Apache (APA) Q4 2020 Earnings Call Transcript

Apache (APA 0.34%)
Q4 2020 Earnings Call
Feb 25, 2021, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Apache fourth-quarter and full-year 2020 financial and operational results conference call. At this time, all participants I know listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator instructions] I would now like to hand the conference over to your speaker today, Gary Clark, vice president of investor relations.

Please go ahead, sir.

Gary Clark -- Vice President, Investor Relations

Good morning, and thank you for joining us on Apache Corporation's fourth-quarter and full-year 2020 financial and operational results conference call. We will begin the call with an overview by CEO and President John Christmann. Steve Riney, executive vice president and CFO, will then provide further color on our results in 2021 outlook. Clay Bretches, executive vice president of operations; and Dave Pursell, executive vice president, development, will also be available on the call to answer questions.

Our prepared remarks will be just over 15 minutes in length with the remainder of the hour allotted for Q&A. In conjunction with yesterday's press release, I hope you have had the opportunity to review our fourth-quarter financial and operational supplement, which can be found on our investor relations website at investor.apachecorp.com. Please note that we may discuss certain non-GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the supplemental information provided on our website.

Consistent with previous reporting practices, adjusted production numbers cited in today's call are adjusted to exclude noncontrolling interest in Egypt and Egypt tax barrels. And finally, I'd like to remind everyone that today's discussions will contain forward-looking estimates and assumptions based on our current views and reasonable expectations. However, a number of factors could cause actual results to differ materially from what we discuss today. A full disclaimer is located with the supplemental information on our website.

And with that, I will turn the call over to John.

John Christmann -- Chief Executive Officer President

Good morning, and thank you for joining u. Today, I will recap Apache's 2020 accomplishments discuss, our fourth-quarter results, and provide commentary on our outlook for 2021. First, I want to take a moment to acknowledge the severe weather and devastating power outages experienced here in Texas last week. Nearly all of our Texas-based employees were directly affected.

Our field staff worked tirelessly to maintain safe operations. And like millions of Texans, our employees across the state experienced notable challenges including a lack of power, heat, water, and many of the modern conveniences that we all rely on. While it appears that numerous factors played into the situation, one thing is certain, this event has underscored the need for resilient and reliable energy infrastructure and supply. 2020 brought many unexpected challenges which required immediate and aggressive actions.

Shortly after we issued our initial guidance for the year, a confluence of events signaled the clear trouble from near-term oil prices. The Russians and Saudis, in a battle for market share, were flooding the market with supply. At the same time, the spread of COVID-19 was emerging as a significant threat to global demand. In response, on March 12th, we announced several important steps designed to protect cash flow in the event of a prolonged adverse oil price environment.

We reduced our capital budget by 37% from the budget we have laid out just two weeks earlier we cut our dividend by 90%. We initiated a shutdown of all drilling and completions activity in the U.S. and a reduction of rig activity in both Egypt and the North Sea. And with the significant reduction in planned capital activity, we decided to double our target for combined G&A and LOE cost savings from $150 million to over $300 million.

While these actions seemed extreme to many, they turned out to be necessary and timely. Throughout 2020, relative to our original plan, we lost over $1.3 billion of oil and gas price-related revenue and more than $300 million of cash flow to working capital. Despite this, Apache finished the year with no increase in net debt when excluding Alpine High midstream. We were even in a position to take advantage of volatility in the debt markets, the buybacks and bonds at a significant discount, and later issue $1.25 billion of new bonds to restructure the debt portfolio and protect near-term liquidity.

In addition to these actions, our response to the pandemic was equally swift and effective. We protected employees and minimized operational disruptions by quickly implementing a work from home program for office staff and changes in field operating protocols. To date, there have been no known cases of a COVID-19 transmission from one Apache employee or contractor to another. I am also especially proud of the assistance we provided to the pandemic response in each of the communities where we operate.

Finally, as we look back on 2020 one of the key highlights was our exploration program in Suriname, where we commenced activity under our joint venture with Total. We have now made four significant oil discoveries in our first four exploration tests and recently began the appraisal drilling program. Turning to the fourth-quarter results. We ended 2020 on a strong note, beating our fourth-quarter guidance for adjusted production.

Upstream capital expenditures and LOE. Oil production in the quarter were slightly ahead of expectations, while gas and NGL production was notably strong as we returned all previously curtailed Alpine High volumes to production around the end of October. In the Permian Basin, we resumed completions activity in response to significantly lower service costs and improving oil prices. In Egypt, we continue to leverage our large acreage position and modern seismic program to further enhance our long-term exploration and development inventory.

A recent example of this is the Tayim-North discovery which encountered 88 feet of high-quality oil pay. We are waiting on pipeline connections to further assess the reservoir extent and potential for additional development locations. In the North Sea, we made an important oil discovery in the tertiary play with Losgann well an offset to Aker BP's Froskelar discovery on the Norwegian side of the border. In combination with two previously undeveloped Apache discoveries in the tertiary, Losgann is part of a longer-term development opportunity that could contribute meaningful incremental volumes while leveraging existing infrastructure.

Looking ahead to 2021, last night, we announced an upstream capital program of $1.1 billion consisting of approximately $900 million for development activities and $200 million for exploration predominantly in Suriname. This program is expected to deliver substantial free cash flow under our assumed price deck of $45 WTI oil and $3 Henry Hub natural gas. In 2020, we directed a higher percentage of our development capital to international projects that generate better returns in a lower price environment. With the improvement in oil prices, we are returning to a very modest level of activity in the U.S.

during 2021. In the Permian, we are currently running one rig and plan to add a second rig at midyear. This measured approach will advance our objective of mitigating Permian oil production declines. We will likely need to add a third rig at some point to fully arrest the decline.

At Alpine High, we have completed two-lane gas DUCs that are performing very well and we are planning five similar completions this Spring. While there are no specific Alpine High drilling plans in 2021, we will continue to monitor commodity prices and remain flexible with this asset. Following several years without operating activity in East Texas, we recently added a rig in the Austin Chalk play. This rig will drill a few wells that are necessary to hold our core acreage position and preserve optionality.

