Q4 2023 Summary
Updated Jan 10, 2025, 5:10 PM UTC- APA anticipates strong Permian oil production growth of over 10% in Q4 2024 compared to Q4 2023, driven by continued outperformance in the Midland and Delaware Basins, which will more than offset declines in the North Sea.
- Successful integration of Callon Petroleum's assets is expected to enhance APA's operational efficiency and growth in the Permian Basin, starting with 11 rigs upon closing and leveraging APA's proven capabilities.
- Positive developments in Suriname, with a Final Investment Decision (FID) expected before the end of 2024 and first oil anticipated in 2028, which could significantly boost future production and margins.
- Operational constraints in Egypt are limiting production growth. The company faces limited availability of workover rigs, which is affecting their ability to perform recompletions and maintenance. There are no near-term options to increase workover rig capacity, hampering production improvements in Egypt.
- Elevated past due receivables from Egypt are affecting cash flow. The company has acknowledged that past due receivables from the Egyptian government are still elevated, despite some improvement, indicating potential ongoing payment collection issues.
- Significant investment in high-risk exploration projects with uncertain outcomes. The company is investing in exploration in Alaska and Suriname, which are high-risk ventures with long time horizons before potential production, leading to delayed returns on investment. First oil from Suriname is not expected until 2028, and the Alaska exploration wells are risky with uncertain results.
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Egypt Production Outlook
Q: What is the production outlook for Egypt given recent challenges?
A: John Christmann stated that due to challenges with ESPs and an imbalance between workover rigs and drilling rigs, APA is guiding to flat adjusted net production in Egypt for now. They are working to balance operations, with about 13,000 barrels per day offline needing workovers, which is 8,000 barrels per day above the usual level. The company is unable to increase workover rigs in the short term due to equipment constraints in the country. -
Alaska Exploration Potential
Q: What is the status and potential of the Alaska exploration program?
A: APA plans to drill three wells in Alaska this winter, targeting prospects similar to the Pikka play. These wells are 3D and amplitude supported stratigraphic tests in the Brookian play, located between Prudhoe Bay and ANWR. While acknowledging the risks, Tracey Henderson mentioned they see materiality in these prospects that warranted exploration. -
Permian Growth Outlook
Q: What are the expectations for Permian production growth this year?
A: John Christmann indicated that despite a back-end weighted schedule, APA anticipates 10% growth in Permian oil production in Q4 2024 over Q4 2023. They are running six rigs in the Permian, and upon integrating Callon's five rigs, they will operate eleven rigs in total. This growth will more than offset declines in the North Sea. -
Suriname Project Progress
Q: What is the current status of the Suriname development project?
A: APA is working with Total on the FEED study for Suriname's Block 58 and anticipates an FID before year-end 2024, with first oil expected in 2028. They are also exploring additional potential in Block 58, having relinquished Block 53 to focus on more prospective opportunities. -
Callon Acquisition Integration
Q: How is the integration of Callon Petroleum progressing?
A: APA expects the acquisition of Callon to close in the second quarter and anticipates integrating their assets smoothly. They are looking forward to operating eleven rigs in the Permian and see potential synergies, especially in the Delaware Basin. -
Payment Improvements in Egypt
Q: How are collection trends with the Egyptian government?
A: Steve Riney reported that APA ended the fourth quarter with the lowest past due receivables from EGPC for the year, down 25% to 30% from peak levels in early second quarter. While still elevated, the past due receivables are trending in the right direction. -
Workover Rig Limitations in Egypt
Q: What is causing operational constraints in Egypt?
A: APA faces limitations due to a shortage of workover rigs in Egypt, with only 20 rigs available. Despite tripling drilling rigs from 5 to 15-18, they could only double workover rigs, creating an imbalance. There are no near-term options to increase workover rigs due to equipment constraints in the country. -
Potential Headcount Adjustments
Q: Will there be adjustments to APA's workforce due to activity levels?
A: John Christmann mentioned that APA is always looking to rightsize the organization with activity levels. They have undertaken workforce reductions in the North Sea and may adjust staff in response to lower activity levels, while excited about integrating Callon's assets. -
Block 53 Relinquishment in Suriname
Q: Why did APA relinquish Block 53 in Suriname?
A: APA relinquished most of Block 53 to focus on the more prospective Block 58, as part of strategic portfolio management and continuous high-grading. They see more exploration upside in Block 58. -
Abandonment Cost Impact
Q: How are abandonment costs impacting cash flow?
A: When asked about the impact of abandonment costs, specifically relating to ARO for Fieldwood, Steve Riney noted that these costs do not go through the capital program and are booked as liabilities on decommissioning obligations. Detailed discussion was deferred to offline.