APA CORPORATION and its consolidated subsidiaries and should be read together with the Company's Consolidated Financial Statements and accompanying notes included in Part I,
Item 1-Financial Statements of this Quarterly Report on Form 10-Q, as well as related information set forth in the Company's Consolidated Financial Statements, accompanying Notes to Consolidated Financial Statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . OnJanuary 4, 2021 , Apache announced plans to implement a holding company reorganization (the Holding Company Reorganization), which was thereafter completed onMarch 1, 2021 . In connection with the Holding Company Reorganization, Apache became a direct, wholly-owned subsidiary ofAPA Corporation (APA), and all of Apache's outstanding shares were automatically converted into equivalent corresponding shares of APA. Pursuant to the Holding Company Reorganization, APA became the successor issuer to Apache pursuant to Rule 12g-3(a) under the Exchange Act and replaced Apache as the public company trading on the Nasdaq Global Select Market under the ticker symbol "APA." The holding company structure modernized the Company's operating and legal structure making it more consistent with other companies that have affiliates operating around the globe. Refer to Note 2-Transactions with Parent Affiliate for more detail. Overview Apache, a direct, wholly-owned subsidiary of APA, is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The Company's upstream business currently has exploration and production operations in three geographic areas: theU.S. ,Egypt , and offshore theU.K. in theNorth Sea (North Sea ). Apache's midstream business is operated by Altus Midstream Company (Nasdaq: ALTM) through its subsidiaryAltus Midstream LP (collectively, Altus). Altus owns, develops, and operates a midstream energy asset network in thePermian Basin ofWest Texas . Apache's mission is to grow in an innovative, safe, environmentally responsible, and profitable manner for the long-term benefit of its stakeholders. Apache is focused on rigorous portfolio management, disciplined financial structure, and optimization of returns. The global economy and the energy industry have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. Uncertainty in the commodity and financial markets during 2020 and 2021 continue to impact oil supply and demand. Despite these uncertainties, the Company remains committed to its longer-term objectives: (1) to maintain a balanced asset portfolio; (2) to invest for long-term returns over production growth; and (3) to budget conservatively to generate cash flow in excess of its capital program that can be directed on a priority basis to debt reduction. The Company continues to aggressively manage its cost structure regardless of the oil price environment and closely monitors hydrocarbon pricing fundamentals to reallocate capital as part of its ongoing planning process. In the first quarter of 2021, the Company reported net income of$397 million , compared to a loss of$4.5 billion in the first quarter of 2020. The increase in net income compared to the prior-year period is primarily the result of significantly improved commodity prices that had collapsed in the prior year when the COVID-19 pandemic began to negatively affect economic activity and the oil markets. Included in the prior year reported net income was$4.5 billion of asset impairments recognized in the first quarter of 2020. In response to lower commodity prices, the Company materially reduced its upstream capital investment budget and drilling activity during the first quarter of 2020. Daily production decreased 18 percent from an average of 468 Mboe/d in the first quarter of 2020 to an average of 382 Mboe/d in the first quarter of 2021. The Company generated$691 million of cash from operating activities during the first three months of 2021, a 38 percent increase from the first three months of 2020 driven by higher commodity prices and associated revenues. The Company ended the quarter with$281 million of cash. 26
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Operational Highlights Key operational highlights for the quarter include:United States •Equivalent production from the Company'sU.S. assets accounted for 55 percent of total production during the first quarter of 2021. After halting all drilling and completion activity for most of 2020, the Company recently re-activated one rig in thePermian Basin and one rig in the Austin Chalk. In addition, 22 wells came online in thePermian Basin during the first quarter of 2021. International •Gross equivalent production in the Company'sEgypt assets decreased 20 percent from the first quarter of 2020, given reduced drilling activity over the preceding year. The Company averaged five rigs inEgypt , and six wells came online during the first quarter of 2021. The Company continues to build and enhance its drilling inventory inEgypt , supplemented with recent seismic acquisitions and new play concept evaluations on both new and existing acreage. •The Company recently announced it has reached an agreement in principle