Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- APA Corp (APA, Financial) achieved strong third-quarter results, exceeding production guidance while keeping capital and costs below expectations.
- The company announced the sale of noncore Permian properties for $950 million, expected to close in December, which will aid in debt reduction.
- APA Corp (APA) received a credit rating upgrade from Standard & Poor's, achieving investment-grade status at all three major rating agencies.
- The company successfully integrated Callon and captured associated cost synergies, contributing to cash flow resilience.
- APA Corp (APA) reached a final investment decision on its first offshore development project in Suriname, with promising economics and future production growth potential.
Negative Points
- APA Corp (APA) reported a consolidated net loss of $223 million for the third quarter, primarily due to a $571 million after-tax impairment of North Sea and noncore Permian assets.
- The company decided to cease all production in the North Sea by December 31, 2029, due to new emissions regulations and financial impacts, leading to significant asset abandonment costs.
- There is uncertainty regarding the impact of the new gas price agreement in Egypt on free cash flow, as specific details were not disclosed.
- APA Corp (APA) plans to curtail some US production due to weaker-than-expected Waha gas prices, impacting fourth-quarter production estimates.
- The company's full-year capital budget increased to $2.75 billion, reflecting higher spending in Suriname and Alaska, which may pressure cash flow.
Q & A Highlights
Q: Can you provide more details on the impact of the new gas pricing agreement in Egypt and how it affects free cash flow?
A: John Christmann, CEO, explained that the new gas pricing agreement in Egypt is designed to bring gas exploration wells up to parity with oil wells on incremental volumes. While specific pricing details were not disclosed, the agreement allows for increased exploration and development of gas, which is expected to enhance free cash flow. Steve Riney, CFO, added that the agreement includes a rig addition and that the company is optimistic about the potential for gas exploration in Egypt.
Q: Could you clarify the moving parts in the Permian oil guidance, especially considering the recent asset sales?
A: John Christmann, CEO, stated that APA plans to maintain Permian oil production at around 130,000 barrels per day with an eight-rig program. This is after accounting for the sale of non-core assets, which will reduce production by approximately 13,000 barrels per day. The company believes it can sustain this level of production with reduced capital expenditure and rig count.
Q: What is the outlook for capital spending and abandonment obligations in the North Sea?
A: Steve Riney, CFO, explained that APA plans to cease all production in the North Sea by December 31, 2029, due to new emissions regulations and financial impacts. The company has a present value liability of $1.2 billion for abandonment obligations, with approximately half of this to be incurred by 2030. The focus will be on wellbore abandonment initially, followed by facility abandonment.
Q: How does APA plan to manage costs and synergies following the Callon acquisition?
A: John Christmann, CEO, highlighted that APA has achieved significant cost reductions and synergies from the Callon acquisition, including a $1 million reduction in well costs. The company is focused on integrating Callon's operations and optimizing development strategies, particularly in well spacing and fracking techniques. Steve Riney, CFO, added that G&A synergies have been realized, with further efficiencies expected.
Q: What is the strategy for shareholder returns given the current market conditions?
A: John Christmann, CEO, indicated that APA remains committed to its shareholder return strategy, despite recent timing issues affecting cash returns. The company plans to use proceeds from asset sales primarily for debt reduction, while also considering share repurchases given the attractive share price.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