We believe the Austin Chalk, which is well situated near existing infrastructure, will likely merit future capital consideration. In Egypt, we plan to continue running five rigs this year. Our goal is to stabilize production and ultimately return Egypt to growth both of which will require the addition of more rigs. We can quickly flex spending in Egypt as conditions warrant and we will monitor oil prices and cash flow for the appropriate time to do so.

In the North Sea, the capital program remains relatively unchanged this year with one floating rig and one platform crew. While production from the North Sea is lumpy on a quarterly basis, we believe we can generally sustain output in the 55,000 to 60,000 BOE a day range for the next several years at this level of activity. Lastly, in Suriname, we began the transfer of Block 58 operatorships to Total at the beginning of the year. They are an excellent operator and we look forward to this year's exploration and appraisal programs.

On the exploration side, our fourth well, Keskesi, is continuing to explore deeper objectives in the Neocomian. As previously announced, we have selected the location for our fifth exploration well, Bonboni, which will be in the northern portion of the block. Total's Spud, the first appraisal well in Block 58 earlier this month, which will be appraising aspects of both the Kwaskwasi and Sapakara discoveries. I would like to close by discussing Apache's oil production trajectory and provide some perspective on maintenance capital levels.

As previously noted, we chose to significantly reduce capital spending in 2020 and plan to maintain a conservative investment approach in 2021. What are the outcomes of this choice is our global adjusted oil volumes decreased by 17% from the fourth quarter of 2019 to the fourth quarter of 2020. This year, we are projecting a much more moderate decline of around 1% to fourth-quarter 2021. This implies the $900 million of capital investment we have earmarked for production and development activities is just a bit shy of the spend required to sustain global oil production at fourth-quarter 2020 levels.

As we look to 2022 and beyond, our goal is to establish a development capital investment budget that will at a minimum sustain production volumes for the long term. While we have experienced a very welcome oil and gas rebound over the last three months, our strategic approach remains centered around capital discipline and flexibility. As such, we are continuing to prioritize the retention of free cash flow to reduce debt. A focus on long-term returns over short-term growth.

Aggressive cost structure management. The advancement of our exploration and appraisal activities in Suriname and continuous improvement in our ESG practices and metrics. In 2020, we increased the weighting of ESG goals in our short-term compensation calculation to 20% and refined our focus areas to air, water, communities, and people. During the year, we emphasize robust employee safety programs related to COVID-19, assisting our communities impacted by the pandemic, and advancing programs that foster a more inclusive workplace.

We also made good progress on the environmental front with enhanced greenhouse gas data collection and expanded disclosures particularly with regard to TCFD. We plan to continue to build on these efforts in 2021 with ESG goals that tied directly to compensation and include specific emissions and water usage targets and enhance our employees' experience. These include delivering less than 1% flaring intensity in the U.S., achieving freshwater consumption of less than 20% of the total water consumed, and further progressing our diversity and inclusion programs. With that, I'll turn the call over to Steve Riney who will provide additional details on our two results in the 2021 outlook.

Steve Riney -- Executive Vice President and Chief Financial Officer

Thank you, John. I'd like to provide a bit more color around Apache's fourth-quarter results, debt management efforts in 2020, and our outlook for 2021. As noted in our news release issued yesterday under generally accepted accounting principles, Apache reported a fourth-quarter 2020 consolidated net income of $10 million. On a fully diluted basis, we incurred a loss of $16 million, or $0.04 per diluted common share.

These results include items that are outside of core earnings. Excluding these items, the adjusted loss was $20 million or $0.05 per share. Companywide adjusted production for the quarter was 365,000 BOEs per day, a 7% decrease from the third quarter. This was driven by declines in the Permian Basin in Egypt, where we felt the impacts of reduced activity levels after the first quarter cut in capital spending.

These declines were partially offset by increased North Sea production primarily associated with the timing of workover activity. Lease operating expenses of two $269 million for the quarter were below guidance but did rise a bit from the third quarter. G&A expense of $76 million was at the low end of our guidance range. This was also an increase from the third quarter but mostly due to the mark-to-market accounting treatment of certain stock compensation programs.

Entering 2020, one of our key financial goals for the year was to retain free cash flow to reduce debt. While the collapse in oil prices made this significantly more challenging, the decisive actions we took to reduce our capital program, cut operating and overhead costs decrease our dividend and numerous smaller actions enabled Apache to avoid further leveraging its balance sheet. We also took some important steps to rearrange the bond maturity profile and to create a cleaner runway for the next few years. Through a combination of discounted open market repurchases, tender offers, and call options, we reduced shorter term bond maturities by $600 million with only minor changes to our average maturity profile and coupon rate.

We now have only $336 million of bonds maturing before November of 2025. We still intend to reduce debt levels through free cash flow retention and if oil and gas prices sustain anywhere near current levels, we will make substantial progress in 2021. Further to the 2021 outlook, as John stated, we are planning an upstream capital budget of approximately $1.1 billion with the primary goals of advancing our exploration and appraisal activities in Suriname and stabilizing global oil production around fourth quarter 2020 levels. At this point, it looks like our planned capital program will fall just a bit short of stabilizing oil production but we continue to look for ways to get more out of those investments.

More specifically, to our production profile for 2021, we expect U.S. oil output to decline in the first quarter. This is primarily attributable to nine days of extensive Permian Basin shut-ins during the recent freeze event as well as the timing of Permian DUC completions during the quarter. Consequently, we expect a significant rebound in U.S.

oil volumes during the second and third quarters before backing off a bit in the fourth quarter to a rate similar to the fourth quarter of 2020. Internationally, we anticipate continued declines for the year compared to fourth quarter 2020 levels as upstream capital investment remains the low maintenance levels and we will incur more downtime in the North Sea for scheduled maintenance turnarounds. In 2021, we are projecting LOE to rise approximately 7% year over year, which primarily reflects the impact of some cost deferrals from 2020. This includes items such as increased workover spending and platform maintenance in the North Sea.

