Ladies and gentlemen, thank you for standing by. Welcome to the Apache Corporation Second Quarter 2020 Earnings Announcement Webcast. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to introduce your host for today's conference call, Mr.
Gary Clark, Vice President, Investor Relations. You may begin.
Good morning, and thank you for joining us on Apache Corporation's 2nd quarter 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 summarize our Q2 financial performance. Clay Bretches, Executive Vice President of Operations and Dave Purcell, Executive Vice President Development will also be available on the call to answer questions. Our prepared remarks will be approximately 15 minutes in length with the remainder of the hour allotted for Q and A. In conjunction with yesterday's press release, I hope you have had the opportunity to review our Q2 financial and operational supplement, which can be found on our Investor Relations website at investor.
Apachecorp.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 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 tax barrels. Finally, I'd like to remind everyone that today's discussions 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.
Good morning and thank you for joining us. For the last several months, the world and the global E and P industry have been facing one of the most challenging environments in recent history. Apache is responding with decisive actions designed to protect our people, our assets, our investors and the communities in which we operate. And I want to take this opportunity to thank the many Apache employees and contractors for their hard work and dedication in these tough times. In my prepared remarks this morning, I will discuss the progress we made during the Q2 and review our key objectives and capital priorities going forward.
I'd like to begin with a brief update on our response
to the COVID-nineteen pandemic.
Apache moved quickly to implement a wide range of fit for purpose protocols to ensure a safe and productive work environment in both our onshore and offshore operations. Thankfully, we have experienced a relatively small number of COVID-nineteen cases and have incurred no material operational disruptions beyond our intentional production curtailments. We are prepared to maintain our current work model for as long as necessary. Since the onset of the pandemic, we have been listening and responding to the specific needs of the communities in which we work and live. Apache has donated PPE and critical medical equipment to hospitals and first responders, as well as supporting food banks, long distance learning initiatives and shelters for women and children.
From an operational and financial perspective, during the Q2, we executed our planned activity reductions on schedule and delivered upstream CapEx well below guidance of $230,000,000 For the full year, we are now tracking toward the lower end of our capital guidance range of $1,000,000,000 to $1,200,000,000 The majority of our organizational redesign has been implemented, achieving combined run rate LOE and overhead savings of more than $300,000,000 as planned. Net of severance and restructuring costs, actual cash savings realized in 2020 are estimated to be approximately $225,000,000 Through these and other actions, we have reduced our free cash flow breakeven oil price to be around $30 per barrel on a forward looking basis. This allows us to protect our current financial position and enables positive free cash flow in the current price environment. And in Block 58 Offshore Suriname, during the Q2, we submitted a plan of appraisal for our first discovery mock up, announced our second discovery at Sapakara and spudded our 3rd exploration well, Kwas Kwasi, the results of which we announced yesterday in conjunction with our earnings release. We are thrilled with the results from the Kwasquasi I exploration well.
This is the best well we've drilled in the basin to date with the highest net pay in the best quality reservoirs. While we have a lot more work to do, a discovery of this quality and magnitude merits a pace of evaluation that enables the option of accelerated first production. Following Kwas Quasi, the Noble Sam Croft drillship will move to the 4th well in our 2020 exploration program, Kwas Kwasi, after which Apache will transition operatorship of the block to our partner Total. Turning now to the curtailment program, we have returned our North Sea and Alpine High volumes to production along with a portion of curtailed oil volumes in the Permian. We anticipate that several 1,000 barrels of higher cost Permian oil production may remain offline for the rest of 2020.
Apache is currently running 1 exploratory rig in Suriname, 5 rigs in Egypt and 1 floating rig and 1 platform rig in the North Sea. We intend to maintain this activity set for the remainder of the year if commodity prices do not deteriorate significantly. At this time in the Permian Basin, we have no drilling or completions activity and no plans to complete our DUCs for the remainder of the year. As we look at the second half of twenty twenty into the long term, our key objectives remain unchanged despite the extreme price volatility. We will budget conservatively in direct free cash flow on a priority basis to debt reduction, maintain a balanced and diversified portfolio and prioritize investment for long term returns over production growth.
We have spoken frequently about our priority ranking for capital deployment within the portfolio. And our thoughts on this are worth reiterating. At the top of the list is Ceram, which will continue to receive priority funding for both exploration and appraisal activity. Under the terms of our joint venture, the incremental cost to Apache associated with appraisal and ultimately development should be very manageable. Our second priority is Egypt, where the PSC structure offers more stable returns in relatively low and more volatile oil price environments.
Following that, we should look to complete our DUCs in the Permian Basin and resume drilling with a second platform rig in the North Sea. And finally, while our Permian operations have been delivering highly competitive economics within the basin, other areas within our portfolio offer more attractive investment options in a capital constrained environment. Therefore, we don't envision returning rigs to the Permian Basin unless oil prices recover well into the 50s. We have always stated that our best hedge against price volatility is prudent and responsive management of the capital program. To the extent oil prices are sustained at or below $50 per barrel WTI, we do not anticipate a material change in our annual capital budget from the current rate of around $1,000,000,000 For oil prices significantly below $50 capital spending is more likely to be reduced from the $1,000,000,000 mark.