withEgypt's Ministry of Petroleum andMineral Resources (MOP) and theEgyptian General Petroleum Corporation (EGPC) in support of the MOP's efforts to modernize the country's petroleum sector. The changes simplify the contractual relationship with EGPC and include provisions to create a single cost recovery pool, adjust cost oil and gas and profit oil and gas participation, facilitate recovery of prior investment, update day-to-day operational governance, and refresh the term length of both exploration and development leases. The Apache entity that will become the sole contractor is owned two-thirds by Apache and one-third by Sinopec. The new production sharing contract is subject to certain approvals within the Government ofEgypt and ratification byParliament . •TheNorth Sea averaged two rigs and completed one well during the first quarter of 2021. Extended operational downtime in the Forties Field negatively impacted volumes in the quarter, and further impacts are expected in the second and third quarters of 2021 as a result of Forties pipeline downtime and platform maintenance turnarounds. 27
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Results of Operations
Oil and Gas Production Revenues
The Company's oil and gas production revenues and respective contribution to
total revenues by country were as follows:
For the Quarter Ended
March 31,
2021 2020
% %
$ Value Contribution $ Value Contribution
($ in millions)
Oil Revenues:
United States $ 348 35 % $ 428 41 %
Egypt(1) 402 41 % 333 33 %
North Sea 241 24 % 271 26 %
Total(1) $ 991 100 % $ 1,032 100 %
Natural Gas Revenues:
United States $ 211 68 % $ 39 32 %
Egypt(1) 70 22 % 65 53 %
North Sea 31 10 % 19 15 %
Total(1) $ 312 100 % $ 123 100 %
NGL Revenues:
United States $ 120 94 % $ 71 88 %
Egypt(1) 2 1 % 3 4 %
North Sea 6 5 % 7 8 %
Total(1) $ 128 100 % $ 81 100 %
Oil and Gas Revenues:
United States $ 679 47 % $ 538 44 %
Egypt(1) 474 33 % 401 32 %
North Sea 278 20 % 297 24 %
Total(1) $ 1,431 100 % $ 1,236 100 %
(1)Includes revenues attributable to a noncontrolling interest in
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Production
The Company's production volumes by country were as follows:
For the Quarter Ended
March 31,
Increase
2021 (Decrease) 2020
Oil Volume - b/d
United States 67,690 (33) % 101,614
Egypt(1)(2) 72,170 (1) % 73,178
North Sea 43,524 (21) % 55,262
Total 183,384 (20) % 230,054
Natural Gas Volume - Mcf/d
United States 507,517 (15) % 597,842
Egypt(1)(2) 278,149 9 % 254,579
North Sea 49,840 (26) % 67,278
Total 835,506 (9) % 919,699
NGL Volume - b/d
United States 57,815 (29) % 81,381
Egypt(1)(2) 583 (36) % 918
North Sea 1,368 (36) % 2,135
Total 59,766 (29) % 84,434
BOE per day(3)
United States 210,091 (26) % 282,636
Egypt(1)(2) 119,111 2 % 116,525
North Sea(4) 53,199 (22) % 68,610
Total 382,401 (18) % 467,771
(1)Gross oil, natural gas, and NGL production in
For the Quarter Ended March 31,
2021 2020
Oil (b/d) 135,320 183,627
Natural Gas (Mcf/d) 603,269 655,410
NGL (b/d) 897 1,782
(2)Includes net production volumes per day attributable to a noncontrolling
interest in Egypt of:
For the Quarter Ended March 31,
2021 2020
Oil (b/d) 24,088 24,598
Natural Gas (Mcf/d) 92,936 85,672
NGL (b/d) 194 306
(3)The table shows production on a boe basis in which natural gas is converted
to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This
ratio is not reflective of the price ratio between the two products.
(4)Average sales volumes from the
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Pricing
The Company's average selling prices by country were as follows:
For the Quarter Ended
March 31,
Increase
2021 (Decrease) 2020
Average Oil Price - Per barrel
United States $ 57.16 23 % $ 46.32
Egypt 61.89 24 % 49.97
North Sea 59.67 20 % 49.66
Total 59.62 23 % 48.31
Average Natural Gas Price - Per Mcf
United States $ 4.61 559 % $ 0.70
Egypt 2.79 (1) % 2.83
North Sea 6.93 119 % 3.17
Total 4.14 182 % 1.47
Average NGL Price - Per barrel
United States $ 22.99 140 % $ 9.59
Egypt 44.74 41 % 31.70
North Sea 48.59 33 % 36.53
Total 23.79 126 % 10.51
First-Quarter 2021 compared to First-Quarter 2020
Crude Oil Crude oil revenues for the first quarter of 2021 totaled $991 million ,
a $41 million decrease from the comparative 2020 quarter. A 23 percent increase
in average realized prices increased first-quarter 2021 revenues by $241 million
compared to the prior-year quarter, while 20 percent lower average daily
production decreased revenues by $282 million . Crude oil revenues accounted for
69 percent of total oil and gas production revenues and 48 percent of worldwide
production in the first quarter of 2021. The Company's worldwide oil production
decreased 47 Mb/d to 183.4 Mb/d in the first quarter of 2021 from the
comparative prior-year period, primarily a result of production decline across
all countries, as well as extended operational downtime in the North Sea and
weather disruptions in the U.S. following Winter Storm Uri in Texas in February
2021 . Crude oil prices realized in the first quarter of 2021 averaged $59.62 per
barrel, compared to $48.31 per barrel in the comparative prior-year quarter.
