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Apache Corporation (APA)

Company Conference Presentation

May 29, 2013, 10:00 AM ET

Executives

G. Steven Farris - Chairman and CEO

Analysts

Bob Brackett - Sanford C. Bernstein & Co.

Bob Brackett - Sanford C. Bernstein & Co.

Good morning. Bob Brackett here. I'm the North America oil and gas E&P analyst. It is my pleasure to welcome Steve Farris, the Chairman and Chief Executive Officer of Apache Corporation.

The format for this session will be a hybrid between a classic presentation and a fireside chat. So what Steve will do in 30 seconds is come up and present some prearranged materials. He'll do that for a handful of minutes and then we'll sit and walkthrough a number of added questions in an interactive format.

While we're doing that, I welcome and in fact encourage you to write down questions on the sheets of paper you have in front of you and send them forward. Once we sit, I'll talk sort of how we're going to structure the fireside chat. But in the meantime, let me welcome Steve.

G. Steven Farris

Good morning, everyone. First of all, thank you, Bernstein, Bob. It's a pleasure to be here. I've got a number of slides, so I'm going to flip through them pretty quickly. What I'd like to start off with is one that I don't put this stuff for any reason other than talk about some lifecycles, because over the last several months, I've read where we have been on an acquisition frenzy. If you look at that chart, that's a 20-year chart.

In fact when I came to work at Apache 25 years old – in fact June 27th of this year, I'll been in Apache 25 years. When I got to Apache, we were producing 45,000 barrels of oil equivalent a day, which is about the size of our Argentina business today which is 6% of Apache's business.

But what I'd really like to talk about and I didn't point it out on the slide, but I'm going to talk about some lifecycles. I'm going to talk from 1993 to 1997. We doubled our production during that timeframe. We went from 85,000 barrels a day to 170,000 barrels a day. We invested in Egypt, Australia. They were going international.

If you look at from 1999 to 2003, we doubled our production. We went from about 200,000 barrels a day to 417,000 barrels a day. We increased production in Egypt and we got into the North Sea. Over the last four years, we've increased our production only 34%. We increased our production about 198,000 barrels a day, 82% was in North America onshore.

So what we have done is, is we've gone through a period of being international to start coming back into North America. When you talk about a [repeating] frenzy, it's no different what we've done over the last 25 years.

In my opinion, we have a perception versus reality. If you look at our production growth, our reserve growth, our cash flow growth, our earnings growth over the last 10 years, this is a decade chart, very representable numbers.

If you look at our return on capital employed or return on equity, the people down at the bottom, I don't know if you can read them, but it says Occi, EOG, Noble, Anadarko. Those are peer companies that are across the bottom. You can see our ROC over the last three years, and if I put this over the last five years, it would be the same as the last 10 years it would be about the same. We are a very returned focused company. We have been and we are going to continue to be.

Let's look at 2012. 2012, if you just look at that, we generated $10 billion for the cash flow. We grew our production 5.4%. We ended the year at about 800,000 barrels a day. One of the things that Apache has to do better is do a better job of giving guidance. And I can't emphasize that enough, and we will do that.

One of the issues and I almost hate to bring it up, but I'm going to bring it up because I'm going to start preaching it, is to look at our Egyptian production before tax, because what we have to do because it's a PSC, what we have to do is gross up our production in Egypt for the pseudo tax income tax that we have to pay. It's actually the obligation of the host country to pay the tax.

Had we done that on an equal level for 2012, for 2011, our production growth would have been that 7%. All things being equal because what you have to do is, you have to gross up your production or put on your financial statements to gross up of revenues and to gross up of the expense. So we got to do a better job of guiding in that regard.

We have a strong portfolio. Right now we're the number two driller in North America and United States. We're the number one Permian Basin driller. We're the number two Anadarko Basin driller. We're the number one independent operator in the UK North Sea. All these are on purpose. When we are somewhere, we are strong in that area.