We also expect to see some higher foreign currency exchange impacts associated with the weakening U.S. dollar. G&A will also rise a bit this year to a run rate of around $75 million per quarter. In closing, we are cautiously optimistic for a year of improved oil and gas prices.

Even if we fall a bit from the current strip, with a very conservative approach to capital budgeting, we should generate significant free cash flow for debt reduction. And with that, I will turn the call over to the operator for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from Doug Leggate with Bank of America. Your line is now open.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Thank you, guys. I appreciate all the color this morning. I got one set of questions on Suriname and one on workover, if I may. So, on Suriname, John, there's been a lot of -- a lot of incremental information partly coming from your partner including as you pointed out in your release the likelihood of an FID this year, first oil by 2025.

And then, you yourselves talked about an appraisal program that appears to be topping both Kwaskwasi and Sapakara. So, I wonder if you could just walk us through what's going on in the appraisal and what the scale might be of the first development in your mind?

John Christmann -- Chief Executive Officer President

Well, Doug, thanks for the question. The first thing I'll say is I really don't want to add a lot of color to our partner's commentary along timeline. I mean, we're aligned with them. What I would say is is that given that when we made the press release after the Sapakara discovery, we said that it merited consideration for fast track and it had those key ingredients.

So it shouldn't come as a surprise that the very first appraisal well is doing exactly that. We've always talked about the first four wells, and I'll go back and talk about Maka, Sapakara, Kwaskwasi, and now, Keskesi is -- is really four different kind of deepwater turbidite channel systems. They are placed where potentially you could do some overlap and so forth, and -- and as you start to think about development. So the nice thing about where that first well is placed, Sapakara West Number 2 is it we'll be appraising both aspects of Sapakara and we get to see some of Kwaskwasi.

So it's -- it's -- shouldn't come as a surprise, and we're obviously anxious to get the results. When we think about the appraisal program, it's just the next step following expiration. And in terms of scale, those are the things we want to determine through the appraisal program. So I don't want to get into discussions on that at this point, but we're going to be looking to determine things like flow rates, connectivity, those types of things, boundaries, things we like to see as you work through this.

So we're anxious to get on with it. And quite frankly, excited with how quickly Total has grabbed the hold and is running with it.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

So I can't -- I can't kind of press you on scale, John?

John Christmann -- Chief Executive Officer President

Not -- it's -- we'll -- we'll take it to one phase at a time. But we're at appraisal mode so.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

OK, I'll -- I'll -- I'll let someone else ask about Keskesi. But I -- I -- I do want to ask about the maintenance capital, the -- just the trend that you find there, and it seems kind of remarkable to us that you're managing to hold the decline as shallow as you are. Presumably, some of that capital is translating into workover cost in places like the North Sea. So -- so I just wondered if you could kind of walk us through how you think about the dynamics of workover versus capital.

And really, what I'm trying to drive to is what do you think that sustaining breakeven oil prices for that will decline that you seem to be able to hold in 2021?

John Christmann -- Chief Executive Officer President

Yeah, I mean the thing I would say is -- is I'm really proud of what our teams, our asset teams and our operations staffs, have been able to accomplish. I mean in a really tough environment with COVID-19 and a lot more protocols added, I cannot say enough good things about our organization and -- and all the hard work that's taken place. And you see that. You saw it in our cost structure reductions.

You see it in these numbers. Not only did we reduce all the drilling rigs in the U.S., we dramatically cut the workover rigs in the U.S. and in the other areas as well. And it just goes to show you with the focus and the effort we're putting on it.

This year, we did pick up a rig in the Permian. It's one that made a lot of sense to pick up. We plan to add another rig midyear, and we're going to be just short, as I said in the -- the commentary, we probably need to add another one, but we don't plan to do that right now to be able to kind of hold our -- our oil production. We're just short of the activity levels in Egypt to kind of hold it.

And North Sea is -- is going to be lumpy, and we're kind of in that range now where we think we can manage it between 55 and 60. It's just going to be a lumpy profile with the turnarounds and the -- and the types of projects we're bringing on through subsea tiebacks in the barrel area. But I -- really, kind of hats off to the operational staff and the asset teams because we're really managing things on -- on cash flow and managing the cost structure really hard. And it's amazing what that's done as a result to the -- to the oil curves.

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Typically, it goes offline, John. But I appreciate the answers. Thank you.

Operator

Thank you. Our next question comes from Bob Brackett with Bernstein Research. Your line is now open.

Bob Brackett -- Bernstein Research -- Analyst

Good morning. Unsurprisingly, I'll -- I'll follow up a bit on Suriname, and if I think about the $200 million exploration budget, that seemed to have three buckets, a small amount going to Austin Chalk, some going to Suriname exploration, and then the remainder going to appraisal in Suriname where you're paying 12.5 cents on the dollar effectively because of the JV. Can you break those out anymore for us or should we just kind of think of it as one big lump?

John Christmann -- Chief Executive Officer President

Well, Bob, what I would say is, number one, the Chalk money was not appraisal, right? It's development capital. It -- where -- it's -- it's in an area where we've got leases that are expiring and we had some wells. We had to make a decision there either to drill those wells or let the acreage go. It's not exploration capital.

So -- and we feel good about -- we've been participating in offset well. So the first thing I would say there. And then when we look at Suriname, it -- you're right, there are two buckets, but it really will hinge on the types of wells that we're drilling. The exploration wells will be 50-50.

And at this phase of our joint venture, the -- the appraisal wells will be 12.5%. And so we really didn't break that bucket out. Clearly, the first appraisal well, we're -- we're -- we're paying 12.5% off, and we're really we're paying 50% of Keskesi. But that dollar amount doesn't change much from where it's been last year when we were running a rig at 50-50 the whole time.

