Quarterly Report (10-q)

Date : 05/03/2019 @ 11:06AM
Source : Edgar (US Regulatory)
Stock : Apache Corp. (APA)
Quote : 29.07  -0.57 (-1.92%) @ 10:40PM

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  

FORM 10-Q  
(Mark One)   
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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)
Registrant’s telephone number, including area code: (713) 296-6000
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, Chicago Stock Exchange
and NASDAQ Global Select Market
7.75% Notes Due 2029
 
  
 
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   ý     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   ý     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
 
ý
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   ý
Number of shares of registrant’s common stock outstanding as of April 30, 2019
375,920,593







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;

our 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 first -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 March 31,
 
 
2019
 
2018
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
Oil and gas production revenues
 
 
 
 
Oil revenues
 
$
1,310

 
$
1,393

Natural gas revenues
 
236

 
222

Natural gas liquids revenues
 
108

 
118

 
 
1,654

 
1,733

Derivative instrument gains (losses), net
 
(30
)
 
2

Gain on divestitures
 
3

 
7

Other
 
8

 
5

 
 
1,635

 
1,747

OPERATING EXPENSES:
 
 
 
 
Lease operating expenses
 
365

 
349

Gathering, processing, and transmission
 
88

 
86

Taxes other than income
 
51

 
55

Exploration
 
69

 
76

General and administrative
 
123

 
114

Transaction, reorganization, and separation
 
4

 

Depreciation, depletion, and amortization
 
646

 
553

Asset retirement obligation accretion
 
27

 
27

Financing costs, net
 
97

 
99

 
 
1,470

 
1,359

NET INCOME BEFORE INCOME TAXES
 
165

 
388

Current income tax provision
 
186

 
198

Deferred income tax benefit
 
(19
)
 
(16
)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
(2
)
 
206

Net income attributable to noncontrolling interest - Egypt
 
44

 
61

Net income attributable to noncontrolling interest - Altus
 
1

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(47
)
 
$
145

 
 
 
 
 
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
Basic
 
$
(0.12
)
 
$
0.38

Diluted
 
$
(0.12
)
 
$
0.38

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
 
376

 
382

Diluted
 
376

 
384

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.25

 
$
0.25


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

1



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2019
 
2018
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) including noncontrolling interest
 
$
(2
)
 
$
206

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Unrealized derivative instrument (gains) losses, net
 
45

 
(49
)
Gain on divestitures
 
(3
)
 
(7
)
Exploratory dry hole expense and unproved leasehold impairments
 
33

 
36

Depreciation, depletion, and amortization
 
646

 
553

Asset retirement obligation accretion
 
27

 
27

Deferred income tax benefit
 
(19
)
 
(16
)
Other
 
9

 
39

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
8

 
(65
)
Inventories
 
(33
)
 
(33
)
Drilling advances
 
5

 
(41
)
Deferred charges and other
 
(4
)
 
32

Accounts payable
 
(50
)
 
66

Accrued expenses
 
(46
)
 
(139
)
Deferred credits and noncurrent liabilities
 
(18
)
 
6

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
598

 
615

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(729
)
 
(737
)
Leasehold and property acquisitions
 
(15
)
 
(12
)
Additions to Altus gathering, processing, and transmission facilities
 
(119
)
 
(128
)
Altus equity method interests
 
(118
)
 

Proceeds from sale of oil and gas properties
 
9

 
9

Other, net
 
34

 
(22
)
NET CASH USED IN INVESTING ACTIVITIES
 
(938
)
 
(890
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Commercial paper
 
159

 

Payments on fixed-rate debt
 

 
(150
)
Distributions to noncontrolling interest - Egypt
 
(107
)
 
(69
)
Dividends paid
 
(94
)
 
(95
)
Other
 
(5
)
 
(2
)
NET CASH USED IN FINANCING ACTIVITIES
 
(47
)
 
(316
)
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(387
)
 
(591
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
714

 
1,668

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
327

 
$
1,077

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
115

 
$
140

Income taxes paid, net of refunds
 
165

 
191


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

2



APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
In millions except share and per-share amounts
 
March 31, 2019
 
December 31, 2018
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents ($177 and $450, respectively, related to Altus VIE)
 
