APA Q4 2021 Earnings Results & Report

APA EPS Results

• Actual EPS: $1.29
• Consensus EPS: $1.42
• Beat/Miss: Missed by -$0.13
• One Year Ago EPS: N/A
• EPS Beat Rate: 5 of last 8 quarters

APA Revenue Results

• Actual Revenue: $2.30 billion
• Expected Revenue: $2.10 billion
• Beat/Miss: Beat by +$199.33 million
• YoY Revenue Growth: N/A

APA (NASDAQ:APA) is an independent energy company engaged in the exploration, development and production of oil, natural gas and natural gas liquids. The company’s activities include identifying hydrocarbon resources, drilling and completing wells, operating producing properties, and managing related infrastructure.

APA’s principal producing areas include the Permian Basin in the United States and Egypt’s Western Desert, where it operates through joint ventures with the Egyptian General Petroleum Corporation. The company also maintains an exploration presence offshore Suriname through its interests in Block 58, an area that has been the subject of significant exploration activity.

Founded in 1954 as Apache Corporation, the company adopted the name APA Corporation in 2021. Its corporate headquarters are in Houston, Texas. APA focuses on developing its existing resource base while pursuing exploration opportunities in selected international markets.

APA Q4 2021 Earnings Call Transcript

Key Takeaways

• Record Free Cash Flow: APA delivered $1.8 billion in free cash flow for 2021, exceeding its $350 million plan by $1.45 billion and marking the highest annual FCF in over a decade.
• Balance Sheet Strengthening: Upstream net debt was cut by $1.2 billion in 2021, accelerating progress towards investment-grade leverage levels.
• 60% Capital Return Framework: APA initiated a long-term plan to return at least 60% of free cash flow to shareholders, repurchasing 8.5% of shares in Q4 and planning progressive dividend increases.
• Egypt PSC Modernization: Late-December agreement improved production sharing contract terms, positioning Egypt for increased capital spending and long-term production growth.
• Inflationary Cost Pressures: Q4 LOE and G&A expenses exceeded guidance due to higher fuel, labor, chemicals and emissions costs, contributing to FCF of $485 million versus guidance of $600 million.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the APA Corporation's fourth quarter 2021 earnings announcement. At this time, all participants are in listen-only mode. After the presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star, then one on your telephone keypad. Please be advised, today's conference may be recorded. If you require operator assistance during the call, please press star, then zero. I'd now like to hand the conference over to Gary Clark, Vice President of Investor Relations. Please go ahead.

[Gary Clark, VP of Investor Relations at APA Corporation]

Good morning, and thank you for joining us on APA Corporation's fourth quarter 2021 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 provide further color on our results and 2022 outlook. Also on the call and available to answer questions are Dave Pursell, Executive Vice President of Development, Tracey Henderson, Senior Vice President of Exploration, and Clay Bretches, Executive Vice President of Operations. Our prepared remarks will be approximately 25 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 fourth quarter financial and operational supplement, which can be found on our investor relations website at investor.apacorp.com. Please note that we may discuss certain non-GAAP financial measures.

[Gary Clark, VP of Investor Relations at APA Corporation]

A reconciliation of the difference 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's tax barrels. I'd like to remind everyone that today's discussion 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. With that, I will turn the call over to John.

[John Christmann, CEO and President at APA Corporation]

Good morning, and thank you for joining us. At the beginning of each year, I like to look back and reflect on our progress, and 2021 marked an important turning point for APA Corporation. While there is clearly much more to accomplish, I believe we made outstanding progress on six specific fronts last year. First, we demonstrated the robust cash flow capacity of our base business. We entered 2021 with a plan to generate around $350 million of free cash flow, assuming $45 WTI. By being mostly unhedged and with the benefit of a $68 average WTI price tailwind, free cash flow exceeded our plan by nearly $1.5 billion and came in at $1.8 billion for the year.

[John Christmann, CEO and President at APA Corporation]

This represents the highest annual free cash flow in more than a decade and is one of the highest in the company's 67-year history. Keep in mind, these results do not include any free cash flow uplift that will come following the Egypt PSC modernization we completed in late December. The free cash flow capacity of our base business has significantly improved over the past few years. We have accomplished this improvement through multiple initiatives focused on portfolio enhancement, improved capital allocation and capital productivity, per-barrel margin expansion, and relentless overhead cost rationalization. Although we are getting some traction in the market, we believe our free cash flow capacity is still not fully appreciated. Second, we strengthened the company financially.

[John Christmann, CEO and President at APA Corporation]

By maintaining capital discipline and investing at a level slightly below our plan, we let the strengthening oil price flow directly through to the balance sheet, reducing upstream net debt in 2021 by $1.2 billion. In one year, we accomplished what we thought would take multiple years and made great progress toward our goal of returning to investment-grade status. Third, we initiated a capital return framework for our shareholders. In the fourth quarter, on the back of a strengthening balance sheet, we implemented a robust long-term framework for returning capital to shareholders. Reducing debt was and continues to be important. However, we reached a point in 2021 where it became appropriate for equity holders to participate more directly and materially in cash returns.

[John Christmann, CEO and President at APA Corporation]

We feel our 60% return framework is a good balance, providing near-term cash returns to shareholders while still recognizing the importance of longer-term balance sheet strengthening. Thus far, we have returned capital under the new framework, primarily through share repurchases, as we bought back nearly 8.5% of outstanding shares during the fourth quarter. We felt this was appropriate given the sizable gap in the free cash flow yield at which our stock was trading relative to our peer group. We are committed to returning capital under the 60% framework for the long-term and anticipate a progressively larger dividend component as we see improvement in our relative share price performance, further strengthening of our balance sheet. Reduced oil and gas price volatility. Fourth, we refreshed the economic foundation for our business in Egypt.

[John Christmann, CEO and President at APA Corporation]

At the end of December, we finalized our agreement to modernize the terms of our production sharing contracts in Egypt. We have a long history with Egypt, and this agreement sets the foundation for many years of a mutually beneficial partnership. The improved PSC terms return Egypt to the best long-term investment opportunity in our portfolio. In turn, this incentivizes increased capital spending and a return to long-term production growth. This is a tremendous outcome for both Egypt and for APA. Fifth, we continue to streamline our Permian portfolio. In 2021, we sold $256 million of non-core assets in the Permian Basin, and we plan to close on the sale of an $805 million minerals rights package in the Delaware Basin within the next week. You should anticipate continued non-core Permian asset sales.

[John Christmann, CEO and President at APA Corporation]

Finally, we made good progress toward a potential FID in Suriname. In November, we announced a successful flow test and pressure buildup at our Sapakara South appraisal well. With further information and analysis, we are increasing our estimate of the connected resource in place in a single zone at Sapakara South-1 to more than 400 million barrels. We look forward to additional appraisal that should further increase the estimated resource in place at Sapakara South. We also announced a follow-on discovery at Krabdagu, which lies approximately 18 km to the east of Sapakara South. We will initiate flow testing at Krabdagu in the coming days, and we'll share more details at the appropriate time. 2021 was also a transformational year for Altus.

