APA Corporation's Plan for Sustainable Production Growth and Potential Credit Rating Upgrade
2023-07-30
APA Corporation, an oil and gas exploration and production company, held its first-quarter 2023 financial and operational results conference call. During the meeting, key executives, including the CEO and CFO, presented the company's performance, operational progress, and future outlook.
One of the most important topics discussed was APA Corporation's plan for long-term investment in sustainable production growth, despite the volatility in oil prices, natural gas prices, and LNG pricing. The company emphasized the need to adapt to changing governmental tax and regulatory regimes and adjust investment plans accordingly.
The meeting also highlighted the company's credit rating and the potential upgrade to investment grade. The Chief Financial Officer revealed that APA Corporation is currently investment grade with Fitch and is optimistic about achieving investment grade status with S&P and Moody's. This development could lead to lower borrowing costs and enhance the company's financial stability. The CFO mentioned that APA Corporation compares favorably to its peers that already have investment grade ratings, further supporting the case for an upgrade. Regular discussions with the rating agencies indicate that an upgrade may be possible in 2023.
In terms of market outlook, APA Corporation is positive about its future. The company has visibility on inventory through the end of the decade and expects the activity pace to continue into 2024. APA Corporation is focused on maintaining productivity gains, increasing output, and prioritizing returns, cash flow, and cost control. The company is making progress on its appraisal program in Suriname and is committed to returning at least 60% of annual free cash flow to investors. They believe their stock is a compelling investment and plan to participate in investor events in the coming months.
The key drivers of APA Corporation's business are gross production growth, capital discipline, cost structure and execution, and oilfield services (OFS) inflation. The company aims for a 10% year-over-year growth rate in gross production in Egypt through new well drilling and recompletions. APA Corporation prioritizes capital discipline and cost control, optimizing its portfolio and focusing on high return wells. The company also emphasizes managing costs and executing projects efficiently. While OFS inflation has not yet had a significant impact, APA Corporation expects to consider pricing implications for 2024 and beyond in the future.
During the meeting, the executives discussed key performance indicators (KPIs) related to oil and gas production. They highlighted several factors that impacted production, including unplanned downtime at a gas plant, ESP failures on some oil producers, injection conversions, and an increase in water cut in one of their mature fields. These factors resulted in a temporary loss of 2,000 barrels per day in the second quarter. However, the executives expressed confidence in their ability to grow production in the second half of the year, emphasizing the pace of new well drills and the quality of those wells.
Looking ahead, APA Corporation has a positive outlook for the quarter and year, with an expected 10% growth rate in gross production in Egypt. The company has a clear program in place for new well drilling and recompletions, which it believes will significantly contribute to production growth. APA Corporation emphasizes capital discipline and cost control, with most of its capital costs already under contract. In the U.S., the company plans to reduce drilling in gas-weighted programs. The company has not observed any significant softness in Oilfield Services (OFS) inflation but will monitor pricing in the future. The company experienced a working capital build in Egypt and the U.S., but further details on the drivers were not provided.
The participants of APA Corporation's first-quarter 2023 earnings call included key executives such as the President and CEO, VP of Investor Relations, CFO, EVP of Development, EVP of Exploration, and EVP of Operations. They discussed the company's financial and operational results, shared their outlook for the future, and addressed questions from participants.
Overall, APA Corporation remains optimistic about long-term prices despite market volatility. The company plans to invest for sustainable low single-digit production growth and emphasizes the importance of adapting to changing governmental tax and regulatory regimes. With a diversified portfolio, APA Corporation is well-positioned for future success in the oil and gas industry.