APA Corp. ((APA)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for APA Corp. painted a picture of robust operational performance and strategic cost savings, setting a promising stage for future growth. Despite these strengths, the company faces challenges with derivative losses and potential cash flow impacts due to changes in Egypt’s gas pricing and declining production in the North Sea.
Strong Third Quarter Results
APA Corp. exceeded its production guidance across all operating areas during the third quarter. This achievement was complemented by capital investments and operating costs that came in below the company’s projections, highlighting their operational efficiency and strategic planning.
Cost Reduction Achievements
The company is on a solid path to achieve $300 million in savings this year, with a target of $350 million by the end of 2025, two years ahead of the original schedule. This proactive approach to cost management underscores APA’s commitment to enhancing financial performance.
Egypt Operations Success
In Egypt, APA Corp. made significant strides with substantial payments that nearly eliminated past due receivables. The success of their gas program drove sequential growth in gross barrels of oil equivalent (BOEs), marking a positive trajectory for their operations in the region.
Permian Basin Performance
The Permian Basin stood out with strong operational execution, resulting in oil production that surpassed guidance. This was achieved while maintaining consistent capital investment and operating costs, showcasing APA’s effective management of its resources.
Debt Reduction and Financial Flexibility
APA Corp. successfully reduced its net debt by approximately $430 million, ending the quarter with $475 million in cash. This financial maneuvering provides the company with increased flexibility as it looks toward 2026.
Unrealized Loss on Derivatives
The company reported a $148 million unrealized loss on derivatives, which impacted its net income. This highlights a challenge that APA will need to address in its financial strategy moving forward.
Challenges with Egypt Gas Pricing
APA anticipates a reduction in cash flow due to the roll-off of legacy cost recovery in Egypt, which is expected to impact free cash flow by approximately $60 million in 2026. This presents a financial challenge that the company will need to navigate.
North Sea Production Decline
The North Sea operations are expected to see a production decline of 15% to 20% year-over-year, with minimal investment and increased asset retirement obligation (ARO) spending. This decline poses a challenge for APA’s production strategy in the region.
Forward-Looking Guidance
Looking ahead, APA Corporation remains focused on maintaining strong operational execution and financial performance. The company plans to keep capital discipline at the forefront, with development capital expected to be 10% lower than in 2025. APA aims to sustain Permian oil production at approximately 120,000 barrels per day and explore additional efficiencies across its portfolio, setting a strategic path for continued success.
In conclusion, APA Corp.’s earnings call highlighted a mix of strong operational achievements and strategic cost savings, alongside challenges that require careful navigation. The company’s proactive approach to cost management and financial flexibility positions it well for future growth, despite the hurdles it faces with derivative losses and regional production declines.