APA Corporation (APA) — Q2 2020 Earnings Call Transcript

Good morning and thank you for joining us on Apache Corporation’s Second Quarter Financial and Operational Results Conference Call. We will begin the call with an overview by CEO and President, John Christmann; Steve Riney, Executive Vice President and CFO will then summarize our first quarter financial performance; Clay Bretches, Executive Vice President of Operations; and Dave Pursell, Executive Vice President of Development will also be available on the call to answer questions. Our prepared remarks will be approximately 15 minutes in length with the remainder of the hour allotted for Q&A. In conjunction with yesterday’s press release, I hope you have had the opportunity to review our second quarter financial and operational supplement, which can be found on our Investor Relations website at investor.apachecorp.com. Please note that we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial 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 non-controlling interest in Egypt and Egypt tax barrels. Finally, I’d like to remind everyone that today’s discussions 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 today. A full disclaimer is located with 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. For the last several months, the world and the global E&P industry have been facing one of the most challenging environments in recent history. Apache is responding with decisive actions designed to protect our people, our assets, our investors, and the communities in which we operate. And I want to take this opportunity to thank the many Apache employees and contractors for their hard work and dedication in these tough times. In my prepared remarks this morning, I will discuss the progress we made during the second quarter and review our key objectives and capital priorities going forward. I'd like to begin with a brief update on our response to the COVID-19 pandemic. Apache moved quickly to implement a wide range of fit-for-purpose protocols to ensure a safe and productive work environment in both our onshore and offshore operations. Thankfully, we have experienced a relatively small number of COVID-19 cases and have incurred no material operational disruptions beyond our intentional production curtailments. We are prepared to maintain our current work model for as long as necessary. Since the onset of the pandemic, we have been listening and responding to the specific needs of the communities in which we work and live. Apache has donated PPE and critical medical equipment to hospitals and first responders, as well as supporting food banks, long-distance learning initiatives, and shelters for women and children. From an operational and financial perspective, during the second quarter, we executed our planned activity reductions on schedule and delivered upstream CapEx well below guidance of $230 million. For the full year, we are now tracking toward the lower end of our capital guidance range of $1 billion to $1.2 billion. The majority of our organizational redesign has been implemented, achieving combined run rate, LOE and overhead savings of more than $300 million as planned. Net of severance and restructuring costs, actual cash savings realized in 2020 are estimated to be approximately $225 million. Through these and other actions, we have reduced our free cash flow breakeven oil price to be around $30 per barrel on a forward-looking basis. This allows us to protect our current financial position and enables positive free cash flow in the current price environment. And in Block 58 Offshore Suriname during the second quarter, we submitted a plan of appraisal for our first discovery, announced our second discovery at Sapakara, and spudded our third exploration well Kwaskwasi, the results of which we announced yesterday in conjunction with our earnings release. We are thrilled with the results from the Kwaskwasi-1 exploration well. This is the best well we've drilled in the basin to date with the highest net pay and the best quality reservoirs. While we have a lot more work to do, a discovery of this quality and magnitude merits a pace of evaluation that enables the option of accelerated first production. Following Kwaskwasi, the Noble Sam Croft drillship will move to the fourth well in our 2020 exploration program, Keskesi. Afterward, Apache will transition operatorship of the block to our partner Total. Turning now to the curtailment program. We have returned our North Sea and Alpine High volumes to production along with a portion of curtailed oil volumes in the Permian. We anticipate that several thousand barrels of higher-cost Permian oil production may remain offline for the rest of 2020. Apache is currently running one exploratory rig in Suriname, five rigs in Egypt, and one floating rig and one platform rig in the North Sea. We intend to maintain this activity set for the remainder of the year if commodity prices do not deteriorate significantly. At this time in the Permian Basin, we have no drilling or completions activity and no plans to complete our DUCs for the remainder of the year. As we look at the second half of 2020 into the long-term, our key objectives remain unchanged despite the extreme price volatility. We will budget conservatively and direct free cash flow on a priority basis to debt reduction, maintain a balanced and diversified portfolio, and prioritize investment for long-term returns over production growth. We have spoken frequently about our priority ranking for capital deployment within the portfolio, and our thoughts on this are worth reiterating. At the top of the list is Suriname, which will continue to receive priority funding for both exploration and appraisal activity. Under the terms of our joint venture, the incremental cost to Apache associated with appraisal and ultimately development should be very manageable. Our second priority is Egypt, where the PSC structure offers more stable returns in relatively low and more volatile oil price environments. Following that, we should look to complete our DUCs in the Permian Basin and resume drilling with a second platform rig in the North Sea. And finally, while our Permian operations have been delivering highly competitive economics within the basin, other areas within our portfolio offer more attractive investment options in a capital-constrained environment. Therefore, we don't envision returning rigs to the Permian Basin unless oil prices recover well into the $50s. We have always stated that our best hedge against price volatility is prudent and responsive management of the capital program. To the extent oil prices are sustained at or below $50 per barrel WTI, we do not anticipate a material change in our annual capital budget from the current rate of around $1 billion. For oil prices significantly below $50, capital spending is more likely to be reduced from the $1 billion mark. If oil prices rise above $50, we will be very measured with our capital increases and the first column that incremental free cash flow will be returned to investors initially with debt reduction. I'd like to close by summarizing Apache's approach to managing the unprecedented challenges thus far in 2020. We implemented successful COVID-19 operating protocols and work-from-home procedures and helped ease the burden of the pandemic on our host communities in numerous ways. We responded to the sudden price drop by quickly limiting cash outflows to protect our balance sheet. This included a significant reduction in capital, dividends, and overhead and operating costs. These, along with other actions, have enabled us to lower our free cash flow breakeven such that we now have good visibility to debt reduction. Operationally, we have preserved optionality to reactivate our curtailed production, development programs, and other investment opportunities when appropriate. And we have successfully advanced our exploration program in Suriname. Through these and other actions, particularly the successful implementation of our corporate redesign, we entered the second half of 2020 a very focused and streamlined organization. The benefits of our diversified portfolio are more evident now than ever as we flex capital towards our international operations. Together, with our world-class position in Suriname, Apache offers a truly differentiated investment opportunity within an industry that has come under tremendous pressure. I would like to again thank all the Apache employees for their commitment, resilience, hard work, and flexibility as we successfully navigate these challenging times. And with that, I will turn the call over to Steve Riney.

