APA Corporation — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good day, and thank you for standing by. Welcome to the APA Corporation's First Quarter 2024 Financial and Operational Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker for today, Gary Clark, Vice President of Investor Relations. Thank you.
Good morning, and thank you for joining us on APA Corporation's First Quarter 2024 Financial and Operational Results Conference Call. We will begin the call with an overview by CEO, John Christmann. Steve Riney, President and CFO, will then provide further color on our results and outlook. Also on the call and available to answer questions are Tracey Henderson, Executive Vice President of Exploration; and Clay Bretches, Executive Vice President of Operations. Our prepared remarks will be about 15 minutes in length, with the remainder of the hour allotted for Q&A.
Good morning, and thank you for joining us. On the call today, I will review our first quarter performance, discuss the compelling opportunities we are seeing after the closing of the Callon acquisition and review our activity plan and production expectations for the remainder of 2024. During the first quarter, Upstream capital investment of $568 million was below guidance due primarily to the deferral of some planned facility, leasehold and exploration spend.
Thank you, John, and good morning. For the first quarter, under generally accepted accounting principles, APA reported consolidated net income of $132 million or $0.44 per diluted common share. As usual, these results include items that are outside of core earnings, the most significant of which was a $52 million after-tax addition to the provision for costs associated with Gulf of Mexico abandonment liabilities.
overhead, cost of capital and operational. Annual overhead synergies have been revised up from $55 million to $70 million. This is moving quickly, and we will capture approximately 75% of this on a run rate basis by the end of the second quarter.
[Operator Instructions] Our first question comes from the line of John Freeman of Raymond James. Your line is now open.
The first question I had, just to make sure that I understand sort of the moving parts in Egypt. So last quarter had about 13,000 that was offline. I think normally, I think you all cited that, that would be closer to probably 8,000 -- I'm sorry, 5,000 would normally be offline. So you've worked it down a little bit, and I see how the rigs keep coming down, the workover rig level stays level. But I think historically, John you all said that used to be sort of 2x to 3x the number of workover rigs to drilling rigs.
No, it's a great question. And as you acknowledge, historically, we have run a higher ratio of workover rigs or drilling rigs. Today, we're going to average 13 to 15 on the drilling rig side this year, and we're going to run right at 20 workover rigs. So it's going to take a little bit more time to kind of chisel away at that, but we're on it. It's coming down a little bit.
Got it. And then just shifting gears. Nice to see the 50% increase in the Callon synergies and obviously making a lot of progress on the cost side. You all put out previously a presentation just sort of showing all Permian results relative to legacy -- Callon results. And I guess -- it won't be until 4Q, and we get to see basically wells that you all kind of started design drill completed from the get-go show up in your numbers, and you mentioned some of the things that could drive to the better well productivity, wider spacing, et cetera.
Yes. Today, the guidance is what's in front of us, right? And it's going to -- obviously, Callon's drilled a lot of wells. We're immediately making changes on the completion side to the extent we can. But there are more wells drilled per section that we would drill. There are more landing zones. And so we're going to have to pump similar-sized fracs in terms of sand loads. I think the big thing will be changing is the fluid volumes will go up, but we're doing things with -- it's kind of a work in progress, right?
Our next question comes from the line of Neal Dingmann of Truist Securities.
I just had a quick one first on the Permian gas play. It's interesting the acreage and the potential returns there. I'm just wondering what would it take for you to bring some of that back? Is it just strictly it needs to compete against your now more oily play given that Callon and the larger footprint?
Well, I mean, that is the big driver. It needs to compete internally on the oil side. And really, we measure that through Waha. So right now, you've had very, very weak Waha. Obviously, we've got Matterhorn coming on, but we're going to need to see much stronger Waha and it's going to need to compete internally with our oil projects.
No, that totally makes sense. And then just, again, maybe last one for you or Steve, just when it comes to shareholder return, you guys have continued and maybe sometime towards the end of the year, stepped a bit more into the buybacks and all. I'm just wondering, will that plan change? Or should we just think sort of more of the same when it comes to shareholder return?
