APA Corp. ((APA)) has held its Q1 earnings call. Read on for the main highlights of the call.
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APA Corporation’s recent earnings call conveyed a generally positive sentiment, buoyed by strong first-quarter results, significant cost savings, and strategic asset sales aimed at reducing debt. Despite these positive developments, the company faces challenges, particularly with declining oil volumes in Egypt and rising LOE costs in the Permian.
Strong First Quarter Results
APA Corporation reported robust first-quarter results, with production levels meeting expectations and capital investment coming in lower than anticipated. The company achieved notable improvements in drilling performance, contributing to these strong outcomes.
Cost Reduction Initiatives
The company is making significant strides in its cost reduction efforts, raising its 2025 savings target to $130 million and projecting annualized run rate savings of $225 million by year-end. The largest contributor to these savings is the enhanced drilling efficiencies in the Permian.
Egypt Gas Production
Gas production in Egypt exceeded expectations in the first quarter, driven by the success of the development program and optimization of existing infrastructure. This shift makes gas development economically attractive compared to oil drilling in the region.
Asset Sale for Debt Reduction
APA has signed an agreement to sell its New Mexico Permian properties for $608 million, with plans to use the majority of the proceeds to reduce debt, strengthening the company’s financial position.
Permian Well Cost Savings
The company achieved $800,000 in cost savings per well in the Permian, thanks to significant improvements in drilling efficiencies, which are crucial for maintaining profitability.
Positive Progress in Egypt Receivables
APA has made significant progress in normalizing past due receivables from the Egyptian government, reaching the lowest levels since the end of 2022, which is a positive sign for the company’s cash flow.
Egypt Oil Volume Decline
The company anticipates a slight decline in gross oil volumes in Egypt as it shifts focus towards more economically viable gas production.
Operational Challenges in LOE
APA is facing upward pressure on LOE costs in the Permian due to inflationary pressures, particularly in compression and water disposal, which could impact future profitability.
Forward-Looking Guidance
Looking ahead, APA Corporation provided significant guidance on operational improvements and financial outlook. The company plans to maintain production within guidance while reducing capital investment, with a $150 million reduction in development capital guidance for the year. APA aims to sustain Permian oil volumes with fewer rigs and expects its cost and capital efficiency initiatives to support free cash flow growth through 2027.
In summary, APA Corporation’s earnings call highlighted a positive outlook with strong first-quarter results and strategic initiatives for cost savings and debt reduction. While challenges remain, particularly in Egypt and the Permian, the company’s proactive measures and forward-looking strategies position it well for future growth and stability.