APA Earnings: Noncore Asset Sale Enables Further Debt Reduction

No-moat-rated APA announced adjusted earnings per share of $1.00 for the third quarter, which was above PitchBook consensus estimates of $0.98 per share. We expect to increase our $44 fair value estimate between roughly 6% to 8%, mostly owing to a noncore asset sale in the Permian Basin for $950 million. Management plans to use the proceeds from this divestiture for debt reduction. On another positive note, the company announced its final investment decision for a 220,000 barrel a day oil development project in Suriname. Our forecast will still reflect first oil from this project in 2028. The business continues to integrate Callon Petroleum and is currently flowing back four wells on new Callon acreage while rightsizing its Permian operations to curtail US production in the face of soft oil pricing. Lastly, the company plans to return cash through buybacks and dividends. We view buybacks positively, given the large gap between the low market value relative to our fair value estimate.