If oil prices rise above $50 we will be very measured with our capital increases and the first call on that incremental free cash flow will be returned to investors initially with debt reduction. I'd like to close by summarizing Apache's approach to managing the unprecedented challenges thus far in 2020. We implemented successful COVID-nineteen operating protocols and work from home procedures and helped ease the burden of the pandemic on our host communities in numerous ways. We responded to the sudden price drop by quickly limiting cash outflows to protect our balance sheet. This included a significant reduction in capital, dividends and overhead and operating costs.
These, along with other actions, have enabled us to lower our free cash flow breakeven such that we now have good visibility to debt reduction. Operationally, we have preserved optionality to reactivate our curtail production, development programs and other investment opportunities when appropriate. And we have successfully advanced our exploration program in Suriname. Through these and other actions, particularly the successful implementation of our corporate redesign, we entered the second half of twenty twenty, a very focused and streamlined organization. The benefits of our diversified portfolio are more evident now than ever as we flex capital towards our international operations.
Together with our world class position in Suriname, Apache offers a truly differentiated investment opportunity within an industry that has come under tremendous pressure. I would like to again thank all the Apache employees for their commitment, resilience, hard work and flexibility as we successfully navigate these challenging times. And with that, I will turn the call over to Steve Riney.
Thank you, John. On today's call, I will review Q2 2020 results, discuss progress on our cost saving initiatives, and provide commentary on our free cash flow outlook and debt management efforts. As noted in our news release issued yesterday, under generally accepted accounting principles, Apache reported a Q2 2020 consolidated net loss of $386,000,000 or $1.02 per diluted common share. These results include items that are outside of core earnings, the most significant of which are an unrealized loss on derivatives, a tax valuation allowance and asset impairments, partially offset by a gain on the repurchase of outstanding debt. Excluding these and other smaller items, the adjusted loss was $281,000,000 or $0.74 per share.
Adjusted production decreased 7% from the prior quarter, primarily driven by shut ins and production curtailments of approximately 19,000 BOEs per day at Alpine High and production curtailments of 10,000 BOEs per day in the North Sea and 6,000 BOEs per day for other operations in the Permian. Partially offsetting this was increased Egypt cost recovery volumes due to the lower oil prices in the quarter. Apache's 2nd quarter average realized price on a BOE basis fell 39% from the prior quarter with oil and NGL prices down materially. International oil price realizations were notably weak as actual Brent realizations dislocated from the published benchmark price. This discount was driven by unprecedented excess supply on the market, resulting in unusual competitive pricing dynamics.
Consequently, 2nd quarter international oil realizations averaged around $5.50 per barrel below the benchmark, which we do not customarily experience. So far in the Q3, Brent pricing has reconnected with the benchmark and we do not currently anticipate this changing. Turning now to our cost savings initiatives, we entered 2020 with a goal of reducing annualized overhead and LOE costs by at least $150,000,000 With the price downturn in March, we took quick action to double that goal to at least $300,000,000 We have since fully achieved this target and then some. Roughly 2 thirds of the targeted savings are coming from overhead reductions and 1 third from direct LOE reductions. These are sustainable cost reductions and they are showing up in multiple places on our financial statements.
So let me provide some detail. Of the roughly $200,000,000 of annualized overhead cash cost reductions, approximately $100,000,000 will show up as reduced capital investment. Dollars 20,000,000 will come in the form of reductions in LOE and exploration expense and approximately $80,000,000 will show up in lower G and A expense. So our underlying G and A expense, which in the recent past typically ran about $100,000,000 per quarter should now run around $80,000,000 per quarter. During the Q1 of 2020, you will recall we had a nearly $30,000,000 reduction in G and A expense caused by the mark to market effect on the share based compensation plans associated with the significant negative movement in our stock price.
During the Q2, this impact partially reversed generating a $19,000,000 increase in G and A expense. As a result, 2nd quarter G and A expense was $94,000,000 Turning now to LOE. We have eliminated approximately $100,000,000 of direct LOE costs on an annualized basis. In addition to these sustainable LOE reductions, are also seeing cost reductions associated with production curtailments and deferred workovers as well as the deferral of certain other non essential activities. While these actions reduce costs in the near term, they are not sustainable and we expect at least a portion of them to return at some point in the future.
As we have previously noted, one of our key long term objectives is debt reduction. Let me share two views on this objective as we look at the Q2. With respect to long term debt, we took the opportunity to repurchase bonds at significant discounts when the debt markets came under pressure. In aggregate, during the Q2, we repurchased $410,000,000 of face value debt for $263,000,000 reducing aggregate long term debt by $147,000,000 The repurchase debt had an average remaining term of approximately 20 years and at the purchase price had an average yield of 9%, making this a very attractive investment. Another view of debt is through the borrowings on our revolver.
