Gary T. Clark - Vice President-Investor Relations John J. Christmann - President, Chief Executive Officer & Director Stephen J. Riney - Chief Financial Officer & Executive Vice President Timothy J. Sullivan - Senior Vice President-Operations Support.

Pearce Wheless Hammond - Simmons & Company International Brian Singer - Goldman Sachs & Co. Evan Calio - Morgan Stanley & Co. LLC John P. Herrlin - SG Americas Securities LLC Michael Anthony Hall - Heikkinen Energy Advisors LLC David R.

Tameron - Wells Fargo Securities LLC Edward George Westlake - Credit Suisse Securities (USA) LLC (Broker) Robert Scott Morris - Citigroup Global Markets, Inc. (Broker) Doug Leggate - Bank of America Merrill Lynch Bob Alan Brackett - Sanford C. Bernstein & Co. LLC Mike Kelly - Seaport Global Securities LLC Charles A. Meade - Johnson Rice & Co.

LLC Michael J. Rowe - Tudor, Pickering, Holt & Co. Securities, Inc. Jeff L. Campbell - Tuohy Brothers Investment Research, Inc..

Good afternoon. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone to the Apache Corporation Fourth Quarter and Full Year 2015 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

Thank you. Gary Clark, Vice President, Investor Relations, you may begin your conference, sir..

Good afternoon and thank you for joining us on Apache Corporation fourth quarter 2015 earnings conference call. Speakers making prepared remarks on today's call will be Apache's CEO and President, John Christmann, and CFO, Steve Riney. Also joining us in the room is Tim Sullivan, Executive Vice President of Operations.

In conjunction with this morning's press release, I hope you've had the opportunity to review our quarterly earnings supplement, which summarizes key financial and operational data for the fourth quarter and full year 2015, along with details regarding our 2016 production and capital spending outlook.

We have revised and streamlined the structure and content of our earnings supplement and believe you will find it more useful. Also, please note that we've changed our capital expenditure guidance convention to reflect a more comprehensive picture of our spending.

Specifically, the 2016 capital spending range we provided in this morning's press release includes all exploration, development, gathering, transportation and processing expenditures. It also includes budgeted leasehold acquisition costs and capitalized interest and capitalized G&A.

The only element of our 2016 program that our guidance will continue to exclude is capital attributable to our minority interest partner in Egypt. As a result of this guidance change, references made on today's call to 2015 and 2016 capital spending may not be directly comparable.

Our earnings release, the accompanying financial tables, and non-GAAP reconciliations, along with our quarterly earnings supplement can all be found on our website at www.apachecorp.com/financial data.

We also plan to post on our website a section which contains responses to any questions that arise on today's call for which we do not have readily available information to answer. I'd like to remind everyone that today's discussions will contain forward-looking estimates and assumptions based on our current views and reasonable explanations.

However, a number of factors could cause actual results to materially differ from what we discuss today. A full disclaimer is located with the supplemental data on our website. And I would now like to turn the call over to John..

manage to cash flow neutrality after dividends and end the year with unchanged or lower net debt levels; preserve our strong financial position; protect our asset base; and optimize and expand our high-quality inventory of growth opportunities through strategic testing and exploration.

Our goal is to emerge from this commodity price downturn with top-tier financial strength, a robust inventory of high rate of return drilling opportunities in North America and a sustained capacity to generate free cash flow from our international assets in Egypt and the North Sea.

While we don't know when prices will recover, we do know that the prudent choices we're making today will enhance our long-term success. Quite often, it is during downturns like these that the choices companies make can either set them up for long-term success or set them back.

I believe we have significantly strengthened Apache Corporation despite the challenging price environment and we are positioning ourselves to succeed through the recovery. I will now turn the call over to Steve Riney..

Thank you, John, and good afternoon. As John indicated, Apache had a very good year in 2015. We made outstanding progress high-grading the portfolio, driving down costs, aligning capital programs with cash flows and proactively strengthening our financial position. We entered 2016 well-positioned for the challenges our industry will face.

Today, I will highlight Apache's financial progress, which includes our financial results for the fourth quarter and full year 2015, progress with our ongoing cost reduction efforts, a review of our financial strength and liquidity, and our outlook for 2016 production and capital spending. So, let's begin with the fourth quarter financial results.

As noted in our press release, under generally accepted accounting principles Apache reported a loss of $7.2 billion or $19.07 per common share.

