APA - APA Corp.: Suriname Is Looking Good

2023-09-13 11:27:38 ET

Summary

• APA Corporation reported net income of $381 million in 2Q23, with adjusted earnings of $0.85 per diluted share.
• APA's stock performance has seen a 13% increase over the past year, making it a suitable long-term investment in the oil industry.
• The potential growth in Offshore Suriname, where APA owns a 50% stake in block 58 and a 45% stake in block 53, makes the company attractive.
• I recommend buying APA between $44 and $43, with possible lower support at $40.6.

Introduction

Houston-based APA Corporation ( APA ) released its second quarter 2023 results on May 3, 2023.

Note: I have followed APA quarterly since 2017. This new article is a quarterly update of my article published on May 9, 2023.

Apache Corp. owns energy-producing assets in the U.S., the North Sea, and Egypt. Also, the company is involved with two blocks in Suriname, which are not producing now but are important assets for future growth.

Total production is about 60% liquid for APA.

1 - 2Q23 results snapshot

During the second quarter of 2023, APA reported a net income attributable to common stock of $381 million , or $1.23 per diluted share. When adjusted for certain items that impact the comparability of results, APA's second-quarter earnings were $0.85 on a diluted share basis.

The net cash from operating activities was $1,000 million , and adjusted EBITDAX was $1,217 million in 2Q23.

Total Production was 398,930 Boepd in 2Q23, as shown in the picture above. It was up 3.7% YoY. The company purchased $46 million of stock at an average of $33.72 in 2Q23.

CEO John Christmann said in the conference call:

APA delivered strong results and made notable progress on a number of fronts during the quarter, most specifically with regard to drilling and completion efficiencies in the US and Egypt. A reduction in year-over-year per unit LOE and G&A costs, working capital improvements in Egypt and the appraisal of Krabdagu in Suriname.

2 - Stock performance

Let's compare APA to a few other E&P oil and gas companies (e.g., Murphy Oil ( MUR ), Hess Corp. ( HES ), ConocoPhillips ( COP ), Marathon Oil ( MRO ), etc.).

We can see that APA is up nearly 13% on a one-year basis.

APA Corporation is a worthy E&P company suitable for a long-term investment in the oil industry.

The company has a diversified portfolio, with domestic production representing 53.3% of the total output. Also, potential growth in Offshore Suriname, where APA owns a 50% stake in block 58 and a 45% stake in block 53, makes the company attractive.

The block 58, adjacent to the prolific Stabroek block, is the most advanced. TotalEnergies and APA are scoping an oil hub project combining the Sapakara complex and the Krabdagu discovery.

In 2Q23, the appraisal at Krabdagu-3 on Block 58 offshore Suriname confirms the extension of oil resources 14 kilometers from the discovery well.

Note: In December 2019, APA and TotalEnergies ( TTE ) formed a joint venture to develop the project off Suriname. Under the Suriname deal, Apache and Total held 50% working interest in Block 58 . Also, APA Suriname is the operator of Block 53 (45%) with PETRONAS Carigali Sdn Bhd (30%) and Cepsa (25%).

CEO John Christmann said in the conference call:

In Suriname, Block 58, we are currently focused on appraising last year's Krabdagu discovery. As previously noted, we have completed testing at Krabdagu 2 and the results were consistent with our predrill expectations. At Krabdagu 3, we are in the pressure buildup phase, and the data collected thus far is very encouraging. The DD3 semisubmersible rig is still on location and will be released upon completion of operations.

Conclusion: While owning APA long-term makes sense, trading LIFO APA for about 30%-40% of your position is also recommended.

We should not ignore the rally in oil prices we have experienced since July when Saudi Arabia decided to extend the supply cut by 1 million barrels to the end of 2023. Brent is now back to the same level a year ago, reaching $92.06 per barrel today.

APA Corporation - Balance sheet and production history for 2Q23: the raw numbers

Source: Company filing .

Analysis: Revenues, Earnings Details, Free Cash Flow, And Oil Production

1 - Revenues and others were $1,961 million in 2Q23

APA reported a net income attributable to common stock of $381 million or $1.23 per diluted share during the second quarter of 2023.

2Q23 total revenues and others were $1.961 billion (with oil revenues of $1.796 billion), down from $3.052 billion in the same quarter a year ago.

The global liquid price was $76.38 in 2Q23 compared to $78.37 in 1Q23, as shown in the chart below. Natural Gas was $2.39/Mcf , down from $3.22 the preceding quarter, as shown below:

The company kept the dividend this quarter at $0.25 per share and bought back 46 million worth of APA common stocks.

Unfortunately, no debt reduction happened in 2Q23.

2 - Free cash flow was a loss of $420 million in 2Q23

Note: The generic free cash flow is the cash from operating activities minus CapEx. The company has a different way of calculating the free cash flow because it is a non-GAAP determination and has indicated $94 million in 2Q23. The company's calculation adds "change in operating assets and liabilities" and applies a reduced CapEx. It is not comparable to other peers.

APA's free cash flow was $420 million in 2Q23, and the trailing 12-month free cash flow is now $1,092 million .

3 - Net debt decreased slightly this quarter at $5.43 billion.

APA has not prioritized its debt profile so far in 2023, which is not a positive element. Total cash was $142 million in 2Q23, and total debt, including current, was $5,576 million. Net debt is now 5.434 Billion.

The debt is exceptionally high, with a net debt-to-capital ratio of 7.8x , according to YCharts.

4 - Oil-equivalent production was 398,930 Boep/d in 2Q23 which comprises 50% liquids (oil + NGL).

4.1 - Production Details

One technical issue with APA is that gas production is high with Alpine High.

Production in the USA is the most important for the company, with 212,786 Boepd in 2Q23, or 53.3% of the total output.

In the North Sea, production was 42,118 Boepd, and Egypt's production increased significantly to 144,026 Boepd.

5 - 3Q23 and FY23 Guidance

APA Corporation reiterates upstream CapEx of $1.9 billion , down slightly.

Total production for 3Q23 will be between 409K to 411K Boepd , or about 2.8% higher than production in 2Q23.

CEO John Christmann said in the conference call:

Looking ahead to the second half of the year, we expect drilling programs to remain constant in both the US and Egypt. As a steady operational cadence in these areas enables more efficient operations. That said, we have reduced our full year upstream capital investment outlook to reflect previously noted North Sea platform drilling reductions, no additional drilling in Suriname this year and some minor service cost declines.

We are also reducing our full year LOE outlook from $1.5 billion to $1.4 billion , which reflects our ongoing success in actively managing these costs down, as well as some price decreases associated with shorter-cycle items such as diesel and chemicals.

Commentary and Technical Analysis

Note: The chart has been adjusted for the dividend.

APA forms an ascending triangle pattern with resistance at $45.15 and support at $43.8. It is generally considered a bearish pattern. RSI is now 58 neutral. However, the pattern is bullish.

The ascending triangle is a bullish formation that usually forms during an uptrend as a continuation pattern. There are instances when ascending triangles form as reversal patterns at the end of a downtrend, but they are typically continuation patterns. Regardless of where they form, ascending triangles are bullish patterns that indicate accumulation.

The short-term strategy is regularly trading LIFO at about 30%-35% of your position. I suggest selling between $45.10 and $45.75 , with the next higher resistance at $47, and waiting for a retracement between $44 and $43 , with possible lower support at $40.6.

Watch oil and gas prices like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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