Market Risk Exposure Assessment: APA Corp (2025)

This report synthesizes APA Corp's disclosures regarding quantitative market risk exposure based on the 10-K filing for the period ending December 31, 2025.

Commodity Price Risk

Magnitude of Exposure and Changes

APA Corp exhibits a high dependence on crude oil, natural gas (NG), and Natural Gas Liquids (NGL) prices, which are noted as historically volatile due to global factors (e.g., OPEC+, inflation). The company experienced mixed price movements in 2025:

• Crude Oil: Average realized price decreased by 14% (from $78.08/barrel in 2024 to $66.92/barrel in 2025).
• Natural Gas: Average realized price increased by 20% (from $1.97/Mcf in 2024 to $2.36/Mcf in 2025).
• NGLs: Average realized price decreased by 3% (from $23.37/barrel in 2024 to $22.71/barrel in 2025).

Quantitative Measures and Mitigation Strategies

The company provides clear sensitivity metrics: a $1.00 change in weighted average oil price could impact revenues by approximately $\pm$ $87 million, while a $0.10 change in NG price could impact revenues by approximately $\pm$ $33 million.

• Mitigation: The company uses derivative positions (futures, swaps, options) on projected production to manage cash flow fluctuations and explicitly states it does not use derivatives for trading purposes.
• Current Position: As of 12/31/2025, the company held open natural gas derivatives not designated as cash flow hedges, resulting in a net liability valued at $77 million.

Assessment (Strengths and Weaknesses)

• Strength: The company actively monitors exposure and provides detailed quantitative sensitivity analysis for its core revenue streams. Its use of derivatives is focused on managing operational cash flows rather than speculative trading.
• Weakness: A significant portion of the derivative positions are not designated as cash flow hedges, indicating an unhedged financial risk component ($77 million net liability).

Interest Rate Sensitivity

Magnitude of Exposure and Changes

The company's primary debt load consists of $4.5 billion net in outstanding notes and debentures, all of which are fixed-rate debt with a weighted average interest rate of 5.66%. The filing asserts that near-term changes to this fixed-rate debt do not expose the company to earnings or cash flow loss.

• Floating Rate Exposure: Exposure exists related to short-term investments and facilities (money market funds, etc.). However, the impact of interest rate changes on these balances is expected to be "immaterial" to current earnings and cash flows.

Mitigation Strategies Employed

No specific hedging instruments are disclosed for the $4.5 billion fixed-rate debt. The company relies on the short-term nature of its floating-rate exposures, stating that impacts would only affect future borrowing costs or issuances.

Assessment (Strengths and Weaknesses)

• Strength: A large majority of long-term debt is secured via fixed rates, providing stability against rising interest rate environments in the near term.
• Weakness: The disclosure lacks detail on how potential changes in future borrowing costs or the risk associated with short-term floating investments will be managed beyond stating the impact is "immaterial."

Foreign Currency Exchange Rate Risk

Magnitude of Exposure and Changes

The company operates internationally, involving USD sales contracts (North Sea and Egypt) against costs denominated primarily in British Pounds (GBP). The primary source of increased risk noted is related to decommissioning obligations in the North Sea.

• Magnitude: As of 12/31/2025, a 10% weakening or strengthening of the GBP was deemed not material to foreign currency gains and losses.

Mitigation Strategies Employed

The company actively monitors exchange rates and employs hedging measures. Subsequent to December 31, 2025, APA Corp entered into outstanding foreign exchange contracts with a total notional amount of £120 million specifically to reduce exposure related to the British pound.

Assessment (Strengths and Weaknesses)

• Strength: The company has implemented proactive hedging strategies (£120 million in FX contracts) targeting its most significant currency risk (GBP/North Sea decommissioning obligations).
• Weakness: While current gains/losses are deemed immaterial, the reliance on periodic monitoring suggests that exposure management is reactive rather than continuously optimized.

Equity Price Risk

Magnitude of Exposure and Changes

The provided document excerpt does not contain any disclosures regarding investment portfolios or equity price risk. Therefore, the magnitude of this specific exposure cannot be assessed based on the available text.

Mitigation Strategies Employed

No information is available to assess mitigation strategies for equity price risk.

Assessment (Strengths and Weaknesses)

• Observation: The absence of disclosure suggests either a negligible exposure or that the company does not classify its investment holdings as material market risk under this filing section.

Quantitative Measures Summary

The company provides robust quantitative data primarily related to commodity prices, including:

1. Specific percentage changes in realized oil, NG, and NGL prices for 2025.
2. Revenue sensitivity tables demonstrating the dollar impact of small price fluctuations (e.g., $\pm$ $87 million per $1 change in crude oil).
3. A defined net liability value ($77 million) associated with non-cash flow hedged natural gas derivatives, along with specific scenarios showing how a 10% price shift would affect this liability ($\pm$ $5M to $\pm$ $6M).

This level of detail demonstrates a commitment to quantifying and communicating the potential financial impact of market volatility.