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Earnings Call Transcripts·

APA Corporation's Third-Quarter 2026 Financial and Operational Results - APA Corporation

APA

  • Financial Performance:

    • Reported Q3 2026 net income of $698 million ($2.00 per diluted share) and adjusted net income of $676 million ($1.94 per share).
    • Generated approximately $699 million in free cash flow (FCF) for the quarter, bringing YTD FCF to over $1.9 billion.
    • 2026 FCF outlook raised to $2.9 billion (up $600 million from prior guidance) driven by higher production and commodity prices.
    • Returned $537 million to shareholders in Q3 via $87 million in dividends and $450 million in share repurchases (10.5 million shares at avg $42.78).
    • Retired $450 million of debt in Q3, reducing total debt to $3.3 billion and net debt to $3.2 billion.
    • Announced a new long-term net debt target of $2 billion, following a projected achievement of the $3 billion target by year-end 2026.
    • Achieved $350 million in annualized cost savings two years ahead of schedule; raised the 2026 target to $500 million, contributing to a total structural cost reduction of ~$680 million vs. 2024 levels.

  • Guidance and Future Outlook:

    • Raised 2026 U.S. oil production guidance to 124,000 barrels per day (previously 120,000–122,000) due to improved drilling efficiency.
    • 2026 upstream capital guidance increased by $30 million to $2.1 billion to support Permian activity and delayed Suriname costs; ARO spending reduced by $15 million.
    • Preliminary 2027 upstream capital estimated at $2.5 billion, with 60% allocated to exploration and Grand Morgue development.
    • Q4 2026 U.S. oil production expected to moderate seasonally but will support a smoother production profile entering 2027.
    • Expect 2027 U.S. and Egypt production levels to remain consistent with 2026 volumes.
    • Grand Morgue development in Suriname remains on budget and on schedule for first oil in mid-2028.

  • Business Segments and Product Lines:

    • U.S. Permian: Oil production of 128,000 bbl/d exceeded guidance; total production 294,000 BOE/d. Shifting mix toward Delaware Basin, targeting a 60/40 Midland/Delaware split over the next few years.
    • Egypt: Gross production flat at 206,000 BOE/d; gas production of 542 MMcf/d exceeded guidance. Adjusted production slightly below guidance due to PSC oil price impacts. Gas realizations averaged $4.34/MCF.
    • Suriname: TotalEnergies advancing Grand Morgue; Q3 capital $40 million (below guidance due to timing of rig upgrades). Two exploration wells planned for 2027 to extend the plateau.
    • Alaska: Two winter exploration wells planned (Sockeye appraisal and Chinook) to test deepwater Cretaceous prospects.
    • Uruguay: Offshore 6 well with ENI scheduled to spud in late 2027.
    • Gas Trading: Portfolio expected to generate $1.1 billion pre-tax cash flow in 2026 and $950 million in 2027.

  • Market and Competitive Landscape:

    • Operating in a high commodity price environment that has accelerated FCF generation and balance sheet deleveraging.
    • Suriname partnership with TotalEnergies provides a unique "carry" agreement, allowing APA to fund only 10% of Grand Morgue's capital while retaining 40% working interest.
    • Egypt operations remain resilient despite regional geopolitical tensions; no operational disruptions reported to date.
    • Exploration program focuses on high-impact, differentiated assets in Alaska, Uruguay, and Suriname to diversify beyond core Permian/Egypt cash flows.

  • Risks and Challenges:

    • Geopolitical risks in the Middle East and Red Sea, though current operations in Egypt are monitored closely.
    • Industry-wide inflationary pressures on capital and operating costs, with mid-single-digit inflation anticipated in the Permian for 2027.
    • Decommissioning liabilities (ARO) in the North Sea and Gulf of Mexico require long-term cash management, currently managed with ~$300 million annual outflows.
    • Execution risk on Suriname exploration and development timeline, though current status remains on schedule.

  • Management Commentary and Tone:

    • Tone is highly confident, emphasizing "excellent performance," structural cost improvements, and financial flexibility.
    • Management highlights a strategic pivot from pure defensive balance sheet management to "offensive" opportunities enabled by strong cash flow.
    • CEO John Chrisman and CFO Ben Rogers stressed that the company is uniquely positioned to fund growth, pay down debt, and return capital simultaneously.
    • Emphasis placed on achieving $500M in cost savings by year-end and reducing net debt to $2B by decade-end.

  • Analyst Questions and Answers:

    • Alaska Exploration: Confirmed King Street and Sockeye wells de-risked the Lanyap play; Chinook is a large step-out prospect with significant potential, though no FID size targets defined yet.
    • Capital Returns vs. ARO: Debt reduction is the immediate priority (target $3B by EOY), but ARO liabilities are manageable (~$300M/yr) and will be addressed alongside balance sheet strength.
    • Permian Rig Count: Current 3 rigs in Midland, 1 in Delaware; adding 2 rigs in early 2027. Long-term ratio moving toward 60% Midland / 40% Delaware.
    • Suriname Strategy: New wells are within the existing development license (cost-recoverable) to extend the plateau or enable a second infrastructure development.
    • Net Debt Target Rationale: Lowering target to $2B preserves flexibility for opportunistic growth funding and exploration without compromising shareholder returns.
    • Cost Savings: $100M invested in Permian LOE projects (ESP conversions, facility consolidation) expected to deliver $40M run-rate savings; 2027 budget includes further initiatives.

  • Other Key Points:

    • Adjusted production numbers exclude non-controlling interest in Egypt and Egypt tax barrels.
    • G&A expense was $112 million, including $56 million in stock-based compensation.
    • Underlying operating costs remain strong, absorbing $40 million of higher diesel costs in Egypt through efficiency.
    • Gas trading portfolio has generated over $2.5 billion in cash flow this year, contributing to a total of over $3 billion expected through 2027.