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APA Q4 2022 Earnings Call Transcript


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Participants

Corporate Executives

  • Gary T. Clark
    Vice President, Investor Relations
  • John J. Christmann IV
    Chief Executive Officer and President
  • Stephen J. Riney
    Executive Vice President and Chief Financial Officer
  • David A. Pursell
    Executive Vice President Development
  • Ben C. Rodgers
    Senior Vice President Treasurer and Midstream and Marketing

Presentation

Operator

Good morning. Welcome to the APA Corporation's Fourth Quarter 2022 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Gary Clark, Vice President of Investor Relations. Please, go ahead.

Gary T. Clark
Vice President, Investor Relations at APA

Good morning, and thank you for joining us on APA Corporation's Fourth Quarter and Full-Year 2022 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 outlook. Also on the call and available to answer questions are Dave Pursell, Executive Vice President of Development; Tracey Henderson, Executive Vice President of Exploration; and Clay Bretches, Executive Vice President of Operations. Our prepared remarks will be approximately 15 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 and full-year 2022 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. A reconciliation of the differences between these non-GAAP financial measures and the most directly-comparable GAAP financial measures can be found in the supplement information provided on our website.

Consistent with previous reporting practices, adjusted production numbers cited in today's call are adjusted to exclude non-controlling interests in Egypt and Egypt 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.

And with that, I will turn the call over to John.

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.

Stephen J. Riney
Executive Vice President and Chief Financial Officer at APA

Thanks, John. APA delivered very good financial performance in the fourth quarter and for the full year as we benefited from a strong albeit volatile price environment. For the last three months of 2022, consolidated net income was $443 million, or $1.38 per diluted common share. As usual, these results include items that are outside of core earnings. The most significant of these items was a pretax charge of $157 million to increase the net contingent liability for decommissioning the former Fieldwood properties in the Gulf of Mexico. The increase reflects a combination of changes in cash flow during the life of the producing assets and estimated future decommissioning costs. This was partially offset by a $52 million pretax unrealized gain on derivatives and a $47 million release of evaluation allowance on deferred tax assets. Excluding these and other smaller items, adjusted net income for the fourth quarter was $476 million, or $1.48 per diluted common share.

During the fourth quarter, APA generated $360 million of free cash flow and repurchased more than 12 million shares of common stock, resulting in approximately 312 million shares outstanding at year end. Underlying G&A costs for the quarter remained around $95 million. However, total G&A was $169 million, which was above our fourth quarter guidance. This was caused by an increase in anticipated incentive compensation plan payouts as well as the recurring mark-to-market for previously accrued stock-based compensation that will be paid out in the future. These accruals also resulted in higher-than-expected LOE and exploration expense, though to a much lesser extent than G&A. Exploration expense was also elevated as we recorded $66 million of combined dry-hole costs for the Awari prospect in Suriname and a noncommercial exploration well in the North Sea.

Looking ahead to 2023, as John outlined, we expect continued production growth and strong free cash flow generation. At 2022 prices, free cash flow in 2023 would be about the same as 2022. Growing production volumes and cash flow from the Cheniere gas sales contract at current strip prices would offset the impact of higher taxes in the U.K. and the increased capital program. We will once again return a minimum of 60% of free cash flow to shareholders through share buybacks and dividends with the remaining 40% primarily used for reducing net debt. The gas sales contract with Cheniere will commence in the second half of 2023. We entered into the agreement in 2019 with the purpose of aligning aggregate financial outcomes with a more diversified portfolio of gas prices, similar to the diversified oil prices we enjoy naturally through the portfolio. We are frequently asked about the contracts' expected free cash flow and its sensitivity to movements in U.S. gas and global LNG prices. At current strip price levels, we project roughly $200 million of free cash flow contribution in the second half of 2023.

If you want to put a range on an annualized forward-looking free cash flows, let me give you two potential outcomes as realistic NPOs [Phonetic] Assuming average prices of $20 LNG and $4 Houston Ship Channel, the expected annualized free cash flow would be approximately $500 million. Assuming higher average prices of $40 LNG and $6 Houston Ship Channel, the annualized free cash flow would increase to approximately $1.25 billion. It is important to note that these cash flow numbers include the costs incurred to purchase the gas to supply to Cheniere. Clearly, we believe there is substantial upside price exposure. Despite this, we will continue to plan and budget conservatively given the volatile gas price environment and the scale of associated changes in the cash flow profile.

