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Apache Corp. (NYSE:APA)

Q4 2013 Results Earnings Conference Call

February 13, 2014 2:00 PM ET

Executives

Brady Parish - Vice President, Investor Relations

Steve Farris - Chairman and CEO

Tom Chambers - Chief Financial Officer

Roger Plank - President and CCO

John Christmann - Executive Vice President and COO, North America

Tom Voytovich - Executive Vice President and COO, International

Analysts

Pearce Hammond - Simmons & Co.

Bob Brackett - Bernstein

David Tameron - Wells Fargo

John Malone - Mizuho Securities

Brian Singer - Goldman Sachs

John Herrlin - Societe Generale

Doug Leggate - Bank of America

Leo Mariani - RBC

Michael Hall - Heikkinen Energy

Joe Magner - Macquarie

Jeffrey Campbell - Tuohy Brothers Investment Research

Richard Tullis - Capital One

Michael Rowe - Tudor Pickering, Holt & Company

Charles Meade - Johnson Rice

Operator

Good afternoon. My name is [Tammy], and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation Fourth Quarter 2013 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. I would now like to turn the conference over to Mr. Brady Parish, Vice President of Investor Relations. Sir, please go ahead.

Brady Parish

Thank you, Tammy. Good afternoon, everyone. And thank you for joining us for Apache Corporation’s full year and fourth quarter 2013 earnings conference call. On today’s call, we will have three speakers making prepared remarks prior to taking questions. I will start by giving a brief summary of results and then we will hear from Steve Farris, our Chairman and Chief Executive Officer; followed by Tom Chambers, our Chief Financial Officer.

In addition, joining us for the question-and-answer session which will follow the prepared remarks are Roger Plank, President and Chief Corporate Officer; John Christmann, Executive Vice President and COO of North America; and Tom Voytovich, Executive Vice President, COO of International.

We prepared our quarterly financial supplemental data package for your use, which also includes the reconciliation of any non-GAAP numbers that we discuss, such as adjusted earnings, cash flow from operations, pre-tax margins or cash margins.

In addition, we have prepared an operations supplement which summarizes our activities and includes detailed well highlights across the various Apache operating regions. These can both be found on our website at www.apachecorp.com/financialinformation.

Today’s discussion will contain forward-looking estimates and assumptions based on our current views and most reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss today. A full disclaimer is located with the supplemental data package on our website.

This morning we reported 2013 earnings of $2.2 billion or $5.50 per diluted share. Adjusted earnings, which excludes certain items that impact the comparability of results totaled $3.2 million or $7.92 per diluted share. Cash flow from operating activities totaled $9.8 billion for the year.

During the fourth quarter, total net production averaged approximately 688,000 boe per day with liquids production constituting 55% of the total. Total net production excluding the noncontrolling interest in Egypt totaled 661,500 boe per day.

In addition to the sales of the noncontrolling interest which closed on November 14th production during the fourth quarter was impacted by the sale of our Gulf of Mexico Shelf operations which closed on September 30th, the sales of selected Canadian assets which closed in September and October, and the impact of severe weather on our Permian and Central region operations all which we previously disclosed.

As a final note, I want to remind everyone about our upcoming Investor Day which will be held the morning of February 26th at Houston. Among other things we will be providing 2014 capital and production guidance, as well as a longer term view of our high graded portfolio is capable of achieving. We look forward to see you there.

With that, I’ll turn the call over to Steve.

Steve Farris

Thank you, Brady. And excuse me, good afternoon, everyone, and thanks all of you for joining us. As Brady pointed out, despite the uncertainty surrounding our fourth quarter results associated with divestitures, Apache reported another year of strong financial results. We generated $3.2 billion of adjusted earnings and $9.8 billion cash flow from operations.

And our performance is in large part due to the success of our strategy to rebalance our portfolio to drive returns by achieving the right mix of predictable production growth from North American onshore assets combined with substantial free cash flow generation from our International operations.

During the past year we successfully executed our strategy in three important areas. Rebalancing our portfolio by divesting of assets that’s no longer fit our ideal growth for cash flow return profile but the end results being a higher growth, more predictable and profitable portfolio.

Maintaining our relentless focus on being best-in-class in operational execution, which frankly has been a long time core of Apache over the years. Taking a discipline approach to capital allocation that enables us to grow production, reduce operating costs and enhance return to shareholders.

First, with the Argentina sales which we have announced yesterday after the market close, we have largely accomplished what we have set out to do in 2010. To make our North American onshore regions a center piece of our growth strategy going forward.

This latest transaction is on the heels of completing over $7 billion of divestitures in 2013, needed high grading our portfolio to include the right mix of assets capable of generating strong returns, driving more predictable production growth and enhancing shareholder value.

We still have a couple of small packages, we are marketing one in South Texas and one in Canada, but we should get done in the first half this year, but in all we expect the heavy lifting is certainly behind us.

