Apa (APA) Q3 2023 Earnings Call Transcript

Apa (APA 0.40%)
Q3 2023 Earnings Call
Nov 02, 2023, 11:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to the APA Corporation's third-quarter 2023 results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Gary Clark, vice president of investor relations. Please go ahead.

Gary Clark -- Vice President, Investor Relations

Good morning and thank you for joining us on APA Corporation's third-quarter 2023 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 and outlook. Also, on the call and available to answer questions are Dave Pursell, executive vice president of development; Tracey Henderson, executive vice president of exploration; and Clay Bretches, executive vice president of operations.

Our prepared remarks will be about 10 minutes in length with the remainder of the hour allotted for Q&A. In conjunction with yesterday's press release, I hope you've had an opportunity to review our financial and operational supplement, which can be found on our investor relations website at investor.apacorp.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. I'd like to remind everyone that today's discussion 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. The full disclaimer is located with the supplemental information on our website.

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

John Christmann -- President and Chief Executive Officer

Good morning and thank you for joining us. On today's call, we will review third-quarter highlights, discuss our outlook for the fourth quarter, and provide a high-level overview of our capital plan and anticipated production in 2024. For the third quarter in a row, adjusted oil production exceeded the high end of our guidance range. Good execution and strong well performance in the Permian are the primary drivers of this trend. We also achieved the high end of our guidance in the North Sea during the quarter, which benefited from the production ramp of the Storr North well.

In Egypt, gross oil volumes grew by approximately 4, 000 barrels per day, which was a bit below expectations as previously disclosed. On a total company basis, third-quarter reported oil volumes were up more than 15% from the same quarter in the prior year, and we are very pleased with this progress. Activity in the U.S. and Egypt remained steady while we suspended drilling activity around midyear in the North Sea.

Our investment program in the North Sea is now directed toward safety, base production management, and asset maintenance, and integrity. In Suriname, we achieved a very important milestone during the third quarter with the completion of a successful appraisal drilling program at Krabdagu on Block 58 and the subsequent announcement by our partner, TotalEnergies, of plans to proceed with FEED work for a 200,000 barrels per day FPSO in the eastern portion of the block. The planned oil hub is underpinned by an estimated 700 million barrels of recoverable oil resource at Sapakara and Krabdagu and is targeted FID by the end of 2024. Turning now to our outlook. In yesterday's financial and operational supplement, we issued fourth-quarter guidance which anticipates slightly lower production on a BOE basis compared to the third quarter. The primary contributor is in the North Sea where the temporary shut-in at Beryl Bravo will result in volume deferrals of about 5,000 barrels of oil equivalent per day. In the U.S., completion timing will lead to a relatively flat quarter consisting of unchanged oil production and a small decline in natural gas.

And in Egypt, a combination of higher oil and lower natural gas volumes should deliver BOE growth but not enough to fully offset the downtime in the North Sea. Let me provide a bit more color on production operations in Egypt. In February, we established a gross oil target of 154,000 barrels per day for the fourth quarter. We now estimate that number will be closer to 150,000 barrels per day, which is up about 5,000 barrels per day from the third quarter. After successfully working through the challenges associated with ramping our rig count from 11 to 18, our drilling program is now performing as planned. However, we have experienced a growing backlog of workover projects over the last two quarters and a corresponding uptick in barrels offline.

To address this, we have begun to increase our workover activity, which Dave can discuss further in Q&A. During the fourth quarter, we are opportunistically accelerating the completion of eight Permian wells from January into December and adding a sixth rig in the Delaware Basin. This will result in an increase in our estimated fourth-quarter upstream capital to around $500 million and bringing full-year upstream capital to just under $2 billion. I should note that these investments will not have a material impact on fourth-quarter production. As we typically do at this time of year, I would like to provide a high-level overview of our 2024 outlook, which we will follow up with formal guidance in February.

