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Apa (NASDAQ: APA)
Q3 2024 Earnings Call
Nov 07, 2024, 11:00 a.m. ET
APA Corporation Delivers Strong Third Quarter Results
Financial Overview and Strategic Developments
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, everyone, and thank you for standing by. Welcome to APA Corporation’s third-quarter 2024 financial and operational results. [Operator instructions] This call is being recorded. Now, I will hand it over to the Vice President of Investor Relations, Gary Clark.
Please proceed.
Gary T. Clark — Vice President, Investor Relations
Good morning, and thank you for joining us on this call regarding APA Corporation’s third-quarter 2024 results. We will start with an update from our CEO, John Christmann. Steve Riney, our president and CFO, will follow with a detailed analysis of our performance and future outlook. Additionally, Tracey Henderson, our executive vice president of exploration, and Clay Bretches, our executive vice president of operations, are available for questions.
Our remarks today will last under 20 minutes, leaving ample time for Q&A. I trust you have reviewed our financial and operational supplement, available on our investor relations website at investor.apacorp.com. We will discuss certain non-GAAP financial measures today; a reconciliation can also be found in our supplemental information online.
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In line with our standard reporting, adjusted production numbers mentioned in today’s call exclude noncontrolling interest in Egypt and Egypt tax barrels. I would like to remind everyone that forward-looking estimates are based on our best current expectations. Factors outside our control could lead to actual results differing substantially from our predictions. A comprehensive disclaimer is available with the supplemental information on our website.
Our full-year 2024 guidance reflects first-quarter results for APA alone, followed by the combined results of APA and Callon for the three subsequent quarters. With that, I will turn the call over to John.
John J. Christmann — President and Chief Executive Officer
Good morning, and thank you for joining today’s discussion. I’ll review our key strategic achievements, summarize the third-quarter highlights, and present our preliminary outlook for production and costs in 2025. Over the last few years, APA has implemented numerous strategic initiatives to improve our operations and increase shareholder value. Since 2020, we have made over $5 billion in acquisitions and $2.5 billion in divestitures, reshaping our asset portfolio into a concentrated Permian operation.
These strategies have yielded three significant benefits. First, they expanded our unconventional Permian acreage by more than 40%, leading to roughly double the unconventional production. Second, the actions increased our drilling inventory and extended its duration, addressing the lower rig count today. Lastly, it streamlined our portfolio, removing underperforming assets and significantly lowering operating costs per unit.
In Egypt, we’ve achieved two important strategic goals that enhance shareholder value and positively impact the nation over the life of the PSC. In late 2021, we modernized our PSC terms, leading to better capital allocation and increased free cash flow. Recently, we secured a deal to raise the contractual price for natural gas production, making gas exploration more financially viable against oil.
Turning to Suriname, we are witnessing the outcomes of strategic investments made over a decade ago in offshore exploration. The recently announced GranMorgu project FID presents a clear path toward significant future oil production growth with favorable economic conditions. We’re confident that we can fund this project through operating cash flows, ensuring we maintain our returns strategy.
Now, let’s examine our third-quarter results and highlights:
APA reached several critical milestones during and after the third quarter. We announced the sale of noncore Permian properties for $950 million, expected to close in December. We achieved FID on our initial development project offshore Suriname with TotalEnergies. Additionally, we signed an agreement in Egypt increasing our natural gas price for incremental volumes, and we received a credit rating upgrade from Standard & Poor’s, attaining investment-grade status across all three major rating agencies.
Our third-quarter results were robust. We exceeded production guidance while keeping capital and costs below expectations. Despite declining WTI oil prices and significantly lower Waha gas prices, both cash flow from operations and free cash flow improved compared to the previous quarter. This resilience stems from unique aspects of the APA portfolio and recent initiatives.
These initiatives include the effective integration of Callon, capturing cost synergies, maintaining cash flow stability in Egypt under the PSC structure, promoting short-term organic oil production growth, generating strong cash flow from our LNG contract, and having the flexibility to reduce US output during periods of negative Waha pricing.