Turning now to income taxes, the U.K. recently increased its energy profits levy from 25% to 35% and extended the effective period through March of 2028. As a result, the combined statutory tax rate in the U.K. for 2023 is now 75%. And we expect this will be fairly close to our effective tax rate as well. With that, at current strip prices, we expect U.K. current tax expense of $550 million to $575 million this year. In the U.S., we do not expect to be subject to the 15% corporate alternative minimum tax in 2023, and therefore, anticipate no current federal income taxes for the year as accumulated tax losses more than offset projected taxable income. Please consult our financial and operational supplement for a full suite of guidance items for both first quarter and full year 2023.

To wrap up, 2022 was a year of great progress as we exceeded our minimum shareholder return commitment and significantly improved the balance sheet. We reduced outstanding bond debt by $1.4 billion while also returning 66% of free cash flow to shareholders and restoring the base annual dividend to $1 per share. Through the buyback program, we repurchased 10% of the company's outstanding shares at an attractive average price of roughly $39 per share. In 2023, we anticipate another strong financial performance with more share repurchases, more balance sheet deleveraging, and more progress toward our objective of achieving an investment-grade rating with all of the rating agencies. We look forward to updating you as the year progresses.

And with that, I will turn the call over to the operator for Q&A.

Questions and Answers

Operator

Thank you. [Operator Instructions] I'll now turn the call over to Mr. Gary Clark.

Gary T. Clark
Vice President, Investor Relations at APA

Thanks, operator. One quick administrative note. Steve Riney will not be available for Q&A as he unfortunately needs to attend to a family matter. So, Ben Rodgers, our Senior Vice President, Treasurer, and Head of Midstream and Marketing has joined us and he will be able to address your questions related to financial topics and gas marketing and transportation. So, we'll will give it back to you, operator for the Q&A.

Operator

Thank you. One moment for your first question. And our first question comes from the line of John Freeman with Raymond James. Your line is now open.

John Freeman
Analyst at Raymond James

Good morning, guys.

John J. Christmann IV
Chief Executive Officer and President at APA

Good morning, John.

John Freeman
Analyst at Raymond James

First topic, just looking at Egypt, obviously, really, really solid quarter in 4Q. Nice to see the rig efficiency gains. I was looking at the success rate that you had in Egypt and in 2022 versus the prior couple of years and the success rate was meaningfully better at about 85% average in '22. And I guess I'm trying to get a sense of how much of that is maybe related to some of the seismic you had done a year ago or anything else you're doing in Egypt that would maybe indicate that higher success rate is sustainable going forward?

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. John, I'd say the program has been pretty constant. We drilled really a multitude of different well types, both on the development side and the exploration side. I think what you're seeing there is the impact from the modernization, there were some things that were not being pursued because of the modernized terms. And we were able to pull some of those forward and prioritize them so you're running a little higher on the success rate as we get some of that low-hanging fruit initially.

John Freeman
Analyst at Raymond James

Great. And then a follow-up on looking at Suriname. Has the exploration well been identified where that'll be after the two appraisal wells? And is the entirety of the '23 plan, the two appraisals and the one exploration, which was kind of laid out in the presentation, we'd just like to think of it as you do the appraisals and then it's sort of let's see what comes of that, and then determine the second half of the year sort of plan, just a little bit more detail on Suriname, please.

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I would just say today, we've got the two appraisal wells that we're drilling at Krabdagu and that's going to take a good portion of the first part of the year, and that's where the priority is now. And then we do have one exploration slot that is still being worked and we're still debating with partner on which well that will be. But there are multiple wells identified. It's just a matter of which one. So, for now, that is the plan. And obviously, we'll readdress that throughout the year.

John Freeman
Analyst at Raymond James

Great. Thanks, John.

John J. Christmann IV
Chief Executive Officer and President at APA

Thank you.

Operator

Thank you. One moment for our next question. And the next question comes from Jeanine Wai with Barclays. Your line is now open.

Jeanine Wai
Analyst at Barclays

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

John J. Christmann IV
Chief Executive Officer and President at APA

You bet, Jeanine.

