Last Update 21 Jan 26

Fair value Increased 0.68%

APA: Cost Discipline And Repsol Talks Will Guide Balanced Future Risk Profile

Narrative Update on APA

The analyst price target for APA edges higher to about US$26.32 from roughly US$26.14, as analysts factor in recent target increases tied to stronger production versus guidance, cost reduction progress, updated models reflecting free cash flow and production improvements, and potential corporate interest highlighted in recent research.

Analyst Commentary

Recent research on APA reflects a mix of optimism around execution and cautious views on valuation risk and deal uncertainty. Here is how the Street is framing it today.

Bullish Takeaways

Bullish analysts highlight stronger production relative to guidance across APA's asset base, which they see as supportive for free cash flow and their higher price targets.
Several updates point to progress on cost reduction initiatives, with run rate savings targets reached ahead of schedule, which analysts view as helpful for margins and cash generation.
At least one model now incorporates stronger free cash flow tied to accelerated optimization and a somewhat better production outlook, which feeds into a higher valuation range.
Some analysts react to the reported Repsol reverse merger discussions by suggesting APA shares could attract more interest in the near term, while maintaining neutral ratings and price targets around US$23.

Bearish Takeaways

Barclays recently downgraded APA, signaling that not all on the Street are comfortable with the current risk reward trade off even as fundamentals and models are updated.
Goldman Sachs, despite lifting its target to US$21 from US$19, keeps a Sell rating, which signals lingering concerns around upside potential versus its coverage universe.
One large firm raising its target to US$23 still keeps an Underweight view and explicitly prefers gas over oil names, which places APA on the less favored side of that sector preference.
Even among more constructive voices, there is commentary that future cost and operational improvements could occur at a slower pace, which may limit how much further near term upside they are willing to build into their models.

What's in the News

Repsol is reported to be considering a reverse merger of its upstream unit with potential partners, including APA, as one of several options to list the business in New York. Discussions are described as exploratory and non binding so far (Bloomberg / Key Developments).
Reports indicate Repsol is also talking with other potential merger partners and weighing alternatives such as an IPO or bringing in another private investor, with no assurance that any transaction involving APA will occur (Bloomberg / Key Developments).
APA reported third quarter 2025 production results, with disclosed oil, natural gas and NGL volumes across its portfolio, and guided to higher U.S. oil production of 123,000 barrels per day for the fourth quarter of 2025 following what it describes as strong execution (Key Developments).
For the fourth quarter of 2025, APA reported that it curtailed about 91 MMcf per day of U.S. natural gas and 7,600 barrels per day of U.S. NGLs in response to weak or negative Waha hub prices, a reminder that realized pricing can influence production decisions (Key Developments).
Between October 1 and December 31, 2025, APA repurchased 2,700,000 shares for US$65.26m, bringing total buybacks under its ongoing program to 98,130,761 shares for US$3.21b, equal to about 28.22% of the company’s shares referenced in the authorization (Key Developments).

Valuation Changes

Fair Value: The fair value estimate edges higher from about US$26.14 to roughly US$26.32 per share, a small upward move.
Discount Rate: The discount rate used in the model ticks down slightly from about 7.13% to roughly 7.11%.
Revenue Growth: The revenue growth assumption improves marginally, moving from about a 6.49% decline to roughly a 6.22% decline.
Net Profit Margin: The net profit margin input eases from around 18.20% to about 17.57%.
Future P/E: The future P/E multiple in the updated model increases modestly from about 7.53x to roughly 7.78x.

Operational efficiencies and cost reductions in key regions are boosting margins, production, and positioning for sustained cash flow growth.
Strategic expansion, improved agreements, and disciplined financial management are enhancing resource potential, flexibility, and long-term shareholder returns.
Heavy dependence on oil and gas, geographic concentration, costly production strategies, and rising decommissioning and compliance costs threaten APA's margins, revenue stability, and long-term profitability.

Catalysts

About APA

An independent energy company, explores for, develops, and produces natural gas, crude oil, and natural gas liquids.What are the underlying business or industry changes driving this perspective?

Strong operational improvements, including capital efficiencies in the Permian and Egypt, are significantly reducing drilling and completion costs, driving higher production with fewer rigs and unlocking meaningful opportunities to grow margin and free cash flow.
Expanded acreage in Egypt
a greater than 35% increase
and the ability to fully pursue both oil and gas under new, higher gas price agreements position APA to capitalize on robust, underexplored resources, supporting sustained volume and revenue growth in a region seeing rising energy demand.
Accelerated corporate-wide cost reduction initiatives, with a run-rate $350 million in savings now expected in 2026 (ahead of the prior schedule), along with organizational simplification and G&A cuts, will directly enhance net margins and deliver durable efficiency gains.
Progress on Suriname development (GranMorgu), with milestone achievements and early capex outlays signaling timely project delivery, offers a major future uplift to reserves and revenue, aligned with long-term global demand growth in oil and gas.
Strategic balance sheet management
including rapid debt reduction, focus on maintaining investment-grade credit, and a robust capital returns framework (dividends and buybacks)
strengthens financial flexibility, supports durable earnings, and enhances shareholder value for the long term.

APA Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming APA's revenue will decrease by 6.1% annually over the next 3 years.
Analysts assume that profit margins will increase from 11.0% today to 19.7% in 3 years time.
Analysts expect earnings to reach $1.6 billion (and earnings per share of $4.82) by about September 2028, up from $1.1 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $2.2 billion in earnings, and the most bearish expecting $835 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.0x on those 2028 earnings, down from 7.2x today. This future PE is lower than the current PE for the US Oil and Gas industry at 12.6x.
Analysts expect the number of shares outstanding to decline by 3.29% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.81%, as per the Simply Wall St company report.

APA Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

APA's long-term reliance on oil and gas, despite recent efficiency and cost-saving gains, leaves the company vulnerable to accelerating global decarbonization policies, carbon pricing, and the energy transition, which could decrease demand, pressure commodity prices, and negatively affect APA's revenues and long-term earnings.
Geographic and asset concentration, especially in Egypt (which now comprises a larger share of operations), exposes APA to heightened geopolitical and regulatory risks; any instability, adverse policy changes, or licensing challenges could disrupt production and impact both revenues and free cash flow stability.
Sustaining or expanding production in the Permian and Egypt relies on continued capital expenditures and successful asset development, but APA's well productivity strategy involves denser well spacing and smaller fracs that may yield lower per-well output and pose resource exhaustion or diminishing returns, threatening future net asset value and potentially compressing margins over time.
North Sea assets, while supporting near-term cash flow, are entering late-life phases requiring escalating decommissioning costs that are projected to peak into the 2030s; these obligations could create a drag on future net margins and earnings even as free cash flows from the asset decline.
Cost inflation in drilling, infrastructure requirements for new acreage (particularly in Egypt), supply chain bottlenecks, and the need for further investment in environmental compliance or ESG improvements may erode cost gains, increasing APA's operating costs and suppressing net margins and long-term profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $23.815 for APA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $35.0, and the most bearish reporting a price target of just $16.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $8.1 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 6.0x, assuming you use a discount rate of 7.8%.
Given the current share price of $21.66, the analyst price target of $23.81 is 9.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Cost Efficiencies And Growing Gas Demand Will Influence Future Performance