Between the negative cash flow impacts of the extremely low price environment and the $263,000,000 of bond repurchases, we ended the quarter with $565,000,000 outstanding on the revolver. With an improving second half price outlook, combined with lower capital investment and reduced operating and overhead costs, we anticipate generating positive free cash flow in the second half and using it to reduce borrowings on the revolver. Before wrapping up, I'd like to note that we did issue Q3 guidance yesterday in our financial and operational supplement on our website, which covers our outlook for capital investment and production as well as a number of expense items. In summary, although it was a very challenging quarter from a price and cash flows perspective, we took significant actions to reduce our cost structure, protect the balance sheet and retain asset value for the future. To the extent WTI oil prices remain above $30 per barrel, we look forward to generating free cash flow in the second half of twenty twenty and using that to reduce leverage.
And with that, I will turn the call over to the operator for Q and A.
Our first question comes from Doug Leggate with Bank of America.
Sorry, guys. I was on mute. I couldn't get my mute button to go off. I apologize. Good morning, everyone.
John, this is also a great day for your stock and congratulations on the latest discovery in Suriname. I'm obviously going to focus my two questions on that, if I may. So my first one is your comment in the press release about this deserves perhaps the option of an accelerated first production. My question is what influence does Apache have over that? How aligned does Total?
And what are the parameters within the contract that could get you to that? And I guess what I'm really aiming for is, would you consider that an hour in production system here? And I've got a follow-up.
Well, Doug, thank you. First of all, I think in the end, it's just going to boil down to the quality of the well and the rock in the play. When you step back and look, Block 58
to 1,400,000
Acres, to put it in perspective, it's over 250 Gulf of Mexico blocks. We've now drilled 3 wells in 3 different fairways. And I use that context to help you understand why you can have 3 very large fairways. We're going to be moving to another one with Kaskase once we conclude operations. The comments in the press release kind of speak for themselves with where we sit.
I think that our partner is also excited. We've done some things in the campaign with this well. We gained collected some extra data. We're doing some things with an exploration well that you typically would not do, which helps us gain some insight into what we've got. And so we'll in the end, it's going to boil down to us being aligned with our partner and of course, aligned with the stats only and the government of Suriname in terms of the pace and moving it forward.
But I think in the end, it's going to be the quality of the rock and the resource potential that's going to drive that.
Pardon my follow-up on this question, John, but Total just don't seem to be communicating the same level of urgency, I guess, as your comment in the press release. So I just wonder if you could help us bridge the gap between the 2, given that they're going to
I think what all my comments says is that it's of a quality that would look at an accelerated pace. Yes, I think in their press release today, they stated that there will be an appraisal and exploration program early next year to appraise our discovery. So I'll just leave it at that.
Okay. My follow-up is also on Krauszwazi. And it's related to the deeper San Antonio. Obviously, you did not disclose anything other than hydrocarbon reservoir. The last time we heard that expression, it was gas condensate at Haimara in Guyana.
So I'm just wondering if you can address some concerns out there as to what the hydrocarbon type is, why you didn't release APIs, what you know about scale? Just any other ways you can characterize that deeper horizon and I'll leave it there. Thank you.
Yes. The thing I'll say is if you look at the first two wells, the Santonian has been more oily than the Campanian. So I will tell you everything looks good here. We are in a position because we had done some additional work in the upper zones and set pipe in the Campanian that we had a lot of that all that information. There was still more that we are collecting here, but we felt like we were at a position with the materiality that we should talk about it.
I'll let Dave give a little more color on the on the Santonian there.
Yes. Thanks, John. So, Doug, John talked about some additional testing in the Campanian. So it's important from a timing perspective, we did some additional deeper investigation type testing and it does 2 things for us. It gives us a composite flow capacity and allows us to see a little deeper in the reservoir than conventional fluid testing allows.
So we've we're through the Santoni and we have the conventional wireline logs collected. Based on our experience with the mud logging and the open hole wireline logging on Maca, Sapacara and the Campanian in this well, we feel confident that we have oil in significant portion of the Santonians. So we felt like we were fine with releasing. We still have work to do. We still have to collect fluids and pressures.
We have core data to collect and we anticipate doing some of the additional deeper investigation testing on this interval. So I wouldn't read too much into the fact that we don't have we didn't release API gravities because we don't have those collected yet.
Our next question comes from Mike Scialla with Stifel.
Congratulations as well. I was curious on the Quasquasi, the results there, how those compared to expectations? Was there any indication from your seismic data that this well would have more than doubled the net pay of the other 2?
