John Christmann
Chief Executive Officer and President at APA
Good morning and thank you for joining us. On the call today, I will review highlights from the third quarter, provide commentary on our fourth quarter outlook and conclude with an early look at our 2023 plan.
APA continues to enjoy a robust free cash flow profile, provided by our unhedged exposure to a globally diversified product price mix. With activity in Egypt and the Permian Basin now at levels capable of driving sustainable corporate production growth, our free cash flow is also expected to grow, assuming flat year-over-year oil and gas prices.
Turning to the third quarter results, we have had several key highlights. Global production was in line with our guidance range as outperformance in the U.S. offset unplanned facility downtime in the North Sea.
Permian Basin assets were strong contributors across the board from the core Midland Basin development program to the newly acquired properties in the Texas Delaware. In Egypt, drilling and recompletion programs are progressing closer to our original plans for the year.
New well connections exceeded our revised third quarter guidance and production momentum is picking up into the fourth quarter. The challenges associated with the activity ramp are not totally behind us, but we are making good progress.
The North Sea after returning to production from seasonal turnarounds incurred an unusually high amount of unplanned downtime in August and September. Most of these issues have been mitigated and volumes have returned to a more normalized level as reflected in our forward guidance.
During the third quarter, we generated more than $600 million of free cash flow, purchased nearly 10 million shares of APA common stock at an average price of $33.85 per share and announced a doubling of our annual dividend rate.
In Suriname, we advanced our exploration and appraisal program with the first oil discovery on Block 53 at Baja and a successful flow test of the Krabdagu discovery well in Block 58. And on the ESG front, I am very pleased to announce that we have successfully delivered on our 2022 goal to reduce flaring in Egypt.
Today, new projects are reducing routine upstream flaring by 40%, enabling us to compress the gas into sales lines and deliver to Egyptian consumers for cleaner burning affordable fuel. More information on our third quarter results can be found in the operational supplement posted on our website.
Turning now to our fourth quarter outlook. Capital investment is projected to be around $450 million, and our full year guidance of $1.725 billion remains unchanged. We expect adjusted production will increase by around 5% from the third quarter, driven primarily by an increase in new well connections and recompletion activity in Egypt and a rebound from planned and unplanned platform maintenance downtime in the North Sea.
Given the age of the North Sea facilities, we expect facility run times will generally be lower and more variable than in the past. As a result, we are now providing a production guidance range to accommodate a broader spectrum of potential future outcomes. In Suriname on Block 58, we are currently participating in the drilling of two wells, a second appraisal well at Sapakara South and an exploration well at Awari. Results will be provided as they become available.
Despite a few challenges during 2022 we will exit the year in a strong position financially and operationally. We are on track to generate around $2.7 billion in free cash flow for the year. Consistent with our 60% capital returns program, we anticipate returning at least $1.6 billion of this in share buybacks and dividends. While there is more to do, we have significantly strengthened our balance sheet, reducing net debt by more than $1.4 billion through the end of the third quarter and production volumes are now trending sustainably higher in the US and Egypt.
As we plan for 2023, our objectives remain the same. We will maintain capital discipline, target moderate production growth, work tirelessly to mitigate rising costs and continue to deliver meaningful emissions intensity reductions. Our capital budget next year will be around $2.0 billion to $2.1 billion. This assumes five rigs in the Permian Basin and up to 17 rigs in Egypt, while activity in the North Sea and Suriname is projected to remain consistent with 2022 levels.
Similar to our approach in 2022, this early view incorporates what we believe is an appropriate view of inflationary impacts on the capital program. The majority of the expected inflation is associated with U.S. rig and frac costs as contracts are renewed at the higher current rates.
Inflationary pressures in our international portfolio should be more muted. Despite the planned increase in capital investment in a like-for-like price environment, we estimate APA's free cash flow will grow in 2023.
Note this excludes any uplift from our Cheniere gas supply contract commencing in the second half of the year. Steve will provide more details on this contract, which gives us access to premium natural gas price points in Europe and Asia.
Following three years of production decline since the beginning of the COVID pandemic, we look forward to returning to growth in 2023. At the corporate level, we are targeting mid-single-digit year-over-year growth, driven primarily by higher oil production across all assets.
In the third quarter, our Permian Basin results were particularly strong due to a variety of factors, including good underlying base production and new well performance, the timing and number of new completions and relatively minimal maintenance, midstream and weather-related downtime.
As we look into the fourth quarter of 2022, in the first quarter of 2023, we expect Permian production will be flat to down, as we experienced a lull in new well connections and reflect the potential for winter weather-related downtime in our outlook. Planning for next year continues and we will have much more detail to provide with our fourth quarter results in February.
In closing, we have a constructive outlook on the long-term demand for natural gas and oil. This hasn't changed despite the potential near-term demand impacts of a recession and the ongoing debate over the pace of global decarbonization trends.
We continue to plan our business using relatively conservative commodity price scenarios, allocate capital to our highest return projects and target long-term single-digit sustainable production growth. APA will continue to return 60% of free cash flow to shareholders through buybacks and dividends while also continuing to strengthen the balance sheet.
Lastly, we remain committed to reducing emissions within our operational footprint. And we will be introducing specific CO2 equivalent emissions intensity goals around this objective in the near future.
And with that, I will turn the call over to Steve Riney.
