APA Corporation (APA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome. It is 10:00, and the Annual Shareholders Meeting of Apache Corporation is called to order. My name is John Lowe, Chairman of Apache's Board of Directors. Before I introduce the members of our Board, I'd just like to thank everyone for attending Apache's first virtual meeting. I hope everyone is staying safe and healthy in these difficult times. First, some housekeeping items. On the left-hand portion of your screen, you will see general information about the meeting, including instructions relevant to voting and asking questions. On the right-hand portion of your screen, you will see today's agenda and the rules of conduct for the meeting. As usual, we will conduct the formal part of our annual meeting first. I would like to take this opportunity to thank the Board of Directors for their service and commitment. And mostly, on behalf of the Board, I'd like to thank and applaud the employees of Apache for their dedication, innovation and their many accomplishments this past year, particularly through this difficult time. The nominees for election to the Board of Directors today are: Annell Bay; John Christmann; Juliet Ellis; Chansoo Joung; Rene Joyce; Bill Montgomery; Amy Nelson; Dan Rabun; Peter Ragauss; and myself, John Lowe. At this point, I will turn the formal meeting over to John Christmann, Apache's Chief Executive Officer and President.

Thanks, John. Officers available to speak today are: Steve Riney, Executive Vice President and Chief Financial Officer; Anthony Lannie, Executive Vice President and General Counsel; and Raj Sharma, Corporate Secretary and Assistant General Counsel, Governance. I appoint Mr. Sharma as secretary of the meeting and Mr. Lannie as parliamentarian for the meeting. Mr. Lannie, was notice of the meeting duly and properly mailed and all the inspectors of election present?

Yes. The proxy statement and notice of annual meeting were mailed to stockholders on April 3, 2020. We have an affidavit to that effect from EQ Shareowner Services and samples of the items mailed. Also available for inspection is the certified list of the stockholders of record as of the close of business on the record date, March 16, 2020, which has been available at the company's headquarters for the past 10 days. As of March 16, 2020, there were 377,420,691 stock outstanding and eligible to vote at this meeting. A quorum is present and the meeting may proceed with business. Our meeting this morning will be conducted in accordance with the agenda and the rules for conduct of stockholders' meetings, which are available on your screen. Jennifer Leno, Nora Dobin and Jay Schultz have been appointed as inspectors of election to receive the proxies, judge the qualifications of voters, prescribe rules for voting, collect and count the votes, report the results of the ballots and to perform any other duties that may be required. The minutes of the last Annual Meeting of Stockholders held May 23, 2019, are available for inspection. Unless there is an objection, reading of these minutes will be waived. The company did not receive timely notice of any other director nominations by a stockholder, as required under its bylaws. Therefore, the nominations are closed.

Items of business numbers 1 through 10 for this year's meeting are the election of directors. The directors elected at this meeting will serve for a period of 1 year, starting today and ending on the date of the annual meeting in 2021. The nominees were introduced earlier, and I hereby declare them duly nominated. The 11th item of business for this year's meeting is ratification of Ernst & Young LLP as Apache's independent auditors for fiscal year 2020. This matter was fully described in the proxy statement provided to all stockholders. The 12th and final item of business for this meeting is an advisory nonbinding vote to approve the compensation of Apache's named executive officers. This item was discussed in the proxy statement provided to all stockholders. Any shareholder who hasn't yet voted or wishes to change their vote may do so by clicking on the voting button on the web portal and following the instructions there. Shareholders who have sent in proxies or voted via telephone or internet and do not want to change their vote do not need to take any further action. The next item on the agenda is the preliminary report of the inspector of election. Any ballots collected before the polls closed but not reflected in the preliminary report will be reflected in the final report of the inspector of election. The polls are now closed. Mr. Lannie, do you have the results?

Yes. The inspectors of election have reported the following results. Each nominee for the office of director of the company has been reelected; the ratification of Ernst & Young as Apache's independent auditors for fiscal year 2020 has been approved; and the compensation of Apache's named executive officers, as disclosed in the proxy statement, has been approved.

