APA NASDAQ: APA reported second-quarter 2026 net income of $747 million, or $2.11 per diluted share, as operational performance and cost-cutting initiatives supported free cash flow generation across its portfolio.
Adjusted net income was $669 million, or $1.89 per diluted share, excluding an after-tax unrealized gain of $92 million related to basis hedges and other smaller items, Chief Financial Officer Ben Rodgers said. The company generated $738 million of free cash flow during the quarter and returned $189 million to shareholders through dividends and share repurchases.
Through the first half of 2026, APA generated more than $1.2 billion in free cash flow, Rodgers said. The company attributed the result to commodity prices as well as structural changes including lower costs, capital-efficiency gains and portfolio high-grading.
Cost-Savings Target Raised
Chief Executive Officer John Christmann said APA now expects to exit 2026 with approximately $500 million in annualized run-rate savings, exceeding the $450 million target established at the start of the year. The company had previously captured $300 million in savings during 2025, according to Rodgers.
Rodgers said APA expects lease operating expense for the full year to total $1.5 billion, $25 million below prior guidance. Savings in the U.S. and North Sea are expected to more than offset inflation in diesel and certain service costs.
The company also expects annualized interest expense savings of about $175 million exiting 2026 as debt declines. Rodgers said the combined impact of controllable-spend reductions and lower interest expense would amount to roughly $675 million of costs lower than at the end of 2024.
- Full-year 2026 free cash flow is expected to reach about $2.3 billion at current strip pricing.
- APA expects its gas trading portfolio, including basis hedges, to generate about $950 million of pretax cash flow in 2026.
- The company said changes in Waha pricing have limited effect on consolidated free cash flow because its unhedged transportation portfolio is closely matched with Permian equity gas production.
Permian Guidance Rises as Rig Activity Falls
APA raised its full-year Permian oil production outlook to 123,000 barrels per day while maintaining its $1.3 billion capital budget. Christmann said the company originally estimated that sustaining roughly 120,000 barrels per day following the Callon integration would require eight rigs and about $1.7 billion in capital.
APA now plans to operate four rigs for the rest of 2026. President Stephen Riney said the company began the year planning for five rigs and expects to average 4.5 rigs for the year. Those rigs are expected to drill more lateral footage and complete as many wells as the original five-rig plan, he said.
Christmann said improvements in drilling, completions and base-production management have reduced capital intensity. The company is also pursuing a target of $3.5 million per month in run-rate Permian operating-cost savings by year-end.
In Egypt, adjusted production was in line with guidance. Gross gas production increased during the quarter, and APA said about half of its gas production now benefits from the revised pricing agreement. The company maintained its overall BOE production outlook for Egypt but updated expectations for gross oil production to approximately 118,000 barrels per day and gross gas production to 535 million cubic feet per day.
Christmann said stronger results from recent rich-gas discoveries led APA to defer some lower-pressure gas volumes at Qasr. Higher associated liquids are expected to offset the resulting near-term gas impact, leaving the expected BOE production profile largely unchanged.
Debt Reduction and Shareholder Returns
APA repaid $752 million of bond debt during the first six months of 2026, including $673 million during the second quarter. The company expects to end the year with net debt of approximately $3.3 billion and said it could reach its $3 billion net debt target in 2027 based on current strip pricing.
Rodgers said achieving that target would be ahead of the three- to four-year timeline discussed when APA announced it last year. The company reiterated its commitment to return at least 60% of free cash flow to shareholders annually through dividends and share buybacks.
“We’ve not returned that much in the first half of the year,” Rodgers said in response to an analyst question, adding that this implies “quite a bit of share buybacks” in the second half.
Christmann said APA intends to maintain the 60% return framework even as exploration spending rises from a comparatively light level in 2026. Rodgers said 2027 exploration spending could include two Alaska wells costing approximately $100 million to $120 million, one to two Suriname wells estimated at $50 million to $75 million each net to APA, and a Uruguay well where APA is expected to receive a substantial carry from partner Eni.
Exploration Portfolio Advances
In Suriname, APA said the Gran Morgu development remains on budget and on schedule for first oil in mid-2028. Christmann said the project, operated with TotalEnergies, is expected to provide production and free-cash-flow growth while the joint-venture structure helps APA fund its domestic and international activities.
The company also said it will return to Block 58 in Suriname next year for additional exploration aimed at potentially adding to the Gran Morgu plateau or supporting more infrastructure.
APA recently agreed to acquire Savant Alaska, gaining infrastructure adjacent to its eastern North Slope acreage, including a processing facility, pipeline access to the Trans-Alaska Pipeline System, a gravel pad, airstrip and dock. Christmann said APA’s Alaska position now spans nearly 500,000 acres and includes the King Street and Sockeye discoveries.
The company plans to build ice roads late this year and spud two Alaska wells in 2027: an appraisal well at Sockeye called Hungry Horse and an exploration well targeting the larger Chinook prospect. Christmann said it remains too early to define development plans.
In Uruguay, APA brought Eni into Block OFF-6, retaining a 60% working interest. Eni will fund a significant portion of the initial exploration well, which APA expects to drill in late 2027. Executive Vice President of Exploration Tracey Henderson said the planned well will test deeper Cretaceous targets than the Raya well, which APA does not believe was drilled deeply enough to test its objectives.
About APA (NASDAQ:APA)
APA Corporation NASDAQ: APA is an independent exploration and production company engaged in the acquisition, development and production of oil and natural gas resources. The company operates through three core regions: the United States, Egypt and the North Sea. Through its integrated approach, APA combines geological and geophysical expertise with technical innovation to identify and develop hydrocarbons in both onshore and offshore settings.
In the United States, APA's largest position is in the Permian Basin of West Texas and southeastern New Mexico, where it holds substantial acreage dedicated to oil-focused drilling and production.
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