Mike, first of all, thank you. I mean, when you look at the seismic, we knew, cross quasi was going to be a prolific fairway as the other 2 were. It boils down a little bit about the depositional environment. I mean, once again, we're in a such a large area and these wells are so far apart that you have to drill them to learn that. So, I mean, clearly it exceeded what would have been pre drill, but we knew there was that kind of potential and there is the exciting thing about it is, is we've got a lot more of this block to explore, but clearly very excited about it.
Good. And then Steven, you mentioned about prioritizing that you want to improve the balance sheet, obviously. I was wondering how you would prioritize options there. Is it really just using free cash flow to pay down debt or any other options you're considering at
this point?
Yes, Mike, I think in a more typical environment, you'd see companies selling assets to strengthen the balance sheet to pay down debt. And I think it's clear that in the price environment we're in right now that just doesn't work. And so for the most part, it is going to be the old fashioned way of retaining free cash flow, spending a little bit on capital, which we all ought to be doing. And that just means it'll take some time to get the balance sheet in order unless there's a price spike or some there will be the occasional one off opportunities that where you have a chance to do something to reduce debt similar to what we did in the Q2 with repurchasing some debt at a discount. And we'll take advantage of those from time to time, but I do believe this is just a simple case of prioritizing, retaining free cash flow and using it to pay down debt instead of spending it on capital to maybe achieve a different type of growth profile.
Clearly, for us, strengthening the balance sheet is going to be much more important than growing production volume. I think we're now approaching a period where we're going to be able to do that. We've, as John mentioned in his prepared remarks, we're now capable of running free cash flow neutral at $30 WTI on a point forward basis for the rest of this year with the CapEx budget where it is, with the dividend cut, the overhead cuts, the LOE cuts, some of the other things that we've done. We have no intention of raising the capital budget for this year, and that's what we'll do. And to the extent that oil price exceeds $30 WTI, we'll use any excess free cash flow that that generates to reduce debt.
Very good. Thank you.
Our next question comes from Bob Brackett with Bernstein Research.
Hi, good morning. I'm intrigued a bit by the comments around doing some things with an exploration well that you wouldn't typically do and the deeper investigation type testing. Are you performing a mini drill stem test out there? And are
there any rates to report?
Yes. Bob, this is Dave Purcell. Good try. It's something that would be between if you want to call it a mini drill stem test, that would be a reasonable characterization. It's something between a full drill stem test and what you typically would get from a fluid sampling operation.
So again, what we're getting from this is composite flow capacity of a instead of a point permeability measurement from a core sample, we're getting a composite flow capacity. And then another benefit is some deeper investigation for pressures into the reservoir. So we're still evaluating that data, but that's what we're doing. And we again, we anticipate performing those tests in the Santonian as well.
Okay. Yes, that's clear. Another question, given the thickness of this recent discovery, what drove sequencing of the overall exploration campaign? And what might that tell us about the 4th well?
I mean, I think when you step back and look, as we said, we had multiple fairways. I think there and you look at the size and think about this, it's equivalent to 250 Gulf of Mexico blocks. So moving across there, a lot of it has to do just with how things were deposited. But we've got a full another fairway that it will be testing. So we're anxious to move over and see.
But everything looks really good on the seismic. So we're anxious to move on to Kaskaski after Kwaswasi. Wase.
I appreciate it. Thank you.
Our next question comes from Charles Meade with Johnson Rice.
Good morning, John, to you and your whole team there.
Good morning, Charles.
I'm going to ask another question on the really the headline that everyone's focused on, the thickness of the paint that you guys found with this well. I'm curious, is there anything going on with either the dip of these formations or perhaps structurally that's some kind of mitigating factor for that thickness you announced? Or is this more the case where you guys just really found a fixed stack of pancakes here?
I would just say it's really more depositionally. There's nothing tricky with it. It's geology is pretty level out here. So it's very exciting. I think it just goes to the quality in the Cretaceous here, both with the Campanian and the Santonian.
So as we've said, there are other play types that we are still looking forward to testing. The Terronian is a target we had at Maca. There's more to do. We've really with the Campanian and Santoni, we're really only fully starting to evaluate 2 of the play types. We think there's 7 or 8, so there's multiple targets.
So, a lot of exploration to do and obviously we've got a lot of appraisal work to do on these first three discoveries.
Well, John, you anticipated my follow-up question on the because I remember back, you guys certainly have plenty of say grace over here, but going back to that first well, the Mako well, that you guys had some encouragement with the Toronian. So does is that something that we should anticipate you guys are going to are you going to maybe test with your next well? Or is that something that's where you found enough in the campaign in San Antonio that that's kind of receded into 'twenty one or beyond?
Well, just the timing of how if you look, Charles, we're really still moving across one direction across this block with these first four wells. We haven't even started to move the other direction, which would be north and south. So we're going to Kaseke, obviously, move to the other side of Sapacara. So we'll talk about that with the future exploration wells.
Got it. Thanks for the color, John.
Thank you.
Our next question comes from Jeanie Wai with Barclays.
Hi, good morning everyone.