$
327

 
$
714

Receivables, net of allowance
 
1,185

 
1,194

Inventories ($6 and $6, respectively, related to Altus VIE)
 
438

 
401

Drilling advances
 
213

 
218

Assets held for sale
 
217

 

Prepaid assets and other
 
124

 
160

 
 
2,504

 
2,687

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
42,462

 
42,345

Unproved properties and properties under development
 
1,371

 
1,435

Gathering, processing, and transmission facilities ($1,353 and $1,251, respectively, related to Altus VIE)
 
1,958

 
1,856

Other ($38 and nil, respectively, related to Altus VIE)
 
1,154

 
1,120

 
 
46,945

 
46,756

Less: Accumulated depreciation, depletion, and amortization ($32 and $24, respectively, related to Altus VIE)
 
(28,654
)
 
(28,335
)
 
 
18,291

 
18,421

OTHER ASSETS:
 
 
 
 
Equity method interests ($209 and $91, respectively, related to Altus VIE)
 
209

 
121

Deferred charges and other
 
747

 
353

 
 
$
21,751

 
$
21,582

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
679

 
$
709

Current debt ($29 and nil, respectively, related to Altus VIE)
 
339

 
151

Other current liabilities (Note 6) ($72 and $85, respectively, related to Altus VIE)
 
1,356

 
1,341

 
 
2,374

 
2,201

LONG-TERM DEBT
 
8,094

 
8,093

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
370

 
391

Asset retirement obligation ($30 and $29, respectively, related to Altus VIE)
 
1,879

 
1,866

Other
 
425

 
219

 
 
2,674

 
2,476

COMMITMENTS AND CONTINGENCIES (Note 10)
 

 

EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 416,874,466 and 415,692,116 shares issued, respectively
 
261

 
260

Paid-in capital
 
12,009

 
12,106

Accumulated deficit
 
(2,095
)
 
(2,048
)
Treasury stock, at cost, 40,964,193 and 40,995,894 shares, respectively
 
(3,190
)
 
(3,192
)
Accumulated other comprehensive income
 
4

 
4

APACHE SHAREHOLDERS’ EQUITY
 
6,989

 
7,130

Noncontrolling interest - Egypt
 
1,212

 
1,275

Noncontrolling interest - Altus
 
408

 
407

TOTAL EQUITY
 
8,609

 
8,812

 
 
$
21,751

 
$
21,582


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

3



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
 
 
 
Common
Stock
 
Paid-In
Capital
 
Accumulated Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income
 
APACHE
SHAREHOLDERS’
EQUITY
 
Noncontrolling
Interest
 
TOTAL
EQUITY
 
 
(In millions)
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
 

 

 
145

 

 

 
145

 
61

 
206

Distributions to noncontrolling interest
 

 

 

 

 

 

 
(69
)
 
(69
)
Common dividends ($0.25 per share)
 

 
(96
)
 

 

 

 
(96
)
 

 
(96
)
Other
 

 
37

 

 

 

 
37

 

 
37

BALANCE AT MARCH 31, 2018
 
$
259

 
$
12,069

 
$
(1,943
)
 
$
(2,887
)
 
$
4

 
$
7,502

 
$
1,367

 
$
8,869

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 

 

 
(47
)
 

 

 
(47
)
 

 
(47
)
Net income attributable to noncontrolling interest - Egypt
 

 

 

 

 

 

 
44

 
44

Net income attributable to noncontrolling interest - Altus
 

 

 

 

 

 

 
1

 
1

Distributions to noncontrolling interest - Egypt
 

 

 

 

 

 

 
(107
)
 
(107
)
Common dividends ($0.25 per share)
 

 
(94
)
 

 

 

 
(94
)
 

 
(94
)
Other
 
1

 
(3
)
 

 
2

 

 

 

 

BALANCE AT MARCH 31, 2019
 
$
261

 
$
12,009

 
$
(2,095
)
 
$
(3,190
)
 
$
4

 
$
6,989

 
$
1,620

 
$
8,609

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


4



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 March 31, 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.
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.
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.

5



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).
Recurring fair value measurements are presented in further detail in Note 4—Derivative Instruments and Hedging Activities and Note 9 —Debt and Financing Costs.
Apache also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. The Company recorded no asset impairments in connection with fair value assessments in each of the first quarters of 2019 and 2018 .
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.

