APA(APA) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The company's financial statements for Q2 and H1 2025 show increased net income, reduced total assets and debt, and significantly higher operating cash flow Statement of Consolidated Operations Net income attributable to common stock increased for both Q2 and H1 2025, supported by derivative gains and divestitures, offsetting a decline in production revenues Consolidated Operations Summary (Q2 & H1 2025 vs 2024) | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | H1 2025 (Millions) | H1 2024 (Millions) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $2,178 | $2,543 | $4,814 | $4,494 | | Total Operating Expenses | $1,584 | $1,864 | $3,433 | $3,320 | | Net Income Before Income Taxes | $1,028 | $928 | $1,791 | $1,375 | | Net Income Attributable to Common Stock | $603 | $541 | $950 | $673 | | Diluted EPS | $1.67 | $1.46 | $2.62 | $2.00 | Statement of Consolidated Comprehensive Income Comprehensive income attributable to common stock increased for both Q2 and H1 2025, closely aligning with net income with minor adjustments for benefit plans Comprehensive Income Attributable to Common Stock | Period | 2025 (Millions) | 2024 (Millions) | | :--- | :--- | :--- | | For the Quarter Ended June 30 | $602 | $540 | | For the Six Months Ended June 30 | $949 | $672 | Statement of Consolidated Cash Flows Net cash provided by operating activities significantly increased to $2.28 billion in H1 2025, while investing and financing activities resulted in net cash outflows, leading to a $518 million decrease in cash and equivalents Cash Flow Summary for the Six Months Ended June 30 | Cash Flow Activity | 2025 (Millions) | 2024 (Millions) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $2,277 | $1,245 | | Net Cash Used in Investing Activities | $(881) | $(152) | | Net Cash Used in Financing Activities | $(1,914) | $(1,020) | | Net (Decrease) Increase in Cash | $(518) | $73 | | Cash and Cash Equivalents at End of Period | $107 | $160 | Consolidated Balance Sheet As of June 30, 2025, total assets decreased to $18.08 billion, total liabilities decreased to $11.18 billion primarily due to reduced long-term debt, and total equity increased to $6.90 billion Balance Sheet Summary | Metric | June 30, 2025 (Millions) | Dec 31, 2024 (Millions) | | :--- | :--- | :--- | | Total Current Assets | $2,288 | $3,404 | | Total Assets | $18,078 | $19,390 | | Total Current Liabilities | $2,844 | $2,955 | | Long-Term Debt | $4,288 | $5,991 | | Total Liabilities | $11,175 | $13,028 | | Total Equity | $6,903 | $6,362 | Statement of Consolidated Changes in Equity Total equity increased to $6.90 billion in H1 2025, primarily driven by net income, partially offset by dividends, treasury stock repurchases, and distributions to noncontrolling interests - Key drivers of equity change in H1 2025 include net income of $950 million, offset by $181 million in dividends, $152 million in treasury stock repurchases, and $217 million in distributions to noncontrolling interests[30] Notes to Consolidated Financial Statements The notes detail accounting policies, acquisitions, divestitures, derivative activities, debt, income taxes, and commitments, highlighting the $573 million sale of New Mexico Permian assets and a $1.0 billion contingent liability for decommissioning costs - In Q2 2025, the company sold its New Mexico Permian assets for $573 million in cash, resulting in a gain of $282 million, with proceeds primarily used for debt reduction[57] - On April 1, 2024, APA completed its acquisition of Callon Petroleum Company in an all-stock transaction valued at approximately $4.5 billion, including debt[58] - The company recorded a contingent liability of $1.0 billion as of June 30, 2025, for potential decommissioning costs on previously sold Gulf of America assets[124] - In H1 2025, the company repurchased 7.1 million shares for $150 million and paid $181 million in dividends[128][130] Management's Discussion and Analysis (MD&A) Management discusses financial performance, operational highlights, and strategic initiatives, including increased net income, a $350 million cost reduction program, $1.5 billion debt reduction, and projected $2.3-2.4 billion full-year capital investment Overview APA Corporation, an independent energy company, focuses on long-term returns, balance sheet strength, and cost management, including a $350 million cost reduction program and a commitment to return 60% of free cash flow to shareholders - The company has initiated a significant cost reduction program aiming for over $350 million in annualized savings by 2026, focusing on overhead, capital costs, and field efficiencies[146] - APA maintains a capital return framework to return 60% of free cash flow to shareholders via dividends ($0.25 per share quarterly) and share repurchases[147] Financial and Operational Highlights Q2 2025 net income increased to $603 million, H1 2025 operating cash flow reached $2.3 billion (up 83% YoY), and debt was reduced by $1.5 billion, alongside the $573 million sale of New Mexico Permian assets - Generated $2.3 billion in operating cash flow in H1 2025, an 83% increase from H1 2024, primarily due to working capital timing[150] - Reduced total debt by $1.5 billion in H1 2025, ending the quarter with approximately $4.6 billion of debt[150] - Completed the sale of New Mexico Permian assets for $573 million, recognizing a gain of $282 million and using proceeds for debt reduction[153] - Subsequent to the quarter, the company was awarded an additional 2 million net exploration acres in Egypt's Western Desert[154] Results of Operations Q2 2025 total production revenue decreased to $1.72 billion due to a 20% drop in oil prices, while total production volume slightly decreased by 2%, and operating expenses fell to $1.58 billion due to cost reductions Average Realized Prices (Q2 2025 vs Q2 2024) | Commodity | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Oil (per barrel) | $65.58 | $82.28 | (20)% | | Natural Gas (per Mcf) | $2.28 | $1.77 | 29% | | NGL (per barrel) | $20.49 | $21.68 | (5)% | Average Daily Production (Q2 2025 vs Q2 2024) | Region | Q2 2025 (Mboe/d) | Q2 2024 (Mboe/d) | % Change | | :--- | :--- | :--- | :--- | | United States | 289.9 | 303.4 | (4)% | | Egypt | 143.8 | 133.2 | 8% | | North Sea | 31.4 | 36.8 | (15)% | | Total | 465.1 | 473.4 | (2)% | - Lease Operating Expenses (LOE) decreased by $93 million (18% on a per-unit basis) in Q2 2025 compared to Q2 2024, driven by lower operating costs and asset sales[173] - Transaction, Reorganization, and Separation (TRS) costs fell to $11 million in Q2 2025 from $115 million in Q2 2024, as prior year costs were elevated due to the Callon merger[179] Capital Resources and Liquidity The company's liquidity relies on operating cash flow, with full-year 2025 upstream capital investment projected at $2.3-2.4 billion, and H1 2025 cash uses including $1.4 billion for property additions and $1.2 billion in net debt payments - Full-year 2025 upstream capital investment is projected to be between $2.3 billion and $2.4 billion[191] Sources and Uses of Cash (H1 2025) | Category | Amount (Millions) | | :--- | :--- | | Sources of Cash | | | Net cash from operations | $2,277 | | Asset divestitures | $571 | | Fixed-rate debt borrowings | $846 | | Uses of Cash | | | Additions to upstream property | $1,437 | | Net payments on debt/credit facilities | $1,233 | | Dividends paid | $181 | | Treasury stock activity | $150 | - As of June 30, 2025, the company had $107 million in cash and cash equivalents and $3.8 billion in available committed borrowing capacity[209] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices, interest rates, and foreign currency, with commodity price volatility being the most significant, potentially impacting Q2 2025 revenues by $21 million for a $1.00/bbl oil price change - Commodity price risk is the company's primary market exposure; a $1.00/bbl change in oil price would alter Q2 2025 quarterly revenue by ~$21 million, and a $0.10/Mcf change in gas price by ~$8 million[234] - As of June 30, 2025, the company had $4.6 billion in fixed-rate debt, mitigating cash flow risk from interest rate fluctuations[236] - Foreign currency risk primarily stems from British pound exposure for North Sea operations, where a 10% exchange rate change would result in a net gain or loss of approximately $2 million[238][239] Controls and Procedures The company's disclosure controls and procedures were deemed effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[240] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2025[242] PART II - OTHER INFORMATION Legal Proceedings The company refers to Note 10 of the financial statements for details on material legal proceedings, including litigation related to coastal restoration and an Australian divestiture dispute, with $16 million accrued for probable contingencies - For details on material legal proceedings, the report refers to Note 10 in the financial statements[244] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024, were reported - No material changes to risk factors were reported since the last Annual Report on Form 10-K[245] Unregistered Sales of Equity Securities and Use of Proceeds In Q2 2025, the company repurchased approximately 2.7 million shares at an average price of $18.53 per share, with 27.7 million shares remaining authorized for repurchase Share Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | April 2025 | 603,233 | $16.59 | | May 2025 | — | — | | June 2025 | 2,096,211 | $19.09 | | Total Q2 2025 | 2,699,444 | $18.53 | Other Information This section notes the inclusion of pro forma financial information for the Callon acquisition in Exhibit 99.1 and confirms no Rule 10b5-1 trading arrangements were adopted or terminated by officers or directors - Pro forma financial information related to the Callon acquisition is provided in Exhibit 99.1[247] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and unaudited pro forma financial statements related to the Callon merger - A list of exhibits filed with the report is provided, including officer certifications and financial data files[249]