Investment research report for APA

Table of Contents

Executive Summary
Valuation Analysis
Industry and Competitors Analysis
Financial Analysis
Earnings Call Multi-Year Analysis
Financial Statements Multi Year
Insider Trading Analysis
Management Compensation Benchmark Analysis
Proxy Statement Analysis
News Analysis
Technical Indicators Analysis
Financial Statements Annual
Financial Statements Quarterly
Earnings Call Analysis

Executive Summary

Company Description

APA Corporation is an independent energy company that explores for, develops, and produces oil, natural gas, and natural gas liquids. The company has operations in the United States, Egypt, the North Sea, and Suriname. APA’s core areas include the Permian Basin, the Gulf of Mexico, and the Anadarko Basin.

Financial Strength and Capital Allocation

APA has a strong balance sheet with manageable debt levels and ample liquidity. The company generates robust free cash flow, which it allocates towards debt reduction, capital expenditures, and shareholder returns through dividends and share buybacks. APA maintains a disciplined approach to capital allocation, prioritizing returns over aggressive production growth.

Operational Excellence and Portfolio Optimization

APA focuses on operational excellence, continuously improving drilling and completion efficiencies, and managing costs effectively. The company has a diversified portfolio of assets and actively optimizes its portfolio through strategic acquisitions, divestitures, and investments in high-return opportunities, particularly in the Permian Basin and Egypt.

Growth Opportunities and Exploration Upside

APA’s exploration and appraisal activities in Suriname, in partnership with Total, represent a significant long-term growth opportunity. The company is also pursuing other exploration prospects in regions like Alaska and the Dominican Republic. Additionally, the modernization of production sharing contracts in Egypt is expected to drive increased investment and production growth in the region.

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Valuation Analysis

PE Ratio

The PE ratio for company APA is as follows:
– Low: -81.20546675165922
– Base: 32.402478764305854
– High: 146.0104242802709

PB Ratio

The PB ratio for company APA is as follows:
– Low: -11.743826478688819
– Base: 5.202222243972971
– High: 22.14827096663476

Unable to provide price targets since this company’s financials are highly unstable. We recommend not to hold this stock in your portfolio.

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Industry and Competitors Analysis

Key Competitors

Based on the information provided, APA Corporation operates in the oil and gas exploration and production industry. Some of its key competitors in this industry include:

  1. Devon Energy Corporation
  2. ConocoPhillips
  3. Diamondback Energy, Inc.
  4. Occidental Petroleum Corporation
  5. Pioneer Natural Resources Company
  6. Hess Corporation
  7. Permian Resources Corporation
  8. EOG Resources, Inc.
  9. Coterra Energy Inc.
  10. Range Resources Corporation
  11. Murphy Oil Corporation

These companies are engaged in various activities such as exploration, development, production, and marketing of crude oil, natural gas, and natural gas liquids, primarily in the United States and other regions like the Permian Basin, Gulf of Mexico, and international locations.

Competitive Positioning

In terms of competitive positioning, some key observations about APA Corporation can be made:

  1. Revenue and profitability: APA’s revenue and net income figures for 2023 ($8.28 billion and $2.86 billion, respectively) are on the lower end compared to larger players like ConocoPhillips, EOG Resources, and Occidental Petroleum, but higher than some smaller companies like Permian Resources and Range Resources.

  2. Financial strength: APA’s total assets ($15.24 billion) and total equity ($3.69 billion) are relatively modest compared to industry leaders, indicating a smaller scale of operations. However, its debt levels ($5.3 billion) are manageable.

  3. Operational focus: APA has a strong presence in the Permian Basin and the Gulf of Mexico, with additional operations in Egypt and the UK. This regional focus could be both an advantage (expertise in specific areas) and a potential limitation (lack of diversification).

Overall, APA Corporation appears to be a mid-sized player in the oil and gas exploration and production industry, with a focus on specific regions and a moderate financial position compared to some of the larger industry leaders.

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Chart of Competitors

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Financial Analysis

Financial Strength

The company has a relatively high debt-equity ratio, ranging from around 2 to over 13 in some quarters, indicating a leveraged capital structure. However, the interest coverage ratio is generally healthy, suggesting the ability to service debt obligations. The current ratio is mostly above 1, indicating adequate liquidity to cover short-term obligations.

Potential for Growth

Revenue growth has been volatile, with periods of both positive and negative growth rates. The three-year revenue growth per share has been mostly positive but declining in recent years. Earnings growth has also been inconsistent, with some quarters showing significant increases and others showing declines. Analyst estimates suggest expectations of moderate revenue and earnings growth over the next few years.

Competitive Advantage

The data does not provide direct insights into the company’s competitive advantages. However, the fluctuations in revenue and earnings growth could indicate challenges in maintaining a sustainable competitive edge.

Quality of Management

The volatile financial performance and high leverage levels could raise questions about the quality of management’s strategic decisions and risk management practices.

Shareholder Friendliness

The company pays dividends, but the dividend yield is relatively low, and the payout ratio has fluctuated significantly. The price-to-earnings and price-to-book ratios have varied widely, suggesting potential volatility in shareholder returns.

Valuation

The price-to-earnings and price-to-book ratios have been both high and low at different times, making it difficult to assess the company’s valuation based solely on this data. The price-to-free-cash-flow ratio has also been highly volatile, ranging from negative values to over 100, indicating potential challenges in generating consistent free cash flows.

Overall, the financial data suggests a company with a leveraged capital structure, inconsistent growth patterns, and potential challenges in maintaining a competitive edge and generating consistent shareholder returns. The quality of management and valuation are difficult to assess definitively based on this data alone.

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Chart of Key Per Share Metrics

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Chart of Absolute Metrics

"Chart of Absolute Metrics"

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Earnings Call Multi-Year Analysis

Focus on Free Cash Flow Generation and Capital Discipline

APA has consistently emphasized generating robust free cash flow through operational efficiency, cost reductions, and capital discipline. The company is committed to maintaining spending within cash flow, even in a higher commodity price environment, prioritizing returns over production growth.

