WEBVTT 00:00:00.000 --> 00:00:02.720 Welcome to the Deep Dive. Today, we're doing 00:00:02.720 --> 00:00:05.000 what we do best, taking what looks like a dry 00:00:05.000 --> 00:00:07.679 corporate history, just a stack of source material 00:00:07.679 --> 00:00:09.800 and an energy company, and we're going to turn 00:00:09.800 --> 00:00:12.380 it into a story. And it really is a story. It's 00:00:12.380 --> 00:00:14.919 a narrative about, you know, ambition, about 00:00:14.919 --> 00:00:19.140 some serious financial innovation and just relentless 00:00:19.140 --> 00:00:21.920 empire building. Absolutely. And with that comes 00:00:21.920 --> 00:00:24.640 high stakes risk. Our mission today is to give 00:00:24.640 --> 00:00:28.039 you the shortcut, the real story of how a quarter 00:00:28.039 --> 00:00:30.199 million dollar Midwestern startup became one 00:00:30.199 --> 00:00:31.980 of the biggest energy players on the planet. 00:00:32.060 --> 00:00:33.700 And this is exactly the kind of company history 00:00:33.700 --> 00:00:35.960 that on the surface just looks like a boring 00:00:35.960 --> 00:00:38.659 list of dates and acquisitions. But when you 00:00:38.659 --> 00:00:42.200 dig in, you see this really relentless three 00:00:42.200 --> 00:00:45.159 decade campaign of strategic moves. So who are 00:00:45.159 --> 00:00:47.469 we talking about today? We are diving deep into 00:00:47.469 --> 00:00:50.869 APA Corporation. Now, that's the big umbrella 00:00:50.869 --> 00:00:52.689 holding company for the name most people would 00:00:52.689 --> 00:00:54.670 probably recognize, which is Apache Corporation. 00:00:54.969 --> 00:00:57.369 And what's their business? They are a pure play 00:00:57.369 --> 00:01:00.609 American energy powerhouse. They're focused exclusively 00:01:00.609 --> 00:01:03.869 on hydrocarbon exploration and production. So 00:01:03.869 --> 00:01:06.189 in simple terms, getting oil and gas out of the 00:01:06.189 --> 00:01:08.870 ground. That's it. And when we talk about the 00:01:08.870 --> 00:01:12.060 scale here. You have to understand they've moved 00:01:12.060 --> 00:01:15.040 so far beyond those origins. This is not some 00:01:15.040 --> 00:01:18.640 regional player. No, not at all. APA is a heavyweight 00:01:18.640 --> 00:01:22.120 public company. It trades on the Nasdaq. And 00:01:22.120 --> 00:01:24.680 importantly, it's a key component of the S &P 00:01:24.680 --> 00:01:27.560 500 index. And that right there, that S &P 500 00:01:27.560 --> 00:01:29.620 tag, it tells you everything you need to know 00:01:29.620 --> 00:01:31.980 about its importance. The health of this company, 00:01:32.019 --> 00:01:34.120 its ups and downs are woven into the American 00:01:34.120 --> 00:01:37.200 economy and, frankly, the global energy supply 00:01:37.200 --> 00:01:39.099 chain. OK, so let's put some numbers on that 00:01:39.099 --> 00:01:41.700 scale to ground this for everyone. What are we 00:01:41.700 --> 00:01:45.859 looking at for, say, 2024? The financials from 00:01:45.859 --> 00:01:49.140 2024 are pretty staggering. You've got revenue 00:01:49.140 --> 00:01:53.299 closing in on $10 billion, specifically $9 .74 00:01:53.299 --> 00:01:56.299 billion. Almost $10 billion in revenue. And profit. 00:01:56.579 --> 00:01:59.140 Med income was solid. It came in at $804 million. 00:01:59.579 --> 00:02:01.659 Yeah. But, you know, in this business, it's not 00:02:01.659 --> 00:02:03.340 just about the money. Right. It's about the physical 00:02:03.340 --> 00:02:05.239 product. How much are they actually pulling out 00:02:05.239 --> 00:02:07.719 of the ground? That's the real measure. And their 00:02:07.719 --> 00:02:11.180 output is, I mean, it's immense. Daily production 00:02:11.180 --> 00:02:13.900 is consistently around half a million barrels 00:02:13.900 --> 00:02:17.150 of oil equivalent per day half a million barrels 00:02:17.150 --> 00:02:21.870 every single day the latest number is 454 .7 00:02:21.870 --> 00:02:24.969 000 barrels of oil equivalent to be precise and 00:02:24.969 --> 00:02:27.189 that kind of flow you have to imagine the sheer 00:02:27.189 --> 00:02:30.050 scale of the infrastructure needed just to sustain 00:02:30.050 --> 00:02:33.310 that all of which the rigs the pipelines the 00:02:33.310 --> 00:02:37.509 reserves themselves that adds up to a huge asset 00:02:37.509 --> 00:02:41.090 base It does. Total assets are sitting just shy 00:02:41.090 --> 00:02:44.909 of $20 billion, $19 .4 billion. Okay, so that's 00:02:44.909 --> 00:02:47.729 the snapshot today, a nearly $20 billion company. 00:02:48.050 --> 00:02:50.349 Right. And when we start this story by telling 00:02:50.349 --> 00:02:53.750 you it all began with just $250 ,000 in initial 00:02:53.750 --> 00:02:56.349 funding, that contrast should really hook you. 00:02:56.469 --> 00:02:58.229 It's an incredible arc. And that's what our deep 00:02:58.229 --> 00:02:59.530 dive is going to track. We're going to go from 00:02:59.530 --> 00:03:02.469 that humble Minneapolis startup in 1954 through 00:03:02.469 --> 00:03:04.789 a landmark financial innovation they created 00:03:04.789 --> 00:03:08.360 that reshaped the entire industry. global acquisition 00:03:08.360 --> 00:03:11.219 spree that took them everywhere, Egypt, Australia, 00:03:11.599 --> 00:03:14.199 the North Sea. And finally, we have to look at 00:03:14.199 --> 00:03:17.620 the big missteps, the $3 billion failures, and 00:03:17.620 --> 00:03:19.900 of course, the critical environmental and operational 00:03:19.900 --> 00:03:22.319 controversies that really define their risk profile 00:03:22.319 --> 00:03:24.759 today. Okay, let's unpack this. Start the clock. 00:03:24.840 --> 00:03:28.060 Back to the 1950s, in a place you would never 00:03:28.060 --> 00:03:31.580 expect a global energy giant to be born. The 00:03:31.580 --> 00:03:34.460 story of what was then called Apache Oil Corporation. 00:03:35.530 --> 00:03:38.129 It doesn't start in the Texas oil fields, not 00:03:38.129 --> 00:03:40.930 in Houston. No, not at all. It starts in, of 00:03:40.930 --> 00:03:43.530 all places, Minneapolis, Minnesota. The company 00:03:43.530 --> 00:03:47.370 was officially founded on December 6, 1954. That 00:03:47.370 --> 00:03:50.509 Midwestern origin is just. It's a fascinating 00:03:50.509 --> 00:03:52.770 piece of the story. It shows you that the energy 00:03:52.770 --> 00:03:55.289 world wasn't always so concentrated in one place. 