8-K: APA Corporation Reports Strong 2023 Results, Announces Callon Petroleum Acquisition

APA Corporation announced its fourth-quarter and full-year 2023 financial and operational results, highlighting increased oil production and a significant acquisition.

Summary

• APA Corporation reported a net income of $2.9 billion for the full year 2023, or $9.25 per diluted common share.
• Adjusted full-year earnings were $1.4 billion, or $4.53 per diluted common share.
• The company generated $3.1 billion in net cash from operating activities and $5.3 billion in adjusted EBITDAX for the year.
• Free cash flow for the year was $965 million, with 66% returned to shareholders through share repurchases and dividends.
• Total company oil production increased by 8% year-over-year, with U.S. oil production up 12% from the fourth quarter of 2022 to the fourth quarter of 2023.
• APA identified an estimated 700 million barrels of recoverable oil resource at Sapakara and Krabdagu in Suriname.
• The company plans an upstream capital budget of $1.9 to $2.0 billion for 2024.
• APA expects strong U.S. oil growth of approximately 8% year-over-year in 2024 and more than 10% from the fourth quarter of 2023 to the fourth quarter of 2024.
• The pending acquisition of Callon Petroleum Company is expected to enhance APA's Delaware Basin assets and be accretive to key financial metrics.
• APA is committed to returning at least 60% of free cash flow to shareholders in 2024.

Sentiment

Score: 8

Explanation: The document conveys a positive sentiment due to strong financial results, increased production, a significant oil discovery, and a strategic acquisition. The company's commitment to shareholder returns also contributes to the positive outlook.

Positives

• APA demonstrated strong financial performance in 2023 with significant cash flow generation.
• The company successfully increased oil production, particularly in the U.S. Permian Basin.
• APA made a significant oil discovery in Suriname, adding to its resource base.
• The acquisition of Callon Petroleum is expected to enhance operational performance and capital productivity.
• The company is committed to returning a substantial portion of free cash flow to shareholders.
• APA achieved its primary emissions goal of converting over 2,000 pneumatic devices.
• The company expanded its exploration portfolio with new leases in Alaska and Uruguay.

Negatives

• The company's net debt remains at a substantial $5.1 billion.
• Total company adjusted oil and natural gas production is expected to be relatively flat year-over-year in 2024.
• NGL volumes are anticipated to be lower in 2024 due to ethane rejection.
• The company is moderating activity levels due to lower commodity prices.

Risks

• Lower commodity prices could impact the company's revenue and profitability.
• The company's production is expected to be relatively flat year-over-year, which could limit growth.
• The integration of Callon Petroleum may present challenges and risks.
• The company's exploration activities are subject to risks and uncertainties.
• The company's forward-looking statements are subject to various risks and uncertainties.

Future Outlook

APA plans to invest $1.9 to $2.0 billion in upstream oil and gas capital in 2024, focusing on sustaining production and exploration activities. The company expects strong U.S. oil growth and is committed to returning at least 60% of free cash flow to shareholders. The acquisition of Callon Petroleum is expected to be accretive to key financial metrics.

Management Comments

• The continuation of our exceptional well performance and execution in the Permian Basin drove APAs strong results in 2023, said John J. Christmann IV, APAs chief executive officer.
• We generated nearly $1 billion in free cash flow and returned 66% to shareholders.
• Following closing, we are confident in our ability to create substantial shareholder value through our proven workflows and Permian operating model.
• Given the potential for lower year-over-year commodity prices, we will prudently manage costs and high-grade capital to our most strategic opportunities, concluded Christmann.

Industry Context

This announcement comes at a time when the oil and gas industry is navigating fluctuating commodity prices and increased focus on shareholder returns. APA's focus on Permian Basin execution and strategic acquisitions aligns with industry trends of consolidation and efficiency improvements. The exploration success in Suriname also highlights the importance of international diversification for oil and gas companies.

Comparison to Industry Standards

• APA's 8% year-over-year oil production growth is strong compared to some peers, but some companies are seeing double digit growth.
• The 66% free cash flow return to shareholders is competitive, with some companies targeting similar or higher returns.
• The $1.9 to $2.0 billion capital budget is in line with other companies of similar size, but some are spending more aggressively.
• The 700 million barrels of recoverable oil resource in Suriname is a significant find, comparable to other major discoveries in offshore regions.
• Companies like EOG Resources and Pioneer Natural Resources are often used as benchmarks for Permian Basin performance, and APA's results are competitive with these companies.
• The Callon Petroleum acquisition is similar to other recent consolidation moves in the industry, such as ExxonMobil's acquisition of Pioneer Natural Resources.

Stakeholder Impact

• Shareholders will benefit from increased returns through share repurchases and dividends.
• Employees may see opportunities for growth and development due to the company's expansion.
• Customers will benefit from increased oil and gas production.
• Suppliers may see increased business opportunities due to the company's capital spending.
• Creditors will be reassured by the company's strong financial performance.

Next Steps

• APA will proceed with the acquisition of Callon Petroleum Company.
• The company will continue to progress the FEED study for the Suriname project, targeting a 2024 FID.
• APA will host a conference call to discuss the results on February 22, 2024.
• The company will execute its 2024 capital budget, focusing on production and exploration activities.

Key Dates

Keywords

Oil and Gas, Production, Exploration, Permian Basin, Suriname, Capital Budget, Free Cash Flow, Acquisition, EBITDAX, Reserves