Strengthening Balance Sheet and Shareholder Returns

APA has made significant progress in reducing debt and strengthening its balance sheet. This has enabled the company to implement a capital return framework, committing to return at least 60% of free cash flow to shareholders through dividends and share buybacks, with a bias towards buybacks given the current stock valuation.

Portfolio Optimization and Diversification

APA has a diversified portfolio of assets across the U.S., Egypt, the North Sea, and Suriname. The company has been actively optimizing its portfolio, divesting non-core assets and focusing investment on its highest-return opportunities, particularly in the Permian Basin and Egypt. The pending modernization of production sharing contracts in Egypt is expected to be a significant catalyst for increased investment and production growth in the region.

Exploration Upside in Suriname

APA’s exploration and appraisal activities in Suriname, in partnership with Total, represent a potential long-term growth opportunity. While the company has been cautious in providing specific resource estimates or development timelines, the successful discoveries and ongoing appraisal work suggest significant upside potential.

Operational Excellence and Cost Management

APA has demonstrated a strong focus on operational excellence, continuously improving drilling and completion efficiencies, and managing costs effectively. The company has been proactive in addressing challenges, such as supply chain constraints and inflationary pressures, and has made progress on ESG initiatives like emissions reduction and safety performance.

Measured Approach to Growth and Disciplined Capital Allocation

While APA has a strong free cash flow outlook, the company has taken a measured approach to increasing activity levels, preferring to prioritize debt reduction and shareholder returns over aggressive production growth. The company has maintained discipline in its capital allocation, even in a higher commodity price environment.

Overall, the key insights highlight APA’s focus on financial strength, capital discipline, operational excellence, and shareholder returns, while also pursuing portfolio optimization and selective growth opportunities through exploration and strategic investments.

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Financial Statements Multi Year

Revenue and profitability fluctuations

The company’s revenues and profitability have fluctuated significantly due to changes in commodity prices, particularly for oil and natural gas. This highlights the cyclical nature of the industry and the importance of cost management during downturns.

Production growth and reserve replacement

The company has generally maintained or grown its production levels and proved reserves through successful exploration, development activities, and strategic acquisitions. However, there have been periods of reserve declines, underscoring the need for consistent reserve replacement efforts.

Capital allocation discipline

The company has demonstrated capital discipline by adjusting its capital expenditures in response to market conditions, divesting non-core assets, and returning capital to shareholders through dividends and share repurchases when cash flows permit.

Financial strength and liquidity

Despite the cyclical nature of the business, the company has maintained a relatively strong balance sheet, with manageable debt levels and ample liquidity through credit facilities. This financial strength provides resilience during downturns and flexibility for future growth opportunities.

Portfolio diversification

The company has a diversified portfolio of assets across the United States, Egypt, and the North Sea, which helps mitigate the impact of region-specific challenges and provides a balanced risk profile.

Potential liabilities

The company faces potential decommissioning liabilities related to previously divested assets in the Gulf of Mexico, which could impact its future cash flows if the current owners are unable to fulfill these obligations.

Overall, the financial analysis highlights the company’s ability to navigate the cyclical nature of the industry, maintain financial discipline, and position itself for long-term growth through strategic investments and portfolio management, while also addressing potential liabilities.

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Insider Trading Analysis

Long-term Patterns

The CEO (CHRISTMANN JOHN J) and CFO (Riney Stephen J) have consistently received and held a significant number of shares through various transactions like awards, exemptions, and gifts over the years. Other key executives like the COO (Pursell David A), VP of Operations (Maddox Mark D), and VP of Exploration (Bretches D. Clay) have also received and held a substantial number of shares through similar transactions. There have been occasional sales by the CEO and other executives, but the overall trend suggests they are holding on to a majority of their shares.

Recent Patterns

In the most recent transactions, the CEO, CFO, and other executives continued to receive restricted stock units and common stock through awards and exemptions. The CEO received over 400,000 restricted stock units in a single transaction on January 25, 2024, indicating a continued focus on equity-based compensation. Other executives like the COO, VP of Operations, and VP of Exploration also received large grants of restricted stock units in the same time frame. There were a few instances of stock sales, but the amounts were relatively small compared to the overall holdings of the executives.

Implications

The long-term and recent patterns suggest that the CEO, CFO, and other key executives have a strong alignment with the long-term interests of the company and its shareholders through their significant equity ownership. The continued grants of restricted stock units indicate that the company is using equity-based compensation to incentivize and retain its top talent. The relatively low level of stock sales by the executives implies that they are confident in the company’s long-term prospects and are willing to hold on to their shares.

Overall, the insider trading data suggests that the leadership team at APA Corporation is heavily invested in the company’s success, both financially and strategically, which could be a positive signal for long-term investors.

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Management Compensation Benchmark Analysis

Base Salary Portion of Total Compensation

The base salary portion of total compensation for APA’s executives is relatively low, averaging around 13% across all years and executives reported. This suggests that a significant portion of executive pay is tied to performance-based compensation like stock awards and incentive plans, which aligns their interests with long-term shareholder value creation.

Comparison to Peer Companies

Compared to the other companies analyzed (DVN, COP, FANG, OXY, PXD, HES), APA’s executives have a lower base salary percentage of total compensation. This indicates that APA’s compensation structure is more heavily weighted towards variable, performance-based pay, which is generally considered a better practice for aligning executive incentives with long-term shareholder interests.

Absence of Bonuses

The lack of bonuses for APA’s executives is noteworthy, as many of the other companies provided annual cash bonuses as part of the total compensation. The absence of bonuses at APA may suggest a greater emphasis on long-term equity-based incentives rather than short-term cash payouts.

Alignment with Shareholder Interests

Overall, the executive compensation structure at APA appears to be designed to incentivize long-term value creation for shareholders, with a relatively low base salary component and a greater reliance on stock awards and incentive plan compensation. This alignment of executive and shareholder interests is a positive sign for long-term investors.

