the overall project at this point or an increase the overall cost. So it's just some of the noise. I'd call it between a calendar year of what's getting paid uh because as you complete certain aspects of the um you know the infrastructure and things. Those are due. So uh no real change at this point but things are progressing, very, very well.
The only one that got down we ran into a shortened winter and they add some drilling challenges with the equipment. They only world. We TD Ed was King Street and it was a successful discovery in the broking in play.
Okay, sounds good. 1 to ask on an Alaska. You give a little bit of uh,
Detail on that. Um,
What <unk> told US is that you can move 90 miles for many of the offset development and we had a really high quality sand.
I guess, uh, in the technical work that's being done there, um, did I hear you correctly that, um, it's just seismic reprocessing for a while and, uh, no drilling until, um,
So when we when we looked at this year's program.
We wanted to go in and drill one well.
The well, we elected to drill with Sakai. It is not the largest prospect, but the reason we prioritize Sakai. This year was it had the highest quality seismic data and what we were hoping to prove the sakai as one oil two high quality Sands, we did both of those.
25 feet of net pay.
Amplitude supported over 25% to 30000 acres really high quality sand and it's all oil so and then the flow tests confirm the perm is much better than what's being developed so we're very very happy.
The 26, 27 Winter, I guess, uh, wanted to get, uh, you know, progress report there. And what what you're looking at with the, uh, reprocessing. So Mike, if you, if, if you step back 2 years ago, and our partner, you know, originally Spud, 3 Wells, uh, 3 prospect on the Block there. You know, the the only 1 that got down. We ran into a shortened winter and they had some drilling, you know, challenges with the equipment, the only weld me TD was King Street and it was a successful Discovery in the Brookie and play. You know what King Street told us is that you can move 90 miles from any of the offset development and we had a really high quality sand.
When you step back as I said Sakai was not the biggest prospect.
We've got a bunch of different seismic surveys and so with the success. We have now had on both the east and the west side of the block.
The next big step is a really let's reprocess the seismic put all these together because quite frankly.
Where we place the next exploration well and then the timing and the plan on how we appraise Sakai are important and our bet.
Better picture across the whole block from a regional perspective.
What's key right now and it takes a little bit of time and so there's a lot of data to integrate it won't be just the seismic the technical teams are doing are going to be working but yes. Its likely winter of 2006 before we move a rig back out there.
So when we, when we looked at this year's program uh we wanted to go in and drill 1. Well uh the well, we elected to drill with Sockeye. Uh, it is not the largest Prospect but the reason we we prioritize Sockeye this year, was it had the highest quality seismic data and what we were hoping to prove the Sockeye is 1 oil to high quality Sands. We did both of those uh you know 25 feet in that pay its uh amplitude supported over 25 to 30,000 acres, really high quality sand and it's all oil. So you know, and then the flow tests confirmed. The perm is, you know, much better than what's being developed. So we're very, very happy.
Anything you want to say.
No John I think you covered it I think the most exciting thing as John mentioned was that we.
Proved the play concept.
Moving from the peak and we will have discoveries to the block on the other side of <unk>, which was a really big story and I think we've just really been bolstered by the success that we've seen it's sakai as well that further demonstrates a working hydrocarbon system with really good reservoir quality and an oil charge.
Sounds good thank you very much.
Thank you Mike.
Thank you. Our next question comes from Betty Jang with Barclays. Your line is open.
Good morning.
It's great to see DRC taxes coming down so much.
When you step back, as I said, Sakai was not the biggest Prospect. Um, we've got a bunch of different seismic surveys. And so, with the success we've now had on both the East and the west side of the block. Uh, the next best step is to really. Let's reprocess the seismic put all these together because quite frankly, um, where we place the next expiration, well and then the timing on and the plan on how we appraise Sakai or, or important and, you know, a better picture across the whole block, from a regional perspective. Uh, is what's key right now and it takes a little bit of time and so there's a lot of data to integrate. It won't be just the seismic. The technical teams are doing are going to be working. But yes, it's likely, winter of 26 before we move a rig back out there and Tracy anything you want to say.
Sure.
Yes.
Help us just apart.
Luckily, it's driving that drop.
The <unk> spend is going up.
In a meaningful way next year and if you could just remind us what's the general trajectory of that decommissioning activity over the next few years.
