APA (APA) 7 Nov 24 2024 Q3 Earnings call transcript

APA Corporation's third quarter 2024 financial and operational results conference call highlighted the company's strategic accomplishments, key operational areas, and future outlook. The call, led by CEO John Christmann, featured discussions on the company's performance in the U.S., Egypt, and Suriname, as well as its capital production and cost outlook for 2025.

Strategic Accomplishments and Transformative Changes

APA Corporation has been on a transformative journey over the past several years, with strategic initiatives aimed at enhancing its portfolio and creating shareholder value. In the U.S., the company has executed more than $5 billion in acquisitions and over $2.5 billion in divestitures, resulting in a unconventional pure play Permian operation. These actions have increased unconventional acreage by over 40%, doubled unconventional production, and extended inventory duration.

In Egypt, the company has modernized and extended PSC terms, paving the way for more efficient capital allocation, operational flexibility, and greater free cash flow generation. Additionally, APA has reached an agreement to increase the contractual price for incremental natural gas production, making gas exploration and development more economically competitive with oil development.

APA's Strategic Efforts Bear Fruit in Suriname

The recent announcement of the GranMorgu project's final investment decision (FID) in Suriname marks the culmination of strategic efforts that began over a decade ago. This project promises strong future oil production growth at the most attractive economics in APA's entire portfolio. The company expects to fund the development capital out of operating cash flow for the next few years, maintaining its current capital returns framework.

Third Quarter Results and Financial Performance

APA's third quarter results were strong across the board, with production exceeding guidance while capital and costs were below. Cash flow from operations and free cash flow increased compared to the second quarter, despite lower WTI oil prices and significantly lower Waha gas prices. The company's resilience can be attributed to unique attributes of the APA portfolio and recent initiatives, including successful integration of Callon and associated cost synergy capture, cash flow resilience to lower prices in Egypt under the PSC structure, and near-term organic oil production growth.

Looking Forward: Capital Production and Cost Outlook for 2025

For 2025, APA expects to run an 8-rig program in the Permian Basin and a 12-rig program in Egypt, with a 2.2 billion to 2.3 billion capital budget. The company also plans to have a very limited capital program in the North Sea, focusing on maintaining asset safety and integrity and a small amount of initial P&A work. APA's 2025 capital budget should broadly sustain production volumes in the Permian and Egypt on an adjusted BOE basis, while North Sea production will be down approximately 20% year-over-year.

Challenges and Opportunities in Egypt

APA's operations in Egypt are running to plan, with gross oil production tracking accordingly. The company's focus on improving operational efficiency and reducing drilling program has enabled the workover rig fleet to reduce backlog oil volumes associated with delayed recompletions and workovers to more normalized levels. APA's recent agreement to increase the contractual price for incremental natural gas production in Egypt has created opportunities for gas exploration and development, which could benefit both APA and the Egyptian people.

Conclusion

APA Corporation's third quarter 2024 financial and operational results conference call provided insights into the company's strategic accomplishments, key operational areas, and future outlook. With a focus on enhancing its portfolio and creating shareholder value, APA is well-positioned to navigate the challenges and opportunities ahead. The company's successful integration of Callon, strategic initiatives in Egypt and Suriname, and operational excellence demonstrate its commitment to delivering strong financial performance and sustainable growth.