Thank you, John. On today's call, I will review second quarter 2020 results, discuss progress on our cost-saving initiatives, and provide commentary on our free cash flow outlook and debt management efforts. As noted in our news release issued yesterday, under generally accepted accounting principles, Apache reported a second quarter 2020 consolidated net loss of $386 million or $1.02 per diluted common share. These results include items that are outside of core earnings, the most significant of which are an unrealized loss on derivatives, a tax valuation allowance, and asset impairments, partially offset by a gain on the repurchase of outstanding debt. Excluding these and other smaller items, the adjusted loss was $281 million or $0.74 per share. Adjusted production decreased 7% from the prior quarter, primarily driven by shut-ins and production curtailments of approximately 190,000 BOEs per day at Alpine High, and production curtailments of 10,000 BOEs per day in the North Sea and 6,000 BOEs per day for other operations in the Permian. Partially offsetting this was increased Egypt cost recovery volumes due to the lower oil prices in the quarter. Apache's second quarter average realized price on a BOE basis fell 39% from the prior quarter, with oil and NGL prices down materially. International oil price realizations were notably weak, as actual price realizations dislocated from the published benchmark price. This discount was driven by unprecedented excess supply on the market, resulting in unusual competitive pricing dynamics. Consequently, second quarter international oil realizations averaged around $5.50 per barrel below the benchmark, which we do not customarily experience. So far in the third quarter, Brent pricing has reconnected with the benchmark, and we do not currently anticipate this changing. Turning now to our cost savings initiatives. We entered 2020 with a goal of reducing annualized overhead and LOE costs by at least $150 million. With the price downturn in March, we took quick action to double that goal to at least $300 million. We have since fully achieved this target and then some. Roughly two-thirds of the targeted savings are coming from overhead reductions, and one-third from direct LOE reductions. These are sustainable cost reductions, and they are showing up in multiple places on our financial statements. So let me provide some detail. Of the roughly $200 million of annualized overhead cash cost reductions, approximately $100 million will show up as reduced capital investment. $20 million will come in the form of reductions in LOE and exploration expense, and approximately $80 million will show up in lower G&A expense. So our underlying G&A expense, which in the recent past typically ran about $100 million per quarter, should now run around $80 million per quarter. During the first quarter of 2020, you will recall we had a nearly $30 million reduction in G&A expense caused by the mark-to-market effect on share-based compensation plans associated with the significant negative movement in our stock price. During the second quarter, this impact partially reversed, generating a $19 million increase in G&A expense. As a result, second quarter G&A expense was $94 million. Turning now to LOE, we have eliminated approximately $100 million of direct LOE costs on an annualized basis. In addition to these sustainable LOE reductions, we are also seeing cost reductions associated with production curtailments and deferred workovers as well as the deferral of certain other nonessential activities. While these actions reduce costs in the near term, they are not sustainable, and we expect at least a portion of them to return at some point in the future. As we have previously noted, one of our key long-term objectives is debt reduction. Let me share two views on this objective as we look at the second quarter. With respect to long-term debt, we took the opportunity to repurchase bonds at significant discounts when the debt markets came under pressure. In aggregate, during the second quarter, we repurchased $410 million of face value debt for $263 million, reducing aggregate long-term debt by $147 million. The repurchased debt had an average remaining term of approximately 20 years and at the purchase price had an average yield of 9%, making this a very attractive investment. Another view of debt is through the borrowings on our revolver. Between the negative cash flow impacts of the extremely low price environment and the $263 million of bond repurchases, we ended the quarter with $565 million outstanding on the revolver. With an improving second half price outlook, combined with lower capital investment and reduced operating and overhead costs, we anticipate generating positive free cash flow in the second half and using it to reduce borrowings on the revolver. Before wrapping up, I'd like to note that we did issue third quarter guidance yesterday in our financial and operational supplement on our website, which covers our outlook for capital investment and production as well as a number of expense items. In summary, although it was a very challenging quarter from a price and cash flows perspective, we took significant actions to reduce our cost structure, protect the balance sheet and retain asset value for the future. To the extent WTI oil prices remain above $30 per barrel, we look forward to generating free cash flow in the second half of 2020 and using that to reduce leverage. And with that, I will turn the call over to the operator for Q&A.