No, John, I think you covered it. I think the most exciting thing is Gene mentioned was that, you know, we proved the play concept um, moving from the Pika and Willow discoveries to to the the block on the other side of Prudhoe Bay, which was a really big story. And I think we've just really been bolstered by the success that we've seen at Sakai as well. That further demonstrates a working hydrocarbon system with with really good Reservoir quality and an oil charge.
Sounds good. Thank you very much.
Sure.
It really just step back when you look at the U K. This year. The team has done a really great job with the asset as you can tell in the first half.
Thank you, Mike.
Thank you. Our next question comes from Betty, Jen with barklay, your line is open.
We've gotten production higher than expected and we've been the team has been cutting a lot of cost there.
And Thats increased taxable income for this year, but when you step back and consolidate everything that means that free cash flow for that asset is also up.
At some point with production continuing to decline without investment in the asset.
Good morning. Um, it's great to see necessary taxes coming down so much next year. Um, could you help us just unpack what exactly is driving that drop? Does it mean the ARO span is going up in a meaningful way next year?
In the future it will be at a tax loss position and.
And if you could just remind us what the general trajectory of that decommissioning activity is over the next few years.
At strip pricing and current investment levels.
We think that Thats <unk>.
<unk> likely going to happen in 2026 until then we will continue to manage productivity and costs on that asset and the profitability of that asset.
But at some point it will get to a tax loss position just inherently through the asset standing alone from.
Regardless of the Aro spend and so then you.
Throw on there it will increase next year compared to this year.
And we've been, and the team's been cutting a lot of costs there. Um, and that's increased taxable income for this year. But when you step back and consolidate everything, that means that free cash flow for that asset is also up.
As we as we start to do more planning.
<unk> decommissioned certain assets in the North sea.
What Steve said I think a few quarters ago about the shape of that is.
It will it will increase pretty steadily from 'twenty, five and kind of peak in the 2000 32031 context, and then decline from there into 2038 so.
<unk>.
All the while the team is focused on safety and really managing those assets for profitability. The tax regime, there has been challenging.
You know, at some point with production, continuing to decline without investment in the asset, um, in the future, it will be at a a tax loss position and um that that strip pricing and and the current investment levels. Um, we think that that's um likely going to happen in 2026, you know, until then we'll continue to manage productivity and costs on that asset and the profitability of that asset. Um but at some point it will get to a tax loss position just inherently through the asset standing alone from um
But for US we expect at some point likely in the next call it.
12 months or so at some point next year.
There won't be taxable income there and so we won't be paying cash taxes on that asset.
Regardless of the Aro Spin. And so then you you put Aro on there, it will increase next year compared to this year. Um, as we, as we start to, to do more planning and, um, decommissioned certain Assets in the North Sea,
Got it thank you Ben Thats helpful color.
My follow up is on the free cash flow profile of the ETF business.
Just given the gas price improvement that you're seeing.
Saving initiatives.
They implemented now maybe one way of looking at the Egypt.
How much free cash flow do you think that business can generate on a sustainable basis.
Um, you know what Steve said? I think a few quarters ago about the shape of that is, um, you know, it'll, it'll increase pretty steadily from 25 and kind of peek in the 2030 2031 context and then decline from there into 2038. So um, you know, all the while the team is is focused on safety and and really managing those assets for profitability, the tax regime there has been
Sure.
When you when you step back this year and you look at the beginning of the year, where we were.
We had some some expectations for what we're going to do on the gas side and we've clearly exceeded.
Challenging. Um, but for us, we expect at some point likely in the next call it, you know, 12 months or so some point next year. Um, there won't be taxable income there and so we won't be paying cash taxes on that asset.
A lot of that this year.
And with the increased gas production as well as the step change in the gas price, which you've seen quarter on quarter delivery.
Free cash flow for that asset net is up and that includes the modest decline in oil that youll see just year on year $24 25, and at this activity set.
Got it. Thank you, Ben. That's a helpful comment. Um, my follow-up is on the free cash flow profile of the Egypt business. Um, just given the gas price improvements that you're seeing and the cost-saving initiative that's being implemented. Now, maybe one way of looking at the Egypt business is, how much free cash flow do you think that business can generate on a sustainable basis?
With the oil.
With the oil investment that we're doing with about two thirds of activity on oil and one third on gas.
Sure. Um, you know, I think when you step back this year and look at the beginning of the year, where we were, um,
It will likely decline next year as well.
But that's going to be more than offset by gas production in the gas price and so.
We expect we'll continue to to grow and that they will grow this year and I think that that trend can continue next year and that implies a.