[John Christmann, CEO and President at APA Corporation]

This week, we plan to close the previously announced merger with privately held EagleClaw Midstream, which will significantly scale the business and reduce APA's ownership to a minority interest. The combination creates the largest and best-in-class gathering, processing, and transportation company in the Delaware Basin, with capacity for product delivery to the Gulf Coast. The outlook for the new company is strong, and their plan is to maintain and ultimately grow the $6-per-share dividend. For APA, this transaction enables deconsolidation of the midstream business and its associated debt. It also provides APA an opportunity for near-term liquidity of almost 1/3 of our 12.9 million Altus shares. 2021 was also a year of significant progress on our ESG initiatives and safety performance. We firmly believe that being proactive with respect to ESG is one of the most important strategic imperatives facing our industry.

[John Christmann, CEO and President at APA Corporation]

Our collective ability to meet much needed energy demand while also reducing emissions will determine our long-term success and viability. APA is committed to being part of the solution and part of the future, and we plan to demonstrate that commitment through a strong bias for near-term actions that will make a real difference. In 2021, we set an ambitious goal of eliminating routine flaring in the Permian Basin by year-end, which we accomplished three months ahead of schedule. APA is the first amongst its publicly traded peers in the Permian to end routine flaring, and we applaud the numerous companies that are now taking measures to do the same. APA also seeks continuous improvement in our safety performance and protocols.

[John Christmann, CEO and President at APA Corporation]

In 2021, we achieved a significant improvement in the three key safety indicators that impact the annual incentive compensation of every employee in the company. I am proud of our teams for delivering these results. The task now is to build on these successes in the future. In summary, 2021 was a year of outstanding progress for APA. The achievements I just highlighted, along with several important ongoing initiatives, will improve our operational and financial performance and sustainability for years to come. Turning now to the fourth quarter results. APA generated $1.3 billion of adjusted EBITDAX, making it our best quarter of the year. Upstream capital spending was $334 million for the quarter and $1.06 billion for the full year, both of which were below guidance.

[John Christmann, CEO and President at APA Corporation]

U.S. production exceeded guidance again in the fourth quarter as we continue to deliver good performance from our Permian oil plays and at Alpine High. Our focus was on increasing efficiencies through longer laterals, optimized well spacing, and enhanced completion design. The success of these initiatives was recently recognized by JPMorgan Analyst Arun Jayaram, who named APA as a top performer in his analysis of 2021 Midland Basin well performance. As we noted in prior calls, U.S. well connections in the second half of 2021 were significantly lower than in the first half due to the timing of our DUC completion program. Accordingly, we placed only 13 wells online in the U.S. during the fourth quarter, 11 of which were in the Southern Midland Basin. The remaining two completions were in the East Texas Austin Chalk.

[John Christmann, CEO and President at APA Corporation]

In October, a dedicated rig arrived in the Austin Chalk and initiated a drilling program that is expected to run through 2022. Internationally, gross production was up in the fourth quarter. However, adjusted volumes were below guidance due to unplanned downtime in the North Sea during the month of December. On the cost side, LOE increased again in the fourth quarter and was higher than our guidance. We have begun to see the impacts of inflation, particularly in fuel, chemicals, labor, and steel costs. These pressures are showing up in all areas of spend. In yesterday's earnings materials, we set forth some high-level guidance on APA's three-year outlook, which I would now like to provide a bit more color around.

[John Christmann, CEO and President at APA Corporation]

With the onset of the pandemic at the beginning of 2020 and the resulting oil price collapse, we cut capital investment to protect the balance sheet. As a result, our base production levels have been in decline for the last two years. With the stronger oil price environment and an improved financial situation, our overarching goal for the next few years is to return to pre-pandemic production levels and then invest at a pace that will sustain or modestly grow those production volumes. Our capital program for 2022 will be approximately $1.6 billion, a slight increase from our prior view. This includes some small changes to the timing of the rig count increases in Egypt and in the U.S., as well as an updated view of inflation.

[John Christmann, CEO and President at APA Corporation]

This amount also includes $200 million for exploration and appraisal activities, mostly in Suriname. In 2023 and 2024, capital increases a little further despite a mostly unchanged activity set, as we expect continued inflationary pressures. Over the three-year period, we're planning on an aggregate capital investment of around $5 billion. Based on this planned level of capital activity, we should exit 2024 at production levels similar to 2019 after adjusting 2019 for divestments. Most of the growth will come from Egypt, with some modest improvement in the U.S. and declining volumes in the North Sea. At current strip pricing, we expect to generate approximately $6.5 billion of free cash flow over the next three years.

[John Christmann, CEO and President at APA Corporation]

By any measure, this is a strong free cash flow yield relative to market cap or enterprise value, and it would be even stronger if not for the heavily backwardated strip pricing. I would remind everyone that these numbers assume no production volumes from Suriname, but do include continued capital investment for exploration and appraisal. If we FID any discoveries on Block 58 during the next three years, planned CapEx would increase modestly since 75% of our appraisal and development spend will be funded by our partner. Additionally, this outlook does take into account the pending Delaware Basin minerals package sale, but assumes no further portfolio changes. Finally, our commitment to return capital to shareholders over the next three years will remain unchanged. We will return a minimum of 60% of our free cash flow to shareholders through dividends and share repurchases.

[John Christmann, CEO and President at APA Corporation]

Before turning the call over to Steve, I'd like to wrap up with a few remarks about our ESG goals and initiatives. We have established several rigorous goals for 2022, which are designed to move the ESG needle as quickly as possible. We remain focused on our key pillars of air, water, and communities and people. Our short-term incentive compensation plan for 2022 includes three specific ESG-related goals. We will reduce upstream routine flaring in Egypt by 40%. We will initiate new programs to promote and deliver increased supplier diversity, and we will implement a new workplace ecosystem that recognizes the changing dynamics of technology and work schedules for our employees. We have also established rigorous new safety compliance protocols and metrics as we pursue continuous improvement in the health and well-being of our workforce and for the communities in which we operate.

[John Christmann, CEO and President at APA Corporation]

As we look to the longer-term, we will invest a minimum of $100 million over the next three years in ESG initiatives, much of which will be focused on global emissions reductions programs. To underscore our commitment to these efforts, for the first time, we have added an emissions-related goal to our long-term incentive compensation plan. By the end of 2024, our goal is to deliver emissions-focused projects that eliminate at least 1 million tons of CO2 emissions per year. To provide added transparency, we plan to have these projects and their associated CO2 reductions externally verified. With that, I will turn the call over to Steve Riney.

[Steve Riney, EVP and CFO at APA Corporation]

Thank you, John. Let me start with further details related to our fourth quarter results. As noted in our news release yesterday, under generally accepted accounting principles, APA Corporation reported fourth quarter 2021 consolidated net income of $382 million, or $1.05 per diluted common share. These results include several items that are outside of APA's core earnings, the largest of which was associated with non-cash impairments, primarily on Altus Midstream's interest in the EPIC crude pipeline. Net of tax and non-controlling interests, this reduced APA earnings by $123 million. The partial reversal of prior tax valuation allowances and other tax adjustments had a $42 million benefit to earnings. Please see our detailed table of non-GAAP financial measures in our financial and operations supplement for a full reconciliation of adjusted earnings.

