APA's 2Q call highlighted a materially stronger Permian outlook driven by operational efficiency rather than higher spending. Management now expects to sustain 123 Mb/d of Permian oil production with just four rigs for the remainder of 2026, versus the original post-Callon expectation that eight rigs and roughly $1.7 billion of capital would be needed to hold ~120 Mb/d flat. The company also reiterated that its inventory now supports more than 10 years of flat production, with ongoing work to convert additional technical locations into economic inventory (see graph below). Management emphasized that future performance should be measured less by rig count and more by lateral feet drilled and wells completed, as drilling productivity continues to improve.
Management repeatedly pointed to U.S. drilling efficiency as the key driver of improving economics. As shown in the graphic below, drilling and completions have been reduced by $50/lateral ft since just the first quarter. The company noted that 4.5 rigs this year will drill more lateral footage and complete as many wells as the original five-rig plan, reflecting improvements from optimized well designs, slim-hole drilling, simul/trimul frac operations, and execution consistency. Executives characterized the Permian business as having achieved a "cost leadership" position, with further gains expected through incremental process optimization rather than major technological breakthroughs.
On Waha gas prices, APA reiterated that it is largely insulated from basis volatility because its transportation portfolio offsets its Permian equity gas production. Higher Waha prices increase upstream gas revenue but reduce earnings from its transportation portfolio by a similar amount, while lower Waha prices have the opposite effect, resulting in minimal impact on consolidated free cash flow (example shown below). Management expects its gas trading portfolio to generate about $950 million of pretax cash flow in 2026 at current strip prices and indicated it will likely continue its practice of hedging basis exposure into future years, although no 2027 hedges have yet been placed.
