APA Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. APA is an independent oil and gas exploration and production company operating in the U.S., Egypt, and the North Sea, with exploration and appraisal activity in Suriname. Figures below are in U.S. dollars unless noted.
Financial and operating results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $2.308B | $2.887B | $6.112B | $8.603B |
| Net income attributable to common stock | $459M | $422M | $1.082B | $3.231B |
| Diluted EPS | $1.49 | $1.28 | $3.50 | $9.51 |
| Operating cash flow | Not separately stated for quarter | Not separately stated for quarter | $2.099B | $3.530B |
| Capital additions to upstream oil and gas property | Not separately stated for quarter | Not separately stated for quarter | $1.747B | $1.168B |
| Total debt at period end | September 30, 2023: $5.584B | December 31, 2022: $5.453B |
Q3 production revenue was $2.079B, compared with $2.302B a year earlier. Worldwide production averaged 412,252 boe/d, up 8%; oil production rose 16%, while natural gas production fell 1%. Q3 realized prices declined year over year: oil 12% to $86.15/bbl, gas 44% to $3.12/Mcf, and NGLs 33% to $22.26/bbl.
At September 30, cash was $95M, current assets were $2.800B and current liabilities were $2.635B. APA reported $2.164B of available committed borrowing capacity. Total equity was $2.107B. Nine-month cash flow from operations declined 41% year over year; cash and cash equivalents fell $150M from year-end 2022.
Changes versus the prior comparable periods
- Q3 common-stock net income increased to $459M from $422M, despite lower revenue. The filing attributes the comparison in part to higher deferred tax expense in Q3 2022 related to U.K. tax changes.
- Nine-month common-stock net income fell to $1.082B from $3.231B, principally reflecting lower realized commodity prices and the absence of approximately $1.2B in 2022 transaction gains from divestitures and the Kinetik combination.
- Nine-month oil and gas production revenue decreased 23%; lower realized prices outweighed higher oil production. Operating cash flow declined by $1.431B.
- Capital investment increased: nine-month upstream property additions were $1.747B versus $1.168B. Debt rose by $131M from December 31, 2022, while total equity increased by $762M.
Outlook, management commentary and material risks
- Management expected full-year 2023 upstream capital investment of approximately $2B. Its stated priorities include long-term returns over production growth, conservative budgeting, debt reduction, and shareholder returns. The company’s framework targets returning 60% of cash flow over capital investment to equity holders.
- After deferring Alpine High drilling and completion activity amid weak Waha gas and NGL prices, APA planned to accelerate completion of eight Permian wells and add a Delaware Basin drilling rig in Q4. It suspended new North Sea drilling in Q2, citing rising costs and tax burdens; activity there is focused on safety, base production, maintenance, and asset integrity.
- APA and TotalEnergies began development studies for Suriname Block 58. The company cited estimated combined recoverable resources of 700 million barrels for the Sapakara South and Krabdagu fields; engineering studies were expected to start by year-end 2023, a final investment decision was expected by year-end 2024, and first production was targeted for 2028. No further Block 58 drilling was anticipated through the end of 2024.
- Egyptian General Petroleum Corporation payment delays have lengthened amid Egypt’s U.S.-dollar shortage. APA continued to receive periodic payments and expected collection, but disclosed risk of further delays, deferrals, or non-payment.
- Potential decommissioning obligations on previously sold Gulf of Mexico properties remain a significant contingency. APA recorded a $695M liability within an estimated undiscounted exposure range of $695M–$895M, and a $411M asset for expected recovery from trust funds, bonds, and letters of credit. The company had incurred $692M of related costs; the former operator would not reimburse it. APA also agreed to provide a standby loan of up to $400M after specified security sources are exhausted. Insurers are litigating over the security, and the court denied their request for a temporary injunction.
- Other disclosed exposures include legal proceedings, environmental enforcement matters, volatile commodity prices, production and reserve risks, inflation, interest rates, geopolitical events, and regulatory and climate-related changes. APA recorded $49M for probable and estimable legal contingencies and an undiscounted $5M environmental remediation reserve. The filing reported no material change to annual-report risk factors.
- APA had a full valuation allowance against U.S. net deferred tax assets but said a significant release could become supportable within 12 months; any resulting tax benefit could be material. The filing also noted a $174M deferred tax expense recorded in Q1 2023 following the U.K. energy profits levy increase.
Investor verification points
- Track commodity prices, production volumes, and cash generation against the approximately $2B 2023 upstream investment plan.
- Monitor Egyptian receivable collection timing and any deterioration in payment or currency access.
- Review Gulf of Mexico decommissioning costs, recoverability of the $411M security asset, litigation outcomes, and whether exposure exceeds the $695M accrual.
- Verify Suriname study, investment-decision, and production milestones, alongside the planned pause in further Block 58 drilling.
- Assess debt, credit-facility usage, and shareholder distributions: nine-month dividends were $232M and share repurchases were $208M; the company repurchased 5.5 million shares during the period.