[Steve Riney, EVP and CFO at APA Corporation]

Excluding these and other smaller items, adjusted net income for the fourth quarter was $468 million or $1.29 per diluted common share. Lease operating expense in the quarter was above guidance as a result of increasing inflationary pressures and higher than expected emissions costs in the North Sea. In the U.K., the price of emission credits has nearly doubled since credit auctions were initiated in May 2021. G&A expense was also significantly above guidance, primarily due to the fourth quarter strength in our stock price and the resulting impact on non-cash stock-related compensation expense. Costs were also impacted by a higher than planned incremental incentive compensation accrual in the quarter.

[Steve Riney, EVP and CFO at APA Corporation]

Due to these higher costs as well as lower oil, gas, and NGL prices in November and December, free cash flow for the quarter was $485 million, below our guidance of $600 million, which we provided in early November. As John noted, the modernized production sharing contract in Egypt was ratified in late December. If you haven't already done so, please refer to the Egypt PSC Modernization investor presentation on our website for more details related to the updated terms and their anticipated impacts. The new agreement became effective on April 1st, 2021. From that date to the end of 2021, the true up of revenue sharing, net of some small closing-related costs, was $245 million benefit to the APA Sinopec joint venture.

[Steve Riney, EVP and CFO at APA Corporation]

The agreement also included a signature bonus payable to EGPC of $100 million. Half of the signature bonus was payable upon signing and was offset against outstanding receivables. The other half of the signature bonus is payable to EGPC over the next five years. Given the timing of the PSC signing late in December, our fourth quarter operational results include no impact from the PSC modernization. Turning to Altus Midstream, the business combination with EagleClaw Midstream is expected to close shortly. As a result, fourth quarter 2021 should be the final quarter for APA to consolidate Altus Midstream's balance sheet. This will eliminate the consolidation of approximately $1.4 billion of Altus debt and redeemable preferred equity. Depending on how you model them, this could have a significant impact on APA debt metrics and multiples related to enterprise value.

[Steve Riney, EVP and CFO at APA Corporation]

Now I would like to turn to the outlook for 2022. We are planning for a capital program of around $1.6 billion, with $1.4 billion in development capital and $200 million of exploration and appraisal, mostly in Suriname. This level of activity should deliver company-wide annual adjusted production similar to that of 2021. In Egypt, increased drilling activity in 2021 has already halted the decline in gross production volumes. With more drilling activity being added in 2022, gross production will turn to a growth trajectory through the year and into 2023. On an adjusted basis, you will see an immediate uplift in production in the first quarter, given the revised terms of the modernized PSC. From that point, adjusted production should grow in line with gross production, excluding PSC-related impacts from changes in Brent oil price.

[Steve Riney, EVP and CFO at APA Corporation]

In the North Sea, we anticipate a similar production level compared to 2021, as we will again have another lengthy turnaround season at Beryl. Additionally, the Ocean Patriot drilling rig is expected to be offline for approximately three months to repair damage incurred to its anchor system during a recent weather event. Production volumes in 2022 will be impacted by the reduced amount of rig activity. In the U.S., average production this year will be modestly below 2021 after adjusting for asset sales. However, we will exit 2022 in a position of sustaining to slightly growing U.S. production. There are three reasons for the decline compared to 2021.

[Steve Riney, EVP and CFO at APA Corporation]

First, about 7,000 BOE per day of production is lost due to the Delaware minerals package sale that John mentioned earlier. Second, the DUC program, largely completed in the first half of 2021, provided a significant production boost that will not be replicated in 2022. Finally, the underlying drilling program in the U.S. will only get to a maintenance level of activity around mid-year after we have added the fourth drilling rig. On the cost side, inflationary pressures are real in our sector, and we are seeing that across many forms of cost. In particular, LOE is rising with everything from labor and trucking to fuels and chemicals under pressure. Our guidance for 2022 costs include these impacts. That said, we see risks of further pressures on these and other costs as we look to 2022 and beyond, especially if the current price environment prevails.

[Steve Riney, EVP and CFO at APA Corporation]

All of the details around our 2022 full year and first quarter guidance can be found in our quarterly supplement on our website. Our 2022 guidance around certain costs may be difficult to reconcile to 2021 actuals due to the impact of the Altus deconsolidation. Please reach out to Gary and his team for further support. From a free cash flow perspective, 2022 looks very robust. At current strip prices, we anticipate free cash flow well in excess of $2 billion. In addition to strong cash flow from operations, we also expect $805 million in cash proceeds from the Delaware Basin mineral rights sale, and we anticipate a sell-down of up to 4 million shares of our ownership in Altus Midstream during the three-month period following the closing of its combination with EagleClaw.

[Steve Riney, EVP and CFO at APA Corporation]

All of that should provide a significant amount of available cash in the next few months. The first priority for that cash will be to pay off the revolver. Beyond that, remaining available cash will be used in some combination to buy back shares, further reduce debt, and to fund the dividend. I would note that in January, we utilized the early call option feature on the $214 million of bonds that mature in April, so that debt effectively sits on the revolver today. Finally, I'd like to make a few remarks about steps taken on our new capital returns framework. In the fourth quarter, we returned well in excess of 100% of our free cash flow to shareholders, mostly through stock buybacks.

[Steve Riney, EVP and CFO at APA Corporation]

We had to fund a portion of this on a revolver and had the confidence to do so given the robust price environment, coupled with our expectation of significant near-term divestment proceeds. Obviously, we cannot repurchase shares this aggressively every quarter, but we feel it was a good decision at that time. While relative valuation for APA has improved, we continue to believe our stock is a good value on both a relative and absolute basis. We are committed to our capital returns framework, so the share buybacks will continue in 2022. With that, I will turn the call over to the operator for Q&A.

[Operator]

Our first question comes from Doug Leggate with Bank of America.

[Doug Leggate, Managing Director at Bank of America]

Well, thanks. Good morning, everybody. John, I wonder if I could ask you first on Suriname, obviously, Krabdagu was announced before your earnings. When you and I last spoke, I guess at our conference in November and multiple times since then, it seems to me that Krabdagu is kind of a gating item for, not to put words in your mouth, but not whether there will be a boat, but what the size of the boat will be. I'm just wondering if you could give us an update on your thoughts there, because it seems, to me at least, that the press release was somewhat right down the middle. What are you? Does anything concern you here? Can you talk about, was this multiple sands? Is there a flow test gating item you wanna get past?

[Doug Leggate, Managing Director at Bank of America]

What are you thinking? Maybe just frame for us what you think the next steps are.