In summary, the key insight for a long-term investor in APA is that the company’s executive compensation practices seem well-aligned with the goal of creating sustainable shareholder value over the long run, which is an important consideration when evaluating the company’s management and governance.

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Proxy Statement Analysis

Pay-for-Performance Alignment

A significant portion (89%) of the CEO’s compensation is at-risk and tied to performance metrics, including relative total shareholder return (TSR), free cash flow, cost management, capital efficiency, and strategic goals. This closely aligns executive pay with long-term value creation.

Long-Term Incentives

The long-term incentive plan heavily emphasizes performance share units (80%) with a relative TSR metric, directly linking executive pay to shareholder returns over the long term.

Competitive Positioning

The CEO’s reported pay is below the median of the compensation peer group, indicating a focus on pay-for-performance rather than excessive compensation levels.

Balanced Metrics

The performance metrics used in the incentive plans cover a range of areas critical for long-term success, including financial performance, operational efficiency, capital allocation, and sustainability/ESG initiatives.

Peer Group Selection

The compensation peer group considers factors beyond just market capitalization, such as operational complexity and talent competition, ensuring appropriate benchmarking.

Overall, the executive compensation program appears well-designed to incentivize management to focus on long-term value creation, efficient capital allocation, cost management, and sustainable business practices, which are important considerations for long-term investors.

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News Analysis

Positive

Major oil discoveries offshore Suriname in partnership with Total, with significant exploration potential in the region. These discoveries are seen as transformational for APA.

Strong production growth, especially in the Permian Basin, driving revenue and earnings beats in some quarters.

Cost-cutting initiatives like organizational redesigns to boost annual cost savings.

Moves to strengthen balance sheet like debt tender offers and focus on free cash flow generation.

Negative

Volatile and declining oil/gas prices have weighed on financial performance in certain quarters, leading to losses.

Production declines in some legacy areas like the North Sea.

Dividend cuts (90% reduction in 2020) to preserve cash during downturn.

Credit rating downgrades to junk territory during 2020 oil price crash.

Overall, APA has exciting exploration success but its legacy oil/gas assets make it vulnerable to commodity price swings. The Suriname discoveries provide potential upside if developed successfully, but the company needs to carefully manage costs and leverage during pricing downturns. A long-term investor should watch for sustained production/revenue growth from new discoveries while keeping an eye on the balance sheet strength.

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Technical Indicators Analysis

Next Week Trading

The recent price action and technical indicators suggest a potential short-term bearish sentiment. The TEMA (Triple Exponential Moving Average) has been declining, indicating a possible downward trend. The RSI (Relative Strength Index) is in the neutral range, around 34-37, suggesting the stock is neither overbought nor oversold. The short-term outlook appears cautious, and traders may want to monitor the stock closely for potential entry or exit opportunities in the coming week.

Resistance and Support Levels

The 20-day SMA (Simple Moving Average) at around $29.26 and the 50-day SMA at around $30.71 could act as potential support levels. The stock has faced resistance around the $31-$32 range, as indicated by the recent price action. Traders may want to watch these levels for potential breakouts or pullbacks.

Short-Term Investor

The recent decline in the TEMA and the neutral RSI reading suggest a cautious short-term outlook. Short-term investors may want to wait for a clearer trend direction or a more favorable entry point before taking a position. Monitoring the stock’s behavior around the support and resistance levels mentioned above could provide valuable insights for short-term trading decisions.

Long-Term Investor

The long-term technical indicators, such as the 200-day SMA at around $34.56, suggest a relatively stable long-term trend. However, the recent decline in the TEMA and the potential support and resistance levels indicate that the stock may experience some near-term volatility. Long-term investors may want to consider the overall market conditions and the company’s fundamentals before making investment decisions.

Overall, the technical indicators for APA present a mixed picture, with a cautious short-term outlook and a relatively stable long-term trend. Investors and traders should closely monitor the stock’s price action and key support and resistance levels to make informed decisions.

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Chart of Valuation History

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Financial Statements Annual

Financial Statements Annual 2024 Q2

Proved Reserves

The company’s total proved reserves declined from 912,962 MBOE in 2021 to 807,480 MBOE in 2023, a decrease of around 11.5%. This was primarily driven by production and downward revisions, partially offset by new additions.

The majority of the proved reserves are located in the United States (70%), followed by Egypt (21%) and the North Sea (9%). Proved developed reserves account for around 91% of the total proved reserves, indicating a mature asset base.

Reserve Additions and Revisions

In 2023, the company added 112,249 MBOE of new proved reserves, primarily from exploration and development activities in the Permian Basin, Delaware Basin, and Egypt. However, the company also experienced downward revisions of 45,931 MBOE, mainly due to price and interest changes, partially offset by positive engineering and performance revisions.

The company’s ability to consistently replace and grow its reserves is crucial for long-term sustainability.

Future Net Cash Flows

The discounted future net cash flows (10% discount rate) from the company’s proved reserves declined from $17,602 million in 2022 to $10,041 million in 2023, a decrease of around 43%. This decline was primarily driven by lower commodity prices and higher production costs, which impacted the overall profitability of the company’s operations.

Financial Strength

The company’s balance sheet appears to be in a relatively strong position, with a total debt of $5,304 million and a net debt of $5,217 million as of the end of 2023. The company’s ability to generate significant operating cash flow ($3,129 million in 2023) and maintain a manageable debt level is a positive indicator for long-term investors.

In summary, the key insights for a long-term investor are the company’s declining proved reserves, the need for consistent reserve replacement, the impact of commodity prices and costs on future cash flows, and the overall financial strength of the company. These factors will be crucial in evaluating the company’s long-term growth and sustainability.

Financial Statements Annual 2023 Q2

Strong financial performance in 2022

Revenues increased significantly to $11.08 billion, up from $7.99 billion in 2021, driven by higher oil, natural gas, and NGL prices. Net income grew to $3.60 billion, up from $1.89 billion in 2021, reflecting the higher revenues and improved operating efficiency. The company generated strong cash flow from operations of $4.94 billion, allowing it to fund capital expenditures and return capital to shareholders.