Sorry, guys. I was on mute. I couldn’t get my mute button to go off. I apologize. Good morning, everyone. John, this is also a great day for your stock, and congratulations on the latest discovery in Suriname. I'm obviously going to focus my two questions on that, if I may. So my first one is your comment in the press release about this deserves perhaps the option of an accelerated first production. My question is, what influence does Apache have over that? How aligned is Total? And what are the parameters within the contract that could get you to that? And I guess what I'm really aiming for is, would you consider an early production system here? And I've got a follow-up.

Thank you, Doug. Ultimately, it comes down to the quality of the well, the rock, and the play. Block 58 covers 1.4 million acres, which is equivalent to more than 250 Gulf of Mexico blocks. We've drilled three wells in three different fairways, highlighting the potential for these large fairways. Once we finish our current operations, we plan to move to another fairway with Keskesi. The press release touches on our current position, and our partner is enthusiastic as well. In the Campanian, we've gathered some additional data with this well and are approaching the exploration well in an unconventional manner to gain insights. Ultimately, our success will depend on our alignment with our partner and cooperation with Staatsolie and the government of Suriname regarding the pace of progress. However, it will ultimately be the quality of the rock and resource potential that will drive our efforts.

Pardon my follow-up on this question, John, but Total just doesn't seem to be communicating the same level of urgency as your comment in the press release. So I just wonder if you could help us bridge the gap between the two, given the...

Well, I think what all my comment says is that, it's of a quality that would look at an accelerated pace. I think in their press release today they stated that there will be an appraisal and exploration program early next year to appraise our discovery. So I'll just leave it at that.

Okay. My follow-up is also on Kwaskwasi. And it's related to the deeper Santonian. Obviously, you did not disclose anything other than hydrocarbon reservoir. The last thing we heard of that expression was gas condensate at Haimara and Guyana. So I'm just wondering if you can address some concerns out there, as to what the hydrocarbon type is. Why you didn't release APIs? What do you know about scale? And just any other ways you can characterize that deeper horizon? And I'll leave it there. Thank you.

The first two wells indicate that the Santonian is more oil-rich compared to the Campanian. Overall, things look promising. We have conducted additional work in the upper zones and set pipe in the Campanian, gathering valuable information. While we continue to collect more data, we believe the material significance warrants discussion. I’ll pass it over to Dave for further insights on the Santonian.

Thank you, John. Doug, regarding the additional testing in the Campanian, it's crucial to note that we conducted some in-depth investigation testing. This approach serves two purposes: it provides us with a composite flow capacity and enables us to explore deeper into the reservoir than traditional fluid testing methods. We have completed our work in the Santonian and gathered the standard wireline logs. Based on our findings from mud logging and open-hole wireline logging in Maka, Sapakara, and the Campanian at this well, we are confident that there is oil in a significant part of the Santonian. Therefore, we felt it was appropriate to share this information. However, we still have further work ahead of us, including collecting fluids and pressures, as well as gathering core data. We plan to conduct more in-depth investigation testing on this interval. The absence of released API gravities simply indicates that we have not yet collected that data, so I wouldn't read too much into it.