[John Christmann, CEO and President at APA Corporation]

Doug, thanks for the question. I mean, you know, first of all, you know, we made it clear that Krabdagu was the next well we needed to drill. It was, technically an exploration well, but it was a well we had fairly high confidence in because we're really starting to get a, you know, an understanding of what is working and what we can image and so forth. I think, you know, coming in and finding 90 m of light oil pay and good quality rock, which is predominantly just, you know, we did only drill down through the Campanian, is a fantastic outcome. I mean, we're very excited about it. We're gaining confidence on what's working.

[John Christmann, CEO and President at APA Corporation]

I think the key next step here is, you know, because it is an exploration well, moving on to the flow test and the pressure buildups. The beauty of this is we can do that now, and we are anxious to get on with it. I think we just need the time to confirm and get some more information. Then obviously, we'll be back to you know, with a lot more color once we validated that.

[Doug Leggate, Managing Director at Bank of America]

Do you still see Sapakara, Keskesi, Krabdagu as a combination development?

[John Christmann, CEO and President at APA Corporation]

I mean, the nice thing is, you know, at Sapakara South and, you know, in my prepared remarks, we stated that the, you know, the connected volume to the Sapakara South one well has increased and, it's a good sign because with time and the buildup, you know, things, good fields get bigger and so forth. That has happened there. There is more appraisal to do at Sapakara South. The nice thing is with where it is connected or, you know, the distance it could be connected.

[John Christmann, CEO and President at APA Corporation]

I won't say that it has to be connected. You know, there's a lot of optionality there. We need to do the flow test at Krabdagu, and then we'll come back with a game plan. The nice thing is while we're doing the flow test, there's optionality with where we send the rig next. Do we go ahead and, you know, appraise Krabdagu? Do we appraise the second well at Sapakara South? Or there's also some nice-looking prospects in between here that we have confidence in. There's a lot of optionality, Doug, here and a lot to work with, and we just need time to collect more data and keep working the data.

[Doug Leggate, Managing Director at Bank of America]

Okay, thanks for that. My follow-up, hopefully a quick one, Steve. On the last call, you talked about that strip pricing before the modernization of Egypt, if you see more than $2 billion of free cash flow in 2022, and I guess that was back in the third quarter call. You've put out the same number today, which I think might be one of the reasons your stock is lagging. Can you walk us through why is that number not been reset higher? Again, usual question from me, what do you think the duration of the free cash flow capacity of the portfolio is today?

[Steve Riney, EVP and CFO at APA Corporation]

Yeah, Doug. You know, I think I'd probably refer to the chart in our supplement that'll give you a good view of the three years. That'll answer the last question you had there around the duration of cash flows and what should be happening to production volume and what that cash flow looks like under the February 7 strip, which we're above today, and then an $86 flat WTI price environment, which was the 2022 strip on that February 7 date. You know, you can see in my script. I said it'll be more than $2 billion of free cash flow.

[Steve Riney, EVP and CFO at APA Corporation]

You can see from the chart it's closer to around $2.2 billion. You know, what would be any difference in that versus maybe some expectations? I'm not sure what the strip price environment was when I said it would be $2 billion. We could go back and maybe reconcile that. You know, I think, number one, we've divested the minerals package, so that's probably somewhere in the neighborhood of $100 million of cash flow that'll come out of 2022 on a free cash flow basis. We're also using the February seventh strip, which is a little bit below where we are actually today.

[Steve Riney, EVP and CFO at APA Corporation]

I'm not sure exactly how that compares to the strip I used last time. The costs that, you know, we talked about, John and I both talked about what's going on with the cost environment. You see it in some of the assumptions that we've made in our guidance, which is also in our supplement around LOE going up, G&A going up, and we can talk about some of those things if you'd like. Costs are going up, and it's also affecting the capital program. I noted in my comments that we've built some inflation into the capital program. That's why it's a little bit higher, part of the reason why it's a little bit higher now than what we were talking about back in November.

[Steve Riney, EVP and CFO at APA Corporation]

I think it's a number of things that kind of accumulate there. Some of those are probably maybe us being a little bit conservative especially on the cost side, as we have built, you know, a reasonable amount of inflation into here. We're not saying that it's inappropriate especially in this price environment, but costs are kind of moving quickly these days. We just wanted to make sure that we had built an appropriate view into the plan at this point. We'll continue to monitor this as we go through the year.

[Doug Leggate, Managing Director at Bank of America]

Okay. I'll let someone ask about the use of proceeds, but thanks.

[Operator]

Our next question comes from John Freeman with Raymond James.

[John Freeman, Managing Director at Raymond James]

Good morning, guys.

[John Christmann, CEO and President at APA Corporation]

Good morning, John.

[John Freeman, Managing Director at Raymond James]

The first question I had, I guess piggybacking on Doug's questions related to Suriname. The roughly $200 million of capital, or some maybe it's not Suriname, but close enough, $200 million that's allocated towards Suriname. It seems like maybe in the comments, John, y'all haven't necessarily decided the exact mix of the plan this year in terms of what's gonna be appraisal versus exploration. Is the $200 million roughly, I don't know, sort of a conservative kind of placeholder until you have a better idea of the mix of appraisal versus exploration? 'Cause obviously, y'all's, what you're on the hook for is quite a bit different if it's exploration versus appraisal.

[John Christmann, CEO and President at APA Corporation]

No, John, it's a great question. I think we've got, you know, some optionality and flexibility in there, and I think we've tried to just conservatively handle the $200 million ought to cover it, both between Block 53 and 58, right? Yeah, I think it's a good estimate. You know, there's room for it to a well or two to swing either way.

[John Freeman, Managing Director at Raymond James]

Okay. Yeah. It just looked like last year, y'all ended up coming in a good bit below the initial budget y'all put out on Suriname last year, that's the reason I ask. Then the other question related to the mineral sales. Last quarter, y'all had said you were targeting in 2022 $500 million of non-core, you know, US sales that were mainly gonna come out of the Permian. The divestiture you did on the minerals, should we think of this as just that was in addition to whatever you were contemplating? I think previously y'all kind of contemplated additional deals in the Central Basin Platform.

[John Freeman, Managing Director at Raymond James]

Just trying to get an idea of how to think about the mineral deal that y'all did that was a good bit more on proceeds than what y'all had contemplated doing for all of 2022.

[John Christmann, CEO and President at APA Corporation]

No, I would just say, John, we said we'd sell a minimum of $500 million. You know, clearly we've met that through this sale. But as I said in my prepared remarks, you know, there's still opportunity out there for some potential additional pruning if we choose to do so. You know. But I mean we view it as we've met that goal and we've exceeded that goal.

[John Freeman, Managing Director at Raymond James]

Thanks, John. I appreciate it.

[John Christmann, CEO and President at APA Corporation]

Mm-hmm. Thank you.

[Operator]

Our next question comes from Michael Scialla with Stifel.

[Michael Scialla, Managing Director at Stifel]

Yeah. Good morning. I want to follow-up on Suriname as well. You said the discovery de-risks some additional prospects, so is Krabdagu a different play type than the prior four discoveries? Thinking in particular, are you feeling like you're able to identify black oil versus higher GOR prospects at this point? Just looking for more color there.