00:03:55.490 --> 00:03:57.949 Exactly. The three founders were Truman Anderson, 00:03:58.349 --> 00:04:00.810 Raymond Plank, and Charles Arnault. And again, 00:04:00.849 --> 00:04:04.099 that initial seed money. $250 ,000. This was 00:04:04.099 --> 00:04:06.340 a classic venture built on hustle and opportunity, 00:04:06.639 --> 00:04:09.259 not some huge corporate backing. And they didn't 00:04:09.259 --> 00:04:11.639 waste any time. No, they moved fast. Their first 00:04:11.639 --> 00:04:13.780 real operations started almost immediately in 00:04:13.780 --> 00:04:15.939 1955, and they were smart about it. They didn't 00:04:15.939 --> 00:04:17.459 go out into the middle of nowhere trying to find 00:04:17.459 --> 00:04:20.019 a new field. They weren't wildcatting. No, they 00:04:20.019 --> 00:04:23.000 went straight to work drilling wells in an established 00:04:23.000 --> 00:04:25.660 area, the Cushing Field, which is right between 00:04:25.660 --> 00:04:28.560 Tulsa and Oklahoma City. So a low risk entry 00:04:28.560 --> 00:04:30.800 strategy. The lowest risk. You go to a place 00:04:30.800 --> 00:04:32.879 where you know there's oil. It was all about 00:04:32.879 --> 00:04:35.319 generating immediate cash flow, proving they 00:04:35.319 --> 00:04:37.639 could actually do the work. They had to build 00:04:37.639 --> 00:04:40.379 credibility one well at a time before they could 00:04:40.379 --> 00:04:42.779 take on the bigger risks. And that methodical 00:04:42.779 --> 00:04:46.240 approach, it paid off. Yeah. But it took a while 00:04:46.240 --> 00:04:48.300 to get their first big hit, right? It did. Their 00:04:48.300 --> 00:04:51.300 first... Really major discovery, the kind of 00:04:51.300 --> 00:04:54.199 strike that proves you can find new oil, didn't 00:04:54.199 --> 00:04:57.079 happen until 1967. That was the Fagerness No. 00:04:57.259 --> 00:04:59.860 1 oil well. And that discovery gave them the 00:04:59.860 --> 00:05:02.819 momentum they needed to go public. Exactly. Just 00:05:02.819 --> 00:05:06.019 two years later, in 1969, they were a publicly 00:05:06.019 --> 00:05:08.959 traded company. Think about that path from a 00:05:08.959 --> 00:05:11.860 quarter million dollars and a low -risk strategy 00:05:11.860 --> 00:05:15.360 in Cushing to a public company in just 15 years. 00:05:15.600 --> 00:05:17.959 It really shows you the ambition they had from 00:05:17.959 --> 00:05:21.110 day one. And that ambition was kind of physically 00:05:21.110 --> 00:05:22.850 represented in their headquarters, wasn't it? 00:05:22.889 --> 00:05:25.769 Oh, absolutely. From the early 1960s all the 00:05:25.769 --> 00:05:30.329 way until 1984, their HQ was maybe the most famous 00:05:30.329 --> 00:05:34.610 landmark in Minneapolis, the 32 -story Fochee 00:05:34.610 --> 00:05:37.829 Tower. I love this detail. The tower is basically 00:05:37.829 --> 00:05:40.209 a half scale imitation of the Washington Monument. 00:05:40.250 --> 00:05:42.170 Right. I mean, can you imagine running your growing 00:05:42.170 --> 00:05:44.329 oil company from a building that just screams 00:05:44.329 --> 00:05:48.129 permanence and national ambition? It's such a 00:05:48.129 --> 00:05:50.290 public statement of intent, even when they were 00:05:50.290 --> 00:05:52.430 miles away from the real energy centers. But 00:05:52.430 --> 00:05:54.670 their focus wasn't always 100 percent on oil 00:05:54.670 --> 00:05:58.060 and gas. There was this. Strange little detour 00:05:58.060 --> 00:06:00.379 in the 70s. The agricultural detour. Yeah, it 00:06:00.379 --> 00:06:03.040 is a bit of a whimsical sidetrack. They diversified 00:06:03.040 --> 00:06:05.519 by buying the S &J Ranch out in California. So 00:06:05.519 --> 00:06:07.279 for almost two decades, they were both an oil 00:06:07.279 --> 00:06:11.100 company and a farm. A big one from 1970 to 1987. 00:06:11.579 --> 00:06:14.939 They were producing citrus, figs, olives, pistachios, 00:06:14.939 --> 00:06:17.319 almonds, you name it. It was part of that corporate 00:06:17.319 --> 00:06:19.759 trend at the time to build these broad conglomerates, 00:06:19.759 --> 00:06:21.839 you know, to hedge against the volatility of 00:06:21.839 --> 00:06:23.920 one market. But running an olive farm and an 00:06:23.920 --> 00:06:26.160 oil rig. That seems like a massive operational 00:06:26.160 --> 00:06:28.019 split. Why did they eventually sell the ranch? 00:06:28.279 --> 00:06:30.699 Well, that's the key question, isn't it? Ultimately, 00:06:30.839 --> 00:06:34.040 managing crop cycles and managing oil reservoir 00:06:34.040 --> 00:06:36.879 depletion are two very, very different skill 00:06:36.879 --> 00:06:39.279 sets. It became a distraction. So they decided 00:06:39.279 --> 00:06:42.160 to refocus. They made a definitive choice in 00:06:42.160 --> 00:06:45.879 1977. They sold the ranch, sold all their other 00:06:45.879 --> 00:06:48.740 non -petroleum assets, and took all that capital 00:06:48.740 --> 00:06:50.839 and poured it right back into the core business. 00:06:51.240 --> 00:06:54.300 And where did that money go specifically? really 00:06:54.300 --> 00:06:56.500 strategic opportunity. It was something called 00:06:56.500 --> 00:06:59.339 a farm in agreement with a company called GHK 00:06:59.339 --> 00:07:01.800 in the Anadarko Basin. OK, farm in agreement. 00:07:02.509 --> 00:07:04.629 Let's pause on that jargon. What does that actually 00:07:04.629 --> 00:07:06.990 mean for a company like Apache? It's a fundamental 00:07:06.990 --> 00:07:10.050 concept in the industry. So say an owner of a 00:07:10.050 --> 00:07:12.889 lease like GHK has a promising piece of land, 00:07:12.990 --> 00:07:15.029 but maybe they don't have the cash or the risk 00:07:15.029 --> 00:07:17.089 appetite to drill it themselves. So Apache comes 00:07:17.089 --> 00:07:20.129 in. Apache farms in. They agree to take on all 00:07:20.129 --> 00:07:22.269 the operational responsibility. They pay for 00:07:22.269 --> 00:07:24.550 the drilling. They take on the risk. And in exchange, 00:07:24.730 --> 00:07:28.189 they get a share of any oil they find and, critically, 00:07:28.509 --> 00:07:30.569 a share of the ownership of the land itself. 00:07:31.560 --> 00:07:34.019 So they were using the money from their literal 00:07:34.019 --> 00:07:38.180 farm to finance a figurative farm in. Exactly. 00:07:38.339 --> 00:07:40.879 It was a perfect example of strategic clarity. 00:07:41.100 --> 00:07:43.259 They were getting back to their core competency, 00:07:43.579 --> 00:07:46.180 financed by selling off the assets that didn't 00:07:46.180 --> 00:07:48.839 fit. And that move really set the stage for their 00:07:48.839 --> 00:07:52.240 biggest innovation. And this innovation, it wasn't 00:07:52.240 --> 00:07:54.019 about drilling technology. It was about money. 