Robust oil and gas reserves and production

Total proved reserves increased to 889.8 million barrels of oil equivalent (MMBoe) at the end of 2022, up from 873.7 MMBoe in 2021. The company added 33.8 MMBoe of new proved reserves through extensions, discoveries, and other additions, primarily in the U.S. and Egypt. Production remained relatively stable, with total production of 144.6 MMBoe in 2022 compared to 141.6 MMBoe in 2021.

Efficient capital allocation and portfolio management

The company invested $2.57 billion in capital expenditures, focused on high-return projects in the U.S. and Egypt. It also made strategic acquisitions, adding 39.1 MMBoe of proved reserves, primarily in the Delaware Basin. The company divested certain non-core assets, generating $1.18 billion in gains on divestitures.

Shareholder-friendly actions

The company returned $1.63 billion to shareholders through a combination of dividends and share repurchases. The strong financial performance and efficient capital allocation have enabled the company to maintain a healthy balance sheet, with a net debt position of $5.21 billion at the end of 2022.

Overall, the financial statements and supplemental disclosures demonstrate APA Corporation’s ability to generate robust cash flows, effectively manage its asset portfolio, and return capital to shareholders, positioning the company for long-term success.

Financial Statements Annual 2022 Q2

Revenue and Profitability

The company’s total revenue in 2021 was $7,985 million, a significant increase from $4,435 million in 2020, driven by higher oil, natural gas, and natural gas liquids prices and production. Gross profit margin improved to 44.3% in 2021 from 9.0% in 2020, indicating improved operational efficiency and cost control. Operating income increased to $1,560 million in 2021 from a loss of $4,102 million in 2020, reflecting the recovery in commodity prices and the company’s cost-cutting efforts. Net income attributable to common shareholders was $973 million in 2021, compared to a loss of $4,860 million in 2020.

Liquidity and Capital Structure

The company had $302 million in cash and cash equivalents as of December 31, 2021, compared to $262 million at the end of 2020, indicating improved liquidity. Total debt decreased to $7,510 million as of December 31, 2021, from $7,795 million at the end of 2020, reflecting debt repayments. The company’s total stockholders’ equity was negative $1,595 million as of December 31, 2021, due to accumulated losses in previous years.

Operational Highlights

The company’s proved oil and gas reserves increased to 912.9 million barrels of oil equivalent (MMboe) as of December 31, 2021, from 873.7 MMboe at the end of 2020, driven by successful exploration and development activities. The company’s production volumes increased in 2021 compared to 2020, with oil production rising from 389.5 million barrels (MMbbl) to 399.6 MMbbl, natural gas liquids production increasing from 169.0 MMbbl to 183.4 MMbbl, and natural gas production growing from 1,627.4 billion cubic feet (Bcf) to 1,979.9 Bcf.

Capital Allocation and Shareholder Returns

The company repurchased 31.2 million shares of its common stock in 2021 at an average price of $27.14 per share, returning capital to shareholders. The company increased its quarterly dividend from $0.025 per share to $0.125 per share during 2021, demonstrating its commitment to shareholder returns.

Overall, the financial statements indicate that the company has rebounded from the challenges of 2020, with improved profitability, liquidity, and operational performance, as well as a focus on capital allocation and shareholder returns.

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Financial Statements Quarterly

Financial Statements Quarterly 2024 Q2

Revenue and Profitability

Revenues were $1.95 billion in Q1 2024, down from $2.01 billion in Q1 2023, primarily due to lower natural gas prices. Net income attributable to common stock was $132 million in Q1 2024, down from $242 million in Q1 2023, mainly due to higher DD&A, dry hole expense, and an increase in decommissioning costs for previously sold Gulf of Mexico assets. The company’s operating income margin decreased from 46.2% in Q1 2023 to 30.7% in Q1 2024.

Production and Pricing

Total production decreased slightly from 394,249 boe/d in Q1 2023 to 389,157 boe/d in Q1 2024, with declines in Egypt and the North Sea partially offset by growth in the US. Realized oil prices increased 3% from $78.37/bbl in Q1 2023 to $80.65/bbl in Q1 2024, while natural gas prices decreased 23% from $3.22/Mcf to $2.47/Mcf.

Cash Flows and Capital Allocation

Cash flow from operations increased 10% to $368 million in Q1 2024 compared to $335 million in Q1 2023. The company repurchased 30 million shares for $101 million and paid $76 million in dividends during Q1 2024. Capital expenditures decreased from $543 million in Q1 2023 to $467 million in Q1 2024 as the company adjusted its drilling activity.

Liquidity and Debt

The company had $102 million in cash and $5.18 billion in total debt as of March 31, 2024. The company has $2.88 billion in available committed borrowing capacity under its syndicated credit facilities.

Acquisition of Callon Petroleum

On April 1, 2024, the company completed the acquisition of Callon Petroleum Company in an all-stock transaction valued at approximately $4.5 billion, including Callon’s debt. The acquired assets include approximately 120,000 net acres in the Delaware Basin and 25,000 net acres in the Midland Basin.

Overall, the financial statements show the company navigating a challenging commodity price environment, maintaining a strong balance sheet, and strategically allocating capital, while also executing a significant acquisition to expand its Permian Basin position.

Financial Statements Quarterly 2024 Q1

Strong operational performance

Oil, natural gas, and NGL production volumes increased year-over-year, driven by increased drilling activity in the U.S. and Egypt, as well as acquisitions in the U.S. The company maintained a balanced asset portfolio with operations in the U.S., Egypt, and the North Sea.

Profitability and cash flow

Net income attributable to common stock was $459 million in Q3 2023 and $1.08 billion in the first 9 months of 2023, demonstrating the company’s ability to generate substantial profits. Operating cash flow was $2.1 billion in the first 9 months of 2023, though lower than the prior year period due to lower commodity prices. The company remains committed to its capital return framework, returning 60% of cash flow over capital investment to shareholders through dividends and share repurchases.