Bob Brackett -- Bernstein Research -- Analyst

OK, interesting. A quick follow-up would be what's the timeline for stats only deciding whether to back in for 20% and any thought on -- on where their heads are?

John Christmann -- Chief Executive Officer President

So I mean they actually have that election at the time you FID a project. So we've got some time there. Yeah, I think they would like to participate, and that's what we've always planned on from the get-go. But we'd obviously be in a position to take additional interest if you get there.

So -- but that's -- they would come in on a point-forward basis at FID.

Bob Brackett -- Bernstein Research -- Analyst

OK. That's clear. I'll -- I'll pause here and maybe hop in the queue later. Thanks.

John Christmann -- Chief Executive Officer President

Thank you.

Operator

Thank you. And our next question comes from Jeanine Wai with Barclays. Your line is now open.

Jeanine Wai -- Barclays -- Analyst

Hi, good morning, everyone. Thanks for taking our questions.

John Christmann -- Chief Executive Officer President

Good morning, Jeanine.

Jeanine Wai -- Barclays -- Analyst

Good morning. Our first question is on the 2021 capex budget, and you're anchored at the very conservative 45 and three. And so what's your appetite for incremental activity if the strip ends up playing out? We know you said you'd be very conservative and -- and you're going to watch things and be very measured. But you said that you ultimately need a third rig in the Permian to rest declines.

You have some really good opportunities in Egypt and you maybe need a little more activity there to mitigate declines as well. So I guess where are you -- where's your appetite on all of that and most likely to add that incremental activity if it could be done this year?

John Christmann -- Chief Executive Officer President

Yeah, Jeanine, right now, our appetite is generating free cash flow that we can set aside for debt repayment. And we're just pointing out that to -- to -- to really stabilize Permian, we probably need -- we do need to add another rig. There may be an opportunity in Egypt. But right now, I mean, we're -- like I said, we're going to be very disciplined on the capital, and we would just be very measured.

And right now, the appetite is to generate free cash flow for debt repayment.

Jeanine Wai -- Barclays -- Analyst

OK, we -- we like free cash on debt repayment. That's good. And then my second question maybe just following up on Bob's question just now. I -- I might have missed part of it.

In that $200 million in exploration capex that's primarily Suriname, is there anything in there for offshore Dominican Republic? I -- I think you all were like finalizing something on that a few months ago.

John Christmann -- Chief Executive Officer President

Yeah, there's a small bit there, Jeanine. I mean, we're -- we're starting to go through the work of scoping out our -- our 3D seismic ship. So there is a little bit of money in there, but it's -- it's not a lot. But it will be captured.

Jeanine Wai -- Barclays -- Analyst

Great. Thank you.

John Christmann -- Chief Executive Officer President

Thank you.

Operator

Thank you. And our next question comes from Bob Brackett with Bernstein Research. Your line is now open.

Bob Brackett -- Bernstein Research -- Analyst

Well, I'd -- I'd hopped out of the queue and I guess you put me back in. I was going to let other people get a chance. But --

John Christmann -- Chief Executive Officer President

Bob, I don't know what -- I don't know what happened because there's a list here. So I -- I would say the operator put you back in, but if you want to ask one since we've done it, I would say ask it.

Bob Brackett -- Bernstein Research -- Analyst

I'll send her the check --

John Christmann -- Chief Executive Officer President

But we weren't trying to step over anybody else, but --

Bob Brackett -- Bernstein Research -- Analyst

OK.

John Christmann -- Chief Executive Officer President

Cause there -- there's a list here.

Bob Brackett -- Bernstein Research -- Analyst

So I -- I guess I'll -- I'll stay on that Suriname theme which is talking about getting to FID. Is there a drill stem test planned for the year? And -- and I'm just kind of surprised by the speed at which you can go from no appraisal to FID in -- in less than 12 months. Is there something you can do to give us comfort on that timeline?

John Christmann -- Chief Executive Officer President

Yeah, I would just say, our partner is pretty confident in Iraq. And -- I mean it's -- I'll -- I'll this leave it at that. I mean it's -- we -- we've got four exploration wells now. We've been taking our time with those, collecting a lot of data.

We've done sidewall core. We've done a lot of PBT analysis. They're -- they're not wellbores we intend to use. But we've been gathering a lot of data as we've gone along and we've been doing a lot of lab work subsequent.

So yeah, I'll just leave it at that. I mean, clearly, we will be doing flow tests with the appraisal program as the other piece, Bob. But I'll -- I'll leave it there. I don't want to -- I'm by no means want to do anything, but state we're going to the next phase.

And I don't want to try to add any commentary to the to -- timeline that our partners talked about. But we're -- we are moving on the appraisal wells that we think could be fast-tracked.

Bob Brackett -- Bernstein Research -- Analyst

Great thanks for that.

Operator

Thank you. And our next question comes from Harry Halbach with Raymond James. Your line is now open.

Harry Halbach -- Raymond James -- Analyst

Good morning. I was looking at the Total's release and they said around nine wells are expected this year. Can you sort of rough estimates on the timing of those on when we can expect results, can be just a rough split for exploration and appraisal wells going forward?

John Christmann -- Chief Executive Officer President

I mean all -- all we'll really say here is there's two -- two rigs. I would say that -- that nine wells is their whole portfolio. But we've got two rig programs here that I would say. We drilled three -- three-plus wells or one rig line last year on the exploration front.

Some of the appraisal wells could go quicker because you're -- you're -- you've now got penetrations in the basin. But some of these may take longer because of low test and things. So I would just say we haven't given that color. We've just said kind of think of it as a both exploration rig line program and an appraisal program.

And we're going to move out -- move on concurrently.

Harry Halbach -- Raymond James -- Analyst

Great. Thanks, appreciate that. And then looking at the U.S., what does that maintenance mode sort of program look like, including Alpine High? And how are the returns on Alpine High stacking up to the Austin Chalk or the other -- other Permian stuff just with the move and propane and butane prices lately?