Our results for the quarter include a number of items outside of our core earnings that are typically excluded by the investment community in published earnings estimates, the most significant of which are ceiling test write-downs, impairments and tax adjustments associated with these items.

As in prior periods, these write-downs resulted from the continued low commodity price environment. Our loss for the quarter adjusted for these items was $24 million or $0.06 per share.

Before I turn to other items, I'd like to comment on our reported production volumes, which include a significant downward adjustment related to the Egyptian tax barrels. The terms of our Egyptian PSCs provide that the payment of income taxes attributable to our entitlement will be made by EGPC from their share of production.

We then gross up our results for these taxes which are paid on our behalf. Egyptian income taxes are calculated based on book income and are recorded as tax expense with an equal and offsetting amount in oil and gas revenues. Thus, there is no impact on net income as the revenues and tax expense we record each quarter offset one another.

The revenue effect of this gross up is also recorded as production volume in our operating results. These are referred to as Egypt tax barrels. In the first three quarters of 2015, we recognized book income, tax expense and, thus, tax barrel production volumes.

In the fourth quarter, we incurred a $1.3 billion charge related to impairments and write-downs in Egypt, driven by the continued fall in oil prices, which resulted in a significant loss for the quarter.

This loss has the effect of offsetting nearly all of the previously reported tax expense and tax barrels in the first three quarters, thereby, resulting in a large negative income tax expense and negative tax barrel production in the fourth quarter.

The total impact of the impairment is a loss of 38,280 barrels of oil equivalent per day of volumes in the fourth quarter or 9,649 barrels of oil equivalent per day for the full year 2015.

Because the Egypt tax barrel volumes have no economic impact to Apache and, as we see in the fourth quarter, can fluctuate materially from quarter-to-quarter, our pro forma production guidance always excludes tax barrels. We believe this non-GAAP view of production is more reflective of underlying economic production volumes.

Now, let me turn to capital expenditures and costs. In 2015, Apache's intense focus on driving internal efficiencies along with the significant downward pressure on third-party service costs resulted in substantial efficiency gains in both capital and operating costs.

Capital spending came in at $678 million for the fourth quarter and $3.6 billion for the full year. This was at the low-end of our original guidance range.

As a reminder, our 2015 capital spending guidance excluded capital attributable to our one-third partner in Egypt, capitalized interest, opportunistic leasehold purchases and capital associated with divested LNG and associated operations. As Gary noted at the outset of this call, we are changing our CapEx guidance convention in 2016.

Our guidance now includes all anticipated capital spending categories, except capital attributable to our minority partner in Egypt. This should make it easier to track our capital spending plans for the year. On the lease operating expense side, our fourth quarter LOE was $10.04 per boe, which is 3% higher than the fourth quarter of 2014.

For the year, LOE average $9.49 per boe, which is 9% lower than 2014. Underlying improvement in these metrics is masked by the negative Egypt tax barrel volumes in the fourth quarter. On a like-for-like basis, excluding this impact, our lease operating expenses were down 4% and 10% per boe, respectively, in the fourth quarter and full year 2015.

We have also spoken to you about progress on our G&A costs. As a reminder we consider G&A to be our gross cash expenditures for all costs above field operations. The stated goal was to exit 2015 with a G&A run rate of $700 million, a decrease of over 30% from our run rate in the fourth quarter of 2014. I'm happy to say we achieved this goal.

As we look ahead to 2016 we continue to find overhead efficiencies and we are reducing our G&A cost estimate for this year to a range of $650 million to $700 million. Next, I would like to make a few comments regarding our financial strength and liquidity position.

In 2015, we reduced our debt levels from year-end 2014 by $2.5 billion, ending the year with $8.8 billion of total debt. We retained $1.5 billion of cash, which we may utilize to further pay down debt. We ended the year with net debt of $7.3 billion. Our latest 12-month net debt-to-adjusted EBITDA ratio as of December 31, 2015 was just under two times.

Apache's nearest long-term debt maturity is in 2018 and only $700 million or 8% of our total debt portfolio matures prior to 2021. We restructured and refreshed our $3.5 billion credit facility, which now matures in June 2020, and combined with our cash position, we now have total liquidity of approximately $5 billion.

At this time, our financial condition and liquidity are very strong, and we have accomplished this without issuing equity, without reducing the dividend and without selling core strategic assets.