Jeanine Wai
Analyst at Barclays

Good morning, John. Our first question maybe just keeping along with John's on Suriname. The estimate for resource at Sapakara is now over 600 million barrels of oil in place. So, I guess our question is, what's the confidence level of that estimate and how much overall resource is required to get a project to FID? And we know you're doing a ton of appraisal at Krabdagu this year as well.

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I mean in terms of the estimated Sapakara, there's good confidence. We flow-tested those volumes. It's really high-quality rock. It's low GOR oil and really got one main sand package. So, it's going to have a high recovery and it'll be a big key component potentially of a future project. So, we have great confidence there. And then we've got the two appraisal wells that are being drilled at Krabdagu right now. In terms of development size and so forth, as we've said, we're working towards first project. And really right now, it's premature to talk about anything pending the results of appraisal at Krabdagu, which we're very excited about, and that's moving right along.

Jeanine Wai
Analyst at Barclays

Okay. Well, we'll stay tuned for the appraisal results. Maybe moving to the U.S., you mentioned in your prepared remarks that you're managing the portfolio for cash flow and not production. And so, '23 is driven by oil this year. And so, you also curtailed from Alpine High production in January. Can you provide any further color on what the price sensitivity is of natural gas curtailments at Alpine High? Thank you.

David A. Pursell
Executive Vice President Development at APA

Yeah. This is Dave Pursell. It's a good question. Our curtailments earlier in the year were relatively small, but when Waha -- Waha has had a lot of volatility. So, as we get down to low Waha basis and sometimes it's going negative, so we're making those decisions daily and weekly. So, it depends on dry gas versus wet gas. There's a lot that goes into it. But as we look at it now, we've been flowing Alpine full-out through most of January and February. So, not going to give you a specific price marker, but we're looking at it pretty extensively every day and every week with the marketing team.

Operator

Thank you. One moment for our next question. And our next question comes from Charles Meade with Johnson Rice. Your line is now open.

Charles Meade
Analyst at Johnson Rice

Good morning, John, to you, and the whole Apache team there. I want to ask a question about the Krabdagu appraisals. And I recognize that we still have to get the important data that these appraisals are designed to get with not just what you see on the logs, but with the flow test. But from my seat, and I think for most of the people outside looking in, you guys have -- you have two -- I guess, you're about to have two appraisals ongoing. It really looks like you guys are trying to drive to get the data to get to a decision point in the near term. And is that a fair inference to make?

John J. Christmann IV
Chief Executive Officer and President at APA

I mean, Charles, we've prioritized the appraisal at Krabdagu, right, and you saw us move from Sapakara with two appraisal wells there and we were very pleased with those results and Sapakara too kind of came in as we had projected modeled. And obviously, anxious for the results at Krabdagu. And so, it is fair to say and in fact, we've prioritized the appraisal program right now.

Charles Meade
Analyst at Johnson Rice

Right. Thank you for that, John. That's where I was trying to get to. And the second one just a quick follow-up from me. How would you set our expectations on when we're going to hear about the Krabdagu flow test? Both at the same time or what should we be thinking about?

John J. Christmann IV
Chief Executive Officer and President at APA

Charles, I would just say that, clearly, one of the wells is ahead of the second. And the second one has been on location spudding anytime now. So, there will be a lag, and we'll just have to see what we decide to do and work with Total in terms of what we come back within timing. But, we're moving on both of those as quickly as possible, and it's very important information.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Paul Cheng with Scotiabank. Your line is now open.

Paul Cheng
Analyst at Scotiabank

Thank you. Good morning, guys.

John J. Christmann IV
Chief Executive Officer and President at APA

Good morning, Paul.

Paul Cheng
Analyst at Scotiabank

A couple of questions. John, can you remind us that what is Alpine High role in your longer-term portfolio? I think at one point, several years ago, you sort of laid down EBITDA and then gas pipe become a little bit better and I think you guys go back and sold it. I think it seems like you were having a role in the long term. But how should we look at the Alpine High? And also the second question is that, I think, you guys have not done any bolt-on acquisitions in the last 12 to 18 months. Some of your peers have done so. How should we look at bolt-on acquisitions for you guys over the next two or three years? Is that a -- could play a reasonable or that you will be focusing more effort in exploration now in Suriname and also that the activity levels in Egypt? Thank you.

