Quarterly Report (10-q)

Date : 10/31/2019 @ 8:14PM
Source : Edgar (US Regulatory)
Stock : Apache Corporation (APA)
Quote : 31.74  -0.93 (-2.85%) @ 10:43PM
Apache share price Chart
After Hours
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Last $ 31.72 ▼ -0.02 (-0.06%)

Quarterly Report (10-q)

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apa:NorthSeaMember 2018-01-01 2018-09-30 iso4217:USD apa:Counterparty utreg:MMBTU iso4217:USD utreg:MMBTU xbrli:shares iso4217:USD xbrli:shares utreg:bbl iso4217:GBP xbrli:pure apa:Segment iso4217:AUD apa:contract
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

FORM 10-Q 
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 1-4300
APACHE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
41-0747868
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices) (Zip Code)
(713) 296-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.625 par value
 
APA
 
New York Stock Exchange
Common Stock, $0.625 par value
 
APA
 
Chicago Stock Exchange
Common Stock, $0.625 par value
 
APA
 
NASDAQ Global Select Market
7.75% Notes Due 2029
 
APA/29
 
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
Number of shares of registrant’s common stock outstanding as of October 30, 2019
376,036,287




 
TABLE OF CONTENTS
 
DESCRIPTION
Item
 
 
Page
 
PART I - FINANCIAL INFORMATION
 
 
1.
 
1
 
 
1
 
 
2
 
 
3
 
 
4
 
 
5
 
 
7
2.
 
27
3.
 
39
4.
 
41
 
PART II - OTHER INFORMATION
 
 
1.
 
42
1A.
 
42
2.
 
42
5.
 
42
6.
 
43



Forward-Looking Statements and Risk
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs, and plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on our examination of historical operating trends, the information that was used to prepare our estimate of proved reserves as of December 31, 2018, and other data in our possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about:
 
the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;

commodity hedging arrangements;

the supply and demand for oil, natural gas, NGLs, and other products or services;

production and reserve levels;

drilling risks;

economic and competitive conditions;

the availability of capital resources;

capital expenditure and other contractual obligations;

currency exchange rates;

weather conditions;

inflation rates;

the availability of goods and services;

legislative, regulatory, or policy changes;

terrorism or cyber attacks;

occurrence of property acquisitions or divestitures;

the integration of acquisitions;

the securities or capital markets and related risks such as general credit, liquidity, market, and interest-rate risks; and

other factors disclosed under Items 1 and 2—Business and Properties—Estimated Proved Reserves and Future Net Cash Flows, Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in our most recently filed Annual Report on Form 10-K, other risks and uncertainties in our third-quarter 2019 earnings release, other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q, and other filings that we make with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.





PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
 
 
 
 
 
 
 
Oil revenues
 
$
1,207

 
$
1,555

 
$
3,914

 
$
4,524

Natural gas revenues
 
136

 
241

 
490

 
675

Natural gas liquids revenues
 
95

 
180

 
286

 
446

 
 
1,438

 
1,976

 
4,690

 
5,645

Derivative instrument losses, net
 
(2
)
 
(23
)
 
(40
)
 
(46
)
Gain on divestitures
 

 
1

 
20

 
10

Other
 
41

 
29

 
45

 
50

 
 
1,477

 
1,983

 
4,715

 
5,659

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Lease operating expenses
 
350

 
382

 
1,104

 
1,087

Gathering, processing, and transmission
 
66

 
92

 
230

 
260

Taxes other than income
 
44

 
58

 
141

 
162

Exploration
 
56

 
99

 
220

 
251

General and administrative
 
98

 
99

 
323

 
330

Transaction, reorganization, and separation
 
7

 
8

 
17

 
20

Depreciation, depletion, and amortization
 
711

 
610

 
1,959

 
1,771

Asset retirement obligation accretion
 
27

 
27

 
80

 
81

Impairments
 
9

 
10

 
249

 
10

Financing costs, net
 
95

 
192

 
365

 
385

 
 
1,463

 
1,577

 
4,688

 
4,357

NET INCOME BEFORE INCOME TAXES
 
14

 
406

 
27

 
1,302

Current income tax provision
 
141

 
262

 
514

 
709

Deferred income tax benefit
 
(10
)
 
(17
)
 
(52
)
 
(43
)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
 
(117
)
 
161

 
(435
)
 
636

Net income attributable to noncontrolling interest - Egypt
 
38

 
80

 
125

 
215

Net loss attributable to noncontrolling interest - Altus
 
(3
)
 

 
(5
)
 

Net income attributable to Altus Preferred Unit limited partners
 
18

 

 
22

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(170
)
 
$
81

 
$
(577
)
 
$
421

 
 
 
 
 
 
 
 
 
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic
 
$
(0.45
)
 
$
0.21

 
$
(1.53
)
 
$
1.10

Diluted
 
$
(0.45
)
 
$
0.21

 
$
(1.53
)
 
$
1.09

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
377

 
383

 
377

 
383

Diluted
 
377

 
385

 
377

 
385


The accompanying notes to consolidated financial statements
are an integral part of this statement.