[John Christmann, CEO and President at APA Corporation]

Mike, it's a great question. You know, with your background, I think you probably have some insights into, you know, what we're getting a handle with. I think from the geophysical side and the geologic model side, it's de-risking and becoming a lot more predictive, which gives us confidence and, you know, it's the same play type. I mean, we're in the Maastrichtian and Campanian. We did not drill down to the Santonian here, so this was really just the, you know, the upper two targets. I think it's just confidence in what we're being able to see and image and put into the models. It's a positive from that perspective.

[Michael Scialla, Managing Director at Stifel]

Very good. Wanted to see Steve, you mentioned I think previously that you plan to retire another $337 million of long-term debt this year at par. I think you mentioned in your prepared remarks, but I missed it. There may be some plans to go beyond that. Anything you can talk about there?

[Steve Riney, EVP and CFO at APA Corporation]

Yeah. The $337 million is a combination of the April 2022 bonds and the January 2023 bonds. Both of those, the April 2022 bonds were called early in January of this year. As I said in my prepared remarks, that $214 million of debt sits on the revolver effectively today. The remaining amount, which is the January maturities, we will call those in the fourth quarter of this year at par. They just have a three-month early call option, that's all. We just generally exercise that. We'll pay down at least those amounts of debt.

[Steve Riney, EVP and CFO at APA Corporation]

Again, what I said in my prepared remarks is that, you know, we will, with the cash coming in in the first quarter, pay down the revolver, which at the end of last year, the revolver had $542 million on it. Again, we did add that $215 million, $214 million from the April maturities to that. There have been some other ins and outs on the revolver during the quarter, but the revolver will end the quarter at zero, so that'll be the first use of cash.

[Steve Riney, EVP and CFO at APA Corporation]

At the end of the quarter, through the quarter, I should say, you know, we, you know, between the operating free cash flow, the royalty package sale, which we should close before the quarter ends, if you exclude any sale of Altus shares during the quarter, if you use all of that cash from operating cash flow and the royalty package sale to pay off the revolver, you'd still be left over, you know, somewhere in the neighborhood of $500 million-$600 million of cash, which we may have already or may use to buy back shares or repurchase other debt or further reduce debt.

[Steve Riney, EVP and CFO at APA Corporation]

We'll talk about what we've chosen to do with any excess cash with each quarterly results instead of getting into, you know, a process of just ad hoc conversations whenever we're on conference calls or anything like that.

[Michael Scialla, Managing Director at Stifel]

Understood. Great. Thank you.

[Operator]

Our next question comes from Charles Meade with Johnson Rice.

[Charles Meade, Research Analyst at Johnson Rice]

Good morning, John and Steve, and to the rest of the team there.

[John Christmann, CEO and President at APA Corporation]

Good morning, Charles.

[Charles Meade, Research Analyst at Johnson Rice]

John, I wanted to go back to the Sapakara South. Obviously that's a positive result from the flow test, 400 million barrels in place, but

[Charles Meade, Research Analyst at Johnson Rice]

What should we be thinking about in terms of recoverable there? Can you know, frame or refresh for us, and I know this may be overly simplistic, but what do you need to get to in terms of total recoverable resources before you're, you know, within striking distance or across the finish line on FID?

[John Christmann, CEO and President at APA Corporation]

Well, a couple different questions there, Charles, and I'll, you know, I'll give a little bit of insight and then I'll let Dave Pursell jump in here as well. Yeah, I think the things to know on Sapakara South, you know, number one continuous, you know, kind of contiguous thick blocky sand, 1.4 Darcy rock. So you're gonna have, you know, very efficient reservoir and high, you know, recovery. Then the second thing is, you know, with, you know, one of the keys after you do a flow test is you collect the data on the buildup and the characteristics there.

[John Christmann, CEO and President at APA Corporation]

You know, it's from those characteristics of the buildup that really showed us and demonstrated that there's even more resource there than you know, than we had mapped in Sapakara South. It points you to more appraisal and you know, it's a really good sign. Dave, I'll let you jump in on the second part of that question.

[Dave Pursell, EVP of Development at APA Corporation]

Yeah. Thanks. Thanks, John. Charles, good question. John's right on the buildup test. Remember those that we floated for a few days and then shut in for a long-term buildup, and the longer you know that longer dated pressure really allows us to start to hone in on recoverable volumes. That's where the original range or that initial range of 325-375 you know that's moving higher as we continue to analyze the longer shut-in data. On recovery factor, again, that's gonna be a function of what the development scheme looks like if we get there. But in 1.4 Darcy rock, that's world-class reservoirs. 1.4 Darcy, as John you know pointed out, it's thick and blocky.

[Dave Pursell, EVP of Development at APA Corporation]

Any range of recovery factors that you might be using, you'll wanna look at the high end of that range because, you know, this is some of the best rock you'll see. We're very comfortable and excited about what kind of recoveries we could get. It's just too premature to throw a number out there.

[Charles Meade, Research Analyst at Johnson Rice]

Dave, any comment or just kind of guideposts on what to think about it as far as recoverable to meet the FID threshold?

[Dave Pursell, EVP of Development at APA Corporation]

You know, it's a good question. I suspect other folks will try to ask that. We'll work with our partner to try to get to a development. You know, there's a number of factors including recoverable resource that factor into that, so I'll just leave it there.

[Charles Meade, Research Analyst at Johnson Rice]

Got it. Yeah, I know it's a simple way to ask about a complex topic. One other question on the Delaware Basin mineral sale. Was that a piece of that original BP Permian acquisition that-

[John Christmann, CEO and President at APA Corporation]

Yeah.

[Charles Meade, Research Analyst at Johnson Rice]

This is where those assets came from?

[John Christmann, CEO and President at APA Corporation]

Some of it came from that, Charles. You know, it's just a Delaware Basin package and, you know, there's a few different pieces of it that came in there, but, you know, some of that was part of the old ZPZ BP.

[Charles Meade, Research Analyst at Johnson Rice]

Thanks, John.

[John Christmann, CEO and President at APA Corporation]

Thank you.

[Operator]

Our next question comes from Bob Brackett with Bernstein Research.

[Bob Brackett, Managing Director and Senior Research Analyst at Bernstein Research]

Great. Thanks for taking my question. Got a two-parter. One is, I think in the verbal comments I heard light oil at Krabdagu versus not seeing that in the press release. Could you kind of confirm the quality of the oil?

[John Christmann, CEO and President at APA Corporation]

Yeah, Bob, you know, great question. It's early. You know, we've got samples and they're on their way to the lab. But you know, we can confirm it's light oil in you know, all 90 m of pay that we released.

[Bob Brackett, Managing Director and Senior Research Analyst at Bernstein Research]

Perfect. Then the second one might be a bit picking nits, but you've mentioned in the release and in your words a minute ago, the world-class reservoir quality sitting there at Sapakara South. I think the language in the release on the reservoir quality at Krabdagu was middle of the fairway. Anything there or is that just you're being vague until you actually get core sample and get some real measurements?