Natural Gas Gas revenues for the first quarter of 2021 totaled $312 million , a
$189 million increase from the comparative 2020 quarter. A 182 percent increase
in average realized prices increased first-quarter 2021 revenues by $224 million
compared to the prior-year quarter, while 9 percent lower average daily
production decreased revenues by $35 million . Natural gas revenues accounted for
22 percent of total oil and gas production revenues and 36 percent of worldwide
production during the first quarter of 2021. Gas prices in the first quarter of
2021 reflect extreme price volatility during the month of February due to the
Texas freeze event. The Company's worldwide natural gas production decreased 84
MMcf/d to 836 MMcf/d in the first quarter of 2021 from the comparative
prior-year period, primarily a result of production decline across all countries
and impacts of winter storms in the U.S.
NGL NGL revenues for the first quarter of 2021 totaled $128 million , a $47
million increase from the comparative 2020 quarter. A 126 percent increase in
average realized prices increased first-quarter 2021 revenues by $102 million
compared to the prior-year quarter, while 29 percent lower average daily
production decreased revenues by $55 million . NGL revenues accounted for 9
percent of total oil and gas production revenues and 16 percent of worldwide
production during the first quarter of 2021. The Company's worldwide NGL
production decreased 24.7 Mb/d to 59.8 Mb/d in the first quarter of 2021 from
the comparative prior-year period, primarily a result of production decline in
the U.S.
Altus Midstream Revenues
Altus Midstream services revenues generated through its fee-based contractual
arrangements with the Company totaled $32 million and $41 million during the
first quarter of 2021 and 2020, respectively. These affiliated revenues are
eliminated upon consolidation. The decrease compared to the prior-year period
was primarily driven by lower throughput of natural gas volumes from the
Company.
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Purchased Oil and Gas Sales Purchased oil and gas sales represent volumes primarily attributable to transport, fuel, and physical in-basin gas purchases that were sold by the Company to fulfill natural gas takeaway obligations, which totaled$440 million and$108 million during the first quarters of 2021 and 2020, respectively. Purchased oil and gas sales were offset by associated purchase costs of$494 million and$86 million during the first quarters of 2021 and 2020, respectively. When compared to the prior-year period, the first-quarter 2021 gross purchased oil and gas sales values and the associated net loss were exacerbated by extreme price volatility during the month of February due to Winter Storm Uri inTexas . Operating Expenses The Company's operating expenses were as follows: For the Quarter Ended March 31, 2021 2020 (In millions) Lease operating expenses$ 264 $ 335 Gathering, processing, and transmission 58 71 Purchased oil and gas costs 494 86 Taxes other than income 44 33 Exploration 46 57 General and administrative 83 68 Transaction, reorganization, and separation - 27 Depreciation, depletion, and amortization: Oil and gas property and equipment 312 531 Gathering, processing, and transmission assets 19 20 Other assets 11 15 Asset retirement obligation accretion 28 27 Impairments - 4,472 Financing costs, net 107 103 Lease Operating Expenses (LOE)LOE decreased$71 million from the first quarter of 2020. On a per-unit basis, LOE decreased 2 percent for the first quarter of 2021 compared to the prior-year period. The decrease in absolute dollar costs was driven by reduced activity and labor costs, the Company's organizational redesign, and other cost cutting efforts. Gathering, Processing, and Transmission (GPT) The Company's GPT expenses were as follows: For the Quarter Ended March 31, 2021 2020 (In millions) Third-party processing and transmission costs$ 51 $ 60 Midstream service affiliate costs 31 40 Upstream processing and transmission costs 82 100 Midstream operating expenses 7 11 Intersegment eliminations (31) (40) Total Gathering, processing, and transmission$ 58 $ 71
GPT costs decreased
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Purchased Oil and Gas Costs Purchased oil and gas costs totaled$494 million and$86 million during the first quarters of 2021 and 2020, respectively. Purchased oil and gas costs were offset by associated purchase sales of$440 million and$108 million during the first quarters of 2021 and 2020, respectively, as further discussed above. Taxes Other Than Income Taxes other than income increased$11 million from the first quarter of 2020, primarily from higher severance taxes driven by higher commodity prices as compared to the prior-year period. Exploration Expenses The Company's exploration expenses were as follows: For the Quarter Ended March 31, 2021 2020 (In millions) Unproved leasehold impairments$ 18 $ 19 Dry hole expense 19 24 Geological and geophysical expense 2 3 Exploration overhead and other 7 11 Total Exploration$ 46 $ 57 Exploration expenses decreased$11 million from the first quarter of 2020, primarily the result of a$5 