John J. Christmann IV
Chief Executive Officer at APA
Good morning, and thank you for joining us. On the call today, I will discuss our key strategic accomplishments in the core areas of the portfolio, review third quarter highlights and results and outline our preliminary capital, production and cost outlook for 2025.
Over the past several years, APA has delivered a number of strategic initiatives designed to enhance the portfolio and create shareholder value. In the U.S. since 2020, we have executed more than $5 billion of acquisitions and over $2.5 billion of divestitures, effectively transforming our asse -base into an unconventional pure-play Permian operation. This activity has three primary benefits.
First, it has added scale to our unconventional Permian position, increasing unconventional acreage by more than 40% and enabling us to roughly double our unconventional production. Second, it has increased drilling inventory and extended inventory duration as the rig count today is lower than APA and Cowen on a standalone basis. And third, it rationalized our portfolio by eliminating assets that did not compete for capital and significantly reduces per unit LOE.
Our primary strategic accomplishments in Egypt are twofold, both of which drive APA shareholder value and benefit the Egyptian people over the life of the PSC. In late 2021, we modernized and extended our PSC terms, paving the way for more efficient capital allocation, more operational flexibility and greater free cash flow generation. And we recently reached an agreement to increase the contractual price for incremental natural gas production in-country, making gas exploration and development more economically competitive with oil development.
Shifting to Suriname, we are now seeing the culmination of our strategic efforts that began more than 10 years ago when we made a countercyclical investment in long-cycle offshore exploration. The recently announced GranMorgu Project FID gives us visibility into strong future oil production growth at the most attractive economics in our entire portfolio. Importantly, we believe this project can easily be funded over the next few years through operating cash flow, allowing us to maintain our current capital returns framework.
Turning now to the third quarter results and highlights. APA achieved several important milestones during and subsequent to the end of the third quarter. We announced the sale of a package of non-core Permian properties for $950 million, which is expected to close in December. We reached FID on our first development project offshore Suriname in Block 58 with our partner and operator, TotalEnergies. We signed an agreement in Egypt that increases our contractual natural gas price on incremental volumes and we received a credit rating upgrade from Standard & Poor's, thus achieving investment grade status at all three major rating agencies.
Third quarter results were strong across-the-board as we exceeded our production guidance while capital and costs were below guidance. Cash flow from operations and free cash flow increased compared to the second quarter despite weaker WTI oil prices and significantly lower Waha gas prices. This resilience results from some unique attributes of the APA portfolio as well as some recent specific initiatives. These include the successful integration of Cowen and associated cost synergy capture, cash flow resilience to lower prices in Egypt under the PSC structure, near-term organic oil production growth, strong cash flow from our LNG contract, and having the optionality to curtail U.S. volumes when Waha pricing is negative, while still generating cash flow from gas trading, the real value of which lies in the preservation of resource for a better price environment. We expect all of these will continue to generate positive financial impacts in the fourth quarter.
Turning now to our key operational areas. U.S. oil volumes have now met or exceeded guidance for the seventh straight quarter. Since closing the Cowen acquisition on April 1st, we have reduced our Permian rig count from 11 down to eight, which we believe is an appropriate pace given the prevailing commodity price environment. We have successfully integrated Cowen and turned our focus to developing the acreage. Our initial wells on acquired Cowen acreage are flowing back in the Midland basin and the early results are encouraging. The first wells in the Delaware basin on Cowen acreage will follow later this quarter.
In Egypt, operations are running to plan and gross oil production is tracking accordingly. The reduction in our drilling program has enabled the workover rig fleet to reduce backlog oil volumes associated with delayed recompletions and workovers to more normalized levels. Pursuant to the terms of the new gas price agreement, we recently added one drilling rig, bringing our total rig count to 12.
Moving on to Suriname, we recently achieved an important milestone with the announcement of the final investment decision on our first offshore development in Block 58. The operator, Total, summarized the project as having a $10.5 billion gross cost, 220,000 barrels per day of production capacity, a per BOE capital plus opex cost of $19, and a 15% IRR at $60 per barrel. These are very good returns, and APA's economics will be further enhanced by the capital carry provision we negotiated in 2019 when we brought Total in as a partner. We plan to fund Suriname development capital out of operating cash flow for the next few years until production commences in 2028. As previously noted, we see significant opportunity for additional exploration in Block 58 that could extend the production plateau and enhance the economics of our first FPSO, or potentially support additional development projects in the future.
Switching now to the North Sea. During the third quarter, production volumes were in-line with guidance as we completed our platform maintenance turnaround at Beryl as planned. Earlier this year, the UK issued regulations which will require substantial new emissions control investments on facilities that will operate beyond 2029. After six months of evaluation, we have concluded that the investment required to comply with these regulations at Forties and Beryl, coupled with the onerous financial impact of the energy profits levy makes production of hydrocarbons beyond the year 2029 uneconomic. As a result, we have made the decision to cease all production in the North Sea by December 31, 2029, well-ahead of what would have been an otherwise reasonable timeframe. Steve will provide further details on the revised schedule and financial statement impacts of this change in a few minutes. In the wrap up operations, we have finalized plans to resume exploration drilling on our extensive state lease position in Alaska, where we will test the Sakai [Phonetic] prospect during the first-half of 2025.
Turning now to our preliminary activity plan and outlook for 2025. We currently expect to run an eight-rig program in the Permian basin and a 12-rig program in Egypt. In the North Sea, we will have a very limited capital program focused primarily on maintaining asset safety and integrity, and a small amount of initial P&A work in preparation for long-term asset abandonment. Our 2025 capital budget for the U.S., Egypt and North Sea will likely be in the range of $2.2 billion to $2.3 billion, with an additional $200 million allocated to Suriname development activity and $100 million for exploration, primarily Alaska. This capital program should broadly sustain production volumes in the Permian and Egypt on an adjusted BOE basis, while North Sea production will be down approximately 20% year-over-year. I would also like to highlight the significant cost reductions we are targeting in 2025. In aggregate, we expect per unit LOE, G&A, GPT and interest costs to fall by 10% to 15% year-over-year.
In closing, we have made very good progress on our strategic portfolio initiatives in the U.S., Egypt and Suriname. We had an excellent quarter operationally and achieved all key guidance targets. The Cowen integration is complete, most of the cost synergies have been captured and we look forward to demonstrating the potential of the acquired Cowen acreage. Egypt is running at a much more efficient operational cadence and we have the opportunity to unlock incremental value and assist the country with its natural gas needs following the negotiation of a new price framework.
Under our current price outlook, we will seek to generally sustain volumes in the Permian and Egypt for the foreseeable future, while rigorously managing costs and increasing the free cash flow that these regions generate. Longer term, a successful exploration program can add tremendous value and fuel future growth as evidenced by Suriname Block 58.
And with that, I will turn the call over to Steve.
