Ariel Focus Fund on APA Corporation
Thesis
Ariel sees APA as an oil and gas producer whose free cash flow is improving faster than investors appreciate. Second-quarter production exceeded guidance and U.S. oil volumes outperformed plan, allowing an increase to the domestic oil outlook without higher capital spending. Expanded cost savings, debt reduction and stepped-up repurchases can strengthen per-share economics. Exploration interests in Suriname and Alaska and the new Uruguay partnership with Eni provide additional upside beyond current production.
“APA's free cash flow generation, capital discipline, improving balance sheet and exploration upside.”
Key risks
- Sensitivity to oil prices and the favorable commodity backdrop
- Exploration upside in Suriname, Alaska and Uruguay may take time to materialize
- Execution of cost savings and debt reduction