A modest free cash flow increase year on year as well.
Thank you for that detail. Thank you.
Thank you. Our next question comes from Paul Cheng with Scotiabank. Your line is open.
You know, we we had some some expectations for what we were going to do on the gas side and we've clearly exceeded um a lot of that this year. Um and with the increased gas production as well as the the step change in the gas price, which you've seen quarter on quarter delivery, um, you know, free cash flow for that asset. Net is up and that includes the, um, the modest decline in oil, that you'll see just year on year, 24 to 25. And at this activity set, um, with the oil with the oil investment that we're doing with about 2/3,
Hi, good morning, guys.
I don't know Lauren and Paul.
Good morning, John I don't know, yes, its for John or Steve.
Just curious that I mean, as you move to doing more gas.
Organizational capability standpoint, as well as the.
The equipment availability and eating how big is the poll Graeme you can do I mean, if we set aside.
The capital constrained just looking and organizational capability.
Birds of the activity on oil and 1/3 on gas. Um, it'll likely decline next year as well. Um, but that's going to be more than offset by, um, gas production and the gas price. And so boies, we expect will continue to, um, to grow and that we still grow this year. And I think that, that Trend can continue next year and, um, that implies a, uh, a modest free cash flow increase year on year as well.
Thank you for that detail. Thank you.
We used a constrained can we do with that program I mean, because it seems like you're so attractive on those development can you do you foster.
Thank you. Our next question.
Chang with.
You have that capability and also if the market your equipment and can support it.
Yeah, Paul it's a great question.
I'll jump in here and then Steve can add if need be but.
From an organizational standpoint, we've got the capacity.
And if you step back and look in the Western desert in the supplement we put a picture in there that shows a lot of the infrastructure.
We developed in the early two thousands of field tougher came out about 750 million a day three tcf.
So when you step back I mean, I think the biggest thing for us is.
Is characterizing on the exploration side I mean, we've historically been focused on oil for three decades, we've now been looking for gas for nine months and so with the new acreage in the seismic it's letting the team have time to work up some of the larger exploration prospects.
Hi, good morning guys. Um, I don't know man. Hey, good morning, John. I don't know if it's for John or for Steve. Uh, just Q is that I mean as you move to um doing more gas from a organization or capability standpoint, as well as the, uh, the equipment of availability in Egypt, how big is the program you can do? I mean, if we set aside say, uh, say Capital constraint, just looking at organizational capability, uh, where where is the constraint? Uh can we do the program? I mean, because it seems like it's so attractive on those development. Can you do it faster? Do you have that capability? And also is the market equipment can support it.
Prioritizing those and drilling some of those are going to be the keys to set this up in terms of what can we do in Egypt on the gas side, but it's a very very gas prone basin.
There's a lot of potential I think it's just going to take a little bit of time for us to.
To work the entire at $7 5 million acres.
Hey, John just curious John I'll add on.
One on the.
On the <unk>.
The gas processing side, if you look at field infrastructure on the gas processing side, we've got a significant amount of OLED. There. We've got we produce a bet around 500 million cubic feet a day today, we've actually got.
Plant processing capacity of about 800 million cubic feet a day.
In.
And the limitation for us is really in the field around gathering and transport to the facilities.
And in new areas, it's a need for trunk lines, and that's kind of fairly simple in the producing areas of legacy producing areas were dealing with pressure regimes as youre dealing with older legacy production, it's lower pressure with the new.
So when you step back, I mean I think the biggest thing for us is uh is characterizing on the expiration side. I mean we've historically been focused on oil for 3 decades we've now been looking for gas for you know, 9 months and so with the new uh acreage and the seismic it's just it's letting the team have time to work up some of the larger expiration prospects and prioritizing those and drilling. Some of those are going to be the keys to, you know, setting this up in terms of what can we do in Egypt on the gas side but it's a very very gasp prone Basin. Uh, there's a lot of potential I think it's just going to take a little bit of time for us to, uh, you know, to work the entire. It's 7 and a half million Acres.
Hey, John, just curious. I mean, yeah, John, I just add on the, um.
Gas discoveries in gas production volume that comes in at higher pressure and Thats, a bit more complex and dealing with that.
On on the on the on the gas processing side. Do you if you look at field infrastructure on the gas processing side, we've got a significant amount of oage there. We've got we produce about around 500 million cubic feet a day today. We've actually got
We've been working through those limitations actually extremely effectively.
plant processing capacity of about 800 million cubic feet a day.
um,
But more infrastructure eventually will be needed. If we have the exploration success that we actually anticipate we have for the long term we.
