Apa’s Q4 Earnings Call: Permian LOE Cuts, Egypt Gas Outlook, and 2026 Exploration Plans Clash

Date of Call: Feb 26, 2026

Financials Results

• EPS: $0.79 per diluted common share under GAAP, $0.91 per diluted share adjusted

Guidance:

• U.S. Permian development capital around $1.2B; total Permian capital approximately $1.3B for 2026.
• Egypt development capital ~$500M; BOE production expected to grow slightly, with gross oil declining slightly and gross gas growing.
• Suriname Grand Morgue development capital ~$230M.
• Exploration capital ~$70M.
• Total portfolio spend $2.1B, roughly 10% lower than 2025.
• Permian oil production expected relatively flat year-over-year at 120k-122k BOE/day.
• LOE expected slightly above 2025 levels.
• Controllable spend to decline by ~$200M in 2026, targeting a $450M run rate by year-end.
• Decommissioning net spend ~$225M in 2026.
• Oil and gas trading expected ~$650M pre-tax income in 2026.

Business Commentary:

Cost Reduction and Savings:

• APA Corporation achieved over $300 million in savings in 2025, exiting the year with a $350 million run rate reduction in controllable spend, two years ahead of schedule.
• The reduction was driven by operational excellence, portfolio high-grading, and improved cost structures, enabling more competitive capital efficiency.

Permian Basin Inventory and Production:

• The company's Permian economic inventory consists of 1,700 locations with a 10% rate of return, supported by improved drilling and completion costs averaging $595 per foot in the Midland Basin and $750 per foot in the Delaware Basin.
• These improvements were achieved through enhanced operational efficiency, better well spacing, and significant cost reductions, allowing for increased production sustainability.

Egypt's Gas Strategy and Exploration:

• APA's focus on gas in Egypt led to a significant increase in gross gas volumes, with plans to grow BOE production slightly in 2026 despite a slight decline in gross oil production.
• The shift is supported by a new gas pricing framework and successful exploration efforts, positioning Egypt as a key asset for future growth.

Free Cash Flow and Shareholder Returns:

• The company generated more than $1 billion in free cash flow in 2025, returning approximately $640 million to shareholders.
• Strong operational performance and cost savings were crucial in enhancing free cash flow, allowing for substantial shareholder returns while maintaining balance sheet strength.

Sentiment Analysis:

Overall Tone: Positive

• Management described 2025 as 'a highly successful year' with 'more than $1 billion in free cash flow generation' and 'significant progress' on cost reduction, exceeding targets early. They expressed confidence in sustaining oil production for at least the next 10 years and having a 'long runway of inventory.' The tone was optimistic regarding operational momentum, cost leadership, and future growth from exploration and new projects.

Q&A:

• Question from Doug Leggett (Wolfe Research): Can you offer color on the $100 million Permian LOE investment spend and its impact? Also, what does the exploration program look like in Alaska, Suriname, and Egypt?
  Response: The $100M invests in projects to structurally reduce LOE (expecting a $3M-$3.5M monthly run rate reduction by year-end 2026) and improve facility reliability. Exploration spend is $70M: $20M for Alaska prep, $50M for Suriname (including a late-2026 well in Block 58), and Egypt is also active with new gas exploration inventory being built.

• Question from John Freeman (Raymond James): What drove the huge beat in U.S. oil volumes in Q4?
  Response: Attributed roughly one-third each to virtually no weather downtime, improved well cleanup (TILs), and underlying operational run time improvements.

• Question from Bob Brackett (Bernstein Research): Could you talk about inventory sensitivity and potential upside?
  Response: Economic inventory is conservative at 1,700 gross locations (10%+ rate of return, high confidence). Technical upside is large (~1,700 locations), with 40-50% in shallow Delaware Basin (e.g., First Bone Spring). Appraisal tests this year could move significant technical upside into economic inventory.

• Question from Michael Ciala (Stevens): Could the Bone Spring test replace a year's worth of drilling inventory? Is the $230M for Suriname strictly FPSO or does it include development drilling?
  Response: Yes, the four-well Bone Spring test could move a year's worth of inventory from technical to economic. The $230M for Suriname includes the entire Grand Morgue project (FPSO, umbilicals, development drilling), with drilling to start late 2026/early 2027.

• Question from Josh Silverstein (UBS): How will BFC trading income trend in 2027 with new Permian pipeline capacity coming online? Is the 60% free cash flow return target flexible until the $3B net debt target is met?
  Response: Trading income will decline in 2027 based on strip prices but remains positive through 2028. The 60% return target is considered prudent and competitive, factoring in exploration investment and balance sheet management, with flexibility to reach the $3B debt target in a few years.