[Dave Pursell, EVP of Development at APA Corporation]

Yeah, Bob, this is Dave Pursell. We wanna see the flow test. I think before we flow tested Sapakara, we were probably using the same language. We wanna see the data and you know whether it's the core data and/or the flow test. We're gonna wait to see what the results are from those before we get out of the fairway on that.

[Bob Brackett, Managing Director and Senior Research Analyst at Bernstein Research]

Perfect. I'll stop asking lawyerly questions.

[Dave Pursell, EVP of Development at APA Corporation]

Okay.

[Operator]

Our next question comes from Jeanine Wai with Barclays.

[Jeanine Wai, Analyst at Barclays]

Hi. Good morning, everyone. Thanks for taking our questions.

[John Christmann, CEO and President at APA Corporation]

Good morning, Jeanine.

[Jeanine Wai, Analyst at Barclays]

Good morning. Maybe our first question is just on cash returns, our favorite subject. In your prepared remarks, John, or Steve, I think you mentioned a progressively larger dividend. I think also your prior commentary on that was that your base dividend needs to be just meaningfully higher on a yield basis versus the S&P. We're just wondering how you're thinking about where the base dividend can grow, whether it's a yield or some of your peers have, for example, a cap on the corporate, post break-even dividend, or they have like a maximum percentage of CFO that the base dividend will be at some mid-cycle price.

[John Christmann, CEO and President at APA Corporation]

Yeah, Jeanine, I can let Steve jump in here as well. I think in general, just over the three-year period we are laying out with the amount of, you know, free cash flow that we're gonna generate, you could see us, you know, progressively increase that dividend. I think we're a believer in you want as much in the base dividend. Today, you know, by our actions, you've seen we've had, you know, a desire to buy back more shares because of where we trade on a free cash flow yield. I think we're just laying the framework there that over time, we do anticipate we will be able to raise the dividend. Steve, anything you wanna add?

[Steve Riney, EVP and CFO at APA Corporation]

Yeah. I think, you know, we have said this in the past, here in the recent past, Jeanine, I think the best thing for APA to be doing right now is buybacks, leaning into the buybacks, with any excess cash flow, because of the discounts that we still see ourselves trading at. You know, that said, I think the base dividend needs to be competitive. It needs to be competitive, not just with our peers, but with the broader market. We recognize that. I think that means in the long-term, in our sector, dividend yields need to go higher than where they are today, which averages somewhere in the neighborhood of 2%.

[Steve Riney, EVP and CFO at APA Corporation]

You know, as a perspective, if you take our 60% capital returns framework, if that was all in dividends, we'd be yielding in excess of 10% on our dividend today. We're not paying that all in dividends. It is in buybacks, a lot of it in buybacks, most the vast majority in buybacks. John spoke a little bit in his prepared remarks about what would cause us to raise the base dividend. I think you know, the most important thing around the base dividend and improving that and increasing that over time is that we wanna be confident that that's resilient.

[Steve Riney, EVP and CFO at APA Corporation]

We've commented before on the amount of pain that we endured when we cut the dividend by 90% in early 2020, anticipating what was ahead of us at that point in time. We want that dividend to be resilient when we raise it. Really the things that are gonna raise the dividend is some sustained improvement in relative share trading, some more strengthening of the balance sheet, and possibly that's not required, but possibly a less volatile price environment than we've endured over the last few years. Really any combination of those types of things are gonna give you the confidence to be able to raise the dividend and do so and feel like it's gonna be resilient through time.

[Steve Riney, EVP and CFO at APA Corporation]

That's our approach to the dividend. We definitely need to raise it, and we will do that over time.

[Jeanine Wai, Analyst at Barclays]

Okay, great. Thank you for all that color. Our second question is just maybe heading back to the three-year outlook, which we appreciate y'all giving us. Can we maybe dig in a little bit more on some of the assumptions? For example, I think you clarified. Can you just clarify whether the plan is only valid at certain price outlooks? We know you showed free cash flow estimates at the strip and higher. You also mentioned that inflation was built into the outlook. Maybe any commentary on what level of inflation you've assumed, along with anything on U.S. cash taxes? Thank you.

[John Christmann, CEO and President at APA Corporation]

Yeah. Jeanine Wai, I think in general, we've set the activity levels and have confidence in those. You know, we've been planning around those, and I think that's why there's a lot of confidence in this year's plan. In terms of inflation, we're seeing more right now probably in the U.S. than we are in the international market. But you know, those would be the two factors. I think we've got a lot of confidence in the plan. It's you know, a relatively stable plan over the next three years, and we are going to be growing oil, I think at about 5%, driven primarily by Egypt.

[Steve Riney, EVP and CFO at APA Corporation]

Yeah. Just a little further color on that. You know, I think the capital program is robust through a pretty wide price range. If prices go up, the capital, the activity set isn't gonna change.

[John Christmann, CEO and President at APA Corporation]

Right

[Steve Riney, EVP and CFO at APA Corporation]

From what we have planned. The cost of that activity could possibly go up with some further inflation if we found ourselves in a much higher price environment. It's also a robust activity set even in a lower price environment. As a matter of fact, you know, I think it's probably a robust program all the way down to $50 WTI, because it's the sustaining capital program that we want to have in place. We can certainly afford that and still be generating free cash flow, even below, well below $50 WTI. We'll stay with the capital program, and that is a good one and a robust one and won't move with pretty broad movements in price.

[Steve Riney, EVP and CFO at APA Corporation]

The tax question that you had, we do not anticipate paying being a U.S. cash taxpayer for quite some time. If we found ourselves in an extremely high price environment for a few years, we could. We have two forms of tax loss carryforwards, but we have multiple forms. But the two big ones are what you would call grandfathered tax losses that can be used 100% to offset taxable income. Then we have some other tax losses that are not grandfathered under the recent tax changes and would be subject to an 80% limit. They could be used to offset up to 80% of taxable income. When you get into...

[Steve Riney, EVP and CFO at APA Corporation]

You go through the grandfathered losses first, and when you get into the non-grandfathered loss, you could find yourselves in a situation where you'd be paying taxes on 20% of your taxable income. That would be quite some time at the current price environment that we're in.

[Jeanine Wai, Analyst at Barclays]

Great. Thank you very much.

[Operator]

Our next question comes from Neal Dingmann with Truist Securities.

[Neal Dingmann, Managing Director at Truist Securities]

Morning, gentlemen. My first question is on the John and Steve, just on the Egypt activity. You all have laid out nice plans to increase the rig count. I believe it's about 15 by mid-year this year, given the high economics of the play. I'm just wondering, you know, when you look going forward, what are the limiting factors on how much further you can push the activity of this play or just, you know, wanting obviously, given the great economics there.