We've got the largest position on the shelf. We're the number one producer in Egypt and I'll talk some about Egypt in a little bit. We're the number one domestic gas supplier in Western Australia. And the last one is, is it's true. We have one of the largest gas fields in North America. It's called Liard. One of the reasons Chevron is in our Wheatstone project, I mean our Kitimat project is because of Liard.

What is our plans for 2013? We're going to grow North American onshore liquids 25%. We've guided 3% to 5% for the year but the big growth is going to be in North America onshore liquids. We're also going to spend $2.2 billion long. So if you generate $10 billion of cash, about $2 billion of that does not affect production for 2013. And that $2 billion, part of it, goes to – about $700 million of that goes to Australia. Australia was down in 2013. It will be up in 2014. We have two oil projects coming on. It will be about 25,000 barrels a day. We've got a little gas project. It will be about 30 million a day.

And then the long-term benefit is really Wheatstone. We talk a lot about the impact of LNG. To give you some real quick numbers, when we get that on we'll produce about 30 – it says 30,000 barrels a day, I've got another chart, 30,000 barrels a day gas equivalent to oil for the next 20 years. That's $1 billion a year for 20 years, tremendous cash benefit for the next 20 years.

This is – when I talked about what we did with acquisitions, this is our North American liquids growth and our Anadarko and Permian growth over the last four years. This is on purpose. What we've decided is – I get a lot of questions about, well, can you still acquire and exploit? Trust me, this is acquire and exploit. Anybody in the industry, the most important thing Apache can do is get cost down and production up. This is the perfect place for Apache to be.

This is why we're doing it in terms of resource potential? If you look at our resource potential in the Permian and the Anadarko basin, [it works] anything else we have in this company. I will tell you starting in that in fall of this year, we're going to come up with resource potential in Canada which I think is not going to be of that size, but has real potential to do the same kind of growth potential that the Anadarko basin and the Permian basin do.

This is just some of things we're doing in the Permian basin. We have 1.6 million net acres, over 3 million gross acres. Our net production year-over-year grew 18%. That rivals anybody, even small independents in that part of the world. We're currently operating about 42 rigs. We got a huge resource potential in the Permian.

This is what our growth history has been but not standing. I can't tell you enough, this is perfect land of the type of things Apache does. If you think about 1988, I mentioned 1988, in 1988 Apache was one true component. We drilled wells in the Anadarko basin. With 95% of our capital, 95% of our cash flow came from the Anadarko basin. We spent $60 million that first year.

This is acquire and exploit. It's actually just acreage that we bought from Mariner and if you look at that chart, it's the day that we actually closed Mariner. Actually we took this over in about April of 2010. We were producing about 1,000 barrels a day and about 1 million cubic feet of gas a day. Today, it produces 16,000 barrels a day and 60 million cubic feet of gas a day.

On Mariner assets alone, this is just part of them, just in the Permian basin, we drilled 757 wells on that acreage, about 200,000 gross acreage. This is the Wolfcamp Shale, probably the hardest play in the Permian basin. We hit 90 wells horizontal planned this year. We have almost 1,000 locations, tremendous resource inventory. We got seven rigs now running in the Wolfcamp Shale.

This is the Cline Shale. That little area that's in the middle there called Deadwood, we're drilling Cline Shale wells in that area also. One of the biggest things about the Permian basin is it's got a lot of oil. It's got a lot of oil and gas. One of the largest oil places in the world, and I'm sure you've all heard this before but those kind of places lend themselves to this kind of work.

One of the things that's happening is, is we're going from drilling vertical wells to horizontal wells. And I will tell you two years ago, 10% of the wells of the industry were horizontal. Today it will be about a third and two or three years, it will be 90% because that basin, like the Anadarko basin, is going to horizontal wells.

This is the central region. We are horizontal here. We got 27 rigs running horizontal, tremendous rich returns here. Apache will never get away from looking at horizontal – I mean looking at rate of returns whether it's horizontal wells, vertical wells, conventional. Our whole mantra is rate of return.

