Apa targets $350M run rate savings by end of 2025 amid flexible capital approach and Egypt gas momentum

Earnings Call Insights: APA Corporation (APA) Q3 2025

MANAGEMENT VIEW

* CEO John Christmann emphasized that "this year's macro environment has remained challenging, characterized by heightened volatility and uncertainty in commodity prices, largely driven by shifting trade policies and geopolitical tensions." He highlighted that APA's focus on lowering controllable spend has led to sustainable improvements in cost structure and that "our strategy is working, and the benefits are increasingly evident across both our operations and financial performance."
* Christmann reported exceeding production guidance in all operating areas, with capital investment and operating costs below guidance. In the Permian, oil production was above guidance, while Egypt saw substantial payments that nearly eliminated past due receivables. In Suriname, GranMorgu remains on track for first oil in mid-2028.
* Christmann indicated APA is raising Permian oil production guidance for Q4 while maintaining capital spend. The company is also slightly increasing Q4 production estimates in Egypt and targeting additional $50 million to $100 million in run rate savings by the end of 2026.
* Ben Rodgers, Executive VP & CFO, stated, "For the third quarter, under generally accepted accounting principles, APA reported consolidated net income of $205 million or $0.57 per diluted common share." He added, "adjusted net income for the third quarter was $332 million or $0.93 per share." Rodgers also noted that "APA generated $339 million of free cash flow and returned $154 million to investors through dividends and share buybacks." He highlighted a reduction of net debt by approximately $430 million during the quarter and ended with $475 million in cash.

OUTLOOK

* APA is raising oil production guidance for the Permian in Q4 2025, while keeping capital spend steady. Egypt production estimates are also being slightly increased in line with strong gas momentum. Christmann stated, "With the recent volatility in oil prices, we are evaluating multiple capital allocation scenarios with a focus on free cash flow generation."
* For 2026, the company plans to sustain Permian oil production at approximately 120,000 barrels per day with capital investment of around $1.3 billion, but maintains flexibility to further reduce capital if oil prices decline, with minimal expected impact on 2026 volumes.
* APA aims to realize $300 million in savings in 2025 and is targeting a $350 million run rate savings by the end of 2025, two years ahead of the original goal. The company is also targeting an additional $50 million to $100 million in run rate savings across G&A, capital, and LOE by end of 2026.

FINANCIAL RESULTS

* Net income for Q3 2025 was reported at $205 million, or $0.57 per diluted share. Adjusted net income was $332 million, or $0.93 per share. Free cash flow stood at $339 million, with $154 million returned to shareholders.
* Net debt was reduced by $430 million, and APA closed the quarter with $475 million in cash. LOE was below guidance, primarily due to cost savings in the North Sea. G&A was in line with guidance, with underlying G&A approximately $15 million below guidance.
* Current income tax expense was lower than anticipated, and APA now expects to owe little to no U.S. taxes in 2025 and 2026 due to updated Treasury guidelines.
* APA expects $630 million in pretax income from trading activities for 2025 and has hedged about one-third of 2026's gas transport position, locking in roughly $140 million of cash flow.

Q&A

* Douglas George Blyth Leggate, Wolfe Research: Asked about capital flexibility for 2026 and the ability to maintain Permian production if oil prices decline. CEO Christmann responded, "We've got flexibility if oil prices move lower...we could always decide to drop more rigs in Permian or Egypt if need be."
* Leggate also questioned the impact of Egypt's legacy accelerated cost recovery rolling off. CFO Rodgers explained, "When that rolls off after the first quarter of next year...the cash flow impact on a quarterly basis is about $20 million."
* John Freeman, Raymond James: Asked about exploration capital for 2026. Christmann stated, "'26 is likely going to be a fairly light year exploration-wise for us."
* Freeman followed up on cost savings acceleration since Q2. Christmann and Rodgers described incremental savings, with Rodgers noting, "the bulk of that is going to come from G&A and LOE."
* Scott Hanold, RBC: Inquired about Egypt gas growth potential and pricing. Christmann clarified, "Everything that we bring on new gas gets new gas price."
* Michael Scialla, Stephens: Asked about oil macro caution and hedging. Christmann replied, "It's prudent to be cautious. We're going into '26 with a disciplined mindset."
* Charles Meade, Johnson Rice: Questioned new Egypt acreage and infrastructure. Christmann and President Stephen Riney indicated strong integration with existing operations and high prospectivity.
* David Deckelbaum, TD Cowen: Probed Permian cost improvements and D&C targets. Riney said, "In the Midland Basin, we're getting to be pretty close to best-in-class...in the Delaware Basin, we're probably around peer average."

SENTIMENT ANALYSIS

* Analysts' tone was generally inquisitive but included pointed questions on capital flexibility, Egypt cost recovery, and Permian inventory, indicating a slightly cautious sentiment.
* Management maintained a confident tone in prepared remarks, especially on cost control and operational achievements. During Q&A, responses were detailed, transparent, and sometimes emphasized operational flexibility, as in "there is flexibility," and "we're in a good place with a pretty good range and a pretty good cushion right now on oil price."
* Compared to the previous quarter, management's tone remained confident but grew more focused on flexibility and caution amid oil price volatility. Analysts' sentiment shifted from optimistic on cost savings to more probing about sustaining improvements.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language shifted to emphasize operational flexibility and readiness to adjust capital if oil prices decline, compared to a more straightforward outlook last quarter.
* Strategic focus remains on cost savings and portfolio resilience, but there is greater emphasis on maintaining free cash flow and capital discipline.
* Analysts in the current quarter focused more on sustainability of cost reductions, Egypt's cash flows, and capital allocation flexibility, compared to last quarter's focus on asset divestitures and debt targets.
* Key metrics such as Permian production and Egypt gas growth continue to be highlighted, but management now addresses the impact of potential external headwinds more directly.
* Management confidence in cost initiatives has grown, with run rate savings targets accelerated and incremental savings announced.

RISKS AND CONCERNS

* Management cited ongoing macro volatility, geopolitical tensions, and commodity price uncertainty as key challenges.
* Egypt's legacy accelerated cost recovery rolling off in 2026 presents a potential $60 million annual cash flow impact, though management indicated multiple offsetting factors are in progress.
* Analysts raised concerns about Egypt's infrastructure and production sustainability, Permian inventory depth, and decommissioning spend in the North Sea.
* Management's mitigation strategies include maintaining capital flexibility, continuing cost reduction initiatives, and advancing infrastructure investments for LOE reduction.

FINAL TAKEAWAY

APA Corporation's third quarter highlighted strong operational execution, cost discipline, and accelerated progress on savings targets. Management signaled readiness to flex capital spending in response to oil price shifts, while raising production guidance and maintaining a focus on free cash flow generation. Egypt's gas momentum, substantial cost reductions, and strengthened balance sheet position the company for sustained value creation into 2026, even as management remains vigilant about external headwinds and cost recovery dynamics in international operations.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/apa/earnings/transcripts]

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