01—Abstract
Summary
Summary of the 10-K filed February 22, 2024. Cited figures are marked; the original filing is the authoritative source.
APA Corporation is an independent energy company that explores for, develops, and produces natural gas, crude oil, and NGLs.
Its upstream operations span three geographic areas: the U.S., Egypt, and offshore the U.K. in the North Sea, with exploration and appraisal activity in Suriname and interests in Uruguay. In 2023, the company produced 147.8 MMboe, with the U.S. contributing 54 percent of production and 70 percent of year-end estimated proved reserves totaling 807 MMboe. Net income attributable to common stock was $2.9 billiona, or $9.25 per diluted share, compared with $3.7 billion, or $11.02 per diluted share, in 2022.
The 2023 result was supported by a non-cash deferred income tax benefit of approximately $1.7 billionb from releasing most of the U.S. tax valuation allowance, while lower realized commodity prices reduced revenues. Operating cash flow was $3.1 billion, down $1.8 billion from 2022. Capital allocation remained focused on shareholder returns and balance-sheet strengthening.
In 2023 the company repurchased 8.7 million shares for $329 millionc and paid $308 million in dividends. Its stated framework is to return 60 percent of cash flow over capital investment. The 2024 upstream capital budget is $1.9 to $2.0 billion.
The North Sea drilling program was suspended in the second quarter of 2023. A pending all-stock acquisition of Callon Petroleum Company, valued at approximately $4.5 billiond including net debt, is expected to close in the second quarter of 2024 and would strengthen the Permian Basin position. Year-end 2023 total debt was $5.2 billion and cash was $87 million.
Key risks disclosed include commodity price volatility, Egyptian currency shortages that have delayed payments from EGPC, obligations related to previously sold Gulf of Mexico properties (a $824 million contingent liability recorded), and the execution risk of the Callon transaction. The filing also notes the Company was subject to the U.K. Energy Profits Levy and would become subject to the U.S. corporate alternative minimum tax beginning January 1, 2024.
02—Key points
Key Highlights
- Net income attributable to common stock of $2.9 billion, or $9.25 per diluted share, in 2023, versus $3.7 billion, or $11.02 per diluted share, in 2022.
- Net income included a non-cash deferred income tax benefit of approximately $1.7 billion from releasing a majority of the U.S. valuation allowance in Q4 2023.
- Operating cash flow of $3.1 billion in 2023, down $1.8 billion from 2022 on lower commodity prices and working capital timing.
- Total proved reserves of 807 MMboe at year-end 2023, approximately 68 percent liquids, with the U.S. holding 70 percent of reserves.
- Pending all-stock acquisition of Callon Petroleum for approximately $4.5 billion including net debt, with APA shareholders expected to own about 81 percent of the combined company.
- 2024 upstream capital investment planned at $1.9 to $2.0 billion, with $100 million directed to Alaska exploration and $50 million to a Suriname FPSO project.
- Shareholder returns in 2023 included $329 million of share repurchases and $308 million of dividends, with the company stating a target of returning 60 percent of cash flow over capital investment.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 22, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Operating Expenses | $5.31B$6.40B | −17.0% |
| Operating Income | $3.70B$5.57B | −33.6% |
| Interest Expense | $351.00M$332.00M | +5.7% |
| Net Income | $2.85B$3.67B | −22.3% |
| EPS (Basic) | $9.26$11.05 | −16.2% |
| EPS (Diluted) | $9.25$11.02 | −16.1% |
| Shares Outstanding (Basic) | 308.00M332.00M | −7.2% |
| Shares Outstanding (Diluted) | 309.00M333.00M | −7.2% |
05—Questions
Frequently Asked Questions
Why did net income decline in 2023 despite a large tax benefit?
Revenues fell due to significantly lower realized commodity prices compared with 2022. Average realized oil prices fell 19 percent to $80.72 per barrel and natural gas prices fell 42 percent to $2.91 per Mcf. The decline was partially offset by a non-cash deferred income tax benefit of approximately $1.7 billion from releasing most of the U.S. valuation allowance. The 2022 result also included approximately $1.2 billion of divestiture gains.
What is the status of the Callon acquisition?
APA agreed on January 3, 2024 to acquire Callon in an all-stock transaction valued at approximately $4.5 billion including net debt, with each Callon share exchanged for 1.0425 APA shares. The transaction has been approved by both boards and is expected to close in the second quarter of 2024, subject to customary conditions, HSR clearance, and shareholder approvals. APA has committed $2.0 billion of delayed-draw term loans to refinance Callon debt upon closing.
What risks does the Egypt operation present?
Egypt contributed 35 percent of 2023 production including a one-third noncontrolling interest held by Sinopec, and 21 percent of year-end proved reserves. The filing notes a foreign currency shortage in Egypt has delayed payments from EGPC, which accounted for approximately 15 percent of worldwide crude oil, natural gas, and NGL revenues in 2023 and 2022. The company currently expects to ultimately collect the receivable.
What is the exposure related to previously sold Gulf of Mexico properties?
Apache sold its Gulf of Mexico Shelf operations to Fieldwood Energy in 2013. After Fieldwood's bankruptcies, GOM Shelf has said it cannot fund decommissioning, and BSEE has ordered current and former owners to decommission certain assets. APA has incurred $819 million in decommissioning costs and recorded a $824 million contingent liability, with a estimated range of $824 million to $1.2 billion on an undiscounted basis. Partial reimbursement has come from trust funds and letters of credit, and the company has drawn the full letters of credit and is litigating against the sureties.
How much debt does APA carry and what are its liquidity sources?
At December 31, 2023, total debt was $5.2 billion, including $4.8 billion of fixed-rate notes and debentures with a weighted average interest rate of 5.34 percent. Cash and cash equivalents were $87 million. Available committed borrowing capacity under syndicated credit facilities was $2.9 billion, and the company had established a $1.8 billion commercial paper program that had not been used as of year-end.
06—Continue