DUG EXECUTIVE CONFERENCE JOHN CHRISTMANN, CEO & PRESIDENT

Transcription

1 DUG EXECUTIVE CONFERENCE JOHN CHRISTMANN, CEO & PRESIDENT

2 NOTICE TO INVESTORS Certain statements in this presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 including, without limitation, expectations, beliefs, plans and objectives regarding anticipated financial and operating results, asset divestitures, estimated reserves, drilling locations, capital expenditures, price estimates, typical well results and well profiles, type curve, and production and operating expense guidance included in this presentation. Any matters that are not historical facts are forward looking and, accordingly, involve estimates, assumptions, risks and uncertainties, including, without limitation, risks, uncertainties and other factors discussed in our most recently filed Annual Report on Form 10-K, recently filed Quarterly Reports on Form 10-Q, recently filed Current Reports on Form 8-K available on our website, and in our other public filings and press releases. These forward-looking statements are based on Apache Corporation s (Apache) current expectations, estimates and projections about the company, its industry, its management s beliefs, and certain assumptions made by management. No assurance can be given that such expectations, estimates, or projections will prove to have been correct. A number of factors could cause actual results to differ materially from the projections, anticipated results, or other expectations expressed in this presentation, including, Apache s ability to meet its production targets, successfully manage its capital expenditures and to complete, test, and produce the wells and prospects identified in this presentation, to successfully plan, secure necessary government approvals, finance, build, and operate the necessary infrastructure, and to achieve its production and budget expectations on its projects. Whenever possible, these forward-looking statements are identified by words such as expects, believes, anticipates, projects, guidance, outlook, and similar phrases. Because such statements involve risks and uncertainties, Apache s actual results and performance may differ materially from the results expressed or implied by such forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. Unless legally required, we assume no duty to update these statements as of any future date. However, you should review carefully reports and documents that Apache files periodically with the Securities and Exchange Commission. Cautionary Note to Investors: The United States Securities and Exchange Commission (SEC) permits oil and gas companies, in their filings with the SEC, to disclose only proved, probable, and possible reserves that meet the SEC's definitions for such terms. Apache may use certain terms in this presentation, such as resource, resource potential, net resource potential, potential resource, resource base, identified resources, potential net recoverable, potential reserves, unbooked resources, economic resources, net resources, undeveloped resource, net risked resources, inventory, upside, and other similar terms that the SEC guidelines strictly prohibit Apache from including in filings with the SEC. Such terms do not take into account the certainty of resource recovery, which is contingent on exploration success, technical improvements in drilling access, commerciality, and other factors, and are therefore not indicative of expected future resource recovery and should not be relied upon. Investors are urged to consider carefully the disclosure in Apache s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, available from Apache at or by writing Apache at: 2000 Post Oak Blvd., Suite 100, Houston, Texas (Attn: Corporate Secretary). You can also obtain this report from the SEC by calling SEC-0330 or from the SEC's website at Certain information may be provided in this presentation that includes financial measurements that are not required by, or presented in accordance with, generally accepted accounting principles (GAAP). These non-gaap measures should not be considered as alternatives to GAAP measures, such as net income or net cash provided by operating activities, and may be calculated differently from, and therefore may not be comparable to, similarly titled measures used at other companies. For a reconciliation to the most directly comparable GAAP financial measures, please refer to Apache s fourth quarter 2017 earnings release at and the Appendix of this presentation. None of the information contained in this document has been audited by any independent auditor. This presentation is prepared as a convenience for securities analysts and investors and may be useful as a reference tool. Apache may elect to modify the format or discontinue publication at any time, without notice to securities analysts or investors. 2

3 APACHE STRATEGIC APPROACH: Repositioning the Business Financial Discipline Aligned capital spend with cash flow Reduced debt, protected investment grade credit rating Sustained dividend, did not issue equity Portfolio Exited Australia, LNG, Canada and other non-core assets Shifted focus to Permian and unlocked value Leased and discovered enormous resource play at Alpine High Returns Focus Redesigned incentive compensation metrics Implemented centralized capital allocation process; fully burdened economics Deemphasized production growth, focused on cost alignment 3

4 APACHE S INVESTMENT EVOLUTION Permian Basin now attracting the majority of Apache s capital investment Driving profitable growth for years to come Permian program balanced between Alpine High and Midland/other Delaware Capital as % of APA Total 100% Other 80% Other Int'l 60% 40% Int'l Permian 20% 0% Permian Adjusted Production Mix Int'l 41% Other 46% Permian 13% Permian 45% Other 14% Int l 41%