Pro forma for 2013 completed transaction plus Argentina. Our North American onshore production represents nearly 60% of our total production during the fourth quarter of 2013. That’s up from 70% during 2009, the year before we embarked on our strategy to substantial bolster our North American resource base.

In addition, our North American asset base which contains 1.81 billion barrels of oil equivalent approved reserve now represent 71% of our total year end reserves with the pro forma of Argentina and even a larger percentage of our total resource base.

Second, with regard to operational execution, we demonstrated the effectiveness of our transition for North American onshore liquids growth in 2013, with all four of our onshore North American regions increase in liquids production at attractive rates of return.

You can read more details about our operational performance in our operational supplement. But I am going to mention a few highlights. Our North American onshore liquids production increased nearly 46,000 barrels per day or 34% full year 2013 versus 2012. During the fourth quarter we averaged 187,000 barrels per day represents nearly 50% of our total worldwide liquids production and 27% of our overall production.

Just as impressively, our 2013 onshore North America crude oil production grew nearly 23,000 barrels a day, which is an increase of 23% versus 2012. Our fourth quarter North American oil production averaged 134,000 barrels per day, representing nearly 19% of our total worldwide production. Both of these exceptional production growth rates place us in the top of our large peer group.

Furthermore, our U.S. onshore resource base continues to deliver sector leading performance. During 2013, Apache was the most active onshore U.S. driller, running an average of 71 rigs and completing 1,150 gross wells.

During the fourth quarter, we averaged a combined production of 227,000 barrels equivalent per day from our Permian and Central Regions alone. We are nearly one-third of our total production.

In addition for the first time, we treated 100,000 barrels a day of combined crude oil production from these two regions. Importantly, we have combined our production growth with a relentless focus on operational execution and cost efficiency.

In all of our onshore regions, we continue to do what Apache does best and that’s reduce costs, increase production, driving returns. During the fourth quarter, we lowered our lease operating by 11% to nearly $10 per boe.

Finally, as I mentioned in our press release, we replaced 140% of our worldwide production to our exploration and development activities. We also grew our proved reserve base by nearly 4% on a pro forma basis. Excluding acquisitions, divestments and revisions, this was predominantly driven by our outstanding results from our onshore North American drilling activities from which we replaced over 200% of production.

The Permian had exceptional performance, replacing nearly 325% of production and drilling reserves by nearly 14%, from 800 million barrels of oil equivalent to 910 million barrels of oil equivalent, which now comprises over 34% of our year end proved reserves. This is best-in-class versus Permian Basin operators in our weight class.

Similarly, Central replaced nearly 200% of its production and grew its reserve by nearly 14% to 304 million barrels of oil equivalent, which constituted nearly 12% of our proved reserves. Third, with respect to capital allocation, on prior calls, we stated we will primarily use the net proceeds received from these divestitures to reduce debt and repurchase shares under our 30 million share authorization from our Board.

Using a portion of the sales proceeds received during 2013, we reduced our debt by $2.6 billion to $9.7 billion and repurchase $1 billion of stocks at year end. In addition, we have repurchased $100 million of stocks so far this year, bringing the total number of shares to 12.4 million. We continue to believe our stock is a compelling investment at current price levels.

Finally, we announced last week that our Board increased our 2014 quarterly dividend by 25% to $0.25 per share. This follows increases of 18% in 2013 and 13% in 2012. The significant increases are direct reflection of the confidence we have executing our future growth plans.

As Brady mentioned, we are going to provide our 2014 capital and production guidance at our Investor Day on February 26th as well as provide a longer term view of what we believe our high graded portfolio is capable of achieving. I think you are going to be pleased with what you see.

As a final comment, we firmly believe that the strides we have made in our efforts to rebalance our portfolio have enabled us to emerge from this process a stronger company. One that can continue to do what we do best. Exploit our inventory of opportunities, allocate capital to generate attractive returns, profitably and predictably grow our production and in the end create long-term value to our shareholders.

So with that, I would like to turn the call over to Tom Chambers.

Tom Chambers

Thanks, Steve and good afternoon everyone. Fourth quarter like the rest of the year was a busy one in terms of activities to reposition the portfolio. This was the first quarter without the shelf production. We completed two additional property sales in Canada and closed on the sale of one-third non-controlling interest in our Egypt business to Sinopec.

We also bought back additional $750 million of Apache shares during the quarter, bringing the buyback to total of $1 billion in 2013 and in addition, paid down debt. Consequently, the quarter’s financial results were not fully reflective of Apache going forward in 2014.

One key element I want to highlight before we go any further is the change you will notice in our financial reporting as a result of sale to Sinopec, up to one-third minority stake in our Egypt operations.