Recall that we entered 2023 with a planned upstream capital budget of $2.0 billion to $2.1 billion. As of today, we expect a similar range in 2024, albeit with some changes in regional allocation. We are targeting low single-digit oil production growth next year with expected increases in the Permian and Egypt more than offsetting declines in the North Sea. APA remains committed to returning at least 60% of our free cash flow this calendar year to shareholders. During the first three quarters of the year, we generated $673 million of free cash flow, 65% of which we return to shareholders via dividends and stock buybacks. This leaves more to do in the fourth quarter, and we will fulfill our minimum 60% commitment for the full year.

One of APA's core principles is to produce oil and gas safely and to reduce the environmental impact of our operations. I am pleased to announce that we recently achieved an important milestone in reducing methane emissions with the conversion of over 2,000 pneumatic devices in the Permian to lower-emitting technologies. Our programs to identify and eliminate emissions throughout our global asset base are ongoing, and we continuously seek to expand and improve them. In closing, we are committed to our strategy of maintaining a diversified portfolio and maintaining operational flexibility to respond quickly to commodity price volatility and other externalities. We are demonstrating this today through the reallocation of capital from the North Sea into the Permian and Egypt. We also remain committed to investment in a portfolio of exploration projects which have the potential to drive differentiated future growth and competitive full-cycle economics.

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

Steve Riney -- Executive Vice President, Chief Financial Officer

Thank you, John, and good morning. For the third quarte, under generally accepted accounting principles, APA reported consolidated net income of $459 million, or $1.49 per diluted common share. As usual, these results include items that are outside of our core earnings, the most significant of which was a $93 million release of a valuation allowance on deferred tax assets. This was offset by a loss on the quarterly mark to market of our Kinetik stock ownership and unrealized derivative losses on our Waha basis swaps. Excluding these and other smaller items, adjusted net income for the third quarter was $410 million, or $1.33 per share.

Free cash flow, which, for external purposes, excludes changes in working capital, was $307 million in the quarter. Through dividends and share repurchases, we returned 32% of this amount to shareholders during the quarter. As John indicated, year to date, we have returned 65% of free cash flow to shareholders. Please refer to APA's published definition of free cash flow for any reconciliation needs. In our 3Q earnings pre-release, we anticipated G&A expense would be significantly higher than our underlying run rate of costs, which is around $100 million.

For the quarter, reported G&A was $139 million mostly because of APA stock price appreciation and the mark-to-market impact on previously accrued share-based compensation. As we have explained in the past, the mark to market of share price movements also impacts LOE, capex, and exploration expense. Thus, these items were also higher during the third quarter for the same reason. North Sea taxes also came in above guidance in the quarter by $46 million. This was the result of an incremental cargo lifting late in the quarter, which was not anticipated at the time we provided 3Q guidance in August.

In accordance with generally accepted accounting principles, we recognize cargo liftings in the quarter they occur, which increases revenue and current tax expense but has no impact on reported production volumes. To be clear, though, this is just a movement of revenue and income tax expense from the fourth quarter into the third quarter and has no impact on our anticipated full-year North Sea production, revenue, or income tax expense. As previously noted, our Cheniere gas sales contract commenced on August 1st and contributed two months of free cash flow in the third quarter. You will find this impact on our P&L in the two line items which capture the revenue and costs associated with oil and gas purchased for resale. In the third quarter, the Cheniere contract contributed free cash flow and pre-tax income of $32 million. We currently anticipate it will contribute approximately $90 million in the fourth quarter and $375 million for the full-year 2024.

In closing, as anticipated, the second half of 2023 is poised for improving production and free cash flow versus the first half of the year. With the improving performance, we are tracking very close to our original full-year guidance across most of our key financial and operational metrics for the year. We will continue to return capital to shareholders through dividends and share repurchases. And while our balance sheet is much stronger than a few years ago, we continue to recognize the need for further progress on debt reduction. And with that, I will turn the call over to the operator for Q&A.

Questions & Answers:

Operator

Thank you. [Operator instructions] And our first question comes from Doug Leggate with Bank of America. Doug, your line is open. Please go ahead.

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

Thank you. I think Gary just lost a bet on name pronunciation, but thanks, thanks. Thanks for getting me on. Guys, the North Sea, I wonder if you can offer a little bit of color on what your -- what you see is the decline curve there with no capital.

