Apache Corp. (NYSE:APA) Q4 2015 Earnings Conference Call - Final Transcript 2016-02-25T19:00:00+0000 Executives Gary Clark - Apache Corporation, John Christmann - Apache Corporation, Stephen Riney - Apache Corporation, Timothy Sullivan - Apache Corporation, Analysts Pearce Hammond - Simmons & Company, Brian Singer - Goldman Sachs, Evan Calio - Morgan Stanley, John Herrlin - Societe Generale, Michael Hall - Heikkinen Energy, David Tameron - Wells Fargo, Edward Westlake - Credit Suisse, Robert Morris - Citi, Doug Leggate - Bank of America, Bob Brackett - Bernstein Research, Mike Kelly - Seaport Global, Charles Meade - Johnson Rice, Michael Rowe - TPH, Jeffrey Campbell - Tuohy Brothers, Operator - Good afternoon. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation Fourth Quarter and Full Year 2015 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Gary Clark, Vice President, Investor Relations, you may begin your conference, sir. Gary Clark - Apache Corporation Good afternoon and thank you for joining us on Apache Corporation's fourth quarter 2015 earnings conference call. Speakers making prepared remarks on today's call will be Apache's CEO and President, John Christmann and CFO, Steve Riney. Also joining us in the room is Tim Sullivan, Executive Vice President of Operations. In conjunction with this morning's press release, I hope, you've had the opportunity to review our quarterly earnings supplement, which summarizes key financial and operational data for the fourth quarter and full year 2015 along with details regarding our 2016 production and capital spending outlook. We have revised and streamlined the structure and content of our earnings supplement and believe you will find it more useful. Also, please note that we've changed our capital expenditure guidance convention to reflect a more comprehensive picture of our spending. Specifically, the 2016 capital spending range we provided in this morning's press release includes all exploration, development, gathering, transportation and processing expenditures. It also includes budgeted leasehold acquisition costs and capitalized interest and capitalized G&A. The only element of our 2016 program that our guidance will continue to exclude is capital attributable to our minority interest partner in Egypt. As a result of this guidance change, references made on today's call to 2015 and 2016 capital spending may not be directly comparable. Our earnings release, the accompanying financial tables and non-GAAP reconciliations along with our quarterly earnings supplement can all be found on our website at www.apachecorp.com\/financial data. We also plan to post on our website a section which contains responses to any questions that arise on today's call for which we do not have readily available information to answer. 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 materially differ from what we discuss today. A full disclaimer is located with the supplemental data on our website. And I would now like to turn the call over to John John Christmann - Apache Corporation Thank you, Gary. Good afternoon and thank you for joining us today. I'd like to begin with a recap of the significant progress Apache made in 2015. I will then provide some highlights from our fourth quarter and full year results and conclude with some specific thoughts on what to expect for 2016. Apache underwent a significant transition in 2015. While the external environment remains challenging, we entered 2016 better positioned to operate and thrive in a lower-for-longer commodity price environment. In addition to completing an extensive refocusing of the portfolio, 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. While we have made tremendous progress, we are not yet finished with these efforts. We streamlined our portfolio, exiting Argentina, Australia, much of the Gulf of Mexico and two world scale LNG projects. We are now focused on three principal areas, a substantial onshore North American acreage position with an abundant inventory of high-value growth opportunities, anchored by our extensive Permian footprint, and sustainable free cash flow generators in our higher cash margin North Sea and Egypt businesses, each with many years of low risk drilling opportunities and significant exploration potential still ahead. In the current low oil price environment, our more conventional international assets continue to generate strong cash flows and better rates of return than many of our operations in North America. In the North Sea, we are uniquely positioned. We have two large-scale hydrocarbon accumulations in Forties and Beryl, available high-quality platform and pipeline infrastructure and per unit cash operating costs that are one-half the industry average. These advantages make tiebacks to existing infrastructure very economic even at current oil prices. In Egypt, we benefit from the cost recovery aspect of our production-sharing contracts such that they help to mitigate the impact of declining oil prices on our cash flows. Our international positions clearly differentiate our portfolio, play to Apache's long-standing strengths and remain economically attractive in this low oil price environment. A year ago, Apache took more decisive action than many of our peers and reduced activity levels in pursuit of cash flow neutrality. We anticipated the lower-for-longer oil price scenario and recognize the importance of protecting value through a more disciplined investment. Accordingly, we reduced capital by more than 60% in 2015 from 2014 levels and focused on bringing cost into alignment with the current oil price environment. Specifically, this time last year, on our fourth quarter 2014 conference call, I stated that "We would consider using our balance sheet only to capitalize on lower acreage cost and other potential opportunities that may occur, rather than to drill wells and chase production in a depressed and volatile oil price environment". We stuck to that view throughout 2015 and continue to do so today one year later. At the same time, we instituted an even more rigorous capital allocation process through which we continually monitor the delivery of the capital programs and reallocate capital as value maximization demands. Motivated by the deteriorating oil price environment and a goal to achieve cash flow neutrality, we attacked our cost structure in 2015 with a thorough review of G&A, LOE and capital costs. Specifically, we rationalized our entire organizational structure, eliminating layers of management and consolidating office locations. And we reduced staffing levels to more closely align with forward-looking activity levels. As a result, today, our run rate gross G&A costs are more than 30% below where they were in the fourth quarter of 2014, and we're a much more streamlined and efficient organization. Our lease operating costs, on a per boe basis, were down approximately 10% year-over-year when excluding the tax barrel impact of our Egyptian impairment charges. Our lease operating costs, on a per boe basis, were down approximately 10% year over year when excluding the tax barrel impact of our Egyptian impairment charges. Our average drilled and completed well costs in North America were down 35% from fourth quarter of 2014 to fourth quarter of 2015. Furthermore, we strengthened our financial position and liquidity in 2015. A portion of our asset divestment proceeds were used to reduce debt by $2.5 billion and to build our cash balance. Apache began 2016 with approximately $5 billion of liquidity, including nearly $1.5 billion in cash. We value this position highly and we'll be very thoughtful in this price environment as to when and how we utilize it. One of our primary operational objectives both last year and in 2016 is to assess, refine, optimize and add to our extensive inventory of captured drilling locations in North America in the context of lower-for-longer oil prices. This is a comprehensive process that involves acreage delineation, wellbore redesign, completion optimization, spacing and landing zone tests, acreage swaps, purchases and sales and the creation of full field development plans. In addition to these activities, extensive science and testing continues on our new play concepts which could lead to significant growth opportunities down the road. The goal of this work is to fully define and prioritize the highest rate of return, highest growth and most efficient North American opportunities to leverage in a better investment environment. 