6



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. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. Apache has classified these fair value measurements as Level 3 in the fair value hierarchy.
The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the first quarters of 2019 and 2018 :
 
 
Quarter Ended March 31,
 
 
2019
 
2018
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
Proved
 
$

 
$

Unproved
 
23

 
16


On the statement of consolidated operations, unproved leasehold impairments are recorded as a component of “Exploration” expense, and all other impairments of proved and unproved properties are recorded separately in “Impairments,” when applicable.
Gains and losses on significant divestitures of the Company’s oil and gas properties are recognized in the statement of consolidated operations. See Note 2—Acquisitions and Divestitures for more detail.
Revenue Recognition
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million Btu (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the term between delivery and when payments are due is not significant.
Apache markets its own United States (U.S.) natural gas and crude oil production based on market-priced contracts. Typically, these contracts are adjusted for quality, transportation, and other market-reflective differentials. Since the Company’s production fluctuates because of operational issues, it is occasionally necessary to purchase third-party oil and gas to fulfill sales obligations and commitments. Sales proceeds related to third-party oil and gas purchases have been determined to be revenue from a customer. Proceeds for these volumes totaled $24 million and $104 million , for the periods ending March 31, 2019 and 2018 , respectively. Associated purchase costs for these volumes totaled $22 million and $105 million , for the periods ending March 31, 2019 and 2018 , respectively. Proceeds and costs are both recorded as “Other” under “Revenues and Other” in the statement of consolidated operations.
Internationally, Apache’s crude oil offshore the U.K. in the North Sea (North Sea) is sold under contracts with a market-based index price. Natural gas from the North Sea Beryl field is processed through the SAGE gas plant. The gas is sold to a third party at the St. Fergus entry point of the national grid on a National Balancing Point index price basis. Apache’s gas production in Egypt is sold primarily under an industry-pricing formula, a sliding scale based on Dated Brent crude oil with a minimum of

7



$1.50 per MMBtu and a maximum of $2.65 per MMBtu, plus an upward adjustment for liquids content. The Company’s Egypt oil production is sold at prices equivalent to the export market.
The Company’s Egyptian operations are conducted pursuant to production sharing contracts under which contractor partners pay all operating and capital costs for exploring and developing the concessions. A percentage of the production, generally up to 40 percent , is available to contractor partners to recover these operating and capital costs over contractually defined periods. The balance of the production is split among the contractor partners and the Egyptian General Petroleum Corporation (EGPC) on a contractually defined basis. Additionally, the contractor partner’s income taxes, which remain the liability of the contractor partners under domestic law, are paid by EGPC on behalf of the contractor partners out of EGPC’s production entitlement. Income taxes paid to the Arab Republic of Egypt on behalf of Apache as contract partner are recognized as oil and gas sales revenue and income tax expense and reflected as production and estimated reserves. Revenues related to Egypt’s tax volumes are considered revenue from a non-customer.
For the period ending March 31, 2019 , revenues from customers and non-customers were $1.6 billion and $119 million , respectively. For the period ending March 31, 2018 , revenues from customers and non-customers were $1.7 billion and $155 million , respectively.
Apache records trade accounts receivable for its unconditional rights to consideration arising under sales contracts with customers. The carrying value of such receivables, net of the allowance for doubtful accounts, represents estimated net realizable value. The Company routinely assesses the collectability of all material trade and other receivables. The Company accrues a reserve on a receivable when, based on the judgment of management, it is probable that a receivable will not be collected and the amount of any reserve may be reasonably estimated. Receivables from contracts with customers, net of allowance for doubtful accounts, totaled $1.0 billion as of March 31, 2019 and December 31, 2018 .
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 12—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 first quarter 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 assets” on the Company’s consolidated balance sheet, and the associated operating lease liabilities are reflected within “Other current liabilities” 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. Fixed operating lease expense was $55 million for the first quarter of 2019.