If you look at our acreage position, I got a lot of questions about why we made Cordillera (inaudible). I mean if I put those two on there, it would have been a mirror image of each other. One of the things we're doing right now, I get a lot of questions about well, is it all there? We've got six rigs running in Tonkawa which is purely oil. I'll show you some slides here in a minute on the kind of rates that we're getting out of those wells.

We had a tight curve that we thought we could get about 300 barrels a day, we're doing 600 barrels a day. We got our cost down by $1.5 million. We took the rate of return from 17% to 31%, tremendous asset.

This is the growth in the central region over the last year two or three years. Quarter-over-quarter production increased 10%, tremendous increase in our activity level. This is some of the wells. I might point out one of the wells on there, it's called Cottage Grove. It's the first Cottage Grove well drilled in Oklahoma.

Now there's been some Cottage Grove wells drilled in the Texas side. That's the first Cottage Grove well drilled in Oklahoma with 1,900 barrels a day (inaudible). So this basin like the Permian basin, like I'm hoping that the western sedimentary Canadian basin in Canada will look very similar. We can do this kind of work, I will tell you getting cost down.

We've changed from being a conventional driller not just as the industry to be in a manufacturing business whether it's pad drilling, it's self sourcing sands, self sourcing chemicals, all of the things that you got to do that turns into a manufacturing business and that is probably the biggest change that's taking place in North America in the last 10, 20 years.

This is the North Sea. I'm going to talk a little bit about assets and asset divestitures, et cetera here in a minute. We started looking at our asset base at the end of the third quarter last year. And what we're looking to come out of this space is we're going to have assets that can grow and assets that can generate cash, because one of the differentiations of Apache is we have some very high cash flow generating regions that are able to fund the growth that we're doing in North America.

This is the North Sea; 79,000 barrels a day, Brent crude $11 a barrel, tremendous cash generated. We've generated about $1.5 billion worth of cash last year here, spent last year about $800 million. We should have a little more cash this year and we should spend about $900 million; $600 million, $700 million of excess cash.

This is Egypt. I want to say I recognize the concerns people have of Egypt and we're all in different spaces, because I've been to Egypt twice in the last six months. We also recognize that we need to do something to help validate the value of Egypt and we're working on that. But in terms of just performance, it has tremendous cash flow generation.

Last year we generated $2.7 billion worth of cash, we spent $1.2 billion which means we took out of that country $1.5 billion of cash and that is historic. We've always generated a tremendous amount of excess cash out of Egypt. There's no reason why we can't continue to do that.

Currently, we're running 26 rigs, the same number of rigs we've ran for the last five years. We continue to find great things there. We have about 9.7 million acres. We're going to drill 270 wells this year. We're starting to drill horizontal here, probably one of the better places in the world to drill horizontal wells. It has tremendous potential. Getting from here to there in Egypt is a little bit different from getting from here to there in the Permian basin, trust me.

This is our production growth over a number of years. This year marks the anniversary of our 20th year in Egypt. We've never had a disruption. We've never had to put a rig down or wait on a day in terms of our production nor our services. These are just a few, I don't know if you can read that but the resource potential is still great. You can see some rates on there; 3,000 barrels a day, 1,500 barrels a day, 2,000 barrels a day, 2,200 barrels a day, tremendous resource. One of the greatest resources in the world frankly if you do this kind of work.

This is Australia. I mentioned a little bit Australia is down in 2013 and it's headed back up in 2014 and beyond. We have Balnaves and Coniston are two little oil developments we're doing. We own about 50% average over the two of them. They'll come on about 20,000 barrels a day a piece, 25,000 barrels a day. So that should fuel our growth in 2014 plus Macedon which is not on that chart. Macedon is a gas field. It's about 800 Bcf of gas and BHP operates that.

Then the latter part of 2016, our Wheatstone project will come on. I was in Australia March I guess and sat down with Chevron folks. Chevron is the operator of this project. They're well ahead of their curve and I feel very comfortable it's coming on late 2016. But I can't say enough, we're investing about $4.5 billion in this over time. We will generate, when we get there, $1 billion a year for the next 20 years, tremendous net present value benefit.

