APA Corp. Keeps 2022 Capex Unchanged at $1.725bn

(APA Corporation, 3.Aug.2022) — APA Corporation (Nasdaq: APA) announced its financial and operational results for the second-quarter 2022. APA reported net income attributable to common stock of $926mn, or $2.71 per diluted share. When adjusted for items that impact the comparability of results, most notably a $129mn release of tax valuation allowance, APA’s second-quarter earnings were $811mn, or $2.37 per diluted share. Net cash provided by operating activities was $1.535bn, and adjusted EBITDAX was $1.957bn. The company generated $814mn in free cash flow during the quarter.

“APA delivered strong second-quarter results on a number of fronts. Our diversified, unhedged portfolio benefitted from high prices across all three product streams, and we managed our largest spending categories – capital investment, operating costs, and general & administrative – very well despite an overall challenging supply chain and cost environment,” said John J. Christmann IV, APA’s CEO and president.

Second-Quarter Summary

Second-quarter reported production was 385,000 BOE per day, and adjusted production, which excludes Egypt noncontrolling interest and tax barrels, was 305,000 BOE per day. APA’s second-quarter upstream capital investment was $428mn, slightly lower than anticipated.

In the U.S., the company added a third rig in the Permian Basin, which is now drilling at Alpine High. Internationally, the company increased gross oil production in Egypt by more than 7,000 BOE per day from the first quarter and achieved a 92% drilling success rate. In the North Sea, maintenance turnaround at the Forties Field was delivered safely and on-budget, and total depth was reached on the Garten-3 well at Beryl, which is expected to deliver a substantial volume increase in the second half of the year.

Two flow tests were completed offshore Suriname on the Krabdagu discovery well and further appraisal is being planned. Exploration prospects on Block 58 (Dikkop) and Block 53 (Baja) are currently being drilled, with results expected in the coming months.

Across the portfolio, the company has numerous projects underway to reduce emissions and deliver on aggressive near- and medium-term goals for emissions reductions. Excellent progress was achieved during the quarter on this front, particularly in Egypt where the completion of several projects put the company on track to achieve its 2022 goal of reducing upstream routine flaring in-country by more than 40% by yearend.

Also, during the quarter, the company entered into a transaction to acquire properties in the Texas Delaware Basin (primarily in Loving and Reeves counties) near existing operations. The acquired properties have a combination of producing wells, wells in the process of drilling and completion, and an inventory of undrilled locations. The acquisition also brings immediate access to a high-quality drilling rig and experienced crew for ongoing development. The company expects production will average 12,000 to 14,000 BOE per day for the remaining five months of the year. The purchase price was $505mn, and the transaction closed on July 29 for a total cost of $555mn, after including post-effective date adjustments to date.

Capital Return to Shareholders and Debt Reduction Progress

Under APA’s capital return framework, the company repurchased 7.0 million shares of common stock during the quarter at an average price of $41.59 per share. Subsequent to the quarter end, in July, APA repurchased 6.9 million shares at an average price of $33.87. Since the inception of its buyback program in October 2021 through the end of July 2022, APA has repurchased 52.3 million shares at an average price of $31.19 per share.

On June 30, 2022, net debt was $5bn, down from $6.7bn at year-end 2021. In July, the company accessed its revolving credit facility to execute the Texas Delaware Basin acquisition.

Capital and Production Guidance

APA’s full-year capital investment guidance, excluding acquisitions, is unchanged at $1.725bn. Lease Operating Expense has been increased $50mn to $1.470bn, which primarily reflects higher fuel costs throughout our operations.

The company is reducing its 2022 adjusted production guidance by approximately 2%, which reflects the net effect of several items, including: the impact of high oil prices on PSC volumes in Egypt, timing delays in the expected well completion schedule in Egypt and the Permian, mixed results from its Austin Chalk delineation program, minor divestitures, and the addition of five months of production from the Texas Delaware Basin acquisition.

Looking Ahead

Christmann concluded, “If recent strip prices hold, we expect to generate approximately $3 billion of free cash flow in 2022, and by yearend, at least $1.8 billion of this capital will be returned to shareholders through dividends and share buybacks. Through July, we have returned just under 50% of this amount.” “Looking to the back half of the year, our production will increase as the drilling program in Egypt reaches 15 rigs and efficiency levels improve, the rate of well completions increases in the Permian Basin, summer maintenance turnarounds conclude, and the Garten-3 well commences production in the North Sea.”

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