8



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 property, plant, 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 noncurrent liabilities” to “Long-term debt” 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.
The following table represents the Company’s weighted average lease term and discount rate as of March 31, 2019 :
 
 
Operating Leases
 
Finance Leases
Weighted average remaining lease term
 
3.4 years

 
8.7 years

Weighted average discount rate
 
4.3
%
 
4.3
%

The undiscounted future minimum lease payments reconciled to the carrying value of the lease liabilities as of March 31, 2019 were as follows:
Net Minimum Commitments
 
Operating Leases (1)
 
Finance Leases (2)
 
 
(In millions)
2019
 
$
159

 
$
22

2020
 
111

 
13

2021
 
46

 
3

2022
 
40

 
3

2023
 
24

 
3

Thereafter
 
41

 
39

Total future minimum lease payments
 
421

 
83

Less: imputed interest
 
(34
)
 
(15
)
Total lease liabilities
 
387

 
68

Current portion
 
(187
)
 
(30
)
Non-current portion
 
$
200

 
$
38

(1)
Amounts included for drilling rig and related operational equipment obligations represent future payments associated with oil and gas operations gross of amounts billable to partners and other working interest owners. Such payments may be capitalized as a component of oil and gas properties, and either 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 (entered into during the first quarter of 2019) 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. Variable lease payments for the period ended March 31, 2019 were $17 million .

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 most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is evaluating the new guidance and does not believe this standard 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.

9



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
During the first quarter of 2019, Apache completed leasehold and property acquisitions for total cash consideration of $15 million primarily in its U.S. onshore regions. During the first quarter, the Company also completed the sale of certain non-core assets, primarily in the Permian region, in multiple transactions for total cash proceeds of $9 million . The Company recognized a total gain of approximately $3 million upon closing of these transactions.
In March 2019, Apache entered into an agreement to sell certain non-core assets in Oklahoma for $245 million , subject to normal and customary closing adjustments. As a result of the agreement, the associated assets and liabilities qualified as held for sale as of March 31, 2019. Property, plant, and equipment totaling $217 million were classified as current assets held for sale, and an asset retirement obligation of $6 million was classified as a current liability held for sale. The transaction is expected to close in the second quarter of 2019.
Subsequent to March 31, 2019, Apache entered into an agreement to sell certain non-core assets in south Texas for $43 million , subject to normal and customary closing adjustments. The transaction is expected to close in the second quarter of 2019. No material gain or loss is expected on the sale.

2018 Activity
During the first quarter of 2018, Apache completed $12 million of leasehold and property acquisitions primarily in its U.S. onshore regions. During the first quarter, the Company also completed the sale of certain non-core assets, primarily in the Permian region, in multiple transactions for total cash proceeds of $9 million . The Company recognized a total gain of approximately $7 million during the first quarter upon closing of these transactions.
3.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $123 million and $159 million at  March 31, 2019 and  December 31, 2018 , respectively. The decrease is primarily attributable to successful transfers of well costs, partially offset by additional drilling activities during the period. No suspended exploratory well costs previously capitalized for greater than one year at December 31, 2018 were charged to dry hole expense during the three months ended March 31, 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, 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 March 31, 2019 , Apache had derivative positions with 14 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 lower commodity prices.

10



Derivative Instruments
Commodity Derivative Instruments
As of March 31, 2019 , Apache had the following open crude oil financial basis swap contracts:
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Price Differential
April—September 2019
 
Midland-WTI/Cushing-WTI
 
4,941

 
$(8.60)
October—December 2019
 
Midland-WTI/Cushing-WTI
 
1,380

 
$(3.72)

As of March 31, 2019 , Apache had the following open natural gas costless collar contracts:
Production Period
 
Settlement Index
 
MMBtu
(in 000’s)
 
Weighted Average Floor Price
 
Weighted Average Ceiling Price
April—June 2019
 
NYMEX Henry Hub
 
9,100

 
$3.00
 
$3.92
As of March 31, 2019 , Apache had the following open natural gas financial basis swap contracts:
 
 
 
 
Basis Swap Purchased
 
Basis Swap Sold
Production Period
 
Settlement Index
 
MMBtu
(in 000’s)
 
Weighted Average Price Differential
 
MMBtu
(in 000’s)
 
Weighted Average Price Differential
April—June 2019
 
NYMEX Henry Hub/Waha
 
10,920

 
$(1.74)
 
16,380

 
$(0.53)
April—June 2019
 
NYMEX Henry Hub/EP Permian
 

 
 
10,920

 
$(1.58)
April—December 2019
 
NYMEX Henry Hub/Waha
 

 
 
11,000

 
$(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.
Interest Rate Derivative Instruments
Apache has open U.S. treasury lock contracts with an aggregate notional amount of $400 million .