Since we retained a controlling interest in the assets under the accounting standards, we continue to consolidate the entire region to reflect Sinopec's non-controlling interest separately in our financial statements.

For instance, on our income statement, we back out Sinopec’s interest in the new line item called net income attributable to non-controlling interest. Similarly, production and reserves are also reported on a fully consolidated basis and the amount attributable to the non-controlling interest is indicated in footnotes of the tables.

As a result, all of our comparable metrics remain the same. All data to which I refer is based on the GAAP numbers. The financial supplement also on our website provides additional details showing the impact to Apache on a net basis.

Turning to the results, we finished the fourth quarter with production averaging nearly 690,000 barrels of oil equivalent per day, lower than the previous quarter as expected, primarily impacted by the Shelf and Canadian property sales.

More importantly though we created a strong foundation on which to move forward. During the year, we were able to shift our production mix to 54% liquids, up from 51% in the prior year. Also, North American onshore liquids production increased over 34% from 2012.

Oil price realizations averaged approximately $102 per barrel for the year, down 1% from 2012. For the quarter, oil realizations were 6% lower than third quarter at a $100.59 per barrel. Bear in mind for the quarter and going forward, with the divestiture of our Shelf assets, less of our oil production is receiving Brent like prices, which directly reduces our overall realizations.

We are now seeing about 60% of our oil production priced at Brent or Brent comparable indexes, down from 64% in the third quarter. Gas prices for the year averaged $3.70, a $0.10 per mcf decrease from last year as our prior year hedges rolls off. For the quarter, bit of a cold weather propped up prices to $3.71 in mcf, 6% higher than the sequential quarter.

Heading into 2014, we have hedged 62,500 barrels per day of each Brent and WTI oil at a $100 and $91 per barrel respectively. On the gas side, we’ve hedged 100 million cubic feet a day of gas, commencing in February, rising to 150 million cubic feet per day in March through December at an average price of $4.29. All hedges are financial and not cash flow hedges.

Despite a year with a lot of moving parts, we are able to report solid earnings of $2.2 billion or $5.50 per share, up $0.14 -- 14% from 2012 despite the impact of several key non-recurring items.

Our results included $659 million in after-tax non-cash property write-downs primarily related to full cost ceiling impairments in the U.S., North Sea and Argentina. We also distributed $643 million in cash proceeds received from our strategic partnership with Sinopec in Egypt, back to the U.S. which resulted in a deferred tax charge of approximately $225 million.

In current year net operating loss will be utilized to offset any current tax otherwise due on this repatriation. We had unrealized after-tax derivative losses of $142 million and the $65 million benefit in other deferred taxes associated with foreign currency fluctuations and valuation allowances. When we remove all these non-cash items for comparability purposes we earn $3.2 billion or $7.92 per share for 2013 versus $3.8 billion a year ago.

Operating cash flows remain strong given the performance of our North America onshore base. We generated $9.8 billion cash flow from operations before working capital items and $2.1 billion in the fourth quarter. Total cash operating expenses were $17.32 per barrel of oil equivalent for the quarter and $17.62 for the full year. The lower rate in the fourth quarter reflects some of the benefits of exiting the higher cost Shelf properties, the lease operating expenses which we have done over $1 per boe from sequential quarter.

Apache’s cash margins decreased by 5% versus the third quarter to $40.50 per boe and 5% versus the prior year to $40.99 per boe, primarily driven by lower oil prices and realized derivative losses. Our product mix and shift to geographic emphasis has also impacted our tax rate for the quarter. Our effective tax rate after adjusting for non-recurring items was 44%, higher than historical. This was the result of loss of Shelf revenue which skewed our total revenue to our higher tax rate international regions. This higher tax rate, plus the lower realizations discussed earlier could be two of the main differences between reported and consensus estimates.

Likewise our effective tax rate for the full year 2013 was 46%. Adjusting for non-recurring items mentioned earlier, the effective tax rate would have been a more typical 42%. The $7 billion in cash proceeds from our Egypt Shelf and Canadian transactions we were able to effectively deploy the cash to increase drilling in 2013, enhance our [audio gap] and commence our share buyback program.

We increased our U.S. onshore drilling program by $700 million over our original budget, paid down debt by $2.6 billion to $9.7 billion at year end and bought back share in 2013 totaling $1 billion. We purchased an additional $100 million of stock in January bringing the total buyback since inception to $1.1 billion and 12.4 million shares bringing the outstanding share count as of end of January at 394.7 million shares.

Just as important we exited the year with a debt to capitalization ratio of 22%, no commercial paper outstanding and $1.9 billion in cash which adds flexibility to our balance sheet and is a nice position to have as we head into 2014.

This concludes our prepared remarks. I will now turn call back over to Brady?

Brady Parish

Thank you, Tom. Operator, we are now ready to open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Pearce Hammond with Simmons & Co.

Pearce Hammond - Simmons & Co.