5 APACHE S PORTFOLIO TODAY United States International Anadarko Woodford SCOOP UK North Sea Eagle Ford S. LA Minerals Gulf of Mexico Suriname Egypt Permian Growth Engine Positive Free Cash Flow Generator + Exploration Long-Term Growth Cash Flow Future Potential Focus Area 5

6 PERMIAN BASIN OVERVIEW Production Growth Resumed in 2H Mboe/d Production & Rig Count Avg Rig Count Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q New Mexico 4Q17 Production Mix Delaware Basin 23% Midland Basin 45% CBP / NW Shelf 32% 1.6 MM Net Acres in the Permian Basin 6

7 MIDLAND AND DELAWARE BASIN 2017 Step Change in Performance Consolidating and accelerating 2015/2016 learnings Increased efficiencies and operating performance Key Focus Areas Multi-well pads / longer laterals Few retention wells required (outside of Alpine High) Midland & Delaware Basin Oil Production Mbo/d 55 Pecos Bend Dixieland Wildfire Azalea Alpine High Powell 1Q17A 2Q17A 3Q17A 4Q17A 7

8 ALPINE HIGH 8

9 ALPINE HIGH: UPSTREAM Developing a World-Class Wet Gas Play Unprecedented hydrocarbon column up to 6,000 ft. Vertically stacked oil, wet gas and dry gas fairways Scale ~340,000 contiguous leasehold acres 5,000+ locations identified to date Large operated position / economies of scale Execution Strategically positioned to deliver NGLs and gas in scale to the Gulf Coast Achieved key production milestones and targets Economics Highly economic wet gas play; proven oil upside Liquids uplift combined with low F&D and operating costs strong recycle ratios 9

10 INDUSTRY ACTIVITY HAS INCREASED SIGNIFICANTLY SINCE ANNOUNCEMENT September 2016 February 2018 WARD CULBERSON REEVES PECOS JEFF DAVIS 20 Miles 20 Miles Miles BREWSTER APA Operated Rig PRESIDIO Competitor Permit Wells Competitor Wells Drilled/Drilling Apache Acreage Outline Source: Drilling Info. 10

11 Source Rock Parasequences DISTINCT SOURCE ROCK AND PARASEQUENCE INTERVALS High frequency, rapidly rising and falling sea level environment 3 rd BONE SPRINGS WOLFCAMP UNCONFORMITY PENNSYLVANIAN Tranquil marine environment, gradually rising worldwide sea level conditions BARNETT WOODFORD DEVONIAN ORGANIC SHALE PARASEQUENCE CARBONATE DEBRIS FLOW ORGANIC SHALE Woodford + Barnett + Penn Thick, laterally continuous deposition Oil, wet gas and dry gas windows Minimal in-situ water Indigenous, organic shale 3 rd Bone Springs + Wolfcamp Higher variability with sweet spots Oil and wet gas windows Water wet rock Indigenous shale and migrated hydrocarbons 11

12 STRUCTURAL CROSS SECTION OF ALPINE HIGH NORTHERN FLANK CREST SOUTHERN FLANK Evaporites 7,500 Transgressive Parasequences 8,500 OIL 9,500 10,500??? Transgressive Source Interval 11,500 WET GAS ,500 Devonian High Stand 13, DRY GAS ~60 miles Note Vertical and horizontal scales are not equivalent. 12

13 Transgressive Source Interval Transgressive Parasequences CURRENT LOCATION COUNT OF 5,000+ Location Distribution Formation Wet Gas Dry Gas Oil Bone Spring Wolfcamp Pennsylvanian Additional Location Potential Additional Location Potential 500+ Barnett Woodford 3,500+ 1,000+ Additional Location Potential 13

14 ALPINE HIGH: MIDSTREAM Foundational Delaware Basin Midstream Enterprise Cherokee CPF Greenfield, fit-for-purpose system enables optimal wet gas development ~$700 mm invested through year-end 2017 Targeting 830 MMcf/d of gross inlet processing capacity by year-end 2018 First cryogenic capacity expected online 2019 Evaluating midstream funding options 5 CENTRAL PROCESSING FACILITIES 330 MMCF/D PROCESSING CAPACITY INSTALLED 45 MILES OF 30 TRUNKLINE IN SERVICE 110 MILES OF GATHERING SYSTEMS INSTALLED 21 CENTRAL TANK BATTERIES 14

15 ACCESS TO SALES LINES WITH ~4 BCF PER DAY OF CAPACITY Constructing ~70 Miles of 30 Trunkline Through the Play Northern Sales Connection 1 2 Trunkline segments 3 and 4 in service around mid Southern Sales Connection Source: Map not built to scale, general depiction of trunkline pathway. 15