11



Fair Value Measurements
The fair values of the Company’s derivative contracts are not actively quoted in the open market. The Company 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 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)
March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$
50

 
$

 
$
50

 
$
(14
)
 
$
36

Foreign Currency Derivative Instruments
 

 
1

 

 
1

 

 
1

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 
46

 

 
46

 
(14
)
 
32

Interest Rate Derivative Instruments
 

 
6

 

 
6

 

 
6

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:
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Current Assets: Prepaid assets and other
 
$
37

 
$
55

Total Assets
 
$
37

 
$
55

 
 
 
 
 
Current Liabilities: Other current liabilities
 
$
38

 
$
11

Total Liabilities
 
$
38

 
$
11




12



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 March 31,
2019
 
2018
 
 
(In millions)
Realized gain (loss):
 
 
 
 
Derivative settlements, realized gain (loss)
 
$
15

 
$
(42
)
Amortization of put premium, realized loss
 

 
(5
)
Unrealized gain (loss)
 
(45
)
 
49

Derivative instrument gains (losses), net
 
$
(30
)
 
$
2


Derivative instrument gains and losses are recorded in “Derivative instrument gains (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 gains (losses), net” in “Adjustments to reconcile net income (loss) to net cash provided by operating activities.”
5 .
EQUITY METHOD INTERESTS
Apache, through its ownership of Altus, consolidates the following equity method interests in Permian Basin pipelines. For each of the equity method interests, Altus has the ability to exercise significant influence based on certain governance provisions and its participation in the significant activities and decisions that impact the management and economic performance of the equity method interests.
 
 
March 31, 2019
 
December 31, 2018
 
 
Interest
 
Amount
 
Interest
 
Amount
 
 
($ in millions)
Gulf Coast Express Pipeline LLC
 
15.0
%
 
$
157

 
15.0
%
 
$
91

EPIC Crude Holdings, LP
 
15.0
%
 
52

 

 

 
 
 
 
$
209

 
 
 
$
91


The equity method interest balance as of March 31, 2019 and December 31, 2018 were $1 million and $6 million , respectively, less than Apache’s underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized differences will be amortized into net income over the remaining useful lives of the associated pipelines, when they are placed into service.
The following table presents the activity in Apache’s equity method interests for the three months ended March 31, 2019 :
 
 
Gulf Coast Express Pipeline LLC
 
EPIC Crude Holdings, LP
 
Total
 
 
(In millions)
Balance at December 31, 2018
 
$
91

 
$

 
$
91

Acquisitions
 

 
52

 
52

Contributions
 
66

 

 
66

Balance at March 31, 2019
 
$
157

 
$
52

 
$
209


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.

13



6.
OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities as of March 31, 2019 and December 31, 2018 :
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Accrued operating expenses
 
$
72

 
$
65

Accrued exploration and development
 
552

 
667

Accrued gathering, processing, and transmission - Altus
 
63

 
81

Accrued compensation and benefits
 
96

 
177

Accrued interest
 
121

 
137

Accrued income taxes
 
60

 
58

Current asset retirement obligation
 
66

 
66

Current operating lease liability
 
187

 

Other
 
139

 
90

Total other current liabilities
 
$
1,356

 
$
1,341


7.
ASSET RETIREMENT OBLIGATION
The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the three -month period ended March 31, 2019 :
 
 
(In millions)
Asset retirement obligation at December 31, 2018
 
$
1,932

Liabilities incurred
 
3

Liabilities settled
 
(11
)
Liabilities held for sale
 
(6
)
Accretion expense
 
27

Asset retirement obligation at March 31, 2019
 
1,945

Less current portion
 
(66
)
Asset retirement obligation, long-term
 
$
1,879


8.
INCOME TAXES
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 first quarter of 2019 , 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. During the first quarter of 2018 , Apache’s effective income tax rate was also 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 2014-2016 tax years and is also under audit in various states and foreign jurisdictions as part of its normal course of business.