And where I'm going with this is, obviously, you've got, I believe, the gas compressor, you know, these are all your assets. I guess you're having to take it off the platform and so on. That's going to come back. And obviously, production will decline because you're not spending any money.

But my question is, how does the decline look versus the free cash flow in the North Sea? It strikes me that the free cash flow and a declining curve could actually be higher.

John Christmann -- President and Chief Executive Officer

Yeah, Doug, it's a -- it's a good question. You know, we're in the process right now working through the 2024 plan. You know, clearly, we've got some downtime that we've announced in the North Sea in the fourth quarter as we do have a compressor that we had to haul, you know, onshore. We'll get that back on, you know, sometime early next year.

And then, you'll be back at your -- you know, your base decline, you know, both for 40s and barrel. Forties, you know, these underwater floods which got, you know, much lower decline than barrel. But we do not have the rig. We'll continue to, you know, focus on maintenance, integrity projects, and we'll come back early next year with -- you know, with a detailed look when we give out the '24 plan.

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

But is it fair to say that, versus 2023, when you were spending capital, that free cash flow could be higher, John?

John Christmann -- President and Chief Executive Officer

I think it's early on the --

Steve Riney -- Executive Vice President, Chief Financial Officer

Yeah, Doug, look -- yeah, I think as -- as John was about to say, I think it's a bit early to -- to state that for 2024, It's certainly a possibility. But let's -- let's get to February, we'll have a detailed plan. And then, we'll -- and we'll know kind of what -- what type of price environment we're looking at as well, and we'll have a better -- better analysis on that at that point in time.

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

All right, thank you. John, my follow-up is in Suriname. I managed to get a red eye to Total's analyst day there this year. And I asked Patrick a very specific question about timing, and I wanted to get your perspective on this.

What my understanding is that the 2028 schedule for first oil assumes a 42-month newbuild FPSO. But since that announcement, I understand that SBM has been selected with an early haul. In other words, a year earlier on that timeline with some 70% expected to be contracted at the time of FID. I know you're not the operator, but I wonder if you could confirm or offer any color around those -- those points.

John Christmann -- President and Chief Executive Officer

Yeah, I would just say, for now, I mean, you know, kind of the official timeline is FID by the end of '24 and, you know, first oil by 2028. But obviously, you know, there's incentive and motivation to try to accelerate that. And I would expect that they will do everything they can to do so.

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

Fair enough. Thanks, guys.

John Christmann -- President and Chief Executive Officer

Thank you.

Operator

Stand by for our next caller. And that is John Freeman with Raymond James. John, your line is open. Please go ahead.

John Freeman -- Raymond James -- Analyst

Good morning, guys.

John Christmann -- President and Chief Executive Officer

Good morning, John.

John Freeman -- Raymond James -- Analyst

Yeah, the first question I had, on the six rigs, it's -- that's getting added in the Permian rule, is the plan for that rig to operate exclusively in the Delaware or potentially toggle between Delaware and Alpine High?

John Christmann -- President and Chief Executive Officer

John, it's a -- it's a spot rig we're picking up, it'll kind of go pad to pad. It will start in the Delaware on, you know, some oil pads, but then there's flexibility, and, you know, we'll come back in February with a little more detail obviously on the -- you know, the 2024 plan and how that would sit.

John Freeman -- Raymond James -- Analyst

OK, and then, just my follow-up question, I appreciate the -- the preliminary sort of outlook on 2024. If I take kind of what you said about the budget being in a kind of flattish versus -- versus '23 and I think about like, you know, the six rigs that's -- that's largely kind of funded with the North Sea capex reduction, and then, Egypt, you've said previously is kind of status quo next year, and so it seems like just of your -- your three main operating areas, that's kind of flattish in the wild cards kind of exploration. Was your commentary about kind of a flattish budget, does that -- is that all? And does that include the exploration side? If you can kind of just walk us through kind of how you see the exploration in a -- in a year where there's probably a step-down in activity and Suriname FID?