16 WET GAS PLAY: FULLY BURDENED ECONOMICS Development Scenario (4,400 Lateral) Typical Well Upper Range Well Single Well Economic Assumptions: Note: end points shown for EUR, NPV, Product Prices: $50 WTI / $3.00HH / NGL = 60% WTI Mix and Well Costs are ranges and may not Waha basis = $0.35/MMbtu; midstream fee = $0.93/Mcf correlate directly when read in a column NGL yields and midstream fees assume cryogenic processing. Economics include overhead, workover, abandonment and E&P facility burdens. 16

17 NORTHERN FLANK DEVELOPMENT EXAMPLE 17

18 WATER RATE COMPARISON Alpine High Source Rock Versus Pecos Bend Area Water Rate, BWPD 10,000 1, ,000 Producing Time, Days Alpine High Water Production Pecos Bend Wolfcamp/Bone Springs 18

19 ALPINE HIGH PRODUCTION Outlook (Mboe/d) A 2018E 2019E 2020E 19

20 RAMPING A LARGE-SCALE GREENFIELD PLAY 4Q 18 Outlook Today Versus a Year Ago Reservoir and well performance continues to be very strong Proven oil potential Some of volume ramp deferred due to less capital and fewer wells in 2017/2018 Deliberate, strategic changes to the program Shift to multi-well pads / patterns, midstream integration, shifting some dry gas wells to wet gas Increased investment in science, testing and delineation, which deferred some development Other factors reflected in current outlook Cost inflation higher today Surface use and right-of-way agreement delays; equipment delivery and construction delays 20

21 RAMPING A LARGE-SCALE GREENFIELD PLAY Comparison of Feb. 17 and Feb. 18 Alpine High Outlook Previous 4Q 18 production target shifted to 2H 2019 ~37% fewer wells online at year-end 2017 than previously expected, 42 versus 70 ~23% fewer new wells planned in 2018, resulting in 50 fewer wells producing at year-end 2018, approximately 140 versus 190 Reduced 2018 D&C and facilities budget by ~$140 million and average rig count by 1.5 Increased average well cost assumption from $5.7 million to $6.2 million for cost inflation Replaced higher Boe/d dry gas wells with higher margin, lower Boe/d wet gas wells. Trading gas Boe s for oil and NGL barrels. 21

22 APACHE S STRATEGIC APPROACH: Financial Discipline Maintain strong balance sheet; protect capital program Target living within cash flow Relentless cost focus Portfolio Expand and high-grade Permian inventory Sustain International free cash flow generation Strategic transaction for Alpine High midstream Returns Focus Long-term, corporate-level returns Growth as an outcome of returns-focused investment Technology and big data focus to improve capital efficiency 22

23 INVESTMENT HIGHLIGHTS Financial discipline manage to cash flow neutrality / strong balance sheet Dividend yield currently >2% Free cash flow from high-margin International businesses Returns focused, long-term growth in the Midland and Delaware basins Massive, long-term opportunity at Alpine High a game changer Large scale, differentiated, long-term, 3-product optionality in the Permian Significant future investment opportunities outside the Permian Technology as a strategic focus 23

24 APPENDIX 24

25 APA ADJUSTED PRODUCTION AND RETURNS Outlook (Mboe/d) % CROIC 20% CROIC 22% CROIC 2017A 2018E 2019E 2020E See Glossary of Referenced Terms in Appendix for a definition of Cash Return on Capital Invested (CROIC) 25

26 PERMIAN PRODUCTION Outlook (Mboe/d) A 2018E 2019E 2020E 26

27 INT L ADJUSTED PRODUCTION Outlook (Mboe/d) Shallow Decline A 2018E 2019E 2020E Note: Adjusted production excludes Egypt tax barrels and noncontrolling interest. Comprises North Sea and Egypt production. 27

28 NON-GAAP RECONCILIATION Regional Cash Flows (1) Includes non-controlling interest in Egypt. 28

29 ALPINE HIGH Middle Permian Paleostructure Map Critical Aspects Regional anomaly Stable Devonian shelf Subsiding eastern limb Later thrust of Davis Mountains 1 0 M i l e s 29

30 PALEOGEOGRAPHIC RECONSTRUCTION Woodford Time Same geologic age as Arkoma Woodford and SCOOP / STACK Similar depositional environment 30

31 GEOLOGY OF THE SOUTHERN DELAWARE BASIN IMMATURE South West Alpine High North East 5,000 Evaporites 10,000 OIL Bone Springs / Wolfcamp Penn / Barnett / Woodford Bone Springs / Wolfcamp WET GAS 15,000 20,000 25,000 DRY GAS Alpine High: Stable shelf (Paleo high) Prospective section in the wet gas and oil window Thermal maturation controlled by depth of burial Low clay content and low ductility 30,000 15% CLAY CONTENT 40% 31