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APA Reports Solid Q3 Performance Amidst Strategic Changes
In its latest update, APA highlights the ongoing value in gas trading while anticipating strong financial outcomes in the fourth quarter. The focus remains on resource preservation to enhance pricing conditions.
Operational Highlights Show Consistent Growth in US Oil Volumes
For the seventh consecutive quarter, U.S. oil production has met or surpassed expectations. Following the Callon acquisition on April 1st, the company has decreased its Permian rig count from 11 to 8, which aligns with current commodity prices. The integration of Callon has been successful, allowing APA to shift its focus toward developing acquired acreage.
Initial wells drilled on the former Callon acreage in the Midland Basin are yielding promising early results. Production in the Delaware Basin is expected to begin later this quarter. Operations in Egypt are proceeding as planned, with oil production on track. A reduction in the drilling program has also enabled the workover rig fleet to return backlog volumes to normal levels.
New Developments in Suriname and North Sea Analyzed
APA has recently added a drilling rig, raising the total to 12, as part of a new gas price agreement. Significant news comes from Suriname, where the company announced a pivotal investment decision for offshore development in Block 58. The project has a gross cost of $10.5 billion and aims for a production capacity of 220,000 barrels per day, with a cost per barrel of $19 at a 15% internal rate of return, based on a $60 per barrel price.
These returns are promising, especially with a capital carry provision negotiated with Total in 2019. Development costs in Suriname will be funded from operating cash flow until production starts in 2028, with significant potential for additional exploration to extend production.
Turning attention to the North Sea, the company successfully completed maintenance at the Beryl platform during the third quarter. New UK regulations requiring costly emissions control investments by 2029 have prompted a strategic pivot. APA has decided to halt production in the North Sea by December 31, 2029, a departure from plans that would have allowed continued operations.
Future Outlook and Cost Management Strategies
Looking ahead, APA plans to run an eight-rig program in the Permian Basin and a twelve-rig program in Egypt for 2025. In the North Sea, the focus will be on a limited capital program, ensuring safety and preparing for asset abandonment. The projected capital budget ranges between $2.2 billion and $2.3 billion for the U.S., Egypt, and North Sea, with an additional $200 million earmarked for Suriname and $100 million for exploration, primarily in Alaska.
These measures aim to sustain production in the Permian Basin and Egypt while anticipating a 20% year-over-year drop in North Sea production. Significant cost reductions are also anticipated, with overall costs expected to decline by 10% to 15% in 2025.
Financial Performance and Debt Management Updates
In the third quarter, APA reported a net loss of $223 million, or $0.60 per diluted share. This includes a significant after-tax impairment of $571 million tied to North Sea and non-core Permian assets. Adjusted net income, excluding these items, stands at $370 million, or $1 per share.
The shift in production plans in the North Sea resulted in notable financial impacts, including an increase in abandonment obligations and reserve write-downs. The total after-tax present value liability for abandonment in the North Sea now amounts to $1.2 billion, which is expected to be incurred by 2038, with half of this occurring by 2030.
Efforts also continue in Egypt to collect on past due receivables, with a decrease noted for both total and overdue amounts. This could influence the company’s free cash flow as defined under its 60% cash returns framework.
Debt reduction remains a priority. Although total debt increased due to the Callon acquisition, APA aims to liquidate this debt promptly. Progress was made in the third quarter, aligning with a commitment to return to pre-acquisition debt levels, contributing to a recent credit rating upgrade by S&P.
In conclusion, APA demonstrates solid operational and financial growth amid strategic adjustments in its portfolio, laying a foundation for future developments.
Capital Budget Surge: Company Adjusts Production Guidance for Fourth Quarter and Beyond
In a detailed overview of changes for the fourth quarter and the full year 2024, the company announced an increase in its capital budget to $2.75 billion. This adjustment is primarily due to higher anticipated spending on development projects in Suriname following the recent project Final Investment Decision (FID) made in October. Additional factors contributing to this increase include plans to drill another exploration well in Alaska this winter and the deployment of a 12th rig in Egypt.
