APA
Re: APA
APA reported a loss attributable to common stock of $223 million or $0.60 per diluted share, which was primarily driven by non-cash impairments of assets in the U.K. and assets held for sale in the Permian Basin. When adjusting for this and other items that impact the comparability of results, APA’s third-quarter earnings were $370 million, or $1.00 per diluted share. Net cash provided by operating activities was $1.3 billion, and adjusted EBITDAX was $1.6 billion. < Adjusted Net Income exceeded my forecast of $353 million and my Adjusted Cash Flow from Operations of $1.136 billion.
“Third-quarter results were strong across our operating areas, driven by higher-than-expected production and lower costs,” said John J. Christmann IV, APA’s CEO. “Adjusted global oil production exceeded the high-end of our guidance range and was up nearly 30% year-over-year. The integration of Callon is effectively complete, and we expect to capture most of the cost synergies by year-end. This, combined with the non-core Permian Basin asset sale, will significantly lower per unit costs as we move into next year.
“We also achieved an important milestone in Suriname with the announcement of GranMorgu, the first offshore development in the country,” he said. “This large-scale project offers the best returns in APA’s portfolio, has a very low break-even oil price, and will contribute significant oil production and cash-flow growth beginning in 2028 and continuing for many years.”
Third-Quarter Summary
Third-quarter reported production was 467,000 BOE per day. < Beat my forecast of 443,000 Boepd.
Adjusted production, excluding Egypt noncontrolling interest and tax barrels, was 395,000 BOE per day, approximately 2% ahead of guidance.
A number of positive factors influenced the third-quarter results, including significant free cash flow from U.S. third-party gas trading activities and the Cheniere gas supply contract; cash flow resilience to lower oil prices in Egypt under the revised PSC structure; the successful integration of Callon and associated cost synergies; and organic oil production growth. As a result, APA’s third-quarter cash flow from operations and free cash flow increased when compared to the second quarter, despite lower commodity prices.
Subsequent to quarter-end, the company received a credit rating increase to BBB- from Standard & Poor’s and has obtained investment grade status at all three rating agencies. During the quarter, APA reduced net debt by $275 million and returned $94 million of free cash flow to shareholders through dividends and share buybacks.
2024 Fourth-Quarter Capital and Production Guidance
The company expects total fourth-quarter production on a BOE basis will be the highest of the year despite ongoing curtailments in the Permian Basin in response to weak regional natural gas prices.
APA’s upstream capital investment in the fourth quarter is expected to be approximately $645 million, which includes $80 million of incremental capital for Suriname, Alaska and Egypt.
2025 Preliminary Capital Budget and Production Outlook
In 2025, as a result of a softer oil price outlook, APA plans to reduce capital to $2.5 to $2.6 billion, of which, $200 million is allocated to Suriname development activity and $100 million to other exploration, primarily in Alaska. At this investment level, the company expects to run an eight-rig program in the Permian Basin and a 12-rig program in Egypt, which includes one rig dedicated to natural gas following the signing of a new gas pricing agreement. The company expects this program will roughly sustain adjusted oil production in the U.S. and Egypt, while delivering mid-single digit adjusted BOE growth.
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Other than the reported loss for the quarter, there is nothing that justifies the drop in share price.
“Third-quarter results were strong across our operating areas, driven by higher-than-expected production and lower costs,” said John J. Christmann IV, APA’s CEO. “Adjusted global oil production exceeded the high-end of our guidance range and was up nearly 30% year-over-year. The integration of Callon is effectively complete, and we expect to capture most of the cost synergies by year-end. This, combined with the non-core Permian Basin asset sale, will significantly lower per unit costs as we move into next year.
“We also achieved an important milestone in Suriname with the announcement of GranMorgu, the first offshore development in the country,” he said. “This large-scale project offers the best returns in APA’s portfolio, has a very low break-even oil price, and will contribute significant oil production and cash-flow growth beginning in 2028 and continuing for many years.”
Third-Quarter Summary
Third-quarter reported production was 467,000 BOE per day. < Beat my forecast of 443,000 Boepd.
Adjusted production, excluding Egypt noncontrolling interest and tax barrels, was 395,000 BOE per day, approximately 2% ahead of guidance.
A number of positive factors influenced the third-quarter results, including significant free cash flow from U.S. third-party gas trading activities and the Cheniere gas supply contract; cash flow resilience to lower oil prices in Egypt under the revised PSC structure; the successful integration of Callon and associated cost synergies; and organic oil production growth. As a result, APA’s third-quarter cash flow from operations and free cash flow increased when compared to the second quarter, despite lower commodity prices.