And to ensure that we sustain this strong position, we have chosen to reduce our capital spending this year to a level where we can attain cash flow neutrality at $35 oil. Both John and I have mentioned the term cash flow neutrality a few times in reference to our overarching goals, so let me be clear what we mean by this.

Cash flow neutrality means the capital program, debt service and the dividend are all funded through cash from operations, with little or no underpinning from financing or portfolio actions. Cash from operations includes all operating costs, including corporate overhead, and includes movements in working capital.

At this time, we anticipate only small, non-core, non-producing asset sales will be necessary to achieve cash flow neutrality in 2016 assuming $35 oil prices. We could choose to spend more capital.

But as John outlined, we believe that preserving our strong financial position and our credit quality through cash flow neutrality is the best approach for our shareholders in this price environment. In the event prices improve during the year, we stand prepared to ramp-up our investment activity within the constraint of cash flow neutrality.

Now I'd like to provide some more detail on our 2016 capital program. As John discussed, our budget of $1.4 billion to $1.8 billion is the product of a $35 oil price assumption for the year.

Since we are in a very volatile price environment and our overarching goal is for cash flow neutrality, the capital budget will flex up or down with price movements.

Capital in 2016 will be allocated on a prioritized basis to protect the asset base, further optimize and build high-quality inventory for the future, conduct certain longer-cycle high-impact exploration activities and to pursue higher-return development activities which remain economically very attractive at these low prices.

There are two types of spend required to protect the asset base. First, we have to maintain the assets and keep them running efficiently. This includes workovers, recompletions and maintenance, and will represent approximately 30% of our capital program.

Second, in some places, we have to engage in activity to maintain ownership of the mineral rights or to preserve leases. This includes continuous drilling activity or lease-holding production maintenance and will represent approximately 5% of our capital program.

We will allocate roughly 30% of our capital to key exploration activities and new play tests to continue building and high-grading our drilling inventory for the future.

This will include continuing our highly successful North Sea exploration program, key play tests on some of our existing acreage in the Permian and Anadarko Basins and seismic commitments in offshore Suriname. The remaining 35% of our capital program will go to development activity.

Most of this will be allocated to the North Sea and Egypt, where we continue to see development opportunities that work very well at low oil prices. This is primarily due to contract structures and tax regimes that provide favorable capital recovery mechanisms and higher average cash margins.

We suggest our investors review our earnings supplement for additional detail regarding region-by-region netbacks. We also have a number of onshore North America drilling locations in the Permian Basin and Woodford/SCOOP that remain economically attractive.

However, these areas will receive less allocated capital due to the capital budget being constrained by cash flow.

While we have reduced development activity on these assets, the leases are preserved and development will ramp back up in these assets and several other areas when oil prices and costs are better aligned to deliver more attractive returns. Our reduced 2016 capital spending level is appropriate and prudent for a $35 oil environment.

The end result is that we expect our total pro forma production to be in a range of 433,000 to 453,000 barrels of oil equivalent per day. This will represent a decline of 7% to 11% from a comparative pro forma volume of 486,000 barrels of oil equivalent per day in 2015.

These volumes exclude Egypt minority interest, Egypt tax barrels and the effect of divested volumes from the 2015 base. If prices rise allowing more capital to be deployed, we anticipate most incremental investment would be directed to onshore North America and this would offset some of this anticipated decline.

In 2016 we will continue to optimize LOE, but given our expected production decline and a mix shift to slightly higher-cost international production, we do not anticipate materially lower operating costs on a per barrel of oil equivalent basis.

In terms of 2016 income taxes, we expect our adjusted earnings global effective tax rate to currently be in a range of 15% to 20%. Obviously, lower than what we would typically expect, our effective tax rate is being driven primarily by an expectation of very low book income.

Going forward, we will be able to provide updates to this rate as the year progresses. Also, we can provide some guidance around expected cash tax payments. We will pay the remainder of the income tax accrued for repatriating 2015 foreign sales proceeds of $85 million in the first quarter.

Given the low commodity price environment, we currently believe that our cash tax payments in 2016, including cash taxes associated with the Petroleum Revenue Tax in the UK, will be minimal. For the first quarter, we are providing pro forma production guidance for North American onshore of 290,000 to 295,000 barrels of oil equivalent per day.

