APA Corporation Common Stock EnerCom Denver – The Energy Investment Conference

There I am. All right. Good morning. Always good to be in Denver, be at EnerCom. A lot of familiar faces, a lot of new faces. It's definitely cooler here than it is in Houston. Unfortunately, only here for 24 hours, but we'll start with this page here, the overview of APA Corporation or Apache. Been around for over 70 years, kind of one of the household names in the oil and gas space. A lot of you have heard of Apache. Very different from years past. I'll go through that from a portfolio standpoint. You can see here diversified portfolio around the globe, not only diversity from a commodity standpoint of both oil and gas, but diverse from geographies and also unconventional and conventional assets.

We believe that diversity is a strength from an asset perspective, giving access to different pricing points around the globe, ability to allocate capital across different assets, and we think that that's a strength in moving into what could be a post-shale era in the coming years. This year's capital budget is $2.1 billion. The majority of that is going towards our development assets in the Permian and in Egypt. We have a target of approximately 10%-15% of each year's capital budget going towards exploration. It's a little less this year. I'll talk about how that's increasing next year. You can see here five exploration and appraisal wells planned in some of the assets that we have here. I'll talk about those. That excludes appraisal work that we're doing in the Permian. It excludes exploration work that we're doing in Egypt.

That is just assets in Alaska, Suriname, and Uruguay for those five wells there. Just under $1 billion spent on exploration and appraisal in the past six years. We believe in exploration. I'll talk about the benefits of that here in a little bit. We are one of the few that actually stands by the E in E&P, and believe that there's a lot of value that can be generated from exploring around the globe for oil and gas. To talk here about our investment case, we have underpinning our assets are stable and predictable assets in the Permian and in Egypt. We've been in Egypt for over three decades. We are the largest oil producer in Egypt, the largest onshore acreage holder there. Actually, the largest U.S. investor in the country of Egypt. We've got a great relationship with the country there.

We have a partner there that owns a third of the business in Sinopec, and so it has been a cash cow for many years. Given the PSC mechanics there, actually generates a lot of very steady free cash flow for us that we can deploy in other areas. We've been in the Permian for over a decade. John Christmann, who's with us today, used to run that asset before he was named CEO, and it's a great position for us. We added to that position in 2022 with a bolt-on acquisition in the Delaware Basin. We added to that in 2024 with the purchase and integration of Callon. Those two assets provide a steady base of free cash flow that we're able to deploy across different priorities that I'll get to in a little bit.

Very capital efficient asset base, very strong reinvestment rates in the Permian and in Egypt. That is driven by our cost leadership position. About a year and a half ago, beginning in 2025, we outlined a target that by the end of 2027, we would reduce what we call our controllable spend, capital, LOE and G&A, our cost burden, by $350 million on a run rate basis by the end of 2027. We actually achieved that in one year. We reached $350 million of run rate savings across those three cost buckets by the end of 2025. When we entered 2026, we said, actually, that is now $450 million as we exit 2026. Then in August, we increased that to $500 million.

Half a billion dollars of structural true costs coming out of the system based on how we develop the assets, how we operate the assets, and how we manage the business. Truly are a cost leader now in the Permian and in Egypt. We have streamlined the way that we manage the business from a G&A perspective. Really think that we are a cost leader now and moving into 2027, you look at that, this $500 million of costs that have come out of the system. On top of that, $175 million of annualized interest expense, also lower. So $700 million lower cash costs as we exit this year going into 2027. Very strong cash flow profile because of that and what we've done on the cost side. We have visible organic oil growth, keeping Permian relatively flat for the next few years.

Egypt on a very modest gross oil decline. North Sea, also very modest decline, but we have growth coming now in less than two years from Suriname Gran Morgu. That was an exploration play. I'll walk through the timeline of Suriname here in a few slides, but we've been spending development capital. TotalEnergies has been spending a lot of development capital on our behalf because of a carry agreement that we negotiated with TotalEnergies, bringing them in as a 50/50 partner back in 2020. We've been spending those development capitals since the FID in 2024. There's oil growth coming from that capital spend, and we've got over 5% oil CAGR over the next three years. Lots of exploration upside with catalysts in Suriname, Alaska, Uruguay.