As highlighted in your operations of data, I noticed in the Permian a change in some of your net acreage positions, have you done some recent land work or is it just a new assessment of prospectivity for the different zones in the Permian?

Steve Farris

Pearce, it’s really something we continually do as we look at this and some areas we picked up some acreage, some areas we have let it little bit go. So I think that’s the dynamics of what we are doing. Also in the plays we’re chasing we’ll be acquiring. So it’s a little bit of everything and I think we will outline that in great detail in a couple of weeks at the Analyst Day.

Pearce Hammond - Simmons & Co.

Great. And then a follow-up, it was the big industry-wide ramp in activity in the Permian, how are service costs trending there right now and what have you done not relating yourself from any surface cost creep or service availability issues?

Steve Farris

We continue to the business as we build critical math and we’re in the low 40 rig count the Permian for mid part of last year. So I think it’s something we got people in place we got relationships in place, we’ve kept frac crews and drilling rigs busy. So that’s been very good. I think in general we see cost trending now and they are flat right now in terms of service. A lot of that at this point is going to be driven by efficiencies. Producing days are just getting better and the exploits we continue to do every day.

Pearce Hammond - Simmons & Co.

Great. And then the last one for me, I know it’s the gathering transmission and processing facility capital spending, last year was a big enough to think about 1.3 million up from nearly 800 million year before. Is that something, is that little more one-off or you would expect it to be at these elevated levels for a while?

Steve Farris

Again we looked at the detail of the chart, I would assume that it’s one of our Wheatstone project and also we built the plant in (inaudible) it’s a best plant in (inaudible) it’s probably the uptick. The vast majority of it would be associated with our Wheatstone LNG in Australia.

Pearce Hammond - Simmons & Co.

Thank you very much, Steve

Operator

Your next question comes from the line of Bob Brackett with Bernstein.

Bob Brackett - Bernstein

Okay. Following up on the comment on the heavy lifting behind us in terms of asset sales, how does that drive with the notion of the Sinopec deal being part of a strategic partnership?

Steve Farris

When I was talking about its repositioning, we are probably out. In terms of what we set out to do several years ago actually is North America went to work is centerpiece of our growth because we have over 3 million acres in the Permian, we have over 2 million acres in the Anadarko Basin and we have some plays in South Texas, we have some plays in Canada. And that’s going to attract most of the capital, but it really taking about is the base in terms of either having assets that can grow or assets that provide cash flow and if they can’t do either, that’s not going to be part of the portfolio.

Bob Brackett - Bernstein

And then on the other question, if I look at sort of the implied price at which you were repurchasing your equity. It’s probably closed to the high 80s, almost touching 90 and we’re sitting here today at a much more attractive entry point. How does that drive your thinking about the share repurchases?

Steve Farris

No. I think I said in my prepared remarks, we view our stock as a good investment price now. I think our average price was probably around 85 bucks or little. I don’t have that in front of me.

Bob Brackett - Bernstein

Well, thanks.

Operator

Your next question comes from the line of David Tameron with Wells Fargo.

David Tameron - Wells Fargo

Hi. Good morning. Can I just talk about the ramp? I guess, good afternoon. Sorry. Could I just talk about the ramps and the vertical to the horizontal and in the Permian. How should we think about that over the next whatever -- next four quarters, next six quarters, I’m just trying to figure out with you guys, what that looks like?

Steve Farris

David, I think where we ended the fourth quarter was about 50-50 on the terms of what you see out there. We did start dropping some vertical rigs in the third quarter as we transitioned and picked up some verticals. Right now, we’re running slightly more horizontals and verticals and I would anticipate that trend moving forward. We’ll get into the details at the Analyst Day as we start looking forward.

David Tameron - Wells Fargo

Okay. And then if I just -- I hate to ask a detailed question. If I could just ask about the weather impact in both the Permian and Central. Did you guys have -- I’m just trying to figure out what the true run rate is for what those region ex weather impact. Can you give us…

John Christmann

In Permian, it was about 3,000 BOE a day, net in terms of the fourth quarter. Most of that was from the November storm that hit pretty hard. Central was a smaller number and it was not as impacted as we were in Permian.

David Tameron - Wells Fargo

Okay. And all the weather impacts behind for now?

John Christmann

You will see several numbers in Central as you look going into January and February and a little bit Permian as well.

David Tameron - Wells Fargo

Okay. I’ll let somebody else chip in. Thanks.

Operator

Your next question comes from John Malone with Mizuho Securities.

Steve Farris

Two questions is enough.

John Malone - Mizuho Securities

Good afternoon. One, just, can you give us an update on Kitimat, the marketing process here, I’m going to talk now about Asian companies looking at gas and (inaudible) anything you can comment on that and how things are going there?

