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APA Corporation: Navigating Volatility with Operational Excellence and Strategic Acquisitions
Published on September 24, 2024 | Ticker: APA

APA Corporation (NASDAQ: APA) has demonstrated its resilience and adaptability in the face of a dynamic energy landscape, delivering strong financial and operational performance in 2023 and positioning itself for continued success in the years ahead.

Financials

In the fiscal year 2023, APA reported annual net income of $2.855 billion, annual revenue of $8.279 billion, annual operating cash flow of $3.129 billion, and annual free cash flow of $772 million. These robust financial results underscore the company's ability to navigate market volatility and capitalize on opportunities to drive shareholder value.

During the first quarter of 2024, APA reported net income of $132 million, or $0.44 per diluted share. This performance included several notable items, including a $52 million after-tax addition to the provision for costs associated with Gulf of Mexico abandonment liabilities, as well as significant exploration dry hole expenses totaling $88 million after-tax, or $0.29 per share, related to the company's Alaska and Suriname operations.

Excluding these items, APA's adjusted net income for the first quarter of 2024 was $237 million, or $0.78 per share. The company's strong operational execution, coupled with its disciplined capital allocation strategy, has enabled it to deliver consistent financial results and return significant capital to shareholders.

Business Overview

APA's diverse asset portfolio, with operations in the United States, Egypt, and the North Sea, has provided the company with a well-balanced approach to managing risk and capitalizing on opportunities across different geographies. In the United States, the company's Permian Basin assets have been a standout performer, with first-quarter 2024 oil production increasing 16% compared to the same period in 2023.

In Egypt, APA's operations have faced some challenges, with adjusted production volumes in the first quarter of 2024 falling slightly short of guidance due to the impact of higher-than-planned oil prices on the production sharing contract (PSC). The company is actively working to rebalance its drilling and workover rig activities to optimize capital efficiency and address the backlog of wells awaiting workover.

In the North Sea, APA's production was impacted by a decrease in average facility run time during the first quarter of 2024. The company's late-life asset management strategy in this region continues to require careful attention to operational details and maintenance activities.

Recent Developments

Looking ahead, APA's strategic acquisition of Callon Petroleum Company, which closed on April 1, 2024, has significantly bolstered the company's Permian Basin footprint and production profile. The combined entity now has approximately 120,000 net acres in the Delaware Basin and 25,000 net acres in the Midland Basin, representing a 45% increase in Permian acreage and a 65% increase in Permian oil production.

APA has wasted no time in integrating the Callon assets and realizing synergies. The company has already increased its estimate of annual cost synergies from the original $150 million to $225 million, with the majority of these savings expected to be captured by the end of 2024. The operational synergies, which have been revised upward from $55 million to $115 million annually, are expected to be the most impactful, as APA applies its expertise and workflows to optimize well spacing, landing zones, and fracture stimulation designs on the Callon acreage.

Outlook

The company's commitment to shareholder returns remains steadfast, with plans to continue returning a minimum of 60% of free cash flow through dividends and share repurchases. APA has also identified non-core asset sales as a source of funding for debt reduction, as the company works to strengthen its balance sheet and regain its investment-grade credit rating.

Conclusion

APA's disciplined approach to capital allocation, coupled with its operational excellence and strategic vision, positions the company well to navigate the challenges and capitalize on the opportunities that lie ahead in the dynamic energy industry. With a diversified asset base, a strengthened Permian position, and a relentless focus on cost optimization and shareholder returns, APA is poised to deliver sustainable value for its stakeholders in the years to come.

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