These new initiatives, which were not previously factored into guidance, have been somewhat balanced out by reducing one rig in the Permian Basin. As we turn our focus to U.S. production guidance, adjustments have been made to the fourth quarter outlook, reflecting estimated impacts from frac activity delays and scheduled production cuts. Faced with disappointingly low Waha gas prices this quarter, the company opted to curtail gas output from the Alpine High area, a standard procedure under such conditions.
Moreover, the decision was made to reduce output from certain high-volume, high-Gas-to-Oil Ratio (GOR) oil wells, aiming to optimize revenue based on anticipated improvements in future gas pricing. Current projections indicate a potential 20,000 to 25,000 Barrels of Oil Equivalent (BOE) impact on U.S. production. It’s important to note that this estimate may fluctuate significantly depending on regional gas price trends through the remainder of the fourth quarter. Typically, income derived from buying and selling third-party oil and gas correlates closely with Waha price differentials.
Given the ongoing weak pricing conditions expected in the fourth quarter, the company has raised its full-year estimate to $500 million. Approximately two-thirds of this amount is linked to gas trading activities, while the remaining third pertains to the Cheniere gas supply contract. In conclusion, most of the $250 million Callon synergy target is expected to be achieved by year-end, with complete realization anticipated through 2025, and ongoing reporting on these efforts will cease moving forward.
With this update, I will now hand the call over to the operator for questions and answers.
Questions & Answers:
Operator
[Operator instructions] Our first question comes from the line of Doug Leggate with Wolfe Research. Please proceed.
Doug Leggate — Analyst
Thanks, and good morning, everyone. There’s a lot to discuss this quarter, so I have two main topics: Egypt and the oil guidance.
First, regarding Egypt, could you provide more details about gas pricing? You mentioned better pricing, but how significantly does this impact your operations? I believe managing that additional rig costs you about $25 million. How does that relate to your free cash flow considering the current gas price visibility? For my second question, the oil guidance appears to involve various moving parts, particularly concerning the sale of the Central Basin platform. Can you clarify how these various factors affect the net figures to ensure we’re looking at this correctly? Thank you.
John J. Christmann — President and Chief Executive Officer
Great questions, Doug. I’ll first address your inquiry regarding Egypt before passing it over to Steve for further insights, and then we can discuss the Permian oil guidance. In Egypt, particularly in the Western Desert, our historical focus has been on oil exploration. However, the Egyptian government now prioritizes gas, prompting us to develop a framework that brings gas exploration wells on par with oil wells. While I can’t delve into all the specifics, we anticipate seeing the effects reflected in our income statement going forward.
With a dedicated rig allocated to gas exploration, we have a significant opportunity for growth in gas production. Historical practices mostly revolved around oil, highlighted by discoveries like Qasr—a three trillion cubic feet find in the early 2000s. There’s considerable potential yet to be explored for gas in this region, and we are appropriately aligning our exploration efforts.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
To clarify, when we mention incremental gas volumes, we refer to our arrangement with the Egyptian General Petroleum Corporation (EGPC) regarding the production decline projections over the concession’s life. The agreement allows us to capture prices for any gas production that exceeds this projected decline, irrespective of the origin of the gas. This flexibility enables us to optimize our production without needing new wells or fields at every turn.
As John pointed out, our commitment encompasses a range of production techniques, including enhancing recovery and leveraging existing infrastructure, which has been effectively in place due to ongoing gas production. We believe there is substantial opportunity ahead, especially as we explore previously identified gas resources within our extensive hydrocarbon-rich land.
Tracey K. Henderson — Executive Vice President, Exploration
Thank you, Steve. To reiterate, while our historical exploration focus has been on oil, we recognize significant untapped gas potential. Our long-term presence has equipped us with rich geological knowledge that will support ongoing evaluations and additions to our resource inventory, thereby enhancing business value in Egypt.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
To wrap up this discussion on Egypt, while we are unable to disclose the specifics of the gas price agreement at their request, expect to see the results of these changes reflected in our future revenues. We’ll continue to provide updates as we refine our free cash flow projections leading into 2025.