1



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(Unaudited)
 
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In millions)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
 
$
(117
)
 
$
161

 
$
(435
)
 
$
636

OTHER COMPREHENSIVE LOSS, NET OF TAX:
 
 
 
 
 
 
 
 
Share of equity method interests other comprehensive loss
 
(1
)
 

 
(1
)
 

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTERESTS
 
(118
)
 
161

 
(436
)
 
636

Comprehensive income attributable to noncontrolling interest - Egypt
 
38

 
80

 
125

 
215

Comprehensive loss attributable to noncontrolling interest - Altus
 
(3
)
 

 
(5
)
 

Comprehensive income attributable to Altus Preferred Unit limited partners
 
18

 

 
22

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(171
)
 
$
81

 
$
(578
)
 
$
421


The accompanying notes to consolidated financial statements
are an integral part of this statement.

2



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) including noncontrolling interest
 
$
(435
)
 
$
636

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Unrealized derivative instrument losses (gains), net
 
52

 
(88
)
Gain on divestitures
 
(20
)
 
(10
)
Exploratory dry hole expense and unproved leasehold impairments
 
107

 
133

Depreciation, depletion, and amortization
 
1,959

 
1,771

Asset retirement obligation accretion
 
80

 
81

Impairments
 
249

 
10

Deferred income tax benefit
 
(52
)
 
(43
)
Loss on extinguishment of debt
 
75

 
94

Other
 
35

 
96

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
124

 
(113
)
Inventories
 
(16
)
 
(7
)
Drilling advances
 
(2
)
 
(22
)
Deferred charges and other
 
(1
)
 
91

Accounts payable
 
(82
)
 
110

Accrued expenses
 
(1
)
 
(3
)
Deferred credits and noncurrent liabilities
 
17

 
(2
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
2,089

 
2,734

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(2,015
)
 
(2,338
)
Leasehold and property acquisitions
 
(39
)
 
(86
)
Additions to Altus gathering, processing, and transmission facilities
 
(294
)
 
(412
)
Altus equity method interests
 
(1,008
)
 

Proceeds from sale of oil and gas properties
 
590

 
51

Other, net
 
(17
)
 
(55
)
NET CASH USED IN INVESTING ACTIVITIES
 
(2,783
)
 
(2,840
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from Altus credit facility
 
235

 

Fixed-rate debt borrowings
 
989

 
992

Payments on fixed-rate debt
 
(1,150
)
 
(1,370
)
Distributions to noncontrolling interest - Egypt
 
(235
)
 
(256
)
Redeemable noncontrolling interest - Altus Preferred Unit limited partners
 
611

 

Dividends paid
 
(282
)
 
(287
)
Other
 
(25
)
 
(48
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
143

 
(969
)
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(551
)
 
(1,075
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
714

 
1,668

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
163

 
$
593

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
318

 
$
344

Income taxes paid, net of refunds
 
473

 
649


The accompanying notes to consolidated financial statements
are an integral part of this statement.

3



APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
In millions except share and per-share amounts
 
September 30, 2019
 
December 31, 2018
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents ($3 and $450 related to Altus VIE)
 
$
163

 
$
714

Receivables (net of allowance of $86 and $92)
 
1,070

 
1,194

Other current assets (Note 5) ($35 and $7 related to Altus VIE)
 
738

 
779

 
 
1,971

 
2,687

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
40,114

 
42,345

Unproved properties and properties under development
 
1,256

 
1,435

Gathering, processing, and transmission facilities ($1,457 and $1,251 related to Altus VIE)
 
2,061

 
1,856

Other ($38 and nil related to Altus VIE)
 
1,177

 
1,120

 
 
44,608

 
46,756

Less: Accumulated depreciation, depletion, and amortization ($52 and $24 related to Altus VIE)
 
(26,953
)
 
(28,335
)
 
 
17,655

 
18,421

OTHER ASSETS:
 
 
 
 
Equity method interests ($1,095 and $91 related to Altus VIE)
 
1,095

 
121

Deferred charges and other ($73 and $71 related to Altus VIE)
 
684

 
353

 
 
$
21,405

 
$
21,582

LIABILITIES, NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
661

 
$
709

Current debt ($18 and nil related to Altus VIE)
 
19

 
151

Other current liabilities (Note 7) ($38 and $85 related to Altus VIE)
 
1,241

 
1,341

 
 
1,921

 
2,201

LONG-TERM DEBT (Note 10) ($235 and nil related to Altus VIE)
 
8,393

 
8,093

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
340

 
391

Asset retirement obligation ($34 and $29 related to Altus VIE)
 
1,853

 
1,866

Other ($98 and nil related to Altus VIE)
 
491

 
219

 
 
2,684

 
2,476

COMMITMENTS AND CONTINGENCIES (Note 11)
 

 

 
 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST - ALTUS PREFERRED UNIT LIMITED PARTNERS (Note 12)
 
539

 

 
 
 
 
 
EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 416,986,332 and 415,692,116 shares issued, respectively
 
261

 
260

Paid-in capital
 
11,852

 
12,106

Accumulated deficit
 
(2,625
)
 
(2,048
)
Treasury stock, at cost, 40,964,193 and 40,995,894 shares, respectively
 
(3,190
)
 
(3,192
)
Accumulated other comprehensive income
 
3

 
4

APACHE SHAREHOLDERS’ EQUITY
 
6,301

 
7,130

Noncontrolling interest - Egypt
 
1,165

 
1,275

Noncontrolling interest - Altus
 
402

 
407

TOTAL EQUITY
 
7,868

 
8,812

 
 
$
21,405

 
$
21,582


The accompanying notes to consolidated financial statements are an integral part of this statement.