[John Christmann, CEO and President at APA Corporation]

No, Neal, you're spot on to kinda what the plan is. We're currently at 12 rigs today. I think we add the 13th rig next month, and then we'll be at 15 mid-year. We think that's a good place. You know, I think one of the keys with Egypt is, while we were working the modernization, we've been building inventory and putting together, you know, a pretty robust, you know, drilling line. We're excited about the program there. I just was over in Egypt, and I can tell you Egypt's excited about it as well. We've got a lot of work to do in terms of, you know, merging the concessions and the JVs, you know, while executing.

[John Christmann, CEO and President at APA Corporation]

You know, we're off to a good start and a lot of momentum and a lot of anticipation. We're excited about it.

[Neal Dingmann, Managing Director at Truist Securities]

Yeah. I'd say. Really look forward to activity there. Secondly, just on domestic pressures, I know particularly you've continued to mention even on this call the domestic OFS inflation along with some difficulty maybe procuring pipe and other equipment. I'm just wondering, do you see the same challenges on this? You know, I'm just wondering how much longer you think this could go forward, or do you anticipate this mitigating a bit in the coming quarters?

[John Christmann, CEO and President at APA Corporation]

No. I mean, I think the key with us is in, you know, the luxury we've had is we set our activity sets, and we plan those. I mean, we've been planning to add the fourth rig in the U.S. since last fall. I think we've got good line of sight on our services and activities. You know, supply chain's working, you know, several quarters out, and we find ourselves in a pretty good place. I also say it takes time, right? I mean, that fourth rig is coming mid-year and, you know, we couldn't have added it any sooner in the U.S. It just takes a lot of rigor and a lot of planning and, a lot of stability in the activity sets.

[John Christmann, CEO and President at APA Corporation]

I think that's where we've landed everything in a place where we've got a lot of confidence around those. But you know, let's not kid ourselves. There are pressures in the system. You know, truck drivers out in West Texas, chemicals, fuel, you know, there are pressures in the system and you know, steel and everything else that's going up, especially on some of our longer-dated things.

[Neal Dingmann, Managing Director at Truist Securities]

Very good. Thanks for the details, John.

[John Christmann, CEO and President at APA Corporation]

Mm-hmm. You bet.

[Operator]

Our next question comes from Scott Gruber with Citigroup.

[Scott Gruber, Director at Citigroup]

Yes, good morning. Circling back on the balance sheet. I may have missed this, but is there a leverage target at some normalized crude price that you'll target over the medium to longer-term or a gross debt level that you'll target over the medium term post the Altus deconsolidation? How are you guys thinking about targets for the balance sheet from here?

[Steve Riney, EVP and CFO at APA Corporation]

Yeah. We don't have a specific target in mind. We have you know what we have in mind is getting back to investment grade. You know, while that's important, it's not urgent that we get it done right away. It is important that we get that done, though. We don't have any specific target for long-term debt. In the end, it's you know the rating agencies will decide what level of long-term debt, what type of debt-to-EBITDA metrics would allow us to get back to investment grade. We're you know targeting whatever it takes to get back to investment grade. I think it's probably gonna require you know a debt-to-EBITDA ratio of one or below, especially in this price environment.

[Steve Riney, EVP and CFO at APA Corporation]

We've made pretty good progress on that in 2021. We're gonna make more progress on that in 2022. You know, if we pay down no more debt this year other than what we have planned and the debt that's sitting on the revolver at the end of 2021, if we use all remaining free cash flow for share buybacks, we would end the year at the current strip with a debt-to-EBITDA ratio of 1.1. We're getting into the right ballpark, and we'll see what the rating agencies will do with that.

[Scott Gruber, Director at Citigroup]

Got it. Then just a quick one on Alpine High. The 4 million share early sell down option associated with Altus EagleClaw combo, I believe, came with the stipulation that you invest the first $75 million in new Alpine High development activities over the subsequent 18 months. Is that spend in the budget for 2022, and can you talk about the plan for Alpine High at these commodity prices, you know, within the multi-year plan?

[Dave Pursell, EVP of Development at APA Corporation]

Yeah, Scott, this is Dave Pursell. Yeah, that's it in the budget. We have the fourth rig in the U.S. we're adding. Think about that as a Delaware Basin-focused rig, so it'll do some drilling in Alpine, also do some drilling at our DXL field which flows into the Altus Midstream assets. It'll move around in the basin over the next couple years, but it'll do a fair amount of drilling at Alpine specific.

[Scott Gruber, Director at Citigroup]

Got it. Thanks for the color.

[Dave Pursell, EVP of Development at APA Corporation]

Mm-hmm.

[Operator]

Our next question comes from Paul Cheng with Scotiabank.

[Paul Cheng, Analyst at Scotiabank]

Hi, good morning, guys.

[John Christmann, CEO and President at APA Corporation]

Good morning, Paul.

[Paul Cheng, Analyst at Scotiabank]

Just curious that, can you talk about that, the CapEx, how that is going to spread throughout the quarters? Are they going to be pretty variable or that, one particular quarter is going to be heavier than usual?

[John Christmann, CEO and President at APA Corporation]

No, I mean, I think you've got a little gradual, you know, build in the schedules with the Egypt rigs ramping by mid-year. We'll be at 15, we're at 12 now. We're gonna add a rig in the Permian mid-year, so, you know, it'll be a little bit heavier back half. The only shift you've got right now is, you know, with the Ocean Patriot, you know, needing to go in for some repairs that were addressed in the prepared remarks. Beyond that, nothing, you know, it's gonna be pretty steady given the way we've geared our program.

[Paul Cheng, Analyst at Scotiabank]

Yeah, the second question is that, I think, previously, when you guys first complete the PSC modernization, talking about this year will be mid-teen kind of growth in oil, in the oil production. If we're looking at 2023 and forward, with a 15 rig program, what kind of growth that you would be able to generate over there on the long-term basis?

[John Christmann, CEO and President at APA Corporation]

Yeah. Egypt's gonna drive the, you know, the primary growth in the portfolio of oil over the next three years. You know, I think we've outlined approximately 5% for Apache total to get us back to kind of the pre-COVID levels. Egypt's gonna be the driver, so that's probably gonna put that more in the, you know, 10% range.

[Paul Cheng, Analyst at Scotiabank]

I'm just curious, to that extent I presume that more than 2024, so if we look a little bit longer-term, is that 10% your kind of target for you guys or?

[John Christmann, CEO and President at APA Corporation]

I mean, we really just laid out, Paul, a three-year, you know, look on that. Clearly the plan is to continue investing at the same, you know, rate or potentially higher in Egypt as we move on.

[Paul Cheng, Analyst at Scotiabank]

Okay. All right. Thank you.

[Operator]

Our next question comes from Scott Hanold with RBC Capital Markets.

[Scott Hanold, Managing Director at RBC Capital Markets]

Yeah. Hey, how y'all doing?

[John Christmann, CEO and President at APA Corporation]

Good, Scott.

