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    APA
    Earnings call· Mar 2026(Q1 FY26)

    APA Q1 FY26 earnings call APA

    May 7, 2026 Source

    Executive summary

    APA Corporation Q1 FY26 — Strong FCF and Raised US Oil Outlook Amidst Market Volatility

    APA Corporation delivered a strong first quarter, generating significant free cash flow and raising its full-year U.S. oil production outlook, reflecting operational efficiencies in the Permian. Despite geopolitical tensions and weak Waha gas pricing, the company remains focused on its strategic priorities of operational performance, portfolio quality, and financial discipline. Management is evaluating the optimal mix of debt reduction and shareholder returns, aiming to achieve its $3 billion net debt target in the near term while advancing the Suriname GranMorgu development and Alaska exploration.

    Highlights

    5

    • Generated nearly $0.5 billion in free cash flow during the quarter.

    • Raised full year U.S. oil production outlook to 122,000 barrels per day.

    • Expected $1.1 billion of pretax cash flow from oil and gas trading portfolio in 2026.

    • Achieved $450 million target for cumulative run rate savings by the end of 2026.

    • Expected run rate cash costs to be $600 million lower exiting 2026 compared to 2024.

    Concerns

    4

    • Gas volumes curtailed in Permian due to weak Waha pricing.

    • Egypt adjusted volume guidance lowered due to PSC impacts of higher commodity prices (accounting impact, not gross production).

    • Net debt increased slightly to $4.1 billion from $4 billion due to working capital use.

    • Ongoing geopolitical tensions in the Middle East and increased volatility in global energy markets.

    Guidance & targets

    10
    CategoryTargetConfidence
    U.S. full year oil production
    122,000 barrels per day
    high materiality
    High
    Egypt adjusted volume guidance
    Lowered
    medium materiality
    High
    Full year upstream capital guidance
    $2.1 billion
    high materiality
    High
    2026 U.S. and U.K. current tax expense
    Approximately $230 million
    medium materiality
    High
    Oil and gas trading portfolio pretax cash flow
    Approximately $1.1 billion
    high materiality
    High
    Full year free cash flow
    Approximately $2.2 billion
    high materiality
    High
    Run rate cash costs reduction
    $600 million lower
    medium materiality
    High
    Cumulative run rate savings
    $450 million
    medium materiality
    High
    Suriname GranMorgu first oil
    Mid-2028
    high materiality
    High
    Oil and gas trading portfolio pretax cash flow
    Just above $400 million
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Permian
    Operational efficiencies and improved uptime drove oil production above guidance. Asset base repositioned to be entirely unconventional, with over a decade of economic inventory.
    Oil production: above guidanceGas volumes: curtailed due to weak Waha pricing
    		————
    Egypt
    Continued success in the gas program, including new acreage, underpins 2026 targets. Waterflood investments, efficient workover programs, and increased uptime have moderated base decline rates. Higher Brent prices reduce adjusted volumes under PSC, but increase profitability.
    Gross production volumes: above previous expectationsAdjusted volume guidance: lowered due to PSC impacts of higher commodity pricesGas program activity: 50% of total activityOil program activity: 50% of total activityGross oil production (H2 2026): ~118,000 bbl/d
    		————
    Suriname
    Advancing a world-class development toward first oil. Expected to be a significant free cash flow growth engine. Additional exploration planned in Block 58.
    GranMorgu first oil: mid-2028 (on track)
    		————

    Operational metrics

    27
    Adjusted net income
    $489 million
    Q1 FY26

    Excludes $37 million of unrealized derivative instrument losses and other small items.

    Adjusted diluted EPS
    $1.38
    Q1 FY26

    Excludes $37 million of unrealized derivative instrument losses and other small items.

    Shareholder returns
    $88 million
    Q1 FY26

    Returned to shareholders from Q1 FCF.

    Net debt
    $4.1 billionvs $4 billion at end of 2025
    Q1 FY26 end

    Slight increase due to working capital use (increase in receivables from higher oil prices, payout of incentive compensation).