4



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTEREST
(Unaudited)
 
 
 
Redeemable Noncontrolling Interest — Altus Preferred Unit Limited Partners
 
 
Common
Stock
 
Paid-In
Capital
 
Accumulated Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
APACHE
SHAREHOLDERS’
EQUITY
 
Noncontrolling
Interests
 
TOTAL
EQUITY
 
 
 
 
 
(In millions)
For the Quarter Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JUNE 30, 2018
 
$

 
 
$
260

 
$
12,011

 
$
(1,748
)
 
$
(2,887
)
 
$
4

 
$
7,640

 
$
1,355

 
$
8,995

Net income attributable to common stock
 

 
 

 

 
81

 

 

 
81

 

 
81

Net income attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
80

 
80

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(101
)
 
(101
)
Common dividends ($0.25 per share)
 

 
 

 
(96
)
 

 

 

 
(96
)
 

 
(96
)
Other
 

 
 

 
30

 

 
(43
)
 

 
(13
)
 

 
(13
)
BALANCE AT SEPTEMBER 30, 2018
 
$

 
 
$
260

 
$
11,945

 
$
(1,667
)
 
$
(2,930
)
 
$
4

 
$
7,612

 
$
1,334

 
$
8,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JUNE 30, 2019
 
$
521

 
 
$
261

 
$
11,931

 
$
(2,455
)
 
$
(3,190
)
 
$
4

 
$
6,551

 
$
1,603

 
$
8,154

Net loss attributable to common stock
 

 
 

 

 
(170
)
 

 

 
(170
)
 

 
(170
)
Net income attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
38

 
38

Net loss attributable to noncontrolling interest - Altus
 

 
 

 

 

 

 

 

 
(3
)
 
(3
)
Net income attributable to Altus Preferred Unit limited partners
 
18

 
 

 

 

 

 

 

 

 

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(71
)
 
(71
)
Common dividends ($0.25 per share)
 

 
 

 
(94
)
 

 

 

 
(94
)
 

 
(94
)
Other
 

 
 

 
15

 

 

 
(1
)
 
14

 

 
14

BALANCE AT SEPTEMBER 30, 2019
 
$
539

 
 
$
261

 
$
11,852

 
$
(2,625
)
 
$
(3,190
)
 
$
3

 
$
6,301

 
$
1,567

 
$
7,868


The accompanying notes to consolidated financial statements
are an integral part of this statement.



5



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY AND NONCONTROLLING INTEREST – (Continued)
(Unaudited)

 
 
Redeemable Noncontrolling Interest — Altus Preferred Unit Limited Partners
 
 
Common
Stock
 
Paid-In
Capital
 
Accumulated Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
APACHE
SHAREHOLDERS’
EQUITY
 
Noncontrolling
Interests
 
TOTAL
EQUITY
 
 
 
 
 
(In millions)
For the Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2017
 
$

 
 
$
259

 
$
12,128

 
$
(2,088
)
 
$
(2,887
)
 
$
4

 
$
7,416

 
$
1,375

 
$
8,791

Net income attributable to common stock
 

 
 

 

 
421

 

 

 
421

 

 
421

Net income attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
215

 
215

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(256
)
 
(256
)
Common dividends ($0.75 per share)
 

 
 

 
(287
)
 

 

 

 
(287
)
 

 
(287
)
Other
 

 
 
1

 
104

 

 
(43
)
 

 
62

 

 
62

BALANCE AT SEPTEMBER 30, 2018
 
$

 
 
$
260

 
$
11,945

 
$
(1,667
)
 
$
(2,930
)
 
$
4

 
$
7,612

 
$
1,334

 
$
8,946

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2018
 
$

 
 
$
260

 
$
12,106

 
$
(2,048
)
 
$
(3,192
)
 
$
4

 
$
7,130

 
$
1,682

 
$
8,812

Net loss attributable to common stock
 

 
 

 

 
(577
)
 

 

 
(577
)
 

 
(577
)
Net income attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
125

 
125

Net loss attributable to noncontrolling interest - Altus
 

 
 

 

 

 

 

 

 
(5
)
 
(5
)
Issuance of Altus Preferred Units
 
517

 
 

 

 

 

 

 

 

 

Net income attributable to Altus Preferred Unit limited partners
 
22

 
 

 

 

 

 

 

 

 

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(235
)
 
(235
)
Common dividends ($0.75 per share)
 

 
 

 
(282
)
 

 

 

 
(282
)
 

 
(282
)
Other
 

 
 
1

 
28

 

 
2

 
(1
)
 
30

 

 
30

BALANCE AT SEPTEMBER 30, 2019
 
$
539

 
 
$
261

 
$
11,852

 
$
(2,625
)
 
$
(3,190
)
 
$
3

 
$
6,301

 
$
1,567

 
$
7,868


The accompanying notes to consolidated financial statements
are an integral part of this statement.


