APA Q2 Earnings Beat on Strong Production, Lower Expenses
U.S. energy operator APA Corporation APA reported second-quarter 2023 adjusted earnings of 85 cents per share, beating the Zacks Consensus Estimate of 66 cents. The outperformance primarily reflects lower operating expenses and strong production.
However, the bottom line dropped from the year-ago adjusted figure of $2.37 due to significantly lower oil prices.
Revenues of $2 billion missed the Zacks Consensus Estimate of $1.8 billion and were down 35.7% from the year-ago quarter’s sales.
As promised, the company is using the excess cash to reward shareholders with dividends and buybacks. APA bought back 1.3 million shares at $33.72 apiece during the second quarter. The company also shelled out $77 million in dividend payment.
Production & Selling Prices
Production of oil and natural gas averaged 398,930 BOE/d, which comprises 66% liquids. The figure increased 3.7% from the year-ago quarter but fell marginally short of our expectation of 399,140 BOE/d.
U.S. output (accounting for 65% of the total) rose 6.3% year over year to 212,786 BOE/d, while production from the company’s international operations increased a marginal 1% to 186,144 BOE/d. APA’s oil and natural gas liquids (NGLs) production was 261,463 barrels per day (Bbl/d). Natural gas output totaled 824,807 thousand cubic feet per day (Mcf/d).
The average realized crude oil price during the second quarter was $76.38 per barrel, down 32.9% from the year-ago realization of $113.79. The number also came below our projection of $78.33. Meanwhile, the average realized natural gas price fell to $2.39 per thousand cubic feet (Mcf) from $5.65 in the year-ago period and missed our estimates of $2.45.
Costs & Financial Position
APA’s second-quarter lease operating expenses totaled $361 million, up marginally from the year-ago period’s figure of $359 million. However, a significant decline in costs of oil and gas purchased meant that total operating expenses fell 20.7% from the corresponding period of 2022 to $1.3 billion. Our model put the figure at $1.2 billion.
During the quarter under review, APA generated $1 billion of cash from operating activities while it incurred $516 million in upstream capital expenditures. The company reported an adjusted operating cash flow of $768 million in the second quarter. It also registered a free cash flow of $94 million during the period, though it plunged from $814 million a year ago.
As of Jun 30, APA had approximately $142 million in cash and cash equivalents and $5.6 billion in long-term debt. The debt-to-capitalization ratio of the company was 76.7.
Guidance
APA expects adjusted production to average 337,000-339,000 BOE/d in Q3 and 330,000-334,000 BOE/d in 2023. Of this, oil volumes are likely to be 159,000-161,000 Bbl/d and 159,000 Bbl/d for Q3 and 2023, respectively. Meanwhile, the company pegged its upstream capital expenditure for the year at $1.9 billion. APA is committed to returning at least 60% of free cash flow to its shareholders.
Some Key E&P Earnings
While we have discussed APA’s second-quarter results in detail, let’s see how some other exploration and production companies have fared this earnings season.
Marathon Oil MRO reported adjusted net income per share of 48 cents, beating the Zacks Consensus Estimate of 43 cents. The outperformance reflects strong domestic oil and gas production. In particular, MRO’s total net production (from U.S. and International units) in the quarter under review came in at 399,000 BOE/d compared to 343,000 BOE/d in the year-ago period.
Marathon Oil’s capital and exploratory expenditures totaled $623 million during the quarter and adjusted free cash flow raked in was $531 million. MRO also executed $372 million in share repurchases during the period.
However, another upstream giant, Diamondback Energy FANG, reported weaker-than-expected second-quarter earnings. The EPS of $3.68 missed the Zacks Consensus Estimate of $3.92 and deteriorated from the year-ago bottom line of $7.07 per share. The underperformance reflects lower overall realization.
Diamondback spent $711 million in capital expenditure — $635 million on drilling and completion, $46 million on infrastructure, environment and $30 million on midstream. FANG booked $547 million of free cash flows in the second quarter.
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