APA Corp (APA) Valuation Update - August 2

[dan_s]

I have updated my forecast/valuation model for APA:
> Q2 results beat my forecast by a wide margin.
> Q2 results included a full quarter since the all-stock merger with Callon Petroleum closed on April 1st.
> Q2 results included a $276 million gain on asset sales. $729 million of sales proceeds in 1H 2024 are not included in Operating Cash Flow, so they don't impact my stock valuation. They do however improve the balance sheet, which should justify a higher valuation multiple for APA.
> Even with the pullback in oil prices, APA should generate over $1.5 billion of free cash flow from operations this year. Again, proceeds from asset sales are in addition to that number.
> On APA's conference call they said capex spending should come in below their guidance of $2.7 billion.
> Recent well results in the Permian Basin are very good. West Texas is now APA's #1 core area of operations.

Due to voluntary curtailments of natural gas and NGL production in Q3, APA will report lower production on a Boepd basis this quarter. However, thanks to increasing oil production, the Company's revenues should be higher from Q2 to Q3.

My valuation of APA increases by $1 to $49. My valuation multiple stays at 4X annualized operating CFPS, which is a low multiple for a company of this size and quality. APA's 2024 production exit rate should be near 500,000 Boepd based on today's conference call.

TipRanks: Five analysts have submitted updated price targets for APA since the company announced Q2 results and fresh guidance. The updated price targets range from $30 to $46, with an average of $37.40/share.

My updated forecast model for APA will be posted to the EPG website soon.