APA Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. APA is an independent oil and gas exploration and production company, with producing operations in the United States, Egypt, and the U.K. North Sea, and exploration and appraisal activity in Suriname and Uruguay. This is an annual filing, not a standalone fourth-quarter report.
Financial and operating performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenues | $8.279 billion | $11.075 billion | Down 25% |
| Oil, gas and NGL production revenues | $7.385 billion | $9.220 billion | Down 20% |
| Net income attributable to common stock | $2.855 billion; $9.25 diluted EPS | $3.674 billion; $11.02 diluted EPS | Income down 22%; EPS down 16% |
| Cash from operating activities | $3.129 billion | $4.943 billion | Down 37% |
| Cash capital spending on upstream properties | $2.313 billion | $1.770 billion | Up 31% |
| Cash and cash equivalents at year-end | $87 million | $245 million | Down $158 million |
| Total debt at year-end | $5.188 billion | $5.453 billion | Down $265 million |
| Committed borrowing capacity available | $2.894 billion | $2.238 billion | Up $656 million |
Reported net income includes a $1.7 billion noncash deferred tax benefit from releasing most of APA’s U.S. tax valuation allowance. The 2022 comparison included approximately $1.2 billion in gains from divestitures and the Kinetik business combination. The filing does not provide a single comparable, adjusted consolidated profit margin; the reported earnings are materially affected by these tax and transaction items.
Worldwide production averaged 405,040 boe/d, up 2%. Oil production rose 8% to 202,746 b/d, while natural gas production fell 4% to 828 MMcf/d and NGL production was approximately flat at 64,237 b/d. Average realized prices declined: oil 19% to $80.72/bbl, gas 42% to $2.91/Mcf, and NGLs 38% to $21.54/bbl. Lease operating expense was $1.436 billion, or $9.68/boe, down 3% per boe.
Year-end proved reserves were 807.5 MMboe, approximately 68% liquids, down from 889.8 MMboe in 2022. Additions from extensions, discoveries and other sources were 112 MMboe; previously estimated reserves had net downward revisions of 46 MMboe. Proved undeveloped reserves totaled 71.6 MMboe, down from 88.5 MMboe.
Material changes and notable items
- Lower commodity prices were the main driver of reduced production revenues and operating cash flow. Purchased oil and gas sales also fell to $894 million from $1.855 billion, with related purchase costs declining to $742 million from $1.776 billion.
- APA reported a $324 million income tax benefit for 2023, compared with $1.652 billion of tax expense in 2022. The valuation-allowance release was noncash; 2023 current income tax provision was $1.338 billion.
- Cash spending on upstream properties increased to $2.313 billion. APA repurchased 8.7 million shares for $329 million and paid $308 million in dividends. The quarterly dividend was $0.25 per share.
- APA sold 7.5 million Kinetik shares for $228 million and held approximately 9% of Kinetik at year-end. Its 2022 results included the Kinetik deconsolidation and major Delaware Basin mineral-rights sale gains.
- APA recorded $212 million of 2023 losses related to previously sold Gulf of Mexico properties. Its North Sea asset retirement obligation increased, with a $356 million upward revision during the year, primarily reflecting timing, cost and foreign-exchange assumptions.
Outlook, strategy and risks
- 2024 plan: Upstream capital investment of $1.9–$2.0 billion, including $100 million for exploration, predominantly in Alaska, and $50 million to progress the Suriname FPSO project. Management expects adjusted worldwide oil and gas production to be relatively flat year over year and NGL volumes to be lower, partly due to anticipated U.S. ethane rejection. Management expects significant cash flow over the capital budget at current strip pricing; this is not a guarantee.
- Capital allocation: APA targets returning 60% of cash flow over capital investment to shareholders, while also prioritizing balance-sheet strengthening, debt reduction and cost control. Future distributions and repurchases remain subject to Board discretion and financial conditions.
- Callon acquisition: Announced January 3, 2024, the proposed all-stock acquisition is valued at approximately $4.5 billion, including Callon net debt. APA expects to fund refinancing with up to $2.0 billion of delayed-draw term loans. The deal was expected to close in the second quarter of 2024, subject to shareholder, regulatory and other conditions; completion and anticipated benefits are uncertain.
- Suriname: Appraisal of two Block 58 discoveries supports an estimated 700 million barrels of combined recoverable resources, not proved reserves. Development studies are underway; final investment decision was expected by year-end 2024, with first production targeted for 2028. No additional Block 58 drilling was anticipated through 2024.
- Egypt exposure: EGPC represented about 15% of worldwide oil, gas and NGL sales revenue. APA reported slower payment timing amid Egypt’s foreign-currency shortage and warned of possible further delay, deferral or nonpayment. Egypt contributed 27% of 2023 production and 15% of proved reserves, excluding the one-third noncontrolling interest.
- Gulf of Mexico decommissioning: APA recorded an $824 million contingent liability for potential obligations on sold properties; the estimated undiscounted exposure ranges from $824 million to $1.2 billion. APA had incurred $819 million in related costs by year-end and recorded a $199 million asset for expected reimbursement from security. A dispute with sureties remains; APA said it had drawn the full amount of the letters of credit and is pursuing its claims. Further costs or lower recoveries could increase the exposure.
- Other material risks include commodity-price volatility, reserve-estimation uncertainty, operational and environmental incidents, offshore abandonment costs, political and currency risks in international operations, evolving climate and emissions regulation, and potential limitations on insurance coverage. APA also faces an IRS tax dispute and ongoing litigation; the filing reports $83 million accrued for probable and estimable legal contingencies.
Key facts for investors to verify
- How much of 2023 earnings and future earnings capacity depends on the noncash $1.7 billion tax benefit, and how the 2024 corporate alternative minimum tax may affect cash taxes.
- Whether operating cash flow can sustain the 2024 capital program, shareholder returns and debt reduction if commodity prices or production weaken.
- Current EGPC receivable balances, collection timing and any deterioration in Egypt payment or foreign-currency conditions.
- Updated Gulf of Mexico decommissioning estimates, remaining reimbursement security, surety litigation status and potential cash funding requirements.
- Callon transaction approvals, closing, debt refinancing terms, dilution and realized integration benefits.
- Reserve replacement and revisions under changing prices, and the cost, timing and funding requirements for Suriname development and other exploration projects.