John J. Christmann — President and Chief Executive Officer
Now, returning to your second question regarding the Permian oil production guidance, we have been managing…
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Strategic Updates on US Oil Production and Capital Expenditure Management
In a recent call, executives discussed their plans for maintaining oil production levels and managing capital expenditures in the upcoming year. Currently operating eight rigs, the company intends to sustain production around 130,000 barrels per day despite a significant asset sale.
Effective Production Strategy Amid Asset Sales
The latest Q3 figures show 143,000 barrels per day of oil production from the Permian Basin. However, after accounting for upcoming asset sales totaling 13,000 barrels per day, the target production level will adjust to approximately 130,000 barrels per day. The management is optimistic about maintaining this output with reduced rig counts, which are down 20%, along with similar reductions in turn-in lines and capital expenditures (capex).
Doug Leggate — Analyst
Got it. Thanks, guys. I appreciate the answers.
Capital Allocation in the North Sea
John Freeman from Raymond James raised questions regarding the company’s capital spending in the North Sea. Stephen J. Riney, the Chief Financial Officer, clarified that the Asset Retirement Obligation (ARO) would not be directly reflected in capital expenditures. Instead, these amounts will appear under costs incurred, with about half estimated to be spent by 2030, largely on wellbore abandonment.
Riney noted that the total liability related to the ARO is approximately $2 billion, with an associated deferred tax asset on the balance sheet amounting to $800 million. He emphasized that spending will ramp up in the later years of the decade, starting lower in the early years.
John Freeman — Analyst
That’s perfect. I appreciate all the color on that. And then, on the LOE, which you all are indicating a pretty big decline next year, 10% to 15% decline…
Operational Efficiencies and Future Plans
In response to further inquiries about the operating expense (LOE) decline, John J. Christmann, President and CEO, explained that synergies from the Callon acquisition would contribute significantly to the drop in costs. Changes in the asset portfolio, especially divestures of higher-cost assets, are also expected to play a role in this reduction. Riney further elaborated that the detailed plan concerning these aspects will be shared in February.
John Freeman — Analyst
Understood. Thanks guys.
Cash Return Strategy and Market Challenges
Bob Brackett from Bernstein Research pressed for clarity regarding the cash return strategy and the impact of asset disposals on free cash flow returns. Christmann confirmed that the variations noted in Q3 results relate primarily to timing issues rather than shifts in overall performance goals. Management remains focused on executing cash return strategies effectively.
Regarding gas curtailment and the Matterhorn project, Riney commented that most pricing fluctuations are due to maintenance on pipelines rather than the project itself, expecting resolution and improvements in takeaway capacity shortly.
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Apache Corporation Discusses Cost Reductions and Exploration Opportunities
Bob Brackett — Analyst
Very clear. Thank you.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
Thank you, Bob.
Operator
Our next question comes from Roger Read with Wells Fargo Securities. Please proceed.
Roger Read — Analyst
Thank you. Good morning. I’d like to return to the topic of cost reductions. It appears that you have made some progress in lowering expenses. Could you clarify how much of this reduction is tied to the Callon merger compared to operational changes? I would expect synergies to be significant.
John J. Christmann — President and Chief Executive Officer
Roger, you’re correct that synergies from the Callon transaction play a key role, but we have also simplified operations due to recent asset sales.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
Additionally, regarding the Callon transaction, we project about $90 million in general and administrative (G&A) synergies. Callon had a G&A cost structure of roughly $110 million annually, while our G&A costs have remained steady after the acquisition. Therefore, we expect the synergies will exceed our previous estimates as we have integrated some Callon personnel, effectively reducing our G&A costs.
Some one-time G&A expenses will also impact our figures in 2024 due to the merger transition.
Roger Read — Analyst
Thank you for clarifying that. Moving on, I’d like to ask about the Alaska exploration well. There seems to be a more favorable regulatory environment in Alaska now. How are you approaching this opportunity while considering the broader implications based on the election outcomes?