Steve Farris

Well, I will tell you with Chevron as our Partner and Chevron is leading that effort. The downstream and the pipeline is now operated by Chevron, really part of the marketing. We have a dual marketing agreement but certainly Chevron with their knowledge and history in the market is leading that.

I can tell you we continue to talk to people more than just slightly. I think what we said, I know I said it in Goldman this -- this year is a year. We got to rightsize the size of Kitimat in our portfolio and that could come several different ways. One is with a Sinopec buyer taking an interest across the board. But I happen to read, John Watson’s comment in Chevron’s year end conference call. Certainly it is a big asset for them and it is a big asset for us.

John Malone - Mizuho Securities

Okay. Fair enough. Thanks. There is a question for Tom. It looks like there was an uptick if I’m reading correctly and the additional portion is of DD&A. Can you just tell me what was behind that?

Tom Chambers

There was a lot of DD&A and I kind of went through a number of those on the call. We had write-offs. We had charge for bringing cash back to certain charge of $225 million to bring cash back. So when you add all that in, that picked up DD&A.

John Malone - Mizuho Securities

Okay. So all that you mentioned now gets piled into that, that additional DD&A number?

Tom Chambers

Yes.

John Malone - Mizuho Securities

Okay. Perfect. Thanks a lot.

Operator

Your next question comes from the line of Brian Singer with Goldman Sachs.

Brian Singer - Goldman Sachs

Thank you. Good afternoon.

Steve Farris

Hi Brian.

Brian Singer - Goldman Sachs

In Permian, you highlighted in the ops update, you are buying hard area and the Reagan County as the key component of the Wolfcamp program. Can you put into context your views on the rest of your Midland and Wolfcamp acreage, the differences and similarities you see in the upper versus the middle zone wells and whether you plan to test any of the shallower zones horizontally?

John Christmann

At this point, Brian, (inaudible) lot of wells. We ramped six rigs versus last year. We currently got five in there right now. As there we got and it really work hard to try to understand. I think as we all know as you move back to the lower to the west and Midland Basin, we’ve had good results. Clearly, we got, I think seven rigs running in those other areas. So it’s area we will start to shift to, take our learnings from Barnhart and that’s something we will walk through in two weeks as we outline in our Analyst Day. But there is also multiple other zones that we’re looking at there. And so not just in the Wolfcamp.

Brian Singer - Goldman Sachs

Got it. Now you’re seeing some of the results so far from the Upper, from the Middle and the Barnhart?

Steve Farris

I would say good results from both zones.

Brian Singer - Goldman Sachs

Okay. Thanks. And then separately just in terms of how you’re thinking about 2014 maybe this is more analyst material but can you just talk about CapEx versus cash flow and level of comfort without spending versus not outstanding this year ex Kitimat and Wheatstone and with Kitimat and Wheatstone?

John Christmann

In terms of the details of all that we’ll certainly get into that on in our February 26 Analyst Day. I think I’ve said at Goldman conference. We’re going to look within our cash flow with our E&D budget and we’re going to finance our LNG project outside of our cash flow.

Brian Singer - Goldman Sachs

Great. Thank you.

Operator

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

John Herrlin - Societe Generale

Two quick ones, assuming you’ve maintained a kind of run rate in Permian and Central as you have been on a spending basis and activity basis. Should we expect if prices are kind of constant to have a similar or large amount of reserve ads in terms of expansion discoveries. As far as I can recall, this is the most onshore ad you’ve ever had onshore. That’s one -- if this is run rate basis we’ll see this repeat?

Steve Farris

Well, certainly let me kind of answer that directly. We’re going to show a lot of that on the 26th of February. But what we’ve been up to over the last three years is to make those certainly the Permian and Central region and some of the other things we’re doing in North America, the center piece of our growth. So we would expect to continue to be able to grow on Permian, Central and our overall onshore North American assets.

John Herrlin - Societe Generale

Okay. Thanks Steve. Regarding Argentina, you did have a lot of unconventional potential. Was it just not worth all the hassles, political in terms of getting money out of the country in terms of repatriation?

Steve Farris

It’s a situation that is for us. It was 3% or 4% of our reserve, 3% or 4% of our production. And if you think about the opportunities that we have in North American onshore and you think about bringing that money forward, what we can do with, it made all the sense in the world, John.

John Herrlin - Societe Generale

Okay. Thanks.

Operator

Your next question comes from the line of Doug Leggate with Bank of America.

Doug Leggate - Bank of America

Thanks everybody. Hey Steve, I was wondering if I could just come back on portfolio rationalization question. Specifically when you sold the Gulf of Mexico, one of the, I guess, justifications was the reserve life had -- it is difficult to see how you could replicate recent terms of the market and have been able to give credit for it. But it did generate free cash flow. I’m just wondering, it seems to me that the U.K. kind of falls into lot of the same categories. So I guess, my question is are you not done with your portfolio rationalization and if so why does U.K. to rank as competing for capital versus the onshore. And I’ve got a quick follow-up please.