00:07:54.139 --> 00:07:57.019 It was about capital structure. In 1981, they 00:07:57.019 --> 00:07:59.000 created something called the Apache Petroleum 00:07:59.000 --> 00:08:03.339 Company, or APC. And why is APC such a landmark 00:08:03.339 --> 00:08:05.839 moment in American business history? Because 00:08:05.839 --> 00:08:09.279 APC was the very first public master limited 00:08:09.279 --> 00:08:12.759 partnership, an MLP, in the United States. This 00:08:12.759 --> 00:08:15.439 structure, which Apache basically invented, completely 00:08:15.439 --> 00:08:17.879 reshaped how the energy and infrastructure sectors 00:08:17.879 --> 00:08:21.240 financed themselves for decades. OK, so an MLP 00:08:21.240 --> 00:08:23.319 is publicly traded. But what's the fundamental 00:08:23.319 --> 00:08:25.319 difference between that and a regular corporation 00:08:25.319 --> 00:08:28.370 like a C Corp? It all comes down to taxes. A 00:08:28.370 --> 00:08:30.430 normal corporation pays corporate income tax 00:08:30.430 --> 00:08:32.610 on its profits. Then, when it pays dividends 00:08:32.610 --> 00:08:34.529 to shareholders, the shareholders pay income 00:08:34.529 --> 00:08:36.610 tax on those dividends. That's the famous double 00:08:36.610 --> 00:08:40.210 taxation. Right. And MLP avoids that. It's treated 00:08:40.210 --> 00:08:43.080 like a partnership for tax purposes. The income, 00:08:43.259 --> 00:08:45.840 the deductions, all of it passes directly through 00:08:45.840 --> 00:08:48.759 to the investors, the unit holders who only pay 00:08:48.759 --> 00:08:51.379 tax once at their individual level. Which is 00:08:51.379 --> 00:08:53.740 a massive advantage in a capital heavy industry 00:08:53.740 --> 00:08:56.879 like oil and gas. A huge advantage. It allowed 00:08:56.879 --> 00:08:59.720 companies with big infrastructure costs, pipelines, 00:09:00.100 --> 00:09:03.320 rigs, real estate to raise massive amounts of 00:09:03.320 --> 00:09:05.620 public capital much more efficiently without 00:09:05.620 --> 00:09:09.289 the drag of corporate taxes. Apache pioneered 00:09:09.289 --> 00:09:11.350 this. It was a financial masterstroke that gave 00:09:11.350 --> 00:09:13.169 them the firepower for the expansion that was 00:09:13.169 --> 00:09:15.230 about to come. But that expansion meant they 00:09:15.230 --> 00:09:17.789 couldn't stay in that symbolic Foshay Tower forever. 00:09:18.009 --> 00:09:20.769 The next decade was really defined by a migration, 00:09:20.970 --> 00:09:23.470 a move toward the industry's center of gravity. 00:09:23.590 --> 00:09:25.470 Yeah, that migration really shows their growing 00:09:25.470 --> 00:09:28.350 scale and ambition. The first move was from Minneapolis 00:09:28.350 --> 00:09:32.309 to Denver in 1987. Denver has always been a key 00:09:32.309 --> 00:09:34.529 hub for the industry, especially for anything 00:09:34.529 --> 00:09:36.549 in the Rockies. But that was just a stopover. 00:09:36.970 --> 00:09:39.049 Five years later, they made the big definitive 00:09:39.049 --> 00:09:42.250 move. In 1992, they moved the headquarters permanently 00:09:42.250 --> 00:09:45.990 to Houston, Texas, specifically to Post Oak Central. 00:09:46.590 --> 00:09:49.330 And this wasn't just a small office. They signed 00:09:49.330 --> 00:09:53.070 a lease for 220 ,000 square feet. So the move 00:09:53.070 --> 00:09:55.429 to Houston, that's the capstone of this whole 00:09:55.429 --> 00:09:58.480 early era. It's everything. It's plugging into 00:09:58.480 --> 00:10:01.200 the global talent pool of geologists and engineers. 00:10:01.519 --> 00:10:04.240 It's accessing the densest network of banks and 00:10:04.240 --> 00:10:06.320 capital. It's being next door to your partners, 00:10:06.440 --> 00:10:08.740 your service companies, the super majors. It 00:10:08.740 --> 00:10:11.620 was a declaration that Apache was done being 00:10:11.620 --> 00:10:13.840 a regional player. They were ready to become 00:10:13.840 --> 00:10:16.340 a global acquisition machine. And they had all 00:10:16.340 --> 00:10:19.299 the pieces in place. The MLP for capital, a focus 00:10:19.299 --> 00:10:21.799 strategy, and a new home in the heart of the 00:10:21.799 --> 00:10:24.759 industry. The stage was perfectly set for an 00:10:24.759 --> 00:10:27.580 explosion of growth. The 30 years after the mid 00:10:27.580 --> 00:10:29.600 -80s, I mean, you can define it almost entirely 00:10:29.600 --> 00:10:32.419 by one strategy, growth by acquisition. They 00:10:32.419 --> 00:10:34.740 just went on a relentless buying spree. They 00:10:34.740 --> 00:10:36.940 weren't growing by finding new oil fields so 00:10:36.940 --> 00:10:38.500 much as they were growing by buying existing 00:10:38.500 --> 00:10:41.679 ones. Exactly. They mastered consolidation. It 00:10:41.679 --> 00:10:43.679 started pretty modestly, you know, testing the 00:10:43.679 --> 00:10:47.159 waters. In 85, they bought wells across eight 00:10:47.159 --> 00:10:49.340 states from a company called David Holdings for 00:10:49.340 --> 00:10:52.940 $200 million. A year later, they grabbed assets 00:10:52.940 --> 00:10:55.120 in the Gulf of Mexico from Occidental Petroleum. 00:10:55.379 --> 00:10:58.940 Smart tactical moves. But the real game changer, 00:10:59.019 --> 00:11:01.720 the deal that really set their DNA for the future, 00:11:01.820 --> 00:11:06.220 was in 1991, the Amoco deal. Oh, this one is 00:11:06.220 --> 00:11:08.460 absolutely critical. It's one of the most consequential 00:11:08.460 --> 00:11:10.980 deals in their history. They bought a package 00:11:10.980 --> 00:11:14.639 of assets for $515 million. Plus, they gave Amoco 00:11:14.639 --> 00:11:17.139 2 million shares of Apache stock. And the impact 00:11:17.139 --> 00:11:21.019 was immediate. It was stunning. The deal doubled 00:11:21.019 --> 00:11:23.799 the company's reserves overnight. Doubling your 00:11:23.799 --> 00:11:26.320 reserves in a single transaction, that just catapults 00:11:26.320 --> 00:11:28.500 you into a completely different league. But it 00:11:28.500 --> 00:11:30.059 wasn't just about the volume, was it? It was 00:11:30.059 --> 00:11:32.419 about where those reserves were. That's the most 00:11:32.419 --> 00:11:35.340 important part. This Amoco deal gave Apache its 00:11:35.340 --> 00:11:37.960 first major position in the Permian Basin of 00:11:37.960 --> 00:11:41.799 West Texas. And making that move in 1991. That's 00:11:41.799 --> 00:11:44.159 decades before the shale boom made the Permian 00:11:44.159 --> 00:11:46.820 the center of the oil universe. It shows incredible 00:11:46.820 --> 00:11:50.039 foresight. They secured a critical foothold in 00:11:50.039 --> 00:11:52.080 a region that would become the absolute king 00:11:52.080 --> 00:11:55.700 of U .S. oil production. That one deal in 1991 00:11:55.700 --> 00:11:58.120 basically ensured they would be central to the 00:11:58.120 --> 00:12:00.320 American energy story for the next 30 years. 