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. We have a very competitive cost structure and continue to drive overhead, LOE and capital costs lower. We are building high-quality drilling and exploratory inventory for the future. We have the financial strength and liquidity to sustain us through a prolonged period of potentially lower oil prices and to propel us into a better investment environment. Our sound decisions and decisive actions in 2015 leave us much better positioned today. We have improved our financial position without raising equity and without reducing or eliminating the dividend. At this time, we plan to be cash flow neutral in 2016 and to invest primarily to enhance our long-term prospects for future growth. Maintaining strong credit quality through disciplined capital allocation is a prudent approach in this environment, thus we are targeting either unchanged or lower net debt levels by the end of this year. Now, I'd like to turn to the fourth quarter and full year 2015 results. We are very pleased with our delivery around items that were within our control. We exceeded our production goals across all of our regions in both the fourth quarter and for the full year 2015. We accomplished this on a capital program of $3.6 billion, which was at the low-end of the original guidance range we established on our earnings call a year ago. During the fourth quarter, North America Onshore production averaged 308,000 boes per day, which, as expected was a sequential increase from the third quarter production of 306,000 boes per day. The increase was primarily due to the timing of completions and solid well performance. In the Permian Basin, despite some fairly significant weather downtime in December, our fourth quarter production achieved an all-time quarterly high of 174,000 boes per day, up 2% sequentially from the third quarter. Growth was driven by the Delaware Basin, where we completed 13 new wells, primarily targeting the Bone Springs formation at Pecos Bend. In the Midland Basin, Central Basin Platform and Northwest Shelf, we completed 61 new wells and delivered very good results in the Wildfire area, with our first three lower Spraberry tests as well as three strong wells in the Wolfcamp on our June Tippett pad. We also drilled some excellent wells on the Northwest Shelf at our prolific Cedar Lake Yeso play. Please refer to our quarterly earnings supplement for details on some of these key wells. As we look ahead to 2016, our Permian rig count will fall from 10 at the beginning of January to four by mid-year. Permian well completions are expected to be down 75% year-over-year. These actions clearly demonstrate that we are willing to let our Permian production decline until we are in a better investment environment. Turning to the North Sea, volumes were approximately 72,000 boes per day in the fourth quarter, a 2% decline sequentially from third quarter production levels. We brought three new development wells online during the fourth quarter at very good rates, but these were offset by a maintenance turnaround at the Beryl Bravo platform. 2015 was an excellent year for Apache with the drill bit in the North Sea. We brought online 19 new development wells with an average drilling success rate of 83%. We also confirmed three significant new exploratory successes with the previously disclosed Callater or K, Corona and Seagull discoveries, which we expect will contribute very material reserve and production adds in the coming years. In 2016, we are significantly curtailing our North Sea development drilling program and plan to employ no platform rigs during the second half of the year. As a result, North Sea production will decline slightly in 2016 compared to 2015 production of just over 71,000 boes per day. In Egypt, gross production declined roughly 3% sequentially from the third quarter. Total liquids volumes declined 2%, while downtime and bottlenecks at certain gas processing facilities reduced our natural gas volumes by 5%. On a net basis, excluding Sinopec's minority interest and the effect of tax barrels, production actually increased 5% sequentially to 102,000 boes per day. This a function of the significant oil price decline from third quarter to fourth quarter, which resulted in Apache receiving more cost-recovery barrels under our production-sharing contract agreements. The key driver in Egypt during 2015 was the tremendous success of our drilling program and production ramp-up at Ptah and Berenice. As of year-end, we had 12 wells producing in these prolific low GOR oilfields. Since November 2014, Ptah and Berenice have produced more than 8 million barrels of oil. In 2016, we plan to stabilize gross production from these fields near 30,000 boes per day. Overall, our gross production volumes are expected to decline in Egypt this year. However, net volumes should increase as falling oil prices drive an increase in cost recovery barrels per our PSCs. On the cost side, I noted earlier that our average North American Onshore well costs were down approximately 35% from a year ago. We are continuously improving on this front and continue to see significant well cost decreases since the beginning of the year. Some of the key plays where we are seeing exceptionally low drilling and completion costs include. The Delaware Basin, where we have visibility to Bone Springs and Wolfcamp wells of approximately $4.5 million, the Midland Basin, where horizontal Wolfcamp and lower Spraberry wells are projected to be drilled and completed for less than $4 million; the horizontal Yeso play on the Northwest Shelf in the Permian, where our well costs are trending below $2.3 million; and the Woodford\/SCOOP, where our latest pacesetter was drilled and completed for only $7.5 million. In 2015, we reinvigorated Apache's culture of cost and returns discipline. While we have made great progress on costs, they are not yet fully aligned with the current price environment. Further reductions are planned for 2016 and it is imperative that we remain relentless in our efforts to drive costs down further. To achieve this, we will foster innovation and utilize technology that redefines the cost structure of both Apache and the industry. The key takeaway is that these are not just belt-tightening efforts in response to price weakness. Apache is implementing structural changes that will continue to accrue to our bottom line, regardless of where oil prices and service costs go in the future. To that end, we believe that approximately one-half of the well cost reductions achieved over the past year are permanent, while the other half will fluctuate with future service cost changes. Regardless, Apache will always focus intently on controlling what we can control and remaining highly disciplined through the cycle. As we turn our focus to 2016, strip oil prices are now roughly 30% to 35% below where they were a year ago. This underscores the importance of continuing to foster a new mindset and approach to capital allocation and managing our cost structure. 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. 