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    APA
    Earnings call· Dec 2025(Q4 FY25)

    APA Q4 FY25 earnings call APA

    Feb 26, 2026 Source

    Executive summary

    APA Q4 FY25 — Strong Execution, Cost Leadership, and Permian Inventory Depth

    APA Corporation delivered a strong Q4 FY25, marked by significant cost reductions achieved ahead of schedule and robust free cash flow generation. The company strengthened its balance sheet while sustaining Permian oil production and growing Egypt gas volumes. Strategic focus remains on disciplined capital allocation, further cost efficiencies, and advancing high-return development and exploration opportunities, with Suriname poised to drive substantial free cash flow growth from 2028.

    Highlights

    5

    • Exceeded cost reduction target of $350 million run rate by end of 2025, two years ahead of schedule, with line of sight to $450 million run rate by end of 2026.

    • Generated over $1 billion in free cash flow in 2025, returning approximately $640 million to shareholders.

    • Permian oil production met or exceeded guidance every quarter in 2025 on lower-than-planned capital budget.

    • Proved reserves increased approximately 9% year-over-year, surpassing 1 billion BOE, with an all-in reserve replacement ratio exceeding 160% for 2025.

    • Net debt reduced by over $1.4 billion from year-end 2024, ending 2025 just below $4 billion.

    Concerns

    3

    • Egypt gross gas production was below guidance due to unplanned temporary pipeline disruptions late in Q4 2025.

    • Q1 2026 Permian oil production experienced 3,000 barrels per day of weather-related downtime.

    • LOE expected to be slightly above 2025 levels in 2026 due to market-related headwinds in Permian and North Sea.

    Guidance & targets

    15
    CategoryTargetConfidence
    Controllable spend reduction run rate
    $450 million
    high materiality
    High
    US oil production
    120,000 to 122,000 barrels per day
    high materiality
    High
    Egypt BOE production
    slightly grow
    medium materiality
    Medium
    Egypt gross gas volumes
    540 million to 550 million cubic feet per day
    medium materiality
    High
    Total portfolio spend
    $2.1 billion
    high materiality
    High
    Permian development capital
    around $1.2 billion
    high materiality
    High
    Permian base capital projects
    approximately $100 million
    medium materiality
    High
    Egypt capital
    approximately $500 million
    medium materiality
    High
    GranMorgu development capital (Suriname)
    approximately $230 million
    medium materiality
    High
    Exploration capital
    approximately $70 million
    medium materiality
    High
    Net debt target
    $3 billion
    high materiality
    High
    Decommissioning and asset retirement obligations (gross spend)
    approximately $280 million
    medium materiality
    High
    Decommissioning and asset retirement obligations (net spend)
    approximately $225 million
    medium materiality
    High
    Trading activities pretax income
    approximately $650 million
    medium materiality
    High
    Controllable spend decline (incremental)
    another $200 million
    high materiality
    High

    Operational metrics

    24
    Net income (GAAP)
    $279 million
    Q4 FY25

    Reported under generally accepted accounting principles.

    Diluted EPS (GAAP)
    $0.79
    Q4 FY25

    Reported under generally accepted accounting principles.

    Noncash impairments (after-tax)
    $36 million
    Q4 FY25

    Significant after-tax item impacting adjusted earnings.

    Unrealized losses on hedges (after-tax)
    $29 million
    Q4 FY25

    Significant after-tax item impacting adjusted earnings.

    Gain on decommissioning contingency (after-tax)
    $47 million
    Q4 FY25

    Offsetting item impacting adjusted earnings.

    Adjusted net income
    $324 million
    Q4 FY25

    Excluding noncash impairments, unrealized losses on hedges, and gain on decommissioning contingency.

    Adjusted diluted EPS
    $0.91
    Q4 FY25

    Excluding noncash impairments, unrealized losses on hedges, and gain on decommissioning contingency.

    Shareholder returns
    $154 million
    Q4 FY25

    Returned to shareholders in Q4, through common dividends and share repurchases.

