APA : Sustainability Report (APA 2025 TCFDAnalysis)

Published: 2025-07-01 15:41:10 ET APA

Published on 07/01/2025 at 15:41

TCFD Analysis

Our Reporting Approach

This document is our Task Force on Climate-related This TCFD Analysis complements our two main Financial Disclosures (TCFD) Analysis, which sustainability publications, Our Approach to identifies opportunities and risks for our business Sustainability and our annual Sustainability associated with climate change. This analysis uses Progress Report, which details our sustainability the 2023 International Energy Agency (IEA) World approach and highlights our performance,

Energy Outlook scenarios as the basis for respectively. References within this analysis have evaluation. We update our TCFD analysis every been updated to reflect the page numbers in our other year, following the release of updated IEA various sustainability publications.

scenarios in the Fall.

TCFD Analysis

Climate change is an important issue for our company and our stakeholders. We are committed to helping address the energy challenges that climate change presents, while also continuing to produce reliable, secure, affordable energy to help meet the world's needs and drive global prosperity. Our efforts are focused on reducing Scope 1 emissions from our oil and gas operations.

The task of identifying and managing the opportunities and

risks presented by climate change, balanced against the

need to provide secure energy resources to meet increasing worldwide demand, is an important part of our business planning and enterprise risk management. The TCFD disclosure framework was designed to facilitate the presentation by companies of their efforts around climate change, focusing on four key areas: governance, strategy, risk management, and metrics and targets.

Our business planning and risk management process considers how concern over climate change influences our operations from regulatory, lending and investment perspectives. Recent examples of U.S. and international regulatory changes, such as those implemented as part of

the Inflation Reduction Act's Waste Emissions Charge (WEC) and the U.K. Energy Profits Levy, have prompted us to evaluate their impact on our business and future investment decisions. For this reason, the highest levels of our leadership team, including senior management and the board of directors, oversee our planning process on

climate-related issues.

For investors and lenders in the oil and gas industry, concerns include the impact of new regulations; changes in energy demand; public policy and political attitudes toward demand for hydrocarbons; and competition for supply from lower-carbon energy sources.

We have updated our scenario analysis, using the 2023 International Energy Agency (IEA) World Energy Outlook (WEO) scenarios against which to disclose our performance. (See our Reporting Standards and Frameworks document for an index of TCFD-related disclosures).

Our board of directors and senior management are directly engaged in assessing our business strategy, including ongoing review and oversight of how capital is deployed. This process includes evaluating climate change-related risks and opportunities for the company.

The board's Audit Committee oversees the risk management process (described in more detail below and on p. 49 ofOur Approach to Sustainability), which includes management of climate change-related business, legal and regulatory risks. The Corporate Responsibility, Governance, and Nominating (CRG&N) Committee oversees management and performance on sustainability issues, including the content within Our Approach to Sustainability document and the annual Sustainability Progress Report. The Management Development and Compensation (MD&C) Committee recommended to the full board, which subsequently adopted it, a resolution that linked greenhouse gas (GHG) emissions metrics to compensation for all employees, including executives. (See p. 55 of Our Approach to Sustainability.)

In addition to the work of these committees, the full board receives periodic updates on climate change-related topics, including our corporate approach to risk management, climate-related risks and opportunities, GHG emissions management, third-party environmental, social and governance (ESG) ratings, and our overall sustainability performance. The board also invites outside experts on sustainability issues to provide ongoing education on relevant subjects, including differing perspectives on climate-related risks and opportunities.