Dave Pursell -- Executive Vice President, Development

Yes. Harry, this is Dave Pursell. On the -- so when we think about maintenance in the Permian, we're thinking about it on the oil side. So when -- when we talk about three rigs, we're thinking about what it takes to keep -- keep oil production flat.

And we haven't run those -- that -- that method at Alpine. I think when you look at the forward curve on gas and NGLs, the -- the -- e -- even though, the -- we -- we have preliminarily positive results from the two DUCs that are flowing back now. Given our oil prices are, it's unlikely limited capital budget that those compete within the Apache budget. But if they're economic, we're open to -- to think about partnering with someone to help us move -- move Alpine forward.

Harry Halbach -- Raymond James -- Analyst

Great. Appreciate you all taking my questions.

Operator

Thank you. Our next question comes from Michael Scialla with Stifel. Your line is now open.

Unknown speaker

Good morning, everybody. Thank you for taking my questions.

John Christmann -- Chief Executive Officer President

Good morning, Mike.

Unknown speaker

This is actually [Inaudible] stepping in for Mike. I was wondering if you could provide additional color on the U.S. You've mentioned you're adding a second rig. But just to confirm, to hit your guidance number, will you need that third rig or are your comments on adding that third rig are showing some upside potential to your guidance?

John Christmann -- Chief Executive Officer President

No, I mean we do not have a plan. That's not in the plan. And obviously, if it's not in the plan, it wouldn't be in our guidance. So we were just making the reference point that we're -- we're just shy on the oil side and we would likely need one more rig in the Permian, which right now we do not plan to add.

I want to be really clear there.

Unknown speaker

OK.

John Christmann -- Chief Executive Officer President

And it's not in our guidance.

Unknown speaker

OK, thank you for that clarification. And going -- going forward, you mentioned that maintenance mode. Is it fair to assume a slight growth in the U.S. to offset international volumes or should it be maintenance all across the board?

Dave Pursell -- Executive Vice President, Development

Yeah, I think we're -- we're -- really, when we talk about this, we're talking about maintenance across the board.

Unknown speaker

OK. Thank you. And last one for me. As for the Austin Chalk, a competitor of yours suggested at what performance that could compete with the Permian.

Do you have similar expectations for those wells?

Dave Pursell -- Executive Vice President, Development

Yeah. This is -- this is Dave again, [Inaudible] The -- we've -- we've been patient as we've watched this play develop. We have a big acreage position, it's a legacy. We participate in some non-op wells in -- in the -- and we have high expectations which is why we're drilling these.

But again, John said it, it's -- it -- it allows us to preserve the optionality of this, again, to -- to bring in some additional capital if we -- if we choose to.

Unknown speaker

Thank you very much. That's it for me and [Inaudible].

John Christmann -- Chief Executive Officer President

Thank you.

Operator

Thank you. Our next question comes from Gail Nicholson with Stephens. Your line is open.

Gail Nicholson -- Stephens Inc. -- Analyst

Good morning. Steve, in your prepared remarks, you mentioned that there are some cost deferrals on the LOE side in '20 that are hitting in '21. Could you quantify that amount? And then what does a more normalized LOE rate look like post '21?

Steve Riney -- Executive Vice President and Chief Financial Officer

Yeah. We -- I don't have a -- sorry, Gail, I don't have a quantification of the amount that was deferred from 2020, nor how much of that is actually showing up in 2021. I -- I maybe just suggest that you -- you could follow up with Gary after the call. Maybe we can get an estimate of that.

But I think it's a -- I --I don't think it's a -- it's a material amount. But there -- it's -- it's certainly contributing to the 7% rise in LOE from one year to the next. And sorry, what was the second part of the question?

Gail Nicholson -- Stephens Inc. -- Analyst

I just wanted to know if we excluded that amount, what would the normal LOE run rate look like?

Steve Riney -- Executive Vice President and Chief Financial Officer

Yeah, obviously, it would -- the -- the more normal -- well -- well, I think actually the 2021 amount is probably the more normal amount. Because what we've done is we've just deferred some stuff out of 2020 into 2021. We're not necessarily doubling up a lot of stuff. There could be a little bit in there.

So you're -- you're probably in the low single-digits in terms of the -- the band of error there in terms of doubling up some -- some expense from -- into -- into 2021. I don't think it's got a material effect though.

Gail Nicholson -- Stephens Inc. -- Analyst

OK, great. And then in the supplement, you guys talked about the Egyptian decline rate is expected to moderate in 2021. Can you talk about where it is today and where you think it will be by year-end and what is driving that moderation?

Dave Pursell -- Executive Vice President, Development

Yes. This is Dave again. I -- I think when you look at it, particularly in the Permian, you look at it the way unconventionals behave. Yeah, I'm sorry, in Egypt.

I'm sorry, misunderstood the question. Yeah, in Egypt, it's -- it's a combination of -- of activity and -- and where we're focused. We have a pretty significant workover program there that it is also really bringing in behind pipe resource. So as production -- as production declines, you -- you tend to have an easier time holding it -- holding it stable.

So that's the -- the real -- the -- the way that -- that the math works there in Egypt.

Gail Nicholson -- Stephens Inc. -- Analyst

It's all right. Thank you.

John Christmann -- Chief Executive Officer President

Thank you, Gail.

Operator

Thank you. Our next question comes from Scott Hanold with RBC Capital Markets. Your line is now open.

Scott Hanold -- RBC Capital Markets -- Analyst

Thanks. If I could move back to maybe discussing Alpine High. I mean do you all think there's some latent value that's -- in -- that's associated with the infrastructure or even maybe the gas, the -- the volume of gas production opportunity here? And -- and if that's the case, is -- is there opportunities for you guys to do something to -- to -- to get some of that value recognized, and -- and specifically, too, on the infrastructure side with -- with what you all have there, as well as your joint venture agreements?