Steve Farris

Yeah. What we have said is we want assets that generates substantial cash flow. We want assets that can grow. In the North Sea, we’ve been able to generate quite a bit of excess cash flow while keeping it relatively quiet. But one thing I would say, the difference between that and Gulf of Mexico we were facing about $250 million a year of abandonment liability because of the change in the laws, because of Macondo, so it was time to divest that asset.

Doug Leggate - Bank of America

Okay. So do you (inaudible).

Steve Farris

What we have on the books right now is our assets going forward and we think we have tremendous potential to grow where we are.

Doug Leggate - Bank of America

Great. I appreciate that. And maybe my follow-ups for Tom maybe. Tom, you gave us the earnings number for the non-controlling interest, I wondered -- and which is the housekeeping question though, I wonder if you can give us cash flow numbers associated with that and I will leave it there? Thanks.

Tom Chambers

I don’t have the cash flow, you know the way the accounting, accounts work there wasn’t very much actual cash flow that came out and since we didn’t do the acquisition for the sale until middle of November, but it’s going to come out in investing and will show up in investing activities on a go forward basis. I don’t have that number in front of me Doug, but we can get. If you call Brady afterwards, he will get it for you.

Doug Leggate - Bank of America

All right. Thanks everybody.

Operator

Your next question comes from the line of Leo Mariani with RBC.

Leo Mariani - RBC

Just a follow-up question here on Argentina, would you guys expect to report that is discontinued operations at all in the first quarter, or is it going to stay in your financials until the deal closes? And then I guess additionally, are you guys going to be able to repatriate all that capital back to the U.S. and there isn’t going to be any tax leakage.

Tom Chambers

Leo, we are still looking at how we are going to report. Obviously, we just signed the deal yesterday, hasn’t closed yet. So we are looking at, by the end of the day we should have an answer on how we are going to report it. In terms of the cash, the cash will remain overseas until we determine what our needs are both internationally and domestically.

Leo Mariani - RBC

Okay, I guess…

Steve Farris

And the currency is U.S. dollars.

Tom Chambers

U.S. dollars.

Leo Mariani - RBC

Okay. I guess just looking at Egypt here, kind of getting into your financial supplement, it looks like your gross production kicked up this quarter from Q3 in the first time a little while. Do you guys see any kind of renewed growth going forward? In Egypt I think your rig count has been pretty steady, but I guess the growth production hadn’t done much until this quarter. Just trying to get a sense of dynamic there, do you guys think that you have done better captive growth here going forward?

Steve Farris

I think that the uptick that we have seen in the fourth quarter is largely a timing thing. We had a fairly slow process in getting new development leases approved, but what’s that happened at the beginning in the year of the third quarter we had that uptick in production and you are seeing all the new discoveries coming online at this point in time. That’s the explanation to that.

Leo Mariani - RBC

Okay. And I guess that is looking at the Gulf of Mexico Shelf, I thought it was a little bit of production in the fourth quarter, is that just prior period adjustment or is that actually some lingering legacy stuff and maybe one so?

Steve Farris

Well, I think it’s associated with the state water stuff that we have.

Tom Chambers

But also remember we had some rights that didn’t close until the fourth quarter, so that reflects the production off of properties until they close.

Leo Mariani - RBC

Okay. That’s helpful. Thanks guys.

Operator

Your next question comes from the line of Michael Hall with Heikkinen Energy.

Michael Hall - Heikkinen Energy

I guess, first on my and the operational supplement had some info on the Delaware Basin, just curious, it look likes it’s pretty low working interest on the acreage position there. How much of that is operated and all the activity you are moving forward here near term? Are there any particular areas that you are focused on and what’s the interest looks like around those assets?

Steve Farris

When you look at Delaware Basin position, we have picked up a lot of that through BP and so we do some metals which has some lower interest and the good news is we’ve got high nets. There is an update to the operational supplement that Chaparral 89 #101H, it’s a 3rd Bone Spring horizontal. We had opened the chokes as well as the numbers in the report are flowing, it’s now making 972, it’s kind of a peak on the oil side at 3.4 million for boe a day of 1,375 and 30 day average now is over 1,000 barrels a day. We have got another one in the Shelf and we have the demonstrated staying on. So we are excited about the Delaware and which is our acreage position, it’s taken us a little longer to accomplish some things together and get some critical mass so we can clear in a position to drill horizontally in there.

Michael Hall - Heikkinen Energy

Okay. That’s helpful. Thanks. Look forward to more color at the Analyst Day and then I guess last one, you have mentioned a package for sale in South Texas, any color around what exactly for sale there, is it more, is it there, getting your asset?

Steve Farris

Yeah. I -- its small gas assets that are just scattered around the South Texas, they are just cleaned up.