    Near-term bond maturities repaid
    $634 million
    Year-to-date

    Includes $555 million repaid in April.

    Interest savings
    More than $60 millionvs last year
    Annual run rate

    Resulting from deleveraging steps taken in 2025 and year-to-date bond repayments.

    Interest expense reduction
    Approximately $150 million lowervs 2024
    Annual run rate

    Expected by end of 2026.

    Exploration spend
    $70 million
    FY26

    Includes $20 million for ice roads in Alaska and $50 million for Suriname exploration.

    Exploration spend
    Tick upvs FY26
    FY27

    Due to additional exploration in Suriname and actual wells being drilled in Alaska.

    Decommissioning spend increase
    $20 millionraised guidance
    FY26

    Due to increased planned activity (more platform wells in Gulf of America), not cost increase.

    FCF returned to shareholders
    71%vs 60% framework
    Since Q4 2021

    Cumulative return since the inception of the capital returns framework.

    FCF returned to shareholders
    More than 75%
    Cumulative through YE25

    Through dividend and buybacks.

    Buybacks
    $3.2 billion
    Cumulative through YE25

    Part of shareholder returns.

    Debt reduction
    $3.6 billion
    Since YE21

    Part of balance sheet strengthening.

    LOE
    Below guidancevs guidance
    Q1 FY26

    Driven by cost savings in the U.S. and some timing.

    LOE guidance
    $15.25unchanged
    FY26

    Inflationary pressures (diesel in Egypt) offset by U.S. savings and LOE uptime projects.

    LOE uptime projects
    $100 million
    FY26

    Going according to plan, contributing to LOE savings.

    Permian turn-in-lines
    Most to occur in Q2 and Q3
    Q2-Q3 FY26

    Expected to sustain oil production volumes through H2 FY26.

    U.S. BOE production
    —decline from Q1
    Q2 FY26

    Assumes continued natural gas curtailments through end of Q2 due to Waha gas pricing. No price-related curtailments assumed for H2.

    Egypt adjusted total production
    —decline from Q1
    Q2 FY26

    About two-thirds of decline related to higher Brent prices (PSC accounting impact); remainder from successful recovery of backlog costs from 2021 PSC modernization.

    Egypt gross oil production
    ~121,000flat
    4 quarters prior to Q1 FY26

    Adjusted for small concession exit.

    Egypt gas program activity split
    50%
    Current

    Split of rig counts between gas and oil.

    Egypt oil program activity split
    50%
    Current

    Split of rig counts between gas and oil.

    Egypt gas price
    $4.25
    Current

    Average price; marginal price on new gas is higher.

    Egypt workover rigs
    Mid- to high teens
    Current

    Used for new drilling completions and workover activity.

    Dated Brent differential
    $8 to $10 premiumvs futures Brent
    Q2 FY26

    Compresses through the year to $5 to $10 premium.

    WTI premium
    $2 to $5 premiumvs forward price
    Current

    Producers realizing this for barrels sold in Midland.

    Industry KPIs

    3
    MetricValueDetails
    D c efficiency rig activity—
    Basin level production volume122,000barrels per day
    FCF shareholder distributions$477 millionUSD

    Deals & partnerships

    1
    Egypt government stakeholdersFiscal terms enhancement

    Enhanced the value of assets through improved fiscal terms and a more gas-weighted activity mix.

    Capital programs

    2
    Suriname GranMorgu developmentunderway

    Benefit: Organic high-margin oil production growth, significant free cash flow growth engine

    Remains on track for 2028 first oil.

    LOE uptime projectsunderway$100 million
    Period spend: $100 million
    Start: FY26

    Benefit: Savings in LOE

    In the Permian, going according to plan.

    Risks & headwinds

    6
    Geopolitical tensions in the Middle Eastongoing

    deeply concerning

    Mitigation: Teams in Egypt continue to operate safely and without disruption; close coordination with partners and government stakeholders; priority on safety and reliability.