John Christmann -- Chief Executive Officer President

No, Scott, there's no doubt. I mean, you've got resource there, we've got in and, you know, not a couple of DUCs which we said they are the first two we've done, they're performing very nicely. I think we've got five more DUCs that will finish the DUC program with it later this spring. So, there is opportunity there, you know, to potentially bring in some capital.

I mean, what we've got right now with where our capital budget is -- it's pretty tight. So, we don't plan to add any but there is opportunities to potentially, you know, look at some things out there.

Scott Hanold -- RBC Capital Markets -- Analyst

OK. OK. Is -- is that an initiative for you all or is that just, you know, something that -- that could happen? You know --

John Christmann -- Chief Executive Officer President

Well, I mean, I -- I'd just say that there's a lot of things we always work on that you don't spell out as, you know, but, you know, I'll just leave it at that. It's -- it, you know, it -- it's something that we might be working on or would be thinking about but there's, you know, nothing we've got set up or planned in the activity set.

Scott Hanold -- RBC Capital Markets -- Analyst

No problem. Thanks for that. And then as a -- my next question is, you know, if you could remind me in Egypt, you know, with the -- the PSC in -- in higher oil prices like, you know, at -- at what point do you start getting to, you know, sort of that cap on -- on the value. Are -- are a ways away from there? Obviously, you know, I think the -- the strip is, you know, moved -- moved up, you know, pretty nicely and -- and, you know, there is obviously some conversation out there whether we get into next oil supercycle.

I'm just kind of want to remind me the sensitivity to higher oil prices with that PSC.

John Christmann -- Chief Executive Officer President

No, I mean, the returns are good. It's just that, you know, things shift as you move higher, right? And you get to a point in there where, you know, inventory in the U.S. and the Permian actually spends over and -- and be even, you know, more attractive. So, you know, we're -- we're not in that reign.

I mean, we're at a point today as if you go back and look, you know, last year, we put out some priority sheets that kind of showed investment levels and with some price backs in kind of at $50 was where we considered Permian. You know, I mean, I -- there's nothing that's changed off of that -- those priorities that we put out there.

Scott Hanold -- RBC Capital Markets -- Analyst

Understood. Thank you.

John Christmann -- Chief Executive Officer President

Thank you.

Steve Riney -- Executive Vice President and Chief Financial Officer

Yeah. If I could --

Operator

Thank you --

Steve Riney -- Executive Vice President and Chief Financial Officer

Sorry. Yeah. Before we go to the next one, if I could just add -- add a bit to that. I'd say that, you know, at -- in the -- in the $50 to $60, you know, $60 Brent range, we've still got plenty of running room where price continues to -- to add meaningful amount of value to the Egypt opportunities.

So, we're not -- we're not near any type of ceiling on -- on value opportunities in Egypt. Nowhere -- nowhere near that.

Operator

Thank you. Our next question comes from Brian Singer with Goldman Sachs. Your line is open.

Brian Singer -- Goldman Sachs -- Analyst

Thank you. Good morning.

John Christmann -- Chief Executive Officer President

Hello, Brian.

Brian Singer -- Goldman Sachs -- Analyst

I want to follow up on a couple of the topics. First, maybe starting with the -- with Suriname and the exploration appraisal budget that's largely -- that's the large component of $200 million. In a continued success scenario and -- and -- and reflective of the less-demanding capital contracts as part of the joint venture, how do you see Suriname capex evolving in years to come? And how does the optionality of the call on Suriname capital impacts your willingness to flex other assets like Egypt, Alpine High, and Permian?

John Christmann -- Chief Executive Officer President

You know, Brian, I mean, the nice thing is as you, you know, you start shifting more dollars into appraisal and development with the carries really kicking in. So, you know, those numbers don't go up, so it doesn't hinder. I mean, that's part of why we structured that deal in the first place. It's really the exploration rigs that -- that drive because of the 50-50.

But, you know, obviously, as -- as you shift into development and, you know -- you know, at -- assuming you'd FID something, then your dollars would go up. But I mean, it's -- it's not going to be something we can't manage. That's not something that's going to take away capital from other areas.

Brian Singer -- Goldman Sachs -- Analyst

Got it. Thanks. And then my follow-up is trying to piece together some of the comments from -- from -- from your opening remarks, as well as other questions as it relates to the capex flexibility. You were very nimble in flexing capex to the downside in 2020 that seems to be a consideration to be nimble on the upside.

And I was wondering if you could quantify if you were to stabilize production in the Permian with a third rig, stabilized production in Egypt, and if pricing in -- and -- and NGLs natural gas warranted some greater activity in Alpine High what the combined incremental capital would -- would -- would represent to make that happen.

John Christmann -- Chief Executive Officer President

Yeah. I mean, I'd -- I'd say today, Brian, we're not thinking about trying to be nimble there and add, right? I mean, we've put our plan, you know, actually the rig we picked up in Permian, we've been paying standby rates on. So, it made a lot of sense for us to pick that rig up and equipped by, you know, when we -- when we reduced last year, we drastically reduced. In fact, like I said, we -- we were paying some standby rates.

So, we're not really motivated right now to -- to try to be nimble and pick up incremental capital. You know, we're just pointing out kind of where those things would be. But I mean, right now, you know, I -- I -- I think Steve especially wants to see some -- some dollars come in that we can earmark for debt repayment.

Brian Singer -- Goldman Sachs -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from Leo Mariani with KeyBanc. Your line is now open.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Yeah. I just wanted to follow up here a -- a bit on -- on Suriname. I just wanted to dive a little bit into the -- the Neocomian, you know, zone here. You know, what can you kind of tell us about that particular zone? Is that present in the other, you know, three discoveries? And then, in general, is it, you know, present across your block, or maybe just other areas, you know, of the basin? And is anyone else had any, you know, penetrations potentially elsewhere, you know, in the basin in this particular zone?

John Christmann -- Chief Executive Officer President

Yeah, great question. I mean, you know, when we talked about Block 58 in the first place, you know, we've laid out more than a handful of different play types. And -- and quite frankly, our first three play types are all upper Cretaceous, Campanian, Santonian are the first two. And then the third one actually is Turonian which is also upper Cretaceous.