00:12:00.700 --> 00:12:03.600 So with their domestic position solidified, they 00:12:03.600 --> 00:12:06.000 started looking outward. By the mid -90s, they 00:12:06.000 --> 00:12:08.399 were ready to go global. And the global leap 00:12:08.399 --> 00:12:12.539 was incredibly fast and geographically diverse. 00:12:12.899 --> 00:12:15.539 They landed in two totally different energy hubs 00:12:15.539 --> 00:12:18.500 at almost the same time, Australia and Egypt. 00:12:18.759 --> 00:12:21.139 Yeah, let's start with Australia, 1993. They 00:12:21.139 --> 00:12:23.220 bought a company called Hudson Energy Resources 00:12:23.220 --> 00:12:26.519 for about $58 million. That gave them offshore 00:12:26.519 --> 00:12:28.799 assets in Western Australia. Suddenly, they had 00:12:28.799 --> 00:12:31.000 a toehold in the Asia -Pacific. And at the same 00:12:31.000 --> 00:12:33.720 time, they moved into Canada. Yep. In 1995, they 00:12:33.720 --> 00:12:35.899 acquired DeKalb Energy Canada. So within just 00:12:35.899 --> 00:12:37.580 a couple of years, they've gone from being a 00:12:37.580 --> 00:12:39.960 U .S. company to having operations across North 00:12:39.960 --> 00:12:43.919 America and Australia. But 1994, that's the year 00:12:43.919 --> 00:12:46.019 they made their deepest, most long -running international 00:12:46.019 --> 00:12:49.220 bet. And that was Egypt. The move into Egypt 00:12:49.220 --> 00:12:52.559 was, again, very strategic. They started small, 00:12:52.840 --> 00:12:56.700 low risk. They bought a 25 % non -operated interest 00:12:56.700 --> 00:12:59.039 in the Corinne concession. So they weren't running 00:12:59.039 --> 00:13:01.620 the show at first. They were just... Right. An 00:13:01.620 --> 00:13:04.539 investor. But production started up very quickly 00:13:04.539 --> 00:13:08.220 by December of 95. And then just a year later, 00:13:08.299 --> 00:13:11.139 they took the big step. They acquired the main 00:13:11.139 --> 00:13:14.200 operator, Phoenix Resources, and took over the 00:13:14.200 --> 00:13:17.169 whole thing. What was it about Egypt and specifically 00:13:17.169 --> 00:13:19.769 the Western desert that was so appealing to them 00:13:19.769 --> 00:13:22.809 as a long term anchor? A few things. First, the 00:13:22.809 --> 00:13:25.409 oil fields there, while remote, are what you'd 00:13:25.409 --> 00:13:28.029 call prolific and relatively simple to develop. 00:13:28.169 --> 00:13:29.970 It's not like super complex deep water stuff. 00:13:30.309 --> 00:13:33.009 Second, Egypt has generally been a very reliable 00:13:33.009 --> 00:13:35.870 partner for U .S. energy companies. Third. Third, 00:13:36.009 --> 00:13:38.529 it played right into their strengths. They were 00:13:38.529 --> 00:13:40.750 experts at taking over mature fields and optimizing 00:13:40.750 --> 00:13:43.490 them, squeezing every last drop of value out. 00:13:43.570 --> 00:13:45.789 It was a perfect. fit. And it laid the foundation 00:13:45.789 --> 00:13:47.929 for a commitment that's lasted three decades. 00:13:48.250 --> 00:13:51.190 OK, so that brings us to the late 90s and 2000s, 00:13:51.190 --> 00:13:54.549 which you call the era of the mega deal. This 00:13:54.549 --> 00:13:56.830 is when they started buying assets from the supermajors. 00:13:56.830 --> 00:14:00.190 This was their signature move. When we say supermajors, 00:14:00.190 --> 00:14:03.389 we mean the absolute giants, Shell, Exxon, BP, 00:14:03.629 --> 00:14:06.789 Chevron. These companies operate at such an immense 00:14:06.789 --> 00:14:09.289 scale. Right. So a field that's producing, say, 00:14:09.370 --> 00:14:12.509 50 ,000 barrels a day is huge for a company like 00:14:12.509 --> 00:14:15.690 Apache. It's transformative for Apache, but for 00:14:15.690 --> 00:14:18.409 ExxonMobil, it's a rounding error. It barely 00:14:18.409 --> 00:14:20.950 moves their needle. The supermajors often see 00:14:20.950 --> 00:14:24.629 these mature aging assets as non -core. They 00:14:24.629 --> 00:14:27.190 take a lot of work to maintain for what to them 00:14:27.190 --> 00:14:29.830 is a small return. So Apache's strategy was to 00:14:29.830 --> 00:14:31.950 be the go -to buyer for what the giants consider 00:14:31.950 --> 00:14:34.509 their leftovers. Precisely. They could buy them 00:14:34.509 --> 00:14:37.139 at a good price. Apply their focused operational 00:14:37.139 --> 00:14:39.820 expertise and make those assets the absolute 00:14:39.820 --> 00:14:41.879 centerpiece of their own portfolio. And you see 00:14:41.879 --> 00:14:43.659 the pattern over and over. Give us an example. 00:14:43.840 --> 00:14:46.059 1999. They buy a bunch of fields in the Gulf 00:14:46.059 --> 00:14:49.019 of Mexico from Royal Dutch Shell for $715 million 00:14:49.019 --> 00:14:52.080 plus stock. Shell was cleaning house. Apache 00:14:52.080 --> 00:14:54.320 was building an empire. And they kept building 00:14:54.320 --> 00:14:57.629 in Egypt, too. Oh, yeah. In 2001, they bought 00:14:57.629 --> 00:15:00.269 Repsol's operations in the Libyan desert for 00:15:00.269 --> 00:15:03.929 $410 million. This was all about density buying 00:15:03.929 --> 00:15:06.330 up neighboring fields, consolidating infrastructure, 00:15:06.669 --> 00:15:09.409 becoming more efficient. But the most eye -popping 00:15:09.409 --> 00:15:11.909 deal from this era, the one that really highlights 00:15:11.909 --> 00:15:15.990 the strategy, was the 2003 deal with BP. Yes, 00:15:16.049 --> 00:15:19.769 the 40s oil field. In 2003, they bought the 40s 00:15:19.769 --> 00:15:21.950 field and some other Gulf of Mexico assets from 00:15:21.950 --> 00:15:25.929 BP for $1 .3 billion. And we have to stop and 00:15:25.929 --> 00:15:28.070 appreciate the 40s field. This was the largest 00:15:28.070 --> 00:15:30.850 oil field ever discovered in the entire UK North 00:15:30.850 --> 00:15:33.230 Sea. It's a legend in the industry. Wait a second. 00:15:33.269 --> 00:15:35.129 If it was the biggest discovery in the North 00:15:35.129 --> 00:15:38.509 Sea, why on earth would BP sell it, even for 00:15:38.509 --> 00:15:41.090 $1 .3 billion? It sounds like selling the crown 00:15:41.090 --> 00:15:43.149 jewels. It does, but you have to think like a 00:15:43.149 --> 00:15:46.470 supermajor. By 2003, the 40s field was old. It 00:15:46.470 --> 00:15:48.710 was past its peak, and managing its decline requires 00:15:48.710 --> 00:15:50.750 a ton of money and work in a very high -cost 00:15:50.750 --> 00:15:53.409 place like the North Sea. So BP could take that 00:15:53.409 --> 00:15:56.740 $1 .3 billion. And redeploy it into some massive 00:15:56.740 --> 00:15:59.740 new frontier exploration project that could actually 00:15:59.740 --> 00:16:01.899 move their multi hundred billion dollar needle. 