APA Corporation — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. APA explores for and produces oil, natural gas, and NGLs in the U.S., Egypt, and the North Sea, and has midstream operations through Altus. APA completed a holding-company reorganization on March 1, 2021; Apache Corporation became APA’s wholly owned subsidiary. Comparative financial statements are presented as though the companies had been under common control throughout the periods.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenues | $1.871 billion | $1.344 billion |
| Oil, gas, and NGL production revenues | $1.431 billion | $1.236 billion |
| Net income (loss) attributable to common stock | $388 million; $1.02 per diluted share | $(4.480) billion; $(11.86) per diluted share |
| Cash provided by operating activities | $671 million | $502 million |
| Cash used in investing activities | $267 million | $509 million |
| Cash used in financing activities | $128 million | Cash provided of $188 million |
| Cash and cash equivalents | $538 million at March 31 | $262 million at December 31, 2020 |
| Total debt | $8.715 billion at March 31 | $8.772 billion at December 31, 2020 |
| Average production | 382,401 boe/d | 467,771 boe/d |
Q1 cash capital expenditures included $253 million for upstream properties and $1 million for Altus facilities. APA ended the quarter with a total deficit of $261 million, compared with a $645 million deficit at year-end 2020. The filing does not provide a clear consolidated profit-margin measure.
Material changes versus the prior comparable period
- Common-stock income improved from a $4.480 billion loss to $388 million of income. The comparison is heavily affected by $4.472 billion of asset impairments recorded in Q1 2020; no impairments were recorded following fair-value assessments in Q1 2021.
- Production revenues rose despite an 18% decline in average production, as realized prices increased: oil to $59.62/bbl from $48.31, natural gas to $4.14/Mcf from $1.47, and NGLs to $23.79/bbl from $10.51.
- Operating cash flow increased 34%, primarily due to higher commodity prices. Upstream cash capital spending fell to $253 million from $511 million.
- APA reported $158 million of net derivative gains, including a $147 million realized gain related to February 2021 gas-price volatility during Winter Storm Uri. Purchased oil and gas sales and associated costs were $440 million and $494 million, respectively.
- Average production declined across the portfolio, principally reflecting prior-year reductions in activity and production decline; North Sea volumes were also affected by downtime, and U.S. volumes by Winter Storm Uri.
Outlook, management commentary, risks, and unusual items
- Management reaffirmed that it remained on track for a 2021 upstream capital program of approximately $1.1 billion: about $900 million for development and $200 million for exploration, predominantly in Suriname. Its stated priorities include investing for long-term returns rather than production growth and directing excess cash flow toward debt reduction.
- Management expects North Sea Forties pipeline downtime and platform maintenance to further affect volumes in Q2 and Q3 2021. APA reported a January 2021 oil discovery in Suriname’s Block 58 and continued exploration and appraisal activity after transferring operatorship to Total S.A.
- APA reached an agreement in principle with Egyptian petroleum authorities to modernize the production-sharing arrangement; required government approvals and parliamentary ratification remained outstanding.
- Commodity prices, supply and demand, production, drilling results, COVID-19 effects, weather, regulation, and access to capital are key uncertainties. APA’s reported commodity-price sensitivity, based on Q1 production, was approximately $17 million of quarterly revenue per $1/bbl change in oil price, $8 million per $0.10/Mcf change in gas price, and $5 million per $1/bbl change in NGL price.
- APA disclosed $62 million accrued for probable and estimable legal contingencies and an approximately $2 million undiscounted environmental remediation reserve. Fieldwood Energy’s bankruptcy creates potential exposure for legacy Gulf of Mexico decommissioning: APA may have to perform obligations if other sources are insufficient and has agreed to provide a standby loan of up to $400 million. Additional cash exposure is possible.
- New shareholder class-action and derivative lawsuits allege misleading statements concerning Alpine High; APA says it considers the claims without merit and intends to defend them. The filing also describes other pending litigation and two EPA information requests concerning alleged emissions violations for which potential sanctions were not reasonably estimable.
- APA stated its credit facilities were in compliance. Available committed borrowing capacity was $3.125 billion for Apache and $141 million for Altus. Apache’s commercial-paper program was unused, and management did not expect it to be cost-competitive following credit-rating downgrades.
Important facts for investors to verify
- Whether production declines and North Sea downtime continue to affect volumes, and how commodity prices translate into operating cash flow.
- Progress against the $1.1 billion upstream capital program and management’s stated debt-reduction priorities.
- The size and economics of derivative positions, including subsequent hedging activity and the effect of unusual gas-price volatility.
- Debt, borrowing availability, and the status of credit ratings, Apache credit support, and Altus borrowing obligations.
- Developments in Fieldwood’s bankruptcy and legacy Gulf of Mexico abandonment obligations, as well as the Egypt contract approvals and pending Alpine High litigation.