APA halves Permian rig count, lifts oil forecast on efficiency gains

APA Corporation has reported second-quarter results that highlight a significant shift in operational efficiency within the Permian Basin. The oil and gas producer is now holding production steady with four drilling rigs, a figure that is half the eight rigs it previously estimated would be required. This reduction in capital intensity has allowed the company to raise its full-year US oil guidance to 123,000 barrels per day, up from an initial target of 120,000 barrels per day, while maintaining a capital budget of $1.3 billion despite rising input costs.

The efficiency gains are translating directly into stronger cash flows. APA generated $738 million in free cash flow during the second quarter, pushing first-half 2026 totals past $1.2 billion. This figure exceeds the total free cash flow generated in each of the past three full years. Management has also lifted its annual cost-savings target to $500 million in annualised run-rate savings by year-end, an increase from the $450 million goal set at the start of the year.

On the balance sheet, APA has accelerated its debt reduction schedule. Net debt stood at $3.3 billion at the end of the quarter, following the repayment of $752 million in bonds during the first half of 2026. This includes $673 million repaid in the second quarter alone, cutting total debt by $2.3 billion since the end of 2024 and reducing annualised interest expense by approximately $175 million. The company now expects to reach its $3 billion net debt target in 2027, well ahead of the three-to-four-year window originally outlined.

Beyond its core assets, APA is expanding its exploration portfolio. The company agreed to acquire Savant Alaska for $70 million, securing infrastructure including an airstrip, dock, and pipeline connection to support two exploration wells planned for 2027. In Uruguay, ENI has signed on as a partner in Block 6, funding a share of the first exploration well while APA retains a 60 per cent ownership stake. Additionally, the GranMorgu project in Suriname remains on budget for first oil in mid-2028, although the next exploration well on Block 58 has been delayed from late 2026 to 2027.

Investors returned $189 million to shareholders through dividends and the repurchase of 2.8 million shares at an average price of $35.26. This continues APA’s streak of returning at least 60 per cent of free cash flow to investors every year since 2021. However, the company is facing some headwinds, including rising global diesel prices that are weighing on operations in the US and the North Sea.

In Egypt, APA has deferred some lower-pressure gas volumes at the Khafre field due to strong early results from newer, richer gas discoveries. This adjustment trims the near-term gas outlook, with full-year guidance now calling for gross oil production of 118,000 barrels per day and gross gas production of 535 million cubic feet per day. Second-quarter adjusted net income was $669 million, or $1.89 per diluted share, after excluding a $92 million unrealized gain from basis hedges.