I don't know if I can go back, there I go, talk a little bit about Kitimat. Kitimat went from raw material to now it's wholesale and we got to get it to retail. Right now we have 50% of that. Chevron is now the operator of the downstream. It is one of their top two projects in their company. If you want to listen to what they have to say about it, listen to the year-end earnings call. They are very high on this project and they're high on it because of Liard which is about 52 cf of gas.

They are doing a supplemental feed right now. We have now (inaudible) 57 people of Apache into the joint venture with Chevron downstream. They have 180 people in their project. They are working very hard on this project. And at some point this project will go forward. What our interest ends up being we'll just have to get there and see. It will be very hard for us to be able to fund 50% of this project.

So we're going to accelerate North American onshore liquids, we're going to advance those projects, we're going to do what we do best which is drive cost down. We're going to grow our dividend. We grew our dividend this year, we grew it last year. I would suspect that we will continue to do that on a yearly basis over the foreseeable future. If oil prices go to $50 that may not be the case, but in terms of everything else being equal that's where we're going to be.

We are rationalizing our portfolio. As I said, we started that really after a third quarter earnings call. Got to think about it that with timing wise is about when we integrated Cordillera. So all these things kind of go together. And what we're looking for when we come out of this is, is we're looking for assets that generate cash or assets that either had short-term or long-term growth potential. Our Board authorized 30 million share repurchase, we intend to repurchase those shares.

So with that, I'm [ready for…]

Question-and-Answer Session

Bob Brackett - Sanford C. Bernstein & Co.

So please sit down. So the format at this point, we have a few people collecting questions throughout the room. As the questions percolate up, I'll just sort of open it up and I'll give you a roadmap to kind of the big buckets I'd like to talk about and maybe that will help me slot the various questions.

So, we've heard the introduction. I was going to start it at kind of high level with some strategic questions, we're going to dig a bit into the core portfolio, talk about some of the portfolio actions which is kind of the last bullet up here, move into execution and then wrap up with financial structure and then odds and ends. So that's kind of the roadmap.

What I'd like to do is I'll just start with strategy, then I'll collect some questions and we'll take it from there. You talked about the strategy. Is Apache still an acquire and an exploit company?

G. Steven Farris

Apache is a company that takes what we think the market gives us at the time. We're not buying things right now. We have a tremendous inventory of things that we can exploit if you want to talk about acquire and exploit. I can't emphasize enough when you think about what shales are in terms of what bucket they fit it. They fit in the bucket of acquire and exploit, probably better than any other asset that you could find. Because you get all of the upside when you're growing the well as opposed to just upside that you get when you buy a mature field.

Bob Brackett - Sanford C. Bernstein & Co.

Then in the lifecycle of acquiring, I mean it seems as if I look at the Permian, central division, there are literally hundreds of years in drilling locations based on how you might calculate the inventory. For Kitimat, you talked about Kitimat being a 10 million ton train, about the same as Wheatstone but it's got five extra reserves. So you kind of play that out, that's getting up there 50 years plus of reserves. Is there any need to bolt anything into the portfolio in terms of acquire in the short term, or would you still be opportunistic or is it simply…?

G. Steven Farris

No, I don't see us – we've made this lifecycle switch just like we made the lifecycle switch back in 1999 to 2003. If you think about the last cycle switch, we are right now in the front of that new cycle and that is we're going to exploit what we have.

Bob Brackett - Sanford C. Bernstein & Co.

On core portfolio, as I sort these real-time I've got three Egypt questions, let me make sure it's not some more and I'll try to synthesize those. Who are you dealing with in Egypt? How has that changed or other aspects since the Arab Spring?