Balance sheet and liquidity

The company had $95 million in cash and $2.2 billion in available committed borrowing capacity under its syndicated credit facilities as of September 30, 2023, providing ample liquidity. Total debt was $5.6 billion, with the majority being fixed-rate notes and debentures, suggesting a prudent capital structure.

Capital allocation and investment

The company invested $1.7 billion in upstream capital expenditures in the first 9 months of 2023, reflecting its commitment to growing production and reserves. The company suspended drilling activity in the North Sea due to increasing cost and tax burdens, demonstrating its disciplined approach to capital allocation. The company also reported successful appraisal of oil discoveries offshore Suriname, with plans to commence detailed engineering studies and a final investment decision by year-end 2024.

Potential liabilities

The company has potential exposure to future decommissioning obligations related to divested properties in the Gulf of Mexico, which could require the use of available cash if the current owners are unable to fulfill these obligations.

Overall, APA Corporation’s financial statements demonstrate a well-managed, diversified, and profitable exploration and production company that is focused on capital discipline, shareholder returns, and strategic growth opportunities.

Financial Statements Quarterly 2023 Q4

Revenue and Profitability

Revenues and net income declined significantly in Q2 2023 compared to Q2 2022, primarily due to much lower realized commodity prices. Oil revenues decreased 33% year-over-year, natural gas revenues decreased 58%, and NGL revenues decreased 54%. Despite the revenue decline, the company remained profitable, reporting net income of $381 million in Q2 2023.

Production

Total production increased 9% year-over-year in Q2 2023, driven by higher oil and NGL volumes, partially offset by lower natural gas volumes. The company’s diverse asset portfolio across the U.S., Egypt, and North Sea contributed to the production growth.

Capital Allocation and Liquidity

The company repurchased 5 million shares for $188 million in the first half of 2023, returning capital to shareholders. Dividends paid to common shareholders increased to $155 million in the first half of 2023, up from $86 million in the prior year period. The company has $142 million in cash and $2.2 billion in available committed borrowing capacity as of June 30, 2023, providing ample liquidity.

Cost Management

The company was able to reduce certain operating expenses, such as gathering, processing and transmission costs, as well as general and administrative expenses. However, depreciation, depletion and amortization expenses increased due to higher capital investment and inflation.

Potential Decommissioning Obligations

The company continues to face potential liabilities related to the decommissioning of certain Gulf of Mexico assets it previously divested, estimating a contingent liability of $922 million as of June 30, 2023.

Overall, the company demonstrated operational resilience and financial discipline in the face of volatile commodity prices, maintaining profitability and a strong balance sheet while returning capital to shareholders.

Financial Statements Quarterly 2023 Q3

Revenue and Profitability

Total revenues decreased 24.7% year-over-year from $2.67 billion to $2.01 billion, primarily due to lower realized commodity prices. Net income attributable to common stock decreased 87.2% from $1.88 billion to $242 million, mainly driven by the absence of large divestiture gains recorded in Q1 2022. Operating income decreased 40.7% from $1.46 billion to $929 million, reflecting the impact of lower commodity prices.

Production and Pricing

Total oil production increased 3.8% year-over-year to 197,185 barrels per day (bpd). Total natural gas production decreased 7.1% to 838 million cubic feet per day (MMcfd). Total NGL production decreased 10.0% to 57,358 barrels per day (bpd). Realized oil prices decreased 22.0% from $100.23 per barrel to $78.37 per barrel. Realized natural gas prices decreased 31.5% from $4.70 per Mcf to $3.22 per Mcf. Realized NGL prices decreased 35.2% from $38.33 per barrel to $24.84 per barrel.

Expenses and Cash Flows

Lease operating expenses decreased 6.7% to $321 million. Exploration expenses increased 23.8% to $52 million, primarily due to higher dry hole costs. General and administrative expenses decreased 41.7% to $65 million. Net cash provided by operating activities decreased 62.4% to $335 million, mainly due to lower commodity prices and timing of working capital items. Capital expenditures for upstream oil and gas properties increased 51.7% to $543 million.

Balance Sheet and Liquidity

Total debt increased to $5.80 billion as of March 31, 2023, compared to $5.45 billion at the end of 2022. Available committed borrowing capacity under syndicated credit facilities decreased to $1.92 billion from $2.24 billion at the end of 2022. The company recorded a $11 billion contingent liability related to potential decommissioning obligations on previously sold Gulf of Mexico properties.

Capital Returns

The company paid $78 million in dividends to common shareholders during the quarter, up from $43 million in the prior-year period. The company repurchased 37 million shares of common stock for $142 million during the quarter.

Overall, the financial statements reflect the impact of lower commodity prices on the company’s revenue, profitability, and cash flows, while the company continues to maintain financial discipline through cost management and capital allocation decisions.

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Earnings Call Analysis

Earnings Call Analysis 2024 Q2

Operational Improvements in Callon Assets

APA is finding significant opportunities to reduce costs, improve efficiencies, and create value by applying its operational expertise and unconventional development workflows to the Callon acreage. This includes changes like wider well spacing, fewer landing zones, and larger fracture stimulations.

Increased Cost Synergy Estimates

APA has increased its estimate of annual cost synergies from the Callon acquisition by 50% from $150 million to $225 million. The majority of these synergies are expected to be realized by the end of 2024.

Permian Basin Focus

The Permian Basin will represent an estimated 73% of APA’s total company adjusted production in Q2 2024 and approximately 75% of its upstream capital this year. This increased focus on the Permian provides significant growth potential.

Debt Reduction Priorities

APA is prioritizing debt reduction, including the 3-year term loan used to refinance Callon debt and the revolver, in addition to returning at least 60% of free cash flow to shareholders.

Egypt Production Challenges

APA is working to rebalance its drilling rig to workover rig ratio in Egypt to optimize capital efficiency, as the amount of oil production temporarily offline has remained elevated.

Cautious Approach to Alaska Exploration

APA took significant dry hole expenses related to two unsuccessful exploration wells in Alaska, but remains optimistic about the potential of its acreage in the region.

