APA (APA) Q1 FY26 earnings call: guidance and Q&A

What is the outlook for the $1.1 billion gas trading cash flow beyond 2026, especially with new pipelines coming online, and what hedging strategies are in place?

Ben Rodgers stated that the $1.1 billion for 2026 is largely from pipeline transport due to wide basis differentials, which are expected to compress in H2 with new infrastructure. However, elevated LNG prices carry into 2027, with an expected pretax cash flow of just over $400 million at current strip. They monitor hedging options for 2027 but have not yet executed.

“And at current strip, we're just above $400 million of expected pretax cash flow in 2027 at strip for both basis and TTF. So still another good year expected next year.”

asked by Doug Leggate · answered by Ben Rodgers

What are the implications of the reprocessed seismic data for existing discoveries and the upcoming drilling program in Alaska?

John Christmann confirmed that reprocessing seismic data after Sockeye and King Street results was beneficial. The new data suggests Sockeye was not drilled in the thickest part. A two-well program (exploration and appraisal) is planned for the upcoming winter, with APA assuming operations.

“It now looks like we did not drill Sockeye even in the thickest place. And we will be coming back this winter with a 2-well program. We're in the process of assuming operations, but you'll see us come back with an exploration well and an appraisal well.”

asked by Doug Leggate · answered by John Christmann

Given the retirement of near-term debt maturities and no callable debt until 2029, should the majority of free cash flow be assumed to go towards buybacks, or will decommissioning obligations be accelerated?

John Christmann reiterated commitment to the 60% returns framework and the $3 billion net debt target. Ben Rodgers added that given current price environment and balance sheet opportunity, they will evaluate the mix of debt paydown, dividends, and buybacks. They are being patient due to market volatility. Stephen Riney noted a $20 million increase in decommissioning spend for 2026, all for planned activity, not cost increases.

“The thing I would say, John, is while we've made progress on the balance sheet, we're going to continue to be very, very thoughtful about how we deploy that. We like where the valuation is, but we also want to be thoughtful.”

asked by John Freeman · answered by John Christmann

With the current program being 50% gas-focused and attractive gas prices, would the company consider shifting activity more towards oil given current oil prices?

John Christmann stated that the gas price negotiation was geared towards $75-$80 Brent. The current program is 50-50, and it's very attractive. Egypt needs both commodities, and the company is monitoring how things play out. Stephen Riney added that at mid-cycle prices, they are agnostic between gas and oil, and the marginal price on new gas is higher than the average $4.25.

“right now, the program is about 50-50. They need gas. If you look at what we're providing for them right now, they're saving about 2 LNG cargoes a month on the gas side.”

asked by John Freeman · answered by John Christmann

What inflationary pressures are being seen, particularly in the Permian, and how are they impacting costs like LOE?

John Christmann noted higher power costs and rising diesel prices as main items. However, most contracts were secured at the start of the year, and teams have managed well, preventing an increase in the cost outlook.

“Power, diesel would be the main items. But I think in general, our teams have been able to do a pretty good job, which is why we didn't raise the cost on the outlook due to those inflationary pressures.”

asked by Chris Baker · answered by John Christmann

What strategic priorities or opportunities (cash returns, investments) will be unlocked once the $3 billion net debt target is achieved?

Ben Rodgers explained that the target is in sight, potentially within 1-2 years at current prices. Once achieved, they will re-evaluate priorities, likely setting a new, lower net debt target. This flexibility allows prudent management of ARO/decommissioning and continued investment in exploration (which will tick up in 2027 for Suriname and Alaska wells).

“If we reach the net debt target in the near term, we'll reevaluate at that time and likely set another target below that, but balance all the different things that we've mentioned.”

asked by Chris Baker · answered by Ben Rodgers

Is the company still expecting a modest decline in Egypt gross oil volumes for the rest of the year, or has stabilization efforts been more successful?

Stephen Riney clarified that a slight annual decline is expected long-term, but recent quarters (4 in a row) saw flat production around 121,000 bbl/d. For the remainder of 2026, it's expected to be flat around 118,000 bbl/d, reflecting a slight annual decline. Success in gas wells (condensate-rich) and increased oil drilling efficiency are helping to mitigate the decline.

“What you're going to see for the next 3 quarters on gross oil... you're going to see something closer to flat around 118,000 barrels of oil a day. So about a 2.5% to 3% decline from the prior 4 quarters on average.”

asked by Leo Mariani · answered by Stephen Riney