Our Sustainability Management Committee, a cross-functional team of corporate officers, is tasked with overseeing our climate and emissions strategy, goals and performance. Sponsored and led by APA's president, and generally meeting at least quarterly, this team is tasked with

A P A C OR P OR A T I ON | TCFD Analysis 02

integrating our sustainability priorities across the business. To help drive focus and accountability throughout the company, we are continuing to expand our use of sustainability performance metrics and tying them to incentive compensation for all employees - from the executive level to the field. In 2023, 20% of short-term compensation was linked to our combined Environmental, Health and Safety (EHS) and sustainability goals. The sustainability component featured two distinct goals. The first was to eliminate methane emissions associated with at least 2,000 methane-emitting pneumatic devices, either by conversion to instrument air or by retrofitting valves to recirculate rather than emit the gas. The second goal was to utilize at least 50% recycled produced water for completions in our U.S. onshore operations. Also in 2023, for the second consecutive year, we added a sustainability metric to the performance share program in our long-term incentive compensation (LTIC) plan. The new metric, set by the MD&C Committee, was to reduce our Scope 1 GHG

emissions intensity by 10%-15% by 2030, with a near-term, compensation-linked milestone to reduce at least 5% by year-end 2025. This metric is in addition to the 2022 LTIC goal to identify and implement projects capable of eliminating at least 1 million tonnes of annualized carbon dioxide equivalent (CO2e) emissions by year-end 2024. All of these 2023 goals were achieved.

We consider sustainability matters - including climate-related issues - to be critical areas in which to identify, track and mitigate risk. (Read more on our prioritizingand managing sustainability initiatives on p. 09 of Our Approach to Sustainability.)

We are committed to producing energy safely and responsibly. Highlights of what this means to us include the following:

 We work to reduce our environmental footprint, operate safely and increase the benefits we provide to the communities where we live and work.

 A key part of our corporate vision is to be the premier exploration and production company. That aspiration extends beyond financial results; it begins and ends with working to achieve the best safety and environmental record, year after year.

 We are focused on reducing emissions across our operations. We have programs for preventing, identifying and correcting methane leaks.

 In 2023, we made significant progress in deploying emissions reduction projects across our assets, in furtherance of our LTIC goal to eliminate 1 million tonnes of annualized CO2e emissions by year-end 2024.

 We are using cleaner-burning natural gas and electricity as alternatives to diesel to power our field operations where practicable, which reduces diesel fuel consumption and localized air emissions.

SCENARIO-PLANNING FRAMEWORK

In 2023, we updated our scenario-planning framework to align with TCFD recommendations by adding details related to the U.S. onshore base-case scenario pricing analysis.

Scenario planning has long been embedded in our business and risk management processes, to assess how commodity demand drives the prices of our products. Two recent examples include the oil price crash that resulted from plummeting demand due to COVID-19, and the impact of the Russian invasion of Ukraine on natural gas prices across Europe. Undertaking scenario analyses is particularly important for us, given that our international asset portfolio exposes us to multiple commodity prices and a broader range of regulatory pressures than those experienced by pure-play operators or our U.S. onshore-focused peers. Our scenario-planning analysis includes the input of experts from multiple internal functional areas, for a more rigorous, multidisciplinary approach.

We consider a range of pricing scenarios when forming our long-term investment and development plans. These include scenarios involving a carbon-constrained future, which reflect the potential climate-related risks and opportunities influencing fossil fuel supply and demand. We also evaluate the relative balance within our portfolio of oil and natural gas production, to account for supply and demand issues.

However, our expanded, climate-specific scenario-planning framework goes even further, by including third-party market-based forecasts of future demand and pricing in energy markets, based on assumptions concerning potential changes in government regulations and policy.

The TCFD guidance recommends that companies consider risks relating to the potential impact of climate change over near-, medium- and long-term time frames. However,

the dynamic nature of our business has been clearly demonstrated by the commodity price volatility observed over the past few years, driven by the pandemic and by geopolitical impacts on global markets. Given such volatility, we believe our scenario analyses should be conducted over medium-term time frames. In our view, it is challenging to accurately assess scenario outcomes beyond a five-year time horizon, given the number and unpredictability of variables. However, for this exercise, in our climate-related risk assessments we have projected our base-case pricing analysis out to 2040, comparing it to external predictions of demand, carbon pricing and comparison-pricing scenarios.