00:16:02.100 --> 00:16:04.799 For Apache, though, that one point three billion 00:16:04.799 --> 00:16:07.860 bought them a historic cash flowing asset that 00:16:07.860 --> 00:16:10.340 immediately made them a major player in Europe's 00:16:10.340 --> 00:16:12.940 most important energy basin. It was a brilliant 00:16:12.940 --> 00:16:15.879 move. So beyond the big buys, they were also 00:16:15.879 --> 00:16:18.159 having their own exploration successes. They 00:16:18.159 --> 00:16:21.360 were. On the technical side, in 2002, they drilled 00:16:21.360 --> 00:16:23.879 their first deep water wells offshore Egypt. 00:16:24.559 --> 00:16:26.519 That showed they could handle the more complex, 00:16:26.620 --> 00:16:28.799 expensive stuff. And Australia was a big success 00:16:28.799 --> 00:16:31.539 story, too. The Van Gogh project, yeah. In 2007, 00:16:31.899 --> 00:16:34.179 a test well there produced almost 10 ,000 barrels 00:16:34.179 --> 00:16:37.139 a day. Just a huge flow rate. That validated 00:16:37.139 --> 00:16:39.039 the whole project, and it went into full production 00:16:39.039 --> 00:16:41.539 in 2010. But even as they were buying all this 00:16:41.539 --> 00:16:43.779 stuff, they were also constantly selling. It 00:16:43.779 --> 00:16:45.559 seems like they were always optimizing the portfolio. 00:16:45.960 --> 00:16:47.759 That's the mark of a sophisticated operator. 00:16:48.100 --> 00:16:51.019 You're always pruning. In 2005, they sold their 00:16:51.019 --> 00:16:53.840 deepwater Egyptian steak to Hess. Maybe they'd... 00:16:53.840 --> 00:16:56.100 decided deep water was too risky for them. In 00:16:56.100 --> 00:16:59.200 2006, they got out of China. And that trend really 00:16:59.200 --> 00:17:01.879 accelerated later on. They sold all their Australian 00:17:01.879 --> 00:17:07.200 assets in 2015. For a cool $2 .1 billion. And 00:17:07.200 --> 00:17:10.279 then they exited Canada completely in 2017. You 00:17:10.279 --> 00:17:12.500 see the life cycle, right? Buy in the 90s, operate 00:17:12.500 --> 00:17:15.019 for a couple of decades, extract the value. And 00:17:15.019 --> 00:17:17.819 then when the price is right or the area no longer 00:17:17.819 --> 00:17:20.759 fits your core strategy, you sell the whole package 00:17:20.759 --> 00:17:23.480 and reinvest that cash into what really matters, 00:17:23.680 --> 00:17:26.500 which for them was increasingly the U .S. Permian 00:17:26.500 --> 00:17:29.279 and their rock solid Egyptian operations. And 00:17:29.279 --> 00:17:31.500 that focus on the core really sets us up for 00:17:31.500 --> 00:17:33.640 the 2010s, where they just kept buying at an 00:17:33.640 --> 00:17:36.119 incredible pace. The early 2010s were just... 00:17:36.109 --> 00:17:38.630 It was a massive growth period for them. The 00:17:38.630 --> 00:17:41.990 buying sprees were almost dizzying. Just in 2010, 00:17:42.150 --> 00:17:45.109 they bought two big packages of assets in the 00:17:45.109 --> 00:17:48.789 Gulf of Mexico. Yeah, over $3 .7 billion in one 00:17:48.789 --> 00:17:51.369 year in the Gulf alone, a billion from Devon 00:17:51.369 --> 00:17:53.190 Energy, and then they bought a company called 00:17:53.190 --> 00:17:56.130 Mariner Energy for $2 .7 billion. They were just 00:17:56.130 --> 00:17:58.069 vacuuming up production in their backyard. And 00:17:58.069 --> 00:18:00.049 they kept their hand in the North Sea, too, buying 00:18:00.049 --> 00:18:02.809 from ExxonMobil in 2012. Right, the barrel field. 00:18:03.740 --> 00:18:06.259 But the deal in 2010 that everyone remembers, 00:18:06.460 --> 00:18:08.579 the one that grabbed all the headlines, came 00:18:08.579 --> 00:18:11.039 after one of the worst industrial disasters in 00:18:11.039 --> 00:18:13.660 modern history. Here's where it gets really interesting. 00:18:13.880 --> 00:18:16.200 We're talking about the aftermath of the Deepwater 00:18:16.200 --> 00:18:19.579 Horizon spill. Exactly. The tragedy put BP in 00:18:19.579 --> 00:18:22.539 an impossible financial position. They were forced 00:18:22.539 --> 00:18:25.140 to sell off billions in high -quality assets 00:18:25.140 --> 00:18:27.740 around the world just to cover their liabilities. 00:18:28.039 --> 00:18:31.019 It was a fire sale. And Apache stepped in. With 00:18:31.019 --> 00:18:34.230 a $7 billion check. They bought a massive package 00:18:34.230 --> 00:18:36.869 of assets from BP covering Texas, New Mexico, 00:18:37.049 --> 00:18:40.289 Western Canada and Egypt. That is an incredibly 00:18:40.289 --> 00:18:42.990 aggressive, opportunistic move. What does that 00:18:42.990 --> 00:18:45.190 tell you about Apache's position at the time? 00:18:45.549 --> 00:18:47.349 It tells you they were swimming in capital and 00:18:47.349 --> 00:18:49.549 had an enormous appetite for risk. They were 00:18:49.549 --> 00:18:51.490 confident they could manage those assets even 00:18:51.490 --> 00:18:53.769 under the intense scrutiny the industry was facing. 00:18:53.890 --> 00:18:55.930 I mean, it strengthened all three of their core 00:18:55.930 --> 00:18:59.670 areas in one single transaction. It was probably 00:18:59.670 --> 00:19:02.250 the biggest opportunistic expansion in their 00:19:02.250 --> 00:19:04.349 entire history. And domestically, they kept getting 00:19:04.349 --> 00:19:07.630 bigger. The Cordillera acquisition in 2012. Another 00:19:07.630 --> 00:19:09.990 big one. Two and a half billion in cash and stock. 00:19:10.230 --> 00:19:13.130 This was all about regional dominance. It added 00:19:13.130 --> 00:19:15.430 71 million barrels of oil equivalent to their 00:19:15.430 --> 00:19:17.769 reserves and just cemented their control over 00:19:17.769 --> 00:19:20.390 western Oklahoma and the Texas panhandle. Pure 00:19:20.390 --> 00:19:24.170 U .S. onshore consolidation. But after all this 00:19:24.170 --> 00:19:28.029 success buying proven assets, they pivoted back 00:19:28.029 --> 00:19:30.680 to high risk exploration. And that's where we 00:19:30.680 --> 00:19:33.839 find the big stumble, the cautionary tale of 00:19:33.839 --> 00:19:38.039 Alpine High. Ah, Alpine High, yes. This is absolutely 00:19:38.039 --> 00:19:40.200 essential to understanding their recent history 00:19:40.200 --> 00:19:42.799 because it was a monumental strategic failure. 00:19:43.079 --> 00:19:46.150 So what was it supposed to be? In 2016, they 00:19:46.150 --> 00:19:48.750 launched this massive new discovery in a totally 00:19:48.750 --> 00:19:51.710 unproven area of the Permian called Alpine High. 00:19:52.009 --> 00:19:54.309 The hype was off the charts. They thought this 00:19:54.309 --> 00:19:56.269 was it, a play that would give them decades of 00:19:56.269 --> 00:19:58.450 growth without having to buy anything ever again. 