APA APA Corporation
Leveraged, moatless oil producer priced near mid-cycle value; Suriname is the only real upside option.
The story
APA is a mid-cap E&P with Permian Basin unconventional production, Egypt gas and oil under production-sharing contracts, and North Sea assets in decline, plus Suriname offshore (GranMorgu) as a long-dated growth option. The Callon acquisition added Permian scale, but the business is a mature, commodity price-taker with no durable moat. Value depends on capital discipline, cost control and the oil and gas price deck, not on growth.
Revenue stays flat near term because a softer oil deck offsets the Permian and Egypt gas volumes; Suriname first oil around 2028 supports low single-digit growth before maturity. Operating margin settles at 30%, the mid-cycle level, below the 38% TTM and well below the 55% peak, because North Sea decommissioning and Egypt receivables weigh on it. Sales-to-capital stays near the historical 0.83 because E&P reinvestment is capital-heavy, and beta of 1.2 reflects leverage and commodity exposure above the 1.1 industry anchor.
Value drivers
| Revenue growth (Y1) | 0.0% |
| Terminal growth | 1.0% |
| Forecast horizon | 6y |
| Target operating margin | 30.0% |
| Years to target margin | 3 |
| Sales-to-capital | 0.85 |
| Beta | 1.20 |
| Failure probability | 3.0% |
| Cost of capital (WACC) | 9.3% |
| Terminal WACC | 8.6% |
Valuation bridge
| PV of explicit FCFF | 7.91B |
| PV of terminal value | 12.87B |
| Equity value | 15.41B |
| ÷ shares → per share | $43.99 |
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 8.81B | 0.0% | 35.3% | 2.02B | 0 | 2.02B | 1.85B |
| 2 | 8.82B | 0.2% | 32.6% | 1.87B | 20.72M | 1.85B | 1.55B |
| 3 | 8.86B | 0.4% | 30.0% | 1.73B | 41.52M | 1.69B | 1.29B |
| 4 | 8.91B | 0.6% | 30.0% | 1.74B | 62.53M | 1.68B | 1.17B |
| 5 | 8.98B | 0.8% | 30.0% | 1.75B | 83.88M | 1.67B | 1.07B |
| 6 | 9.07B | 1.0% | 30.0% | 1.77B | 105.69M | 1.66B | 976.30M |
Key risks
- Oil and gas price downturn compressing margins and free cash flow
- Egypt political, currency and receivables risk; North Sea windfall tax and decommissioning liabilities
- Suriname execution delays or cost overruns; Permian well productivity decline
Catalysts
- GranMorgu (Suriname) first oil on schedule, around 2028
- Debt paydown and higher buybacks as Callon synergies and cost cuts come through