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. In our North American Onshore portfolio, Apache is fortunate to have the vast majority of our high-value leasehold already held by production and only four rigs under longer-term higher day rate contracts. As a result, our obligation spending is relatively limited this year. At $35 oil, we do not believe spending on development wells and attempting to maintain production levels is a prudent or economic use of our precious capital dollars. We would rather leave those barrels in the ground and come back to them in a higher price environment or as drilling and completion costs become more aligned with oil prices. The majority of our capital spending in these onshore regions will focus on strategic testing and delineating our vast acreage position, such that we optimize our growth potential and efficiencies when it is appropriate to put more rigs back into the field. In light of these considerations, our capital allocation to North American Onshore plays is approximately $700 million or 45% of our total capital budget. At this level of investment, we anticipate a pro forma production decline of 12% to 15% in North America Onshore compared to 2015. Our decision to reduce North American Onshore investment by more than 70% and to allow production to decline in 2016 is simply due to our desire to preserve our financial position in the current investment environment. It is not indicative of our asset depth or quality. We are confident that our North American asset base can withstand this reduction in investment without any deterioration of the future opportunity set or impact our ability to arrest the decline and begin to grow again at the appropriate time in the future. To provide some context around the sustainability of our onshore North American asset base, we estimate that in the current price environment, it would require a spending level of approximately $1.6 billion or an incremental $900 million of capital above our planned 2016 program in order to hold North America Onshore flat with the 2015 average of 309,000 boes per day. This $900 million of incremental capital is roughly equivalent to the amount of incremental cash flow Apache generates annually with a $10 per barrel increase in oil prices. This implies, with an average oil price of $45 per barrel, Apache's North American production base could be held flat with 2015 levels. At current drilling and completion costs, this maintenance spend would equate to an incremental annual average program of approximately 20 rigs in North America. I mentioned earlier that Apache is looking for a better investment environment before we materially increase our capital program, let alone, consider outspending cash flow on an annual basis. We have the luxury of waiting for an environment in which oil prices and service costs are fully synchronized such that fully burdened and full-cycle economics in our North American drilling programs achieve double-digit rates of return. It is not enough to deliver the 15% to 30% unburdened wellhead returns at $35 per barrel oil that are routinely quoted in industry presentations. At Apache, we have elevated our standard for investment of shareholders' capital. Our drilling programs must deliver full-cycle fully burdened rates of return in the mid-to-high double-digits in order to deliver an acceptable return on capital employed for the shareholder. That said, we are thoroughly assessing our entire North American footprint and will be prepared to put rig lines back into each of the Pecos Bend, Evergreen and Waha areas of the Delaware Basin and our high rate of return horizontal Yeso play in the Northwest Shelf. We could add several incremental rigs in our Midland Basin, Wolfcamp and lower Spraberry plays, where we have 200,000-plus net acres in four core counties. Our Woodford\/SCOOP position will support an incremental drilling program for several years to come and we have numerous high-volume multi-well development pad locations ready to go in the Duvernay and Montney in Canada. When oil prices rally further, our Eagle Ford and Canyon Lime will come back into play and contribute to North American growth. On the international side, Egypt and the North Sea continue to deliver projects with solid rates of return and strong net present values. Because both are economically advantaged under our assumed $35 oil price, we are allocating approximately $800 million or 50% of our 2016 capital budget to these regions. We project pro forma production from our international and offshore regions this year will be relatively flat compared to 2015. The budget I just described is based on specific oil price and service cost assumptions. If oil prices recover or if average well costs decline such that our cash flow is higher than we have budgeted, we anticipate directing the majority of the incremental dollars to onshore North America. This could in turn mitigate a portion of the decline implied by our guidance. Before I conclude, I would like to outline some of Apache's potential future growth drivers as we look beyond 2016. With higher oil prices and access to more internally generated cash flow, our North American Onshore production will stabilize and return to growth. This growth will come from lower cost wells that generate better returns than Apache's historical North American programs. High-graded plays with years of running room across our 3.3 million gross legacy acres in the Permian will drive growth from the Bone Springs, Wolfcamp, lower Spraberry, Yeso and other formations. This would be supplemented by the Woodford\/SCOOP, Montney and Duvernay post 2016. Additionally, we have acquired a substantial amount of relatively low cost acreage since early 2015 that could be incremental to the growth potential that resides in our legacy Permian and Anadarko positions. In the North Sea, we also see excellent growth potential. In mid-2017, we plan to bring our Callater Discovery online at a 30-day IP rate of approximately 15,000 boes per day, net to Apache. Following that, in mid-2018, we anticipate bringing online our first tertiary injectite discovery, Corona, at a rate of 5,000 to 10,000 boes per day net. Looking out a bit longer term, Corona has de-risked a string of exploration prospects that will be drilled in the future. Over this same timeframe, we will conduct exploration activities on our 2.3 gross million acres offshore Suriname. While it is still early, we're excited about the potential for this area, which lies in the newly confirmed oil province. We have included a map of our Suriname position in our quarterly earnings supplement for your information. In closing, Apache is well-prepared for a lower-for-even longer oil price environment. As experts debate when or if oil prices will increase and to what levels, Apache will continue to focus on the things we can control. Our primary strategic objectives in 2016 are manage to cash flow neutrality after dividends and end the year with unchanged or lower net debt levels; preserve our strong financial position; protect our asset base and optimize and expand our high-quality inventory of growth opportunities through strategic testing and exploration. Our goal is to emerge from this commodity price downturn with top-tier financial strength, a robust inventory of high rate of return drilling opportunities in North America and a sustained capacity to generate free cash flow from our international assets in Egypt and the North Sea. While we don't know when prices will recover, we do know that the prudent choices we're making today will enhance our long-term success. Quite often, it is during downturns like these that the choices companies make can either set them up for long-term success or set them back. I believe we have significantly strengthened Apache Corporation despite the challenging price environment and we are positioning ourselves to succeed through the recovery. I will now turn the call over to Steve Riney. Stephen Riney - Apache Corporation Thank you, John, and good afternoon. As John indicated, Apache had a very good year in 2015. We made outstanding progress high-grading the portfolio, driving down costs, aligning capital programs with cash flows and proactively strengthening our financial position. We entered 2016 well-positioned