John J. Christmann
Chief Executive Officer, President & Director at APA
Good morning and thank you for joining us. Our top priority coming into 2021 was to continue strengthening the balance sheet through debt reduction. With the significant recent strides in that regard and a favorable outlook for continued free cash flow generation, we are in a position today to announce some material changes in our capital investment plans and use of free cash flow. First, we are moving toward a capital budget that will sustain or slightly grow global production volumes. This is being accomplished through a gradual ramp in activity over the next few quarters, primarily in Egypt where we are anticipating PSC modernization terms will be approved by year-end, but also in the onshore U.S.
Second, we are committing to a significant increase in cash return to shareholders. While a stronger commodity price environment has accelerated progress on the balance sheet, it's the quality and cash flow generating capacity of our core operating areas through a range of commodity price environments that are enabling our new capital return framework. We have a substantial inventory of quality drilling opportunities throughout our portfolio. In addition to Egypt, which now has the deepest inventory in more than a decade, we also have significant potential in our onshore U.S. portfolio, primarily in the Southern Midland Basin, Alpine High and Austin Chalk.
In this price environment, there are many compelling drilling opportunities that should be funded, and we anticipate adding a fourth onshore U.S. rig in 2022. With regard to our new capital return framework, we are committed to returning a minimum of 60% of our free cash flow to shareholders. This begins with our base dividend, which in September we announced would increase to an annualized rate of $0.25 per share. Yesterday, we announced a doubling of that rate to $0.50 per share.
In early October, we took the more significant step of initiating a share repurchase program. Through October 31, we have repurchased 14.7 million shares and expect to continue returning capital in this manner through the fourth quarter and into 2022. Our commitment is to return at least 60% of free cash flow to shareholders and we will exceed this amount in the current quarter. We believe that APA currently offers one of the highest free cash flow yields in our peer group, and that this framework delivers an attractive and highly competitive return to our shareholders.
Turning now to the third quarter results and highlights. Through a combination of strong commodity prices, capital and cost discipline and good well performance, we generated nearly $1.2 billion of adjusted EBITDA, making it our strongest quarter of the year thus far. We anticipate fourth quarter will be even stronger. U.S. production exceeded guidance in the third quarter as we continue to see good performance in the Permian oil plays, Alpine High and the Austin Chalk. Internationally, production was a bit below guidance as we experienced some extended maintenance turnarounds and compressor outages in the North Sea and lower volumes in Egypt associated with the impact of strengthening oil prices on our production-sharing contracts.
We expect gross production in both the U.K. and Egypt will increase in the fourth quarter. In the U.S., we placed a total of 10 wells online during the quarter. This included nine wells in the Southern Midland Basin, three of which were three miles in length. At Alpine High, no new wells were placed on production during the quarter, but performance from this year's DUC completions as well as the underlying base production volumes continue to exceed expectations. In the East Texas Austin Chalk, we drilled four operated wells earlier this year, two of which are on production. We recently added a third rig in the U.S., which will be used to continue the delineation of our Austin Chalk acreage position.
We have now gathered a substantial amount of data in this play that indicates returns will compete with other quality portfolio opportunities. Dave Pursell can provide more details around the Austin Chalk during the Q&A. Turning to international operations. In Egypt, gross production has begun to turn higher, putting us on a good trajectory as we enter 2022. In anticipation of modernized PSC terms, we recently increased our rig count to 11. We will likely add more rigs in 2022 as modernized terms would return Egypt to being the most attractive investment opportunity within our portfolio. In the North Sea, we continue to operate one floating rig and one platform crew.
As expected, production was up modestly in the third quarter compared to the second quarter as we continued to work through both planned and unplanned maintenance downtime. On the drilling front, we recently TD-ed Storr-2 development well, which we plan to place online in January. While one of the primary objectives in this well was wet, we encountered more than 300 feet of net pay in other targets, which we are projecting will IP around 20 million cubic feet per day of gas and 2,500 barrels per day of condensate. Our 59% working interest in this well provides good leverage to what should be robust North Sea natural gas and condensate prices over the coming months.
In Block 58 offshore Suriname, our partner, Total, is currently running two rigs, one of which is conducting a flow test at Sapakara South and the other is drilling the Bonboni exploration well in the northern portion of the block. These operations are still ongoing and the data we collect will help inform the next steps in the Block 58 appraisal and exploration programs. On Block 53, we are finalizing plans for our next exploration well location with partners PETRONAS and CEPSA. The Noble Gerry de Souza drillship is scheduled to commence drilling this well in the first quarter.
The plan is to drill one well in Block 53 in 2022, but we have an option on the drillship for two additional wells if warranted. Before closing, I want to comment on the charge we took this quarter related to the Gulf of Mexico properties we sold to Fieldwood in 2013. Since Fieldwood emerged from bankruptcy in August, we have independently assessed the situation and have elected to book the contingent liability that you saw in our press release. Steve will walk you through some of the details. In closing, I'd like to make a few remarks about the progress we are making on the ESG front. We recently announced that we have eliminated all routine flaring in U.S. operations.
This was an ambitious goal that we set at the beginning of the year and achieved three months ahead of schedule. Additionally, through the end of the third quarter, flaring intensity in the U.S. was only 0.38%, significantly below our target of less than 1%. Our global safety performance has also been strong. We have delivered a 35% improvement in our total recordable incident rate compared to this time last year. We have also progressed a number of important initiatives that foster diversity and inclusion within the organization and that enhance the health and well-being of our employees.
In October, we published our 2021 Sustainability Report, which I hope you will review for a more in-depth look at our ESG philosophy, performance, initiatives and success stories. Finally, we are in the process of establishing some very rigorous short-, medium- and long-term ESG goals, which will include further efforts on GHG and methane emissions, and we look forward to discussing these in the near future. And with that, I will turn the call over to Steve Riney, who will provide additional details on our third quarter results and outlook.