6



APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These consolidated financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited financial statements, with the exception of recently adopted accounting pronouncements discussed below. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which contains a summary of the Company’s significant accounting policies and other disclosures.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of September 30, 2019, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies of its consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, with the exception of Accounting Standards Update (ASU) 2016-02, “Leases (Topic 842)” (see “Leases” section in this Note 1 below).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Apache and its subsidiaries after elimination of intercompany balances and transactions. The Company’s undivided interests in oil and gas exploration and production ventures and partnerships are proportionately consolidated.
The Company consolidates all other investments in which, either through direct or indirect ownership, Apache has more than a 50 percent voting interest or controls the financial and operating decisions. Noncontrolling interests represent third-party ownership in the net assets of a consolidated Apache subsidiary and are reflected separately in the Company’s financial statements. Sinopec International Petroleum Exploration and Production Corporation (Sinopec) owns a one-third minority participation in Apache’s Egypt oil and gas business as a noncontrolling interest, which is reflected as a separate component of equity in Apache’s consolidated balance sheet.
Additionally, third-party investors own a minority interest of approximately 21 percent of Altus Midstream Company (ALTM), which is reflected as a separate noncontrolling interest component of equity in Apache’s consolidated balance sheet. Apache consolidates the activities of ALTM, which qualifies as a variable interest entity (VIE) under GAAP. Apache has concluded that it is the primary beneficiary of the VIE, as defined in the accounting standards, since Apache has the power, through its ownership, to direct those activities that most significantly impact the economic performance of ALTM and the obligation to absorb losses or the right to receive benefits that could be potentially significant to ALTM. This conclusion was based on a qualitative analysis that considered ALTM’s governance structure, the commercial agreements between ALTM, Altus Midstream LP (collectively with ALTM, Altus), and Apache, and the voting rights established between the members, which provide Apache with the ability to control the operations of Altus. On June 12, 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) through a private offering that admitted additional limited partners with separate rights for the Preferred Unit holders. For further details on the terms of the Preferred Units and rights of the holders, refer to Note 12—Redeemable Noncontrolling Interest - Altus.
Investments in which Apache holds less than 50 percent of the voting interest are typically accounted for under the equity method of accounting, with the balance recorded separately as “Equity method interests” in Apache’s consolidated balance sheet and results of operations recorded as a component of “Other” under “Revenues and Other” in the Company’s statement of consolidated operations. Refer to Note 6—Equity Method Interests for more detail.
Use of Estimates
Preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates with regard to these financial statements include the fair value determination of acquired assets and liabilities, the estimate of proved oil and gas reserves and related present value estimates of

7



future net cash flows therefrom, the assessment of asset retirement obligations, the estimates of fair value for long-lived assets, and the estimate of income taxes. Actual results could differ from those estimates.
Fair Value Measurements
Certain assets and liabilities are reported at fair value on a recurring basis in Apache’s consolidated balance sheet. Accounting Standards Codification (ASC) 820-10-35, “Fair Value Measurement” (ASC 820), provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach, and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models, and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Apache also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. For the third quarter and nine-month period ended September 30, 2019, the Company recorded asset impairments totaling $9 million and $249 million, respectively, in connection with fair value assessments.
During the third quarter of 2019, Apache recorded an impairment of $9 million on gathering, processing, and transmission (GPT) assets held for sale by the Company’s Altus Midstream reporting segment. The estimated fair value of the assets held for sale was approximately $18 million and was determined using a market approach based on proceeds expected to be received in the fourth quarter, a Level 1 fair value measurement. The Company reflects held for sale assets as a component of “Other current assets” on its consolidated balance sheet.
In the second quarter of 2019, the Company entered into an agreement to sell certain of its assets in the Western Anadarko Basin in Oklahoma and Texas. As a result of this agreement, a separate impairment analysis was performed for each of the assets within the disposal group. The analyses were based on the agreed-upon proceeds less costs to sell for the transaction, a Level 1 fair value measurement. The carrying value of the net assets to be divested exceeded the fair value implied by the expected net proceeds, resulting in impairments totaling $240 million, including $86 million on the Company’s proved properties, $149 million on its unproved properties, and $5 million on other working capital. See Note 2—Acquisitions and Divestitures for more detail.
In the third quarter of 2018, Apache agreed to sell certain of its unproved properties offshore the U.K. in the North Sea (North Sea). As a result, the Company performed a fair value assessment of the properties and recorded a $10 million impairment on the carrying values of the associated capitalized exploratory well costs in the third quarter and first nine months of 2018. The fair value of the impaired assets was determined using the negotiated sales price, a Level 1 fair value measurement.
Oil and Gas Property
The Company follows the successful efforts method of accounting for its oil and gas property. Under this method of accounting, exploration costs such as exploratory geological and geophysical costs, delay rentals, and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead, and similar activities are expensed as incurred. If an exploratory well provides evidence to justify potential development of reserves, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas depending on, among other things, the amount of hydrocarbons discovered, the outcome of planned geological and engineering studies, the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan, and government sanctioning of development activities in certain international locations. At the end of each quarter, management reviews the status of all suspended exploratory well costs in light of ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.