Thanks. Congrats again. And I look forward to next quarter. Thanks.

Thank you.

Yeah. Good morning and brilliant and congratulations as well. I was curious on Kwaskwasi the results there how those compared to expectations? Was there any indication from your seismic data that this well would have more than double the net pay of the other two?

Yeah, Mike, first of all, thank you. I mean when you look at the seismic we knew Kwaskwasi was going to be a prolific fairway, as the other two were. It boils down a little bit about the depositional environment. I mean once again, we're in such a large area and these wells are so far apart that you have to drill them to learn that. So I mean clearly, it exceeded what would have been pre-drill. But we knew there was that kind of potential. And the exciting thing about it is we've got a lot more of this block to explore, but clearly, very excited about it.

Good. And then, Stephen, you mentioned about prioritizing that you want to improve the balance sheet obviously. I was wondering how you would prioritize options there? Is it really just using free cash flow to pay down debt or any other options you've considered at this point?

In a more typical environment, companies would usually sell assets to strengthen their balance sheets and pay down debt. However, given the current price situation, that approach is not effective. As a result, we will primarily focus on retaining free cash flow and reducing capital expenditures, which is a prudent strategy. This means it will take time to improve the balance sheet unless there is a significant price spike or unique opportunities arise, similar to our debt repurchase at a discount in the second quarter. We will seize such opportunities when they occur. Our priority is to retain free cash flow and use it for debt repayment rather than investing in capital for potentially different growth outcomes. Strengthening the balance sheet is far more critical for us than increasing production volume, and we are nearing a point where we can prioritize that. As John noted earlier, we are now in a position to maintain free cash flow neutrality at $30 WTI for the remainder of the year, considering our current CapEx budget, dividend reduction, and operational cost cuts. We do not plan to increase the capital budget this year. Any free cash flow generated beyond $30 WTI will be directed towards reducing debt.

Very good, thank you.

Hi. Good morning. I'm intrigued a bit by the comments around doing some things with an exploration well that you wouldn't typically do in the deeper investigation type testing. Are you performing a mini drill stem test out there? And are there any rates to report?

Yes. Bob this is Dave Pursell. Good try. We – it's something that would be between – if you want to call them mini drill stem tests that would be a reasonable characterization. It's something between a full drill stem test and what you typically would get from a fluid sampling operation. So again what we're getting from this is composite flow capacity of a – instead of a point permeability measurement from a core sample, we're getting a composite flow capacity and then another benefit is some deeper investigation for pressures into the reservoir. So we're still evaluating that data. But that's what we're doing. And again, we anticipate performing those tests in the Santonian as well.

Okay. Yes. That's clear. Another question. Given the thickness of this recent discovery, what drove the sequencing of the overall exploration campaign? And what might that tell us about the fourth well?

I mean I think when you step back and look, as we said we had multiple fairways. I think there – and you look at the size and think about this it's equivalent of 250 Gulf of Mexico blocks. So moving across there. A lot of it has to do just with how the – how things were deposited. But we've got a full another fairway that it will be testing. So we're anxious to move over and see. But everything looks really good on the seismic. So we're anxious to move on to Keskesi after Kwaskwasi.

Appreciate it.

Thank you.

Good morning, John, you and your whole team there.

Good morning, Charles.

I'm asking another question on the relief the headline that everyone is focused on the thickness of the pad that you guys found with this well. I'm curious, is there anything going on with either the dip of these sort of formations or perhaps structurally that's some kind of mitigating factor for that thickness you announced? Or is this more the case where you guys just really found a thick stack of pancakes here?

I would just say it's really more depositionally. There's nothing tricky with it. Geology is pretty level out here. So it's very exciting. I think it just goes to the quality in the Cretaceous here both with the Campanian and the Santonian. So as we've said, there are other play types that we are still looking forward to testing. The Turonian is a target we had at Maka. There's more to do. We've really – with the Campanian and Santonian, we're really only fully starting to evaluate two of the play types, we think there's seven or eight – so there's multiple targets. So a lot of exploration to do. And obviously, we got a lot of appraisal work to do on these first three discoveries.

Well, John, you anticipated my follow-up question on the Turonian because I remember back, you guys certainly have plenty to say grace over here but going back to that first well, the Maka well that you guys had some encouragement with the Turonian. So does – is that something that we should anticipate you guys are going to – are you going to maybe test with your next well? Or is that something that's where you found enough in the Campanian and Santonian that that's kind of receded into 2021 or beyond?