    Shareholder returns
    approximately $640 million
    FY25

    Returned to shareholders for the full year, representing 63% of free cash flow.

    Net debt
    just below $4 billiondown approximately $1.4 billion from year-end 2024
    year-end 2025

    Reduced through free cash flow generation, asset sales, and payments from Egypt.

    Proved reserves
    over 1 billionincreased approximately 9% year-over-year
    year-end 2025

    Surpassing 1 billion BOE, despite a 13% year-over-year decline in SEC oil prices.

    Reserve replacement ratio
    exceeded 160%
    FY25

    For the full year.

    Controllable spend savings (run rate)
    $350 million
    year-end 2025

    Achieved original target two years ahead of schedule.

    LOE reduction (Permian projects)
    $3.5-plus million
    late 2026

    Expected LOE reduction from $100 million investment in base capital projects.

    Permian D&C cost
    under $500
    end of 2025

    Significant progress made on drilling and completion costs.

    Permian D&C cost
    under $700
    end of 2025

    Significant progress made on drilling and completion costs.

    Cumulative pretax income from trading activities
    nearly $2 billion
    2020 through end of 2026

    Underscores the scale, consistency, and value of this business.

    Acreage
    7.5 million
    current

    Much of the acreage is well connected with existing gas pipelines, but there is also territory far from pipelines with potential leads.

    Permian economic inventory locations
    around 1,700
    current

    Baseline that will continue to be refined and built upon through advances in resource understanding, technology, and capital/operational efficiencies.

    Permian technical upside locations
    approximately 1,700
    current

    Represents locations that are expected to progress to economic inventory through continued delineation success and efficiency gains.

    Permian acreage
    approximately 450,000
    current

    Across the Midland and Texas Delaware basins, concentrated in a few key areas.

    Permian breakeven oil price
    $41
    current

    For two wells drilled in Ward County, indicating strong economics for technical upside.

    Permian weather-related downtime
    3,000
    Q1 2026

    Experienced in the first quarter, reflected in guidance.

    Egypt gross gas production
    501 millionbelow guidance
    Q4 FY25

    Due to unplanned temporary pipeline disruptions late in the quarter; remediated and operations resumed to normal.

    Industry KPIs

    4
    MetricValueDetails
    D c efficiency rig activity$595per foot
    Basin level production volume120,000 to 122,000barrels per day
    FCF shareholder distributionsover $1 billionUSD
    Weather event volume earnings impact3,000barrels per day

    Deals & partnerships

    2
    CallonAcquisition of Callon assets to high-grade Permian asset base.

    Enabled through the Callon acquisition and exits from noncore assets like the conventional Central Basin Platform and fragmented position in New Mexico. Resulted in approximately 450,000 net acres across Midland and Texas Delaware basins.

    nullWithdrawal from a small noncore concession.

    Part of ongoing portfolio high-grading efforts. Assets fall outside of the merged concession area established in 2021 and do not benefit from the new gas pricing framework. Quantified impact detailed on Page 16 of the supplement.

    Capital programs

    1
    Permian Base Capital Projectsunderway
    Period spend: $100 million

    Benefit: structurally reducing LOE and improving uptime; LOE benefits starting in the back half of 2026 and building into 2027; attractive 6- to 24-month paybacks

    Aimed at structurally reducing LOE and improving uptime, offering attractive 6- to 24-month paybacks. Includes investments in compression, facilities consolidation, and artificial lift.

    Risks & headwinds

    3
    Weather-related downtime impacting Permian production.Q1 2026

    3,000 barrels per day

    Mitigation: Reflected in guidance.

    Market-related headwinds causing LOE to be slightly above 2025 levels.2026

    slightly above 2025 levels

    Mitigation: Will work throughout the year to mitigate these pressures; Permian base capital projects aimed at structurally reducing LOE.