G. Steven Farris

Actually from our advantage point, I mentioned I've been to Egypt twice in the last six months. I've met with the President of Egypt. I've met with the Prime Minister of Egypt. I meet with the Petroleum Minister every time I'm there. Interestingly at the lower levels to the same people that we've dealt with for years, we have a new EGPC Chairman just recently that we'd known for the last 20 years has grown up in one of the other operating companies. Amoco BP has been there for a number of years, so has ENI, so has Shell and most of these – pads of these government agencies come from one of those operating companies and not unlike the gentleman that just took that job. It's too simple to say nothing has changed but I talked to the U.S. Ambassador, who I talk to occasionally, a couple of days ago and I said, "Anne, what's changed?" And she said, "Nothing, it's the same as it is." And that is a little bit of what Egypt is. You've got to recognize, and I'm not trying to sell Egypt now, don't misunderstand that. Egypt's got a 5,000-year history if you look at the peninsula, Egyptians see themselves as Egyptians and changing that takes a big (inaudible). I mean they have tremendous traditions, [democracies]. Making changes in Egypt at any level is very difficult and we haven't seen any change currently other than a little bit things have gotten faster. We've got more development leases in 2012 than we've gotten over the last four or five years. Development leases – to drill a successful well, you got to put a development lease together and get approval to produce the oil. We got 27 in 2012. In 2011 and before, we probably got nine a year. So they recognize the importance of the product.

Bob Brackett - Sanford C. Bernstein & Co.

Then I'll read one of these similar variations. Egypt generates lots of cash yet Apache gets little value for it. Elaborate on your efforts to highlight, or I guess in your words validate value of Egypt? And what is the timeframe we own Apache stock?

G. Steven Farris

Yeah, the one thing I try to explain to folks is and I don't mean it's bad, but if you thought about it we thought about it. I really don't want to – it would be nice to be able to validate the value of Egypt and that's all I can really say about that.

Bob Brackett - Sanford C. Bernstein & Co.

Also within the core portfolio, how much CapEx will be spent on Kitimat before it begins producing cash flow?

G. Steven Farris

Well, that depends on a lot of things and I'm really not trying to be evasive. It depends on what kind of interest we end up with, it depends if the feed changes, the supplemental feed changes anything, what's Chevron going through. Certainly we're going to have some upfront costs like we did on Wheatstone. But in terms of big dollars, until we get the FIB, there's not going to be a lot of big dollar spend on Kitimat.

Bob Brackett - Sanford C. Bernstein & Co.

Then a similar vein, best and worst case capital outlay scenarios for Kitimat and what is the expected ROIC on LNG projects?

G. Steven Farris

The little bit I alluded to. If you look at the full cycle from the day you get in to end of life, you're looking at 14% rate of return. If I looked at that project today and some cost forward, rate of return goes up exponentially because the closer you get to that's coming on line, you got 20 years of solid cash flow. It's a long time coming but once you get there, it is very consistent, very long term.

Bob Brackett - Sanford C. Bernstein & Co.

Would you be surprised – so the supplemental feed looking at cost, it would take a big step up in cost to push you away from doing Kitimat?

G. Steven Farris

There's two sides to whether you're drilling an oil well in the Permian basin or you're doing a Kitimat project. There's a cost side and there's a market side. And what we need to do is get both of those. And Chevron has taken the lead on the market side and on the downstream side and we're taking the lead on the upstream side.

Bob Brackett - Sanford C. Bernstein & Co.

You talked about potentially not having that 50% interest in Kitimat. There's two types of partners you could bring it, a downstream partner typical structure buyer comes in or just find another E&P with a bunch of stranded gas to join the party. Is it a combination of those or do you prefer one to the other?

G. Steven Farris

It could be a combination of those. Certainly I will tell you downstream buyers are starting demand more and more being a piece of the upstream. We saw it being a little for a few years here and now they're looking for bigger shares of the upstream to correspond with what they're doing on the downstream. And I would expect that to be the model, certainly the initial model Kitimat.

Bob Brackett - Sanford C. Bernstein & Co.

Then at a higher level, why put out a production growth target rather than a returns focused target?