John J. Christmann IV
Chief Executive Officer and President at APA

So, two really good questions, Paul. I mean, the first thing I would say is Alpine High is a nice piece of our Permian portfolio and we look at it as part of the Delaware Basin. And it's one of the levers we have the optionality to allocate capital to. We've got really three wells that we're going to be bringing on during the first quarter and then you'll see a kind of a break. And then we've got five wells that will be coming on year end. But it is something we can toggle and we'll tend to leverage that and what you've seen is this year is given the weakness in Waha and U.S. gas, there's no reason to be bringing on incremental volumes. But it's really about prepping for the opportunity and having that optionality when you look at 2024 and beyond as some of the basin bottlenecks open up. So, it'll be a toggle for us and it's a place we have the optionality to invest and we plan to use this such and that's been the game plan.

I think when you step back, and your second question related to bolt-on acquisitions, we did do our first acquisition last year in the Delaware, a very nice tuck-in acquisition. It was one that we're constantly in the market looking at things as is. We have assets in the market. We typically wait to talk about things until there's a transaction or something to do. The tuck-in we did last year is something that's been exceeding our our acquisition forecast, something we're very happy with, and it's now integrated into our Delaware package, in our Delaware assets. So, I think it's something you've just got to monitor. I mean, if you've got a handle on your current inventory, you've got a handle on costs, and if there are things that we think we can add at attractive costs where we can drive incremental returns, then we're not opposed to doing that, but it's been a high bar, and that's why we've really only done one transaction over the last couple of years. And we're going to continue to drive a balanced portfolio and we are emphasizing exploration with the program. We've gotten Suriname. But we also do a lot of just blocking and tackling things elsewhere around the globe.

Operator

Thank you. One moment for our next question. And our next question comes from Doug Leggate with Bank of America. Your line is now open.

Doug Leggate
Analyst at Bank of America

Hi, John. Good morning. Hi. Good morning, everybody.

John J. Christmann IV
Chief Executive Officer and President at APA

Good morning, Doug.

Doug Leggate
Analyst at Bank of America

John, I've tried this a couple of times in the past, I'm going to try it again. Suriname recovery factors, given your positive permeabilities, world-class rock, obviously, can you give us some idea of what you think that looks like? And if I may reference the more than 800 million as opposed to the 600 million, it looks like we're heading to a joint potential of Sapakara-Krabdagu development. What should we think in terms of timing and scale of an FID?

John J. Christmann IV
Chief Executive Officer and President at APA

Great question, Doug, and there's a lot of work we've done and we have a lot of confidence in what we've put out. But there's also a lot of work left to do. So, I will talk about -- I'll give you a little bit of color on Sapakara and then I'm going to bring Dave in, if he wants to add anything. You've really got two areas. You're correct, we're working towards with our partner, potentially a development hub, where you would be bringing in both Krabdagu and Sapakara. They're a little different in terms of the makeup and so forth. Sapakara is predominantly one package, really, really high-quality rock when you're talking low GOR oil, 1,100 GOR oil, and you're talking 1.3 to 1.5 Darcy rock, one nice blocky sand, you're going to have higher recoveries. And that's really all I'll say at this point. You'd want to get into FID study and do more work before we come out with more specifics there. So, some of the questions you're asking are things that will come later. And then Krabdagu is -- there's three targets there. It is the incremental 200 that you've referenced there and we're in the process of appraising that. You've got a range of GORs there depending on the zones. And so, the work we're doing to understand those and quantify those is really important to determining potential scale and scope. So, all things underway, we prioritize it, which is why you've got two rigs there, and we're anxiously awaiting those as well because it's going to have an impact on scope and scale.

Doug Leggate
Analyst at Bank of America

Thank you for that, John. I guess, we're not going to get the FID timing question. But I told you I would try again. I'm torn as to whether ask my second on Suriname as well. I think I'm going to. So, let me try this. Did you find an oil-water contact on the second appraisal well at Sapakara? And I guess what I'm really trying to think however is the focus obviously is on these two, but there's still, if I recollect, multiple years left in your exploration program. How do you think about the broader risk of the basin at this point? Oil window, obviously, prospect-specific risk and so on. You generally characterize it for us. Is this going to be one-and-done, or do you see capacity for a longer-term exploration development program in the basin?