8



Acquisition costs of unproved properties are assessed for impairment at least annually and are transferred to proved oil and gas properties to the extent the costs are associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on the Company’s current exploration plans. Unproved oil and gas properties with individually insignificant lease acquisition costs are amortized on a group basis over the average lease term at rates that provide for full amortization of unsuccessful leases upon lease expiration or abandonment. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and gas properties. Costs of maintaining and retaining unproved properties, as well as amortization of individually insignificant leases and impairment of unsuccessful leases, are included in exploration costs in the statement of consolidated operations.
Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized. Depreciation of the cost of proved oil and gas properties is calculated using the unit-of-production (UOP) method. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the carrying value of associated proved oil and gas properties. The reserve base used to calculate depreciation for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate the depreciation for capitalized well costs is the sum of proved developed reserves only. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are included in the depreciable cost.
Oil and gas properties are grouped for depreciation in accordance with ASC 932 “Extractive Activities—Oil and Gas.” The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
When circumstances indicate that the carrying value of proved oil and gas properties may not be recoverable, the Company compares unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on Apache’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally estimated using the income approach described in ASC 820. If applicable, the Company utilizes prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review.
The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the third quarters and first nine months of 2019 and 2018:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
 
 
 
 
Proved
 
$

 
$

 
$
86

 
$

Unproved
 
12

 
49

 
223

 
86


Proved properties impaired during the first nine months of 2019 related to assets held for sale at June 30, 2019 with an aggregate fair value of $379 million.
On the statement of consolidated operations, unproved leasehold impairments are typically recorded as a component of “Exploration” expense; however, in the first nine months of 2019, unproved impairments of $149 million were recorded in “Impairments” in connection with an agreement to sell certain non-core leasehold properties in Oklahoma and Texas. In the third quarter and first nine months of 2018, unproved impairments of $10 million were recorded in “Impairments” in connection with an agreement to sell certain unproved properties in the North Sea.
Gains and losses on divestitures of the Company’s oil and gas properties are recognized in the statement of consolidated operations upon closing of the transaction. See Note 2—Acquisitions and Divestitures for more detail.

9



Revenue Recognition
There have been no significant changes to the Company’s contracts with customers during the nine months ended September 30, 2019. Apache recognizes revenue from its contracts with customers from the sale of its crude oil, natural gas, and natural gas liquids (NGLs) production as well as volumes purchased from third parties. Each unit of quantity represents a single performance obligation that is satisfied at a point in time as control of the product has been transferred to the customer.
The contracted price is variable and is determined based on market-indexed prices adjusted for quality, transportation, and other market-reflective differentials. Sales proceeds related to third-party purchased volumes are considered revenue from a contract with a customer. Proceeds for these volumes totaled $30 million and $124 million for the third quarters of 2019 and 2018, respectively, and $71 million and $326 million for the first nine months of 2019 and 2018, respectively. Associated purchase costs for these volumes totaled $23 million and $109 million for the third quarters of 2019 and 2018, respectively, and $60 million and $308 million for the first nine months of 2019 and 2018, respectively. Proceeds and costs are both recorded as “Other” under “Revenues and Other” in the Company’s statement of consolidated operations.
The following table represents revenues from customers and non-customers for the third quarters and first nine months of 2019 and 2018:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
(In millions)
Revenues from customers
 
$
1,361

 
$
1,902

 
$
4,414

 
$
5,437

Revenues from non-customers
 
107

 
198

 
347

 
534


Payment from contracts with customers is typically received on a short-term basis after physical delivery of the product. Receivables from contracts with customers, net of allowance for doubtful accounts, totaled $919 million and $1.0 billion as of September 30, 2019 and December 31, 2018, respectively.
Apache has concluded that disaggregating revenue by geographic area and by product appropriately depicts how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Refer to Note 14—Business Segment Information for a disaggregation of revenue by each product sold.
Leases
On January 1, 2019, Apache adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize separate right-of-use (ROU) assets and lease liabilities for most leases classified as operating leases under previous GAAP. Prior to adoption, the Financial Accounting Standards Board (FASB) issued transition guidance permitting an entity the option to not evaluate under ASU 2016-02 those existing or expired land easements that were not previously accounted for as leases, as well as an option to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the financial statements. Apache elected both transitional practical expedients. Under these transition options, comparative reporting was not required, and the provisions of the standard were applied prospectively to leases in effect at the date of adoption.
As allowed under the standard, the Company also applied practical expedients to carry forward its historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. Apache also elected to exclude short-term leases (those with terms of 12 months or less) from the balance sheet presentation and accounts for non-lease and lease components as a single lease component for all asset classes. Short-term lease expense was not material for the third quarter and first nine months of 2019.
The Company determines if an arrangement is an operating or finance lease at the inception of each contract. If the contract is classified as an operating lease, Apache records an ROU asset and corresponding liability reflecting the total remaining present value of fixed lease payments over the expected term of the lease agreement. The expected term of the lease may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If the Company’s lease does not provide an implicit rate in the contract, the Company uses its incremental borrowing rate when calculating the present value. In the normal course of business, Apache enters into various lease agreements for real estate, drilling rigs, vessels, aircraft, and equipment related to its exploration and development activities, which are typically classified as operating leases under the provisions of the standard. ROU assets are reflected within “Deferred charges and other” within “Other” assets on the Company’s consolidated balance sheet, and the associated operating lease liabilities are reflected within “Other current liabilities” and “Other” within “Deferred Credits and Other Noncurrent Liabilities,” as applicable.

