APA (APA) Q1 2025 Earnings Call May 08, 2025 11:00 AM ET Company Participants Ben Rodgers - Senior Vice President Finance & TreasurerJohn Christmann - CEOStephen Riney - President & CFOJohn Freeman - Managing DirectorTracey Henderson - Executive VP of ExplorationScott Gruber - Director - Oilfield Services & Equipment ResearchOliver Huang - Director Conference Call Participants Doug Leggett - AnalystArun Jayaram - AnalystBetty Jiang - Senior Equity Research Analyst - US Integrated Oil and E&PsPaul Cheng - An ...

Financial Data and Key Metrics Changes - APA Corporation reported consolidated net income of $347 million or $0.96 per diluted common share for Q1 2025, with adjusted net income of $385 million or $1.06 per share [18] - Free cash flow generated in Q1 was $126 million, with past due balances in Egypt at their lowest since the end of 2022 [19] - The company increased its 2025 savings target from $60 million to $130 million, with an annualized run rate savings target of $225 million by year-end [8][34] Business Line Data and Key Metrics Changes - In the Permian, oil production was within guidance despite a larger-than-expected impact from downtime, with capital expenditures below guidance due to improved drilling performance [5] - In Egypt, gas production exceeded guidance due to successful development programs, with an average realized gas price of $3.19, up from $2.97 in Q4 2024 [19][15] - The North Sea operations saw volumes ahead of guidance, driven by strong operational efficiency [6] Market Data and Key Metrics Changes - The company anticipates gross gas volumes in Egypt to grow to 470 million cubic feet per day in Q2, with expectations to exit the year around 500 million cubic feet per day [14][27] - The average realized gas price is expected to increase to $3.8 in Q4, reflecting a strong performance in the gas market [27] Company Strategy and Development Direction - APA Corporation is focused on cost reduction initiatives, aiming for top quartile operational performance in the Permian and sustainable reductions in controllable spend [8][10] - The company plans to allocate proceeds from the sale of New Mexico Permian properties, which contributed approximately 5,000 barrels per day, primarily towards debt reduction [12][60] - The strategic shift towards gas drilling in Egypt is seen as economically favorable, especially with the new gas price agreement [15][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in maintaining production levels in the Permian with reduced rig counts, citing improved drilling efficiencies [13][38] - The company is positioned to respond to oil price fluctuations, with a threshold for significant cuts set at WTI prices dropping into the low fifties [98] - Management highlighted the importance of balancing growth with shareholder returns and strengthening the balance sheet [16] Other Important Information - The company has made significant strides in cost reduction, particularly in the Permian, capturing $800,000 in cost savings per well [21] - A new CFO, Ben Rogers, was appointed, emphasizing a continued focus on managing the cost structure [11] Q&A Session Summary Question: Insights on cost savings achieved - Management confirmed that they are ahead of schedule on cost savings, with expectations to potentially raise targets in the future [32][34] Question: Rig count and production levels in the Permian - Management indicated that they can maintain production flat with 6.5 rigs and are confident in further efficiency gains [38] Question: Clarification on capital delivery pace and original assumptions - Management acknowledged that original targets were aggressive, but cost savings are being realized faster than anticipated [44] Question: Plans for Alaska and funding considerations - Management discussed the quality of reservoir sands in Alaska and the strategy for appraisal and development [46][50] Question: Asset sale motivations and implications - The sale of New Mexico assets was strategic, allowing the company to focus on core Texas operations and debt reduction [56][60] Question: LOE inflation and initiatives - Management noted that while some cost reductions are slower than expected, they are exploring various options to manage LOE costs [62][64] Question: Gas development attractiveness in Egypt - Management confirmed that gas development is currently more attractive than oil, with plans to shift focus accordingly [90][92]

Financial Data and Key Metrics Changes - In Q1 2025, natural gas and oil sales increased to $405 million, a 21% increase compared to the previous year [8][11] - Operating cash flow was $239 million, or $0.81 per diluted share [8] - Adjusted EBITDAX for the quarter was $293 million, with adjusted net income reported at $53.8 million, or $0.18 per diluted share [9][11] - Production averaged 1.28 Bcfe per day, reflecting a 17% decrease from Q1 2024 due to reduced rig activity [10] Business Line Data and Key Metrics Changes - The company turned 14 wells to sales since the last update, with an average initial production rate of 25 million cubic feet per day [9] - The Elijah One well, turned to sales with an initial production rate of 41 million cubic feet per day, represents a significant step in delineating the Western Haynesville [7][25] Market Data and Key Metrics Changes - The average NYMEX settlement price for natural gas was $3.65, while the average Henry Hub spot price was $4.27 [11] - Realized gas price in Q1 was $3.58, reflecting a $0.07 differential from the NYMEX price [12] Company Strategy and Development Direction - The company is focused on building assets in the Western Haynesville to capitalize on growing natural gas demand [40] - Plans to drill 20 wells and turn 15 wells to sales in the Western Haynesville in 2025, while also maintaining production in the legacy Haynesville [41] - The partnership with BKV Corporation aims to develop carbon capture projects, enhancing the company's low-carbon footprint strategy [39][56] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term growth in natural gas demand, particularly for power generation and AI applications [6][40] - The company anticipates improved leverage ratios and financial performance due to higher natural gas prices and a strong hedge position [15] Other Important Information - The company has invested over $1 billion in developing the 520,000 net acres in the Western Haynesville [6] - The company reported a greenhouse gas intensity improvement of 28% compared to 2023, with significant reductions in CO2 and methane emissions [36][38] Q&A Session Summary Question: Can you discuss the reservoir quality of the Elajawan well compared to previous wells? - Management indicated that the reservoir quality of the Elajawan well appears as good as those drilled in the core area, with good thickness and geological support [48][51] Question: What is the structure and value of the BKV partnership? - The partnership aims to develop carbon capture projects, enhancing the attractiveness of the company's gas resources for potential power generation facilities [56][60] Question: When can we expect more results from the Western Haynesville area? - The next well is planned to be spud in Q4 2025, with additional wells planned for 2026 [63][65] Question: How many rigs can the Western Haynesville support in the future? - Management indicated that they will prudently develop the area, ensuring they do not oversupply the market while meeting increasing demand [90][92] Question: What is the capital allocation strategy for 2026? - The focus will remain on drilling wells to hold acreage while balancing the need for delineation and appraisal wells [102]