for the challenges our industry will face. Today, I will highlight Apache's financial progress, which includes our financial results for the fourth quarter and full year 2015, progress with our ongoing cost reduction efforts, a review of our financial strength and liquidity, and our outlook for 2016 production and capital spending. So, let's begin with the fourth quarter financial results. As noted in our press release, under generally accepted accounting principles, Apache reported a loss of $7.2 billion or $19.07 per common share. Our results for the quarter include a number of items outside of our core earnings that are typically excluded by the investment community in published earnings estimates, the most significant of which are ceiling test write-downs, impairments and tax adjustments associated with these items. As in prior periods, these write-downs resulted from the continued low commodity price environment. Our loss for the quarter adjusted for these items was $24 million or $0.06 per share. Before I turn to other items, I'd like to comment on our reported production volumes, which include a significant downward adjustment related to Egyptian tax barrels. The terms of our Egyptian PSCs provide that the payment of income taxes attributable to our entitlement will be made by EGPC from their share of production. We then gross up our results for these taxes which are paid on our behalf. Egyptian income taxes are calculated based on book income and are recorded as tax expense with an equal and offsetting amount in oil and gas revenues. Thus, there is no impact on net income as the revenues and tax expense we record each quarter offset one another. The revenue effect of this gross up is also recorded as production volume in our operating results. These are referred to as Egypt tax barrels. In the first three quarters of 2015, we recognized book income, tax expense and, thus, tax barrel production volumes. In the fourth quarter, we incurred a $1.3 billion charge related to impairments and write-downs in Egypt, driven by the continued fall in oil prices, which resulted in a significant loss for the quarter. This loss has the effect of offsetting nearly all of the previously reported tax expense and tax barrels in the first three quarters, thereby, resulting in a large negative income tax expense and negative tax barrel production in the fourth quarter. The total impact of the impairment is a loss of 38,280 barrels of oil equivalent per day of volumes in the fourth quarter or 9,649 barrels of oil equivalent per day for the full year 2015. Because the Egypt tax barrel volumes have no economic impact to Apache and, as we see in the fourth quarter, can fluctuate materially from quarter-to-quarter, our pro forma production guidance always excludes tax barrels. We believe this non-GAAP view of production is more reflective of underlying economic production volumes. Now, let me turn to capital expenditures and costs. In 2015, Apache's intense focus on driving internal efficiencies along with the significant downward pressure on third-party service costs resulted in substantial efficiency gains in both capital and operating costs. Capital spending came in at $678 million for the fourth quarter and $3.6 billion for the full year. This was at the low-end of our original guidance range. As a reminder, our 2015 capital spending guidance excluded capital attributable to our one-third partner in Egypt, capitalized interest, opportunistic leasehold purchases and capital associated with divested LNG and associated operations. As Gary noted at the outset of this call, we are changing our CapEx guidance convention in 2016. Our guidance now includes all anticipated capital spending categories, except capital attributable to our minority partner in Egypt. This should make it easier to track our capital spending plans for the year. On the lease operating expense side, our fourth quarter LOE was $10.04 per boe, which is 3% higher than the fourth quarter of 2014. For the year, LOE average $9.49 per boe, which is 9% lower than 2014. Underlying improvement in these metrics is masked by the negative Egypt tax barrel volumes in the fourth quarter. On a like-for-like basis, excluding this impact, our lease operating expenses were down 4% and 10% per boe, respectively, in the fourth quarter and the full year 2015. We have also spoken to you about progress on our G&A costs. As a reminder, we consider G&A to be our gross cash expenditures for all costs above field operations. The stated goal was to exit 2015 with a G&A run rate of $700 million, a decrease of over 30% from our run rate in the fourth quarter of 2014. I'm happy to say, we achieved this goal. As we look ahead to 2016, we continue to find overhead efficiencies and we are reducing our G&A cost estimate for this year to a range of $650 million to $700 million. Next, I would like to make a few comments regarding our financial strength and liquidity position. In 2015, we reduced our debt levels from year-end 2014 by $2.5 billion, ending the year with $8.8 billion of total debt. We retained $1.5 billion of cash, which we may utilize to further pay down debt. We ended the year with net debt of $7.3 billion. Our latest 12-month net debt-to-adjusted EBITDA ratio as of December 31, 2015 was just under two times. Apache's nearest long-term debt maturity is in 2018 and only $700 million or 8% of our total debt portfolio matures prior to 2021. We restructured and refreshed our $3.5 billion credit facility, which now matures in June 2020, and combined with our cash position, we now have total liquidity of approximately $5 billion. At this time, our financial condition and liquidity are very strong, and we have accomplished this without issuing equity, without reducing the dividend and without selling core strategic assets. And to ensure that we sustain this strong position, we have chosen to reduce our capital spending this year to a level where we can attain cash flow neutrality at $35 oil. Both John and I have mentioned the term cash flow neutrality a few times in reference to our overarching goals, so let me be clear what we mean by this. Cash flow neutrality means the capital program, debt service and the dividend are all funded through cash from operations, with little or no underpinning from financing or portfolio actions. Cash from operations includes all operating costs, including corporate overhead, and includes movements in working capital. At this time, we anticipate only small, non-core, non-producing asset sales will be necessary to achieve cash flow neutrality in 2016 assuming $35 oil prices. We could choose to spend more capital. But as John outlined, we believe that preserving our strong financial position and our credit quality through cash flow neutrality is the best approach for our shareholders in this price environment. In the event prices improve during the year, we stand prepared to ramp-up our investment activity within the constraint of cash flow neutrality. Now, I'd like to provide some more detail on our 2016 capital program. As John discussed, our budget of $1.4 billion to $1.8 billion is the product of a $35 oil price assumption for the year. Since we are in a very volatile price environment and our overarching goal is for cash flow neutrality, the capital budget will flex up or down with price movements. Capital in 2016 will be allocated on a prioritized basis to protect the asset base, further optimize and build high-quality inventory for the future, conduct certain longer-cycle high-impact exploration activities and to pursue higher-return development activities which remain economically very attractive at these low prices. There are two types of spend required to protect the asset base. First, we have to maintain the assets and keep them running efficiently. This includes workovers, recompletions and maintenance, and will represent approximately 30% of our capital program. Second, in some places, we have to engage