G. Steven Farris

That's a very good question. We are returned focused. Our regional VPs which run our regions get paid on rate of return not on growth. And one of the reasons you see our ROCE, our ROE where it is, is because we incentive the return on capital employed and the return on equity. But we also recognize that we are in a peer group that is a growth peer group, and so we have to show growth.

Bob Brackett - Sanford C. Bernstein & Co.

On returns, hypothetically on the VP of Canada and I have a choice between near-term returns and sanctioning Kitimat which is really going to hurt in theory my payout for several years, how do you make sure to incentive longer term projects?

G. Steven Farris

Well, we have a development incentive program for the guys and [gals] that work on those type of projects that is separate from our regional VPs. We have separated Kitimat, we now got a Kitimat upstream business which does nothing but look after the upstream part of Horn River and Liard gas in Canada and working with Chevron and putting together the upstream. That's total different incentive than our base operating business.

Bob Brackett - Sanford C. Bernstein & Co.

Trailing ROACE for past three years is 8% that seems low. Are you covering costs – the trailing return on capital employed for the past three years is 8%. That seems low. Are you covering your cost of capital?

G. Steven Farris

Yeah, I don't know what – I mean I really don't know what that number means. I can't comment on that.

Bob Brackett - Sanford C. Bernstein & Co.

Okay. How much more could you go on asset sales, 8 billion to 10 billion?

G. Steven Farris

We have – I'm going to give you the pad answer to this. We have a very robust list. We've been through our asset base for the last six months and we have a view as to what we want to come out of that way. That asset list is larger than the $4 billion. What we have said is, is that we will execute on $4 billion of asset sales this year and we're going to use $2 billion to pay down debt and we're going to buy back shares which is $1 billion.

Bob Brackett - Sanford C. Bernstein & Co.

Apache is an E&P with a footprint similar akin to a major. Why the need to be in all these international locations?

G. Steven Farris

Well, if you've looked at – and let's take the politics out of Egypt for a minute, if you've looked at the North Sea and you've looked at Egypt, together they're going to generate $2.1 billion worth of excess cash. One of the things that happens when you do the type of work we're doing in the Anadarko and Permian basin, you outstrip your cash flow. So we need assets that can generate cash and we need assets that can grow.

Bob Brackett - Sanford C. Bernstein & Co.

If I talk about the Permian basin, you mentioned self sourcing sand is one of the initiative. Is that something you're actively doing now?

G. Steven Farris

Yes.

Bob Brackett - Sanford C. Bernstein & Co.

Is that through owning sand mines or simply buying sand and delivering it to sites?

G. Steven Farris

Well, right now we're buying sand and we're looking at other alternatives. That whole business whether it's Permian, Anadarko or possibly Canada, it's going to turn into a manufacturing business.

Bob Brackett - Sanford C. Bernstein & Co.

How far along do you think you are? Are you frustrated by the pace or have you kind of cracked the code in the Permian, if I go back to…?

G. Steven Farris

No, I feel good about where we are. I think we have a lot of room to continue to reduce cost and there's myriads of ways to reduce cost and they're all not great big numbers. They're cut three days off of drilling a well, hitting three fracs a day rather than two fracs a day. I mean it's a manufacturing business.

Bob Brackett - Sanford C. Bernstein & Co.

Are there things that potentially worry you whether it's midstream takeaway or service level, I mean anything that will stop the Permian or central from kind of continuing?

G. Steven Farris

Service levels don't – even the service companies and I don't know if you have any on your panels, but I would venture to say their model is changing. We've certainly see it with the major service providers that we have. Takeaway capacity is restrictions for a period but any time there is a space where somebody can make money and right now that part of the business has all the potential [world] to make money, people will come to you. We're building the plant ourselves and we were counting really to aggregate all our activity in that part of the world. But we're probably not in the results, the rightful owner of that plant.

Bob Brackett - Sanford C. Bernstein & Co.