Good morning.
Good morning. I've got 2 questions on Suriname shopping, But I guess my first question is just on the reservoir quality and the second is just on the accelerated first production commentary. So based on what you've seen so far from the cost of coffee well, can you provide a little more color on what makes the reservoir one of the best quality reservoirs that you've ever seen in the basins? And is it primarily just the net fee to pay or are there other characteristics that you can elaborate on?
I'd just say in general, it's better. It's better if you look at the one net fee to pay both in the Santonian and in the Campanian are greater than we had in the first two wells combined. So that's one element, but I'll also tell you the quality looks fantastic. So at this point, that's all we're going to say about it.
Okay. I appreciate that. And then my follow-up question, in terms of the potential for accelerated production, relative to the current plan, which to understanding, I think was something around 4 development wells and 4 exploration wells a year. Is the thought that maybe you could shift some exploration CapEx to development CapEx? Or do you envision doing more than the 4 plus 4 wells?
I know it's so early, but I'm also not sure if there's anything in the TSC that allows for some timing flexibility?
Yes. I mean, what I would say is, I don't know where the 4 appraisal or 4 development wells came from. We're drilling 4 exploration wells this year. Under the terms of our joint venture, us and our partner can each propose 4 exploration wells, so there could be 8 going forward. What we've stated is, is there will be both an appraisal program and an exploration program in 2021 and we plan to try to get started as early as we can.
So clearly, the comment is with what we've got and some of the things we're doing here, this is of a quality of magnitude that it would warrant trying to look at could it be accelerated is all we're saying.
Okay, great. Thank you very much.
Thank you.
Our next question comes from John Freeman with Raymond James.
Hi, guys.
Good morning, John.
So I wanted to focus on the capital allocation. You all have been pretty clear about the balance sheet being the first priority and then kind of Suriname, Egypt, North Sea, Permian sort of that order. And the slide that you have got in your presentation sort of lays it out at different kind of price hikes, how that capital gets allocated. And John, you were very clear in your prepared remarks that it's going to take an oil price well over $50 to put a rig back to work in the Permian. But I guess I'm curious with sort of where the current strip is, which is just barely above $40,000,000 It's kind of right on the line there between if you do anything in the North Sea, if you would potentially draw down docks in the Permian.
And I guess what I'm going towards is with this continued success in Suriname and everything you all want to do there and what and the continued run-in Egypt. If maybe the gap is sort of widened between those two assets versus the other 2 to where maybe an oil price is just barely above $40,000,000 it maybe doesn't make sense maybe to put the capital at those last 2 relative to the others. Like is there a part of the pie now getting bigger, I guess?
Yes, John, really good question. I think the first thing I would say is, in my prepared remarks, I laid out too that where the strip is today, CapEx probably comes down for the whole in 2021. And that's just because of how we prioritize things. As it relates to the pie,
boil down to how much
capital do we want to spend. It's just going to boil down to how much capital do we want to spend. And with where the strip sits today, I really think that the CapEx budget is going to come down because we're going to want to generate some free cash flow that can go towards reducing our debt.
Great. And then just the last question for me. With this latest result in Cernam and everything you're doing there, just internally relative to how you were thinking about the mix of kind of appraisal and expiration in Cernam next year, does this change that mix? I'm not telling you to give me the actual breakdown because you haven't probably determined that yet, but just does it change your thought process of how that mix would have been prior to this result?
It really doesn't because I mean we've been I think we understand the potential there. Clearly, there's things you're going to want to try to move forward on an accelerated pace if we can. But we also have a very large block that we have to continue to explore. And so we're going to want to continue exploring. I think the exploration pace will be pretty similar to what it is today.
And then it will just be a function of what we need to do on the appraisal side with our partner.
Thanks, John. Appreciate it and congrats.
Thank you.
Our next question comes from Gail Nicholson with Stephens.
Good morning. Congratulations on another great surname well.
Thanks, Gail, and good morning to you.
When you guys look at Egypt activity in the second half of the year, could you just talk about any exploration targets that are you guys are looking forward to tackling?
I mean, Gail, we continue to work Egypt hard. We've shot a big very large 3 d there. We continue to high grade our inventory. We do have some interesting things that are on the schedule that we're anxious to drill some stratigraphic targets and at some point if they work like we think they could work, then there'll be some things to talk about.
Great. And then Steve, in the Q1 call, you talked about a cash flow sensitivity for every dollar move in oil was in the roughly in the $50,000,000 to $60,000,000 range. Is that still a good proxy to use or has that improved?
No, that's still a pretty good proxy to use for every dollar around probably close to the $60
Our next question comes from Arun Jayaram with JPMorgan Chase.
Yes, good morning. John, I was wondering if you could maybe as a follow-up to John's question, just give us some thoughts on your plans to delineate the 3 discoveries you've announced thus far and thoughts on potentially bringing in additional drilling rig to the theater, call it, next year or beyond?