We attempted to get down to the Turonian, you know, with Maka but we were unable to do the pressure. You know, with the Neocomian, it is actually a lower Cretaceous target. You know, when I talk about the upper Cretaceous, Campanian and Santonian, they're really deepwater channel and living turbidites. But the Neocomian is -- it's -- it's lower Cretaceous and that's more shallow-water carbonate-reef buildups.

And so, in others, I will tell you that we're -- we're -- we're not through the first two targets. We've got two Neocomian targets to test in Keskesi. It is, you know, what we had to do was swap out the BOPs. And so, we're in the process of doing that, we'll be back to drilling.

But these are carbonate reefs. They're pretty visible on the seismic -- but this will be the first test for us and this is the -- was an optimal place to -- to go on down through, you know, the source rock to Neocomian. And, you know, we're anxious to see. But it is exploration, they're -- they're visible, there's, you know, if -- if it were to work and -- and -- and, you know, bear the right fluids, then it sets up, you know, a whole string of these that are down there.

So, it's a play concept test and this just was the logical best place to do -- to do the first test for the Neocomian.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Got it. So, just to confirm, you guys firmly believe this is present across your block and -- and potentially in other areas in -- in Suriname? And is -- is this kind of the -- the first test that you're aware of in the basin? In Neocomian?

John Christmann -- Chief Executive Officer President

Well, I mean, I -- I -- I'd say, and you know, when we've got multiple domain across the block, I mean, you've got a -- what you've got to understand is with the geology here, you know, there are play types that are present in, you know, as you start thinking about other play types, you know, play types in these portions of the block that are present in some areas but not everywhere. So, it gets back down to what the settings were like when it was laid down. You know, I said this is lower Cretaceous, it's more, you know, shallow-water carbonate-reef buildups. And so, there's probably a trend of those, you know, that there -- there is a trend that moves across our block but, you know, we're focused mainly on our block.

And, you know, this is the first one. I'll just say that it's exploration. So, obviously, the, you know, the chance of success you put in there that it's -- it's, you know, it's likely not going to work. But, you know, if it does work, it does set up some -- some more targets for us.

But we are -- it is an exploration well for a reason. It's a play concept, but if it -- if it happens to work, we've got, you know, more of these on the block that would be additive and, you know, potentially could become part of whatever you did, you know, in terms of an FID somewhere down the road.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

That's very helpful color for sure. Just wanted to shift over to -- to Egypt here. You guys obviously made a discovery at -- at higher north. It sounds like you're waiting on, you know, the pipe there.

Just wanted to get a, you know, a sense of -- of when you guys might think you'll be able to get back out there. Just, you know, high-level timeframe, is it something that we have to talk about just in a -- a matter of months where we can go out there and get a better look at the appraisal? Or is it something that could be, you know, longer term and might get pushed into the next year?

John Christmann -- Chief Executive Officer President

No. I'll be pretty quick. You know, let's think about Western Desert as we got good infrastructure. I think the most important thing with Tayim is it improves concept with the new seismic because it's something that we would not have seen without the new seismic.

And while it's a -- it's a very nice discovery, we need to do some load testing and things to figure out, you know, if there's offsets and how many. Most importantly, you know, it's proof of concept and we've got some other, you know, key wells that -- that are on the rig schedule that, you know, that are coming pretty soon. So, we're, you know, it's -- it's just further validation of the time we've invested over the last few years with, you know, sewing together more acreage, shooting the seismic, and really refining some of our interpretation skills on what we're doing there. So, it's just a lens into the rock that you would have seen otherwise and that's what we're excited about.

Leo Mariani -- KeyBanc Capital Markets -- Analyst

OK. Great color. Thanks.

Operator

[Operator instructions] Our next question comes from Neal Dingmann with Truist Securities. Your line is now open.

Neal Dingmann -- Truist Securities -- Analyst

Good morning, John and team, and thanks for squeezing me in maybe before Bob's third one. So, I have a quick -- quick question for you. Looking at Slide 12 just on the operating cash margins, John, I mean, obviously, you continue to have great margins on North Sea, among -- among the, you know, the others. I'm just wondering, given the type of margins you continue to see there, you know, why not push that even -- even further?

John Christmann -- Chief Executive Officer President

Well, I mean, I think, the key there is we're in a pretty good rhythm with you look at what we did last year. We, you know, we had two platform crews. They're actually, you know, one at Barrow and one at Forties, we started alternating those. You know, we're in a pretty good cadence of projects.

With the -- the one rig, we've been doing what we could do in terms of prioritizing. We've got a really nice discovery there with Losgann. So, yeah, I think we're in a good place with where we are, a really good cadence. And, you know, when you look at our other types of opportunities across the portfolio, well, the margins were really good there.

You know, it's a -- I -- I think we're, you know, we're investing and we're showing, you know, good work. And now, we've got a tertiary project that we're, you know, that we're working on. Not ready to talk about yet, but I know -- I think we're in a good cadence in the North Sea.

Neal Dingmann -- Truist Securities -- Analyst

OK. And then just lastly, could you talk just on Egypt about being still? Is it free cash flow independent I assume, John, and will continue to be?

John Christmann -- Chief Executive Officer President

Yes. No, I mean, we've -- we've got a good solid business there. You know, we've built it over 25 years now. You know, we, you know, we -- we -- we reduced activity when -- when we had to everywhere.

I think there's the opportunity, as, you know, Steve mentioned, we've got a lot of opportunity in Egypt. I think the new seismic and the new acreage is going to open some things up. And there's more to do there. But, you know, we're always working on preserving cash flow and those cash margins everywhere.

And that's something we've been working on across the entire portfolio.

Neal Dingmann -- Truist Securities -- Analyst

Perfect. Thank you.

John Christmann -- Chief Executive Officer President

You bet.