Our international and offshore production is guided to 180,000 to 185,000 barrels of oil equivalent per day, which excludes Egypt tax barrels and the Egypt minority interest. Our projected capital spend in the first quarter is $500 million to $550 million, or approximately one-third of our full-year 2016 budget.

In closing, our prudent approach in 2015 has put us on firm ground and helps ensure resiliency in this difficult and unpredictable environment.

As a result, we are prepared to endure a potentially lower for even longer commodity cycle while retaining our ability to dynamically manage our activity levels up or down as commodity prices and service costs dictate. Through all of this, our primary goals will remain unchanged.

We will live within our means, maintain our strong financial position, build quality development inventory for the future and invest to improve returns and grow value for our shareholders. We look forward to a successful 2016. And I would now like to turn the call over to the operator for Q&A..

And your first question comes from the line of Pearce Hammond with Simmons & Company. Your line is open..

Good afternoon. John, does the Egyptian government help drive your thinking regarding capital allocation among your different regions? I assume the Egyptian government wants you to produce as much oil and gas as possible to bolster both domestic energy security as well as the Egyptian treasury.

And so just curious if it limits your capital allocation flexibility in any ways..

Yeah, Pearce, clearly they would like us to invest more money, but like everything else, we decide where we put the investments in place, so it has not had an impact. We are going to generate cash flow in both Egypt and the North Sea, and they understand that. And it obviously will flow with our budget as we're flexible..

Great.

And then my follow-up around the offshore Suriname blocks, if this is a legacy position from when Apache had a more defined exploration program like in New Zealand, Cook Inlet and places like that, is this a bit more of a one-off or is this a type of business that you want to build over the next few years?.

Yeah, I think it is something – it fits with our international portfolio. Actually, we've got a lot of questions about that position, Pearce. We felt like it was important to go ahead and get a map out there.

We drilled the well this year, our Popokai well, and we actually had picked up the other block prior to either Exxon drilling there Liza well or our well going down. So, we've got those two blocks there, not a huge capital commitment. We're going to be shooting seismic over block 58 this year, and we'll go from there..

And your next question comes from the line of Brian Singer with Goldman Sachs. Your line is open..

Good afternoon..

Hello, Brian..

With regards to the CapEx and activity reductions, when we think about your cost base and your lowered cost, including on the SG&A side, when it's time to ramp back up, what is your operational and scale flexibility to do this? And what flexibility, if any, may be reduced, at least, temporarily? I mean, in other words, if you wanted to take the Permian and bring it back to a 10 or 15 or 20 rig count again, would this require re-staffing and the passage of time to make that happen?.

Brian, with the way we've done our staffing, we strategically designed this organization for a $50 plus world. So, we do not envision needing to add a lot of staff to be able to flex back up.

Clearly, I think if you get into a significantly lower time period where you've got lower prices, 24 months, 36 months out at that point you'd probably reduce further. But, we've maintained the flexibility so we can ramp up our capital programs when appropriate..

Great. Thanks so much. My follow-up is actually a follow-up to Pearce's question on exploration. You made a couple of references to adding exploration opportunities.

Was that specifically the Suriname reference that you've already kind of spoken to here or are there other opportunities including the onshore that you're pursuing from a more exploratory perspective? And can you give us more color beyond Suriname if the answer is yes to that?.

Well, I mean, it obviously includes Suriname. We did a good job of highlighting our North Sea exploration program last November, so we've got some exploration wells to drill in the North Sea.

We brought on two discoveries late-2014 in Egypt in Ptah and Berenice, so we have active exploration programs both North Sea, both Egypt, Suriname and then obviously in North America. We have acknowledged that we acquired some acreage last year at some low prices that we think can be prospective.

And while we've shut down for the most part our development drilling in North America, we will be doing some strategic testing in and around our existing asset base, and on some acreage that we've picked up..

And your next question comes from the line of Evan Calio with Morgan Stanley. Your line is open..

Good afternoon, guys. I appreciate the color and added disclosure. My first question, you guys cut CapEx, I think, deeper than expectations to get within cash flow post-dividend and avoided, at least, so far, some moves made by peers. And maybe you alluded to this in your opening comments.

Yet to be clear, on the strip, do think that these moves mitigate the risk of needing to issue equity or losing your IG rating at Moody's?.