John J. Christmann — President and Chief Executive Officer
It’s important to note that we hold approximately 300,000 acres on state land, which allows us to operate closer to pipeline infrastructure without extensive federal involvement. We are optimistic about our Alaska operations, particularly since we made a discovery earlier this year. We are also planning to revisit two wells that we had to halt last winter, with preparations underway now, such as building ice roads.
Roger Read — Analyst
Understood. Given how one federal roadblock can hinder progress, I wanted to ensure we recognize that potential. Thank you.
Operator
Our next question comes from Paul Cheng with Scotiabank. Please proceed.
Paul Cheng — Analyst
Hello, good morning, team. John, after completing the Callon acquisition, did you identify any practices or operations where Callon outperformed your expectations? Conversely, were there areas where their performance didn’t meet your standards?
John J. Christmann — President and Chief Executive Officer
Well, Paul, when merging two organizations, we aim to adopt the best practices from both. Callon brought valuable human resources and promising acreage, which we are eager to develop. We also analyzed their technical methods, including cost-cutting strategies in our supply chain. So far, we have reduced well costs by almost $1 million per well and had positive results from two wells in the Midland Basin.
Paul Cheng — Analyst
Are there specific technologies or processes from Callon that you plan to implement to improve your operations?
John J. Christmann — President and Chief Executive Officer
Yes, particularly in well spacing. We are thoroughly reviewing their development approach, adapting their methods to better fit our strategy.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
To add to that point, it would be simplistic to just integrate their acreage into our existing processes without considering their innovative approaches regarding spacing and fracking. This examination is essential for us.
Paul Cheng — Analyst
Can you estimate the potential benefits from these insights? I assume they weren’t included in your original synergy projections?
Stephen J. Riney — Executive Vice President, Chief Financial Officer
At this stage, I can’t quantify those benefits. However, as we drill and complete more wells, we will gather data and evaluate those insights, aiming for a comprehensive review by 2025, where we’ll also assess our $250 million in identified annual cash synergies.
Paul Cheng — Analyst
Regarding your Alaska plans, you mentioned returning to previous wells. Are you refocusing on the same two wells you deferred last year, or are you targeting entirely new prospects?
John J. Christmann — President and Chief Executive Officer
No, Paul, we are actually returning to those same two wells that we had to put on hold last year. We are looking to advance those efforts now.
Operator
We kindly ask for your patience as we resolve some technical issues. Thank you for your understanding. [Technical difficulty] You may now proceed; we’re live.
John J. Christmann — President and Chief Executive Officer
We have reestablished our connection. I apologize for the earlier disruption.
Operator
Our next question comes from Neal Dingmann with Truist. Please go ahead.
Neal Dingmann — Analyst
Good morning, John. I appreciate your time. I’m curious about the production targets in the Permian and Egypt. You mentioned targeting eight rigs in the Permian and 12 in Egypt. Do you believe this number will help maintain stable production? Additionally, how has base production changed in these regions? Understanding this will help us gauge the outlook for consistent production levels.
John J. Christmann — President and Chief Executive Officer
We’ve crafted the early design of our program to sustain Permian oil production around 130,000 barrels per day, as mentioned previously. In Egypt, while our reported production has hovered around 11, we currently maintain 12 rigs—11 focused on oil and one on gas. We are slightly underinvesting in Egypt at the moment, but the situation is manageable.
Stephen J. Riney — Executive Vice President, Chief Financial Officer
To elaborate, we began the year with 18 drilling rigs and concluded with 12. At times, we dropped to 11. Our gross oil volume has slightly declined this year, with first-quarter production at 138,000 barrels per day, second-quarter at 139,000, and third-quarter at 137,000. This trend of a slight decline is expected to continue into the fourth quarter and into 2022 unless drilling activities change.
Looking back at 2023, we averaged mid-140s with 18 rigs. We faced challenges in maintaining or growing production volumes. The smoother operational rhythm we have achieved with 11 rigs is promising, and increasing to 12 has helped. The 12th rig will primarily focus on gas-related wells, covering various types of projects, including development and exploration. We believe in the potential of gas prospects, although the results remain uncertain.