00:19:58.650 --> 00:20:00.930 And how much money did they pour into this supposed 00:20:00.930 --> 00:20:04.109 game changer? More than $3 billion. I mean, $3 00:20:04.109 --> 00:20:07.150 billion in exploration, drilling, building pipelines, 00:20:07.450 --> 00:20:10.130 processing plants, everything you need to develop 00:20:10.130 --> 00:20:12.589 a new area from scratch. But the excitement didn't 00:20:12.589 --> 00:20:15.490 last. What went wrong? The rocks, basically. 00:20:15.829 --> 00:20:18.690 The geology was just way more complex and way 00:20:18.690 --> 00:20:20.410 less consistent than their models predicted. 00:20:20.730 --> 00:20:22.869 The wells didn't produce the volumes they expected. 00:20:23.089 --> 00:20:26.670 And the gas they did find was difficult. It was 00:20:26.670 --> 00:20:29.009 wetter and had more contaminants than they anticipated, 00:20:29.230 --> 00:20:32.250 which made it super expensive to process. So 00:20:32.250 --> 00:20:34.950 by 2020... They had to admit it was a failure. 00:20:35.089 --> 00:20:37.230 They had to write off the vast majority of that 00:20:37.230 --> 00:20:40.269 $3 billion investment. An enormous, painful write 00:20:40.269 --> 00:20:41.849 -off. And what were the internal consequences 00:20:41.849 --> 00:20:44.210 of a failure that public and that expensive? 00:20:44.569 --> 00:20:47.329 They were swift. Stephen Keenan, the VP of Global 00:20:47.329 --> 00:20:49.470 Exploration, the guy who was the lead geologist 00:20:49.470 --> 00:20:52.710 championing the play, he resigned in 2019, even 00:20:52.710 --> 00:20:54.309 before the full write -down. It was more than 00:20:54.309 --> 00:20:55.930 just a financial loss, then. It was a strategic 00:20:55.930 --> 00:20:58.130 rebuke. It was the market and their own balance 00:20:58.130 --> 00:21:00.529 sheet telling them to stop the high -risk wildcatting 00:21:00.529 --> 00:21:03.140 and get back to what they do best. disciplined 00:21:03.140 --> 00:21:05.859 acquisition of proven fields. It was a very powerful, 00:21:06.059 --> 00:21:08.920 very expensive lesson. OK, so let's pivot from 00:21:08.920 --> 00:21:10.859 that learning experience to the present day. 00:21:11.119 --> 00:21:14.180 If we look at their operations now, how does 00:21:14.180 --> 00:21:17.539 the map reflect that history? Yeah. Let's use 00:21:17.539 --> 00:21:20.960 the 2021 reserve data. The 2021 data paints a 00:21:20.960 --> 00:21:23.839 really clear picture of a company that is refocused. 00:21:24.079 --> 00:21:27.740 Total reserves were about 912 million barrels 00:21:27.740 --> 00:21:30.920 of oil equivalent. But the concentration is what's 00:21:30.920 --> 00:21:34.029 key. 68 % of that is in the United States. So 00:21:34.029 --> 00:21:36.210 two -thirds of their future is anchored in the 00:21:36.210 --> 00:21:39.069 U .S. Exactly. 20 % is in Egypt, and the last 00:21:39.069 --> 00:21:41.970 12 % is in the North Sea. So it's still a global 00:21:41.970 --> 00:21:44.329 player, but a very focused one. And within the 00:21:44.329 --> 00:21:46.170 U .S., where is that two -thirds concentrated? 00:21:46.690 --> 00:21:49.670 It's almost all in the Permian Basin. I mean, 00:21:49.670 --> 00:21:52.089 that is the ultimate vindication of that deal 00:21:52.089 --> 00:21:55.230 they made way back in 1991. The Permian is the 00:21:55.230 --> 00:21:57.329 engine. And then you have that Egyptian anchor, 00:21:57.490 --> 00:22:00.819 30 years in the Libyan desert. The source material 00:22:00.819 --> 00:22:03.099 notes something astonishing, that they haven't 00:22:03.099 --> 00:22:05.559 had any major disruptions from all the political 00:22:05.559 --> 00:22:08.240 turmoil in the region. That detail right there 00:22:08.240 --> 00:22:10.680 is probably the best sign of how sophisticated 00:22:10.680 --> 00:22:13.599 they are as an operator. To keep production stable 00:22:13.599 --> 00:22:17.099 for 30 years through revolutions and coups, that 00:22:17.099 --> 00:22:19.660 takes incredible risk management. It has to be 00:22:19.660 --> 00:22:22.099 more than just luck. It's about having robust 00:22:22.099 --> 00:22:24.700 agreements with the state energy company. It's 00:22:24.700 --> 00:22:27.160 about sophisticated local security. And it's 00:22:27.160 --> 00:22:29.480 about making sure your operations are a source 00:22:29.480 --> 00:22:31.440 of stability and employment for the country. 00:22:31.599 --> 00:22:33.960 You make yourself a valued partner no matter 00:22:33.960 --> 00:22:36.920 who is in charge. It's a massive strategic asset 00:22:36.920 --> 00:22:39.759 for them. Now, speaking of structure, in 2021, 00:22:40.059 --> 00:22:43.809 we saw them. Legally restructure with APA Corporation 00:22:43.809 --> 00:22:46.309 becoming the holding company. What does that 00:22:46.309 --> 00:22:48.309 mean in practical terms? It's more than just 00:22:48.309 --> 00:22:50.890 a name change. Apache Corporation, the operating 00:22:50.890 --> 00:22:53.609 company, became a subsidiary of the new parent, 00:22:53.849 --> 00:22:56.730 APA Corporation. And why do that? It creates 00:22:56.730 --> 00:22:59.589 a cleaner legal firewall. It helps you manage 00:22:59.589 --> 00:23:02.130 liability by isolating risks in different entities. 00:23:02.329 --> 00:23:04.490 And it gives you a more flexible framework for 00:23:04.490 --> 00:23:06.789 future acquisitions or divestments without messing 00:23:06.789 --> 00:23:09.309 up the whole corporate structure. It's a move 00:23:09.309 --> 00:23:11.430 toward more centralized strategic governance. 00:23:11.730 --> 00:23:13.990 And fast forwarding to today, that acquisition 00:23:13.990 --> 00:23:17.029 engine is clearly still running. We have to talk 00:23:17.029 --> 00:23:19.289 about the latest mega deal from January 2024. 00:23:20.029 --> 00:23:23.009 The Callen Petroleum Acquisition. This deal tells 00:23:23.009 --> 00:23:24.450 you everything about their current strategy. 00:23:24.710 --> 00:23:28.029 It was valued at about $4 .5 billion, including 00:23:28.029 --> 00:23:31.089 debt. And it was an all -stock transaction. Why 00:23:31.089 --> 00:23:33.289 is that detail important? Because it means they 00:23:33.289 --> 00:23:35.849 didn't have to drain their cash reserves. They 00:23:35.849 --> 00:23:39.029 used their own equity as currency to buy Callen. 