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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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☒
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
quarterly period ended
September 30, 2019
OR
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☐
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the
transition period from
to
Commission
File Number: 1-4300
APACHE
CORPORATION
(Exact name of
registrant as specified in its charter)
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Delaware
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41-0747868
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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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:
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Title of each
class
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Trading Symbol(s)
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Name of each exchange on which
registered
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Common Stock, $0.625 par
value
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APA
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New York Stock
Exchange
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Common Stock, $0.625 par
value
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APA
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Chicago Stock
Exchange
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Common Stock, $0.625 par
value
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APA
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NASDAQ Global Select
Market
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7.75% Notes Due
2029
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APA/29
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New York Stock
Exchange
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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.
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Large accelerated
filer
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☒
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Accelerated filer
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☐
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Non-accelerated
filer
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☐
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Smaller reporting company
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☐
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Emerging growth
company
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☐
|
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 ☒
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Number of shares of
registrant’s common stock outstanding as of October 30,
2019
|
376,036,287
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TABLE OF
CONTENTS
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|
DESCRIPTION
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Item
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Page
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PART I -
FINANCIAL INFORMATION
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1.
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2.
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3.
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4.
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PART II -
OTHER INFORMATION
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1.
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1A.
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2.
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5.
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6.
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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:
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•
|
the market prices
of oil, natural gas, natural gas liquids (NGLs), and other products
or services;
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|
•
|
commodity hedging
arrangements;
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•
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the supply and
demand for oil, natural gas, NGLs, and other products or
services;
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•
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production and
reserve levels;
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•
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economic and
competitive conditions;
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•
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the availability
of capital resources;
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|
•
|
capital
expenditure and other contractual obligations;
|
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|
•
|
currency exchange
rates;
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|
•
|
the availability
of goods and services;
|
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|
•
|
legislative,
regulatory, or policy changes;
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•
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terrorism or
cyber attacks;
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•
|
occurrence of
property acquisitions or divestitures;
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•
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the integration
of acquisitions;
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•
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the securities or
capital markets and related risks such as general credit,
liquidity, market, and interest-rate risks; and
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•
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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)
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For the
Quarter Ended September 30,
|
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For the Nine
Months Ended September 30,
|
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2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
(In millions,
except per common share data)
|
REVENUES AND
OTHER:
|
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Oil and gas production
revenues
|
|
|
|
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|
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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
|
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41
|
|
|
29
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|
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45
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|
50
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|
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1,477
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|
1,983
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4,715
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5,659
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OPERATING
EXPENSES:
|
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Lease operating
expenses
|
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350
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|
|
382
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1,104
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1,087
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Gathering, processing, and
transmission
|
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66
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|
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92
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230
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|
|
260
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Taxes other than
income
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44
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58
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141
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|
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162
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Exploration
|
|
56
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|
|
99
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|
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220
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|
|
251
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|
General and
administrative
|
|
98
|
|
|
99
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|
|
323
|
|
|
330
|
|
Transaction, reorganization,
and separation
|
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7
|
|
|
8
|
|
|
17
|
|
|
20
|
|
Depreciation, depletion, and
amortization
|
|
711
|
|
|
610
|
|
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1,959
|
|
|
1,771
|
|
Asset retirement obligation
accretion
|
|
27
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|
|
27
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|
|
80
|
|
|
81
|
|
Impairments
|
|
9
|
|
|
10
|
|
|
249
|
|
|
10
|
|
Financing costs,
net
|
|
95
|
|
|
192
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|
|
365
|
|
|
385
|
|
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|
1,463
|
|
|
1,577
|
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|
4,688
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|
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4,357
|
|
NET INCOME BEFORE INCOME
TAXES
|
|
14
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|
|
406
|
|
|
27
|
|
|
1,302
|
|
Current income tax
provision
|
|
141
|
|
|
262
|
|
|
514
|
|
|
709
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|
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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
|
|
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.”
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.
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
|
|
|
|
8.
|
ASSET
RETIREMENT OBLIGATION
|
The following
table describes changes to the Company’s asset retirement
obligation (ARO) liability for the nine-month period ended
September 30,
2019:
|
|
|
|
|
|
|
|
(In millions)
|
Asset retirement obligation
at December 31, 2018
|
|
$
|
1,932
|
|
Liabilities
incurred
|
|
11
|
|
Liabilities
settled
|
|
(49
|
)
|
Liabilities
divested
|
|
(55
|
)
|
Accretion
expense
|
|
80
|
|
Asset retirement obligation
at September 30, 2019
|
|
1,919
|
|
Less current
portion
|
|
(66
|
)
|
Asset retirement obligation,
long-term
|
|
$
|
1,853
|
|
The Company
estimates its annual effective income tax rate in recording its
quarterly provision for income taxes in the various jurisdictions
in which the Company operates. Non-cash impairments of the carrying
value of the Company’s oil and gas properties, gains and losses on
the sale of assets, statutory tax rate changes, and other
significant or unusual items are recognized as discrete items in
the quarter in which they occur.
During the
third
quarters
of 2019 and 2018, Apache’s effective
income tax rate was primarily impacted by an increase in the amount
of valuation allowance against its U.S. deferred tax
assets.
Apache’s
2019
and 2018
year-to-date effective income tax rates were primarily impacted by
an increase in the amount of valuation allowance against its U.S.
deferred tax assets.
Apache and its
subsidiaries are subject to U.S. federal income tax as well as
income or capital taxes in various state and foreign jurisdictions.
The Company’s tax reserves are related to tax years that may be
subject to examination by the relevant taxing authority. The
Company is currently under IRS audit for the 2014-2017 tax years
and is also under audit in various states and foreign jurisdictions
as part of its normal course of business.
|
|
10.
|
DEBT AND
FINANCING COSTS
|
The following
table presents the carrying value of the Company’s debt as
of September 30,
2019 and December 31,
2018:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
|
|
(In
millions)
|
Notes and debentures before
unamortized discount and debt issuance costs(1)
|
|
$
|
8,217
|
|
|
$
|
8,299
|
|
Altus credit
facility(2)
|
|
235
|
|
|
—
|
|
Finance lease
obligations
|
|
57
|
|
|
|