We will need to develop low pressure and high pressure systems.
We will we will need compression.
And there are some there are some other actually other existing or anticipated facilities in the area of third party facilities, where we're actually having conversations already with some of these third parties about could we get access to.
Your capacity, which would lead to.
Additional capacity much more easily ready available to us and a lot less capital and some cases rapidly readily available actually today and I think in the longer term.
And and and the limitation for us is really in the field around Gathering and transport to the facilities and and you know in new areas it's a need for trunk lines and that's kind of fairly simple in the producing areas, a legacy producing areas, we're dealing with pressure regimes, as you're dealing with older Legacy production, that's lower pressure with the new, uh, gas discoveries and gas production volume that comes in at higher pressure. And that's a bit more complex in dealing with that. Um, we've been working through those limitations actually, extremely effectively, um,
Exploration as you mentioned is going to determine a way forward around cost.
Growth.
Hey, Steve just curious in the past when you're developing oil.
<unk> said you need about two workover wakeful, one drilling rig.
And then that become a.
A bottleneck.
Because if you just could not find enough off the levels of link that's why your scope backing in your program in oil.
I guess based on your experience that what's that ratio.
Yes, I guess, it's not going to share the same ratio and actually we don't we don't necessarily that ratio doesn't stay constant even on the oil side because I.
But more infrastructure eventually will be needed if we have the exploration success that we actually anticipate we have for the long term. Uh we'll need to develop low pressure and high pressure systems. Um we will we will need compression uh and there are some there are some other actually other existing or anticipated facilities in the area third-party facilities where we're actually having conversations already with some of these third parties about it. Could we get access to, to, to Your Capacity, which would lead to, uh, additional capacity, much more easily ready, uh available to us and at a lot less capital and and in some cases readily readily available actually today, I think in the longer term uh exploration as you
I think I think you were probably talking about the situation that we had a year or so ago, a couple of years ago. When we were running.
Mentioned is going to determine the way forward around cost. I mean around growth.
At one point, we were running as many as 21 drilling rigs and I think we had about 'twenty or 'twenty, one workover rigs running at the same time and the issue on the oil side is that.
A lot of the oil wells have to be completed by a workover rig and drilling rig is not actually equipped to do that we've actually moved to today, we can do more not all but more of the completions with the drilling rig.
Hey, Steve, just curious. Uh, in the past when you're developing oil, uh, you have said, uh, you need about 2 work over week for 1 uh, during rate and and that become a, uh, a bottleneck. Uh, because you just could not find enough of the work of the way. That's why you scale back in your program, in oil, in gas, based on your experience that. What's that ratio?
And because we are drilling more gas wells, you don't need as many workover rigs to to handle the completions also.
The other factor that comes into play there is the deliverability of the gas wells in the targets.
We've been looking for oil for 30 years and gas we've just started so.
You'll have bigger targets relative but.
So not a major problem on the Workover rig count at this point so.
Great final question.
Steve where you're talking about upside to the 350, where you think that is the biggest source of that upside.
Sure I'll start and hand, it over to Steve I'll start on the on the G&A or overhead part.
We've made a lot of progress there as I said in my prepared remarks, there had been some kind of quick wins that we've done.
Yeah, I guess it's not going to share the same ratio and actually we don't we don't necessarily that ratio doesn't stay constant even on the oil side because we I think I think you were probably talking about the situation that we had a year or so ago. A couple years ago when we were running uh, at, at 1 point, we were running as many as 21 drilling rigs and I think we had about 20 or 21, workover rigs running at the same time. And the issue on the oil side is that, uh, a lot of the oil wells have to be completed by a workover rig and the and the the drilling rig is not actually equipped to do that. They've actually moved to uh, today we can do more, not all, but more of the completions with the drilling rig, uh and and and their and because we're drilling more gas Wells. You don't need as many work over rigs to to handle the completions also. Yeah, the other factor that comes into play, there is the deliverability of the gas Wells and the target.
Right now we've got a lot of.
Simplification efforts ongoing in some of our larger corporate groups and when you when you take all of those together it's about seven different projects. We're working on right now its about a third of our total overhead.