in activity to maintain ownership of the mineral rights or to preserve leases. This includes continuous drilling activity or lease-holding production maintenance and will represent approximately 5% of our capital program. We will allocate roughly 30% of our capital to key exploration activities and new play tests to continue building and high-grading our drilling inventory for the future. This will include continuing our highly successful North Sea exploration program, key play tests on some of our existing acreage in the Permian and Anadarko Basins and seismic commitments in offshore Suriname. The remaining 35% of our capital program will go to development activity. Most of this will be allocated to the North Sea and Egypt, where we continue to see development opportunities that work very well at low oil prices. This is primarily due to contract structures and tax regimes that provide favorable capital recovery mechanisms and higher average cash margins. We suggest our investors review our earnings supplement for additional detail regarding region-by-region netbacks. We also have a number of onshore North America drilling locations in the Permian Basin and Woodford\/SCOOP that remain economically attractive. However, these areas will receive less allocated capital due to the capital budget being constrained by cash flow. While we have reduced development activity on these assets, the leases are preserved and development will ramp back up in these assets and several other areas when oil prices and costs are better aligned to deliver more attractive returns. Our reduced 2016 capital spending level is appropriate and prudent for a $35 oil environment. The end result is that we expect our total pro forma production to be in a range of 433,000 to 453,000 barrels of oil equivalent per day. This will represent a decline of 7% to 11% from a comparative pro forma volume of 486,000 barrels of oil equivalent per day in 2015. These volumes exclude Egypt minority interest, Egypt tax barrels and the effect of divested volumes from the 2015 base. If prices rise allowing more capital to be deployed, we anticipate most incremental investment would be directed to onshore North America and this would offset some of this anticipated decline. In 2016, we will continue to optimize LOE but given our expected production decline and a mix shift to slightly higher-cost international production, we do not anticipate materially lower operating costs on a per barrel of oil equivalent basis. In terms of 2016 income taxes, we expect our adjusted earnings global effective tax rate to currently be in a range of 15% to 20%. Obviously, lower than what we would typically expect, our effective tax rate is being driven primarily by an expectation of very low book income. Going forward, we will be able to provide updates to this rate as the year progresses. Also, we can provide some guidance around expected cash tax payments. We will pay the remainder of the income tax accrued for repatriating 2015 foreign sales proceeds of $85 million in the first quarter. Given the low commodity price environment, we currently believe that our cash tax payments in 2016, including cash taxes associated with the Petroleum Revenue Tax in the UK will be minimal. For the first quarter, we are providing pro forma production guidance for North American onshore of 290,000 to 295,000 barrels of oil equivalent per day. Our international and offshore production is guided to 180,000 to 185,000 barrels of oil equivalent per day, which excludes Egypt tax barrels and the Egypt minority interest. Our projected capital spend in the first quarter is $500 million to $550 million, or approximately one-third of our full-year 2016 budget. In closing, our prudent approach in 2015 has put us on firm ground and helps ensure resiliency in this difficult and unpredictable environment. As a result, we are prepared to endure a potentially lower for even longer commodity cycle while retaining our ability to dynamically manage our activity levels up or down as commodity prices and service costs dictate. Through all of this, our primary goals will remain unchanged. We will live within our means, maintain our strong financial position, build quality development inventory for the future and invest to improve returns and grow value for our shareholders. We look forward to a successful 2016. And I would now like to turn the call over to the operator for Q&A. Q & A Operator - [Operator Instructions] And your first question comes from the line of Pearce Hammond with Simmons & Company. Your line is open. Pearce Hammond - Simmons & Company Good afternoon. John, does the Egyptian government help drive your thinking regarding capital allocation among your different regions? I assume the Egyptian government wants you to produce as much oil and gas as possible to bolster both domestic energy security as well as the Egyptian treasury. And so just curious if it limits your capital allocation flexibility in any ways? John Christmann - Apache Corporation Yeah, Pearce, clearly they would like us to invest more money, but like everything else, we decide where we put the investments in place, so it has not had an impact. We are going to generate cash flow in both Egypt and the North Sea and they understand that. And it obviously will flow with our budget as we're flexible. Pearce Hammond - Simmons & Company Great. And then my follow-up around the offshore Suriname blocks, if this is a legacy position from when Apache had a more defined exploration program like in New Zealand, Cook Inlet and places like that, is this a bit of -- more of a one-off or is this a type of business that you want to build over the next few years? John Christmann - Apache Corporation Yeah, I think it is something, it fits with our international portfolio. Actually, we've got a lot of questions about that position, Pearce. We felt like it was important to go ahead and get a map out there. We drilled the well this year, our Popokai well and we actually had picked up the other block prior to either Exxon drilling there Liza well or our well going down. So, we've got those two blocks there not a huge capital commitment. We're going to be shooting seismic over block 58 this year and we'll go from there Operator - .And your next question comes from the line of Brian Singer with Goldman Sachs. Your line is open. Brian Singer - Goldman Sachs With regards to the CapEx and activity reductions, when we think about your cost base and your lowered cost, including on the SG&A side, when it's time to ramp back up, what is your operational and scale flexibility to do this? And what flexibility, if any, may be reduced, at least, temporarily? I mean, in other words, if you wanted to take the Permian and bring it back to a 10 or 15 or 20 rig count again, would this require re-staffing and the passage of time to make that happen? John Christmann - Apache Corporation Brian, with the way we've done our staffing, 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. Brian Singer - Goldman Sachs Great. Thanks so much. My follow-up is actually a follow-up to Pearce's question on exploration. You made a couple of references to adding exploration opportunities. Was that specifically the Suriname reference that you've already kind of spoken to here or are there other opportunities including the onshore that you're pursuing from a more exploratory perspective? And can you give us more color beyond Suriname if the answer is yes to that? John Christmann - Apache Corporation Well, I mean, it obviously includes Suriname. We did a good job of highlighting our North Sea exploration program last November, so we've got some exploration wells to drill in the North Sea. We brought on two discoveries late last -- late 2014 in Egypt in Ptah and Berenice, so we have active exploration programs both North Sea, both Egypt, Suriname and then obviously in North America. We have acknowledged that we acquired some acreage last year at some low