Apache's CEO Discusses Q1 2011 Results - Earnings Call Transcript

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Apache (APA)

Q1 2011 Earnings Call

April 28, 2011 2:00 pm ET

Executives

Rodney Eichler - President and Chief Operating Officer

Roger Plank - President, Chief Corporate Officer and Member of Risk Management Committee

G. Farris - Chairman of the Board, Chief Executive Officer and Member of Executive Committee

Alfonso Leon - Vice President of Planning Strategy and Investor Relations

Janine McArdle - Senior Vice President of Gas Monetization and Member of Risk Management Committee

Thomas Chambers - Chief Financial Officer, Executive Vice President and Member of Risk Management Committee

Analysts

Brian Singer - Goldman Sachs Group Inc.

Daniel Morrison - Global Hunter Securities, LLC

Leo Mariani - RBC Capital Markets, LLC

Mark Polak - Scotia Capital Inc.

David Tameron - Wells Fargo Securities, LLC

John Herrlin - Societe Generale Cross Asset Research

Pearce Hammond - Simmons & Company International

Douglas Leggate - BofA Merrill Lynch

Presentation

Question-and-Answer Session

Janine McArdle

We're in discussions right now. We hope over the next several months to make some further announcements. But as you know, these negotiations take a little bit of time. But there is a lot interest at this moment.

Pearce Hammond - Simmons & Company International

And then switching gears to North American service. What level of service cost inflation are you seeing right now? And in the Permian, for example, as well as in your central region?

G. Farris

Well, it's getting outrageous. [indiscernible] At some point, it's got to stop. Honestly, it's probably up 10%, 15% for the first quarter.

Pearce Hammond - Simmons & Company International

And what were you planning when we went through your budget process on a percentage change year-over-year?

G. Farris

We don't plan. We try to beat them up as much as we can and beat them down.

Pearce Hammond - Simmons & Company International

Okay. And then lastly, switching gears to Egypt. Recently, there was some sabotage on a gas pipeline to Israel. Does that negatively impact you guys?

G. Farris

No. I'll let Rod talk about that. That pipeline has been controversial in Egypt for years, and the gas sales agreement to Israel has been controversial for years. And it has no impact at all on our business. In fact, we have the opportunity to sell more gas, really, if we had it. We just don't have it right now. Rod, do you have a comment?

Rodney Eichler

Well, this is the second explosion or fire on that pipeline in the last 60 days, both of which were probably terrorist acts. This pipeline, in the most recent one, was a metering skid on the line just before the line crosses into the Gaza waters and Ts off, it goes along the Sinai to Jordan. It's on the far east side of country. And all of our production, or gas production, is on the western desert side. It's probably 1,000 kilometers away from this location. All of our gas is sold into the national grid to the government in the west side of the delta. Also perhaps some of our molecules after we fiscalize our gas. The goverment may take those molecules and put them into that pipeline, but we have no direct association with that gas flow.

Pearce Hammond - Simmons & Company International

Great. And then final question. And, Steve, this is a hard question, but at as it relates to Egypt, I think the former oil minister has been detained in like house arrest or whatnot. When do you think you'll get some clarity on the political situation in Egypt? Is it post these elections coming up in the fall? Or what's sort of your read at the tea leaves right now?

G. Farris

Well, there's not unlike any change in government. The previous government, whether It was ministers or prime ministers -- have to answer to the people that are in power now. That doesn't say they did anything wrong, or they did do something wrong, it's just the fact that they have to answer to them. In terms of our situation in Egypt, frankly, we have probably the best petroleum minister we've ever had, who used to be the Chairman of Khalda, was then the Chairman of EGPC and now the minister of petroleum for Egypt. His name is Abdoul Ghurab, and been in the business for 25 years, worked for GAPCO [ph] , which is the Amico-Lamico [ph]. We really don't find a lot of problems with the ministry, what we -- or even concerns, what we are going to run into here not too long from now is that we're going to have to take things to parliament, because most of these things come under parliamentary agreements for new acreage, for new gas contracts, et cetera, it has to be approved by parliament. The first order of business will, I think is supposed to be in September, they're going to have parliamentary elections, which is historically when they have them anyway. And then the ruling council has indicated that they will have a presidential election by the end of the year. So obviously, both of those are important. Frankly, the parliamentary elections are as important or more important than the presidential elections, at least in terms of having government start getting back to work.

Pearce Hammond - Simmons & Company International

Right. Well, that's very helpful. I appreciate the color there.

Operator

Your next question comes from the line of John Herrlin of Societe Generale.

John Herrlin - Societe Generale Cross Asset Research

I got a bunch of different questions. In terms to the U.S. CapEx increase, how would you split it between, say, drilling and workover activities? Even or more skewed to drilling?

G. Farris

Yes, because I will tell you generally, workover projects are the highest rate of return projects, and we've become redundant so -- but we're looking for rate of return, and workover recompletions is the highest rate of return projects you can do. So the incremental capital is, pretty much with few exceptions, is all going to be on the drilling side.

Thomas Chambers

Because the workovers would already be embedded in the capital.

G. Farris

Yes. It would already be embedded in the capital.

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