    Unplanned temporary pipeline disruptions impacting Egypt gas production.late Q4 2025

    below guidance (501 MMcf/d vs. higher guidance)

    Mitigation: Remediated and operations have since resumed to normal.

    What to watch in Q1 FY26

    5

    Permian LOE reduction from base capital projects

    late 2026
    CurrentLOE benefits starting in the back half of 2026
    Target$3.5-plus million per month reduction

    Why it matters

    Demonstrates the effectiveness of capital investments in driving sustainable cost efficiencies and improving margins.

    as you get to the back part of '26, we expect that our LOE will come down by somewhere around $3.5-plus million per month.

    Q&A highlights

    9

    Seeking clarity on the $100M Permian capital for LOE projects and its payback/impact, and details on the exploration budget for Egypt, Alaska, and Suriname, specifically a 'game changer' target in Alaska.

    John Christmann detailed the $70M exploration budget ($20M Alaska prep, $50M Suriname Q4 drilling). He highlighted Egypt's gas strategy under the new pricing framework, leading to new exploration inventory. Tracey Henderson elaborated on Alaska's robust prospect inventory, focusing on maturing analogous prospects to Sockeye and appraising the Sockeye discovery in early 2027. Ben Rodgers explained the $100M Permian capital for LOE projects (compression, facilities consolidation, artificial lift), expecting $3.5M+ per month LOE reduction by late 2026, implying a 1-2 year payback. Steve Riney added that these investments also increase production reliability and can move high-breakeven inventory into economic categories.

    “So spending that $100 million gets you $40 million to $50 million of savings, which is pretty much in line with the kind of 1- to 2-year payback.”

    asked by Douglas George Blyth Leggate · answered by Ben Rodgers

    2 min read5 chapters

    Detailed Narrative

    01

    Permian Inventory Assessment

    A comprehensive assessment of Permian Basin inventory, incorporating an improved cost structure, confirmed the depth and quality of drilling opportunities. This effort validated substantial upside potential and increased confidence in sustaining long-term oil production with competitive capital efficiency. The company currently holds approximately 1,700 locations in economic inventory, which are operated locations expected to generate at least a 10% rate of return, and approximately 1,700 additional locations in technical upside. Significant potential exists to convert technical upside to economic inventory through ongoing appraisal and efficiency gains, with a 4-well appraisal test planned for later this year in the First Bone Spring.

    02

    Egypt Gas Strategy

    Under a new gas pricing framework, focused activity drove meaningful production growth in Egypt, establishing a foundation for a sustained multi-year strategic focus. The company now has visibility into a runway of new development inventory and near-field exploration opportunities, which are expected to support continued gas growth. This strategic shift leverages historical knowledge of gas-prone areas previously avoided and includes a regional approach to exploration, with several key wells planned for drilling this year.

    03

    Suriname GranMorgu Development

    The GranMorgu development in Suriname is advancing towards a mid-2028 first oil date, with approximately $230 million in capital allocated for its development in 2026. This capital covers all aspects of the project, including the FPSO, umbilicals, and the commencement of development drilling with multiple rigs late next year or early 2027. This project is expected to provide a meaningful step change and continued growth in free cash flow through at least the early 2030s.

    04

    Cost Structure Improvement

    APA exceeded its original target to reduce controllable spend by $350 million on a run rate basis by the end of 2027, achieving this milestone two years ahead of schedule by the end of 2025. The company now has line of sight to exiting 2026 at a $450 million run rate, positioning it as a cost leader. These savings are sustainable and are expected to drive efficiency and long-term value creation, improving margins and expanding free cash flow.

    05

    Exploration Focus

    The company is investing approximately $70 million in 2026 to advance high-impact exploration opportunities across its portfolio. This includes $20 million for prep work in Alaska for an active Q1 2027 drilling season, which will likely involve an exploration well and an appraisal well at the Sockeye discovery. Additionally, approximately $50 million is allocated for a return to exploration drilling in Suriname Block 58 in the fourth quarter of 2026.

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