John Christmann -- President and Chief Executive Officer

Yeah, John, it's a great question. Yes, it -- it includes about $150 million of exploration. I think you laid it out pretty accurately. You'll see, you know, a full year without drilling in the North Sea.

You'll see an increase in the Permian; relatively, you know, stable drilling lines in Egypt; and you will see 100 and -- about 100 and half in terms of exploration is what we're sketching out at this point. So, you know, relatively stable program with continued exploration investment like we've done over the -- you know, the last several years.

John Freeman -- Raymond James -- Analyst

Thanks, John. I appreciate it.

John Christmann -- President and Chief Executive Officer

You bet. Thank you.

Operator

Our next question comes from Bob Brackett with Bernstein Research. Bob, your line is open. Please go ahead.

Bob Brackett -- AllianceBernstein -- Analyst

Yeah, good morning. You talked about -- in terms of the Permian, if we think about 12 net completions in 3Q, you're kind of driving flat production Q on Q and 4Q; 20 net completions in 2Q allowed you to grow the following quarter. And it sounds like you've already connected 12 wells in October with 18 coming in the rest of the Q. Does that imply a pretty strong cadence into sort of 1Q of next year in terms of the Permian?

Dave Pursell -- Executive Vice President, Development

Yeah. It's a -- it's a good question. You know how -- how timing of completions drives the quarterly production cadence. This is Dave Pursell, by the way. The -- the remaining completions this quarter will be weighted more toward December, and then we'll -- we'll provide you in February with what the -- the cadence of completions looks like in -- in '24. And as you can imagine, the -- they'll still be some lumpiness. And we'll provide that in February once we get the plan finalized.

Bob Brackett -- AllianceBernstein -- Analyst

OK, quick follow-up. If there is an FID in '24 around Suriname, does that change that capex budget of 2.0 billion or 2.1 billion, or it's kind of a rounding error?

John Christmann -- President and Chief Executive Officer

No. At this point, we've factored that in, Bob.

Bob Brackett -- AllianceBernstein -- Analyst

OK, very clear. Thank you.

John Christmann -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Neal Dingmann with Truist Securities. Neal, your line is open. Go ahead.

Neal Dingmann -- Truist Securities -- Analyst

Thanks for the time. So, my first question is just on Egypt. I'm just wondering if the '24 plans will continue to have sort of a similar level of exploration and development activity. And if so, you know, should we assume somewhere around -- I mean, in your estimate, around that sort of same drilling success next year?

John Christmann -- President and Chief Executive Officer

Yeah, Neal, program, it will be, you know, pretty stable. We're running 18 rigs in Egypt, and you know, it is a steady diet of both development and exploration and anticipate that to be very similar next year. And we do, you know, expect to be able to continue to show good growth in Egypt.

Neal Dingmann -- Truist Securities -- Analyst

Very good. Then my second, John asked a little bit on this, but just on the Permian gas plans, I'm just curious if your decision, you know, if and when to go back and boost that activity, is that based more on how those gassy well economics compete against your oily Southern, Midland, or Delaware economics? Or is it just simply if those gas returns provide, you know, a certain -- certain rate of return?

John Christmann -- President and Chief Executive Officer

Yeah, I mean, it's really more a function of, you know, stability in the Waha pricing. And, you know, the -- the wells we've drilled this year have been strong and, you know, very competitive. I mean, I think at $3 Waha, they're very very competitive with Permian oil. So -- but it's really more a function of, you know, when we believe we'll have stability there at Waha that, you know, you can produce them into the infrastructure.

Neal Dingmann -- Truist Securities -- Analyst

Perfect. Thanks, John.

John Christmann -- President and Chief Executive Officer

Mm hmm.

Operator

Our next question comes from Scott Gruber with Citigroup. Scott, your line is open. Go right ahead.

Scott Gruber -- Citi -- Analyst

Thanks. Just coming back to Egypt, you mentioned growth next year, is that going to be on a year-over-year basis, or do you think the exit -- exit will be up as well?