Contradiction Point 1

Nature and Impact of the $100 million Permian LOE Capital Spend

Contradiction on whether the spend is for base projects to structurally reduce LOE or for facility reliability and moving inventory.

Doug Leggett (Wolfe Research) - Doug Leggett (Wolfe Research)

2025Q4: The $100 million LOE investment in the Permian aims to reduce LOE by $3-3.5 million per month by 2026 exit, improve facility reliability to enhance uptime, and potentially move some high LOE inventory into economic inventory. - [Steve Riney](President)

Can you provide details on the $100 million Permian LOE capital spend's nature and payback, as well as the 2026 exploration program in Alaska, Suriname, and Egypt, including comments on Alaska's prospectivity? - Douglas George Blyth Leggate (Wolfe Research)

2025Q4: The $100 million is for base capital projects (compression, facilities consolidation, artificial lift) designed to structurally reduce LOE. It is expected to lower monthly LOE by $3.5–$3.5 million by the end of 2026, translating to $40–$50 million in annualized savings, aligning with a 1–2 year payback. - [Ben Rodgers](CFO)

Contradiction Point 2

Breakdown of 2026 Permian Completions and D&C Costs

Contradiction on providing a public breakdown of completions between Midland and Delaware Basins.

John Freeman (Raymond James) - John Freeman (Raymond James)

2025Q4: While not providing a public breakdown, drilling and completion (D&C) costs per foot ended 2025 below $500 in the Midland Basin and below $700 in the Delaware Basin. - [Steve Riney](President)

Can you quantify the factors behind the Q4 2025 U.S. oil production beat (improved run time, incremental completions, moderate weather) and provide a rough breakdown of the 130 2026 Permian completions and associated D&C per foot costs? - John Freeman (Raymond James)

2025Q4: A detailed breakdown of completions and costs by basin was not provided on the call. - [John Christmann](CEO) & [Stephen Riney](President)

Contradiction Point 3

Allocation of 2026 Capital Between Exploration and Development

Different statements on the scale and focus of 2026 exploration spending.

Doug Leggett (Wolfe Research), what are your key takeaways from today's earnings call? - Doug Leggett (Wolfe Research)

2025Q4: The $70 million 2026 exploration budget includes... ~$50 million for Suriname... and several key wells planned. - [John Christman](CEO)

Can you provide details on the $100 million Permian LOE capital spend, including its nature and payback, as well as the 2026 exploration program in Alaska, Suriname, and Egypt, particularly the prospectivity in Alaska? - John Freeman (Raymond James)

2025Q3: 2026 is expected to be a light year for exploration. Potential activities include... and some Suriname exploration wells in late 2026. The main exploration focus is likely in 2027. - [John Christman](CEO)

Contradiction Point 4

Production Outlook and Strategy for Egypt's Gas Program

Contradiction on the expected growth trajectory for Egypt's gas volumes.

Leo Mariani (Roth) - Leo Mariani (Roth)

2025Q4: Egypt gross oil production is expected to decline slightly in 2026 due to a shift in drilling activity towards gas. - [John Christman](CEO)

Is the 10% rate of return for Permian economic inventory a field-level, pre-tax return that includes full field costs but not corporate burden, and can you quantify the expected decline in Egypt gross oil production for 2026? - Scott Hanold (RBC Capital Markets)

2025Q3: The company plans to grow gas volumes year-over-year in 2026. Long-term growth will be dictated by the exploration program... There is significant potential... - [John Christman](CEO)

Contradiction Point 5

Permian Inventory Visibility and Capital Requirements

Contradiction on providing specific details about Permian inventory and the associated capital spend.

Doug Leggett (Wolfe Research) - Doug Leggett (Wolfe Research)

2025Q4: The $70 million 2026 exploration budget... The $100 million LOE investment in the Permian aims to reduce LOE... The economic inventory (1,700 locations)... The technical upside inventory (another ~1,700 locations)... - John Christman, Steve Riney, Tracy (last name unknown)

Can you provide details on the $100 million Permian LOE capital spend, including its nature and payback, as well as the 2026 exploration program across Alaska, Suriname, and Egypt, particularly the prospectivity in Alaska? - Douglas George Blyth Leggate (Wolfe Research)

2025Q2: The team is continuously improving capital efficiency in the Permian... The existing portfolio will remain for a long time. - [John Christmann](CEO)