You know, uh, we've been looking for oil for 30 years and gas. We've just started. So, um, you'll have bigger targets relative? But, uh, um, so not a major, you know, problem on the work over rig count at this point. So,
And so we'll work through that the focus there is streamlining processes and making sure that we're being efficient with the use of technology.
Great, final question. Um, Steve, where you're talking about the upside to the $350, where do you think is the biggest source of that upside?
There is potential for AI to help out in that and we're evaluating that.
And it's also just making sure that everyone is being efficient with time and doing things that actually add value. So we're starting with those seven groups, but that doesn't cover the whole organization. So you move into next year. The following year there will be other groups that will be going through the simplification efforts and we think that is.
We do that and streamline everything with a company that has manageable activity in front of it that theres going to be upside to the overhead savings that we have and we've already captured this year I'll turn it over to Steve to talk about additional capital and LOE.
Yes on the capital side I think in the Midland Basin.
We believe on a drilling and completion basis, we're actually.
Competitive today with some of the best.
On the industry and that doesn't mean that there's not opportunity for continued improvement because our competitors continue to improve as well. So obviously, we will keep pushing for improvement there in the Delaware basin drilling and completions, we've improved quite a bit but we're running at about industry average now not Delaware basins not us.
Simplification efforts um ongoing in some of our larger corporate groups and when you when you take all of those together, it's it's about 7 different. Um projects we're working on right now. It's about a third of our total overhead. Um, and so, you know, we'll work through that. The focus there is streamlining processes and making sure that we're being efficient with um, the use of Technology. Um, there's potential for AI to help out in that and we're evaluating that. Um and then and and it's also um just making sure that everyone is is being with time and um doing things that actually add value. So we're starting with those 7 groups but that doesn't cover the whole organization. So you move into next year. The following year, there will be other groups that will be going through these simplification efforts. And we think that as we do that and streamline everything with a company, that has manageable activity um in front of it, um that there's going to be upside
Genius is the Midland Basin is so it is not necessarily comparable.
To the overhead savings that we have and we've already captured this year, I'll turn it over to Steve to talk about additional capital and LOE.
Across the entire basin.
But we do we do think we're very good in some areas, but we do think there's also areas, where we can continue to improve.
yeah, on on the capital side, I think in the, you know, in the Midland Basin, um,
Across the entire basin.
Things like more use of Simon <unk>.
More drill out optimization, which we've made some good strides there drill out post completion that is.
And we've accomplished quite a bit in the Midland basin, particularly because of the pressure regime that we find in the Midland Basin, which is much lower than what we find in the in the Delaware basin, but.
Some of the things that we've done in the Midland Basin can we transition or translate some of those in some in some form into the Delaware basin things like changes in casing programs casing designs.
You know, we We Believe on on a Drilling and completion basis. We're actually uh, competitive today with some of the best uh, in the industry. And that doesn't mean that there's not opportunity for continued Improvement because our competitors continue to improve as well. So, obviously, we'll keep pushing for improvement there in the Delaware Basin uh Drilling and completions. We've improved quite a bit, but we're running at about industry average. Now, not a Delaware Basin is not as homogeneous as the, as the Midland Basin is. So it's not necessarily comparable.
Drilling fluids.
Bottom hole assemblies, and things like that that we might be able to get into the Delaware basin as well.
<unk> been instrumental in getting to improved rate of penetration.
In the Midland Basin, and lowering total well cost.
I'd say also on the facilities side, we've probably we're moving.
Away from.
Greenfield type of facility construction, which we've done quite a bit of in the past, we're moving more towards brownfield activities, which will be less expensive.
Across the entire Basin. Um, but we do, and we do think we're very good in, in some areas. But we do think there's also areas where we can continue to improve. I think across the entire Basin, uh, you know, things like uh, more use of simal Frac, um, more drill out optimization which we've we've made some good strides there. Uh, drill out, post completion. That is, um, and and we've accomplished quite a bit in the Midland Basin, uh, particularly because of the pressure regime that we find in the Midland Basin, which is much lower than what we find in the in the Delaware Basin. But, um, some of the things that we've done in the Midland Basin, can we transition or, or translate some of those
We've reduced facilities spin on the magnitude of $50 million or a bit more from 24% to 25.
We still had some greenfield activity even in 'twenty five.
As we move into 2006 and beyond I think we're going to be predominantly brownfield type of facilities activity and I think that there is an opportunity for further facilities capital spend reduction as well.
