John J. Christmann IV
Chief Executive Officer and President at APA
Good morning, and thank you for joining us. On the call today, I will review our key accomplishments in 2022, comment on fourth quarter performance, and provide an overview of our 2023 plans and objectives. Ahead of the pandemic, in 2019, we established a pragmatic long-term plan for our business that emphasized returns-focused investment, strengthening the balance sheet, rightsizing the organization and activity levels to deliver moderate, sustainable production growth, conservative budgeting, and the selective pursuit of differentiated opportunities for value creation, most notably, exploration. The world oil demand and commodity price dislocations that followed in 2020 and 2021 required some difficult and necessary actions to preserve our business. After a few years of hard work, we have returned to and are delivering on this long-term plan. In 2022, we generated second-highest annual free cash flow in the company's 68-year history, which we allocated primarily to debt reduction and cash returns to our shareholders. We also increased our rig activity to a pace that is now capable of generating sustained production growth in both Egypt and the U.S.
Some of the more notable achievements of the past year include free cash flow generation of $2.5 billion, 66% of which was returned to shareholders. The repurchase of $1.4 billion of common stock at an average price of less than $40 per share and the doubling of our annual dividend, a $1.4 billion, or 23% reduction in outstanding bond debt, an increase in adjusted oil production from the fourth quarter 2021 to the fourth quarter 2022, which represents our first exit-rate to exit-rate oil production increase since 2018, the successful integration of our Texas Delaware Basin tuck-in acquisition, which complements our legacy Delaware position and continues to exceed expectations. And importantly, on Block 58 in Suriname, the flow test two appraisal wells at Sapakara South which indicated a combined resource in place of more than 600 million barrels of low GOR oil. At Krabdagu, the discovery well was also successfully flow-tested and appraisal is now underway with two rigs. Additionally, in Block 53, the first oil discovery was made at Baja, which is on trend with Krabdagu. And lastly, on the ESG front, routine upstream flaring in Egypt was reduced by more than 40%. This is a significant step toward our goal of eliminating one million tons of annualized CO2 equivalent emissions by the end of 2024.
Moving onto fourth quarter results. Following some operational delays in Egypt and unexpected facilities downtime in the North Sea in the first three quarters of the year, we ended 2022 on a strong note. Fourth quarter production and costs were in line with guidance, while capex for the period was slightly above expectations due to some small shifts in activity timing. U.S. production exceeded guidance on continued strong performance from our Midland and Delaware Basin oil properties. Oil volumes in Egypt strengthened as we continue to improve drilling efficiencies and project execution. And North Sea production benefited from a substantial improvement in facilities run-time. Looking forward, in 2023, we will continue to focus on managing costs and driving efficiencies, while also taking advantage of the optionality within our portfolio to respond to commodity price movements, specifically with regard to the recent and substantial drop in natural gas prices. We are managing the portfolio for cash flow and not production volume.
Accordingly, our growth in 2023 will be entirely driven by oil. We are reiterating our capital budget of $2 billion to $2.1 billion, which is consistent with what we indicated back in early November. We believe this appropriately reflects potential inflationary impacts for the coming year and remain confident in our ability to deliver within this range. At this investment level and assuming current strip prices, we anticipate year-over-year adjusted oil growth of more than 10% and BOE growth of 4% to 5%. This is consistent with the preliminary BOE guidance we discussed on our November call. Oil volumes in Egypt and the U.S. will be the primary contributor to growth more than offsetting a decrease in natural gas production in both regions. As we also noted on our November call, we're expecting a sequential decrease in U.S. production from fourth quarter to first quarter. This is primarily driven by our Permian Basin oil well completion cadence. However, natural gas curtailments at Alpine High and liquids volume reductions associated with ethane rejection during the month of January are also significant contributors. Importantly, our Permian oil well completion cadence will accelerate in the second half of February, which should lead to significantly higher U.S. oil production in the second quarter through the fourth quarter.
Turning to the North Sea, we anticipate a moderate production rebound this year with three new wells coming online in the first half and shorter scheduled maintenance turnaround times. We plan to release the Ocean Patriot semi-submersible drilling rig around midyear, following completion of the scheduled drilling campaign in the North Sea. The permanent reallocation of this capital to other areas is being evaluated as the recent tax changes in the U.K. had made returns less attractive than other investment opportunities within our portfolio. In Suriname, first half 2023 activity is focused on the two appraisal wells drilling at Krabdagu and subsequent flow-testing. Following that, another exploration test on Block 58 is also planned. While average oil and gas prices are trending down relative to 2022, APA's free cash flow this year should be bolstered by our gas sales contract with Cheniere. Steve will provide more detail around the expected impact of this contract in his remarks. We remain fully committed to returning at least 60% of our free cash flow to shareholders through a mix of dividends and share buybacks. Strengthening our balance sheet also remains a priority, and we anticipate that most or all of the free cash flow not returned to shareholders will be used to reduce debt.
In closing, while the industry is experiencing considerable short-term oil and gas price volatility, we have a constructive outlook on the long-term supply and demand for hydrocarbons. Over the next several years, our plan is to maintain a relatively constant activity level yet remain flexible to shift capital within the portfolio to the highest-value opportunities. Through the cycle, we also plan to continue allocating an appropriate percentage of our capital budget to high-quality differential exploration opportunities. APA's investment case and portfolio are unique. Within the Permian Basin, we can allocate capital investment to oil or natural gas and generate growth from either or both commodities. Additionally, we hold considerable long-term gas transportation capacity, which our marketing team utilizes to purchase and resale third-party gas for a profit. We have gas sales to Cheniere commencing this summer that will provide long-term access to international index pricing.
Our Egypt operations offer exposure to premium Brent oil prices, modernized PSC terms, and an opportunity to generate consistent growth in an area with tremendous potential. And in Suriname, our joint venture partnership enables the appraisal and potential development of large-scale projects on Block 58 with limited capital investment. We believe APA is well-positioned to help profitably deliver hydrocarbons that the world needs for the next decade and beyond. We're committed to doing this while reducing carbon intensity and being good environmental stewards.
And with that, I will turn the call over to Steve Riney.
