Apache 4Q15 Earnings Call Notes

posted in: Notes | 0

Apache (APA) John J. Christmann on Q4 2015 Results

Taken decisive action to position for an extended low price environment

“we have taken other decisive actions to position Apache for an extended low price environment, which included aligning our capital spending with cash flows, attacking the cost structure, continuing to high-grade and build an inventory of attractive opportunities that will deliver strong returns under a low oil price environment, and strengthening our financial position and liquidity.”

We are well positioned for whatever lies ahead

“Apache is now very well positioned for whatever lies ahead. We are living within our means and anticipate being cash flow neutral in 2016 and beyond, until such time that the price environment warrants higher investment levels. ”

Conservative $35 price deck

“Similar to our approach in 2015, we are using a conservative price deck for 2016 budgeting that reduces the risk of inadvertently putting ourselves in the position of a material outspend and helps to sustain our credit quality. Our capital allocation process for 2016 is built around four key themes: living within our means and achieving cash flow neutrality for the year at $35 oil, focusing capital spending on protecting the asset base and optimizing and building inventory, maintaining a relentless focus on both capital costs and operational expenses and remaining flexible, opportunistic and ready to react as conditions change.

80% decrease in capital budget from 2014

“With this in mind, we announced in this morning’s press release a 2016 capital budget of $1.4 billion to $1.8 billion, the midpoint of which represents over a 60% decrease from 2015 and over an 80% decrease from 2014 levels.”

Strategically designed organization for $50 plus world

“we strategically designed this organization for a $50 plus world. So, we do not envision needing to add a lot of staff to be able to flex back up. Clearly, I think if you get into a significantly lower time period where you’ve got lower prices, 24 months, 36 months out at that point you’d probably reduce further. But, we’ve maintained the flexibility so we can ramp up our capital programs when appropriate.”

We were very aggressive about cutting

“we took actions and we’re very aggressive last year. So you look back to 2015 and 2016, we’ve had a track record of reducing activity and really trying to gear our business and mirror our activities to the price environment we’re in.”

See costs coming down even further this year

“In terms of our Permian well cost, we see things coming down and even further this year. As a rule, we’re looking at mile-and-a-half laterals. We have seen the intensity of the frac concentrations going up. So those are the types of parameters we’re going to use or using in those estimates.”

Stephen J. Riney – Chief Financial Officer & Executive Vice President

Not having to cut dividend

“Yeah, this is Steve again. So you make very good points. We cut early, we took a lot of actions in 2015 that a lot of our peers didn’t. And I think for that reason, we feel like we’re very well positioned not to have to cut the dividend now. We’ve done all the things to strengthen the financial position, the liquidity position, our refinance risk on the debt portfolio.”

The opportunities to invest are going to be even better in the future than right now

“We’ve chosen to live 2015 and 2016 as close to cash flow neutral as possible. We’ve done that because we believe that, especially in North America, the opportunities for investment are going to be better in the future than they are now. There are some good ones now, but we believe they’re going to be even better. So we’ve chosen to be cash flow neutral. So we’ve added $1.5 billion of cash on the balance sheet, chosen to be cash flow neutral, we don’t really need to reduce the dividend at this point in time.”