APA Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. 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. Amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenues | $2.008 billion | $2.669 billion |
| Net income attributable to common stock | $242 million | $1.883 billion |
| Diluted earnings per share | $0.78 | $5.43 |
| Cash from operating activities | $335 million | $891 million |
| Capital additions to upstream oil and gas properties | $543 million | $358 million |
| Cash and cash equivalents at period end | $154 million | $245 million at Dec. 31, 2022 |
| Total debt | $5.798 billion | $5.453 billion at Dec. 31, 2022 |
| Total equity | $1.433 billion | $1.345 billion at Dec. 31, 2022 |
| Available committed borrowing capacity | $1.919 billion | $2.238 billion at Dec. 31, 2022 |
Operating cash flow less upstream property additions was negative $208 million in Q1 2023. Cash declined by $91 million during the quarter. Current assets were $2.732 billion and current liabilities were $2.454 billion.
Net income before tax was $810 million, versus $2.298 billion a year earlier. The filing does not provide a single consolidated operating-margin figure. Reported operating expenses totaled $1.220 billion. Financing costs, net, were $72 million, including a $9 million gain on debt extinguishment.
Operating trends and changes versus prior period
- Production revenues fell 24% to $1.769 billion. Realized prices declined across products: oil averaged $78.37/bbl, down 22%; natural gas averaged $3.22/Mcf, down 31%; and NGLs averaged $24.84/bbl, down 35%.
- Worldwide production averaged 394,249 boe/d, down 2%. Oil production rose 4%, while natural gas volumes fell 7% and NGL volumes fell 10%.
- Cash from operations declined 62%, driven by lower commodity prices and revenue and the timing of working capital items.
- Common-stock net income and EPS were substantially below Q1 2022, which included approximately $1.2 billion in gains from the Delaware Basin mineral-rights sale and the BCP Business Combination. Lower realized commodity prices also reduced Q1 2023 results.
- Operating expenses decreased to $1.220 billion from $1.530 billion. Lower purchased-oil-and-gas costs, G&A, and financing costs were partly offset by higher DD&A and exploration expense.
Outlook, risks, contingencies, and unusual items
- Management expects 2023 upstream capital investment of approximately $2.0 billion; it said reduced Alpine High activity in response to weak Waha gas prices would lower planned investment by about $100 million, to approximately $1.9–$2.0 billion. Management does not expect this reduction to materially affect 2023 U.S. production guidance.
- Management’s capital-return framework targets returning 60% of cash flow over capital investment to equity holders, while also pursuing balance-sheet strengthening. The quarterly dividend was $0.25 per share; APA repurchased 3.7 million shares for $142 million in Q1 and had authorization for up to 49 million additional shares at March 31.
- A major exposure is decommissioning of sold Gulf of Mexico assets following Fieldwood/GOM Shelf’s inability to fund certain obligations. APA recorded a $1.1 billion contingent liability; estimated remaining potential liability is $1.1–$1.3 billion undiscounted. It also recorded $582 million of expected reimbursement security. APA may have to use cash if available security and asset cash flows are insufficient; a standby loan commitment of up to $400 million may apply after other sources are exhausted.
- Q1 income tax included a $174 million deferred tax expense from U.K. tax-law changes that raised the Energy Profits Levy rate from 25% to 35% through March 2028. APA maintains a full valuation allowance on U.S. net deferred tax assets, but says a material release may become possible within 12 months if evidence supports it.
- Commodity-price volatility, production and reserve performance, inflation, geopolitical and regulatory developments, and access to capital are key risks. APA reported a net liability fair value of $11 million for open natural-gas derivatives. A 10% gas-price increase would produce a $23 million net derivative liability; a 10% decrease would produce a $1 million net derivative asset under the stated assumptions.
- Legal matters include Louisiana restoration and climate-related litigation, shareholder and derivative suits, and a newly filed New Mexico purported class action concerning late oil and gas payments. The company accrued approximately $64 million for probable, estimable legal contingencies; it says the Kulp Minerals claim amount is not reasonably determinable.
- Management stated disclosure controls were effective and there were no material changes in internal control over financial reporting during the quarter. No material changes to the annual-report risk factors were disclosed.
Important facts for investors to verify
- Whether commodity prices, realized pricing, and production trends support the stated 2023 production outlook and capital budget.
- How much of the Gulf of Mexico decommissioning exposure is ultimately funded by security, asset cash flows, or APA, and whether the $1.1–$1.3 billion estimate changes.
- Debt, revolver borrowings, and remaining liquidity: debt was $5.798 billion and USD facility borrowings were $983 million at March 31, 2023.
- Whether working-capital movements and lower prices continue to pressure operating cash flow relative to investment and shareholder returns.
- The timing and potential financial effect of any U.S. deferred-tax valuation-allowance release, and developments in significant litigation and regulatory proceedings.