In some, in some form into the Delaware Basin things like uh different changes in casing programs, casing designs, um, Drilling Fluids, um, bottom hole assemblies and things like that, that we might be able to get into the Delaware Basin as well that have been instrumental in getting to improve rate of penetration in the um, in the Midland Basin and lowering total well cost.
I'd say also on the facilities side, we've probably we're we're moving.
On the low side.
Start with the obvious and that is we've actually made.
Made little to no progress.
On the dollar side of of low AE.
Year to date and 25% so it's not contributing a whole lot to our improvement in.
And costs so far this year.
Uh, away from um Greenfield type of facility construction, which we've we've done quite a bit of in the past we're moving more towards uh, Brownfield, uh activities, which will be less expensive. Um, we've reduced facilities, spend on the magnitude of 50 million or a bit more from 24 to 25.
We're making progress today not necessarily visible with the second quarter results, but we are making progress and actually.
We still had some greenfield activity, uh, even in Q2 2025.
Second quarter was above our guide for low, but it was below first quarter low.
And actually the month of July has been the lowest months of <unk>.
As we move into 26 and Beyond, I think uh we're going to be predominantly Brownfield type of of facilities activity and I think that there's an opportunity for further facilities Capital spend reduction as well.
In the Permian that we've experienced to date. This year. So we are making progress short term I think we're benefiting.
Um, on the LOE side, uh, you know, I'll I'll start with the obvious, and that is we we've actually made, uh, made little to no progress.
From a move of accountability.
Around certain types of cost out to the field closer to where costs are incurred and we're working at working more closely with vendors, we're seeing reductions coming in contract labor, we're seeing reductions in chemical usage.
We anticipate more coming up in.
And we've done this in the past to boost ESP to pump conversions using less power.
More tankless batteries.
We are seeing.
Workover rig rationalization in the Permian due to efficiency gains in our workover activities.
Longer term there are some very high return capital investment opportunities that.
That will lower LOE things around water disposal.
Because water disposal hits us in two ways actually which is.
Obviously, the cost of third party water disposal, but also.
Operators are experiencing in the Permian today, we're getting.
Water takeaway constraints from time to time and actually it results in curtailing production volume and so when you have control over your own water disposal benefits you in both ways.
Anticipate more coming up in. Um, and we've done this in the past too. Just ESP to pump conversions using less power. Uh, more tankless batteries
um, we're seeing, um,
Workover rig rationalization in the Permian due to efficiency gains in our workover activities.
The compression in the field compression, we need to go to larger scale more centralized.
I think longer term, uh, there's some very high return uh capital investment opportunities.
Therefore, more efficient and more reliable.
Compression systems and just overall.
That will lower LOE things. Around water disposal.
um,
Continuing to improve the leverage of technology around recognizing and addressing issues in the field more timely so that production volume, which might be constrained our offline gets back online quicker.
And you do it in a more targeted basis instead of the old fashion way.
Someone visiting every every site every day.
Getting ahead of some of those things in the field in and being more preventative instead of reactive so I think there's quite a bit of opportunity on the low side.
And that's and I didn't mention but good LOE reduction activities going on in Egypt, and North sea as well.
Thank you. Our next question comes from David <unk> with TD Cowen Your line is open.
Thanks, Jon Ben team for forget.
Because water disposal hits Us in 2 ways, actually, which is, um, obviously the cost of third-party water disposal. But also, uh, as many operators are experiencing in the Parian today we're getting, um, water takeaway constraints from time to time and actually it results in curtailing production volume. And so, you know, when you have control over your own water, disposal it benefits you in both ways, uh, compression in the field compression. We need to go to larger scale, more centralized, uh, more therefore, more efficient and more reliable, uh, compression systems and just the overall, you know, and continuing to improve the leverage of Technology around recognizing and addressing issues in the field more timely so that production volume which might be constrained or offline uh gets back online quicker uh and you do it in a more targeted.
I wanted to follow up you bet David.
Yeah I appreciate it.
I was hoping for a little bit more detail on the additional Egyptian acreage and the award there just to confirm one that.
Is there any performance that EPA needs to perform in terms of activity levels et cetera to earn into this award.
Basis instead of the, the old-fashioned way of of someone visiting, every every site every day, uh, and just getting ahead of some of those things in the field and and being more preventative instead of reactive. So I think there's quite a bit of opportunity on the LOE side.
Should we just view this as a concession because you've been a solid operator in the area and then how do you all think about the incremental acreage from a from an infrastructure perspective, it looks like <unk>.
