APA Corp (APA) Update - June 9

[dan_s]

Notes below are from Subash Chandra at Benchmark in his June 4th report sent to TipRanks. He is a highly respected energy sector analyst. My comments are in blue.
His price target for APA is $36.

► Adjusting ’24 EPS/EBITDA to $5.87/$5.9B from $6.64/$6.0B to reflect $700m of US
asset sales and m-t-m commodities. Consensus is $4.38/$5.8B. < My EPS forecast for 2024 is $4.10
► Permian public data show CPE wells performed more-or-less in-line with historical
wells this year. Nine wells completed this year have production history of 2-
months. They produced ~80 boepd per 1k’ compared to 94 boepd for wells last
year and 90 boepd the year before.
► The results do not reflect APA’s efforts as the merger closed April 1. APA
mentioned low-hanging fruit on the 1Q call; 4Q wells will reflect full APA workflow.
APA intends to upspace, reduce landing zones and enhance completions. Gas lift
will be more widely adopted vs ESPs which will improve runtimes and reduce costs. < The merger with CPE closed on April 1, so Q2 will be the first full quarter of combined results. My Q2 production forecast of 466,000 Boepd is probably too conservative. If APA is actually getting much better well results in the Permian Basin than CPE was, it should support a much higher share price.
► Upstream reported last month that Suriname development remains on-track as
SBM is the front-runner to build the FPSO because they’ve “come up with a swifter
timeline for initial production …”. TotalEnergies (TTE-NR) and APA intend to make
FID later this year. < Suriname is a significant oil discovery. High initial production rate should support a higher share price.
► Catalysts are building for 2H as APA 1/ demonstrates Permian well performance, 2/
approaches FID in Suriname, 3/ addresses the 12,000 bopd offline in Egypt pending
workovers.
► 1Q results were a mixed-bag with overall volumes light – offset by stronger oil
outlook, exploratory writeoffs in Alaksa offset by capex which was 10% below our
pro forma forecast. APA is effectively a Permian company now (75% of production)
and we have confidence in the upspacing strategy. APA did not pay for much
inventory with the CPE acquisition so improvements should accrue to shareholders.

APA closed at $28.85 on June 8.
TipRanks: "In the last 3 months, 16 ranked analysts set 12-month price targets for APA. The average price target among the analysts is $37.80. The 16 price targets range from $27 to $57." < That is an extremely wide range of price targets for a company of this size. My current valuation of $48 is based on just 4X annualized operating CFPS.

Bottomline: The Risk for APA is to the upside. APA is a large-cap international company, but the merger with Callon Petroleum (CPE) puts most of its upside potential in the Permian Basin. Its current share price does not reflect the value of their large position in the Permian Basin.