Clearly, at this point, we took actions and we're very aggressive last year. So you look back to 2015 and 2016, we've had a track record of reducing activity and really trying to gear our business and mirror our activities to the price environment we're in.

We've done that, we worked hard last year to improve our financial position, which we demonstrated we did. If you look back over second quarter, third quarter of last year we had an outspend of approximately 14% which was significantly lower than most of our peer group.

So it put us in a position where we have been working to gear our spending levels to a lower price environment. So, clearly, we worked on that, and we do have cash on hand this year.

Obviously, we're making a conscious decision again in 2016 to live within the current price environment and within cash flow here such that we end the year with flat net debt. So it puts us in a position where we would anticipate not having to do some of those things at this point.

And obviously protecting our investment grade rating is important to us, and it's something that we take seriously..

Great. And I guess – go ahead. Sorry. Oh, that's me echoing. Sorry. I, in my second question, follow-up, I mean, while not the case currently on your credit rating, but how should we or how do you think about potential impact to operations inside, outside the U.S.

working capital levels if you either did see one or more non-IG credit rating?.

Yeah. Thanks, Evan. So, this is Steve. We're not going to really deal with the types of hypotheticals of what would happen if this happen, what would you do if the credit rating went down multiple notches. We're doing everything that we can to prudently run the company financially as John outlined.

We've taken a number of steps to protect the financial position of the company. And we think we're actually in pretty good shape. We've done a lot of stuff in 2015 in the last year to strengthen the financial position, build liquidity, make sure that we don't have a lot of refinance risk.

And so, S&P has already come out with their rating, BBB, a downgrade to BBB and stable. Fitch continues to have us at BBB+, and we're waiting on Moody's. And I think we've done the things that we need to do and we'll continue to do the things that we need to do to remain investment grade. And we've got $1.5 billion of cash on the balance sheet.

And if we need to use some of that, as I said in my script, to pay down a little bit of debt in order to protect that, then we would certainly be willing to do that. So, we obviously think about what we would do and what we would be required to do because we need to be prepared and prudent about that. We don't spend a lot of time worried about that.

We worry about protecting the investment grade rating..

And your next question comes from the line of John Herrlin with Société Générale. Your line is open..

Two quick ones.

For Suriname, when will you get the bird stack in on the seismic?.

John, we will be shooting that later this year. So, it will be a summer program..

Okay. Thanks, John.

With respect to your unconventional activity that you have planned, is this all going to be internal science done by Apache or are you going to be interfacing with the industry or what?.

Clearly, it'd be internal programs that we'd be doing on our own. So, I mean, we participate in some wells in some areas and we learn from what we can and we've got partners in some places, but clearly, the work we are doing is all internally generated, and for the most part, it's done on our behalf for 100%..

Okay. Last one for me. Historically, you've made a lot of acquisitions; not of late, but a lot of people are experiencing some pain.

Will you be more opportunistic in terms of property front in terms of buying things beyond what you have done?.

I mean, John, we always are aware of what's out there and look at things carefully. The thing I would say, we find ourselves today in a very enviable position and we're opportunity-rich.

With where we've scaled our capital back, there are a lot of excellent opportunities that we are choosing not to fund and that we think we would pursue at a higher price environment. So, as we think about things, they would have to be something that would be incrementally additive to our current inventory and portfolio.

And so, I mean, it'd be a pretty high bar to be able to – something that we would want to bring into the door..

And your next question comes from the line of Michael Hall with Heikkinen Energy. Your line is open..

Thanks. Was just curious going back to Egypt a little bit, is there anything – any feature within the PSC that kind of limits your downside flexibility around spending? I'm just trying to think through if there's any sort of reduced cost-recovery barrels or anything along those lines if you cut too much..

No, Michael, there really isn't. The nice thing about what you're seeing on the international portfolio is a lot of these PSCs and so forth were designed for lower price environments. And quite frankly, the way they work, the government takes a greater percentage in higher prices.

And so, as we look at the international portfolio and we look at North America, there's greater leverage in North America to higher prices, and there's less leverage on the international side. So it makes sense to allocate more capital into those projects right now because the returns are superior.

And there's no requirements or commitments on the spend level that would cause us to have to spend more or anything along those lines..

Okay. That's helpful. Appreciate the color.

And North America, if I just think about the 2015 fourth quarter rate and then take a linear decline through 2016, I'm showing about 20% plus decline year-on-year 4Q 2016 versus 4Q 2015, is that directionally reasonable or is that anything I ought to revise in that thinking?.