Michael Hall - Heikkinen Energy

Okay, and…

Steve Farris

I am sorry?

Michael Hall - Heikkinen Energy

Not the big block usage in era?

Steve Farris

I mean which is drilling in so we are drilling quite a few well in that part of the world right now.

Michael Hall - Heikkinen Energy

Okay. Very good. Thank you.

Operator

Your next question comes from the line of Joe Magner with Macquarie.

Joe Magner - Macquarie

Good afternoon. I want to follow up on the Barnhart’s question from earlier. It looks like in the ops report volumes in December were down to 10,000 barrels a day, I think that’s down from around 13,000 barrels a day in early October. I am just curious what’s happening there at the Barnhart.

Steve Farris

It’s a timing issue, I mean I think now what we have found is with five rigs running out there currently right now, we now have to drill sections and some buffer before we go on and complete the lot of wells. So it’s just a simple timing issue of when you bring those pads on, I mean right now with the section where we laid out four uppers and four lowers, we think we can get those on with five to six rigs running and two frac crews in about 90 to 120 days. And so it’s purely a timing issue of brining production on.

Joe Magner - Macquarie

Okay. And that’s four lower, four upper is that sort of the spacing that you determine is optimal for that area?

Steve Farris

We will go into more of that on Analyst Day, but I mean right now that’s kind of where we are, but I think as you look the unconventional, just like conventional in Permian you know you have been in for drilling for 50 years in this type rock. And when you look at the unconventional, they are even tighter. So I think there is going to be room to continue downspacing as we go forward.

Joe Magner - Macquarie

Okay. Just one clarification Steve you mentioned what’s in the portfolio now is what would be in the going forward. There has been some talk about potential deepwater Gulf of Mexico transaction, any update or thoughts on that?

Steve Farris

No, I think we stand by our statement. What we are going into 2014 now with the Argentina now I will tell you, Argentina was the long-term company, we have worked on that for a months and months and months, but in terms of assets that we have right now as stands Argentina and stands the Canadian gas package, small Canadian gas package, I don’t want to over-emphasize that, I just want to bring up that we have couple of other things marketing out there. The assets which you see right now, the assets we are going to go forward with and I will be real honest with you, I am extremely excited about what we are today.

Joe Magner - Macquarie

Okay. Thanks for the update.

Operator

Your next question comes from the line of Jeffrey Campbell with Tuohy Brothers Investment Research.

Jeffrey Campbell - Tuohy Brothers Investment Research

Good afternoon. I want to go back into the Delaware again and just be a little bit more specific. In the supplement that you put out, you have said that you got to achieve commercialization of the 2nd and 3rd Bone Springs and the Wolfcamp and Reeves and Loving County. I was wondering if you could just give some color as to what commercialization means maybe on acreage or locations and are this going to be develop simultaneously on that?

Steve Farris

Well, Jeff, Oldham County specifically, we’ve got a really nice block of acreage out there. We got three rigs running right now. We’re drilling second third most rigs both, as well as in Wolfcamp. So we’ve got a play that we feel really good about in there and the numbers are starting to show and that Shelf well that is update to be honest, one of the third Bone Springs that we brought on in December.

So the nice thing about that area it doesn’t take big acreage block because you can stack a lots of horizontals in and we’ve got a pretty good material block in there with high, high nets and we’re very excited about it.

Jeffrey Campbell - Tuohy Brothers Investment Research

Okay. That’s helpful. And another question I have was with regard to the rocker B on 106 Cline well. I notice that was completed in Reagan County and I was wondering first of all just one of your first Reagan Cline wells and going forward is the program going to increase in Reagan or is it going to still predominantly be Glasscock?

Steve Farris

That is one of our first wells in Reagan, I think as we get over there. You got multiple branches in the Wolfcamp and we’re also excited about the Cline basin to do. So we continue to test our acreage and as we set up our 2014, ’15, ’16 and beyond programs, we got to get in and understand all the various expansions and that’s exactly what that is.

Jeffrey Campbell - Tuohy Brothers Investment Research

Okay. Great. Thanks a lot.

Operator

Your next question comes from the line of Richard Tullis with Capital One.

Richard Tullis - Capital One

Good afternoon, everyone. Steve, just a quick question on the Gulf of Mexico shallow water subsalt play, what has been the recent activity there and how does it fit into your plans for 2014 based on what you see so far?

Steve Farris

Let me give you an overview and then I’d like number that we have achieved to run that some detail. The exploration potential varies significant and what we -- what is the reason we retain that 50% is that we don’t to dreg the base on the shallow Shelf. But we have a real opportunity to grow that in the future. And with that, Tom, you might mention some of the things we are doing.

