APA(US:APA)2024-02-21 16:00Part I Item 1 & 2. Business and Properties APA Corporation is an independent energy company with diverse upstream operations and a strategy focused on returns and free cash flow - APA Corporation is an independent energy company engaged in the exploration, development, and production of natural gas, crude oil, and NGLs, with primary operations in the U.S., Egypt, and the U.K. North Sea15 - The company's business strategy emphasizes a diversified asset portfolio, investing for long-term returns over production growth, and generating free cash flow for debt reduction and shareholder returns1823 - On January 3, 2024, APA entered into a definitive agreement to acquire Callon Petroleum Company in an all-stock transaction valued at approximately $4.5 billion, aiming to enhance its Permian Basin asset base22232 - In Suriname Block 58, development studies have been launched for a large oil project with confirmed recoverable resources of an estimated 700 million barrels of oil, with a final investment decision expected by year-end 202451230 2023 Operational Summary by Geographic Area | Operating Area | Production (MMboe) | % of Total Production | Production Revenue ($M) | Year-End Proved Reserves (MMboe) | % of Total Proved Reserves | |---------------------|--------------------|-----------------------|-------------------------|----------------------------------|------------------------------| | United States | 79.3 | 54% | $3,018 | 566 | 70% | | Egypt | 52.3 | 35% | $3,029 | 171 | 21% | | North Sea | 16.2 | 11% | $1,338 | 70 | 9% | | Total | 147.8 | 100% | $7,385 | 807 | 100% | Year-End 2023 Estimated Proved Reserves | Reserve Category | Oil (MMbbls) | NGL (MMbbls) | Gas (Bcf) | Total (MMboe) | |-----------------------|--------------|--------------|-----------|---------------| | Proved Developed | 343 | 155 | 1,428 | 735 | | Proved Undeveloped| 36 | 18 | 102 | 72 | | Total Proved | 379 | 173 | 1,530 | 807 | Upstream Exploration and Production The company's upstream activities are led by U.S. operations in the Permian Basin, with international assets in Egypt and the North Sea - U.S. operations are concentrated in the Permian Basin (Midland and Delaware Basins), holding 1.8 million net acres, where the company drilled 126 successful development wells in 20232930 - In Egypt, operations are governed by a modernized Production Sharing Contract (PSC) that consolidated most acreage and refreshed lease terms, with a joint venture holding a one-third noncontrolling interest4143 - The company suspended all new drilling activity in the North Sea during the second quarter of 2023, shifting its investment program toward safety and asset maintenance46 Worldwide Drilling Statistics (2021-2023) | Year | Net Exploratory Wells (Productive/Dry) | Net Development Wells (Productive/Dry) | Total Net Wells (Productive/Dry) | |:----:|:--------------------------------------:|:--------------------------------------:|:------------------------------------:| | 2023 | 25.2 / 24.3 | 144.5 / 7.7 | 169.7 / 32.0 | | 2022 | 16.0 / 16.6 | 106.1 / 0.0 | 122.1 / 16.6 | | 2021 | 10.6 / 15.8 | 98.2 / 1.5 | 108.8 / 17.3 | Human Capital Management The company focuses on diversity, talent development, and employee safety, employing 2,271 people globally as of year-end 2023 - Globally, women comprise 23% of the workforce, 20% of leadership roles, and 30% of the Board of Directors, while in the U.S., 37% of the workforce self-reports as non-white9091 Employee Count by Region (as of Dec 31, 2023) | Region | Employees | |----------------|-----------| | North America | 1,403 | | United Kingdom | 607 | | Egypt | 259 | | France | 2 | | Total | 2,271 | 2023 Global Primary Workforce Safety Metrics | Metric | 2023 Rate | Performance vs. Target | |--------------------------------------|-----------|-----------------------------| | Total Recordable Incident Rate (TRIR)| 0.22 | 27% below target of 0.30 | | Days Away, Restricted (DART) Rate | 0.14 | 7% below target of 0.15 | | Severe Incident Rate (SIR) | 0.005 | 82% below target of 0.028 | | Vehicle Incident Rate (VIR) | 0.65 | 16% above target of 0.56 | Item 1A. Risk Factors The company faces significant risks from commodity price volatility, operational hazards, international politics, and climate change regulations - The company's financial results are highly dependent on volatile crude oil, natural gas, and NGL prices, which are influenced by global supply and demand, OPEC+ actions, and geopolitical events124125 - International operations, which accounted for 46% of 2023 production, are subject to political and economic risks, including