Over the past year and a half, we’ve gained valuable insights into enhancing waterflood management, with exciting plans set for 2025. It’s essential to manage decline effectively to stabilize production, rather than solely increasing the number of wells. We hope to see how this strategy unfolds as we move forward, likely maintaining a slight decline alongside 2024.
Neal Dingmann — Analyst
Thank you for that clarification. Shifting gears, I noticed you’ve been proactive regarding shareholder returns, especially when the stock is undervalued. Given the recent fluctuations in pricing, could you see a renewed emphasis on this area?
John J. Christmann — President and Chief Executive Officer
Indeed, we are being proactive. With proceeds from asset sales, our focus is on utilizing those funds for debt reduction. The current share price appears attractive to us.
Neal Dingmann — Analyst
Thank you, John.
Operator
Our next question comes from Arun Jayaram with JPMorgan. Please proceed.
Arun Jayaram — Analyst
I’d like to revisit Egypt, particularly regarding gas production. Steve, you mentioned that incremental volumes might alleviate the decline in production. Could you clarify the expected decline rate for gas production in Egypt, particularly in the Qasr field?
John J. Christmann — President and Chief Executive Officer
Qasr has experienced declines, primarily due to management changes over time. This site contributes significantly to our gas output, alongside casing head gas from other oil wells. We’ve observed Qasr’s gas production declining in the double digits. However, we are optimistic that our new programs may allow us to counterbalance this decline with meaningful incremental gains.
Arun Jayaram — Analyst
Understood. Additionally, considering the North Sea’s late-stage developments and Suriname coming online in 2028, how are you strategizing around portfolio diversification? Given recent asset sales, what’s your outlook here?
John J. Christmann — President and Chief Executive Officer
If we look at our portfolio, we believe we have two strong, long-term assets with our restructured Permian operations and our significant presence in Egypt, where we have been for over 30 years. Suriname’s entry in 2028 will bolster our growth effectively, providing an exciting addition to these core assets.
Arun Jayaram — Analyst
Including potential exploration opportunities in Alaska and Uruguay down the line?
John J. Christmann — President and Chief Executive Officer
Absolutely. The key lies in our resilience and adaptability.
Company’s Strategy Focuses on Core Assets Amid Market Uncertainty
The company remains committed to gradual exploration while emphasizing profitability from their key assets, specifically in the Permian Basin and Egypt.
Exploration Efforts Highlighted
During recent remarks, John J. Christmann, the President and CEO, stated, “We’ve been spending a small portion of our budget in exploration.” This approach aims to enhance shareholder value, particularly at Suriname Block 58. Christmann expressed optimism about their current portfolio and indicated ongoing investment in exploration, while also prioritizing revenue generation from core assets.
Investments and Future Projections
Analyst Charles Meade from Johnson Rice raised questions regarding the development plans in Suriname, particularly the GranMorgu project. Christmann highlighted that the timeline for seeing production volumes is set for 2028, making it an important long-term project. The visual aid presented, which details development layouts, aims to illustrate the tangible nature of the project.
Shifts in US Activity Amid Price Fluctuations
Analyst Leo Mariani from ROTH MKM sought clarification on the company’s strategy in the U.S., especially with indications that operations may scale back. As crude oil prices hover around $70, the company faces a shifting environment. Christmann explained, “We’re in a softer price environment,” suggesting this fluctuation influences their operational choices as they navigate toward 2025.
Staying Steady in Egypt
Mariani also inquired about projections for oil and gas production in Egypt. Christmann addressed expectations of slight oil production declines while maintaining steady adjusted production levels. He noted their efforts in waterflood projects as a way to stabilize production and combat declines in gas output.
Addressing Financial Liabilities
Analyst Betty Jiang from Barclays focused on the company’s financial responsibility regarding North Sea ARO, highlighting a total liability of approximately $2 billion on the balance sheet. Stephen J. Riney, CFO, clarified that the present value of this liability, after accounting for future costs and tax benefits, nets out to $1.2 billion. Riney emphasized the company’s careful accounting practices, ensuring all financial obligations are adequately shown on the books.
This conversation illustrates the company’s careful balance between ambitious development projects and fiscal prudence as they face changing market conditions.
