APA Corp. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• First Quarter Results: Delivered strong first quarter results with in-line production and lower capital investment. Permian oil production within range, Egypt gas production exceeded guidance, North Sea volumes ahead.
• Cost Reduction Initiatives: Significant progress in Permian drilling efficiencies, with capital savings ahead of schedule. LOE facing some inflationary pressures but progress expected later. Overhead cost reductions proceeding faster than anticipated.
• Asset Sale: Monetized New Mexico Permian properties for $608 million, with proceeds allocated to debt reduction. Focus shifts to Texas Permian.
• Egypt Update: Gas development going well, past due receivables normalized. Gas price realizations increased to $3.19, exceeding guidance.
• Cost Savings Progression: Capital savings driving most controllable spend reductions, with in-year savings increased to $130 million and run rate savings expected to reach $225 million by year-end 2025.

Segment Performance

• Permian: Oil production was within guidance range despite third-party and weather-related downtime; capital investment was below guidance due to improved drilling efficiency.
• Egypt: Gas production exceeded guidance; oil drilling progressing well with waterflood programs showing positive results. Gas price realized $3.19 in the quarter, exceeding guidance.
• North Sea: Volumes ahead of guidance due to operational efficiency at Beryl; announced Sockeye-2 discovery with 25 feet of net oil pay and favorable reservoir properties.

Guidance

• Permian: Expect to hold oil volumes flat with 6.5 rigs, reducing to 6 rigs by end of quarter. Adjusting frac fleets and completion schedules to align with lower rig count.
• Egypt: Gas volumes expected to grow to over 500 million cubic feet per day by year-end, with gas price realizations increasing to $3.80 per Mcf in Q4.
• 2025 Outlook: Revised cost savings targets, with upstream capital and free cash flow definitions adjusted; $130 million in-year savings and $225 million run rate by year-end 2025.

Risks

• Commodity Price Volatility: Could materially impact actual results from forward-looking estimates.
• Operational Pressures: Inflationary pressures in LOE areas like compression and water disposal; winter access limiting Alaska activities.
• Debt and Equity: Uncertainty in debt repayment timing and equity buyback opportunism in changing market conditions.

Question and Answer

Q: About cost savings progression and original targets A: John Christmann noted they're ahead of schedule, with run rate savings increasing from $125 million to $225 million, and anticipates the $350 million run rate by 2027 to be raised later.

Q: About Permian rigs and production A: John Christmann said they can hold Permian oil production flat with 6.5 rigs, planning to reduce to 6 rigs, expecting further efficiency gains.

Q: About Alaska reservoir and funding A: Tracey Henderson discussed Alaska's reservoir quality and appraisal plans, with John Christmann noting Suriname first oil in 2028 will support future growth.

Q: About asset sale and Permian portfolio A: John Christmann and Ben Rodgers explained the asset sale was opportunistic, proceeds for debt reduction, and focus on Texas Permian.

Q: About LOE inflation and cost savings A: Steve Riney discussed LOE challenges with inflation, but expected progress later in 2026 and beyond.

Q: About Egypt gas/oil shift and Alpine High A: John Christmann and Steve Riney explained Egypt's gas shift with crude softening, and Steve Riney noted Alpine High's gas/condensate mix and slight oil volume decline.

Q: About buyback and debt paydown A: John Christmann and Ben Rodgers mentioned opportunism in buyback and debt reduction, with focus on shareholder returns.

Q: About breakevens and denser well spacing A: John Christmann discussed breakevens with cost savings, and denser well spacing progression in the Permian.