APA Corp (APA) stock intrinsic value fair value estimate & owner earnings analysis

WHAT THE BUSINESS IS. APA is an oil and gas producer. Most of its output and reserves are in the Permian Basin of Texas and New Mexico, which grew larger with the Callon Petroleum acquisition in April 2024 (paid mostly in APA shares). About a third of production comes from Egypt's Western Desert. Sinopec owns one-third of the Egypt business, so a third of Egypt's cash belongs to Sinopec, not APA shareholders. A small, shrinking share comes from the UK North Sea, which pays an extra windfall tax that runs to 2030. APA owns 40% of GranMorgu, an offshore oil project in Suriname run by TotalEnergies. The final investment decision came in October 2024 and first oil is expected in 2028. At year-end 2025, proved reserves were about 1.1 billion barrels of oil equivalent. That is roughly six to seven years of current production, so the business has to keep drilling just to stay the same size. Earnings rise and fall with oil and gas prices, which APA cannot control. HOW WE MEASURED EARNING POWER. We start from operating cash flow and remove short-term swings in receivables, payables and similar items. We then subtract all drilling and development spending, treating it as the cost of keeping production level. In recent years revenue went up only because of higher prices or the Callon deal, not because drilling grew volumes, so we did not treat any spending as optional growth. We also subtract the cash paid out to Sinopec from Egypt. Most employee stock pay at APA is settled in cash and already reduces operating cash flow. We subtracted only the small share-settled part. On this basis, owner earnings per share were: 2019 -$1.28, 2020 $0.33, 2021 $5.29, 2022 $7.76, 2023 $2.88, 2024 $2.12 and 2025 $2.16. These years run from the 2020 price collapse through the 2022 peak to the mid-cycle years 2023-2025. We left out 2019 because it reflects a different business: the since-abandoned Alpine High play and a consolidated pipeline subsidiary. Before interest, and adding back the cash spent on cleaning up old wells (which we treat separately as a debt-like obligation, below), the median across 2020-2025 is about $4.07 a share, or roughly $1.44 billion a year. That median is our starting level. In 2025, with oil around $65, APA earned about $3.45 a share on the same basis, 7.5% less than 2024. Our base case starts higher than that for two dated reasons. First, 2025 was a below-average price year, and our starting level is a full-cycle average, not a growth assumption. Second, APA's 2026 capital budget is $2.07 billion against $2.74 billion spent in 2025. The first half of 2026 confirms the cut: $1.11 billion spent versus $1.44 billion a year earlier, while adjusted production beat guidance. First-half 2026 cash flow was also lifted by a spike in oil prices (about $98 a barrel realized in the second quarter). We treat that as temporary and did not use it to raise the starting level. WHAT IT OWES. As of June 30, 2026, borrowings were about $3.74 billion against $0.44 billion of cash, so net debt was about $3.3 billion. APA also carries two large cleanup obligations. The first is about $2.93 billion to plug and abandon its own wells and platforms, much of it in the North Sea. The second is about $0.85 billion for Gulf of Mexico (Gulf of America) fields it sold years ago. After the buyer, Fieldwood, went bankrupt, the cleanup cost came back to APA. That estimate has been raised in four of the last five years. We count all of these as money owed, about $7.1 billion in total. APA's bonds mostly carry fixed coupons near our 6% discount rate, so we made no adjustment for the cost of the debt. BASE CASE ($25.87 a share). Earning power of about $1.64 billion a year before interest. That is the full-cycle level plus $200 million, about 40% of the capital savings APA achieved in 2026. It stays flat for ten years, supported by Permian drilling locations and Egypt's thirty-year record of replacing the reserves it produces. North Sea income ends around 2030. After year ten, earnings fade to zero over the following ten years, because the proved reserves and known drilling locations do not support anything longer. We credit GranMorgu at about $250 million a year to APA from 2029 through 2034, fading out by 2038. That is well below APA's 40% share of the 220,000 barrel-a-day plateau, because TotalEnergies paid most of APA's development cost and takes back part of APA's oil to recover it. The business is worth about $16.2 billion, APA owes about $7.1 billion, and about $9.2 billion is left for shareholders. BEAR CASE ($2.58 a share). Earning power stays near the weak 2025 level (about $3.10 a share, or $1.10 billion a year). None of the 2026 capital savings hold, because production would slip without the old spending level. North Sea income ends earlier, and the drilling inventory runs out sooner: flat for eight years, then fading to zero over seven. GranMorgu is delayed and contributes only about $100 million a year for five years. The Gulf cleanup estimate rises by another $0.5 billion, in line with its recent history. The business is worth about $8.5 billion against about $7.6 billion owed, leaving only about $0.9 billion for shareholders. In this case APA's debt and cleanup bills take nearly all of the business's value. Yearly cash still covers interest several times over, so the risk is thin value, not default. BULL CASE ($43.14 a share). The full $500 million of 2026 savings holds, for earning power of about $1.94 billion a year. The Permian inventory sustains that for twelve years before a ten-year fade. GranMorgu comes on in 2028 as scheduled and delivers about $450 million a year to APA through 2035. The business is worth about $22.4 billion, APA owes about $7.1 billion, and about $15.3 billion is left for shareholders. WHAT WE LEFT OUT AND WHY. We gave no value to exploration in Alaska, Uruguay or other Suriname blocks, to higher future oil prices, or to possible tie-backs that could extend GranMorgu's four-year plateau. None of these has a signed contract or proven record behind it yet. Egypt's revised gas-price agreement now covers nearly half of Egypt's gas output. It supports holding Egypt volumes steady, but we did not count it as growth. WHAT WOULD MAKE THIS WRONG. Oil prices stuck well below $65, since every case assumes roughly mid-cycle prices. Production falling after the 2026 spending cut. Cleanup costs in the North Sea or on the sold Gulf fields coming in well above today's estimates. Payment delays from Egypt; APA collected large overdue Egypt receivables in 2025. GranMorgu cost overruns or delays. The margin-of-safety price of $13 is about half our base value, which we judge the right cushion for a cyclical, heavily obligated producer whose bear case is close to zero.