Overall, the key insights highlight APA’s focus on operational improvements, cost synergies, and debt reduction, while maintaining a cautious approach to riskier exploration activities. The integration of Callon assets is a critical near-term priority.

Earnings Call Analysis 2024 Q1

Egypt Production Challenges

APA is facing challenges in Egypt due to a shortage of workover rigs and early failures of electrical submersible pumps (ESPs). This has led to a backlog of well maintenance and recompletions, resulting in lower than expected oil production. APA plans to moderate the drilling pace in Egypt to free up workover rig capacity and address the backlog.

Permian Basin Performance

APA’s Permian operations have been delivering strong results, with continuous improvements in well productivity and capital efficiency. The pending acquisition of Callon Petroleum will add scale and balance to APA’s Permian position, and the company expects to further optimize the Callon assets through its technical capabilities and operational expertise.

Exploration Upside

APA is actively pursuing exploration opportunities, including in Alaska and Suriname. While these are high-risk, high-reward plays, the company is taking a measured approach and focusing on building a diversified portfolio of exploration assets.

Capital Discipline and Cash Returns

APA is maintaining capital discipline by reducing total capital investment to less than $2 billion in 2024. The company remains committed to returning at least 60% of its free cash flow to shareholders through dividends and share buybacks.

Integration of Callon Acquisition

APA is preparing for the integration of Callon Petroleum, with a focus on realizing operational, G&A, and financing synergies. The company is confident in meeting or exceeding its synergy targets and maintaining its target credit rating.

Overall, APA is managing its business with a clear and consistent strategy, emphasizing capital discipline, operational excellence, and shareholder returns, while selectively pursuing high-impact exploration opportunities to drive long-term value creation.

Earnings Call Analysis 2023 Q4

Operational Performance

APA has consistently exceeded production guidance, driven by strong execution and well performance in the Permian. The company is seeing growth in Egypt, with gross oil volumes increasing by 4,000 barrels per day in Q3. In the North Sea, the company has suspended drilling activity and is now focused on safety, base production management, and asset maintenance.

Capital Allocation and Growth Plans

APA plans to maintain a similar upstream capital budget range of $2.0-$2.1 billion in 2024, with some changes in regional allocation. The company is targeting low-single-digit oil production growth in 2024, with increases in the Permian and Egypt offsetting declines in the North Sea. APA is opportunistically accelerating the completion of 8 Permian wells from January into December 2023 and adding a 6th rig in the Delaware Basin.

Exploration and New Ventures

In Suriname, APA and its partner TotalEnergies have announced plans to proceed with FEED work for a 200,000 barrels per day FPSO, targeting FID by the end of 2024. The company has a placeholder of $150 million for exploration activities in 2024, including seismic work in Suriname. APA is also exploring opportunities in Alaska, Uruguay, and the Dominican Republic as part of its diversified exploration portfolio.

Financial and Shareholder Returns

APA remains committed to returning at least 60% of its free cash flow to shareholders through dividends and share buybacks. The company’s balance sheet has improved, but it continues to recognize the need for further progress on debt reduction. The Cheniere gas sales contract is expected to contribute approximately $375 million in free cash flow in 2024.

Critical Analysis

The company’s statements about operational performance, growth plans, and financial discipline appear to be well-supported and aligned with its strategic priorities. Analyst questions focused on the company’s plans for the North Sea, Egypt, and exploration activities, suggesting these areas are of particular interest to investors. The company’s commitment to reducing emissions and its progress on methane reduction initiatives are positive for long-term sustainability.

Overall, APA appears to be executing well on its operational and financial objectives, while maintaining a diversified portfolio and a focus on exploration and new venture opportunities. The company’s transparency and responsiveness to analyst questions suggest a commitment to shareholder communication.

Earnings Call Analysis 2023 Q3

Egypt Oil Production Growth

APA has a strong outlook for continued oil production growth in Egypt, with confidence in delivering on their 5% increase in Q3 and reaching 154,000 barrels per day by Q4. The company highlighted a robust well inventory and improved drilling efficiencies supporting this growth trajectory.

Suriname Appraisal

APA is still in the early stages of appraising the significant oil discoveries in Suriname, with encouraging results from the Krabdagu-3 well. However, the company is taking a measured approach, stating more technical work is needed before making any declarations of commerciality or FID decisions.

Shareholder Returns

APA has been aggressive in returning capital to shareholders, exceeding their 60% free cash flow target in the first half of 2023. The company indicated they still have ample capacity to continue buybacks in the second half.

Cost Management

APA has been successful in reducing lease operating expenses and G&A costs, with $100 million in savings expected for the full year. This demonstrates strong operational discipline.

Permian Performance

APA continues to drive efficiency gains in the Permian, with longer laterals and optimized completion designs leading to improved well productivity. The company has a steady drilling program planned for the region.

North Sea Strategy

APA is taking a more cautious approach in the North Sea, focusing on safety, integrity and free cash flow management rather than growth. The company does not anticipate significant new investment in the region in the near-term.

Overall, APA appears to be executing well operationally, maintaining financial discipline, and allocating capital in a balanced manner between growth and shareholder returns. The Suriname appraisal remains a key long-term catalyst, but the company is taking a prudent approach as it evaluates the full resource potential.

Earnings Call Analysis 2023 Q2

Operational Flexibility and Responsiveness

APA has demonstrated the ability to quickly adjust its investment plans and production in response to commodity price volatility and changes in regulatory/tax regimes. The company is willing to reduce natural gas-directed activity and even curtail production when prices are weak, prioritizing cash flow and long-term returns over production growth.

Diversified Portfolio and Optionality

APA’s diversified portfolio of assets in the U.S., Egypt, and the UK provides the company with operational flexibility and the ability to shift capital allocation as needed. This diversification allows APA to navigate challenges in specific regions, such as the recent energy profits levy in the North Sea.

Egypt Receivables and Relationships

APA has a long history of operating in Egypt, spanning nearly 30 years, and maintains strong relationships with the government and EGPC. While the company has seen an increase in receivables from Egypt due to the recent currency devaluation, APA is confident in its ability to work through this issue and continue operations in the country.