Steve Riney -- Executive Vice President, Chief Financial Officer

Yeah, we'll give you the -- the details when we -- we roll out the plan in February. But we'll -- we'll show growth -- we'll show growth most likely year-over-year and next. But let us -- let us give you those details in February.

Scott Gruber -- Citi -- Analyst

OK, and then, you know, just think about the next few years, you have a project that will be moving forward in Suriname and obviously have the carry from Total at least a $1 billion or so of commitments. Can you just speak to whether that impacts your capital allocation across the rest of the portfolio on a multiyear basis?

John Christmann -- President and Chief Executive Officer

Yeah, I mean we look at the multiyear plan. And that's the beauty of the carry is it's going to keep it in a very very manageable place from where we've been. So, you know, I mean, we basically structured that deal, you know, banking on success, and you'll see that, you know, start to follow through if we move through the next phases. So, we've got to FID a project first, but -- but that's where the carry will kick in.

Scott Gruber -- Citi -- Analyst

Got it. Appreciate it.

John Christmann -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Roger Read with Wells Fargo Securities. Roger, your line is open. Go ahead.

Roger Read -- Wells Fargo Securities -- Analyst

Yeah, thanks. Good morning. Just a follow-up. Egypt had a little release of capital or working capital this quarter. Just how do you think that looks going forward? And also, in Egypt, given that they've had some gas issues related to imports in the Med, any interest or pressure from Egypt to have you increase gas production there? Or is that something that -- that could occur in '24, that's not really a reasonable assumption given locations of fields and, you know, takeaway capacity, etc.?

John Christmann -- President and Chief Executive Officer

There's no doubt Egypt, you know, needs more gas production. We're -- we're flowing everything we can into the grid, which is where our gas goes. You know, our program has been focused on oil as we receive 2.65 per MMBtu there. But, you know, short term, there's not anything we could do to increase gas production. But there are some longer-term projects, but we would need to work on a higher gas price there.

Roger Read -- Wells Fargo Securities -- Analyst

And then, on working capital --

Steve Riney -- Executive Vice President, Chief Financial Officer

Yeah, on the working capital, this is -- this is Steve. So, we did have an increase in working capital in the quarter in Egypt as you will see in the supplement. So, the receivables did go up during the quarter, but receivables from EGPC actually went down during the quarter. And if we go back to first quarter of this year, when I think the -- the -- the concern about the -- the payments from EGPC kind of surfaced at that point in time with the first quarter results in May, since that time, you know, from first quarter -- in the first quarter to the end of the third quarter, EGPC receivables have gone down and so have the past due receivables from EGPC.

So, I think we're in good shape there. We've made -- making progress. We've made some good progress. And as John always says, we're -- we're in constant contact with the highest-level folks in Egypt about the -- managing that receivable balance. So, we're -- we're making some good progress there.

More to go but we're making good progress. I think the -- the -- the issue with -- or the reason why receivables went up in the third quarter is because we were exporting more cargoes and selling them to third parties. And those third-party receivables have gone up during the quarter because we were -- third-party receivables were low at the end of the second quarter and higher at the end of the third quarter. So, those -- those are receivables that are just paid under normal terms from our normal, you know, creditworthy and on-time-paying purchasers of the oil coming out of Egypt in export cargoes.

Roger Read -- Wells Fargo Securities -- Analyst

And that's -- in that situation, just normal seasonal or month-to-month kind of changes, nothing to read into that presumably?

Steve Riney -- Executive Vice President, Chief Financial Officer

Right, right. And -- and you'll see there's a -- you know, at the corporate level -- not just in Egypt, at the corporate level, there's a meaningful increase in working capital during the quarter. And that also is just seasonal-type things. We -- we had some payables, in particular, a large one around taxes, large cash payment and taxes in -- in the U.K.

that comes in the third quarter. And so, a lot of seasonality to working capital movements for the company as a whole.

Roger Read -- Wells Fargo Securities -- Analyst

Appreciate the explanation. Thanks.

Operator

And our next caller is Charles Mead with Johnson Rice. Welcome, Charles. Your line is open.

Michael Furrow -- Johnson Rice and Company -- Analyst

Hi, good morning. This is Michael Furrow actually filling in for Charles Mead.