No. I mean I think big picture. We're committed to the 60%, right? We've shown that it's a minimum of 60%. And we will lean into that when we believe there's weakness, which we've historically done, and we'll continue to do in the future. That gives us the other 40% for debt reduction. We do have some non-core asset sales that we're targeting as we do believe we need to make some progress on the debt side with what we brought on with Callon, but you'll see us aggressively approaching both.
Our next question comes from the line of David Deckelbaum of TD Cowen.
I wanted to ask a couple of questions around the capital program this year and your preliminary thoughts getting into '25 as you further integrate the Callon assets. One, can you just talk about, in this year, how many DUCs you're intending to work down and what you would carry going into next year?
Yes. David, this is Steve. So in terms of the capital program and the treatment of DUCs, what we've done is we've added some frac capital in order to come up to the $2.7 billion of capital that we have in the plan for this year now. We basically just combined the final 3 quarters of Callon's remaining capital program with ours. But then we added some frac capital in the second half of the year because we did see that both of us were building DUCs.
And the only thing I would add is, obviously, we believe the capital productivity will improve on the Callon portion especially as we go to our modifications and our workflows back half of the year. So combined companies going to improve and we're seeing that productivity on the Apache side right now, and we'll get the Callon assets there towards the back half of the year.
Appreciate that. If I could make those first 2 questions, I guess, into one and ask another one. I'm just curious if you can share any targets that you might have in mind on proceeds or timing from non-core asset sales?
No, we don't have any specific targets in mind. But what we recognize that even after the progress that we made in '21 and '22 on debt, for Apache Corp. We knew that we needed to make more progress and we didn't make as much as we might have wanted to during the intervening time, and we just feel like we need to get on with that and get debt down. And now that we've added some debt through the Callon acquisition, we're going to just try to focus on that this year. We think it's a good time to be doing that. The market seems to be strong for some of these non-core assets and we'll see if we can get some of those off and get some good prices, and they will be focused on debt reduction.
And do you think there's a path to getting there within the next couple of years?
That's what we're trying to achieve. Yes. I think it's possible, and we're going to certainly give it a try.
[Operator Instructions] Our next question comes from the line of Betty Jiang of Barclays.
I really appreciate the color or the guidance that you have given for 4Q pro forma production for U.S. oil. If we think out to 2025, like Apache is delivering double-digit organic growth in the Permian this year. Do you expect to see continued growth on the combined assets going forward? Just thinking about the overall strategy, like approach from a growth outlook perspective?
Yes. Betty, what I'll say is, as post the Callon merger, our Permian now makes up roughly 75% of the company. And we've been executing at a high rate on the Apache side. We're anxious to provide those workflows on the Callon side. We have added a little bit of capital, which is going to work down some of the DUCs in the fourth quarter of this year. So I mean, it's early to comment on 2025, but it's going to give us a lot of strong momentum as we exit 2024 with a very strong fourth quarter.
Sorry, Betty. I was just going to add one thing to that. One of the reasons why we added the frac capacity in the second half of this year, number 1 is frac is pretty inexpensive these days. So it's a good time to be doing that. But also just -- with the scale of the operation now that we have in the Permian Basin, as John said, 75% of our company now, with that kind of scale and the amount of activity that we're carrying on, we ought to be able to plan activity to where we don't have these big lulls a big rush of completions and turn-in lines and then a big lull of activity, and we ought to be able to plan it maintaining capital efficiency, but plan it in a way that creates a bit smoother profile to production volume.
Great. I appreciate that color. Shifting gear to Egypt, a similar question. This year, seeing that growth of Egypt volume is down a little bit, but a lot of that related to the workover rig shortage. If we look out post the PSC contract renegotiation, there was an expectation of Egypt growing the single-digit range. Do you expect to go back to that type of profile. When do you think that asset will be ready to do that?
Yes. I mean you've got one factor in Egypt is costs are big picture gas has been declining. So the gross BOEs have been declining because of that, and we've been growing the oil. We're in a place today where we're working to rebalance the workover rigs and the drilling rigs and find a good level in there where we can drive that production base.
Our next question comes from the line of Leo Mariani of ROTH MKM.
I wanted to follow up a little bit here on Egypt. I wanted to just kind of get a sense from you folks what the situation is with the receivables there in country. I saw that Egypt recently got an IMF loan a little bit ago. I'm not sure if that's kind of improved the state financial well-being there. So maybe you could just kind of speak to that? And then also, could you speak a little bit to kind of your expectations for gross Egyptian oil volumes?