Yeah, I would say you'd probably end up a little bit steeper on the backside, but it's all going to hinge on how flexible we are with the capital and prices..

And your next question comes from the line of David Tameron with Wells Fargo. Your line is open..

Hi. Good morning or I guess afternoon. John, I'm just trying to think about 2017. If you think about it, if you get a modest uptick, obviously, cash flow, you guys have a lot of leverage to that. Your cash flow goes up.

How are you thinking about the next two years? Is it spend within cash flow? Is it – it obviously would take a little bit of time to ramp to get there, but how would you thinking about that in, say, a $45 world?.

Well, I think the important thing is if you look at 2016, we're guiding to relatively flat international. We said earlier on the call in the prepared notes that an additional $900 million incremental capital in North America would keep North America flat to slightly growing, which translates to about a $45 world.

So 2016, we could live within cash flow and be flat to relatively slight growth. So, as we look ahead into 2017, there's a couple of things going on first and foremost. We're in the second year now of a significantly reduced CapEx budget. We reduced aggressively last year, again this year. So we've got fewer wells that were brought on than historical.

So our rates will be flattening slightly as we go into 2017. Secondly, it will not take as much capital in 2017 to keep it flat, especially with North America. We're already investing at levels right now on the international side. Additionally, we've got some catalysts that will be coming on in 2017.

If you look at the North Sea, our Callater well, potentially more than one well there that could be coming on. So, we've got some catalysts. And quite frankly, with the capital efficiency we're seeing, the other thing I'll say is, as we look at the 2016 budget, we've already seen well costs coming in significantly under what we planned this year.

So the capital efficiency is the other big thing. So, I think as we get out into 2017, it's going to take a lower oil price for us to be able to stay flat and potentially grow..

Okay. And then one follow-up, just to clarify. So you said that you're going to have four rigs in the Permian or that's where you get to.

Where – maybe one or two of those doing some R&D, can you talk about where the activity is going to be?.

We've got four long-term contracts, so we will ramp down to those four rigs. There'll be a couple of them working in the Delaware, two to three. And there will be at least one up in the Midland Basin, Central Basin Platform as we continue to test all of our plays..

And your next question comes from the line of Edward Westlake with Credit Suisse. Your line is open..

Good afternoon and thank you very much for talking about returns and fully-loaded returns at that.

So as we go out on the other side of this trough, however long it lasts, what is the hurdle rate for investment fully-loaded that you're looking to develop? I appreciate oil price is going to move, the cost structure is going to change, but I'm trying to think about what hurdle rate gets you to invest..

I think the key is we want to get to fully burdened corporate returns that are in the low-double digits. And I think that's where we need to be striving and that's where we plan to get to..

Yes. Good that you have a returns target because historically the returns have not been as good for the industry even at $100 oil. Just a question then on the Permian and Delaware. You've got acreage, but it's not all contiguous.

I'm just wondering if there's any update on people being willing to block up to get some efficiency gains?.

The nice thing is we've got 3.3 million gross acres, so we've got lots of acreage. We have done a lot of small trades and we are doing a lot of things. We are trying to block some things up and have had some success. So they're not things that hit the press in terms of radar screen, but we're continually looking to block and swap.

We're interbedded with a lot of the operators and there's lots of things we're doing to try to core up those positions and put together drilling units where you've got more control..

And your next question comes from the line of Bob Morris with Citi. Your line is open..

Thank you.

John, on the four rigs at mid-year in the Permian, will you have a rig running in the Woodford/SCOOP or anywhere else, or will it be just those four?.

At this point we've got flexibility there, Bob, but I would anticipate those being in the Permian..

Okay.

And then on the drilled but uncompleted inventory, how will that trend through the year? Do you have an inventory starting out the year, will that be drawn down or how will that contribute to the production during the year?.

If you look at last year, we consumed about 70 horizontal drilled but uncompleted wells and about 50 vertical. As I was pretty vocal early last year the wells we drill we intended to complete, and we drew down a lot of our DUCs. I would envision us doing the same thing this year.

You could see that number come down a little bit, but it's at a level now where we don't have a lot that we haven't already completed. And the thing I'll add, too, is we have the luxury of not having a lot of rig contracts and a lot of leases that require drilling of wells right now.