Subsequent to quarter-end, the company received a credit rating increase to BBB- from Standard & Poor’s and has obtained investment grade status at all three rating agencies. During the quarter, APA reduced net debt by $275 million and returned $94 million of free cash flow to shareholders through dividends and share buybacks.
2024 Fourth-Quarter Capital and Production Guidance
The company expects total fourth-quarter production on a BOE basis will be the highest of the year despite ongoing curtailments in the Permian Basin in response to weak regional natural gas prices.
APA’s upstream capital investment in the fourth quarter is expected to be approximately $645 million, which includes $80 million of incremental capital for Suriname, Alaska and Egypt.
2025 Preliminary Capital Budget and Production Outlook
In 2025, as a result of a softer oil price outlook, APA plans to reduce capital to $2.5 to $2.6 billion, of which, $200 million is allocated to Suriname development activity and $100 million to other exploration, primarily in Alaska. At this investment level, the company expects to run an eight-rig program in the Permian Basin and a 12-rig program in Egypt, which includes one rig dedicated to natural gas following the signing of a new gas pricing agreement. The company expects this program will roughly sustain adjusted oil production in the U.S. and Egypt, while delivering mid-single digit adjusted BOE growth.
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Other than the reported loss for the quarter, there is nothing that justifies the drop in share price.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
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Petroleum economist
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Re: APA
I agree with Dan, The APA Q3 results were better than what I had expected. The issue at hand is in the $ 1,110 M impairment charge. The impairment charge is built up from $ 796 M for the UK and a $ 315 M for the sales of the Permian assets in 2024.
The $ 1.11 B impairment is equivalent to 12% of the APA market value, which dropped yesterday with 11.5% from $ 9.1 B to $ 8.1 B. As most expenditure is spread out over a long time to come, I think the drop yesterday was overdone.
From the APA Q3 conference call
John noted in his remarks that we have revised the expected timetable for cessation of production and abandonment of our assets in the North Sea. This decision had three primary impacts this quarter. The previously mentioned after-tax asset impairment, of which $325 million was related to the North Sea. A $17 million barrel of oil equivalent write-down of reserves that we no longer expect to produce and a $116 million increase in the net after-tax present value of abandonment obligations on our balance sheet.
We now carry an after-tax present value liability of $1.2 billion for all of our North Sea ARO. We are planning to incur this liability between now and 2038. Approximately half of this liability will be incurred between now and the end of 2030. While there will be some overlap, the next five years will consist of mostly wellbore abandonment while the remaining eight years will focus mostly on facility abandonment.
We expect Beryl Bravo will be the first facility to cease production likely in late 2027 or early 2028. Moving over to Egypt. We continue to make good progress on past due receivables. And during the quarter, both total and past due receivables decreased.
John Freeman -- Analyst
Good morning, guys. First topic, just a little bit more infill on the North Sea. So I just want to make sure that I understand. So the way that you laid it out, Steve, of the ARO, you said about half would potentially be spent between now and the end of 2030.
And I guess I'm just trying to understand in terms of just outflow of capital, as you all like ratchet down the capex in the North Sea over the next several years and then factoring the AROs, just sort of how I should think about just capital being spent in total in the North Sea over these next handful of years. When I know the -- it's a minimal spend capex-wise in the North Sea next year, but just any color on that front would be helpful.
Stephen J. Riney -- Executive Vice President, Chief Financial Officer
Yeah. So the spend on the ARO won't show up as capital. You'll actually see a number in the costs incurred, where we provide some reconciliations to GAAP versus non-GAAP reconciliations in our supplement, and you'll see a number in there for the North Sea for the addition to the ARO. So from a GAAP accounting purposes, the increase in the ARO is considered costs incurred which is a gap kind of equivalent or somewhat equivalent to capital spending.
So it shows up when you add to the ARO, it doesn't show up as capital spending in the capex program as we spend that capital or those dollars in the years in which we incur the ARO. And John, just to give maybe a little bit more color on the spend patterns. So as I said, the -- if you were to combine two numbers because there's a gross obligation on the liability side on our balance sheet, and then there's a deferred tax asset because there's a 40% tax savings for every dollar that you spend on ARO. So there's two numbers on our balance sheet.
Those two numbers net to $1.2 billion. It's -- with a 40% tax rate, you could probably figure out pretty quickly, it's about $2 billion of liability. It's about an $800 million tax asset on the balance sheet. And that $1.2 billion, as I said, roughly 50% of that will be spent between now and the end of 2030.
A lot of that is being spent on wellbore abandonment. And so, you figure out -- you figure OK, that's about $100 million a year for six years. And what I would say is the pattern grows through the period of time. So it's going to be way less than $100 million next year in 2025, starts kind of ramping up a little bit in '26.