Again, that doesn't include what we're doing in Egypt on the gas and the oil side for exploring there in Egypt as well as in the Permian Basin to where earlier this year we outlined 10 years of economic inventory. We've got just as many locations and technical upside that the team is focusing on appraising and moving those technical locations where we know there are hydrocarbons present. It could just be spacing tests or other analog tests that we need to do to move those into economic inventory. We think that a lot of those will work and will mean that we have much more than 10 years of drilling inventory in the Permian Basin. Those two items in Egypt and Permian are on top of what we're doing for the exploration assets you see listed here.

All of that combined, very strong base where we're able to provide strong shareholder returns as well as a very strong balance sheet. Quick highlights here. I won't read everything, but we did have a very strong second quarter, a strong first half to the year. We printed $1.2 billion of free cash flow in the first half. A lot of that, as you can see, was used towards paying down debt. We paid down $750 million of debt in the first half of the year. We increased our run rate cost savings. I mentioned that. In the Permian Basin, if you go back to November of last year when we provided the preview for 2026, we said that about $1.3 billion of capital will support 120,000 barrels a day in the Permian.

We increased that in February, we increased that in May, and again in August, increasing what our production outlook is now at 123,000 barrels a day, keeping capital flat the entire time. So spending $1.3 billion and from that, because of the work the team has done, much more capital efficient, and the productivity from the base as well as the new wells being drilled. 123,000 barrels is now what we expect for the full year in Permian after two quarters in a row of beating our guidance that we've put out there. On the strategic progress side, I talked about the debt reduction in Egypt. About a little under two years ago, we renegotiated our price agreement in Egypt. It was fixed for decades before that. It's much higher now, so we're incentivized to not only explore for, but develop gas.

Over the past 18 months now, about half of our gas is receiving the new price that we negotiated in Egypt. I mentioned before that the exploration dollars I outlined exclude exploring for gas in Egypt. Very successful exploration portfolio there. We're excited about where that's going. In the second quarter, we announced an acquisition of Savant Alaska on the North Slope. With our partner Bill Armstrong and Santos, we have a very large acreage position on the North Slope in Alaska. We've got two discoveries, and in those discoveries, we've found very high-quality reservoir, and we're very excited about where we're going to go in Alaska moving forward. This acquisition brings a lot of infrastructure, midstream assets. It's got 40,000 barrels a day of crude oil processing, an 80,000 barrel a day crude pipeline that connects into TAPS.

It also brings other infrastructure items like gravel pads, a dock, an airstrip. A lot of synergies we can use for this upcoming winter drilling season. We are drilling two wells in Alaska. I will talk about that in a little bit. Obviously, moving forward, what that can bring from an upside of defraying development costs and potential timeline if we get to an FID for a development in Alaska. We are very excited. Industry is very excited. There has been a lot of industry activity moving to the North Slope in Alaska. We were one of the first in the recent move up there. We were one of the first movers, and we have been in Alaska now for over three years, and we are very excited about the prospectivity there. We also announced a partnership with Eni in OFF-6. It is one of the blocks that is offshore Uruguay.

We have two ownership positions in Uruguay. One is in OFF-4, where we are 50/50 with Shell. The other one now we are 60/40 with Eni. We will operate the exploration well that is planned for the second half of next year. In that agreement that we signed with Eni, they are going to carry most of the cost of that well. Expensive well. It is an offshore well, not too dissimilar from what we are drilling up the coastline around in Suriname, but very excited about what we are doing in Uruguay as well, and also with Eni, fantastic partner. Viewed from a lot of industry experts as one of the best in exploration around the globe. Case for exploration. We explore. It has been part of our DNA for a long time.