00:23:39.150 --> 00:23:41.849 It's a financially conservative way to get bigger 00:23:41.849 --> 00:23:44.410 while keeping your cash for operations. And what 00:23:44.410 --> 00:23:47.789 do they get with Callen? More Permian. Callan's 00:23:47.789 --> 00:23:50.809 assets are primarily in the Permian Basin. This 00:23:50.809 --> 00:23:53.470 was a pure play, doubling down on their core 00:23:53.470 --> 00:23:56.789 U .S. asset base. It was the ultimate proof that 00:23:56.789 --> 00:23:59.500 the lesson from Alpine High was learned. stick 00:23:59.500 --> 00:24:01.859 to what you know, consolidate in your core area. 00:24:02.079 --> 00:24:04.680 But, you know, operating at this scale across 00:24:04.680 --> 00:24:07.799 three continents for so long that history is 00:24:07.799 --> 00:24:10.660 absolutely intertwined with some major controversies 00:24:10.660 --> 00:24:12.619 and complications. Right. When a company grows 00:24:12.619 --> 00:24:14.680 this fast and gets this big, you have to look 00:24:14.680 --> 00:24:16.920 at the external costs. Yeah. The environmental 00:24:16.920 --> 00:24:19.380 and operational risks. Let's start with a major 00:24:19.380 --> 00:24:22.099 environmental disaster, the huge toxic spill 00:24:22.099 --> 00:24:25.250 in northern Alberta, Canada, back in 2013. This 00:24:25.250 --> 00:24:29.410 happened on June 1st, 2013. A pipeline at their 00:24:29.410 --> 00:24:32.390 Zama field operations ruptured. And the scale 00:24:32.390 --> 00:24:36.089 was just. It was catastrophic. It spilled 60 00:24:36.089 --> 00:24:39.589 ,000 barrels of toxic waste. 60 ,000 barrels. 00:24:39.690 --> 00:24:41.490 Let's try to put that in perspective. How much 00:24:41.490 --> 00:24:43.710 is that? It's nine and a half million liters 00:24:43.710 --> 00:24:46.289 of contaminated water and chemicals just released 00:24:46.289 --> 00:24:48.730 directly into the environment. And the sources 00:24:48.730 --> 00:24:51.269 call this one of the largest such disasters in 00:24:51.269 --> 00:24:53.970 recent North American history. What was the immediate 00:24:53.970 --> 00:24:56.900 impact? Devastating for the local ecosystem. 00:24:57.220 --> 00:24:59.119 I mean, ecologists said it would just kill the 00:24:59.119 --> 00:25:01.460 plants, impact the water table. And even though 00:25:01.460 --> 00:25:04.440 the area was remote, the sheer volume and a massive 00:25:04.440 --> 00:25:07.400 multi -year cleanup effort, it immediately raised 00:25:07.400 --> 00:25:09.240 questions about the integrity of their pipelines 00:25:09.240 --> 00:25:11.579 and their oversight. It's a stark reminder that 00:25:11.579 --> 00:25:13.960 every barrel of oil produced comes with a liability 00:25:13.960 --> 00:25:16.619 risk. A risk that can materialize in an instant 00:25:16.619 --> 00:25:19.660 and at an enormous cost. OK, so from an environmental 00:25:19.660 --> 00:25:23.220 catastrophe, let's move to a major operational 00:25:23.220 --> 00:25:25.849 failure. one that crippled an entire regional 00:25:25.849 --> 00:25:28.170 economy. I'm talking about the 2008 pipeline 00:25:28.170 --> 00:25:31.069 explosion on Varanus Island in Western Australia. 00:25:31.269 --> 00:25:34.430 Yeah, this incident is a perfect case study in 00:25:34.430 --> 00:25:36.809 how one failure can cause a systemic crisis. 00:25:37.450 --> 00:25:40.069 Varanus Island was a critical hub for processing 00:25:40.069 --> 00:25:42.609 natural gas for Western Australia. When that 00:25:42.609 --> 00:25:45.430 pipeline exploded in June of 2008, the supply 00:25:45.430 --> 00:25:49.099 was just cut off. And what did that mean for 00:25:49.099 --> 00:25:51.220 the region? What was the Western Australian gas 00:25:51.220 --> 00:25:55.019 crisis? It meant economic paralysis. Western 00:25:55.019 --> 00:25:57.940 Australia's economy, especially its huge mining 00:25:57.940 --> 00:26:00.940 sector, runs on natural gas for electricity and 00:26:00.940 --> 00:26:03.690 industrial power. So when the gas stopped? Everything 00:26:03.690 --> 00:26:06.009 stopped. Mines had to shut down. Heavy manufacturing 00:26:06.009 --> 00:26:08.730 went dark. Power plants were starved of fuel. 00:26:08.990 --> 00:26:11.490 It caused hundreds of millions of dollars in 00:26:11.490 --> 00:26:13.609 economic damage and exposed just how fragile 00:26:13.609 --> 00:26:15.930 the whole energy system was. And it all traced 00:26:15.930 --> 00:26:18.049 back to that one failure at Apache's facility. 00:26:18.410 --> 00:26:20.809 And the legal aftermath is also telling, isn't 00:26:20.809 --> 00:26:22.750 it, in terms of corporate accountability? Absolutely. 00:26:22.809 --> 00:26:25.109 The Australian government understandably went 00:26:25.109 --> 00:26:27.269 after the company, pursuing charges for the failure. 00:26:27.450 --> 00:26:29.769 But in the end, they were forced to drop the 00:26:29.769 --> 00:26:32.670 charges because of a legal technicality. A technicality. 00:26:32.720 --> 00:26:35.579 after causing a statewide economic crisis. Right. 00:26:35.700 --> 00:26:37.859 And it raises that critical question. When a 00:26:37.859 --> 00:26:41.539 corporate failure has such massive public consequences, 00:26:41.700 --> 00:26:45.200 but a legal loophole prevents prosecution, is 00:26:45.200 --> 00:26:47.759 the system really working? It just highlights 00:26:47.759 --> 00:26:50.500 the gap that can exist between operational responsibility 00:26:50.500 --> 00:26:53.980 and actual legal accountability. So beyond the 00:26:53.980 --> 00:26:56.380 physical risks, we also see a pattern in their 00:26:56.380 --> 00:26:58.900 corporate governance, specifically around shareholder 00:26:58.900 --> 00:27:01.279 rights. This is a really revealing part of their 00:27:01.279 --> 00:27:04.079 history. The CEO at the time, G. Stephen Ferris, 00:27:04.200 --> 00:27:06.700 was very active in trying to limit the influence 00:27:06.700 --> 00:27:09.960 of shareholders. In 2007, he actually wrote to 00:27:09.960 --> 00:27:12.440 the SEC arguing for limits on what are called 00:27:12.440 --> 00:27:15.480 non -binding shareholder proposals. Okay, help 00:27:15.480 --> 00:27:17.539 us understand that. Why would management fight 00:27:17.539 --> 00:27:20.519 proposals that are by definition non -binding? 00:27:20.660 --> 00:27:22.319 They're just suggestions, right? They are, but 00:27:22.319 --> 00:27:23.690 they're a pattern. powerful tool for investor 00:27:23.690 --> 00:27:26.490 activism. If shareholders pass a proposal, even 00:27:26.490 --> 00:27:29.089 a non -binding one, say asking the company to 00:27:29.089 --> 00:27:31.630 report on its climate risks, it forces management 00:27:31.630 --> 00:27:34.210 to publicly respond. It put pressure on them. 00:27:34.369 --> 00:27:36.990 It signals that the owners are unhappy. Exactly. 00:27:37.190 --> 00:27:40.150 So by trying to limit these proposals, the CEO 00:27:40.150 --> 00:27:42.910 was essentially trying to build a shield to minimize 00:27:42.910 --> 00:27:45.869 public pressure and allow management to keep 00:27:45.869 --> 00:27:49.029 pursuing its aggressive strategy without. you 00:27:49.029 --> 00:27:51.289 know, constant nagging from activist investors. 