John J. Christmann IV
Chief Executive Officer and President at APA

Well, a bunch of questions in there. So, I'll try to answer all of them to the extent I can. One, Sapakara South-2 was an up-dip appraisal. So, I think that was important in terms of confirming what we confirm there. If you go over to Krabdagu, I'll remind you, Baja and Block 53 was a discovery of a down-dip flow in the Krabdagu Fairway. So, there are multiple levels and that's part of what you're driving at. There's also a pretty good chance we're appraising up-dip at Krabdagu as well, which is always a good thing when you're appraising. We see a lot of potential. I mean, if you look at where we are today and the area we're working, we've had great success. There is more beyond just Sapakara and Krabdagu that could also go into a potential hub. And then if you look on the outboard side of the block, you get further out. We've had a working petroleum system and we found hydrocarbons. The trick has been trap and seal as you get out there. So, I do believe we will have an ongoing program in Suriname as there is a lot of prospectivity.

Operator

Thank you. One moment for our next question. And the next question comes from the line of Neal Dingmann with Truist. Your line is open.

Neal Dingmann
Analyst at Truist Financial

Good morning, John. Thanks for the time. John, my first question really just a broader one on shallow return or specific to maybe capital allocation. Last couple of quarters you all were pretty adamant about talking about maybe a minimum amount of buyback given still what I'd certainly agree with a cheap stock price. So, I'm just wondering, do you all still feel like that? I mean, you have kind of a minimum level that you think about going forward for this year, this quarter? I mean, I'm just wondering from a shareholder or buyback perspective just so you're able to frame anything up?

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I think we have we have -- good question. We have great confidence in the framework we put forward. And I'll underscore when we say, when the buybacks, we'll do a minimum of 60%. As you saw last year, we were able to execute on that. We feel strongly about it today as well. And that's what you'll see us do. By nature of things are back-end loaded last year, just because of the volatility in the commodity price. We were active, I think, in 10 out of 12 months on the buyback. And you'll see us taking similar approach this year. But it is definitely a minimum of 60% that gives us ample on the additional 40% to address balance sheet. So, yes, we -- I'll underscore that.

Neal Dingmann
Analyst at Truist Financial

No. Great point. Okay. And then really just a second question on domestic activities perhaps a little bit, but I'm just wondering. You all mentioned having the two Southern Midland Basin and the three Delaware rigs. How fluid is this? Could this change depend on prices and I'm just -- or even more activity in that newer Titus area just one for plans remainder that maybe more second half of the year?

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I would just say, we're in a really good cadence in the Southern Midland Basin, and you're seeing it in our results because we're planning pads way down the road and it gives us time to really execute and think about how to maximize the NPV and the returns. And so, that two-rig program has been a good cadence for us at Southern Midland Basin. We've got three in the Delaware. And that's where there's flexibility. And you've seen from the forecast we're shifting those more to the oil-weighted projects in the Delaware. And that's the luxury we have of our portfolio today. And then we've integrated Titus in, so it's really just part of our Delaware program. And it's ours, so.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Roger Read with Wells Fargo. Your line is open.

Roger Read
Analyst at Wells Fargo & Company

Yeah. Good morning.

John J. Christmann IV
Chief Executive Officer and President at APA

Good morning, Roger.

Roger Read
Analyst at Wells Fargo & Company

Morning. Happy to finally show up here. One quick question for you on your comments about the outlook for the agreement with Cheniere, the range of $500 million to $1.25 billion. What -- when we look at it between the Ship Channel price and the European price, which one do you see more sensitivity to? In other words, do you see a big move in prices here or could you see slump here and big moves, we expect continued volatility over in Europe? Is -- which is the weighting towards?

John J. Christmann IV
Chief Executive Officer and President at APA

It's going to be more on the the global oil and TTF or JKM. But I'll let Ben provide any additional details.

Ben C. Rodgers
Senior Vice President Treasurer and Midstream and Marketing at APA

No, that's right. I mean, there's a lot of variables that go into it. We've seen weakness in the Ship Channel this year, mainly from Freeport LNG being offline and just generally milder weather. So, a lot of domestic variables that are impacting the Houston Ship Channel. And -- but to John's point, if the war in Ukraine and a milder winter over in Europe, I think it was one of the -- only the second or third warmest winter that they've had over there and close to 50 years. It's just going to insert a lot of volatility there. The good thing though is we look at it -- if you just kind of step back, we think it does provide a very significant potential uplift to our free cash flow numbers. And we have that inherently on the oil side by selling our North Sea and Egyptian oil barrels at Brent-based pricing. And it's one of the reasons that we entered into this contract in 2019, was to get access to the global gas market as well.