Suriname Appraisal Progress

APA is making progress on the appraisal of the Krabdagu prospect in Suriname, with the first appraisal well results in line with expectations. The company is focused on understanding the scope and scale of the potential oil hub development, which incorporates both the Sapakara and Krabdagu discoveries.

Capital Discipline and Cost Management

APA has demonstrated capital discipline by reducing its 2023 capital budget in response to weaker natural gas prices, prioritizing returns over production growth. The company maintains a portfolio of contract structures for oilfield services, allowing it to manage costs and mitigate the impact of potential inflation.

Shareholder Returns

APA remains committed to returning a minimum of 60% of its free cash flow to shareholders through dividends and share repurchases, highlighting its focus on shareholder value creation.

Overall, the key insights suggest that APA is a well-managed, diversified E&P company that is responsive to market conditions and focused on generating long-term value for shareholders through disciplined capital allocation and operational execution.

Earnings Call Analysis 2023 Q1

Operational Efficiency and Execution

APA has made significant progress in improving operational efficiency and execution, particularly in Egypt. This has led to higher drilling success rates and production growth. The company is focused on continuous improvement across its operations.

Balanced Portfolio and Optionality

APA has a diverse portfolio that provides optionality to allocate capital to oil or natural gas projects in the Permian Basin. The company also has long-term gas transportation capacity that it utilizes to generate additional profits.

Suriname Exploration and Appraisal

APA and its partner are prioritizing the appraisal of the Krabdagu discovery in Suriname, with the goal of determining the scope and scale of a potential development. The company sees significant potential in the broader exploration program in Suriname.

Capital Allocation and Shareholder Returns

APA is committed to returning at least 60% of its free cash flow to shareholders through dividends and share buybacks. The company also remains focused on further reducing debt to achieve an investment-grade rating.

Cautious Approach to Natural Gas

Given the recent weakness in natural gas prices, APA is managing its portfolio for cash flow rather than production growth, with oil volumes being the primary driver of growth in 2023.

North Sea Tax Changes

The recent increase in the UK’s energy profits levy has made the North Sea less competitive within APA’s portfolio, leading the company to reduce investment in the region and release a drilling rig.

Overall, APA appears to be executing well on its long-term plan, focusing on returns-driven investment, balance sheet improvement, and shareholder returns, while also pursuing high-impact exploration opportunities in Suriname.

Earnings Call Analysis 2022 Q4

Production Growth Outlook

APA is targeting mid-single-digit year-over-year production growth in 2023, driven primarily by higher oil production across its assets in the Permian Basin, Egypt, and the North Sea. However, the North Sea assets may have more variable and lower production run times due to the age of the facilities.

Capital Discipline and Cost Inflation

APA plans to maintain capital discipline, with a 2023 capital budget of around $2.0-$2.1 billion. The majority of the expected inflation is associated with U.S. rig and frac costs as contracts are renewed at higher current rates, while international operations should see more muted inflationary pressures.

Free Cash Flow Growth

Assuming flat year-over-year oil and gas prices, APA expects its free cash flow to grow in 2023, excluding any uplift from the Cheniere gas supply contract. The Cheniere contract could provide an additional $570 million in free cash flow in 2023.

Shareholder Returns

APA remains committed to its 60% capital returns program, with plans to return at least $1.6 billion of 2022 free cash flow to shareholders through buybacks and dividends.

Suriname Exploration

APA is currently participating in the drilling of two wells in Suriname, a second appraisal well at Sapakara South and an exploration well at Aware. The results from these wells could help inform a potential FID in 2023.

North Sea Challenges

The North Sea assets have faced increased unplanned downtime and more variable production run times due to the age of the facilities. APA is providing a wider production guidance range to accommodate this uncertainty.

Egypt Operations

APA has made progress in addressing the operational challenges in Egypt, but some issues are still not fully resolved. The company expects production momentum to continue improving in the fourth quarter and into 2023.

Overall, APA appears to be navigating the current market environment well, with a focus on capital discipline, production growth, and shareholder returns. The company’s diversified asset base and ongoing exploration and development activities provide a constructive long-term outlook, though the North Sea operations remain a potential area of concern.

Earnings Call Analysis 2022 Q3

Operational Challenges in Egypt

APA is facing some short-term operational challenges in Egypt, including supply chain issues, equipment delays, and staffing challenges. This has led to delays in drilling and completing wells, resulting in a 7% reduction in Egypt production guidance for 2022. However, the company says well performance in Egypt has been in line with expectations.

Diversified Portfolio Resilience

Despite the challenges in Egypt, APA’s diversified portfolio of assets in the U.S., UK North Sea, and Suriname has allowed the company to generate record free cash flow of $814 million in Q2 2022, benefiting from rising oil and gas prices.

Disciplined Capital Allocation

APA remains committed to its capital returns framework, returning at least 60% of free cash flow to shareholders through dividends and share buybacks. The company has been opportunistic with debt reduction and strategic acquisitions, like the recent tuck-in deal in the Delaware Basin.

Suriname Exploration Upside

APA and its partners continue to make progress on exploration and appraisal activities in Suriname, with the successful flow test at the Krabdagu prospect. The company is evaluating development options that focus on lower GOR, black oil production initially.

Regulatory Headwinds

The new UK energy profits levy will reduce APA’s free cash flow outlook in the North Sea, though the company is evaluating the longer-term impacts on planned investments in the region.

Analyst Skepticism on Guidance

Analysts questioned APA’s ability to deliver on its previously provided 3-year production and capital guidance, given the operational challenges and revisions to 2022 outlook. The company maintained that it is still confident in the 3-year plan but acknowledged the need to work through near-term issues.

Overall, the key message is that APA remains focused on capital discipline, free cash flow generation, and shareholder returns, despite facing some operational hurdles in certain regions. The company’s diversified portfolio provides resilience, but it will need to effectively manage the challenges in Egypt to deliver on its long-term plan.