10



Operating lease expense associated with ROU assets is recognized on a straight-line basis over the lease term. Lease expense is reflected on the statement of consolidated operations commensurate with the leased activities and nature of the services performed. Gross fixed operating lease expense, inclusive of amounts billable to partners and other working interest owners, was $53 million and $167 million for the third quarter and first nine months of 2019, respectively.
In addition, the Company periodically enters into finance leases that are similar to those leases classified as capital leases under previous GAAP. Finance lease assets are included in “Other” within “Property and Equipment” on the consolidated balance sheet, and the associated finance lease liabilities are reflected within “Current debt” and “Long-term debt,” as applicable. Prior periods include the reclassification of $39 million finance lease obligations from “Other” within “Deferred Credits and Other Noncurrent Liabilities” to “Long-term debt” on the Company’s consolidated balance sheet to conform with this presentation. There was no material impact to the Company’s statement of consolidated operations and statement of consolidated cash flows for its treatment of finance leases. Depreciation on the Company’s finance lease assets was $2 million and $6 million for the third quarter and first nine months of 2019, respectively. Interest on the Company’s finance lease assets was $1 million and $2 million for the third quarter and first nine months of 2019, respectively.
The following table represents the Company’s weighted average lease term and discount rate as of September 30, 2019:
 
 
Operating Leases
 
Finance Leases
Weighted average remaining lease term
 
3.3 years

 
9.7 years

Weighted average discount rate
 
4.4
%
 
4.3
%

The undiscounted future minimum lease payments reconciled to the carrying value of the lease liabilities as of September 30, 2019 were as follows:
Net Minimum Commitments
 
Operating Leases(1)
 
Finance Leases(2)
 
 
(In millions)
2019
 
$
48

 
$
9

2020
 
124

 
13

2021
 
50

 
3

2022
 
41

 
3

2023
 
24

 
3

Thereafter
 
40

 
40

Total future minimum lease payments
 
327

 
71

Less: imputed interest
 
(26
)
 
(14
)
Total lease liabilities
 
301

 
57

Current portion
 
(149
)
 
(19
)
Non-current portion
 
$
152

 
$
38

(1)
Amounts included for drilling rig and related operational equipment obligations represent future payments associated with oil and gas operations inclusive of amounts billable to partners and other working interest owners. Such payments may be capitalized as a component of oil and gas properties and subsequently depreciated, impaired, or written off as exploration expense.
(2)
Amounts represent the Company’s finance lease obligation related to physical power generators being leased on a one-year term with the right to purchase and a separate lease for the Company’s Midland, Texas regional office building.
The lease liability reflected in the table above represents the Company’s fixed minimum payments that are settled in accordance with the lease terms. Actual lease payments during the period may also include variable lease components such as common area maintenance, usage-based sales taxes and rate differentials, or other similar costs that are not determinable at the inception of the lease. Gross variable lease payments, inclusive of amounts billable to partners and other working interest owners, for the third quarter and first nine months of 2019 were $3 million and $44 million, respectively.

New Pronouncements Issued But Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses.” The standard changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans, and other financial assets measured at amortized cost. The ASU requires the use of a new forward-looking “expected loss” model compared to the current “incurred loss” model, resulting in accelerated recognition of credit losses. This update is effective for the Company beginning in the first quarter of 2020, with early adoption permitted. The Company is in the process of finalizing its project plan for the implementation of the ASU and continues to evaluate and monitor standard setting activity. The Company does not believe the adoption and implementation of this ASU will have a material impact on its financial statements.