Roger Read
Analyst at Wells Fargo & Company

Yeah. It makes sense. The follow-up question I have is, understand the reason for reducing investment in gas in the near-term. But as you look at your, let's call it guidance, goals, expectations, to deliver oil volume growth this year, what should we be paying attention to as the risk factors on that things that we -- I guess, could cause you to come in underneath or any of the other issues that you mentioned kind of like well cadence and stuff like that?

John J. Christmann IV
Chief Executive Officer and President at APA

I mean, it's exactly those things, Roger, but I mean, we've got good confidence in the program. And it's underpinned to the two onshore areas with Egypt and Permian. And but it will be that very thing. It's the the turn in lines and the timing. And you're seeing that a little bit with the first quarter because we only had four wells in the U.S. fourth quarter of last year and they were like, one Permian and three Chalk. So, a lot of that's going to be driven by the function of just what's the timing on the execution. And when you're running five rigs in the U.S., it's going to be lumpy. And in Egypt, it took us a little bit time to kind of get our legs under us with the 17-rig program. So -- but I mean that's going to -- those were the key things to watch. But we have good confidence in our projections.

Operator

Thank you. And our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now open.

Neil Mehta
Analyst at The Goldman Sachs Group

Yeah. Thanks so much. Maybe John, the first question is around capital efficiency. The spend budget came in a little bit lower than what our consensus was. So, maybe you can talk about what you're seeing real time both international and in the U.S. in terms of inflation. Have you seen any green shoots that this period of immense inflation is starting to move back into your direction?

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah, Neil, a good question. I would say, we spend a lot of time trying to stay about a year ahead of our programs. And so, with our contraction things, because that gives us the visibility in terms of the spend. And so, today, a lot of what you're seeing is contracts based on the back half of last year's pricing. So, I think it's a little premature from our perspective to be seeing any softness tied to the commodity price. I think if the price stays where it is today, that is one of the upsides of the plan is you're going to see cost structure follow. They just tend to lag but they will follow the the deck. So, it just takes a little bit of time to play catch-up. So, nothing there to really comment on in terms of green shoots or anything at this point.

Neil Mehta
Analyst at The Goldman Sachs Group

That's fair, John. The follow-up is the North Sea. Maybe you could talk about the impact of the 75% tax rate. How it's affected your willingness to invest in the region? There was obviously the Ocean Patriot release as well. And any comments you have around tax rate broadly would be helpful.

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I would just say that it's made the North Sea less competitive relative within our portfolio. And so, as we look at that, still an asset that we're going to manage for cash flow, and we'll get good performance there and we're going to continue to invest in asset integrity and maintenance and doing all the things that we need to do environmentally safety like we always will. But longer term, incremental dollars that we have alternatives to put in other places, you're seeing us make that decision just because there's more attractive places to put that. And so, it's made the North Sea less competitive on a relative basis within our portfolio and that's why you're seeing us drop the Ocean Patriot rig later this year.

Operator

Thank you. One moment for our next question. Our next question comes from the line of David Deckelbaum with Cowen. Your line is now open.

David Deckelbaum
Analyst at Cowen

Hey, John. Thanks for your time today.

John J. Christmann IV
Chief Executive Officer and President at APA

You bet.

David Deckelbaum
Analyst at Cowen

Just wanted to ask on sort of the future expectations for Egypt growth. I know since the modernization of the PSC and the ramp-up to 17 rigs now, the view was that this could be sort of a multi-year growth opportunity. I understand the beginning of this year production, obviously, declines and then it ramps throughout the year. It seems like combination of TIL [Phonetic] cadence, but also just curious if there's infrastructure challenges driving some of that production curve. And then what we should expect once for 10% higher in the fourth quarter of '23 going into '24 and beyond there?

John J. Christmann IV
Chief Executive Officer and President at APA

No. I think you'll see a pretty robust program in Egypt. The thing you have to recognize here, we've got two factors going on. You have a big discovery that was predominantly gas and costs that's starting to decline. And that's why you're seeing the oil growth, which is where the drilling program with the 17 rigs are focused in Egypt. So, you'll see that oil mix is what's growing in Egypt as well, and that's what's underpinning that program. But it's an onshore multi-rig program. And it's a little bit different from the unconventional that folks have gotten used to in the U.S. where it's shale and you can do pad math. But the nice thing is this is conventional rock that flows actually pretty hard and fast and sets up smaller developments but very impactful material developments. And so, good confidence in the long-term curve there. We've been in Egypt since 1994 and a lot of good confidence in that.