    Increased volatility in global energy marketsongoing

    volatile since the start of the conflict

    Mitigation: Sound long-term strategy, strong execution, contributions from gas trading portfolio, focus on free cash flow generation, disciplined capital allocation, cost reductions.

    Weak Waha pricingQ2 FY26

    Gas volumes curtailed in Permian

    Mitigation: No price-related curtailments assumed for H2 FY26.

    PSC impacts of higher commodity prices on Egypt adjusted volumesFY26

    Egypt adjusted volume guidance lowered

    Mitigation: This is an accounting impact, not a change in underlying gross production volumes; higher prices increase profitability.

    Working capital useQ1 FY26

    Net debt increased by $0.1 billion (from $4B to $4.1B)

    Mitigation: Driven by increase in total company receivables due to higher oil prices and payout of incentive compensation. Management is evaluating mix of debt paydown, dividends, and buybacks.

    Inflationary pressuresFY26

    Higher power costs, rising diesel prices, tubulars

    Mitigation: Most contracts secured at start of year; teams doing a good job managing costs; LOE guidance unchanged due to offsetting savings in U.S.

    What to watch in Q2 FY26

    5

    Permian gas curtailments

    H2 FY26
    CurrentContinued through Q2 FY26
    TargetNo price-related curtailments

    Why it matters

    Indicates recovery of Permian gas production and potential for increased revenue from gas.

    No price-related curtailments are assumed in our U.S. BOE production guidance for the second half of the year.

    Q&A highlights

    7

    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

    2 min read7 chapters

    Detailed Narrative

    01

    Strategic Priorities and Execution

    APA's strategy focuses on top-tier operational performance, building a high-quality portfolio, and maintaining financial discipline. This has guided capital allocation, leading to improved capital efficiency in the Permian, strengthened base production in Egypt, and advancement of the Suriname GranMorgu development. The company is also building future growth through exploration.

    02

    Permian Operations

    The Permian asset base has been repositioned to be entirely unconventional, providing over a decade of economic inventory. Operational efficiencies and improved uptime led to oil production above guidance in Q1 FY26, despite gas curtailments due to weak Waha pricing. Most Permian turn-in-lines are expected in Q2 and Q3, sustaining oil production through H2.

    03

    Egypt Operations

    Egypt's gas program, including new acreage, is underpinning 2026 targets. Waterflood investments, efficient workover programs, and increased uptime have moderated base decline rates. The program is currently split 50-50 between gas and oil, with new gas discoveries helping to offset oil decline and providing significant energy security for Egypt.

    04

    Balance Sheet and Debt Reduction

    The company ended Q1 FY26 with $4.1 billion in net debt, a slight increase due to working capital use (higher oil prices and incentive compensation payout). However, $634 million of near-term bond maturities were repaid year-to-date, resulting in over $60 million in interest savings versus last year. Annual interest expense is expected to be $150 million lower on a run rate basis by end of 2026.

    05

    Free Cash Flow and Shareholder Returns

    Robust asset performance and favorable commodity prices generated $477 million in free cash flow in Q1 FY26, with $88 million returned to shareholders. The company expects to generate approximately $2.2 billion of free cash flow for the full year, which will advance progress towards the $3 billion net debt target and support shareholder returns. The capital returns framework (60% of FCF) remains a commitment, with flexibility on the mix of debt reduction and share repurchases.

    06

    Alaska Exploration

    After reprocessing seismic data, APA and its partners are "thrilled" with the results, indicating that Sockeye was not drilled in the thickest part of the reservoir. A two-well program (one exploration, one appraisal) is planned for the upcoming winter, with APA assuming operations. This is expected to increase exploration spend in 2027.

    07

    Suriname Development

    The GranMorgu project in Block 58 remains on track for first oil in mid-2028, representing a significant long-term free cash flow growth engine. Additional exploration is planned in Block 58, with prospects that could extend plateau production or support incremental infrastructure.

    AI-generated summary of the company’s earnings call. Not investment advice.