11



In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement,” which changes the disclosure requirements for fair value measurements by removing, adding, and modifying certain disclosures. ASU 2018-13 is effective for financial statements issued for annual periods beginning after December 15, 2019, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures and does not expect it to have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework: Changes to the Disclosure Requirements for Defined Benefit Plans,” which eliminates, modifies, and adds disclosure requirements for defined benefit plans. The ASU is effective for financial statements issued for fiscal years ending after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of adoption of this ASU on its related disclosures and does not expect it to have a material impact on its financial statements.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract.” This pronouncement clarifies the requirements for capitalizing implementation costs in cloud computing arrangements and aligns them with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued. The Company is currently evaluating the impact of adoption of this ASU on its consolidated financial statements and does not expect it to have a material impact.
2.
ACQUISITIONS AND DIVESTITURES
2019 Activity
Leasehold and Property Acquisitions
During the third quarter and first nine months of 2019, Apache completed leasehold and property acquisitions for total cash consideration of $5 million and $39 million, respectively, primarily in its U.S. onshore regions. For discussion on the Company’s acquisition of equity method interests during the period, refer to Note 6—Equity Method Interests.
U.S. Divestitures
In the third quarter of 2019, Apache completed the sale of non-core assets in the Western Anadarko Basin of Oklahoma and Texas for aggregate cash proceeds of approximately $325 million and the assumption of asset retirement obligations of $49 million. These assets met the criteria to be classified as held for sale in the second quarter of 2019. Accordingly, the Company performed a fair value assessment of the assets and recorded impairments of $240 million in the second quarter of 2019 to the carrying value of proved and unproved oil and gas properties, other fixed assets, and working capital. The transaction closed in the third quarter of 2019, and the Company recognized a $9 million loss in association with the sale.
In the second quarter of 2019, Apache completed the sale of certain non-core assets in Oklahoma that had a net carrying value of $206 million for aggregate cash proceeds of approximately $223 million. The Company recognized a $17 million gain in association with the sale.
During the first nine months of 2019, the Company also completed the sale of certain other non-core producing assets and leasehold, primarily in the Permian region, in multiple transactions for total cash proceeds of $21 million. The Company recognized a net gain of approximately $12 million upon closing of these transactions.
2018 Activity
During the third quarter and first nine months of 2018, Apache completed $48 million and $86 million, respectively, of leasehold and property acquisitions primarily in its U.S. onshore and Egypt regions. During the first nine months of 2018, the Company also completed the sale of certain non-core assets, primarily in the Permian region, in multiple transactions for total cash proceeds of $51 million. The Company recognized a total net gain of approximately $10 million during the first nine months upon closing of these transactions.

12



3.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $193 million and $159 million at September 30, 2019 and December 31, 2018, respectively. The increase is primarily attributable to drilling activities in Suriname and the North Sea during the period, partially offset by successful transfers of well costs and dry hole write-offs. No suspended exploratory well costs previously capitalized for greater than one year at December 31, 2018 were charged to dry hole expense during the nine months ended September 30, 2019. Projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling are those identified by management as exhibiting sufficient quantities of hydrocarbons to justify potential development. Management is actively pursuing efforts to assess whether proved reserves can be attributed to these projects.
4.   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Objectives and Strategies
The Company is exposed to fluctuations in crude oil and natural gas prices, foreign currency exchange rates, and interest rates. The Company utilizes various types of derivative financial instruments to manage fluctuations in cash flows resulting from these fluctuations. Apache has elected not to designate any of its derivative contracts as cash flow hedges.
Counterparty Risk
The use of derivative instruments exposes the Company to credit loss in the event of nonperformance by the counterparty. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of September 30, 2019, Apache had derivative positions with 5 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from changes in commodity prices, currency exchange rates, or interest rates.
Derivative Instruments
Commodity Derivative Instruments
As of September 30, 2019, Apache had the following open crude oil financial basis swap contracts:
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Price Differential
October—December 2019
 
Midland-WTI/Cushing-WTI
 
1,380

 
$(3.72)

As of September 30, 2019, Apache had the following open natural gas financial basis swap contracts:
Production Period
 
Settlement Index
 
MMBtu
(in 000’s)
 
Weighted Average Price Differential
October—December 2019
 
NYMEX Henry Hub/Waha
 
3,680

 
$(0.45)

Foreign Currency Derivative Instruments
Apache has open foreign currency costless collar contracts in GBP/USD for £12.5 million per each calendar month for 2019 with a weighted average floor and ceiling price of $1.20 and $1.35, respectively.
Altus Preferred Units Embedded Derivative
During the second quarter of 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units. Certain redemption features (the Redemption Option) embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. For further discussion of this derivative, see “Fair Value Measurements” below and Note 12—Redeemable Noncontrolling Interest - Altus.

13



Fair Value Measurements
The fair values of the Company’s derivative contracts are not actively quoted in the open market. The Company primarily uses a market approach to estimate the fair values of its derivative instruments on a recurring basis, utilizing futures pricing for the underlying positions provided by a reputable third party, a Level 2 fair value measurement.
The fair value of the Redemption Option, a Level 3 fair value measurement, was based on numerous factors including expected future interest rates using the Black-Karasinski model, imputed interest rate of Altus, the timing of periodic cash distributions, and dividend yields of the Preferred Units.
The following table presents the Company’s derivative assets and liabilities measured at fair value on a recurring basis:
 
 
Fair Value Measurements Using
 
 
 
 
 
 
 
 
Quoted Price in Active Markets (Level 1)
 
Significant Other Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Fair Value
 
Netting(1)
 
Carrying Amount
 
 
(In millions)
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$
2

 
$

 
$
2

 
$

 
$
2

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 
6

 