Tom Voytovich

There are a couple of rigs active. They are all outside operated at this point time on the shelf itself. The most notable one probably is the appraisal well to our (inaudible) which is main pass 295. That appraisal well is making whole as we speak and in the next 45 days or so we are to see some results from that, it’s a down-dip appraisal test to establish reserve magnitudes and hopefully provide us with our first drainage point in that field.

There are other wells underway. I believe there are two other ones that are drilling or completing. There are fairly low-risk tests being drilled as well. We don’t have any results on that at this point. We see that they are fairly slow in 2014, as we convert over from the old Gulf of Mexico shelf to the new program. And I think it will take a while to build inventory and prioritize those so that we can look forward to the feature. I think it’s an outstanding opportunity for growth.

Richard Tullis - Capital One

All right. Thank you. Appreciate it.

Operator

Your next question comes from the line of the Michael Rowe with Tudor Pickering, Holt & Company.

Michael Rowe - Tudor Pickering, Holt & Company

Yes, good afternoon. I just want to follow-up on the discussion of severance costs, trends in the Permian and kind of wondering if you could talk about sort of recent well cost you’re seeing down in the region and particularly for the Barnhart assets where you all have been drilling some longer laterals.

John Christmann

Yeah, I think, in general things are holding pretty good. I mean, we’re getting more efficient there. But in some areas, we’re also experimenting on the completion side and putting more sand in and less fluid and those various things. So we’ll get into those in detail but I feel good about the cost. And obviously if we want to increase our completion size, obviously we expect to get bigger recoveries for that relative.

So it’s all about either taking cost down or increased our EURs, and that’s something that Steve highlighted in the opening comments about our operation excellence we will continue to do. But I think in general, they are at a point right now where they are holding pretty firm its topline and it’s all about what kind of efficiencies we can drive in right now.

Michael Rowe - Tudor Pickering, Holt & Company

Okay. Great. Thanks. And then just a quick follow-up on that would be. I was wondering if you could talk a little bit about, maybe this is an Analyst Day question but maybe some of the Wolfcamp potential that you see in Glasscock Counties specifically and where you all primarily have been drilling the Cline information?

John Christmann

Yes, that is something we’ll get into in Analyst Day. I mean, it’s right there in Deadwood where we’ve been. It is more heavily in the Cline and you’ve got the Wolfcamp coming off and it does not lend itself quite as much for horizontals right in the area we are. Get South of us there, the geology changes, you see a lot more activity. But we’ll get into more detail about that at Analyst Day. And then, I would also expect to see us drill a couple of horizontal Wolfcamp wells done there as well.

Michael Rowe - Tudor Pickering, Holt & Company

Okay. Great. Thanks.

Operator

Your next question comes from the line of Charles Meade with Johnson Rice.

Charles Meade - Johnson Rice

Good afternoon, everyone. If I could go back and ask another question about the Permian. One of the things that distinguishes you guys -- Apache, from a lot of the other independent E&Ps out there, particularly in the Permian Basin is your big position on the Central Basin platform. And I noticed in your operation supplement you have, you made a point of saying that three bar field had one of that, I guess, it was a second highest production increase in the quarter.

But you really only detail one well there which was at the, I guess the Three Bar Shallow and the Wichita Albany. I’m worried if you can give us an idea, there’s been a lot of questions on the Wolfcamp and the Midland Basin, a lot of these Delaware Basin, unconventional plays? Can you give us an idea where your Central basin platform projects or target fit in terms of relative attractiveness with these other more industry-led horizontal drilling programs?

John Christmann

Yeah, it’s a great question. It's something that tends to get overlooked is the potential for horizontal in the Central basin platform. I’ll tell you that Wichita Albany play at Three Bar will stack up against anything in the industry. We’ve got 16 wells on there. We did give highlight, that is in the year we’ve got and there has also been fantastic there.

We are looking at taking that play outside of that, just on Three Bar unit there but additionally as you start to look up and down the section, there are all sorts of zone that we’ve not completed vertically or not drilled vertically that make great horizontal targets. And we always typically have run one to two rigs on the Central basin platform. I think we’ve got three of -- they are right now and they are chasing these exact types of things. And there is lots of oil to be found in Central basin platform.

Charles Meade - Johnson Rice

So just to be clear, I think you said it John but I want to make you understand, you said what you’re seeing there is as good as any of these horizontal conventional plays you’re seeing elsewhere in the Permian basin?

John Christmann

Our Three Bar development, absolutely.

Charles Meade - Johnson Rice

Okay, thanks for that detail.

Operator

And at this time, there are no further questions in the queue. Mr. Brady, do you have any closing remarks?

Brady Parish

Excuse me. No, I don’t have any closing remarks. I just wanted to say thank you all for participating in the call and putting up with my cold. And if you have any additional question, please reach out to Investor Relations. Thank you.

Operator

Thank you for your participation. This does conclude today’s conference call. You may now disconnect.

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