I hereby declare that the 10 nominees for director have been duly elected. The ratification of auditors has been approved, the compensation of Apache's named executive officers has been approved. And now if there is no other business to come before the meeting, the formal meeting is adjourned, and we will begin our presentation. Thank you, again, for joining us. For those of you following along with our presentation at home, I'll let you know when I'm advancing to the next slide. The slides should be on your screen with the webcast or you can access them on our investor page, investor.apachecorp.com, under the Events & Presentations section. Slide 2 has our forward-looking statements. I won't read these here today, but I encourage you to review them. I'll turn now to Slide 3. This goes without saying and yet needs to be acknowledged to frame the rest of our conversation. In a matter of about 9 weeks, the world and our business environment have changed dramatically. Simultaneous demand and supply shocks have rocked our industry, and we've had to take steps to protect our employees, change how we work, strengthen our financial position and preserve the value of our assets. I'll first speak to what we've done to protect the health and safety of our team while maintaining business continuity. Next slide. We acted quickly to close many of our offices and implement work-from-home processes, where possible, as well as stringent operational protocols in the field. We've introduced temperature screenings throughout our operations, expanded assessment of companies and vendors coming on-site to locations, increased cleaning measures and contracted special helicopters in the U.K. and Suriname for any needed medical evacuations. While we are very fortunate to have seen a limited number of COVID-19 cases throughout the organization, we do have contingency plans to ensure business continuity in the event Apache incurs a more widespread or sustained impact. To assist communities, we've been able to help by donating personal protective equipment and critical medical equipment to hospitals and first responders. We've also made financial and in-kind contributions to food banks and women's shelters. Slide 5 shows the WTI price since January. While this is certainly a more challenging situation than 2014 and '15, we knew we had to act quickly as we did then. Just a few days after the March 9 price collapse, we took 2 critical steps to protect the company's financial position. We further decreased our planned 2020 upstream capital investment to approximately $1.1 billion, which is nearly 55% below the 2019 level, and we reduced the annual dividend payment by $340 million or 90%. These were not easy decisions, but they were necessary. Anticipating a further price decline with global oversupply, we initiated oil hedge positions for the second through fourth quarters of 2020. We also conducted a thorough margin sensitivity analysis and operational evaluation of all producing wells across the company, which is now informing our methodical and integrated approach to rolling production shut-ins and curtailments. As you know, we began to reshape and centralize our organization in the third quarter of 2019. The significant progress already made by March enabled us to make additional cost reduction decisions confidently without compromising safety, asset integrity or our ability to resume activity when warranted. On April 1, we announced an increase in our estimated annualized cost savings to $300 million, up from $150 million a month earlier. Turning to Slide 6, I'll summarize our strategy to manage through this volatility. We have maintained our disciplined financial approach, adjusting objectives and managing to cash flow neutrality and protecting our balance sheet. In 2018 and 2019, we completed approximately $1.6 billion of debt refinancings that significantly reduced near-term bond maturities and enabled us to retire $150 million of higher-coupon bonds. This gives us a robust liquidity profile. Of course, we have the benefit of a very diverse portfolio, a key differentiator for us, and one I'll discuss more beginning on Slide 7. Our diverse asset portfolio gives us another advantage as we weather the storm. We have flexibility to adjust our activity levels across conventional and unconventional exploration and development, onshore and offshore, short-cycle and longer-cycle investments, U.S. and international assets in oil, gas and NGL products. Moving to Slide 8, we see how we are managing our portfolio in the present market. We have dropped all drilling and completion activity in the U.S. and are carefully controlling costs and optimizing cash flow through our shut-in and curtailment program. In the North Sea, we are focused on low F&D cost and near-field opportunities in the Beryl area. And in Egypt, where the PSCs give us natural hedges in this price environment, we will continue high grading drilling operations and look forward to several high-impact exploration opportunities in 2020. Lastly, we will continue to enhance our portfolio through exploration. Turning to Slide 9. Our recent success, offshore Suriname, is a prime example of this strategy and Block 58 remains a clear priority for Apache. With our partner, Total, we have announced 2 significant oil discoveries on Block 58 in 2020. And consistent with our strategy of investing for long-term returns, we are choosing to allocate capital to Suriname over the next several years, deferring short-term growth opportunities in the low-price environment elsewhere in the portfolio. We are presently drilling the Kwaskwasi-1 exploration well and plan to follow with the Keskesi East-1, which will each test oil-prone upper-cretaceous targets in the Campanian and Santonian that we believe are independent of Maka and Sapakara discoveries. As you can see on Slide 10, we have redesigned our organization around 3 centralized pillars: exploration, development and operations. This is already enabling Apache to be more agile and respond quickly to changing commodity price environments, increasing collaboration and as mentioned, delivering cost savings that are critical in the current environment. We continue to advance ESG initiatives and pursue more sustainable ways to operate. In addition to Slide 11, I'll point you to our most recent sustainability report for details. I would like to highlight that we have now linked 2020 ESG performance directly to short-term incentive compensation. Let me close on Slide 12 with our longer-term objectives, which hold true despite the current situation. We will budget conservatively, aggressively manage our cost structure to ensure free cash flow generation and prioritize debt reduction to strengthen our balance sheet. We will maintain a balanced and diversified portfolio and continue to invest for long-term returns rather than production growth. In the Permian, we will continue building economic inventory and maintain optionality. And in Egypt and the North Sea, we will flex activity to preserve free cash flow generation. Lastly, we will continue to enhance our portfolio through exploration. Our recent success, offshore Suriname, is a prime example of this strategy, and Block 58 remains a clear priority for Apache. Moving to Slide 13, and as we wrap up, I'd like to offer a few words of thanks, first, to all of those on the front lines working tirelessly in taking personal risk to see us through this public health crisis. To our team, thank you for your ingenuity, determination and commitment to our core values of finding new, more efficient ways to safely get the job done. And finally, thank you to our shareholders for your continued investment and support. The work we have done together will enable us not only to ride out the current market situation but to emerge with the capability to take advantage of better opportunities ahead. Businesses and economies will prosper again on the other side of this pandemic, and Apache will be well positioned when they do. Thank you, and stay safe.

Thank you. This concludes the meeting. You may now disconnect.