Operator

Thank you. Our next question comes from David Heikkinen with Heikkinen Energy. Your line is now open.

David Heikkinen -- Heikkinen Energy -- Analyst

Good morning, and first and foremost, I hope all of you and yours fared well through the freeze and thaw. It sounds like you did, so that sounds good.

John Christmann -- Chief Executive Officer President

Well, thank you, David.

David Heikkinen -- Heikkinen Energy -- Analyst

And -- and then also just a couple quick hits, kind of good luck with the Neocomian. It sounds like I could characterize it as a string-of-pearls-type prospect or trend that you hit this one and then you'll have other high spots that are -- are just going to follow along the -- the same debt -- debt position.

John Christmann -- Chief Executive Officer President

Yeah. I mean, I -- I would say that, you know, how you could think about it, right? I mean, they're definitely a top-carbonate reefs work in a shallow -- shallow-water environment. So, --

David Heikkinen -- Heikkinen Energy -- Analyst

That's what you -- that's what you're seeing, though. So, you're seeing that type of string of pearls is what I was getting in.

John Christmann -- Chief Executive Officer President

Yeah. There's multiple -- multiple targets that this would set up. But it's deep, you know, you've hit, you know, there's risk, right? So, but we'll do it -- we'll see what happens.

David Heikkinen -- Heikkinen Energy -- Analyst

And then just, Dave, you kind of hit on some of the -- the base decline tempering and you had it in the slides. I don't think I heard an answer as far as that this, you know, you've got the sustainably low level of capex and you have a base drill all the time tempering in 2021. Can you put any numbers to that tempering as you -- as you roll into 2022, your sustaining capex sounds like it might go down and your operating expenses don't sound like they would go up. So, I'm -- I'm trying to think of how things temper through the year.

Dave Pursell -- Executive Vice President, Development

Yeah, I think if -- if -- let's talk about the Permian for a minute. We've -- we've given some -- some numbers on -- on base decline in the past. I don't have those at the tip of my fingers but you know how unconventionals work. As you -- as you anniversary in the big first year of production decline, you start to -- to moderate the declines on the unconventional.

And then we have a -- obviously, big legacy position. So, think about a third or more of our Permian production is very shallow decline that the central base and platform-type well. So, you know, we -- we have a advantaged position. We -- we never got into that super-sized growth mode in the Permian.

So, our -- the -- the -- the first year declines that we -- that -- that we anniversary-ed in weren't as big as others. So, when we look at the capital required for -- for sustaining production, it's -- it's kind of in that 3-rig mode -- or 3-rig level. And -- and you'll -- you'll see the kind of similar analysis if we look at -- at Egypt as well. It's a bit more conventional declines, but you'll see as -- as overall production declines moderated, it becomes easier to hold production at -- at those levels.

So, don't have numbers in front of me, but that's -- that's directionally where the -- why the maintenance capital is probably lower today than -- than what we've talked about in past.

David Heikkinen -- Heikkinen Energy -- Analyst

And then just an absolute debt-level target, do you have one for this year post the use of cash?

Dave Pursell -- Executive Vice President, Development

We -- not at -- not necessarily a specific debt-level target but, you know, my target is as low as possible. So, you know, long -- longer term, we're, you know, we're -- we're trying to get -- we've -- we've said this before, we're trying to get back to, you know, something below 2, approaching 1.5 times debt-to-EBITDA. You know, we were getting close in '19 and -- and then 2020 happened. You know, it looks like this year, you know, at, you know, at -- at -- at $55 WTI, we're going to be -- we're going to be approaching 2 again at strip -- at the current strip, we'd actually be below 2.

So, and that's what the current level of debt. And, you know, we -- we should be able to generate a significant amount of free cash flow at anything $55 or above, there's going to be a huge amount of free cash flow. We're -- we're planning on being free cash flow positive, you know, for a few hundred million at -- at $45. So, and -- absent the -- absent the 2020-ish collapse in oil price, we're going to generate quite a bit of free cash flow this year.

So, I think we're -- we're going to get debt-to-EBITDA back in the -- in the right direction by the end of this year and should be to be quite a bit stronger by the time we enter '22.

David Heikkinen -- Heikkinen Energy -- Analyst

Thank you, guys. That's very helpful.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to CEO, John Christmann for closing remarks.

John Christmann -- Chief Executive Officer President

Yes, thank you. I -- I really want to close by the following key points. Despite the recent run on oil prices, you know, our priorities have not changed. We remain focused on funding projects that provide the best returns over the longer term, maintaining a balanced portfolio, generating free cash flow to pay down debt, and continuing to move our Suriname program forward.

We are taking a very measured approach with our 2021 capital program and you've seen that through the Q&A today. We ended 2020 with zero rigs in the Permian and the combination of higher WTI prices and lower service costs make this an appropriate time to restart a very modest drilling program. Our goal is not to pursue growth but to sustain oil production beyond 2021. Our program in Suriname is progressing well.

The transition to Total as operator has gone smoothly and we are aligned with our partner on both the appraisal and exploration programs. Most importantly, the objective of achieving first oil as quickly and as safely as possible. We look forward to updating you on our continued progress throughout the year. Thank you.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Gary Clark -- Vice President, Investor Relations

John Christmann -- Chief Executive Officer President

Steve Riney -- Executive Vice President and Chief Financial Officer

Doug Leggate -- Bank of America Merrill Lynch -- Analyst

Bob Brackett -- Bernstein Research -- Analyst

Jeanine Wai -- Barclays -- Analyst

Harry Halbach -- Raymond James -- Analyst

Dave Pursell -- Executive Vice President, Development

Unknown speaker

Gail Nicholson -- Stephens Inc. -- Analyst

Scott Hanold -- RBC Capital Markets -- Analyst

Brian Singer -- Goldman Sachs -- Analyst

Leo Mariani -- KeyBanc Capital Markets -- Analyst

Neal Dingmann -- Truist Securities -- Analyst

David Heikkinen -- Heikkinen Energy -- Analyst

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