prices that we think can be prospective. And while we've shut down for the most part our development drilling in North America, we will be doing some strategic testing in and around our existing asset base and on some acreage that we've picked up. Operator - And your next question comes from the line of Evan Calio with Morgan Stanley. Your line is open. Evan Calio - Morgan Stanley Good afternoon, guys. I appreciate the color and added disclosure. My first question, you guys cut CapEx, I think, deeper than expectations to get within cash flow post-dividend and avoided, at least, so far, some moves made by peers. And maybe you alluded to this in your opening comments. Yet to be clear, on the strip, do think that these moves mitigate the risk of needing to issue equity or losing your IG rating at Moody's? John Christmann - Apache Corporation Clearly, at this point, 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. We've done that, we worked hard last year to improve our financial position, which we demonstrated we did. If you look back over second quarter, third quarter of last year we had an outspend of approximately 14% which was significantly lower than most of our peer group. So it put us in a position where we have been working to gear our spending levels to a lower price environment. So, clearly, we worked on that, and we do have cash on hand this year. Obviously, we're making a conscious decision again in 2016 to live within the current price environment and within cash flow here such that we end the year with flat net debt. So it puts us in a position where we would anticipate not having to do some of those things at this point. And obviously protecting our investment grade rating is important to us, and it's something that we take seriously. Evan Calio - Morgan Stanley Great. And I guess, go ahead. Sorry. Oh, that's me echoing. Sorry. I -- in my second question, follow-up, I mean, while not the case currently on your credit rating, but how should we or how do you think about potential impact to operations inside, outside the U.S. working capital levels if you either did see one or more non-IG credit rating? Stephen Riney - Apache Corporation Yeah. Thanks, Evan. So, this is Steve. We're not going to really deal with the types of hypotheticals of what would happen if this happen, what would you do if the credit rating went down multiple notches. We're doing everything that we can to prudently run the company financially as John outlined. We've taken a number of steps to protect the financial position of the company. And we think, we're actually in pretty good shape. We've done a lot of stuff in 2015 in the last year to strengthen the financial position, build liquidity, make sure that we don't have a lot of refinance risk. And so, S&P has already come out with their rating, BBB, a downgrade to BBB and stable. Fitch continues to have us at BBB plus, and we're waiting on Moody's. And I think, we've done the things that we need to do and we'll continue to do the things that we need to do to remain investment grade. And we've got $1.5 billion of cash on the balance sheet. And if we need to use some of that, as I said in my script, to pay down a little bit of debt in order to protect that then we would certainly be willing to do that. So, instead of us, we obviously think about what we would do and what we would be required to do because we need to be prepared and prudent about that. We don't spend a lot of time worried about that. We worry about protecting the investment grade rating. Operator - And your next question comes from the line of John Herrlin with Societe Generale. Your line is open. John Herrlin - Societe Generale Two quick ones. For Suriname, when will you get the bird stack in on the seismic? John Christmann - Apache Corporation John, we will be shooting that later this year. So, it will be a summer program. John Herrlin - Societe Generale Okay. Thanks, John. With respect to your unconventional activity that you have planned, is this all going to be internal science done by Apache or are you going to be interfacing with the industry or what? John Christmann - Apache Corporation Clearly, it'd be internal programs that we'd be doing on our own. So, I mean, we participate in some wells in some areas and we learn from what we can and we've got partners in some places, but clearly, the work we are doing is all internally generated and for the most part, it's done on our behalf for 100%. John Herrlin - Societe Generale Okay. Last one for me. Historically, you've made a lot of acquisitions not of late, but a lot of people are experiencing some pain. Will you be more opportunistic in terms of property front in terms of buying things beyond what you have done? John Christmann - Apache Corporation I mean, John, we always are aware of what's out there and look at things carefully. The thing I would say, we find ourselves today in a very enviable position and that we're opportunity-rich. With where we've scaled our capital back, there are a lot of excellent opportunities that we are choosing not to fund and that we think we would pursue at a higher price environment. So, as we think about things, they would have to be something that would be incrementally additive to our current inventory and portfolio. And so, I mean, it'd be a pretty high bar to be able to -- something that we would want to bring into the door. Operator - And your next question comes from the line of Michael Hall with Heikkinen Energy. Your line is open. Michael Hall - Heikkinen Energy Thanks. I was just curious going back to Egypt a little bit, is there anything, any feature within the PSC that kind of limits your downside flexibility around spending? I'm just trying to think through if there's any sort of reduced cost-recovery barrels or anything along those lines if you cut too much John Christmann - Apache Corporation No, Michael, there really isn't. The nice thing about what you're seeing on the international portfolio is a lot of these PSCs and so forth were designed for lower price environments. And quite frankly, the way they work, the government takes a greater percentage at higher prices and so, as we look at the international portfolio and we look at North America, there's greater leverage in North America to higher prices and there's less leverage on the international side. So it makes sense to allocate more capital into those projects right now because the returns are superior. And there's no requirements or commitments on the spend level and that would cause us to have to spend more or anything along those lines Michael Hall - Heikkinen Energy Okay. That's helpful, appreciate the color. In North America, if I just think about the 2015 fourth quarter rate and then take a linear decline through 2016, I'm showing about a 20% plus decline year-on-year 4Q 2016 versus 4Q 2015, is that directionally reasonable or is that anything I ought to revise in that thinking? John Christmann - Apache Corporation Yeah, I would say, you'd probably end up a little bit steeper on the backside, but it's all going to hinge on how the -- how flexible we are with the capital and prices. Operator - And your next question comes from the line of David Tameron with Wells Fargo. Your line is open. David Tameron - Wells Fargo Hi. Good morning or I guess afternoon. John, I'm just trying to think about 2017. If you think about it, if you get a modest uptick, obviously, cash flow, you guys have a lot of leverage to that. Your cash flow goes up. How are you thinking about the next two years? Is it spend within cash flow? Is it -- it obviously would take a little bit of time to ramp to get there, but how would you thinking about that in, say, a $45 world John Christmann - Apache Corporation Well, I think the important thing is if you look at 2016, we're guiding to relatively flat international. We said earlier on the call in the prepared notes that an additional $900 million incremental capital in North America would