 
6

 

 
6

Foreign Currency Derivative Instruments
 

 
1

 

 
1

 

 
1

Preferred Units Embedded Derivative
 

 

 
98

 
98

 

 
98

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$
69

 
$

 
$
69

 
$
(14
)
 
$
55

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 
25

 

 
25

 
(14
)
 
11

(1)
The derivative fair values are based on analysis of each contract on a gross basis, excluding the impact of netting agreements with counterparties.
All derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:
 
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Current Assets: Other current assets
 
$
2

 
$
55

Total Assets
 
$
2

 
$
55

 
 
 
 
 
Current Liabilities: Other current liabilities
 
$
7

 
$
11

Deferred Credits and Other Noncurrent Liabilities: Other
 
98

 

Total Liabilities
 
$
105

 
$
11


14



Derivative Activity Recorded in the Statement of Consolidated Operations
The following table summarizes the effect of derivative instruments on the Company’s statement of consolidated operations:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
2019
 
2018
 
2019
 
2018
 
 
(In millions)
Realized gain (loss):
 
 
 
 
 
 
 
 
Derivative settlements, realized gain (loss)
 
$
(16
)
 
$
7

 
$
12

 
$
(110
)
Amortization of put premium, realized loss
 

 
(14
)
 

 
(24
)
Unrealized gain (loss)
 
14

 
(16
)
 
(52
)
 
88

Derivative instrument losses, net
 
$
(2
)
 
$
(23
)
 
$
(40
)
 
$
(46
)

Derivative instrument gains and losses are recorded in “Derivative instrument losses, net” under “Revenues and Other” in the Company’s statement of consolidated operations. Unrealized gains and losses for derivative activity recorded in the statement of consolidated operations are reflected in the statement of consolidated cash flows separately as “Unrealized derivative instrument losses (gains), net” in “Adjustments to reconcile net income (loss) to net cash provided by operating activities.”
5.
OTHER CURRENT ASSETS
The following table provides detail of the Company’s other current assets as of September 30, 2019 and December 31, 2018:
 
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Inventories
 
$
475

 
$
401

Drilling advances
 
161

 
218

Assets held for sale
 
18

 

Prepaid assets and other
 
84

 
160

Total other current assets
 
$
738

 
$
779


6.
EQUITY METHOD INTERESTS
Apache, through its ownership of Altus, has the following equity method interests in Permian Basin long-haul pipeline entities which are accounted for under the equity method of accounting. For each of the equity method interests, Altus has the ability to exercise significant influence based on certain governance provisions and its participation in activities and decisions that impact the management and economic performance of the equity method interests.
 
 
September 30, 2019
 
December 31, 2018
 
 
Interest
 
Amount
 
Interest
 
Amount
 
 
($ in millions)
Gulf Coast Express Pipeline LLC
 
16.0
%
 
$
275

 
15.0
%
 
$
91

EPIC Crude Holdings, LP
 
15.0
%
 
128

 

 

Permian Highway Pipeline LLC
 
26.7
%
 
224

 

 

Shin Oak Pipeline (Breviloba, LLC)
 
33.0
%
 
468

 

 

 
 
 
 
$
1,095

 
 
 
$
91


As of September 30, 2019 and December 31, 2018, unamortized basis differences included in the equity method interest balances were $26 million and $6 million, respectively. These amounts represent differences in contributions to date and Altus’ underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences will be amortized into net income over the useful lives of the underlying pipeline assets when they are placed into service.

15



The following table presents the activity in Altus’ equity method interests during the nine months ended September 30, 2019:
 
 
Gulf Coast Express Pipeline LLC
 
EPIC Crude Holdings, LP
 
Permian Highway Pipeline LLC
 
Breviloba, LLC
 
Total
 
 
(In millions)
Balance at December 31, 2018
 
$
91

 
$

 
$

 
$

 
$
91

Acquisitions
 
15

 
52

 
161

 
442

 
670

Capital contributions
 
169

 
83

 
63

 
23

 
338

Distributions
 
(3
)
 

 

 

 
(3
)
Equity income (loss), net
 
3

 
(5
)
 

 
3

 
1

Accumulated other comprehensive loss
 

 
(2
)
 

 

 
(2
)
Balance at September 30, 2019
 
$
275

 
$
128

 
$
224

 
$
468

 
$
1,095


As of December 31, 2018, Apache also held an investment in Marine Well Containment Company. This investment was sold in the first quarter of 2019 for $30 million, with no gain or loss recorded on the sale.
7.
OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities as of September 30, 2019 and December 31, 2018:
 
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Accrued operating expenses
 
$
187

 
$
65

Accrued exploration and development
 
355

 
667

Accrued gathering, processing, and transmission - Altus
 
25

 
81

Accrued compensation and benefits
 
171

 
177

Accrued interest
 
114

 
137

Accrued income taxes
 
80

 
58

Current asset retirement obligation
 
66

 
66

Current operating lease liability
 
149

 

Other
 
94

 
90

Total other current liabilities
 
$
1,241

 
$
1,341