Well, just the timing of how – if you look Charles, we're really still moving across one direction across this block with these first four wells. We haven't even started to move the other direction which would be north and south. So we're going to – Keskesi, obviously moving to the other side of Sapakara. So we'll talk about that with the future exploration wells.

Got it. Thanks for the color, John.

Thank you.

Hi, good morning, everyone.

Good morning.

I've got two questions on Suriname starting. But I guess my first question is just on the reservoir quality. And the second is just on the accelerated first production commentary. So based on what you've seen so far from the Kwaskwasi well, can you provide a little more color on what makes the reservoir at one of the best quality reservoirs that you've ever seen in the basins? And is it primarily just the net feet to pay? Or are there other characteristics that you can elaborate on?

I'd just say in general, it's better. It's better if you look at the one net fee to pay both in the Santonian and in the Campanian are greater than we had in the first two wells combined. So that's one element. But I'll also tell you the quality looks fantastic. So at this point that's all we're going to say about it.

Okay. I can appreciate that. And then my follow-up question. In terms of the potential for accelerated first production relative to the current plan which to our understanding I think was something around four development wells and four exploration wells a year. Is the thought that maybe you could shift some exploration CapEx, development CapEx? Or do you envision doing more than the four plus four wells? I know it's still early, but I'm also not sure if there's anything in the PSC that allows for some timing flexibility.

Yes. I mean, what I would say is I don't know where the four appraisal or four development wells came from. We're drilling four exploration wells this year. Under the terms of our joint venture, us and our partner can each propose four exploration wells, so there could be eight going forward. What we've stated is there will be both an appraisal program and an exploration program in 2021, and we plan to try to get started as early as we can. So clearly the comment is with what we've got and some of the things we're doing here, this is of a quality and magnitude that it would warrant trying to look at could it be accelerated is all we're saying.

Okay. Great. Thank you very much.

Thank you.

Hi guys.

Good morning, John.

So, I wanted to focus on the capital allocation. You have been pretty clear about the balance sheet being the first priority and then kind of Suriname, Egypt, North Sea, Permian sort of that order. And the slide that you have got in your presentation sort of lays it out at different kind of price tags how that capital gets allocated. And John, you were very clear in your prepared remarks that it's going to take an oil price well over $50 to put a rig back to work in the Permian. But I guess, I'm curious with sort of where the current strip is which is just barely above $40, it's kind of right on the line there between if you do anything in the North Sea, if you would potentially draw down DUCs in the Permian. And I guess, what I'm going towards is with this continued success in Suriname and everything you want to do there and the continued run in Egypt, if maybe the gap has sort of widened between those two assets versus the other two where maybe at a low price is just barely above $40, it maybe doesn't make sense maybe to put the capital of those last two relative to the others? Like is there part of the pie now getting bigger I guess?

Yes. John, a really good question. I think the first thing I would say is in my prepared remarks, I laid out too that with where the strip is today CapEx probably comes down for the whole in '21. And that's just because of how we prioritize things. As it relates to the pie, Suriname, the way we structured our joint venture, it really doesn't change how much capital we have to put into Suriname. So, clearly it's just going to boil down to how much capital do we want to spend. And with where the strip sits today, I really think that the CapEx budget is going to come down because we're going to want to generate some free cash flow that can go towards reducing our debt.

Great. And then just the last question for me. With this latest result in Suriname and everything you're doing there, just internally relative to how you were thinking about the mix of kind of appraisal and exploration in Suriname next year, does this change that mix? I'm not telling you to give me the actual breakdown because you haven't probably determined that yet, but just does it change your thought process of how that mix would have been prior to this result?

It really doesn't because we understand the potential there. Clearly, there are things we want to try to advance at an accelerated pace if possible, but we also have a significant block that we need to continue exploring. Therefore, we plan to maintain a similar pace of exploration to what it is today. Then it will depend on what we need to do on the appraisal side with our partner.

Thanks, John. I appreciate it and congrats.

Thank you.

Good morning. Congratulations on another great Suriname well.

Thanks Gail and good morning to you.

When you guys look at Egypt activity in the second half of the year, could you just talk about any exploration targets that you guys are looking for to tackling?

We are actively focusing on Egypt and have conducted a significant amount of 3D surveying there. We are also refining our inventory and have some promising stratigraphic targets scheduled for drilling. If these turn out as we anticipate, we will have exciting developments to discuss.