keep North America flat to slightly growing, which translates to about a $45 world. So 2016, we could live within cash flow and be flat to relatively slight growth. So, as we look ahead into 2017, there's a couple of things going on first and foremost. We're in the second year now of a significantly reduced CapEx budget. We reduced aggressively last year, again this year. So we've got fewer wells that were brought on than historical. So our rates will be flattening slightly as we go into 2017. Secondly, it will not take as much capital in 2017 to keep it flat, especially with North America. We're already investing at levels right now on the international side. Additionally, we've got some catalysts that will be coming on in 2017. If you look at the North Sea, our Callater well, potentially more than one well there that could be coming on. So, we've got some catalysts. And quite frankly, with the capital efficiency, we're seeing, the other thing I'll say is, as we look at the 2016 budget, we've already seen well costs coming in significantly under what we planned this year. So the capital efficiency is the other big thing. So, I think as we get out into 2017, it's going to take a lower oil price for us to be able to stay flat and potentially grow David Tameron - Wells Fargo Okay. And then one follow-up, just to clarify. So you said that you're going to have four rigs in the Permian or that's where you get to. Where -- maybe one or two of those doing some R&D, can you talk about where those -- where the activity is going to be? John Christmann - Apache Corporation We've got four long-term contracts, so we will ramp down to those four rigs. There'll be a couple of them working in the Delaware, two to three. And there will be at least one up in the Midland Basin, Central Basin Platform as we continue to test all of our plays Operator - And your next question comes from the line of Edward Westlake with Credit Suisse. Your line is open. Edward Westlake - Credit Suisse Good afternoon and thank you very much for talking about returns and fully-loaded returns at that. So as we go out on the other side of this trough, however long it lasts, what sort of is the hurdle rate for investment fully-loaded that you're looking to develop? I appreciate oil price is going to move, the cost structure is going to change but I'm trying to think about what hurdle rate gets you to invest John Christmann - Apache Corporation I think the key is we want to get to fully burdened corporate returns that are in the low-double digits. And I think, that's where we need to be striving and that's where we plan to get to. Edward Westlake - Credit Suisse Yes. Good that you have a returns target because historically the returns have not been as good for the industry even at $100 oil. Just a question then on the Permian and Delaware. You've got acreage, but it's not all contiguous. I'm just wondering if there's any update on people being willing to block up to get some efficiency gains? John Christmann - Apache Corporation The nice thing is we've got 3.3 million gross acres, so we've got lots of acreage. We have done a lot of small trades and we are doing a lot of things. We are trying to block some things up and have had some success. So they're not things that hit the press in terms of radar screen, but we're continually looking to block and swap. We're interbedded with a lot of the operators and there's lots of things we're doing to try to core up those positions and put together drilling units where you've got more control. Operator - And your next question comes from the line of Bob Morris with Citi. Your line is open. Robert Morris - Citi Thank you. John, on the four rigs at mid-year in the Permian, will you have a rig running in the Woodford,SCOOP or anywhere else or will it be just those four? John Christmann - Apache Corporation At this point, we've got flexibility there, Bob but I would anticipate those being in the Permian Robert Morris - Citi Okay. And then on the drilled but uncompleted inventory, how will that trend through the year? Do you have an inventory starting out the year, will that be drawn down or how will that contribute to the production during the year? John Christmann - Apache Corporation If you look at last year, we consumed about 70 horizontal drilled [Indecipherable] wells and about 50 vertical. As I was pretty vocal early last year, the wells we drill, we intended to complete and we drew down a lot of our DUCs. I would envision us doing the same thing this year. You could see that number come down a little bit, but it's at a level now where we don't have a lot that we haven't already completed. And the thing I'll add,too is we have the luxury of not having a lot of rig contracts and a lot of leases that require drilling of wells right now. So we're not in a position where we're having to build DUCs because we don't think that's a prudent use of capital. Operator - And your next question comes from the line of Doug Leggate with Bank of America. Your line is open. Doug Leggate - Bank of America Thanks. John, I wondered if I could try two, please. I don't know if I missed this, but could you give us some idea of exit rate to exit rate in North America Q4 to Q4 2016 just to give us an idea where you're going be running at going into next year? John Christmann - Apache Corporation Doug, we did not give any guidance around that specific. I would say probably the best thing to do is take -- we gave first quarter guidance, we gave the average ranges for the year and I would just probably extrapolate from that. I will say going into 2017, we expect to see capital efficiencies and things come into play, where we have a much better picture for 2017 than we do currently for 2016 at these capital levels. Doug Leggate - Bank of America Okay. I can join the dots. If I may, I want to go back to Suriname from the earlier question. And I'm just trying to understand a little bit about what's going on there with your longer-term thinking. Are you getting carried, John, on the activities there? And I'm just wondering are you retaining this really more as an option in case [Indecipherable] spills over into your block? Or is that a little bit more strategic that this is really something that would be a core part of your portfolio going forward? And I'll leave it there. Thanks. John Christmann - Apache Corporation Well, what I'll say is when we originally took the block several years ago, the first block, 53, we viewed it as being in a very potential prospective area. I think, what you now see is you've got a proven oil hydrocarbon province. We've got two blocks that are centrally located. There is a system there. We did drill one well last year. Prior to drilling that well, we did bring in partners and were promoted on the one well in Block 53. We picked up Block 58 on our own just as protection. It was not a huge commitment. And I think we now have the luxury to see what we do with it. It is a bid option. We own it 100%. And clearly, it's an area that's very prospective and is getting a lot of attention. Operator - And your next question comes from the line of Bob Brackett with Bernstein Research. Your line is open. Bob Brackett - Bernstein Research The strategic allocation of capital, could you contrast what you call a development CapEx versus a base maintenance CapEx, say, in the Permian. And what does strategic capital mean in that exploration bucket? John Christmann - Apache Corporation I think, first and foremost in terms of maintenance, there are just certain things you have to do on your existing fields. So basically, Bob, we're not drilling development wells in the Permian which would be further -- to generate further growth. So that's going to be the difference. The other thing is going to be just your bread and butter maintenance things that you do with your base. And that's repairing subs doing those types of things. In terms of strategic capital, we would put that as things that potentially