The first three years are below $100 million a year, the last three years are above $100 million a year.
The $ 1.11 B impairment is equivalent to 12% of the APA market value, which dropped yesterday with 11.5% from $ 9.1 B to $ 8.1 B. As most expenditure is spread out over a long time to come, I think the drop yesterday was overdone.
From the APA Q3 conference call
John noted in his remarks that we have revised the expected timetable for cessation of production and abandonment of our assets in the North Sea. This decision had three primary impacts this quarter. The previously mentioned after-tax asset impairment, of which $325 million was related to the North Sea. A $17 million barrel of oil equivalent write-down of reserves that we no longer expect to produce and a $116 million increase in the net after-tax present value of abandonment obligations on our balance sheet.
We now carry an after-tax present value liability of $1.2 billion for all of our North Sea ARO. We are planning to incur this liability between now and 2038. Approximately half of this liability will be incurred between now and the end of 2030. While there will be some overlap, the next five years will consist of mostly wellbore abandonment while the remaining eight years will focus mostly on facility abandonment.
We expect Beryl Bravo will be the first facility to cease production likely in late 2027 or early 2028. Moving over to Egypt. We continue to make good progress on past due receivables. And during the quarter, both total and past due receivables decreased.
John Freeman -- Analyst
Good morning, guys. First topic, just a little bit more infill on the North Sea. So I just want to make sure that I understand. So the way that you laid it out, Steve, of the ARO, you said about half would potentially be spent between now and the end of 2030.
And I guess I'm just trying to understand in terms of just outflow of capital, as you all like ratchet down the capex in the North Sea over the next several years and then factoring the AROs, just sort of how I should think about just capital being spent in total in the North Sea over these next handful of years. When I know the -- it's a minimal spend capex-wise in the North Sea next year, but just any color on that front would be helpful.
Stephen J. Riney -- Executive Vice President, Chief Financial Officer
Yeah. So the spend on the ARO won't show up as capital. You'll actually see a number in the costs incurred, where we provide some reconciliations to GAAP versus non-GAAP reconciliations in our supplement, and you'll see a number in there for the North Sea for the addition to the ARO. So from a GAAP accounting purposes, the increase in the ARO is considered costs incurred which is a gap kind of equivalent or somewhat equivalent to capital spending.
So it shows up when you add to the ARO, it doesn't show up as capital spending in the capex program as we spend that capital or those dollars in the years in which we incur the ARO. And John, just to give maybe a little bit more color on the spend patterns. So as I said, the -- if you were to combine two numbers because there's a gross obligation on the liability side on our balance sheet, and then there's a deferred tax asset because there's a 40% tax savings for every dollar that you spend on ARO. So there's two numbers on our balance sheet.
Those two numbers net to $1.2 billion. It's -- with a 40% tax rate, you could probably figure out pretty quickly, it's about $2 billion of liability. It's about an $800 million tax asset on the balance sheet. And that $1.2 billion, as I said, roughly 50% of that will be spent between now and the end of 2030.
A lot of that is being spent on wellbore abandonment. And so, you figure out -- you figure OK, that's about $100 million a year for six years. And what I would say is the pattern grows through the period of time. So it's going to be way less than $100 million next year in 2025, starts kind of ramping up a little bit in '26.
The first three years are below $100 million a year, the last three years are above $100 million a year.
Re: APA
> "I agree with Dan"
I view that as a negative. That's a problem..we don't need another perma bull spewing crap. The best opinions are contrarian opinions.
I warned about asset writedowns and more will be coming for others. The companies will say they are non cash charges. It's non cash now because the cash has already been spent.
Since many companies will have poor q4 numbers due to writedowns, you also may get kitchen sink in Q4 and throw in everything at once.
You also have year end tax lost harvesting to look forward too.
An improvement in NG and oil prices is required for sustained rallies. NG north of 3.50, & wti North of 80.
The market is saying there is a glut. Wild card is middle east getting out of control.
Have a nice day.
I view that as a negative. That's a problem..we don't need another perma bull spewing crap. The best opinions are contrarian opinions.
I warned about asset writedowns and more will be coming for others. The companies will say they are non cash charges. It's non cash now because the cash has already been spent.
Since many companies will have poor q4 numbers due to writedowns, you also may get kitchen sink in Q4 and throw in everything at once.
You also have year end tax lost harvesting to look forward too.
An improvement in NG and oil prices is required for sustained rallies. NG north of 3.50, & wti North of 80.
The market is saying there is a glut. Wild card is middle east getting out of control.
Have a nice day.