Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong Operational Performance in Key Areas: In Egypt, APA's strategy to reduce the rig count from 16 rigs in the first half of the year to 11 rigs in the second half has freed up resources for impactful workover projects, leading to production exceeding expectations and significant capital efficiency improvements.
- Positive Developments in Exploration Projects: APA remains on track for a Final Investment Decision (FID) in Suriname by year-end 2024 with first oil expected in 2028, signaling promising future growth. Additionally, the King Street discovery in Alaska serves as proof of concept, and APA is excited about the exploration potential in the region.
- Successful Integration of the Callon Acquisition: APA has increased its estimate of annual synergies from the Callon acquisition to $250 million, with operational synergies contributing $120 million annually. This includes capital savings and improved well economics, enhancing free cash flow and shareholder returns.
- Uncertainty about maintaining Egypt production levels with reduced rig count: APA is reducing its rig count in Egypt from 16 rigs in the first half of the year to 11 rigs in the second half. Management admits that it's "early to tell" if 11 rigs is the right number to maintain volumes, indicating potential risk to production levels. ,
- Exposure to low gas prices in the Permian leading to potential increased curtailment: The company acknowledges it can curtail up to twice the current amount of gas production if prices remain low or go negative, which could negatively impact volumes and revenues. Additionally, they have firm transport obligations requiring payment even if capacity is unused.
- Potential need to strengthen the balance sheet may limit shareholder returns: Following the recent acquisition, management recognizes a "continued need for balance sheet strengthening," which may impact future shareholder returns, despite previously returning more than 60% of free cash flow to shareholders.
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Suriname Development
Q: What's the plan for Suriname activity and spending in 2025?
A: CEO John Christmann reiterated confidence in taking FID on the Suriname project by year-end 2024, with first oil expected by 2028. The teams are working well together, and they are aiming to accelerate the timeline. -
Callon Integration Synergies
Q: How is the integration of Callon progressing and expected synergies?
A: The integration is going extremely well, with early indications of $150 million in annualized synergies. They expect to drill wells on Callon acreage for about $1 million less per well due to improved drilling efficiencies and supply chain benefits. The first Apache-planned wells on Callon acreage are being spud, and they are excited to see the results. -
Egypt Production and Payments
Q: Can Egypt maintain oil production with reduced rigs, and what's the receivable situation?
A: By reducing drilling rigs from 16 to 11, they are freeing up workover rigs to perform impactful waterflood initiatives and reduce the backlog of wells needing recompletion. This should help maintain production levels, though it's early to tell if 11 rigs are sufficient to hold volumes flat. On receivables, they have been receiving payments, and discussions with the Egyptian government are positive, with commitments to pay off oil companies. -
2025 Spending Outlook
Q: How should we think about spending in 2025, including CapEx outside of base D&C?
A: While it's early in the planning process, CFO Stephen Riney mentioned that the current run rate excluding exploration is around $675 million per quarter. However, this is not necessarily indicative of 2025 spending. They have significant flexibility given the strong growth in the Permian and will provide more details in November and February. -
Permian Inventory Depth
Q: What is the current view on Permian inventory depth post-Callon acquisition?
A: They are comfortable with inventory through the end of the decade, consisting of high-quality, long-lateral locations. The Callon acquisition adds similar duration to their existing inventory, and potential productivity improvements could extend inventory beyond the end of the decade. They remain content with their position and are not actively seeking further consolidation. -
Midstream Earnings and Waha Differentials
Q: How do Waha differentials impact midstream earnings, and what's the normalized outlook?
A: The company's financials have benefited from weak Waha prices due to their ability to arbitrage gas to the Gulf Coast. In a balanced market, differentials between Waha and the Gulf Coast would be near zero, and they would make money primarily on minor pricing advantages and transport efficiencies. -
Asset Sales
Q: Are there plans for further asset sales, such as the Central Basin Platform?
A: While they typically wait to announce property sales, they are considering divesting non-core assets where they are not investing capital, potentially including the Central Basin Platform. -
Alaska Drilling Plans
Q: What's the plan for Alaska drilling and spending?
A: They are excited about the Alaska King Street discovery, which proves their play concept. They plan to conduct more drilling in the near future but are still working through plans with a partner, so no specific details on the number of wells or spending are available yet. -
Egypt Gas Opportunities
Q: Are there opportunities for additional gas developments in Egypt?
A: They are discussing potential gas projects in the Western Desert with the Egyptian government. Historically focused on oil, they now see opportunities for future gas exploration that could be economically attractive with higher gas prices. -
Permian Productivity Improvements
Q: Will productivity improvements on Callon acreage show in 30-day IPs or longer term?
A: They anticipate that changes in spacing and completion design, including pumping more fluid and wider spacing, could lead to increases in initial production rates as well as better long-term performance. They need to drill and evaluate wells to see the results.