So which ties into this, there are some assets in the market which are mispriced in a good way midstream assets, international assets, deepwater assets, do those percolate to the top of your disposition list?

G. Steven Farris

Some do, some don't. Let's talk specifically about midstream. Actually three years ago, we tried to put a midstream business together, maybe four years ago in Canada and one of the problems in Canada is, is that working interest owners own the plant. So it's difficult in Canada to put together. In the United States regrettably we don't have that big asset base of midstream because we generally left someone else move our product or take our products. So we don't have a real aggregate of midstream assets in the U.S. in which to maximize the value of.

Bob Brackett - Sanford C. Bernstein & Co.

Then given recent press reports of private equity interest in some of your assets, are there more buyers than you anticipated?

G. Steven Farris

We're going to get a robust list of assets that we intend to sell. Don't believe everything you read in the paper. I think it's safe to say that I feel comfortable about being able to execute on $4 billion worth of assets this year.

Bob Brackett - Sanford C. Bernstein & Co.

Moving to some of the more financial structure, what does the rate of return for buying your stock where you have superior knowledge compare or how does the rate of return for buying back your stock compare to other opportunities in the portfolio?

G. Steven Farris

That's a very good question. Historically and I'm sure – I see a lot of folks out and a lot of them that I've talked to over the years, buying stock back is not something – I still think it's in the best but I also think that when you got $100 oil and the stock price that has this much upside as Apache does, it's a very good time to borrow stock which we intend to do. Making that case on one side of the other, mathematicians try to make that case as to which one is the highest rate of return. I think it behooves us right now to borrow stock back.

Bob Brackett - Sanford C. Bernstein & Co.

Could you see even more than 30 million shares repurchased?

G. Steven Farris

Right now, we have authorized 30 million shares by our Board.

Bob Brackett - Sanford C. Bernstein & Co.

In the past two years, you had added Board members with investing in financial backgrounds, i.e. ex-head of Goldman Energy Banking an advisor at Warburg. What impact have all these additions had on Apache's strategy and financial decisions?

G. Steven Farris

Well, I think they've been very good Board members. They've been associated with Apache for a number of years. They know who we are and they like to focus on rate of return. They were very rate of return driven themselves. So it's been refreshing.

Bob Brackett - Sanford C. Bernstein & Co.

You seemed to have a serious communications issue with your shareholders, you can address whether that statement's true or false. What concrete steps will you be taking to correct this?

G. Steven Farris

Well, I think we need to do a better good job of communicating what we're doing before we're doing it. I think we need to give – we need to work on giving our guidance. One of the reasons I went into the long dissertation about Egypt that really affects when you just look at an absolute number, that really affects our production growth. I'll give you a for instance. If you look at first quarter of 2012 with the first quarter of 2013, we showed just on the production that we – 1.6% production growth. If you had kept Egypt – if you had taken tax barrels out of Egypt which are non-cash, not Apache, we would have been 3.1%. So we have to do a better job of communicating the real growth in Apache and what it means as opposed to just what you looked at on the screen when you see a number reported.

Bob Brackett - Sanford C. Bernstein & Co.

Another example might be with the whole asset sale process, people clearly like – at least people I've talked to, liked this asset sale process (inaudible) opacity to the whole thing. We'll see press releases around deepwater assets potentially for sale or Gulf of Mexico shelf assets, but generally you've been fairly vague about what's on the market. Could you talk about the reasons in your mind for being vague?

G. Steven Farris

No, I don't think – number one, I don't think it helps maximize value. I think if you stop and think about it, it would be nice to be able to say we're going to sell this and this and this but with also execution risks and whether we're going to get a price that we like. But the biggest thing is, is it doesn't help us in terms of generating the most cash for our shareholders.

Bob Brackett - Sanford C. Bernstein & Co.

It gives a little comfort to the shareholders.

G. Steven Farris

Hopefully when we get done, it will be comforting.

Bob Brackett - Sanford C. Bernstein & Co.