deteriorating economic conditions in Egypt leading to payment delays179183 - The company faces risks related to the pending merger with Callon Petroleum, including failure to complete the transaction and inability to successfully integrate operations185191192 - Regulatory and environmental risks are significant, including potential costs from climate change initiatives, new regulations on hydraulic fracturing, and changes in tax laws163166168172 - Cybersecurity threats pose a risk to operations, which are dependent on digital technologies, and a successful attack could lead to operational and financial loss137138139 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None196 Item 1C. Cybersecurity APA maintains a comprehensive cybersecurity program overseen by a dedicated Board committee, with no material incidents reported in 2023 - The company's cybersecurity program includes safeguards for data, technology, and information systems, with material risks incorporated into the corporate risk register196 - In 2023, the Board of Directors formed a standing Cybersecurity Committee to assist with oversight of the company's cybersecurity program and associated risks199200 - The Chief Information Officer (CIO) is primarily responsible for assessing and managing cybersecurity threats and oversees the Information Security Team203 - As of December 31, 2023, no risks from cybersecurity threats have materially affected or are reasonably likely to materially affect the company's business strategy, operations, or financial condition198 Item 3. Legal Proceedings This section incorporates by reference the information on legal and environmental matters detailed in Note 11 of the financial statements - Information regarding legal proceedings is incorporated by reference from Note 11—Commitments and Contingencies in the Notes to Consolidated Financial Statements206 Item 4. Mine Safety Disclosures The company reports that there are no mine safety disclosures - None207 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company details its common stock information, dividend history, and share repurchase activities for 2023 - The company has paid cash dividends on its common stock for 59 consecutive years, with the quarterly dividend set at $0.25 per share209 - As of December 31, 2023, the company had authorization to repurchase a maximum of 43.9 million additional shares under its plans211 2023 Issuer Purchases of Equity Securities | Period | Total Shares Purchased | Average Price Paid per Share | |-----------------------------|------------------------|------------------------------| | January 1 to March 31, 2023 | 3,662,708 | $38.86 | | April 1 to June 30, 2023 | 1,348,347 | $33.72 | | July 1 to Sept 30, 2023 | 477,465 | $41.90 | | Oct 1 to Dec 31, 2023 | 3,222,658 | $37.73 | | Total 2023 | 8,711,178 | $37.81 | Item 6. Selected Financial Data This section has been omitted from the report - Omitted216 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses 2023 financial results, highlighting lower net income due to commodity prices, strategic acquisitions, and operational performance - The decrease in 2023 net income was driven by lower revenues from significantly lower commodity prices, partially offset by a $1.7 billion non-cash deferred income tax benefit225269 - The company remains committed to its capital return framework of returning 60% of cash flow over capital investment to shareholders, which included $329 million in share repurchases in 2023224226 - APA has recorded a contingent liability of $824 million as of year-end 2023 for potential decommissioning obligations on Gulf of Mexico properties sold to Fieldwood Energy326596602 - The company's 2024 upstream capital investment is planned at $1.9 to $2.0 billion, with worldwide production expected to be relatively flat year-over-year272 Key Financial Results (2023 vs. 2022) | Metric | 2023 | 2022 | Change | |---------------------------------------------|---------------|---------------|-------------| | Net Income Attributable to Common Stock ($B)| $2.9 | $3.7 | ($0.8B) | | Diluted EPS | $9.25 | $11.02 | ($1.77) | | Cash from Operating Activities ($B) | $3.1 | $4.9 | ($1.8B) | | Oil & Gas Production Revenues ($B) | $7.4 | $9.2 | ($1.8B) | Results of Operations Revenues decreased in 2023 due to lower commodity prices, despite a slight increase in production volumes - G&A expenses decreased by $132 million compared to 2022, primarily due to lower cash-based stock compensation expense260 - The DD&A rate increased to $10.12 per boe in 2023 from $8.18 per boe in 2022, driven by cost inflation and lower proved