million and$4 million decrease in dry hole expense and exploration overhead, respectively, driven by a decrease in exploration activity. The Company drilled 2 and 6 gross exploration wells in the first quarters of 2021 and 2020, respectively. General and Administrative (G&A) Expenses G&A expenses increased$15 million from the first quarter of 2020, primarily related to higher cash-based stock compensation expense resulting from an increase in the Company's stock price. This increase was partially offset by Company-wide overhead reductions associated with the Company's organizational redesign efforts in late 2019 and 2020. Transaction, Reorganization, and Separation (TRS) Costs TRS costs decreased$27 million from the first quarter of 2020, driven by costs associated with the Company's reorganization efforts incurred in the prior year. In recent years, the Company has streamlined its portfolio through strategic divestitures and centralized certain operational activities in an effort to capture greater efficiencies and cost savings through shared services. During the second half of 2019, management initiated a comprehensive redesign of the Company's organizational structure and operations that it believes will better position the Company to be competitive for the long-term and further reduce recurring costs. Reorganization efforts were substantially completed in 2020. Depreciation, Depletion, and Amortization (DD&A) DD&A expenses on the Company's oil and gas properties decreased$219 million from the first quarter of 2020. The Company's oil and gas property DD&A rate decreased$3.32 per boe from the first quarter of 2020. The decrease was driven by lower production volumes and lower asset property balances associated with proved property impairments recorded in the first quarter of 2020. DD&A expense on the Company's GPT assets decreased$1 million from the first quarter of 2020. Impairments The Company recorded no asset impairments in connection with fair value assessments in the first quarter of 2021. During the first quarter of 2020, the Company recorded asset impairments totaling$4.5 billion , including$4.3 billion for oil and gas proved properties in theU.S. ,Egypt , and theNorth Sea ,$68 million for GPT facilities inEgypt ,$87 million for goodwill inEgypt , and$18 million for inventory and other miscellaneous assets, including charges for the early termination of drilling rig leases. 32
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Financing Costs, Net
The Company's Financing costs were as follows:
For the Quarter Ended
March 31,
2021 2020
(In millions)
Interest expense $ 112 $ 107
Amortization of debt issuance costs 2 2
Capitalized interest - (4)
Interest income (2) (2)
Interest income from APA Corporation, net (5) -
Total Financing costs, net $ 107 $ 103
Net financing costs increased $4 million from the first quarter of 2020,
primarily a result of a $5 million increase in interest expense on a higher
letter of credit balance compared to the prior-year period and a $4 million
decrease in capitalized interest from the Suriname properties being sold to APA
in connection with the Holding Company Reorganization. These increases were
offset by a $5 million increase in interest income from APA Corporation as a
result of the note receivable from APA related to the Holding Company
Reorganization. Refer to Note 2-Transactions with Parent Affiliate in the
Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly
Report on Form 10-Q for further information.
Provision for Income Taxes
The Company estimates its annual effective income tax rate in recording its
quarterly provision for income taxes in the various jurisdictions in which the
Company operates. Non-cash impairments on the carrying value of the Company's
oil and gas properties, gains and losses on the sale of assets, statutory tax
rate changes, and other significant or unusual items are recognized as discrete
items in the quarter in which they occur.
During the first quarter of 2021, the Company's effective income tax rate was
primarily impacted by a decrease in the amount of valuation allowance against
its U.S. deferred tax assets. During the first quarter of 2020, the Company's
effective income tax rate was primarily impacted by oil and gas impairments, a
goodwill impairment, and an increase in the amount of valuation allowance
against its U.S. deferred tax assets.
The Company recorded a full valuation allowance against its U.S. net deferred
tax assets. The Company will continue to maintain a full valuation allowance on
its U.S. net deferred tax assets until there is sufficient evidence to support
the reversal of all or some portion of this allowance.
The Company is subject to U.S. federal income tax as well as income or capital
taxes in various state and foreign jurisdictions. The Company's tax reserves are
related to tax years that may be subject to examination by the relevant taxing
authority. The Company is currently under audit by the Internal Revenue Service
for the 2014-2017 tax years and is also under audit in various states and
foreign jurisdictions as part of its normal course of business.
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