Great. And then Steve, in the first quarter call, you mentioned that for every dollar change in oil, the cash flow sensitivity was roughly in the $50 million to $60 million range. Is that still accurate, or has it improved?

No, that's still a pretty good proxy to use for every dollar, probably close to the $60.

Great. Thank you.

Thank you, Gail.

Good morning. John, I was wondering if you could maybe as a follow-up to John's question, just give us some thoughts on your plans to delineate the three discoveries you've announced thus far and thoughts on potentially bringing in additional drilling rig to the theater call it next year or beyond?

Yes. Arun, I'll just say we have a kind of a procedure through the concessions that we follow. And we have submitted the appraisal plan for Maka. We are working on the appraisal plan for Sapakara. There will be one that follows Kwaskwasi, and clearly there's going to be an appraisal program that starts in early '21. And at this point, that's all I'm at liberty to really say, but we look forward to getting after it.

Great. Great. And just a follow-up regarding Egypt, you guys have talked about the new licensing areas. I was wondering if you guys have processed seismic on your legacy position as well and perhaps a little bit more detail on when you plan to test the stratigraphic trap play concept that I think you've identified in the Ptah and Berenice discoveries back in 2014?

Yes, Ptah and Berenice really initiated this entire effort. Before we drilled those wells, we conducted new 3D seismic in 2013 on our legacy acreage position "offset." It made us realize that we needed to start looking at things stratigraphically, not just structurally, in Egypt. We had discovered some stratigraphic elements through earlier wells, but that experience led us to design the 3D seismic we've been conducting. We've also acquired new acreage and are surveying much of our old legacy areas, which presents a lot of prospectivity. We are eager to drill some wells, and the advantage is that they are vertical and onshore, allowing us to complete them relatively quickly. It's a matter of managing the details and setting priorities. We have also reduced the rig count to five, and we would like to invest more in that area if possible.

Great. Thanks a lot.

Yes. Thanks. On Suriname, a great discovery and congratulations, by the way. Does that discovery really say anything about the positioning or your read of the seismic that you have over some of the other fairways like the Maka, for example, i.e. is there the chance that you guys now see the opportunity for like thicker structures other places? Is there anything unique that you found with that well?

Yes, that's a great question, Scott. What we're discovering aligns with what you're learning, indicating that we still have more work to do. We'll keep reprocessing seismic data, as certain formations can complicate things. We're quite deep with the total depth we announced for this well, so we will continue our efforts there. This situation highlights the vast size of the area as we compare the first three wells to the entire block. Our goal is to enhance our reprocessing methods to gain a better understanding and integrate all the data. The positive aspect is that we have a substantial hydrocarbon system in place; it's functioning, there’s oil present, and we have good reservoirs in the Santonian and Campanian formations. As we progress with drilling more wells, we will gain further insights. We've only drilled three so far, so there's still much to learn.

And effectively, as far as Keskesi goes in terms of where that was positioned, is there any chance that shifts a little bit as you continue to get closer to that? Or is that location pretty well set at this point?

No, as we mentioned, we had nine wells permitted. We knew we would definitely drill three, and likely exercise the option for a fourth. There are five other locations identified that could be for appraisal or other exploration targets. However, we've mostly remained focused on the original well sites. For instance, in Sapakara, we made one adjustment. As we gather more information, we continuously aim to enhance our understanding. Yet, further analysis with seismic data will be necessary to alter some of the initial interpretations we made.

Understood. Appreciate it. Thank you.

Thank you and good morning.

Good morning, Brian.

Sticking with Suriname, how many combined appraisal wells at the three discoveries do you think are needed between moving forward with the codified development plan? And when you think about the appraisal plus the time to get to FID and any government approvals, what's the realistic timing for when we could see early production start-up and a realistic timing, if we see more normal production start up?

We will determine the number of appraisal wells needed through the program, and we're currently working on that. I don't have specific details to share yet, but there will be a program in place, and we have three discoveries to appraise, along with contingency wells as we proceed with the appraisal programs. Regarding the timeline, we're looking at a normal process that could take around four to five years. There are opportunities for acceleration, but I can't comment on specifics at this stage. We're in the early stages, reviewing the log, collaborating with our partner, and currently focusing on the Sapakara appraisal plan, followed by the Kwaskwasi appraisal plan shortly thereafter.

Great. And then my follow-up is with regard to gas condensate. As you get more data on the gas condensate potential, how are you and your partner considering the potential if at all, for gas condensate development and economics? And is there any scale benefits from discoveries that you've made as well as in the Stabroek block of Guyana for a larger industry partnership?