John Christmann -- President and Chief Executive Officer

Hello, Michael.

Michael Furrow -- Johnson Rice and Company -- Analyst

OK, just one question for me regarding Suriname. I know FID's not expected till late in 2024. And this might be a bit premature, but when do you think that further exploration could occur within Block 58? I recognize that Total is the operator here. So, maybe a better way to frame it would be when would APA like to further explore Block 58, and maybe if you could even speak on Block 53?

John Christmann -- President and Chief Executive Officer

No, it's a great question. You know, the focus this year was appraisal of Krabdagu so we could start a project in terms of getting it moving into the next phase, and you know, we're in a position to do that now. We do see, you know, several high-quality, low-risk prospects in Block 58, A lot of the program at Krabdagu that, you know, obviously appraised that fairway also de-risked, in our mind, a lot of prospects. There's no urgency in terms of getting to them, you know, in '24, but we will be working through those, you know, with our partner. And when I look at the two blocks, we see more prospectivity in 58 over 53.

You know, we're working with our various partners there on, you know, the next steps at Baja. But, you know, I think there's -- you know, we would see more prospectivity in 58 over 53 at this point.

Michael Furrow -- Johnson Rice and Company -- Analyst

All right, I appreciate that color. Thanks for your time.

John Christmann -- President and Chief Executive Officer

Yep.

Operator

Please stand by for our next question. And our next question is from Scott Hanold with RBC Capital Markets. Scott, your line is open.

Scott Hanold -- RBC Capital Markets -- Analyst

Yeah, thanks. My question is going to be on just general exploration. I mean, obviously, you got Suriname going on, but you know, more recently, you've kind of farmed in a position in Alaska. And on top of that, obviously, you've got different things in Uruguay and Dominican Republic.

Can you tell us in general, just first maybe starting with Alaska and then how you think about these other prospects, you know, moving forward for APA?

John Christmann -- President and Chief Executive Officer

No, it -- you know, Alaska fits our exploration strategy, and that is trying to build a high-quality portfolio. We've got a proven operator in state lands, very very prospective acreage, and it's something we look forward to, you know, sharing more in February. And it's all about, you know, a portfolio on the exploration side and having choices to high grade and, you know, drill the best things, you know, that are going to create the most shareholder value.

Scott Hanold -- RBC Capital Markets -- Analyst

So, when I think of APA, and look, I mean, it seems to be in contrast with, you know, some of, I guess, your U.S. or even just E&P peers, where, you know, there's a lot of, I guess, M&A going on there for, you know, domestic shale. But it looks like EPA has taken a little bit different angle, or, you know, there's still a desire to potentially maybe even bulk up in the Permian or other focus areas, you know, where you do have, you know, more, I guess, you know, proven production at this point.

John Christmann -- President and Chief Executive Officer

Yeah, I mean I think we like to look at, you know, both avenues, both the organic and inorganic. And, you know, we stayed committed to an exploration program, and you know, you're seeing that payoff in the, you know, Suriname and longer term. But I also think you saw us last year bolster, you know, some of -- you know, some acreage in the Delaware. So, you know, it's a -- it's a diet of both that you're constantly looking at. And, you know, you've got to continue to focus on adding to the assets, as well as, you know, what can create, you know, value for your shareholders.

Scott Hanold -- RBC Capital Markets -- Analyst

So, when you look at the Permian Basin, do you all feel with -- at a eight -- or five-, six-rig pace, you've got, you know, what you'd say, ample inventory of kind of tier 1 stuff?

John Christmann -- President and Chief Executive Officer

Yes. I mean, I think with where we sit today, five to six rigs, you know, Dave would say --

Dave Pursell -- Executive Vice President, Development

End of the decade.

John Christmann -- President and Chief Executive Officer

End of the decade, pretty easily. And that's focused on higher-quality and longer laterals. And we're always -- you know, we've got a nice footprint that we're always moving inventory from one category of, you know, up into the high grade as we -- as we continue to test and, you know, find ways to make it all work, so.

