APA Corp
For the period ended Dec 31, 2024. Filed Feb 28, 2025.
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FY2024 · Filed Feb 28, 2025
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Report of independent registered public accounting firm (PCAOB ID:
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of APA Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of APA Corporation and subsidiaries (the Company) as of December 31, 2024 and 2023, the related statements of consolidated operations, comprehensive income, cash flows and changes in equity and noncontrolling interest for each of the three years in the period ended December 31, 2024, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 28, 2025 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Depreciation, depletion and amortization of property and equipment | |
| Description ofthe Matter | At December 31, 2024, the carrying value of the Company’s property and equipment was $12,646 million, and depreciation, depletion and amortization (DD&A) expense was $2,266 million for the year then ended. As described in Note 1, the Company follows the successful efforts method of accounting for its oil and gas properties. DD&A of the cost of proved oil and gas properties is calculated using the unit-of-production method based on proved oil and gas reserves, as estimated by the Company’s internal reservoir engineers. |
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| Proved oil and gas reserves are those quantities of natural gas, crude oil, condensate, and natural gas liquids, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. Judgment is required by the Company’s internal reservoir engineers in estimating oil and gas reserves. Estimating proved oil and gas reserves requires the selection of inputs, including historical production, oil and gas price assumptions, and operating costs, among others. Because of the complexity involved in estimating oil and gas reserves, management engaged independent petroleum engineers to audit the proved oil and gas reserve estimates prepared by the Company’s internal reservoir engineers for select properties as of December 31, 2024. Auditing the Company’s DD&A calculations is complex because of the use of the work of the internal reservoir engineers and the independent petroleum engineers. | |
| How WeAddressed theMatter in OurAudit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its process to calculate DD&A, including management’s controls over the completeness and accuracy of the data utilized by the engineers for use in estimating oil and gas reserves.Our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Company’s internal reservoir engineers responsible for overseeing the preparation of the reserve estimates and the independent petroleum engineers used to audit the proved oil and gas reserve estimates. Additionally, we evaluated the methods and assumptions used by the engineers in estimating proved oil and gas reserves and tested the completeness and accuracy of the data used by the engineers related to historical production volumes. We also tested that the DD&A expense calculations are based on the appropriate proved oil and gas reserve balances from the Company’s reserve report. |
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| Accounting for asset retirement obligation for the North Sea segment | |
| Description ofthe Matter | At December 31, 2024, the asset retirement obligation (ARO) balance totaled $2,694 million. As further described in Note 8, the Company’s ARO reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with the Company’s oil and gas properties and other long-lived assets. The estimation of the ARO related to the North Sea segment requires significant judgment given the magnitude of the expected retirement costs.Auditing the Company’s ARO for the North Sea segment is complex and highly judgmental because of the significant estimation required by management in determining the obligation. In particular, the estimate was sensitive to retirement cost estimates, which are affected by expectations about future market and economic conditions. |
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| How WeAddressed theMatter in OurAudit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over its ARO estimation process, including management’s review of the significant assumptions that have a material effect on the determination of the obligation.To test the ARO for the North Sea segment, our audit procedures included, among others, assessing the significant assumptions and inputs used in the valuation, such as retirement cost estimates. For example, we evaluated retirement cost estimates by comparing the Company’s estimates to underlying third party evidence or market information. We also involved our internal specialists in testing the underlying retirement cost estimates. |
| Accounting for decommissioning contingency for sold Gulf of America properties | |
| Description ofthe Matter | At December 31, 2024, the decommissioning contingency for sold Gulf of America properties (decommissioning contingency) balance totaled $1 billion. As further described in Note 11, the Company’s decommissioning contingency reflects the estimated undiscounted potential liability to fund decommissioning of the sold Gulf of America properties. The estimation of the decommissioning contingency requires significant judgment given the magnitude and higher estimation uncertainty of the expected retirement costs. |
| Auditing the Company’s decommissioning contingency is complex and highly judgmental because of the significant estimation required by management in determining the decommissioning contingency. In particular, the estimate was sensitive to retirement cost estimates, which are subjective assumptions affected by expectations about future market and economic conditions. | |
| How WeAddressed theMatter in OurAudit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over its decommissioning contingency estimation process, including management’s review of the significant assumptions that have a material effect on the determination of the contingency.To test the decommissioning contingency, our audit procedures included, among others, assessing the significant assumptions and inputs used developing the retirement cost estimates. For example, we evaluated retirement cost estimates by comparing the Company’s estimates to market information. We also involved our internal specialists in testing the underlying retirement cost estimates. |
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| Evaluation of the fair value measurement of proved oil and gas properties acquired in the Callon Petroleum business combination | |
| Description ofthe Matter | During 2024, the Company completed the acquisition of Callon Petroleum Company resulting in the recognition of the fair value of property and equipment of $4,502 million. As described in Note 2, the transaction was accounted for as a business combination using the acquisition method, which requires assets acquired and liabilities assumed to be recognized at their fair values as of the acquisition date.The Company applied a discounted cash flow method to estimate the fair value of the proved oil and gas properties acquired. Significant inputs to the valuation of proved oil and gas properties include estimates of future commodity prices, future production volumes, and discount rate using a market-based weighted average cost of capital. Judgment is required by the Company’s internal reservoir engineers in estimating future production quantities.Auditing the Company’s fair value measurement of the proved oil and gas properties acquired is complex because of the use of the work of the Company’s internal reservoir engineers in estimating future production and the evaluation of management’s determination of the inputs described above. In evaluating the reasonableness of management’s assessment and assumptions used, the audit testing procedures performed required a high degree of auditor judgement and additional effort, including involving internal valuation specialists. |
| How WeAddressed theMatter in OurAudit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls to estimate the fair value of the acquired proved oil and gas properties, including management’s review of the significant assumptions used as inputs to the fair value calculations.To test the fair value of the acquired proved oil and gas properties, our audit procedures included, among others, evaluating the professional qualifications and objectivity of the Company’s internal reservoir engineers primarily responsible for overseeing the preparation of the future production volumes. In addition, we performed sensitivity analyses of significant assumptions, to evaluate the extent of their impact to the fair value calculation. We also involved our valuation specialists to assist with certain significant assumptions included in the fair value estimate. |
/s/Ernst & Young LLP
We have served as the Company’s auditor since 2002.
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