Yes, Brian, this is Dave Pursell. I think it's too early to discuss the details on that. However, I believe the initial development will be driven by oil. Following that, gas or gas condensate development would be considered in a subsequent phase. Additionally, there could be some advantages in scale if that option is pursued. Nonetheless, there is still a significant amount of time before we reach that decision.

Makes sense. Thank you.

Hey. Thanks. Good morning. And, John, congratulations on the big discovery. Two quick questions. With no plans to resume domestic activity until oil prices are considerably higher, what are your current views on potentially monetizing any of the U.S. assets at this point?

I would say that we're constantly managing our portfolio and looking for ways to enhance it. When we assess our acreage positions in the Permian, the positive aspect is that we don't need to drill on every well. In fact, most of our land is held by production. We're exploring options like swaps to optimize our drillable lateral footage. We continuously monitor and evaluate the portfolio. Typically, we prefer to share our updates with the market after we have made progress, rather than giving expectations ahead of time.

All right. Thank you. And then just lastly, I know we've been provided a good bit of information on the thickness of the three discoveries. Any initial thoughts on the aerial extent of any of the three discoveries at this point?

Our thoughts are that these discoveries are quite significant, but we haven't provided specific details or size estimates yet. We believe it's too early for that. We will come back with more information after we've completed our appraisal programs.

Okay. That’s all from me. Thank you.

Thank you.

Hello. John or Steve my question is just wondering with the pace of next year's appraisal plan at Suriname would that have any impact on your decisions on domestic or international play spending?

In the way we structured our joint venture, we've kind of got everything worked in and planned around. I mean that was the main reason we held on to 100% of this block and really farm down 50% because we are really setting ourselves up for success because we believe there was a tremendous amount of potential and thought very likely we would find ourselves in this position. And so that's how we structured it. So it's really not going to create an incremental capital call that we can't fund it really at any price. Now you get into the second quarter where we got - all bets are off, but really in an even sub-$30 world we will be focused on paying down debt and funding Suriname.

Got it. And just one last question about Egypt. I'm wondering if you could discuss any price sensitivity that might lead you to alter your current strategy if prices remain around this level.

No, Egypt is performing very well. The main factor here is the amount of free cash flow we can allocate for investment. I would like to invest more because we see a lot of potential there, and the situation is favorable. Therefore, we will look for opportunities to increase our spending in Egypt if possible.

Hey. Thanks, guys. Just wanted to kind of get a little bit more color around some of the comments you made with respect to CapEx. I think you guys specifically said that it's $50 you'd spend at or below the $1 billion as we work our way into next year. And I just wanted to get a sense, I mean, it seems to me that that level of capital you're going to see steady production declines in all three of your areas, sort of, Egypt, North Sea and Permian. Just wanted to kind of confirm that with you guys. And then if that is the case then are you guys just feeling comfortable with that just because of the great initial success in Suriname? Or you just think that the long-term economics in Suriname are going to be so good you're fine letting things blow down for a handful of years until this kind of kicks in?

No, Leo, I mean, I think the point is we're managing the company for free cash flow and long-term returns. And it's not about production growth. I mean, obviously, we're not spending at a level today that would be maintaining production. We do know from past history that as you go forward with us with our decline rates, some of these conventional assets really start to arrest that decline. So it would take more in the future, but it's a matter of priorities of how we're managing the company. And I think some of these other assets, some of the things you talked about, they're going to hold up pretty well with underinvestment.

Okay. And I guess just with respect to your third quarter production guidance here you guys have the kind of adjusted international production of 135,000 BOE per day and kind of the upstream CapEx of $190 million. I want to see if you guys could provide those numbers on a kind of fully consolidated basis. So what would those be if we didn't make those kind of downward adjustments for the Egypt non-controlling interest in midstream and other things.

I don't have those numbers available right now. I recommend reaching out to Gary for details on the reported volumes. We usually focus on adjusted numbers because they reflect the true economic impact for Apache shareholders, but I understand your interest in the reported figures. Speaking with Gary would likely provide the best information on that.

Okay. Thank you.

Good morning, guys and congrats.

Thank you.

Just curious you've spoken quite a bit about obviously, Suriname. You talked about your capital allocation priorities as commodities improve and the emphasis on free cash. There were reports, I guess, earlier in the month or perhaps last month about Apache's potential interest in some other North Sea assets. If we think about Apache just as a portfolio company now, should we be expecting you look at opportunistic acquisitions that would increase your free cash per share scale? Or just given the immense resource that might be in front of you would that be something that would be off the table right now?