David Deckelbaum
Analyst at Cowen

I appreciate that, John. And then just my second one just on Suriname. It sounds like we're obviously waiting for the the appraisal results from Krabdagu and the intention to potentially build out a hub there. I guess, does that necessarily preclude Sapakara being developed independently or would you view this as you kind of need to combine those Sapakara and Krabdagu into one-hub system to maximize economics in that Sapakara wouldn't necessarily support the development on its own?

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I'll just say you're -- both us and our partner are motivated to get the scope and scale correct from the get-go. And the larger the project, the larger the boat, the better the economics are going to be. And so, there's no reason to try to get into, could you, because what we're really looking at is how do you get the scope and scale right. And that's why we're looking at trying to combine these.

Operator

Thank you. One moment for your next question. Our next question comes from the line of Leo Mariani with Roth. Your line is now open.

Leo Mariani
Analyst at Kaufman Brothers

Hi, guys. I was hoping you could talk a bit more about the North Sea. Obviously, you're making the decision to drop the rig here later this year. It certainly sounds like that tax rate is going to be definitely high for quite a few years. Should we expect the result of that rig being dropped? Is it going to kind of accelerate some of the production decline? Should we expect to see kind of steady declines on asset maybe starting in 2024 and beyond? Just trying to get a sense of what the ramifications are of the less activity.

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah. I would just say in general, it doesn't really change the abandonment time frames as we model that out today. And really you look at this year, not much impact from the Ocean Patriot, it was drilling some things that are bigger impact subsea wells that take time to come into play. So, it does have an impact, starting to see a little bit in '24, '25, and beyond. But it doesn't really drive -- I mean, we're still looking at early 2030s for both Forties and barrel. And when we when we bought the Forties asset -- I'll go back and remind you, when we bought that in 2003 from BP, it was scheduled to come out on ground in 2012. And so, here we are more than a decade longer, 12 -- 10 years, 11 years longer, and still looking at close to another decade. So, there's still good productivity in life there. We're just going to manage it for cash flow and be very prudent about the future investments.

Leo Mariani
Analyst at Kaufman Brothers

No, that's helpful. And then just jumping over to the U.S. Just wanted to get a sense, is there anything at all planned in the Austin Chalk in 2023? I know you guys have some wells that kind of came on late last year. So, if there's any update you have on that asset? And then also just to follow up on Alpine High a little bit. You guys really -- it sounds like you're kind of viewing that as somewhat of optionality on the gas market in the next several years and then hopefully that gas market will improve. But do you guys have long-term designs on using Alpine High as a feedstock for some of these Gulf Coast LNG facilities?

John J. Christmann IV
Chief Executive Officer and President at APA

I mean, the thing I would say is recognize the contract with Cheniere is a separate deal. It's a corporate-level deal. We buy gas in Ship Channel. So, it's separate and aside from what our equity gas that we produce. So, we sell that in Basin at Waha and prices at Waha are going to dictate what we do in basin. So, that's the point to make there. In the Chalk, we brought all those three wells. Today, we don't have anything planned in terms of drilling. From a working interest perspective in the Chalk, there may be some non-op wells we participate in where we've got some non-op interest there that others are drilling. But nothing planned in our budget this year for Chalk drilling.

Operator

Thank you. One moment for our next question. And our next question comes from Arun Jayaram with JPMorgan Chase. Your line is now open.

Arun Jayaram
Analyst at J. P. Morgan

Hey, good morning. John, the more recent activities in Suriname have been focused on appraisal activity with, I guess, two rigs now on location at Krabdagu. What are you and the partners plans in terms of incremental exploration post the evaluation results at Krabdagu with the two rigs?

John J. Christmann IV
Chief Executive Officer and President at APA

There will be another exploration well drilled, Arun, and we're still working on that location between us. There are several prospects. Both teams are spending time high-grading. I mean, if you go back and look at both Awari and Bonboni and Block 58, we have working petroleum system, hydrocarbon systems out there. The main targets in both cases failed because of breach of seal. And so, I'd say the teams are spending time, but there is a lot more prospectivity to the outboard side all the way back into the where we've had great success. So, working through that with our partners and as we get in a position to drill more wells, we'll talk about those as they come on to the rig lines.

