APA Corp. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Initiatives: In the US, transformed asset base into unconventional pure play Permian operation with acquisitions/divestitures. In Egypt, modernized PSC terms and secured higher natural gas price. In Suriname, culmination of long-term offshore exploration with GranMorgu project FID.
• Third Quarter Highlights: Announced sale of non-core Permian properties for $950 million, FID on Suriname project, increased natural gas price in Egypt, and credit rating upgrade. Exceeded production guidance with lower capital and costs, and increased cash flow from operations and free cash flow.
• Operational Areas: US oil volumes met guidance for 7 quarters; Callon integration complete with focus on developing acquired acreage. Egypt operations running to plan with rig count adjusted under new gas price agreement. Suriname project FID with good economics; North Sea production cessation planned; Alaska exploration to resume in 2025.

Segment Performance

• US: Third quarter results were strong with production meeting or exceeding guidance for the 7th straight quarter. Callon integration is complete, rig count reduced from 11 to 8, and initial wells on acquired Callon acreage show encouraging results. US oil volumes have met or exceeded guidance for 7 quarters straight.
• Egypt: Operations running to plan, gross oil production tracking accordingly. A drilling rig was added under the new gas price agreement, bringing the total rig count to 12. Progress on past due receivables is being made.
• Suriname: Achieved FID on the first offshore development project in Block 58. The project has a $10.5 billion gross cost, 220,000 bpd production capacity, and good economics with a capital carry provision. Funding for development will come from operating cash flow until production starts in 2028.
• North Sea: Decided to cease all production by December 31, 2029, due to un经济性 of complying with regulations and energy profits levy. There was a $571 million after-tax impairment of North Sea assets and non-core Permian assets held for sale.

Guidance

• Full year 2024 guidance revised due to Suriname FID, additional exploration well in Alaska, and 12th rig in Egypt. US production guidance adjusted for frac activity deferrals and curtailments, with a 20,000-25,000 BOE impact. Full year gas trading income estimate raised to $500 million. Most of the $250 million Callon synergy target is expected to be realized by end of 2024, with full realization expected by 2025.

Risks

• Factors that could materially affect results include commodity price volatility, regulatory changes impacting operations (e.g., North Sea regulations), exploration risks in Suriname and Alaska, and uncertainties in Egypt gas production growth. North Sea abandonment costs and their impact on financials are also a risk.

Question and Answer

Q: Doug Leggate asked about the impact of the gas price increase in Egypt and the oil guide.

A: John Christmann and Steve Riney discussed that the gas price increase on incremental volumes will show up in results, and the oil guide considers asset sales and rig count reduction.

Q: John Freeman inquired about North Sea ARO and LOE decline.

A: Steve Riney explained the ARO present value and LOE decline drivers, including Callon synergies and asset sales.

Q: Bob Brackett asked about cash return strategy timing.

A: John Christmann stated it's mainly timing issues.

Q: Roger Read asked about cost reduction drivers.

A: John Christmann and Steve Riney mentioned Callon synergies and asset simplification.

Q: Paul Cheng asked about Callon integration and technology adoption.

A: John Christmann and Steve Riney discussed integrating Callon's practices and looking into their spacing and fracking approaches.

Q: Neal Dingmann asked about Egypt production and shareholder return.

A: John Christmann and Steve Riney talked about Egypt's production cadence and potential for gas growth, and shareholder return through debt reduction.

Q: Arun Jayaram asked about Egypt gas PDP decline and portfolio outlook.

A: John Christmann discussed Egypt's gas PDP decline and the portfolio's strength with Permian, Egypt, and Suriname.

Q: Betty Jiang asked about North Sea ARO and gas marketing.

A: Steve Riney explained the ARO balance sheet items and gas marketing dependence on Waha spreads.

Q: Jeoffrey Lambujon asked about North Sea OpEx outlook.

A: Steve Riney stated more detail would be provided in February on North Sea OpEx and free cash flow.