So we're not in a position where we're having to build DUCs because we don't think that's a prudent use of capital..

And your next question comes from the line of Doug Leggate with Bank of America. Your line is open..

Thanks. John, I wondered if I could try two, please.

I don't know if I missed this, but could you give us some idea of exit rate to exit rate in North America Q4 to Q4 2016 just to give us an idea where you're going be running at going into next year?.

Doug, we did not give any guidance around that specific. I would say probably the best thing to do is take – we gave first quarter guidance, we gave the average ranges for the year and I would just probably extrapolate from that.

I will say going into 2017, we expect to see capital efficiencies and things come into play where we have a much better picture for 2017 than we do currently for 2016 at these capital levels..

Okay. I can join the dots. If I may, I want to go back to Suriname from the earlier question. And I'm just trying to understand a little bit about what's going on there with your longer-term thinking.

Are you getting carried, John, on the activities there? And I'm just wondering are you retaining this really more as an option in case (1:01:04) spills over into your block? Or is that a little bit more strategic that this is really something that would be a core part of your portfolio going forward? And I'll leave it there. Thanks..

Well, what I'll say is when we originally took the block several years ago, the first block, 53, we viewed it as being in a very potential prospective area. I think what you now see is you've got a proven oil hydrocarbon province. We've got two blocks that are centrally located. There is a system there. We did drill one well last year.

Prior to drilling that well, we did bring in partners and were promoted on the one well in Block 53. We picked up Block 58 on our own just as protection. It was not a huge commitment. And I think we now have the luxury to see what we do with it. It is a bid option. We own it 100%.

And clearly it's an area that's very prospective and is getting a lot of attention..

And your next question comes from the line of Bob Brackett with Bernstein Research. Your line is open..

The strategic allocation of capital, could you contrast what you call a development CapEx versus a base maintenance CapEx, say, in the Permian? And what does strategic capital mean in that exploration bucket?.

I think first and foremost in terms of maintenance, there are just certain things you have to do on your existing fields. So basically, Bob, we're not drilling development wells in the Permian which would be to generate further growth. So that's going to be the difference.

The other thing is going to be just your bread-and-butter maintenance things that you do with your base. And that's repairing subs, doing those types of things.

In terms of strategic capital, we would put that as things that potentially sets up new drilling programs, test new zones, test new concepts, helps us better define what are going to be the inventory of growth opportunities in the future..

So testing stacked pay on an existing development you'd throw-in on the strategic side?.

If it had running room and could open up something significant, then yes. If it's something small on the Central Basin Platform or some areas where we've got just a few locations identified, then it wouldn't be in that category..

Okay. I think that's clear..

It'd have to have potential scope to it for it to be strategic..

Okay..

And your next question comes from the line of Mike Kelly with Seaport Global. Your line is open..

Hey, guys. My question was asked. I'll hand it back. Thanks..

And your next question comes from the line of Charles Meade with Johnson Rice. Your line is open..

Good afternoon, John, and to the rest of your team there. I appreciate you guys sticking around to answer all these questions. If I could ask what one about your dividend and your thinking there.

You guys made a lot of moves and you've reviewed a lot of them on this call to adapt to a reduced commodity price early, but leaving the dividend intact stands out as an anomaly there. So I'm wondering if you can tell us a little bit about your thinking.

And I know the board's thinking is really what comes to bear on this, but if you could give us some thoughts on your posture there..

Yeah, this is Steve again. So you make very good points. We cut early, we took a lot of actions in 2015 that a lot of our peers didn't. And I think for that reason, we feel like we're very well positioned not to have to cut the dividend now.

We've done all the things to strengthen the financial position, the liquidity position, our refinance risk on the debt portfolio. We've chosen to live 2015 and 2016 as close to cash flow neutral as possible.

We've done that because we believe that, especially in North America, the opportunities for investment are going to be better in the future than they are now. There are some good ones now, but we believe they're going to be even better. So we've chosen to be cash flow neutral.

So we've added $1.5 billion of cash on the balance sheet, chosen to be cash flow neutral, we don't really need to reduce the dividend at this point in time. And we do discuss that with the board. We discuss it with them every quarter and I imagine we'll continue to discuss that with them every quarter.

But we just don't think we need to be doing that now.

