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APA Aims to Reward Shareholders Over 50% of Free Cash Flow by Year-end

·4-min read

Despite APA Corp. lowering its adjusted production guidance by 2% for 2022, the Houston-based independent oil and gas producer still aims to pay out over 50% of its free cash flow (FCF) to shareholders through share buybacks and dividends by year-end.

APA expects its adjusted production, which excludes tax barrels and non-controlling interest in Egypt, to average between 315,000-319,000 boe/d in 2022, down 2% compared to prior guidance, the company announced this week in a press statement prior to its second-quarter earnings webcast. An earlier capex forecast of $1.7 billion for the year will remain intact.

The lower guidance “reflects the net effect of several items, including: the impact of high oil prices on production sharing contract volumes in Egypt, timing delays in the expected well completion schedule in Egypt and the Permian, mixed results from its Austin Chalk delineation program, minor divestitures, and the addition of five months of production from the Texas Delaware Basin acquisition,” APA said.

APA’s current asset portfolio—including the recent acquisition of properties in the Texas Delaware Basin located primarily in Loving and Reeves counties near existing operations—aims to prioritize long-term, full-cycle returns through capital allocation, according to the company.

“While APA beat on both EBITDA and adjusted EPS, production, both domestically and abroad [in Egypt], missed the mark… specifically, the region saw uncharacteristic delays and downtime due to rig staffing and other supply-chain issues,” Raymond James analyst John Freeman wrote August 3 in a research note.

“While Egypt’s 1H22 performance left something to be desired (only 26 well connections versus planned 42), APA intends to accelerate 2H22 operations. After only bringing 11 wells online in 2Q, APA plans to bring 20 wells and 30 wells online in 3Q and 4Q, respectively,” Freeman wrote. “Overall, the operational delays in 1H22 will result in APA bringing online 15% fewer wells this year than originally planned.”

Beyond its African assets in Egypt, APA remained active during the second quarter and beyond.

In the U.S., it added a third rig in the Permian Basin, which is now drilling at Alpine High.

In the North Sea, it delivered a maintenance turnaround at the Forties Field “safely and on-budget.” Total depth was also reached at the Garten-3 well at Beryl, which should see volumes flowing in the second half of the year.

In South America, two flow tests were completed on the Krabdagu discovery well offshore Suriname and further appraisal is planned. In Suriname Block 58 and Block 53, the exploration prospects Dikkop and Baja, respectively, are currently being drilled, and results are expected in the coming months.

RELATED:

Apache Unveils $555 Million Acquisition of Texas Delaware Basin Properties

FCF to Shareholders

APA looks to retain its disciplined financial approach, which includes returning a minimum 60% of free cash flow to shareholders through share repurchases and ordinary dividends, while continuing to strengthen its balance sheet as it eyes achievement of an investment grade credit rating from key rating agencies.

“If recent strip prices hold, we expect to generate approximately $3 billion of free cash flow in 2022, and by year-end, at least $1.8 billion of this capital will be returned to shareholders through dividends and share buybacks,” APA CEO and President John J. Christmann IV said Aug. 4 during the company’s second-quarter webcast. “Through July, we have returned just under 50% of this amount.”

APA initially revealed its free cash flow return framework in fourth-quarter 2021. Since its inception in October 2021 through July, APA has repurchased 52.3 million shares at an average price of $31.19 per share.

During the second quarter, APA repurchased 7 million shares at an average price of $41.59 per share, followed by an additional 6.9 million shares repurchased in July at an average price of $33.87 per share.

Between October 2021 and July, APA has returned $1,454 million to shareholders through share repurchases and another $110 million through dividends.

APA’s net debt was $5 billion on June 30, down compared to $6.7 billion on Dec. 31, 2021. In order to execute the recent Texas Delaware Basin acquisition in July, the company accessed its revolving credit facility.