Yes. Ru, I'll just say, we have a kind of a procedure through the concessions that we follow and we have submitted the appraisal plan for Maca. We are working on the appraisal plan for Sapa Cara. There will be one that follows Kwasquasi and clearly there's going to be an appraisal program that starts in early 2021. And at this point, that's all I'm at liberty to really say, but we look forward to getting after
it. Great, great. And just a follow-up regarding Egypt, you guys have talked about the new licensing areas. I was wondering if you guys have processed seismic on your legacy position as well. And perhaps a little bit more detail and when you plan to test the stratigraphic trap play concept that I think you've identified in the Pite and Veronese discoveries back in 2014?
Yes. I mean, that's really it's Pitell and Veronese that really kicked off this whole effort. Prior to drilling those wells, we'd shot new 3 d in 2013. They were on our legacy acreage position called offset. It really opened our eyes to the fact that we needed to start looking stratigraphically, not just structurally in Egypt.
We had found some things that were stratigraphic in nature through some of the wells that we had drilled in the past. But it really had us design the 3 d, which we've been shooting. And obviously we picked up new acreage and are shooting that over a lot of our old legacy as well. So a lot of prospectivity. We've got some wells that we're pretty excited to drill.
And the nice thing about those is they're vertical, they're onshore and they're the other wells we're drilling. So we can do them pretty quickly. It's just a matter of working through all the details and prioritizing the rig count there. We've also reduced. We're currently at 5.
We'd like to spend more there if we could.
Our next question comes from Scott Hanold with RBC Capital Markets.
Yes, thanks. On Surname, great discovery and Craig, congratulations by the way. Does that discovery really say anything about the positioning or your read of the seismic that you have over some of the other fairways like the Macca, for example, I. E. Is there the chance that you guys now see the opportunity for your thicker structures, other places?
Is there anything unique that you found with that well?
Scott, good question. I mean, I think what you're learning too and is what we're learning, we've still got work to do. We'll continue to reprocess seismic. There are some carbonates and some things that make it harder. We're fairly deep here as you saw with the TD that we announced in this well.
So we're going to continue to work that. I mean, I think what it really points out is just the vast size as you move from these first three wells between them and the size of the block. So we're going to get smarter with the reprocessing to better understand everything and put it all together. But the good news is we've got a massive hydrocarbon system, it's working, it's oil and we've got good reservoir in the San Antonio and in the Campanian. So we'll learn more as we go and as we really start to drill wells, we've just drilled 3.
So we'll learn more as we go.
And effectively, as far as Kaskaski goes in terms of where that was positioned, is there any chance that shifts a little bit as you continue to get closer to that? Or is that location pretty well set at this point?
No, I mean, these as we stated, we had, I think, 9 wells permitted. We knew we would drill 3 for sure, likely the 4th was the option we exercised. So there we've got 5 other locations out there that were picked, could be appraisal, could be other, so other exploration targets, but we're sticking with where the original wells were on most of these. I mean it's Sapacara, we moved over 1. So as you go and you learn more, you set yourself up to try to get smarter.
But it's going to take some more work with the seismic to really change some of the interpretation that we did on the front end.
Understood. Appreciate it. Thank you.
Our next question comes from Brian Singer with Goldman Sachs.
Thank you and good morning.
Good morning, Brian.
Sticking with Suriname, how many combined appraisal wells at the 3 discoveries do you think are needed between moving forward with the Codified development plan? And when you think about the appraisal plus the time to get to FID and any government approvals, what's a realistic timing for when we can see early production start up and a realistic timing if we see more normal production start up?
Well, I mean, I'd say that number 1, we'll determine the number of appraisal wells that we need through the program. So, and we're working on that. So I really don't have anything to say other than there's going to be a program. And obviously, we've got 3 discoveries to appraise and there will be contingency wells as we work through those appraisal programs that you'll have with those. Timeline, we said normal process, you're probably in the 4 to 5 range in terms of years.
Obviously, there's there are ways that that could be accelerated, but not ready to comment on anything at this point in terms of putting anything out there. I mean, we're it's all fresh. We've got the log. We're working through this with our partner. We're working on right now the Sapacara appraisal plan and then we're going to get after the Quasi appraisal plan following that pretty quickly.
Great. And then my follow-up is with regards to gas condensate. As you get more data on the gas condensate potential, how are you and your partner considering the potential at all for gas condensate development and economics? And is there any scale benefits from discoveries that you've made as well as in the Stabroek Block of Guyana for larger industry partnership?
Yes, Brian, this is Dave Purcell. I think it's premature to go down any details on that. But the way I think you could think about it is the oil is going to drive the initial development here and then gas or gas condensate development is beyond that kind of a Phase 2, if you will. And obviously, there'd be some scale benefit in the basin if that were an option. But we're there's a long fairway between here and that determination.
Our next question comes from Richard Tulloch with Capital One Securities.
