Yahoo Finance APA Corp (APA) (Q1 2024) Earnings Call Transcript Highlights: Strategic Moves and Financial Outcomes
Net Income: Reported at $132 million under GAAP, with adjusted net income of $237 million.
Earnings Per Share (EPS): GAAP EPS at $0.44, adjusted EPS at $0.78.
Upstream Capital Investment: $568 million, below guidance due to deferred spending.
U.S. Oil Production: Increased by 16% year-over-year, expected to grow organically.
Adjusted Production: In Egypt, slightly below guidance due to PSC impacts of high oil prices.
Cost Synergies: Increased estimate from $150 million to $225 million annually post-Callon acquisition.
Free Cash Flow: Commitment to return at least 60% via dividends and share repurchases.
Debt Reduction: Focus on refinancing Callon debt and reducing overall debt burden.
Exploration Costs: Significant charges including $59 million for unsuccessful Alaska wells.
Q4 U.S. Oil Production Forecast: Expected at 152,000 barrels per day, an 11% increase from Q2 guidance.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
APA Corp (NASDAQ:APA) reported a 16% increase in U.S. oil volumes compared to the first quarter of 2023, continuing a trend of meeting or exceeding production guidance.
The Callon acquisition, closed on April 1, is expected to bring substantial cost synergies, initially estimated at $150 million annually, now increased to $225 million.
Operational efficiencies and integration of Callon are progressing well, with APA Corp (NASDAQ:APA) already implementing changes to enhance capital efficiency and development economics.
In the North Sea, despite challenges with late-life assets, production was managed effectively with strategic facility run time adjustments.
APA Corp (NASDAQ:APA) remains committed to returning at least 60% of its free cash flow to shareholders through dividends and share repurchases, maintaining a strong focus on shareholder value.
Negative Points
APA Corp (NASDAQ:APA) faced challenges in the Permian Basin with natural gas production, choosing to curtail significant production due to extreme Waha basis differentials.
In Egypt, production volumes were slightly below guidance due to the PSC impact of higher-than-planned oil prices, indicating sensitivity to external price fluctuations.
The company experienced operational delays in Alaska, with two exploration wells failing to reach their target objectives within the seasonal time window.
APA Corp (NASDAQ:APA) incurred substantial costs related to the Callon acquisition, with an expected total of $110 million in associated costs, impacting financials in the short term.
Production guidance in Egypt for 2024 anticipates a slight decrease, reflecting ongoing challenges in optimizing the balance between drilling and workover rigs.
Q & A Highlights
Q: Can you explain the operational changes in Egypt and how you plan to manage the reduced number of drilling rigs while addressing the backlog of work needing workover rigs? A: John J. Christmann, CEO & Director of APA Corporation, explained that while the historical ratio of workover rigs to drilling rigs was higher, the current plan involves maintaining about 20 workover rigs against 13 to 15 drilling rigs. This adjustment will take time to impact the backlog, but they are also using drilling rigs to complete some wells, which should help alleviate some pressure.
Q: Regarding the Callon acquisition, does the current guidance assume any uplift from changes in operational practices, or does it reflect legacy Callon well results? A: John J. Christmann clarified that the current guidance primarily reflects the status quo or legacy results from Callon. Immediate changes to completion practices are being implemented where possible, but significant shifts like well spacing and frac sizes will evolve, with more substantial changes expected by the fourth quarter.
Q: What would it take for the Permian gas play to become a more integral part of your operations? A: John J. Christmann mentioned that the gas play needs to compete internally against oil projects, which is challenging given the weak pricing at Waha. Any increase in activity would depend on stronger Waha pricing and internal competition outcomes.
Q: How are you addressing shareholder returns in light of the Callon acquisition and other financial strategies? A: John J. Christmann reaffirmed their commitment to returning at least 60% of free cash flow to shareholders and highlighted the flexibility to increase buybacks when advantageous. The focus remains on balancing shareholder returns with debt reduction, supported by non-core asset sales.
Q: Can you provide more details on the expected capital efficiencies and operational changes following the Callon acquisition? A: Stephen J. Riney, President & CFO, discussed various operational synergies being implemented post-acquisition, including changes in well equipment, optimization of compression use, and improvements in drilling and completion practices. These changes are expected to significantly reduce costs and improve operational efficiency.
Q: What are the plans for drilling in Suriname and the expected timeline for FID on your projects there? A: John J. Christmann expressed confidence in reaching FID by the end of the year for their Suriname project and mentioned that drilling could potentially resume in 2025, although it's not mandatory until 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