Free Cash Flow Discussion Highlights North Sea Operations
Stephen J. Riney — Executive Vice President, Chief Financial Officer
Yes, cash outflow does get accounted for when calculating cash returns. It’s important to remember, despite our focus on upcoming abandonment costs, we still possess operational assets in the North Sea. These assets continue to generate free cash flow, even after incurring a 78% tax rate. This cash flow is essential for covering our costs in the years ahead.
Betty Jiang — Analyst
Understood. My next question pertains to gas marketing. This year brought unexpected advantages on the gas marketing front, despite a weaker Waha gas market. Given the current circumstances and pricing on Waha, can we expect to see above-average marketing benefits continue into next year?
Stephen J. Riney — Executive Vice President, Chief Financial Officer
That largely depends on the Waha market conditions as we move through next year. It’s not just about Waha prices; the focus is on the differential between Waha and Gulf Coast prices versus transportation costs. For example, if there’s a $2.50 spread but a $1 transportation cost, we earn $1.50 on nearly 750 million cubic feet of gas we transport daily to the Gulf Coast. It’s worth noting these spreads can be extremely volatile, often shifting dramatically over short time frames. Prices can even turn negative on occasion, resulting in perplexing situations during purchases.
Betty Jiang — Analyst
That pipeline advantage is certainly beneficial. Could you clarify whether your Gulf Coast benchmark references Houston or combines several hubs?
John J. Christmann — President and Chief Executive Officer
It primarily references the ship channel but may vary based on pipeline specifics.
Betty Jiang — Analyst
Thank you for the clarification.
John J. Christmann — President and Chief Executive Officer
Thank you, Betty.
Operator
Our next question comes from Jeoffrey Lambujon with TPH & Company. Please go ahead.
Jeoffrey Lambujon — Analyst
Good morning, everyone, and thank you for including me. I just want to follow up on the North Sea free cash flow discussion. What are your expectations for operating expenses (opex) from that asset as production declines over the next year and beyond, particularly in relation to the ARO you mentioned earlier?
Stephen J. Riney — Executive Vice President, Chief Financial Officer
We’ll delve deeper into that during our February call. Right now, we’re not prepared to provide a detailed outlook on operating expenses. Typically, this time of year we outline our capital program and production volumes, guided by longer-term oil price trends. During the November call, our focus is on sharing our general direction. However, I can confirm that we are currently prioritizing free cash flow management from our North Sea operations. Given the present circumstances, any significant capital investments would not be economical. Instead, we need to scrutinize our opex without compromising human safety or environmental standards.
Jeoffrey Lambujon — Analyst
Thank you for that information.
Operator
Thank you. I will now turn it back to John Christmann, our CEO, for closing remarks.
John J. Christmann — President and Chief Executive Officer
Thank you. I apologize for the earlier internet disruption. In closing, we’ve made considerable advancements in our portfolio, with our assets performing at a high standard. We’ve streamlined our Permian position and initiated a promising gas program in Egypt, while also establishing a timeline for increasing production and cash flow from Suriname. As we look towards 2025, we anticipate a potentially softer oil price environment. Our strategy is to sustain our core business, cut costs, and generate free cash flow. Our preliminary plan includes eight rigs in the Permian and 12 in Egypt, which should help maintain oil volumes with lower capital expenditures. We look forward to sharing more detailed information in February. Thank you for your time and interest.
Operator
[Operator signoff]
Duration: 0 minutes
Call Participants:
Gary T. Clark — Vice President, Investor Relations
John J. Christmann — President and Chief Executive Officer
Stephen J. Riney — Executive Vice President, Chief Financial Officer
Doug Leggate — Analyst
Tracey K. Henderson — Executive Vice President, Exploration
John Freeman — Analyst
Bob Brackett — Analyst
Roger Read — Analyst
Paul Cheng — Analyst
Neal Dingmann — Analyst
Arun Jayaram — Analyst
Charles Meade — Analyst
Leo Mariani — ROTH MKM — Analyst
Betty Jiang — Analyst
Jeoffrey Lambujon — Analyst
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