Arun Jayaram
Analyst at J. P. Morgan

Got it. And just maybe one follow-up in the Permian. John, as I think about your 2022 program in the broader Permian including in 4Q, the company didn't place as many wells onto sales as we would have thought in terms of our modeling. Looking at 4Q, I think you placed one or so wells to sales. What drove that in 2022? Were you building some DUCs? And just thoughts on how -- will that shift a little bit as we think about 2023 because you have a pretty robust production growth outlook from the [Speech Overlap]

John J. Christmann IV
Chief Executive Officer and President at APA

Well, Arun, it's a great question. I mean, it's really more just the lumpiness of our program. We're drilling longer laterals and you've got two rigs in the Midland Basin. And so, a lot of it's just the timing of the pads, completing the pads, and then working through the completion timing. So, with only two rigs, you're going to see lumpiness from us, whereas if we were running a lot more rigs, then that lumpiness kind of starts to work itself out and normalize. So, it's really just a function of timing on those with longer laterals.

Operator

Thank you. One moment for our next question. Next question comes from the line of Jeoffrey Lambujon with Tudor, Pickering. Your line is open.

Jeoffrey Lambujon
Analyst at Tudor, Pickering, Holt & Co.

Hey, good morning, everyone. Appreciate you all taking my questions. Just kind of [Speech Overlap]

John J. Christmann IV
Chief Executive Officer and President at APA

You bet, Jeoff.

Jeoffrey Lambujon
Analyst at Tudor, Pickering, Holt & Co.

Yeah, thanks for squeezing me in. Just a couple here follow-ups on Egypt. Obviously, some solid execution there, especially, relative to earlier in 2022, as John highlighted that's showing up in production results as we all saw. So, as you think about the 2023 guide, I was hoping if you could speak to how you're thinking about the level of conservatism or risk that might be baked in there as you think about the oil growth exit-to-exit. And what kind of running room you might see from here on operations inefficiencies as we move through the year? And we're focusing on in terms of tracking execution from the end of the 2020 program.

John J. Christmann IV
Chief Executive Officer and President at APA

Well, I mean, Jeoff, a question we obviously try to guide to what we believe are numbers with high confidence that we can hit and we spend a lot of time on that. I do believe there are things at times that nice thing about Egypt is there is ability to -- with success to bring other things on and get other wells drilled and high-grade that schedule as you're moving through the year. But I think we've given very realistic and good guides for 2023. And I think there's good confidence from the team. I know why you asked that question, and it hits the -- the response I get and the response that I'm comfortable to relay.

Jeoffrey Lambujon
Analyst at Tudor, Pickering, Holt & Co.

Okay. Great. And then I guess just on operations inefficiencies, again, obviously, improved quite a bit as you move through 2022. Just wanted to get a sense for what you're focusing on from that perspective and what kind of running [Indecipherable] you might see for improvements from here.

John J. Christmann IV
Chief Executive Officer and President at APA

Yeah.. It's all about operational excellence and continuing to try to improve and learn from things as you go. In Egypt, we're drilling in some new areas with the seismic in some of the exploration that we're doing there. And so, within those areas, we should see improvement as we drill more wells in things -- areas you've drilled before. So, you're seeing some of that. And the big thing is, is across the entire organization, across the asset teams, across the functions, everybody is really trying to take all the data, integrate it, and get better. I mean, it's about continuous improvement and execution excellence. And you saw great progress on the safety front. And we're going to continue that and continue to focus on the operations. Paying attention to details.

Operator

Thank you. I would now like to hand the conference back over to Mr. John Christmann for closing remarks.

John J. Christmann IV
Chief Executive Officer and President at APA

Yes. Thank you. And before closing today's call, I want to leave you with the following thoughts. First. I want to recognize our entire team for their hard work and dedication to safety, operational excellence, and environmental stewardship. APA remains committed to financial and operational discipline. We're focused on leveraging the portfolio to invest in the highest-return projects. While activity cadence will impact our first quarter, we're confident in our growth outlook for 2023. Lastly, in Suriname, the JV has accelerated appraisal at Krabdagu and we look forward to keeping you informed of our progress.

I will turn the call back to the operator.

Operator

[Operator Closing Remarks]

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