Apache highlights Permian Basin production

May 3—The Permian Basin is a big part of the Apache Corp.'s plans for the rest of 2024, representing an estimated 73 percent of the Houston-based company's adjusted production in the second quarter and about 75 percent of its upstream exploration and production capital this year.

President-CEO John Christmann said in his first quarter report from Houston that the Basin's unconventional acreage has increased by approximately 45 percent and its oil production by more than 65 percent for Apache.

"We have been running 11 rigs in the Permian since April 1 and we expect to average 10 for the remainder of this year as we actively manage changes to the combined rig fleet," Christmann said. "You will see the rig count change as we drop some rigs when their term ends and pick up other rigs that are more suitable for the planned drilling program.

"We continue to deliver excellent results in the Permian Basin with the first quarter marking our fifth consecutive quarter of meeting or exceeding U.S. oil production guidance."

He said Apache curtailed a substantial amount of its natural gas production at the Alpine High Play in Reeves County in March in response to extreme Waha Hub basis differentials.

"This dynamic has continued into the second quarter," Christmann said. "In Egypt gross production was in line with our expectations while adjusted volumes were just shy of guidance due to the impact of higher-than-planned oil prices.

"We are in the process of rebalancing our drilling rig-to-workover rig ratio in Egypt to further optimize capital efficiency. In the first quarter we averaged 17 drilling rigs and 21 workover rigs."

Christmann said Apache had recently concluded its three-well Alaska exploration drilling program on 275,000 acres of state lands.

"Our King Street No. 1 well confirmed a working petroleum system on our acreage, discovering oil in two separate zones," he said. "The other two wells, Sockeye No. 1 and Voodoo No. 1, were unable to reach their target objectives in the allotted seasonal time window due to a number of weather and operational delays.

"In Suriname we are progressing the study on our first development project, which we hope to make a final investment decision on before the end of the year."

Christmann said his company got a big boost from its $4.5-billion acquisition of the Houston-based Callon Petroleum Co., closing April 1.

"We are one month into the integration process and are making very good progress," he said. "As anticipated we are finding tremendous opportunities to reduce costs, improve efficiencies, leverage economies of scale and create value by applying our operational expertise and unconventional development workflows to the Callon acreage.

"Accordingly we have increased our estimate of annual cost synergies by 50 percent from $150 million to $225 million. The most exciting and compelling value capture opportunity we see with Callon still lies ahead. That will come from capital efficiency improvements which will enhance overall development economics and potentially expand the development inventory that form the basis of our transaction value.

"For the remainder of 2024 we will be revising most of Callon's operational practices and workflows. This includes everything from contracting and logistics to well planning and design, drilling and completions, facility construction and many aspects of daily operations."

Christmann said Apache this year will employ wider well spacing, fewer discrete landing zones and larger fracture stimulations.

"Improvements in capital efficiency will manifest in fewer wells to deliver the same amount of incremental production volumes," he said. "While it will take some time to realize the full benefit of these changes, the implementation has already begun.

"In the meantime we are modifying many aspects of Callon's previous 2024 plan to capture as much near-term benefit as possible."

Executive Vice President-Chief Financial Officer Steve Riney reported consolidated net income of $132 million.

"As usual these results include items 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," Riney said. "Excluding this and other smaller items, adjusted net income for the fourth quarter was $237 million."

He said the resulting adjusted earnings for the quarter included some significant exploration dry-hole expenses.

"Specifically we took a $59-million charge for the two exploration wells in Alaska that were unable to reach their targets," Riney said. "Additionally we wrote off the remaining $42 million that we were carrying for the Bonboni exploration well in Suriname that was drilled in 2021 and as we now have no active plans for further exploration in the northern portion of Block 58."

Riney said his company returned $176 million through dividends and share repurchases in the first quarter.

"As John indicated we remain committed to returning a minimum of 60 percent of free cash flow to shareholders," he said. "We are also cognizant of the need to strengthen the balance sheet and we are looking at non-core asset sales as a source of debt reduction in addition to the 40 percent of free cash flow not designated for shareholder return."

Riney said Apache's most material change to guidance is associated with gas pricing in the Permian and its impact on expected near-term production and third-party gas marketing activities.

"Waha experienced severe basis differentials in March and April and we expect this to continue through much of May," he said. "As a result we have continued to curtail gas into the second quarter and our guidance now reflects an estimated impact on the quarter of 50 million cubic feet per day of gas and 5,000 barrels per day of natural gas liquids related to the weakness at the Waha Hub.

"Our income from third-party oil and gas purchased and sold including the Cheniere gas supply contract is expected to be around $230 million for the full year, which is up significantly from our original guidance of $100 million. You will also see that we have removed depreciation, depletion and amortization from our guidance at this time."