Earnings Call Analysis 2022 Q2

Commitment to shareholder returns

APA is committed to returning a minimum of 60% of its free cash flow to shareholders through dividends and share buybacks. This is an important part of their capital allocation framework.

Debt reduction and balance sheet strengthening

APA has made significant progress in reducing its outstanding debt by $3 billion since 2021. This has enabled them to initiate their capital return program. The company’s balance sheet is now much stronger.

Disciplined operational execution

APA is focused on safe, steady, and efficient operations across its global portfolio. They are not planning any material changes to their 3-year capital activity plan despite the higher commodity price environment.

Growth in Egypt

APA is rapidly increasing its rig count in Egypt (up to 15 rigs by mid-year) to drive 8-10% compounded annual gross oil production growth over the next 3 years. The recent PSC modernization has been a key enabler.

Cautious on increasing activity

APA is hesitant to significantly ramp up activity in the U.S. due to supply chain constraints and capital efficiency concerns. They are taking a measured approach.

Exploration potential in Suriname

APA and partner Total are making progress in appraising and exploring their large acreage position in Suriname, which they believe has significant potential to deliver a new source of lower carbon intensity oil production.

Cost inflation impacts

APA has embedded a good amount of cost inflation into its 2022 budget, but equity-linked compensation plans have resulted in higher-than-expected G&A expenses.

Overall, the key message is that APA is focused on capital discipline, balance sheet strengthening, and shareholder returns – a prudent approach for a long-term investor.

Earnings Call Analysis 2022 Q1

Strong free cash flow capacity

APA generated $1.8 billion in free cash flow in 2021, one of the highest in over a decade. This was driven by portfolio optimization, capital discipline, and cost reductions. The free cash flow capacity is still not fully appreciated by the market.

Balance sheet strengthening

APA reduced upstream net debt by $1.2 billion in 2021, faster than expected, putting it on a path towards investment-grade status.

Capital return framework

APA implemented a 60% free cash flow return framework, initially focused on share buybacks due to the stock’s discount to peers. Over time, the dividend component is expected to increase.

Egypt PSC modernization

The improved production sharing contract terms in Egypt return it to APA’s best long-term investment opportunity, incentivizing increased capital spending and production growth.

Permian portfolio optimization

APA continues to sell non-core Permian assets, including a $805 million minerals rights package in the Delaware Basin.

Suriname exploration progress

The Krabdagu discovery further derisks the play, with additional appraisal and flow testing planned to assess the resource potential and path to FID.

Inflationary pressures

APA is seeing rising costs across various inputs like labor, chemicals, fuel and steel, which are being factored into its 3-year outlook.

Analyst questions

Analyst questions imply focus on capital allocation, balance sheet, Suriname development plan, and North Sea production outlook – areas that long-term investors should monitor closely.

Earnings Call Analysis 2021 Q4

Balance Sheet Strength and Capital Allocation

APA has made significant progress in strengthening its balance sheet through debt reduction, and is now in a position to increase capital investment and shareholder returns. The company is committing to return a minimum of 60% of its free cash flow to shareholders through dividends and share buybacks, with a bias towards buybacks given the current low stock price. APA plans to gradually ramp up activity, primarily in Egypt and the onshore U.S., to sustain or slightly grow global production volumes.

Egypt Operations

APA expects the modernization of the production sharing contract (PSC) terms in Egypt to be approved by year-end, which would make Egypt the most attractive investment opportunity within the company’s portfolio. The company plans to increase its rig count in Egypt in anticipation of the improved PSC terms, potentially adding more rigs in 2022.

Suriname Exploration and Appraisal

APA’s partner Total is currently conducting flow tests and drilling new exploration wells in Block 58 offshore Suriname, which will help inform the next steps in the appraisal and exploration programs. The company is also finalizing plans for its next exploration well in Block 53, with drilling expected to commence in the first quarter of 2022.

ESG Initiatives

APA has eliminated all routine flaring in its U.S. operations, achieving this goal 3 months ahead of schedule. The company has also made progress on improving its global safety performance and advancing diversity and inclusion initiatives. APA is in the process of establishing short, medium, and long-term ESG goals, including further efforts on greenhouse gas and methane emissions.

Potential Headwinds

The company took a charge related to contingent liabilities associated with the Gulf of Mexico properties it sold to Fieldwood in 2013, which emerged from bankruptcy in August 2021. APA may face some inflationary pressures, particularly in areas like steel and labor costs, which it has factored into its capital budget.

Overall, the key insights suggest that APA is in a stronger financial position, with a focus on capital discipline, shareholder returns, and continued operational improvements, particularly in its core assets in Egypt and the Permian Basin. The company’s exploration and appraisal activities in Suriname also present potential upside, though the results remain uncertain.

Earnings Call Analysis 2021 Q3

Robust Free Cash Flow Outlook

APA expects to generate $1.6-$1.7 billion in annual upstream-only free cash flow over the next several years, based on its current portfolio and assuming flat commodity prices. This provides a strong foundation for debt reduction and potential future returns to investors.

Egypt Modernization

The pending modernization of APA’s production sharing contracts in Egypt is seen as a significant catalyst that will improve the attractiveness of that region for capital investment and production growth. However, the company was limited in providing specifics on the terms.

Suriname Appraisal

APA continues to make progress appraising its discoveries in Suriname, but management was cautious about providing resource estimates or timelines for potential development, noting the need for more data and analysis.

Disciplined Capital Allocation

APA is prioritizing debt reduction over increasing capital spending in the near-term, even as commodity prices have improved. The company indicated it would be prudent to eventually increase development capital to a sustaining level, but has not yet made a decision on adding a third rig.

Operational Performance

APA’s US assets, particularly in the Permian, have been outperforming expectations, offsetting some challenges in the international portfolio. The company continues to focus on emissions reduction and ESG initiatives.

Overall, the call highlighted APA’s financial strength, operational execution, and strategic priorities, while also demonstrating management’s disciplined approach to capital allocation and transparency with investors.

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The information provided on this blog is for informational purposes only and should not be considered as financial advice. You should consult with a qualified financial professional before making any investment decisions. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.