A P A C OR P OR A T I ON | TCFD Analysis 03

"Our scenario-planning analysis positively supports that the break-even prices referenced in each of APA's core development areas of operation indicate the long-term potential for generating positive returns."

APA base-case scenario

APA's own base-case scenario takes a conservative approach to future oil pricing, with an 18-year average blended oil price that is most closely aligned with the WEO's Announced Pledges Scenario (APS) (described in more detail below). Our 18-year average oil pricing, discounted for fees projected to be associated with the U.K. Emissions Trading Scheme in the North Sea and the WEC in the U.S., is $52 per blended West Texas Intermediate (WTI)/Brent barrel (Bbl).

Our base-case scenario is a quantification of our business perspective, utilizing an internal oil pricing deck that builds in an anticipated carbon price under the U.K. emissions trading scheme, such that our WTI/Brent blended pricing accounts for the assumption of a carbon tax on our U.K. production. To account for recent regulation in the U.S.,

a WEC fee is applied to forecasted future production in

the U.S. As defined by the IEA's WEO, Egypt is classified as an emerging market country with a developing economy; therefore, no carbon pricing is assumed until 2030, escalating to $17/tonne for Egypt production barrels in 2040. In our base-case scenario, our crude oil pricing assumption after forecasted carbon fees is a WTI/Brent blend at $52 per Bbl, remaining flat until 2040.

Based on this assessment, we believe our company is well positioned when compared to any of the external pricing scenarios below. Our diverse asset base, including development in Egypt and active exploration plays in emerging market countries, provides us with optionality to invest in areas not overly burdened by carbon pricing.

2023 WEO scenarios

Our updated analysis includes the following IEA scenarios from the 2023 WEO report, against which we compare our internal APA base-case scenario: the Stated Policies Scenario (STEPS) and the Announced Pledges Scenario (APS). In addition, even though we do not currently have a commitment on net zero, we also present the Net Zero Emissions by 2050 (NZE) scenario in this year's analysis. Under any of the pricing scenarios considered, the third-party break-even prices referenced in each of APA's core areas of operation indicate the long-term potential for generating positive returns.

The STEPS scenario reflects all current governmental carbon policies, assessed sector to sector. Under this scenario, carbon pricing is applied to the company's U.K. oil production using existing country-based carbon tax structures, and is applied to our U.S. onshore production using the WEC fees. The 2023 STEPS shows a cumulative growth in world oil demand to 101.5 million Bbls of oil per day by 2030, followed by a decline to 97.4 million Bbls of oil per day by 2050. In the STEPS scenario, oil prices are shown to fall from 2022's $98 per Bbl to $85 per Bbl in 2030, and as demand slowly declines over the next 20 years, the oil price falls to $83 per Bbl in 2050.

The APS scenario assumes all countries' announced climate commitments are met in full and on time, including nationally determined contributions. This scenario includes all announced net zero pledges, and reflects any shortfalls associated with the alignment with the 2015 Paris Agreement. In our analysis, carbon pricing is applied to the company's U.K. production in all years, while its U.S. and Egypt production is burdened only from 2030 onward.

In contrast to STEPS, the APS projects much lower demand for oil in 2050 compared to 2020, with demand declining to 92.5 million Bbls per day in 2030, then declining more rapidly to 54.8 million Bbls per day in 2050. The APS scenario therefore predicts a larger price decline than the STEPS scenario, with oil at $74 per Bbl in 2030, and slowly sliding to $60 per Bbl in 2050. However the APS scenario predicts smaller changes in demand and pricing than the NZE scenario.