Okay. Yes. So sorry, this is Steve. Yes, on receivables. So as we've always said, we worked very closely with the Egyptian Government on things like that. We've received 2 payments during the first quarter of this year. But despite that receivables, especially with oil price and all, receivables increased slightly in the first quarter of 2024. We kind of made good progress through 2023, bringing it down most quarters.
All right. That was very helpful, very good explanation there. And I guess just maybe turning to Suriname very quickly here. Just wanted to kind of get a better sense of kind of where things stand. I know you're still working towards FID kind of what's your confidence level with your partner on achieving that later this year. And it sounds like there's still no drilling happening in '24, but does Apache anticipate some drilling there in '25.
Yes, I'd just say we're very confident be it still underway, and we would anticipate an FID by year-end. So it's all moving forward there. And then that's going to dictate timing in terms of drilling we've got till 2026 to start the exploration program. So there's nothing pressing on the '25 side, but we could be back to drilling in '25.
Our last question comes from the line of Neil Mehta of Goldman Sachs.
John, I wanted to spend a little bit of time talking about the Callon cost synergies. And specifically on the operational side, you're talking about high-grading the service providers, stuff around casing, surface economics. So can you just spend some time getting us on the ground and giving us a little bit more granularity around some of those cost synergies on the operational side?
Yes, I'll jump in, and I'll let Steve add a little bit more color. But in general, we're changing the program. So you're going to see fewer wells per section, fewer landing zones, larger fracs in general. The other thing is when you look at the well count in terms of how they complete their wells, Callon was putting 1/3 of their new wells on ESPs and 30% on gas lift. We've been running outside of Alpine High about 3% ESP and 60% gas lift.
Yes. Neil, I'd just add, if you went back to the Permian slide deck that we published in February, we specifically pointed out 3 areas where we felt like Callon was significantly kind of off the mark in terms of where we would want to be on LOE per BOE, workover cost per BOE and downtime percent. And they've -- Callon has a history of a much higher well failure rate including for new wells.
That's a very thorough and helpful explanation. And good look as you bring the asset into the fold.
We now have a question from Paul Cheng of Scotiabank.
Steve, I have to apologize. When you talk about dry holes, I sort of missed that. Can you repeat it? I think you're saying that you have a way of in share name on Block 52 that's I think 40-some-odd million. So what's the remaining with the driver expense at 123 -- the second question is that yes, go ahead, please.
I'll jump in. The -- there's 1 dry hole in Suriname, which was related to Bonboni up in the north. It was one that we held and weighted because we didn't know how the North would factor in on the future exploration side. And so that's why we took that one now. And then we went ahead in Alaska and rolled off the 2 wells that we failed to reach TD on simply because the decision was made that it would be easier to go back and redrill those prospects with brand-new wells. And so that's what the dry hole expenses were for.
I see. And John, on Alaska in King Street discovery, can you share that what's the thickness of the [indiscernible] that you have 2 [indiscernible] do you have any data about permeability or that any information that you can share?
Well, it's very preliminary, Paul. But we're excited about both. I mean these are not shallow wells in the Brookie and play, 2 high-quality oils -- we were also very pleased with the early data, but we need to get the rock data back into the lab and analyze that and go through all that before we really share anything.
Right. And John, you're saying that you're going to drill the 2 new well for Sockeye and Voodoo. Is that going to be done? Or that is going to be drilled in the next drilling season? Or that you guys have not decided and may get pushed out further?
I'll just say, it's highly likely that we redrill both prospects -- but it's -- we've got to work through the partners, and we don't have to make decisions yet on the 2025 drilling program. So we're -- it's something we'll be working through with the partners over the next several weeks.
Thank you. This does conclude our question-and-answer session. I would now like to turn the call back over to John Christmann for closing remarks.
Yes. Thank you. In closing, our Permian is performing extremely well, and we have just bolstered it with the addition of Callon and is now approximately 75% of the company. We will be integrating Callon over the next couple of quarters. And by the fourth quarter, you should start to get a good picture of what we can do with the Callon assets.
Thank you. This does conclude today's conference. You may now disconnect.