And and that's and I didn't mention. Uh but you know, good LOE reduction activities going on in Egypt and North Sea as well.
Thank you. Our next question comes from David Duck with TD Cowen. Your line is open.
Things are well tied in but I guess as we as we think about over the next couple of years is this an area that youre going to have to add additional infrastructure capital too.
Yes, that's something we integrate in.
Uh, thanks, John, Ben, and the team for, uh, bringing me on. Um, I wanted to follow up on the appreciation. Um,
Some of the acreage we've had in the past some of it we haven't.
There is a.
Bonus repay that gets netted off of our past due receivables.
There are a number of wells, we'll drill which get rolled into the program. So.
In General you should think of it as just adding to our existing program on our merge concession, which is how this acreage gets rolled in and gets treated.
It becomes.
It really just part on the infrastructure side of both the oil and gas programs with.
With success in areas, we will need to build out and add on.
I was hoping for a little bit more detail on the additional Egyptian acreage and the award there. Um, just to confirm 1, that, you know, is there any performance that APA needs to perform in terms of activity levels? Etc, to earn into this award? Or should we just view this as a concession because you've been a solid operator in the area and then how do you all think about the incremental acreage from a, from an infrastructure perspective. It, it looks like ariely that that things are well tied in, but I guess, as we, as we think about over the next couple of years, is this an area that you're going to have to add additional infrastructure Capital to
But as you see from the.
The map in the supplement we've got a quite a good backbone across the desert.
And so it's something that we will look to add to and build on with success. So, but just think of it as adding to our going concern.
We've gone up from $5 5 million acres now to seven and a half.
Activity levels today are going to stay the same.
But we'll be drilling on this acreage in the fourth quarter.
Yeah, it's it's something we integrate in, uh, you know, some of the Acres we've had in the past some of it, we haven't um, you know, there is a, uh, you know, a a bonus. We pay that, you know, gets netted off of our past due receivables. Uh, and they're, you know, are a number of wells will drill which get rolled into the program. So, um, you know, in general you should think of it as just adding to our existing program and our merge concession, which is how the sacred gets rolled in and gets treated. Um,
I appreciate that John.
And then just for my follow up.
As you think about this new long term net debt target of $3 billion, which appears like youre going to achieve in relatively short order, especially with the benefits of taxation next year.
When you get there.
How do you think about capital from beyond that in terms of free cash just given the fact that you have a fairly robust exploration portfolio relative to returns of capital.
Yes.
I'll step back in and let Ben jump in but we've tried to be really smart right. I mean, when you look at what we did in Suriname.
It becomes carp, you know, really just part of the infrastructure side of both, the oil and gas programs uh with success in areas. We'll need to build out and add on. Uh, but as you see from the uh, you know, the map in the supplement, we've got a quite a good backbone across the desert. Um, and so it's something that we will look to add to and build on with success. So, but just think of it as adding to our going concern, Egypt, we've gone up, you know, from 5 and a half million Acres. Now, to 7 and a half, uh, activity levels today are going to stay the same, uh, but we'll be drilling on this acreage in the fourth quarter.
We brought in a partner.
We banked on the fact that to really get value for this block we needed the project and we structured the agreement accordingly, so as they are now going through development scenario.
Appreciate that John. Um, and this is for for my follow-up. Um,
Totals carrying a large portion of our capital and it enables us to stick to our return framework without having to sell a lot of assets or do other things and so we've tried to be really <unk>.
Smart and think longer term about the balance sheet and think about how do you fund these types of projects.
You know, as you think about this, this new long-term net debt target of $3 billion, which appears like you're going to achieve in relatively short order, especially with the benefits of taxation next year, when you get there. I how do you think about capital from beyond that in terms of free cash? Just given the fact that you have a fairly robust exploration portfolio, uh, relative to returns of capital.
In the future so yes.
And we made it a net debt target.
From time to time, we will have cash on the balance sheet I think that provides a lot of flexibility.
To your point, just organically expect to get there in the foreseeable future.
But when you have different priorities like John mentioned, whether its exploration and investing in the future or.
Decommissioning assets, which we know is coming in the coming years and it has been we've been decommissioning for quite a few years now.
It really helps us to manage that risk and deliver returns. It's it's the responsible way to do it without eroding shareholder value and so.
