APA Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. APA is an independent oil and gas exploration and production company operating in the U.S., Egypt, and the North Sea, with exploration activity in Suriname and interests elsewhere. Amounts below are U.S. dollars unless stated otherwise.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Total revenues | $1.951 billion | $2.008 billion |
| Net income attributable to common stock | $132 million; $0.44 diluted EPS | $242 million; $0.78 diluted EPS |
| Net income including noncontrolling interests | $212 million | $326 million |
| Net cash provided by operating activities | $368 million | $335 million |
| Capital additions to upstream oil and gas property | $467 million | $543 million |
| Cash and cash equivalents, period end | $102 million | $87 million at Dec. 31, 2023 |
| Total debt, period end | $5.180 billion | $5.188 billion at Dec. 31, 2023 |
| Total equity, period end | $3.653 billion | $3.691 billion at Dec. 31, 2023 |
Operating expenses rose to $1.456 billion from $1.220 billion, and pretax income declined to $447 million from $810 million. The filing does not provide a single consolidated operating-margin measure. Cash from operations increased 10%, which management attributed primarily to working-capital timing. Investing activities used $88 million, including $467 million of upstream property additions and $63 million of acquisitions, partly offset by $428 million from the Kinetik share sale. Financing activities used $265 million, including $101 million of net treasury-stock purchases and $76 million of dividends.
At March 31, committed borrowing capacity under syndicated credit facilities was $2.884 billion. APA reported $30 million borrowed under its U.S.-dollar facility, $340 million of commercial paper outstanding, and £348 million of letters of credit under the sterling facility. Total debt includes notes and debentures, borrowings, and finance leases.
Material changes versus Q1 2023
- Common-stock net income fell 45%, mainly reflecting higher DD&A, exploration expense and Gulf of Mexico decommissioning losses, partly offset by lower deferred tax expense.
- Production revenue decreased 1% to $1.748 billion. Oil revenue increased 3% to $1.432 billion, while natural-gas revenue fell 27% to $176 million; NGL revenue rose to $140 million.
- Worldwide average production declined 1% to 389,157 boe/d. U.S. production increased 6% to 214,050 boe/d; Egypt declined 8% to 135,140 boe/d; and North Sea declined 12% to 39,967 boe/d.
- Average realized oil and NGL prices increased 3% and 5%, respectively; the average realized natural-gas price decreased 23% to $2.47/Mcf. Gas revenue was also affected by 6% lower production.
- Exploration expense increased to $148 million from $52 million, including $123 million of dry-hole expense versus $30 million. APA said two Alaska wells did not reach target objectives within the available seasonal window.
- DD&A rose $98 million to $430 million. General and administrative expense increased $28 million, and transaction, reorganization and separation costs increased to $27 million from $4 million.
Outlook, transactions, risks and unusual items
- Callon acquisition: After quarter-end, on April 1, APA completed its all-stock acquisition of Callon, valued at approximately $4.5 billion including Callon debt. APA issued approximately 70 million shares. Callon added about 120,000 net acres in the Delaware Basin and 25,000 net acres in the Midland Basin. The acquisition is not reflected in Q1 operating results or March 31 debt.
- Post-quarter financing: On April 1, APA borrowed $1.5 billion under a three-year term loan and used it, together with other borrowings, to refinance Callon debt and pay related costs. APA also repaid Callon’s credit facility and 2026 notes and tendered $1.2 billion principal amount of its 2028 and 2030 notes. Investors should distinguish these subsequent events from the March 31 balance sheet.
- Capital program and returns: Following the acquisition, APA estimated full-year 2024 upstream capital investment of approximately $2.7 billion. Management maintains a framework targeting shareholder returns equal to 60% of cash flow over capital investment, including a quarterly dividend of $0.25 per share. The company repurchased 3.0 million shares for $101 million in Q1; remaining authorization was 40.9 million shares.
- Operations: APA expects to average 10 U.S. drilling rigs for the remainder of 2024 as it integrates Callon. In the North Sea, new drilling remained suspended; investment is focused on safety, base production, maintenance and asset integrity. The filing says APA expects an additional $90 million of Callon-related transaction costs, mostly in Q2.
- Gulf of Mexico decommissioning: APA recorded a $66 million Q1 loss related to previously sold properties. The estimated contingent liability was $847 million at March 31, versus $824 million at year-end, and the related recorded reimbursement asset was $186 million. Sureties have refused certain bond draws, and APA is pursuing claims against them. Further orders or demands to decommission legacy assets could affect costs and liquidity.
- Other risks: APA cited commodity-price volatility, geopolitical and supply-demand uncertainty, inflation, and regulatory and environmental risks. Egypt’s currency shortage has delayed EGPC payments; APA expects collection but warns that delays, deferrals or non-payment could worsen. Management considers available liquidity and funding alternatives adequate for operations and planned uses.
- Contingencies: APA accrued approximately $84 million for probable and estimable legal contingencies and reported an approximately $5 million environmental remediation reserve. Management said pending legal matters are not expected to materially affect financial position, results or liquidity after recorded accruals, while noting that some exposures are not currently determinable.
Investor verification priorities
- Review post-acquisition debt, borrowing costs and leverage in subsequent filings; Q1 debt figures predate the Callon closing and refinancing.
- Track Callon integration, realization and timing of expected synergies, the $2.7 billion capital estimate, and the additional $90 million of transaction costs.
- Monitor legacy Gulf of Mexico decommissioning orders, changes in the $847 million contingency, and recovery of the $186 million security asset.
- Assess the collectability and timing of EGPC receivables and the effect of Egypt’s U.S.-dollar shortage.
- Evaluate production trends and realized prices, especially North Sea decline, Egypt gas production, and U.S. natural-gas basis exposure.
- Consider the sustainability of shareholder returns alongside capital spending, debt reduction and volatile operating cash flows.