Scott Hanold -- RBC Capital Markets -- Analyst

Appreciate the color. Thanks.

John Christmann -- President and Chief Executive Officer

You bet.

Operator

Our next question comes from David Deckelbaum with TD Cowen. David, your line is open.

David Deckelbaum -- TD Cowen -- Analyst

Thanks for taking my questions, guys. John, I wanted to just ask, are you able to tell us, the 150 million you have earmarked for exploration next year, I guess to be more -- more pointed about it is, how much of that is included for ex-Suriname exploration?

John Christmann -- President and Chief Executive Officer

At this point, you know, we'll come back with more color next year on the program. We've -- it's a placeholder. And, you know, we're working through -- there's some other things we'll be doing. You've got exploration in Egypt that we've always funded as -- and some other things.

But we'll come back with more color in February.

David Deckelbaum -- TD Cowen -- Analyst

Appreciate that.

John Christmann -- President and Chief Executive Officer

Mm hmm.

David Deckelbaum -- TD Cowen -- Analyst

If I could just follow up on -- on Egypt, you talked about the growth trajectory in the next year, and I certainly know that U.S. oil is anticipated growing next year. Can you give a little bit more color just on what's happening with the increased workover activity? What's driving that? And, you know, are there any alterations being made that this won't be a drag into next year? Or is this being factored in with greater frequency now that you have this -- this increased rig count?

John Christmann -- President and Chief Executive Officer

Yeah, I mean, it's a situation where we've always had a, you know -- I'll call it a wells or a volume offline that requires workover. We have a lot of sub-pumps in Egypt, and we've had some increase in the failures in -- in a few areas, and that number's ticked up. And they can get into some more color, but you know, we've just got more barrels offline that we need to get to on the workover side. And we're addressing that. So, it's -- you know, it's something we're jumping all over.

Steve Riney -- Executive Vice President, Chief Financial Officer

Yeah, and so, just to follow on what John said, we've -- we're working on a root cause analysis just to understand, are we seeing a structural change in well failure -- well failures. We've seen a reduction in ESB runtimes, and we're -- we're doing a broader -- a broader look at that. And to put some numbers on -- on John's comment on -- on base level of workover inventory, that typically represents about 5,000 barrels a day of production that's offline at any given time. We've seen that increase to over 10,000 barrels a day really from the end of the second quarter through today. So, we've added a workover rig.

We're doing some other things to start working that -- working that backlog down, you know, over time.

David Deckelbaum -- TD Cowen -- Analyst

Is that in -- coincident with where you're developing right now, or is it just sort of, you know, just circumstantial to just across the entire area?

Dave Pursell -- Executive Vice President, Development

It's -- it's across the entire Western Desert, and we're working the root cause on that just to understand are there any specifics. But right now, we haven't identified any.

David Deckelbaum -- TD Cowen -- Analyst

Thank you, guys.

Dave Pursell -- Executive Vice President, Development

Uh-huh.

Operator

[Operator instructions] And our next question comes from Leo Mariani with ROTH MKM. Leo, your line is open. Go ahead.

Leo Mariani -- ROTH MKM -- Analyst

Hey, guys. Just wanted to follow up briefly on -- on Egypt here. I think you guys may have added a rig recently. I think you were at 17 earlier in the year if I sort of got it right. So, just curious, is that just because of, you know, lower North Sea activity, you're just kind of reallocating dollars here? And then, I guess just in general, obviously, there's been significant instability there kind of in that Sinai Peninsula area bordering, you know, Israel there with the -- the conflict that's happening right now. I mean, do you guys have any concerns over potential spillover, you know, into Egypt? And have you been kind of in contact with the Egyptian government regarding that?

John Christmann -- President and Chief Executive Officer

Yeah, it's something that -- you know, it's interesting. We're coming up on our 30th anniversary of being in Egypt. So, you know, we've got a great history there. We've been there a long time, and we've been through -- you know, watched Egypt go through a lot of trying times.