We'll probably reconsider it at some point in time in the future when prices and costs are better aligned and we all kind of figure out whatever the new normal, if we ever get to normal, in our industry will be in the future, then we can look at what our dividend yield is and whether that's appropriate for the situation that we're in at that point in time.

But, at this point in time, we just don't have any compelling reason to have to cut it. We do realize that the dividend yield is pretty high for the situation that we're in right now, but we're okay with that for now. And that's why we went ahead and declared the regular dividend with this last quarter..

That's helpful, Steve. Thank you. And then if I could dig down into the details on one of your Permian well results.

I think, John, earlier in your prepared comments, you talked about the June Tippett well, and looking at that, even though it was kind of a short lateral, on a lateral-adjusted basis, that looks like it's – at least one of the wells there, it looks like a real standout in the Midland Basin.

And I'm wondering if you could tell me if you share that point of view and if you do, where the Midland kind of ranks? Because it seems like you're ranking the Delaware Basin, generally, in front of your opportunities in the Midland Basin..

Yes. This is Tim Sullivan. We did drill – this was at a Wildfire lease. We did drill five well pads in the June Tippett lease. Three of them actually came online in the fourth quarter and two of them online in early 2016. And what we have done here, these are mile laterals.

We had acquired some additional core data out here and tweaked our landing zone, targeting a higher TOC and lower clay content area. And the 30-day IPs for the average of those five wells was 980 barrels of oil equivalent per day, and 75% of that is oil.

And if you compare that to a well or a pad that we had drilled early in the air which was a mile-and-a-half pad, this mile pad is outperforming those. So we are pretty excited about that and we do have quite a bit of running room..

And your next question comes from the line of Michael Rowe with TPH. Your line is open.

Thanks. Just a question on the North Sea. I appreciate that there are a number of discoveries coming online in 2017 and 2018 to arrest decline.

That said, can you talk about the base decline of this asset and what these productions or what these discoveries, excuse me, will do to aggregate production growth in those years?.

At this point, we see the North Sea being able to hang in there pretty strongly with the capital levels we're at. We have not looked at what price decks we'd use, and a lot of that will hinge on how many platform rigs we have, do we add those back in, in 2017 and 2018.

We mentioned they would not be there the back half of this year, so a lot of that's going to hinge on capital as we lay out those future years. But we've got good running room now and a lot of nice things coming on..

Michael, this is Steve. I'd also just point you to the presentation we made, the webcast that we made back in November. It's got some information that I think you'd find helpful..

Understood. Thanks. I was just trying to see if there's been any change in thought process there. But maybe just my last question would be just a question on the goal of spending within cash flow and the comment you made on cash flow movements with each change – dollar per barrel change in the oil price.

Of your 2016 operating cash flow, do you have a sense for how much of that is attributable to North American Onshore versus your International business at $35 oil? Thanks..

I don't have that number off the top my head. You're going to have more cash flow coming out of the International in terms of on a per barrel basis just because our cash margins are higher. But I'll let – we can follow-up with exactly that split. I'll have Gary follow up with a better idea on the ratio..

And our final question comes from the line of Jeffrey Campbell with Tuohy Brothers. Your line is open..

Thank you for taking my questions. Steve mentioned that cash flow neutrality remains the approach whether oil prices rise up or down. I was wondering if hedging might also be part of the method, particularly if oil prices rise somewhat, to protect the timing of any increased spending exposure..

Jeff, at some point, obviously, if we were going to commit a lot of capital, we would start to look at using hedging. I think you're in a period today where we don't have a cost structure that's not synchronized with price environment. But it is something in the future.

If we were to put a lot of capital back to work that we would consider as a tool to offset or mitigate some of the risk to ensure that we can deliver the return objectives that we're focused on..

Thanks, John.

My follow-up is, can you review the very low Permian well cost guidance that you gave, again, with average lateral links that correlate to those costs? And also do those estimates include more intensive completions?.

In terms of our Permian well cost, we see things coming down and even further this year. As a rule, we're looking at mile-and-a-half laterals. We have seen the intensity of the frac concentrations going up. So those are the types of parameters we're going to use or using in those estimates..

And I would now like to turn the call back over to the presenters for closing remarks..

That's going to wrap up the call, Kim. There's no more questions. We look forward to speaking to you all next quarter, and please give myself or Chris Cortez a call if you have any follow-up questions. Thank you..

Ladies and gentlemen, this concludes today's conference call, and you may now disconnect..