Apache deals with adverse conditions by cutting costs

FILE – A flare for burning excess methane, or natural gas, from crude oil production is seen at a well pad in Watford City, N.D., Aug. 26, 2021. (AP Photo/Matthew Brown, File)

Concentrating on lowering costs in the first quarter, the Apache Corp. was also encouraged by its second discovery, the Sockeye 2, in the Brookian Play on the North Slope of Alaska.

That’s according to CEO John Christmann, who said during his company’s first quarter earnings call report that production remained strong in the Permian Basin.

“Significant improvements in operating performance are allowing us to protect our free cash flow outlook despite the current commodity price volatility,” Christmann said. “We delivered strong first quarter results with in-line production and lower capital investment relative to guidance.

“In the Permian oil production was within our guidance range despite a 1,000 barrel per day larger impact from third party and weather-related downtime than was anticipated when we gave guidance.”

He said capital came in below guidance largely due to significant improvements in drilling performance.

“In Egypt we are highly encouraged by the prospectivity for natural gas,” Christmann said. “First quarter gas production exceeded guidance due to outperformance from our recent development program along with continued efforts to optimize existing infrastructure.

“Despite shifting activity to gas, oil drilling is progressing well and we continue to see positive results from our water flood implementation programs where we see additional running room with very favorable returns.

“On the exploration front we announced our second discovery, Sockeye 2, in the Brookian Play,” he said. “Earlier this year the Sockeye 2 well encountered 25 feet of net oil pay with an API oil gravity of approximately 28 degrees and a gas-oil ratio of 720 across one consistent sand package with seismic amplitude supporting the stratigraphic feature across 25,000 to 30,000 acres.

“We subsequently conducted a flow test that confirmed anticipated rock properties much better than regional analogs including an average permeability of 100 to 125 millidarcie and a 20% porosity.”

Christmann said Apache is committed to sustainably reducing its controllable spend across capital, lease operating expenses and overhead.

“Our overall progress on these initiatives has been impressive, giving us the confidence to increase both our 2025 targets for realized savings to $130 million and the annualized run rate savings by the end of the year to $225 million,” he said. “Of note, capital efficiencies are getting captured much faster than we expected.

“Permian drilling efficiencies are the largest driver of capital savings. We are also making good progress on both completions and facilities. Overall our objective is to achieve top quartile operational performance in the Permian and we are confident we’re on track to deliver that.”

Christmann said his company continues to pursue near-term opportunities to reduce certain operating costs but is experiencing upward pressure on other cost areas in the short term.

“Material savings will come from structural changes to how we operate including such items as water handling, compression and power procurement,” he said. “We see opportunities for substantial long-term reductions in these costs, but achieving them will require extended execution timeframes.”

He said Apache has lowered operating costs in Egypt through efforts like accelerating diesel reduction projects and optimizing equipment rentals.

In the North Sea, he said, the company has rationalized offshore activity as it transitions to late-life operations.

President-Chief Financial Officer Steve Riney said that in the first quarter Apache had consolidated net income of $347 million or $0.96 per diluted common share.

“As usual these results include items that are outside of core earnings, the most significant of which was a $111-million after-tax gain on the extinguishment of debt and a $76-million charge to increase our deferred tax liability in The UK due to the most recent increase in the energy profits levy,” Riney said “Excluding these and other smaller items adjusted net income for the first quarter was $385 million or $1.06 per share.”

He reported significant progress that the Egyptian government has made toward normalizing the company’s past due receivables.

“We generated $126 million of free cash flow in the first quarter, but this does not include the progress we made on past due balances during the quarter and that progress has now continued into the second quarter,” Riney said. “Today our past due balances in Egypt are the lowest they have been since the end of 2022.

“Also in Egypt gas development is going very well and increasing production volumes have led to an average realized gas price of $3.19 in the quarter, exceeding our guidance of $3.15.”

He said first quarter upstream capital came in quite a bit below guidance despite some accelerated spend in Suriname.

“This was a direct result of the outstanding operational results delivered by our Permian drilling teams where drilling efficiencies have seen step change improvements compared to 2024,” Riney said. “Since the beginning of the year we have captured an impressive $800,000 in cost savings per well in the Permian and we still see additional room for improvement going forward.

“We have made significant improvements including slim hole drilling, modifying casing stream designs and utilizing fit for purpose directional tools that have considerably shortened our drilling durations.”