[Scott Hanold, Managing Director at RBC Capital Markets]

I'm just kinda curious on, you know, maybe following up that question from Paul. Like, when I look at the chart on page nine of the outlook through 2024, you do have a nice step up in oil in 2021, 2022 and 2023. But 2023, 2024 looks a little flatter with gas going up a lot more. Can you give us a sense of the dynamic around there? 'Cause I know the Qasr field in Egypt is on a probably a pretty good decline at this point. So like, where does the gas pick up in 2023 and 2024 in your outlook?

[John Christmann, CEO and President at APA Corporation]

Yeah. Dave, were you

[Dave Pursell, EVP of Development at APA Corporation]

Yeah, I think if you look at the portfolio-wide, you know, the growth in Egypt is gonna be really driven by oil. There'll be obviously gas growth as well, but it'll be oil. The gas growth in the portfolio will likely come from the Delaware Basin and Alpine.

[Scott Hanold, Managing Director at RBC Capital Markets]

Okay. It's more of an Alpine high thing. Great. Okay.

[Dave Pursell, EVP of Development at APA Corporation]

Yeah.

[Scott Hanold, Managing Director at RBC Capital Markets]

Here's my follow-up, you know, turning to the Permian and ex-Alpine High, can you give us a sense of where you think the depth of your core tier one inventory is? When you think about your outlook over the three years and maybe a little beyond it, you know, what kind of depths do you see there at a say 3-rig, 3- to 4-rig cadence?

[Dave Pursell, EVP of Development at APA Corporation]

Yeah. We're well beyond the three-year program. We get out to towards the end of the decade easily, so.

[Scott Hanold, Managing Director at RBC Capital Markets]

Okay. Is that, you know, sort of Delaware or Midland or just kind of a combination of both?

[Dave Pursell, EVP of Development at APA Corporation]

It's a combination of both, Scott. It'll, you know, our SMB program has been the driver and that's where we'd see the core. But we're adding an extra rig into the Delaware 'cause we have confidence that we have longer-term inventory there as well.

[Scott Hanold, Managing Director at RBC Capital Markets]

Got it. Thank you.

[Dave Pursell, EVP of Development at APA Corporation]

Thank you.

[Operator]

Our next question comes from Leo Mariani with KeyBanc.

[Leo Mariani, Analyst at KeyBanc]

Hey, guys. Wanted to ask a little bit on the North Sea here. I know that you clearly have been plagued, you know, with some, I guess, unplanned downtime, and of course you have turnarounds in that area. As I'm just looking at the production, you guys were around 62,000 BOE per day in the fourth quarter of 2020. Looks like it's down about 30% to the fourth quarter of 2021. And it sounds like a lot of that was, you know, maintenance downtime related. I just wanted to get a sense. You have a comment in here that you can get back close to 50,000 by the end of 2022.

[Leo Mariani, Analyst at KeyBanc]

In terms of how you view that asset, do you see that 50 as kind of being a little bit more stable in that outlook, or do you see the 50 probably continuing to trend down? Is it just kind of always anticipation of that kind of 2 rig program in the North Sea?

[John Christmann, CEO and President at APA Corporation]

No, it's a good observation. I mean, I think the key with the North Sea, when you look at, we've got two different assets there, Forties and Beryl. Forties, we've got the Ocean Patriot up there. We're doing subsea tiebacks. We've had that rig working for a long time, and we did have two rig breakdowns that we typically haven't seen that have just kind of slid the schedule back. One was some things with the BOP, and then as we mentioned this had some really rough weather and had one of the anchors break on one of the tie-down lines, and we've still gotta get that rig into the shipyard to have that repaired.

[John Christmann, CEO and President at APA Corporation]

You know, when you're running one floater, and then you have something like this, which is kind of a very unusual event, it slides back a key well, like Garten 4, which was scheduled to come on, you know, until the back half of this year. I mean, I think we have confidence in getting back to the 50. But if you look at Forties and how we're starting to operate it, we've got one platform rig. You know, we've been working between Beryl and Forties. We're definitely starting to move into the wind down in terms of how we look at Forties from a capital investment perspective. You know, we will be kind of modifying how we're gonna operate that. We've historically run a drilling campaign, and we won't be doing that in the future.

[John Christmann, CEO and President at APA Corporation]

You know, when we bought that asset from BP in 2003, it was scheduled to be abandoned in 2012. You know, here we are a decade later, we see that still being another decade from now, but we will be starting to think about the twilight years on Forties, as opposed to, you know, investing capital in Beryl and continuing to expand and adding subsea tiebacks.

[Leo Mariani, Analyst at KeyBanc]

Okay. Very helpful color for sure. Maybe just jumping over to Suriname here. So I think there was a point in time where y'all maybe talked about you know kind of a two rig program on Block 58, but it seems like maybe it's kinda gone to one rig. Has there just been any shift in the thinking of the partnership here in terms of how you view the asset or maybe you just think it's a little better to go a little slower you know kind of still early in the appraisal program? If you guys have continued success appraising and you get to FID, do you envision this as maybe going back to a couple rigs as you look out in the three-year plan?

[John Christmann, CEO and President at APA Corporation]

Yeah, I think it's a function of equipment and timing. Total brought in 2 rigs. You know, the Discoverer was scheduled to leave and it did leave. We still got the Valiant. You know, I think if you know, you read some of their comments, they've committed to drilling three more wells this year in Block 58. You know, that would imply that there's probably more activity needed to get that accomplished. You know, we've got options on the rig that's coming, the Gerry de Souza, that's coming to Block 53. We've got additional options there. You know, there's some flexibility in terms of how we approach it.

[Leo Mariani, Analyst at KeyBanc]

Okay, thanks guys.

[John Christmann, CEO and President at APA Corporation]

Thank you.

[Operator]

That concludes today's question and answer session. I'd like to turn the call back to John Christmann for closing remarks.

[John Christmann, CEO and President at APA Corporation]

Thank you, operator. I'd like to close with the following comments. We've outlined a three-year overview based on a heavily backwardated strip that delivers much stronger production and free cash flow than currently modeled by the Street. With $6.5 billion of projected free cash flow, we will return $4 billion to shareholders under our current framework. That leaves $2.5 billion for debt reduction or additional shareholder returns through buybacks and/or dividend increases. Clearly, we will make material returns to shareholders, and we will continue to strengthen the balance sheet. Lastly, we are very pleased with how Suriname is progressing and look forward to the data that is coming from the flow test at Krabdagu. Operator, back to you.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Dave Pursell, EVP of Development
• Gary Clark, VP of Investor Relations
• John Christmann, CEO and President
• Steve Riney, EVP and CFO

Analysts

• Bob Brackett, Managing Director and Senior Research Analyst at Bernstein Research
• Charles Meade, Research Analyst at Johnson Rice
• Doug Leggate, Managing Director at Bank of America
• Jeanine Wai, Analyst at Barclays
• John Freeman, Managing Director at Raymond James
• Leo Mariani, Analyst at KeyBanc
• Michael Scialla, Managing Director at Stifel
• Neal Dingmann, Managing Director at Truist Securities
• Paul Cheng, Analyst at Scotiabank
• Scott Gruber, Director at Citigroup
• Scott Hanold, Managing Director at RBC Capital Markets