reserves262 Production Volumes by Product (Avg. Daily) | Product | 2023 | 2022 | % Change | |-----------------|-----------|-----------|----------| | Oil (b/d) | 202,746 | 188,057 | +8% | | Natural Gas (Mcf/d) | 828,343 | 864,946 | -4% | | NGL (b/d) | 64,237 | 64,034 | 0% | | Total (boe/d) | 405,040 | 396,249 | +2% | Average Realized Prices | Product | 2023 | 2022 | % Change | |-----------------------------|----------|-----------|----------| | Oil (per bbl) | $80.72 | $99.11 | -19% | | Natural Gas (per Mcf) | $2.91 | $4.98 | -42% | | NGL (per bbl) | $21.54 | $34.51 | -38% | Capital Resources and Liquidity Operating cash flow decreased in 2023, with major cash uses for capital expenditures, share repurchases, and dividends - As of December 31, 2023, the company had $5.2 billion in total debt and $2.9 billion in available borrowing capacity under its syndicated credit facilities290291 - In January 2024, APA entered into a $2.0 billion syndicated credit agreement for a senior unsecured delayed-draw term loan facility to refinance certain Callon indebtedness304545 - The company has a significant contingent liability related to decommissioning sold Gulf of Mexico properties, estimated at $824 million to $1.2 billion, for which it has recorded a liability of $824 million326602 Summary of Cash Flows (in millions) | Cash Flow Category | 2023 | 2022 | |---------------------------|-----------|-----------| | Net Cash from Operating | $3,129 | $4,943 | | Net Cash Used in Investing | ($2,138) | ($1,511) | | Net Cash Used in Financing | ($1,149) | ($3,489) | | Change in Cash | ($158)| ($57) | Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are commodity price volatility, interest rate fluctuations, and foreign currency exchange rates - The company's revenues and cash flows are highly dependent on volatile commodity prices; a $1.00 per barrel change in oil price would change annual revenue by approximately $74 million347348 - As of December 31, 2023, the company had $4.8 billion in fixed-rate debt, mitigating interest rate risk on its long-term notes350351 - The company is exposed to foreign currency exchange rate risk, particularly between the U.S. dollar and the British pound, for its North Sea operations353 Item 8. Financial Statements and Supplementary Data This section indicates the company's audited financial statements and supplementary data are included in Part IV, Item 15 of the report - The financial statements and supplementary financial information are presented on pages F-1 through F-64 in Part IV, Item 15 of this Annual Report on Form 10-K355 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its independent registered public accounting firm - There have been no changes in or disagreements with the accountants during the periods presented356 Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2023357 - There were no changes in internal control over financial reporting during the quarter ended December 31, 2023, that materially affected, or are reasonably likely to materially affect, internal controls360 Item 9B. Other Information The company reports no adoption, modification, or termination of Rule 10b5-1 trading arrangements by directors or officers in Q4 2023 - During the three months ended December 31, 2023, none of the Company's directors or officers adopted, modified, or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement"361 Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This section is not applicable to the company - Not applicable361 Part III Items 10-14. Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information regarding governance, compensation, and security ownership is incorporated by reference from the 2024 proxy statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive proxy statement for the 2024 annual meeting of stockholders363365366367368 Part IV Item 15. Exhibits, Financial Statement Schedules This section lists the company's financial statements, independent auditor's reports, and all exhibits filed with the Form 10-K - This item includes the consolidated financial statements, notes to the financial statements, and the report of the independent registered public accounting firm, Ernst & Young LLP371391398 - A list of exhibits filed with the report is provided, including the merger agreement with Callon Petroleum, credit agreements, and executive compensation plans374 - The report from independent petroleum consultants Ryder Scott Company, L.P. regarding the company's oil and gas reserves is filed as an exhibit378 Item 16. Form 10-K Summary The company reports that there is no Form 10-K summary - None380