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04

The NZE scenario represents the lowest demand scenario, with demand rapidly declining to 77.5 million Bbls per day in 2030, then declining more gradually to 24.3 million Bbls per day in 2050. The NZE scenario predicts a significant price decline due to eroding demand, with oil at $42 per Bbl in 2030, declining further to $25 per Bbl in 2050. It is

important to note that under these price assumptions, taking into account the projected carbon pricing for advanced economy countries, the NZE yields a negative net price per Bbl after 2030. In short, the carbon prices of advanced economy countries with the assumed IEA NZE scenario pricing, combined with the predicted lower prices per Bbl, would make it impossible to profitably produce oil in countries with advanced economies, effectively pushing future development of oil to emerging market countries with no, or only minimal, carbon pricing impacts.

break-even prices in Egypt and Permian yield profits. In the North Sea, the APS break-even price post-2030 is $1 per Bbl below third-party estimates of APA's break-even prices. However, APA's North Sea asset is in the later stages of its development life and, given U.K. initiatives like the North Sea Transition Authority's move to net zero, it is likely APA will be transitioning these assets into decommissioning before 2040. Again, our scenario-planning analysis positively supports that the break-even prices referenced in each of APA's core development areas of operation indicate the

long-term potential for generating positive returns.

The following tables provide a summary of key climate-related risks and opportunities, and their timeframes, that we have identified and are working to address now and into the future.

The STEPS, APS and NZE scenarios' projected oil and

natural gas demand and carbon emissions through 2050

are shown in the charts on p. 09 of this report.

Resilience in a global market

The focus of our scenario-planning exercises is our continued ability to meet demand for natural gas and oil in a global market. We actively monitor the demand scenario predictions and how they can affect global supply. We evaluate demand on a medium-term basis, to avoid overreacting to short-term cycles or to commodity price fluctuations that are influenced by unpredictable disruptions, such as occurred during the COVID-19 pandemic and with the geopolitical impact of Russia's invasion of Ukraine.

Our international portfolio of assets allows us to proactively manage our production mix to mitigate our exposure to WTI/ Brent crude pricing disparity and to costs associated with carbon pricing where applicable. Our portfolio consists of

a diversified global resource base, not a pure-play operating area asset. We currently have active development onshore in the U.S. and Egypt, with limited activity offshore in the

U.K. North Sea. This multibasin asset portfolio enables us to shift capital investment to, or from, certain assets in response to changes in geographic commodity prices, local regulations, energy demand, supply-side issues or other market factors. Coupled with our experience as a cost-conscious producer and resource-efficient operator, we believe this approach reduces our carbon risk and helps

the company optimize its capital investment in response to

$90

$80

$70

$60

$50

$40

$30

$20

$10

Asset Scenario-Planning Assessment

WTI/Brent Blend Equivalent Break-even Price $/Bbl (2020)

$85 IEA STEPS Avg. 2024-2040

$52

Our Base-case Avg.

2024-2040 U.K. Emissions Trading System (ETS)

U.S. WEC Carbon Pricing

the market's price signals and energy needs.

$0

$36

IEA APS Avg. 2024-2040

$37*

$33*

$34*

The resilience of our approach can be seen in the results

Egypt

APA Permian

North Sea

of our asset scenario-planning assessment, which compares projected break-even prices for our operating basins from third-party assessors (Wood Mackenzie and Enverus) to the average forecasted WTI/Brent blend equivalent pricing for 2022-2040, from each of the four planning scenarios discussed above. In all but the NZE scenario, the third-party

* Break-even pricing is from 2022 Wood Mackenzie Asset Report: Egypt Western Desert Apache and other fields. The U.K. North Sea sector includes the break-even 2024 Wood Mackenzie Insight: Q1 2024 Pre-FID Upstream Project Tracker: (U.K. Northern North Sea).

The APA Permian break-even pricing is the average of APA Tier 1 and Tier 2 break-even from the 2022 Enverus report: Scoop Stack Play Fundamentals Rebounding From the Depths.

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Disclaimer

APA Corporation published this content on July 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on July 01, 2025 at 19:41 UTC.