APA Corporation — 2022 Form 10-K
Business context and reporting period. APA is an independent oil and gas exploration and production company operating in the United States, Egypt, and the U.K. North Sea, with exploration and appraisal activity in Suriname. This annual report covers the year ended December 31, 2022; it is not a fourth-quarter-only report. In February 2022, APA deconsolidated Altus after its combination with BCP created Kinetik, retaining an approximately 13% interest at year-end.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Oil, natural gas and NGL production revenue | $9.22 billion | $6.50 billion |
| Total revenue, including purchased oil and gas sales | $11.08 billion | $7.99 billion |
| Net income attributable to common stock | $3.67 billion; $11.02 diluted EPS | $973 million; $2.59 diluted EPS |
| Cash from operating activities | $4.94 billion | $3.50 billion |
| Cash and cash equivalents at year-end | $245 million | $302 million |
| Total debt | $5.45 billion | $7.51 billion |
| Available committed borrowing capacity | $2.24 billion | $2.57 billion, including Altus |
| Worldwide production | 396,249 boe/d, up 2% | 388,061 boe/d |
Oil and gas production revenue rose 42%, primarily on higher realized prices: oil averaged $99.11/bbl, natural gas $4.98/Mcf, and NGLs $34.51/bbl. Oil and gas operating costs increased, including lease operating expense of $1.44 billion (up 16%) and exploration expense of $305 million (up $150 million). No asset impairments were recorded in 2022, versus $208 million in 2021. The filing does not provide a single clearly stated consolidated operating-margin measure.
Capital expenditures for upstream oil and gas properties were $1.77 billion on a cash basis. APA paid $1.49 billion on fixed-rate debt, $207 million in common dividends, and repurchased 36.2 million shares for $1.42 billion. The year-end debt-to-capital ratio under the credit agreements was 21%; the company reported compliance with its covenants.
Material changes versus 2021
- Net income increased to $3.67 billion from $973 million, reflecting higher commodity prices and improved Egypt production entitlement under its modernized concession agreement.
- Operating cash flow increased $1.45 billion, or 41%, to $4.94 billion, mainly from higher commodity prices.
- Worldwide oil and gas production revenue increased, while production rose 2% overall. U.S. production declined 8%; Egypt net production increased 26%, while North Sea production declined 10% amid downtime.
- The Kinetik transaction led to Altus deconsolidation and a reported $609 million gain. APA also recorded a $560 million gain on the sale of Delaware Basin mineral rights; total net gain on divestitures was $1.18 billion.
- Total reported debt fell from $7.51 billion to $5.45 billion. The comparison is affected by Altus deconsolidation, as well as debt repayments; APA also reduced redeemable Altus preferred interests through deconsolidation.
Outlook, risks and unusual items
- 2023 outlook: APA budgeted $2.0–$2.1 billion of upstream capital investment and anticipated worldwide production growth of approximately 4–5% versus 2022. Management said it expected to maintain its capital-return approach, including dividends and repurchases, and its goal of returning 60% of cash flow over capital investment. These expectations depend on commodity prices, operating performance, and other factors.
- Legacy Gulf of Mexico decommissioning: APA recorded a $1.2 billion contingency for obligations on previously sold properties; its estimated potential liability was $1.2–$1.4 billion undiscounted. It recorded $667 million of expected reimbursement security, leaving meaningful residual exposure. APA recognized $157 million of losses on previously sold Gulf of Mexico properties in 2022. It may also lend up to $400 million to the asset-owning entity after other funding sources are exhausted.
- Taxes: The U.K. Energy Profits Levy increased from 25% to 35% for the specified future period. APA expected to record a further deferred tax expense of approximately $170–$190 million in Q1 2023 from remeasurement. The company also reported a full valuation allowance against U.S. deferred tax assets and said a material release could become possible if U.S. earnings support realization.
- Exploration: Suriname appraisal and exploration continues, but $243 million of exploratory well costs there had been capitalized for more than one year pending further evaluation. APA reported the Baja oil discovery in Block 53; evaluation was ongoing. Reserve estimates and project economics remain uncertain.
- Other principal risks: Commodity-price volatility, inflation and operating costs, operational downtime, international political and currency risks, environmental and climate regulation, produced-water disposal and induced seismicity, cyber and operational hazards, and counterparty performance. EGPC accounted for approximately 15% of 2022 oil, gas, and NGL revenue.
Important facts for investors to verify
- Separate the recurring operating performance from the $1.18 billion net divestiture gain and other non-recurring items when assessing earnings and cash generation.
- Track the timing, cost, and reimbursement of Gulf of Mexico decommissioning work, including the adequacy and recoverability of the recorded security asset.
- Compare 2023 production and capital spending with guidance, particularly U.S. and Egypt volumes, North Sea recovery, and Suriname appraisal spending.
- Review debt and liquidity on a consistent basis that accounts for Altus deconsolidation, committed letters of credit, and debt repayments.
- Monitor Egypt concession economics and EGPC collections, the U.K. levy and related tax effects, and the valuation and development prospects of suspended Suriname exploration costs.