32 Wet Gas TRANSGRESSIVE SOURCE INTERVAL TRANSGRESSIVE SOURCE INTERVAL Oil TRANSGRESSIVE PARASEQUENCES TRANSGRESSIVE PARASEQUENCES 4,000-5,000 OF STACKED POTENTIAL PAY MONT BLANC 1H SPANISH TRAIL 1H 20 Miles Delaware Basin Stratigraphy Brushy Canyon Penn Barnett/Miss Lime Woodford Devonian Oil Wet Gas 32

33 DIVIDING ALPINE HIGH INTO THREE SETTINGS ~56% of Alpine High acreage ALPINE HIGH FAIRWAY Northern Flank Activity driven primarily by lease expiration Over-pressured Initiated parasequence testing Crest ~16% of Alpine High acreage Moderately over-pressured Currently mapping parasequences ~28% of Alpine High acreage Southern Flank Over-pressured Cooler temperature regime Currently mapping parasequences Concept Test Parasequence Oil TSI Wet Gas TSI Dry Gas 33

34 MARKETING Selling into Mexico via Comanche Trails pipeline Natural Gas Expanding marketing periphery Transport away from Waha Selling on alternative basis Oil Selling at Midland index Less: transport costs just under $3.00/bbl NGLs Selling at Mt. Belvieu based pricing Less: trucking, transport and fractionation costs >60% of WTI before local trucking (net of T&F) 34

35 ENVIRONMENTAL, SOCIAL AND GOVERNANCE Apache is an Industry Leader in Prioritizing ESG Methane Emissions Water Usage Safety Vision By 2025, Apache is committed to reducing its methane emissions to 0.36% or less of total methane production We seek to use alternatives to potable fresh water such as recycled produced water in all of our operating regions, especially in areas of the U.S. and Egypt that could be considered water scarce, depending on conditions, location, pricing and regulations The safety of our employees, contractors and communities is Apache s highest priority and is deeply rooted in our Core Values APA Results Reduced methane emissions intensity by 43% since 2012 In 2016, 97% of water withdrawals were from nonpotable sources Reduced Workforce Total Recordable Incident Rate (TRIR) (3) by 54% over last five years GLOBAL METHANE EMISSIONS INTENSITY (1) GLOBAL WATER USAGE INTENSITY (2) WORKFORCE TOTAL RECORDABLE INCIDENT RATE (4) Metrics % 0.49% 0.43% (1) tco2e/mboe = metric tons of carbon dioxide equivalent per thousands of barrels of oil equivalent (2) Bbls/Boe = barrels of water produced with oil and gas per barrels of oil equivalent Apache produced (3) Workforce TRIR includes employees and contractors (4) Total recordable incident rate is calculated by multiplying total number of recordable injuries by 200,000 hours and then dividing by total person-hours worked 37

36 APACHE INCENTIVE COMPENSATION STRUCTURE Short and Long-Term Compensation Aligned for Returns-Focused Outcomes Annual Incentive Long-Term Incentive(1) 2018 Plan Performance Shares Drilling Rate of Return Health, Safety, Security and Environmental Economic Reserve Replacement Operational Goals 40% Strategic Goals 40% Cash Flow from Lease Operating Expense and G&A expense Production Total Shareholder Return 50% Operations 25% CROIC 20% Added Cash Return on Invested Capital Metric in 2018 (1) Reserve Adds / Debt Adj Share 25% 50% Absolute Performance 50% Relative Performance Targets Reset Annually Long-term compensation plan also includes restricted stock units and stock options. Performance is evaluated over a three-year period. 38

37 GLOSSARY OF REFERENCED TERMS Capital Budget: Includes exploration and production capital, gathering, transportation and processing capital, capitalized general and administrative expenses, capitalized interest; excludes non-oil & gas capital and noncontrolling interest capital CROIC (Cash Return On Invested Capital): Calculated with the numerator as cash flow from operations before changes in working capital, excluding noncontrolling interest, with financing costs added back; and the denominator as average debt plus average Apache shareholders equity Net Debt: Total debt (long-term and short-term) less cash and cash equivalents ROCE (Return on Capital Employed): Calculated with the numerator as adjusted earnings plus financing costs and taxes (excluding Egypt taxes); and the denominator as average debt plus average Apache shareholders equity In addition to the terms above, a list of commonly used definitions and abbreviations can be found in Apache s Form 10-K for the year ended December 31,