You know, this year has been difficult for them. And it's really been driven more by inflation and currency devaluation and some of those factors. You know, we're closely monitoring the situation. You know, I think the good thing from our perspective is our operations are all west to Cairo into the Western Desert. And if you go back in history, even over the Arab Spring, you know, we have not had any, you know, shut-ins or major interruption in our operations. So, I think the good news there is -- is the government continues to prioritize oil and gas operations.

They know they need the in-country production, and you know, we've been watching things very very closely, so.

Leo Mariani -- ROTH MKM -- Analyst

OK, that's helpful. And then, you know, in terms of the $150 million in exploration next year, I don't want to beat a dead horse here, but as you kind of looking at the high level, in your mind, does that include some dollars in Suriname at this point? Or is that just sort of kind of still an open-ended proposition.

John Christmann -- President and Chief Executive Officer

It's in general -- you know, right now, it's a placeholder for the things we want to do, but you know, there's -- there's seismic that'll be, you know -- is being shot in Suriname in the -- in the -- where would be the development area, some other things. So, you know, it'll capture our exploration spend for next year. And, you know, we'll come back with more details in February.

Leo Mariani -- ROTH MKM -- Analyst

OK, thanks.

Operator

And our -- our next question comes from Geoff Jay with Daniel Energy Partners. Go ahead, Jeff.

Geoff Jay -- Daniel Energy Partners -- Analyst

Hey, guys, thanks for taking the question. Yeah, really my question is around, you know, U.S. oil production, which looks like it's taking a pretty impressive step-change up. I mean, obviously, you've completed some more wells, but you know, obviously, several quarters where it was just kind of locked into the 70s.

Now, we've taken this 8,000 barrels a day step-up in Q3, and I'm wondering, you know, A, what changed; and B, if there's something that's happened that has kind of prompted this decision to add another rig in the Delaware. Thanks.

John Christmann -- President and Chief Executive Officer

Yeah, I mean, it's really just a continuous program. I mean we're seeing the benefit of the -- you know, the deliberate approach we've taken. We've been focused on long laterals and really locking the -- you know, the rig lines down and giving the teams time to execute. And, you know, you're seeing that.

We've continued to drill long laterals and we're continuing to have good results. And it's really just a function of the timing of the completions. You know, in terms of adding the sixth rig, it's really more allocation of capital from the North Sea into the Permian. And, you know -- but, you know, we look forward to continuing to deliver strong results. And if you look, fourth quarter is a little flattish compared to third quarter. A lot of that's because third quarter is running ahead, you know, versus fourth quarter running behind.

So, you know, very very pleased with the -- the execution level in the -- in the U.S..

Geoff Jay -- Daniel Energy Partners -- Analyst

Excellent. Thanks, guys. I appreciate it.

Operator

I am showing no further questions at this time. So, this concludes the question-and-answer session. I would now like to turn it back to John Christmann, president and CEO, for closing remarks.

John Christmann -- President and Chief Executive Officer

Yeah, thank you for participating on our call this morning. I want to leave you with the following thoughts. We've completed a successful appraisal program in Suriname at Sapakara and Krabdagu and will advance a project through the -- through the FEED process during 2024. In Egypt, gross oil production continues to increase on the success of our drilling program. And lastly, we continue to deliver outstanding results in the Permian where we've added a sixth rig, which will add to the momentum as we enter 2024.

We look forward to telling you more about things in February, and thank you for the call.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Gary Clark -- Vice President, Investor Relations

John Christmann -- President and Chief Executive Officer

Steve Riney -- Executive Vice President, Chief Financial Officer

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

John Freeman -- Raymond James -- Analyst

Bob Brackett -- AllianceBernstein -- Analyst

Dave Pursell -- Executive Vice President, Development

Neal Dingmann -- Truist Securities -- Analyst

Scott Gruber -- Citi -- Analyst

Roger Read -- Wells Fargo Securities -- Analyst

Michael Furrow -- Johnson Rice and Company -- Analyst

Scott Hanold -- RBC Capital Markets -- Analyst

David Deckelbaum -- TD Cowen -- Analyst

Leo Mariani -- ROTH MKM -- Analyst

Geoff Jay -- Daniel Energy Partners -- Analyst

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