sets up new drilling programs, test new zones, test new concepts, helps us better define what are going to be the inventory of growth opportunities in the future. Bob Brackett - Bernstein Research So testing stacked pay on an existing development you'd throw in on the strategic side? John Christmann - Apache Corporation If it had running room and could open up something significant, then yes. If it's something small on the Central Basin Platform or some areas where we've got just a few locations identified, then it wouldn't be in that category. Bob Brackett - Bernstein Research Okay. I think that's clear. John Christmann - Apache Corporation It'd have to have potential scope to it for it to be strategic. Operator - And your next question comes from the line of Mike Kelly with Seaport Global. Your line is open. Mike Kelly - Seaport Global Hey, guys. My question was asked. I'll hand it back. Thanks. Operator - And your next question comes from the line of Charles Meade with Johnson Rice. Your line is open. Charles Meade - Johnson Rice Good afternoon, John, and to the rest of your team there. I appreciate you guys sticking around to answer all these questions. If I could ask what one about your dividend and your thinking there. You guys made a lot of moves and you've reviewed a lot of them on this call to adapt to a reduced commodity price early but leaving the dividend intact stands out as an anomaly there. So I'm wondering if you can tell us a little bit about your thinking. And I know the board's thinking is really what comes to bear on this but if you could give us some thoughts on your posture there. Stephen Riney - Apache Corporation 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 dividends now. We've done all the things to strengthen the financial position, the liquidity position, our refinance risk on the debt portfolio. 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. And we do discuss that with the board. We discuss it with them every quarter and I imagine, we'll continue to discuss that with them every quarter. But we just don't think we need to be doing that now. We'll probably reconsider it at some point in time in the future when prices and costs are better aligned and we all kind of figure out whatever the new normal, if we ever get to normal, in our industry will be in the future then we can look at what our dividend yield is and whether that's appropriate for the situation that we're in at that point in time. But, at this point in time, we just don't have any compelling reason to have to cut it. We do realize that the dividend yield is pretty high for the situation that we're in right now, but we're okay with that for now. And that's why, we went ahead and declared the regular dividend with this last quarter. Charles Meade - Johnson Rice That's helpful, Steve. Thank you. And then if I could dig down into the details on one of your Permian well results. I think, John, earlier in your prepared comments, you talked about the June Tippett well, and looking at that, even though it was kind of a short lateral, on a lateral-adjusted basis, that looks like it's -- at least one of the wells there, it looks like a real standout in the Midland Basin. And I'm wondering if you could tell me if you share that point of view and if you do, where the Midland kind of ranks? Because it seems like you're ranking the Delaware Basin, generally, in front of your opportunities in the Midland Basin. Timothy Sullivan - Apache Corporation Yes. This is Tim Sullivan. We did drill -- this was at a Wildfire lease. We did drill five well pads in the June Tippett lease. Three of them actually came online in the fourth quarter and two of them online in early 2016. And what we have done here, these are mile laterals. We had acquired some additional core data out here and tweaked our landing zone, targeting a higher TOC and lower clay content area. And the 30-day IPs for the average of those five wells was 980 barrels of oil equivalent per day, and 75% of that is oil. And if you compare that to a well or a pad that we had drilled early in the air which was a mile-and-a-half pad, this mile pad is outperforming those. So we are pretty excited about that and we do have quite a bit of running room. Operator - And your next question comes from the line of Michael Rowe with TPH. Your line is open. Michael Rowe - TPH Thanks. Just a question on the North Sea. I appreciate that there are a number of discoveries coming online in 2017 and 2018 to arrest decline. That said, can you talk about the base decline of this asset and what these productions or what these discoveries, excuse me, will do to aggregate production growth in those years? John Christmann - Apache Corporation At this point, we see the North Sea being able to hang in there pretty strongly with the capital levels we're at. We have not looked at what price decks we'd use and a lot of that will hinge on how many platform rigs we have, do we add those back in, in 2017 and 2018. We mentioned they would not be there the back half of this year, so a lot of that's going to hinge on capital as we lay out those future years. But we've got good running room now and a lot of nice things coming on. Stephen Riney - Apache Corporation Michael, this is Steve. I'd also just point you to the presentation we made, the webcast that we made back in November. It's got some information that I think you'd find helpful. Michael Rowe - TPH Understood. Thanks. I was just trying to see if there's been any change in thought process there. But maybe just my last question would be just a question on the goal of spending within cash flow and the comment you made on cash flow movements with each change -- dollar per barrel change in the oil price. Of your 2016 operating cash flow, do you have a sense for how much of that is attributable to North American Onshore versus your International business at $35 oil? Thanks John Christmann - Apache Corporation I don't have that number off the top my head. You're going to have more cash flow coming out of the International in terms of on a per barrel basis just because our cash margins are higher. But I'll let -- we can follow-up with exactly that split. I'll have Gary follow up with a better idea on the ratio Operator - And our final question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is open. Jeffrey Campbell - Tuohy Brothers Thank you for taking my questions. Steve mentioned that cash flow neutrality remains the approach whether oil prices rise up or down. I was wondering if hedging might also be part of the method, particularly if oil prices rise somewhat, to protect the timing of any increased spending exposure. John Christmann - Apache Corporation Jeff, at some point, obviously, if we were going to commit a lot of capital, we would lock -- start to look at using hedging. I think, you're in a period today where we don't have a cost structure that's not synchronized with price environment. But it is something in the future. If we were to put a lot of capital back to work that we would consider as a tool to offset or mitigate some of the risk to ensure that we can deliver the return objectives that we're focused on. Jeffrey Campbell - Tuohy Brothers Thanks, John. My follow-up is, can you review the very low Permian well cost guidance that you gave, again, with average lateral links that correlate to those costs? And also do those estimates include more intensive completions? John Christmann - Apache Corporation 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. Operator - And I would now like to turn the call back over to the presenters for closing remarks. Gary Clark - Apache Corporation That's going to wrap up the call, Kim. There's no more questions. We look forward to speaking to you all next quarter, and please give myself or Chris Cortez a call if you have any follow-up questions. Thank you. Operator - Ladies and gentlemen, this concludes today's conference call, and you may now disconnect.