Stephen J. Riney
President and Chief Financial Officer at APA
Thank you, John. For the 4th-quarter, under Generally Accepted accounting principles, APA reported consolidated net income of $354 million or $0.96 per diluted common share. As usual, these results include items that are outside of core earnings. The most significant of which was a $224 million US deferred tax benefit-related to the write-off of APA's investment in our UK. Subsidiaries and a $190 million increase in our net liability on the former Fieldwood properties. Excluding these and other smaller items, adjusted net income for the 4th-quarter was $290 million or $0.79 per share.
4th-quarter DD&A expense was higher than guidance, primarily due to accelerated depreciation at Alpine High. With negative Waha gas prices for the second and third quarters of 2024, SEC reserve guidelines required that substantially all of the Alpine High reserves be written-off. As a result, one-third of the Alpine high carrying value was depreciated in the 4th-quarter and there will be a similar impact in the first-quarter of 2025. 4th-quarter lease operating expense also came in slightly higher than guidance, largely due to an extra North Sea cargo lifting in the quarter.
The timing of North Sea cargo liftings has no impact on reported production, but it does affect the recognition of both sales revenue and LOE. APA generated $420 million of free-cash flow-in the 4th-quarter, the highest of any quarter in 2024. Through dividends and share repurchases, we returned 46% of this amount to shareholders in the quarter. For the full-year, we generated $841 million in free-cash flow, of which we returned 71% to shareholders. Please refer to APA's published definition of free-cash flow for any reconciliation needs. In 2024, we made significant progress strengthening our balance sheet and are close to returning to debt levels only nine months after closing the acquisition.
Recognizing the lower net-debt levels and increased scale achieved last year, S&P upgraded our credit rating to BBB-minus in October. Our ultimate objective is to achieve BBB or better ratings, one-notch above our current ratings at all three rating agencies. Wrapping up commentary on 2024, let me address the $190 million increase in the net contingent liability for the Fieldwood properties. This increase does not reflect any change in the anticipated cost to plug-in abandoned wells or to remove facilities and seafloor infrastructure. In 2021, as a result of the Fieldwood bankruptcy ruling, an independent third-party was required to own and manage the assets.
In this capacity, the third-party operates the producing assets and maintains and monitors the non-producing assets awaiting abandonment. We believe the third-party's cash cost for these activities remain too high. Until we take actions to directly reduce these costs, the resultant reduction in future net cash flows increases the contingent liability on our balance sheet. With a large portion of the security utilized, we are now free-to explore all avenues to manage these assets and to enable a more prudent cost management system. We expect resolution to this later this year.
Turning to our 2025 outlook, let me provide a few more details with respect to our guidance for the year. Starting with our capital spending cadence, you should expect our spending to be front-half weighted primarily due to the timing of capital calls and our exploration activities in Alaska. Despite a planned steady activity level, Permian is also first-half weighted, primarily due to the timing of facility spend in the basin. Looking at production, 2024 oil volumes for the US adjusted for the effects of asset sales in the first-quarter production were 128,000 barrels of oil per day.
With the eight-rig program planned in the Permian for 2025, US oil volumes should be in the 125,000 to 127,000 barrels per day range. Total US volumes should increase mid-single digits as we do not anticipate any price-related production curtailments this year. In Egypt, adjusted production is expected to grow Slightly year-over-year with a modest decline in gross volumes. On the gas front, we initiated drilling activity in the 4th-quarter and have seen very encouraging results. As John indicated, we now expect gross gas production to grow year-over-year. Our average realized gas price is expected to increase from $2.96 per Mcf in the 4th-quarter to at least $3.15 per Mcf in the first-quarter. Average realized price will continue to grow through the year with the full-year average expected in the $3.40 to $3.50 range. As we look beyond 2025, success in the gas program will determine our ability to continue growing gas production and will highlight any need for additional infrastructure investment. Moving to lease operating expense. For the US, we expect operated LOE per BOE in the Permian to be about 20% lower than 2024. This step-change in operating efficiency reflects the progress we have made streamlining our US portfolio and harvesting synergies from the acquisition of Cowen. The return of curtailed gas volumes also contributes to the improvement in our per unit LOE. In terms of our guidance related to G&A, it may appear that overhead costs are increasing significantly in 2025. Total overhead costs are in fact going down, but it is difficult to see that comparing 2024 actual G&A expense to 2025 guidance. Recall that overhead costs are allocated to multiple areas, including capital investment, exploration, LOE and G&A. The relationship between G&A expense and total overhead costs is impacted most significantly by allocation methodology and the mark-to-market impact for long-term incentive compensation. These items are causing G&A expense to increase despite our plans to decrease overhead costs by at least $25 million in 2025. 2024 was a strong year for our third-party gas trading business and 2025 is shaping up to perform at a similar level. This year, the Waha basis spread remains advantageous and we have seen appreciation in international LNG prices benefiting APA through our Cheniere gas supply contract. Given current strip prices, we anticipate generating a combined net gain of $600 million for 2025. Lastly, I would like to-end with some additional color around our cost-reduction initiatives. We are targeting $350 million in annualized cost-savings by the end of 2027. Our goal is not just to capture some quick-hit opportunities to lower costs, although that is certainly a near-term focus. Our goal is to rightsize our entire cost structure to achieve a long-term purposeful and sustainable outcome. In the near-term, this will naturally focus on efforts, which are simply a matter of choice and discretion. Much of this is in our overhead cost structure and in day-to-day field operating practices. In the intermediate-term, it will address our capital cost structure for things like drilling and completions and facilities as well as operating practices such as life-of-field resource management and field automation. For the longer-term, it will address more deeply ingrained structures like IT systems and infrastructure and accounting applications and procedures. This is why we have set longer-term targets out to 2027. Some of these things are happening quickly and others will take more time and effort. In 2025, our objective is to achieve run-rate savings of $100 million to $125 million by the end of this year. At this point, we anticipate an in-year capture of around $60 million of actual savings, which is something we hope to improve upon as we go through the year. Our cost-reduction targets are an important effort for the entire organization and are therefore included in both our short-term and long-term incentive compensation programs. Already this year, we have made good progress on restructuring our organization, starting with the reduction in our officer count that John mentioned. This was followed by a greater than 10% reduction in our global overhead structure in February. The combined annual run-rate savings with these two simplification steps is approximately $35 million per year of salaries and benefits. In closing, the ongoing enhancement in the quality and sustainability of our core portfolio, combined with the rightsizing of our cost structure will lay a foundation for growing free-cash flow over the next three years. First Oil in 2028 will then carry that free-cash flow growth into the next decade. Over that same time period, free-cash flow per share increases even more significantly as a result of the share buybacks built into our capital returns framework. And with that, I will turn the call over to the operator for Q&A.