No. I would just say that, as a rule, we do not comment on rumors. When it comes to portfolio and changes, we usually discuss them after we have taken action. Looking at our current situation, we have always believed in a diverse portfolio. We have strong international assets, which we maintained while there was pressure to adopt a more focused model. Thus, we have consistently upheld that balance. We believe in having exposure to all commodities and maintaining multiple strong foundations that keep us robust.

Appreciate that. And then just the last one for me is you talked about priorities in accelerating appraisal and potentially development particularly in Block 58. How do you feel now? Or how are you thinking now about exploring in some of the other blocks namely 53? And if there were some leases that opened up towards the end of the year in more of that southern extension in the basin? Would we expect Apache to be present in those?

Yes, when considering Block 58, there is a lot to manage for us. It was crucial for us to structure our joint venture in a way that allows us to retain 50% of the profit oil. We are excited about Block 53, and the current trends suggest promising developments there. Overall, we have several important factors to consider in that region.

Thank you, guys. Congrats.

Thank you.

Good morning and thank you for taking my question. Congratulations on the success in Suriname, which brings back memories of many DSTs that aim for poorly pressured areas and their boundaries. Can you discuss how many DSTs you are currently conducting? What are your thoughts on detecting boundaries? Are there any examples from other basins or the Gulf of Mexico that could help us understand what to expect from the upcoming results?

Yes, this is Dave Pursell. Thank you for the question. When I consider a mini drill stem test, the most crucial piece of information is the composite flow capacity. We’re obtaining that aggregate near wellbore permeability across a thicker interval. The deeper reservoir investigation offers additional advantages, but it still doesn’t allow us to reach as far as in a standard drill stem test. The number of tests we will conduct depends on various factors, including thickness among others. Ultimately, the results will enable us to approach the appraisal program with greater thoughtfulness as we design more conventional drill stem tests. This will provide us with valuable information that enhances our understanding during the appraisal process.

Yes. So really near wellbore probably won't get enough distance to see any boundaries. And that's really setting up for your future DSTs not anything more than that...

Yes, that's probably the way to characterize it.

That’s helpful. Perfect. Thank you.

Hi, thank you, good morning. Two quick questions. One in certain the discovery seems to be closing up you should be able to extend the horizontal well and tie it back into one production pop? Is that what you intend to do or that the reserves it seems like big enough that you may anyway that you use maybe two FPSO to develop it?

Yes. Paul, it's just early. I mean clearly the benefit of having these fairways and things is you're going to have all sorts of options. The key is having resource, oil and as you work through that and that's some of the stuff that will go into the planning of how we appraise and ultimately make those decisions. But there's a lot of optionality to how you do it.

And last question that you sort of answered before, but let me try to ask in another way. In the Permian, given the success in Suriname, you will be extremely busy in the second half of this decade and probably experience very good growth. So when we look at your Permian assets, do you still consider them a long-term core portfolio, or do you not view them as a long-term core portfolio based on what you see today?

No, we value our assets in the Permian. We have always seen it as a crucial part of our strategy. However, in today's price environment, there are other areas that will receive capital before this one. That's all I wanted to say.

Good morning and congratulations. I'll jump in on the Suriname success so congratulations. Real quick question there, I just wanted to confirm who will operate the upcoming fourth exploration well?

Apache will operate the Keskesi well. After that well is when we've already started transitioning with our partner Total. And I will say, we chose the right partner for a lot of reasons and we're excited to continue working with them and let them take the reins as operator.

Right. Well being a little superstitious. I wouldn't mind seeing you guys drill one more well. So I'm glad to hear that. The other quick question was just how many Permian DUCs do you actually have right now in the queue?

Permian DUCs you got that.

Yes, it's about 50 outside of Alpine High.

Okay, great. Thank you.

Thank you, operator. And thank you to everyone that has dialed in today. To close the call I'd like to leave you with three key takeaways: first, Apache has responded quickly and aggressively to the volatile price environment thus far in 2020; we are exceeding our cost and capital reduction goals and will continue to relentlessly work these initiatives. Second, we are laser-focused on free cash flow generation, debt reduction, and investing for long-term returns, not production growth; and lastly, we have a differentiated portfolio that offers attractive investment options in this volatile oil price environment. The long-term future of that portfolio is underpinned by Suriname where our success rate thus far indicates a very large high-quality oil resource. We look forward to sharing our progress as we continue to appraise our discoveries and explore for additional oil. And with that we will conclude the call.