APA Corp (APA) Q1 2025 Earnings Call Highlights: Strong Financial Performance and Strategic ...

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Fri, May 9, 2025, 1:34 AM 4 min read

Net Income: $347 million or $0.96 per diluted share.
Adjusted Net Income: $385 million or $1.06 per share.
Free Cash Flow: $126 million in the first quarter.
Gas Production in Egypt: Average realized gas price of $3.19, exceeding guidance of $3.15.
Capital Investment: First quarter upstream capital below guidance.
Cost Savings: $800,000 in cost savings per well in the Permian.
Asset Sale: New Mexico Permian properties sold for $608 million.
Debt Reduction: Proceeds from asset sale to be allocated towards debt reduction.
Gas Marketing Income: Updated guidance to $575 million for 2025.

Warning! GuruFocus has detected 2 Warning Sign with APA.

Release Date: May 08, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

APA Corp (NASDAQ:APA) delivered strong first quarter results with production in line and lower capital investment relative to guidance.
Significant improvements in drilling performance led to capital coming in below guidance, particularly in the Permian.
In Egypt, gas production exceeded guidance due to outperformance from recent development programs and optimized infrastructure.
The company announced a second discovery, Sockeye-2, in the Brookian play, indicating promising exploration potential.
APA Corp (NASDAQ:APA) is making substantial progress on cost reduction initiatives, increasing 2025 savings targets to $130 million and annualized run rate savings to $225 million.

Negative Points

The company is experiencing upward pressure on certain operating costs in the Permian, such as water handling and compression.
Despite progress, achieving meaningful LOE savings is proving challenging due to inflationary pressures in areas like compression and water disposal.
The asset sale of New Mexico Permian properties, while strategic, represents a full exit from New Mexico, potentially limiting future opportunities in that region.
There is a need for extended execution time frames to achieve substantial long-term cost reductions in certain areas.
The company faces volatility in Waha pricing, impacting the economic viability of drilling in Alpine High.

Q & A Highlights

Q: Given the significant cost savings achieved this year, is there potential for the $350 million run rate savings target by year-end 2027 to be increased? A: John Christmann, CEO, stated that while they are ahead of schedule with $225 million in run rate savings, they plan to keep the $350 million target intact for now. However, he anticipates that this number may be raised in the future as they continue to make progress.

Q: In the Permian, can you provide more details on the reduction from 8 rigs to 6 rigs and its impact on production? A: John Christmann, CEO, explained that they believe they can maintain production levels of 125,000 to 127,000 barrels per day with 6 rigs due to increased efficiencies. They are confident this can be sustained well into 2026.

Q: Can you provide insights into the Alaska exploration and potential resource size? A: John Christmann, CEO, and Tracey Henderson, EVP of Exploration, highlighted the high-quality reservoir sands discovered, which are better than expected. They are focusing on reprocessing seismic data and developing an appraisal strategy, with no immediate plans for significant capital expenditure.

Q: What motivated the sale of the New Mexico Permian properties, and how does it relate to the rest of the portfolio? A: John Christmann, CEO, noted that the New Mexico assets were a small part of their portfolio and did not compete with core assets for capital. The sale was opportunistic, allowing them to focus on the Texas side of the basin and use proceeds for debt reduction.

Q: How are you addressing inflationary pressures on LOE, particularly in compression and water disposal? A: Stephen Riney, CFO, mentioned that while progress on LOE savings is slower than expected, they are exploring various options, including commercial negotiations and optimizing operating practices. They anticipate more meaningful progress later this year and into 2026.

Q: How does the current oil price environment affect your buyback strategy? A: Ben Rodgers, SVP of Finance and Treasurer, stated that while they have a 60% return to shareholders framework, they will remain opportunistic with buybacks, especially given the asset sale proceeds and zero revolver balance.

Q: What is the breakeven oil price for covering CapEx and dividends with free cash flow? A: John Christmann, CEO, indicated that with the planned cost savings, they can fund their programs and pay dividends at $50 WTI, assuming reasonable marketing assumptions.

Q: Can you elaborate on the transition to denser well spacing in the Permian? A: John Christmann, CEO, explained that a significant portion of their program now involves tighter spacing and smaller fracs, driven by pre-purchased materials and slimmer casing, leading to improved results.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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