10-Q: APA Corporation Reports Q3 2024 Results, Impacted by North Sea Impairments and Permian Asset Sale

APA Corporation's Q3 2024 results were significantly impacted by impairments in the North Sea and a planned sale of Permian Basin assets, leading to a net loss despite increased production in the U.S.

Summary

• APA Corporation reported a net loss of $223 million for the third quarter of 2024, a significant decrease compared to a net income of $459 million in the same period of 2023.
• The loss was primarily driven by $1.1 billion in impairments, including $793 million related to North Sea assets and $315 million from a planned sale of Permian Basin properties.
• For the first nine months of 2024, APA reported a net income of $450 million, down from $1.1 billion in the same period of 2023.
• The company's U.S. production increased significantly, with oil production up 71% and total boe production up 33% compared to Q3 2023, largely due to the Callon acquisition.
• APA's international operations saw mixed results, with a 5% decrease in gross production in Egypt, but a 2% increase in net production, and a significant decrease in North Sea production due to ceasing new drilling activity.
• The company generated $2.6 billion in cash from operating activities in the first nine months of 2024, a 23% increase year-over-year.
• APA repurchased 4.6 million shares of its common stock for $146 million and paid $260 million in dividends during the first nine months of 2024.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with strong U.S. production growth offset by significant impairments and a net loss. The strategic moves are positive, but the overall financial results and the North Sea situation temper the sentiment.

Positives

• U.S. production volumes increased significantly, driven by the Callon acquisition and increased drilling activity.
• Cash flow from operations increased by 23% in the first nine months of 2024 compared to the same period in 2023.
• The company is actively managing its capital return framework, including share repurchases and dividends.
• A final investment decision for the GranMorgu development in Suriname was reached, indicating future growth potential.
• The company is taking steps to reduce debt through asset sales.

Negatives

• The company reported a net loss of $223 million in Q3 2024, a significant decrease from the net income in Q3 2023.
• Significant impairments of $1.1 billion were recorded in Q3 2024, primarily in the North Sea.
• North Sea production is declining, and the company will cease production at its facilities prior to 2030.
• Natural gas prices decreased significantly, impacting revenues.
• The company is facing potential decommissioning obligations on sold Gulf of Mexico properties.

Risks

• The company is exposed to volatile commodity prices, which can significantly impact revenues and cash flows.
• The company faces risks related to the integration of the Callon acquisition.
• The company is subject to regulatory risks, including changes in tax laws and environmental regulations.
• The company faces potential decommissioning liabilities related to sold Gulf of Mexico assets.
• The company is exposed to credit risk from counterparties in derivative transactions.
• The company is subject to legal proceedings and environmental claims.

Future Outlook

The company expects to average 8 drilling rigs in the Permian Basin for the remainder of 2024 and into 2025. First oil from the GranMorgu development in Suriname is anticipated in 2028. The company will cease production in the North Sea prior to 2030. Proceeds from the sale of Permian assets are expected to be used primarily to reduce debt.

Management Comments

• APA believes energy underpins global progress, and the Company wants to be a part of the solution as society works to meet growing global demand for reliable and affordable energy.
• The Company remains committed to its longer-term objectives: (1) to invest for long-term returns in pursuit of moderate, sustainable production growth; (2) to strengthen the balance sheet to underpin the generation of cash flow in excess of its upstream exploration, appraisal, and development capital program that can be directed to debt reduction, share repurchases, and other return of capital to its shareholders; and (3) to responsibly manage its cost structure regardless of the oil price environment.
• The Company believes returning 60 percent of cash flow over capital investment creates a good balance for providing near-term cash returns to shareholders while still recognizing the importance of longer-term balance sheet strengthening.

Industry Context

The report reflects the ongoing volatility in the oil and gas industry, with fluctuating commodity prices and geopolitical uncertainties impacting financial results. The company's strategic shift towards U.S. production and the divestment of non-core assets align with industry trends of focusing on core, profitable operations. The decision to cease North Sea production highlights the challenges of operating in mature basins with increasing regulatory and infrastructure costs. The investment in Suriname represents a move towards new growth opportunities in emerging markets.

Comparison to Industry Standards

• The impairment charges in the North Sea are significant and may be higher than some peers, reflecting the specific challenges APA faces in that region. Companies like Harbour Energy and EnQuest, which also operate in the North Sea, have faced similar challenges with aging infrastructure and tax burdens.
• The increase in U.S. production is in line with the trend of many oil and gas companies focusing on the Permian Basin, where production costs are generally lower and returns are higher. Companies like Pioneer Natural Resources and Devon Energy are also heavily invested in the Permian.
• The decision to sell non-core assets is a common strategy in the industry to streamline operations and focus on core areas. Companies like ConocoPhillips and Occidental Petroleum have also divested assets to improve their financial position.
• The investment in Suriname is a strategic move to diversify the company's portfolio and tap into new growth opportunities, similar to moves by other companies like ExxonMobil and TotalEnergies in other emerging basins.

Legal Proceedings

• The company is involved in various legal actions, including environmental claims and shareholder lawsuits.
• A settlement has been reached in the Plymouth County Retirement System shareholder lawsuit, pending final court approval.
• The company is vigorously pursuing claims against sureties related to decommissioning obligations on sold Gulf of Mexico properties.

Related Party Transactions

• The document details related party sales and costs associated with Kinetik prior to the sale of the remaining Kinetik shares.

Stakeholder Impact

• Shareholders are impacted by the net loss and the impairments, but also by the share repurchases and dividends.
• Employees are impacted by the ongoing restructuring and the changes in operations, particularly in the North Sea.
• Customers are impacted by the company's production volumes and the availability of oil and gas.
• Suppliers are impacted by the company's capital expenditures and operational activities.
• Creditors are impacted by the company's debt levels and its ability to repay its obligations.

Next Steps

• The company will close the sale of non-core Permian Basin assets in Q4 2024.
• The company will continue to develop its Permian Basin assets.
• The company will progress the GranMorgu development in Suriname with first oil expected in 2028.
• The company will continue to manage its capital return framework, including share repurchases and dividends.

Key Dates

Keywords

oil and gas, production, impairment, Permian Basin, North Sea, Callon acquisition, Suriname, financial results, capital expenditures, debt reduction