You're now going through development scenario. Um, you know, total is carrying a large portion of our capital and it enables us to stick to our returns framework without having to sell a lot of assets or do other things. And so, we've tried to be really smart and think longer term about the balance sheet and think about how do you fund these types of projects, uh, you know, in the future. So,
Yeah. And you know, we made it a, net debt Target. Um,
Really provides flexibility and just stepping back one comment you mentioned on the taxes.
The one big beautiful Bill the intent of that was.
That legislation really was.
For the favorable tax treatment for industries like ours that are highly capital intensive.
For tax treatment for intangible drilling costs.
To be beneficial and so.
When we look at that.
You know, at from time to time, we'll have cash on the balance sheet. I think that provides a lot of flexibility um, to your point just organically expect to get there um in the foreseeable future. Um, but but when you have different priorities, like John mentioned, whether it's expiration. Um, and investing in in the future or, um, you know, decommissioning assets, which we know is, is coming in the coming years and has been, um, we've been decommissioning for quite a few years now.
It's durable and will continue for years as long as that legislation is intact.
Um, it really helps us to manage.
And that provides a lot of tailwind for the industry and definitely for Apache and so.
So that helps when you think about shareholder returns and when you think about deleveraging.
There's a lot of positive momentum for that.
That risk and deliver returns. It's it's the responsible way to do it without eroding shareholder value. And so, um really provides flexibility and, and just stepping back 1, comment, you mentioned on the taxes. Um, you know, with the the 1, big beautiful Bill, the intent of that was um, of that legislation really was
And we'll be flexible with.
How we deploy that capital, but focused on shareholder value.
That net debt target once we do achieve that.
We'll step back and reevaluate but.
But believe that the durability of our cash flows and a lot of other momentum that we have.
We'll be able to get there as well as invest in the future and return capital to shareholders.
Thanks, Pat Thanks, guys.
Thank you. This concludes the question and answer session I would now like to turn it back to John Christmann CEO for closing remarks.
Thank you.
Our strong second quarter results reflect the hard work of.
Our entire organization and specifically the integration of the technical teams in the field and the execution across everywhere.
We built strong momentum for the back half of the year and well into 2026.
Um, for the favorable tax treatment for Industries, like ours that are highly, um, Capital intensive, um, for for tax treatment, for intangible, drilling costs, um, to be beneficial. And so, um, you know, when, when we look at that, um, we think it's durable and will continue for years as long as that legislation is intact. Um, and that provides, um, a lot of Tailwinds for the industry and definitely for Apache. And so, um, so that helps when you think about shareholder returns, and when you think about deleveraging, um, there's a lot of positive momentum for that and, uh, we'll be flexible with, um, how we deploy that Capital, but focused on shareholder value. Um, that net debt Target once we do achieve that, um, you know, we'll step back and and reevaluate but, um,
We are outpacing our expectations on capital efficiency gains and cost reduction initiatives, while continuing to make progress on net debt reduction and shareholder returns.
But but believe that the durability of our cash flows and a lot of other momentum that we have uh will be able to get there as well as invest in the future and return Capital to shareholders.
Thanks Ben. Thanks guys.
We have bolstered our core assets with a step change in capital efficiency in the Permian and the direct award of 2 million acres in Egypt, along with the early success of the gas program.
Thank you. This concludes the question and answer session, I would now like to turn it back to John Chrisman CEO for closing remarks.
The Grand Morgan project in Suriname is progressing on schedule and we remain very optimistic on the impact of our exploration portfolio.
Thank you. Um, our strong second quarter results reflect the hard work.
What it can have on the corporation.
Of our entire organization and specifically the integration of the technical teams in the field and the execution across everywhere.
So with that I will turn the call back over to the operator and thank you very much for joining us today.
We built strong momentum for the back half of the year and well into 2026.
This concludes today's conference call. Thank you for participating you may now disconnect.
We are outpacing our expectations on capital efficiency gains and cost reduction initiatives while continuing to make progress on net debt reduction and shareholder returns.
We have bolstered our core assets with a step change in capital efficiency in the Permian and the direct award of 2 million acres in Egypt, along with the early success of the gas program.
The grand morgue project in Surinam is progressing on schedule and we remain very optimistic on the impact of our expiration portfolio that what it can have on the corporation.
With that, I will turn the call back over to the operator and thank you very much for joining us today.
This concludes today's conference call, thank you for participating. You may now disconnect
And we are having fantastic results. So, um, very excited. Uh, we will be, you know, at the Parian on our existing portfolio for a long time.
yeah, John just if