Okay. What percent of the last two years CapEx has not been spent in generating production, i.e. is going for long-term projects? And what would that percent be going forward?

G. Steven Farris

Well, this year it's about 20%. I think last year was about the same number, frankly. I mean we have one more year of Wheatstone – a big project in Wheatstone and then it trails of significantly after 2014. And Kitimat right now, I can't say. We're spending very little money in terms of our overall budget in Kitimat in 2013.

Bob Brackett - Sanford C. Bernstein & Co.

Final, which is another on Egypt, would you consider outright selling Egypt, what price would make you think about it?

G. Steven Farris

The one thing I want to point out, when articles come out like that we have a number of audiences when we're talking about Egypt. That article appeared in Al Ahram the next day. Al Ahram is the national paper in Egypt. We are the number one producer in Egypt. So it's difficult to manage all the expectations. So we would like to find a way to validate the value of Egypt.

Bob Brackett - Sanford C. Bernstein & Co.

A couple of questions on macro, where are you in terms of long-term oil and gas prices? How does Apache think about the full cycle? How do you budget against intentionally volatile prices? Do you think North America gas recovers?

G. Steven Farris

I'll give you a real 30,000 foot look of how I feel about the two products. Regardless of how many wells we drill as an industry and increased oil production that's an exponential curve, I think it takes tremendous amount of capital not for just one company but as an industry to raise 6 million barrels to 8 million barrels, it gets bigger and bigger. So that's going to be difficult for the United States. It's also high cost crude compared to some other places in the world. We are definitely way over the maturity curve on wells. I think whether in the next year or two, you see oil prices linger a little bit between 90 and a 110, I think forward curve is going to be up. I think natural gas in this country should – before anybody else said it, I thought natural gas prices were going to go in the pits. I'm changing my view a little bit. Not that it's going to go back to $14 but I think you got some upside in the price right now. I think we've hit the bottom and not when it's going to go up in gas wells because we've drilled very, very few gas wells. If we wanted production, we could drill Horn River and get 1 billion cubic feet a day out of Horn River right now. So it's not about how much gas you can flow or what you're gas production is. But I sense for a lot of reasons I think you're seeing utilities being regulated to go to natural gas. I had a meeting with a number of Eastern utilities here my role as Chairman of ANGA. We met with all the utilities on the East Coast and all of them were scared to death of LNG exported (inaudible) because they are being dictated to get off to some of the coal and go to natural gas and they're – if you look at their base load now, it's becoming more and more natural gas which means you're going to get more demand. So I'm slightly positive on the natural gas side.

Bob Brackett - Sanford C. Bernstein & Co.

Do you think LNG exports will raise domestic gas prices?

G. Steven Farris

Not significantly. When I say I'm slightly positive, the reason I'm only slightly positive is because we got a lot of gas in this country. And if we see $6 gas, you're going to see a lot of gas people run out and (inaudible) which we're going to put it right back in the same position. I think as United States of America, we should let free markets work if people could export LNG, they ought to be able to export LNG. We preach that around the world. Having said that, I don't really see a bunch of LNG facilities going in. It's a difficult model to put together in the United States because you got to have your gas or you got to aggregate the gas at the LNG hub which is not as easy. I mean if you say it real fast, it sounds okay. But when you stop to think about what that means, it's more difficult than you think it is.

Bob Brackett - Sanford C. Bernstein & Co.

I think in the interest of time, activism. Activism in the oil patch has been a prominent theme in the past year. Have you had interactions with any activist investors? Would it be a positive role in this space?

G. Steven Farris

Our only activists that I'm aware of is ourselves. We're dead-set on continuing that curve I put up at the beginning of this presentation. We're a growth company. We've been in business for almost 60 years and we're going to continue to be successful and we're going to find ways to be that.

Bob Brackett - Sanford C. Bernstein & Co.

With that, I will thank you.

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Source: Apache Corporation's CEO Presents at the Sanford Bernstein's 29th Annual Strategic Decisions Conference 2013 (Transcript)
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