Hey, thanks. Good morning. And John, congratulations on the big discovery. Two quick questions. With no plans to resume domestic activity until oil prices are considerably higher, What are your current views on potentially monetizing any of the U.
S. Assets at this point?
I mean, I'd just say with portfolio, we're always working the portfolio. We're always looking at how we improve. When we look at our acreage positions out in the Permian specifically, the good news is we don't have a lot of wells we have to drill to hold acreage. In fact, most everything is HBP. We've been looking at working swaps and things to improve our lateral feet in terms of drillable lateral feet.
And then I mean, it's we're always watching and looking and evaluating the portfolio. I'll just say what we typically do is come back and talk to the market after we've done things rather than setting out expectations or anything on the front end.
All right. Thank you. And then just lastly, I know we've been provided a good bit of information on the thickness of the three discoveries. Any initial thoughts on the aerial extent of any of the three discoveries at this point?
Thoughts are that I mean, it's we're they're very sizable, but we haven't given any color. We haven't started to put any acreage size on any of these at this point. And I think it's premature. It's something we'd come back with after we've done the appraisal programs.
Okay. Well, that's all for me. Thank you.
Thank you.
Our next question comes from Neal Dingmann with SunTrust.
John, I see my question is just wondering, would the pace of next year's appraisal plan at Suriname, would that have any impact on your decisions on domestic or international play spending?
In the way we structured our joint venture, we kind of got everything worked in and planned around. I mean, that was the main reason we held on to 100% of this block and really farmed down 50% because we were really setting ourselves up for success because we believe there was a tremendous amount of potential and thought very, very likely we would find ourselves in this position. And so that's how we structured it. So it's really not going to create an incremental capital call that we can't fund it really at any price. Now you get into Q2 where we got all bets are off, but really in a even sub-thirty dollars world, we will be focused on paying down debt and funding Ceram.
Got it. And then just last question, just on Egypt. I'm just wondering, you mentioned that you'd probably stay the course if pricing stayed around here. Is there just kind of wondered if you could talk about any price sensitivity, what would cause you to change that?
No, Egypt works really well. I mean, quite frankly, that the driver there is how much free cash flow do we think we can spend and invest there. I would like to spend more because we've got a lot of prospectivity there and it works quite well. So we'll be looking to try to spend more money in Egypt if we possibly can.
Thank you. Our next question comes from Leo Mariani with KeyBanc.
Hey, thanks guys here. Just wanted to kind of get a little bit more color around some of the comments you made with respect to CapEx. I think you guys specifically said that at $50 you'd spend at or below the $1,000,000,000 as we work our way into next year. And I just wanted to get a sense, I mean, it seems to me that, that level of capital you're going to see steady production declines in all three of your areas, sort of Egypt, North Sea and in Permian. Just wanted to kind of confirm that with you guys.
And then if that is the case, then are you guys just feeling comfortable with that just because of the great initial success in Suriname where you just think that the long term economics in Suriname are going to be so good, you're fine letting things slow down for a handful of years until this kind of kicks in?
No, Leo. I mean, I think the point is, is we're managing the company for free cash flow and long term returns. And it's not about production growth. I mean, obviously, we're not spending at a level today that would be maintaining production. We do know from past history that as you go forward with us with our decline rate, some of these conventional assets really start to arrest that decline.
So it would take more in the future, but it's a matter of priorities of how we're managing the company. And I think some of these other assets and the things you talked about, they're going to hold up pretty well with underinvestment.
Okay. And I guess just
with respect to your Q3 production guidance here, you guys have the kind of adjusted international production of 135,000 BOE per day and kind of the upstream CapEx of 190.
Dollars I want to see if
you guys could provide those numbers on a kind of fully consolidated basis. So what would those be if we didn't make those kind of downward adjustments for the Egypt non controlling interest in midstream and other
things? Yes. I don't have those numbers to hand. So I'd suggest maybe you call Gary to take a look at the reported volumes. We typically talk about adjusted because those are the ones that have a true economic effect for Apache shareholders.
But I understand the desire to know what the reported numbers might be. So if you want to talk scary about that, that'd be probably the best source.
Okay. Thank you.
Our next question comes from David Begum with Cowen.
Good morning, guys, and congrats.
Thank you.
Just curious, you've spoken quite a bit about, obviously Suriname. You talked about your capital allocation priorities as commodities improve and the emphasis on free cash. There were reports, I guess, earlier in the month or perhaps last month about Apache's potential interest in some other North Sea assets. If we think about Apache just as a portfolio company now, should we be expecting you to look at opportunistic acquisitions that would increase your free cash per share scale? Or just given the immense resource that might be in front of you, would that be something that would be off the table right now?
No. I would just say that, number 1, we typically, as a rule, don't comment on rumors and with the as we think about portfolio and changes, we typically talk about them after we've done things, right? So if you look at us today, we've always believed in a portfolio. We believed in diversity. We think we've got strong international assets.