00:27:51.630 --> 00:27:53.910 And we saw that desire for control play out in 00:27:53.910 --> 00:27:57.130 court, too. We did. In 2010, Apache successfully 00:27:57.130 --> 00:27:59.809 blocked a corporate governance proposal from 00:27:59.809 --> 00:28:01.890 even being voted on at their annual meeting. 00:28:02.150 --> 00:28:04.509 And the court sided with them. On what grounds? 00:28:04.750 --> 00:28:07.049 On a technicality. The person who submitted it 00:28:07.049 --> 00:28:09.130 failed to prove, according to the very specific 00:28:09.130 --> 00:28:12.009 SEC rules, that they had been a shareholder for 00:28:12.009 --> 00:28:14.230 the required amount of time. They used the fine 00:28:14.230 --> 00:28:16.490 print of corporate law to control the agenda. 00:28:17.069 --> 00:28:19.390 So when you put the 2007 letter and the 2010 00:28:19.390 --> 00:28:21.910 court case together. You get a very clear picture. 00:28:22.009 --> 00:28:24.750 A highly ambitious, growth -focused company that 00:28:24.750 --> 00:28:26.730 wanted to consolidate power in the executive 00:28:26.730 --> 00:28:29.130 suite and ensure that any challenges to their 00:28:29.130 --> 00:28:31.630 strategy were minimized through proactive legal 00:28:31.630 --> 00:28:35.009 and regulatory moves. So what does this all tell 00:28:35.009 --> 00:28:37.990 us? This mix of incredible success, massive failure, 00:28:38.109 --> 00:28:40.690 and these controversies. What's the DNA of this 00:28:40.690 --> 00:28:42.650 company? I think it tells us they are masters 00:28:42.650 --> 00:28:46.049 of two things. One, financial strategy. You see 00:28:46.049 --> 00:28:48.329 that from the MLP to the opportunistic buying. 00:28:48.410 --> 00:28:51.849 And two, operational execution. You see that 00:28:51.849 --> 00:28:54.910 in their 30 years of stability in Egypt. But 00:28:54.910 --> 00:28:57.930 their history also has this heavy shadow. They've 00:28:57.930 --> 00:29:00.990 generated huge environmental liabilities, caused 00:29:00.990 --> 00:29:04.130 regional crises and actively worked to insulate 00:29:04.130 --> 00:29:06.970 themselves from investor dissent. Success at 00:29:06.970 --> 00:29:09.349 this scale, it seems, comes with very proportional 00:29:09.349 --> 00:29:11.789 risks. OK, let's try to wrap this all up. Let's 00:29:11.789 --> 00:29:14.349 synthesize this incredible journey. When you 00:29:14.349 --> 00:29:16.630 look at the whole arc of APA Corporation, you 00:29:16.630 --> 00:29:19.470 see this transformation from a pretty modest 00:29:19.470 --> 00:29:21.650 Minneapolis startup that was distinguished early 00:29:21.650 --> 00:29:24.609 on by this incredible financial innovation, the 00:29:24.609 --> 00:29:27.410 MLP, that really set the stage. Right. That MLP 00:29:27.410 --> 00:29:29.690 gave them the capital advantage they needed for 00:29:29.690 --> 00:29:32.200 the decades of expansion that followed. Capital 00:29:32.200 --> 00:29:34.720 that funded a trajectory just defined by continuous 00:29:34.720 --> 00:29:36.900 strategic buying. And they mastered that art 00:29:36.900 --> 00:29:39.579 of buying the proven mature assets, the crown 00:29:39.579 --> 00:29:42.019 jewels, really, from super majors like BP and 00:29:42.019 --> 00:29:44.859 Shell. They built this global structure anchored 00:29:44.859 --> 00:29:48.180 in three key places. The Permian Basin, the stable 00:29:48.180 --> 00:29:50.819 fields in Egypt's western desert, and the high 00:29:50.819 --> 00:29:54.099 -quality assets in the North Sea. That focus 00:29:54.099 --> 00:29:57.039 is what turned them into a $19 billion company. 00:29:57.359 --> 00:30:00.200 And their story is really a masterclass in portfolio 00:30:00.200 --> 00:30:01.940 management. They were constantly optimizing, 00:30:02.200 --> 00:30:04.819 right? Shedding places like China, Canada, Australia 00:30:04.819 --> 00:30:07.579 to reinvest that money back into the Permian, 00:30:07.599 --> 00:30:10.039 all while showing this incredible resilience 00:30:10.039 --> 00:30:12.680 in a high -risk place like Egypt. But that success 00:30:12.680 --> 00:30:15.660 story, as we've discussed, is permanently marked 00:30:15.660 --> 00:30:19.500 by the $3 billion failure. of Alpine High. And 00:30:19.500 --> 00:30:22.400 by the massive toxic spill in Canada in 2013 00:30:22.400 --> 00:30:25.359 and the pipeline explosion in 2008 that caused 00:30:25.359 --> 00:30:27.799 an economic crisis across an entire state in 00:30:27.799 --> 00:30:29.740 Australia. So the history of APA Corporation 00:30:29.740 --> 00:30:32.279 is, in a way, it's the modern textbook on how 00:30:32.279 --> 00:30:34.380 to scale an oil and gas company. But the key 00:30:34.380 --> 00:30:36.660 lesson for you, the listener, is that achieving 00:30:36.660 --> 00:30:39.279 that kind of scale across three continents, well, 00:30:39.380 --> 00:30:41.359 it's inseparable from its major environmental 00:30:41.359 --> 00:30:43.839 and safety incidents and its efforts to control 00:30:43.839 --> 00:30:46.420 its own governance. And that brings us to our 00:30:46.420 --> 00:30:48.779 final provocative thought for you to take away. 00:30:49.140 --> 00:30:52.660 Given this irreversible global push towards an 00:30:52.660 --> 00:30:55.500 energy transition. And at the same time, considering 00:30:55.500 --> 00:30:58.619 APA's recent very clear commitment to high volume 00:30:58.619 --> 00:31:01.099 oil production, which is underscored by that 00:31:01.099 --> 00:31:04.339 $4 .5 billion acquisition of Callum Petroleum. 00:31:04.579 --> 00:31:06.720 A deal that does nothing but reinforce their 00:31:06.720 --> 00:31:09.039 position in the Permian. Exactly. So the question 00:31:09.039 --> 00:31:12.470 is. How will this company over the next decade 00:31:12.470 --> 00:31:15.230 financially justify and operationally balance 00:31:15.230 --> 00:31:18.569 the demands of continued high volume hydrocarbon 00:31:18.569 --> 00:31:21.509 production with the rising global pressure for 00:31:21.509 --> 00:31:24.150 climate responsibility and much tighter environmental 00:31:24.150 --> 00:31:26.549 regulations? That tension between the financial 00:31:26.549 --> 00:31:28.950 need for high production today and the long term 00:31:28.950 --> 00:31:31.289 liability of climate risk tomorrow. That's the 00:31:31.289 --> 00:31:33.349 challenge that's going to define not just APA, 00:31:33.390 --> 00:31:36.009 but every major energy company moving forward. 00:31:36.190 --> 00:31:37.950 We thank you for deep diving with us today.