We maintain those at a time when there was push to try to move to more of a pure play model. And so we've always maintained the balance. We believe in having exposure to all the commodities and multiple strong legs to the stool that keeps it strong.
Appreciate that. And then just the last one for me is, you talked about priorities and accelerating appraisal and potentially development, particularly in Block 58. How do you feel now or how are you thinking now about exploring in some of the other blocks, namely 53? And if there were some leases that opened up towards the end of the year and more of that southern extension in the basin, would we expect the Apache to be present in those?
Yes. I mean, when you look at 58, it's a lot to say grace over for us. We're obviously it was important to us to structure our joint venture where we could maintain 50% of the profit oil. We're thrilled to have Block 53. I think directionally the way things are moving, it bodes well for 53.
So at this point, we've got quite a bit to say grace over in that part of the world.
Our next question comes from David Hakkinen with Hakkinen Energy.
Good morning and thank you for taking my question and congratulations on the success in Suriname. Kind of triggered some memories of many DSTs that look for perm, really pore pressure and then boundaries. With that thickness, can you talk about how many DSTs you're running? What are you thinking about as far as detecting boundaries? And are there any analogies that in other basins or the Gulf of Mexico that you could point us to think about what those results will be, as they come in?
Yes, Dave. This is Dave Purcell. Good thanks for the question. Yes, when I think about a mini DST, the probably the most important piece of information because there's a mini DST is the composite flow capacity. So again, that aggregate kind of near wellbore perm across a thicker interval.
The deeper reservoir investigation is an added benefit, but we still you're still not getting out as far as you would in a true conventional drill stem test. So what this is going to allow and the number of tests we're going to perform is dependent on a lot of factors on thickness and a number of things. What the results are really going to allow us to do is be able to be more thoughtful in the appraisal program as we come in and design more traditional drill stem tests. And so it's a really good piece of information that's going to again make us smarter during appraisal.
Yes. So really near wellbore probably won't get enough distance to see any boundaries and that's really setting up for your future DSTs, not anything more than that.
Yes, that's probably the that's the way to characterize it.
That's helpful. Perfect. Thank you.
Our next question comes from Paul Cheng with Scotiabank.
Thank you. Good morning. Two quick questions. 1, in Suriname, the discovery seems to be close enough. You should be able to do the horizontal well and tie it back into one production up.
Is that what you intend to do or that the reserve seems like big enough that you may anyway that use maybe 2 FPSO to develop
it? Yes. Paul, it's just early. I mean, clearly, the benefit of having these fairways and things is you're going to have all sorts of options. The key is having resource oil and as you work through that and that's some of the stuff that will go into the planning of how we appraise and ultimately make those decisions.
But there's a lot of optionality to how you do it.
And okay. And last question that you sort of answered it before, but let me try another way to ask. In Fermi, if we're looking at given the success in Surname, you will be extremely busy in the second half of this decade and probably have very good growth. And so when we're looking at something like in your permanent asset, do you consider it still a long term core portfolio or that is not really considered as a long term core portfolio from what you can see today?
No, I mean, we like our assets in the Permian. I think we've always believed it was a key pillar. I think what in this price environment today, we've just got places that are going to get capital before that's going to get it. And I'll just I'll leave it at that.
Got you. Thank you.
Our next question comes from Jeffrey Campbell with Tuohy Brothers.
Good morning and congratulations. I'll jump in on the Suriname success. Congratulations. Real quick question there. I just wanted to confirm who will operate the upcoming 4th exploration well?
Apache will operate the Kaskase well. After that well is when we've already started transitioning with our partner Total. And I will say we chose the right partner for a lot of reasons and we're excited to continue working with them and let them take the reins as operator.
Right. Well, being a little superstitious, wouldn't mind seeing you guys drill 1 more well, so glad to hear that. The other quick question was just how many Permian DUCs do you actually have right now in the queue?
Permian DUCs, you got that.
Yes, it's about 50 outside of Alpine High.
Okay, great. Thank you.
And I'm not showing any further questions at this time. I'd like to turn the call back over to John for any closing remarks.
Thank you, operator, and thank you to everyone that has dialed in today. To close the call, I'd like to leave you with 3 key takeaways. First, Apache has responded quickly and aggressively to the volatile price environment thus far in 2020. We are exceeding our cost and capital reduction goals and we'll continue to relentlessly work these initiatives. 2nd, we are laser focused on free cash flow generation, debt reduction and investing for long term returns, not production growth.
And lastly, we have a differentiated portfolio that offers attractive investment options in this volatile oil price environment. The long term future of that portfolio was underpinned by Suriname where our success rate thus far indicates a very large, high quality oil resource. We look forward to sharing our progress as we continue to appraise our discoveries and explore for additional oil. And with that, we will conclude the call.
Ladies and gentlemen, that concludes today's presentation. You may now disconnect and have a wonderful day.