14



9 .
DEBT AND FINANCING COSTS
The following table presents the carrying value of the Company’s debt as of March 31, 2019 and December 31, 2018 :
 
 
March 31, 2019
 
December 31, 2018
 
 
(In millions)
Notes and debentures before unamortized discount and debt issuance costs
 
$
8,299

 
$
8,299

Commercial paper
 
159

 

Finance lease obligations
 
68

 
40

Unamortized discount
 
(43
)
 
(44
)
Debt issuance costs
 
(50
)
 
(51
)
Total debt
 
8,433

 
8,244

Current maturities
 
(339
)
 
(151
)
Long-term debt
 
$
8,094

 
$
8,093



As of March 31, 2019 , current debt included $150 million of 7.625% senior notes due July 1, 2019, $159 million of commercial paper, and $30 million of finance lease obligations. As of December 31, 2018 , current debt included $150 million of 7.625% senior notes due July 1, 2019 and $1 million of finance lease obligations.
The fair value of the Company’s notes and debentures was $8.3 billion and $7.8 billion as of March 31, 2019 and December 31, 2018 , respectively. When recorded, the carrying amount of the Company’s commercial paper, committed bank facilities, and uncommitted bank lines approximates fair value because the interest rates are variable and reflective of market rates. Apache uses a market approach to determine the fair value of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).
In March 2018, the Company entered into a revolving credit facility with commitments totaling $4.0 billion . In March 2019, the term of this facility was extended by one year to March 2024 (subject to Apache’s remaining one-year extension option) pursuant to Apache’s exercise of an extension option. The Company can increase commitments up to $5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to $3.0 billion , of which $2.08 billion was committed as of March 31, 2019 . The facility is for general corporate purposes, and committed borrowing capacity fully supports Apache’s commercial paper program. As of March 31, 2019 , letters of credit aggregating approximately £3.1 million and no borrowings were outstanding under this facility.
The Company’s $3.5 billion commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270 days at competitive interest rates. As of March 31, 2019 , the Company had $159 million of commercial paper outstanding.
In November 2018, Altus Midstream LP, an indirectly controlled subsidiary of Apache, entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream LP’s two , one-year extension options). The agreement for this facility provides aggregate commitments from a syndicate of banks of $450 million until (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the agreement, for three consecutive calendar months equals or exceeds $175 million on an annualized basis and (ii) Altus Midstream LP has raised at least $250 million of additional capital (such period, the Initial Period). Following the Initial Period, the aggregate commitments equal $800 million . All aggregate commitments include a letter of credit subfacility of up to $100 million and a swingline loan subfacility of up to $100 million . After the Initial Period, Altus Midstream LP may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of March 31, 2019 , no borrowings or letters of credit were outstanding under this facility. The Altus Midstream LP credit facility is unsecured and is not guaranteed by Apache or any of Apache’s other subsidiaries.

15



Financing Costs, Net
The following table presents the components of Apache’s financing costs, net:
 
 
For the Quarter Ended March 31,
 
 
2019
 
2018
 
 
(In millions)
Interest expense
 
$
107

 
$
112

Amortization of deferred loan costs
 
2

 
5

Capitalized interest
 
(8
)
 
(12
)
Interest income
 
(4
)
 
(6
)
Financing costs, net
 
$
97

 
$
99


10.
COMMITMENTS AND CONTINGENCIES
Legal Matters
Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of March 31, 2019 , the Company has an accrued liability of approximately $35 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. Apache’s estimates are based on information known about the matters and its experience in contesting, litigating, and settling similar matters. Although actual amounts could differ from management’s estimate, none of the actions are believed by management to involve future amounts that would be material to Apache’s financial position, results of operations, or liquidity after consideration of recorded accruals. For material matters that Apache believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and a range of potential exposure, unless an estimate cannot be made at this time. It is management’s opinion that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
For additional information on each of the Legal Matters described below, please see Note 9—Commitments and Contingencies to the consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
Argentine Environmental Claims and Argentina Tariff
No material change in the status of the YPF Sociedad Anónima and Pioneer Natural Resources Company indemnities matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
Louisiana Restoration  
As more fully described in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 , Louisiana surface owners often file lawsuits or assert claims against oil and gas companies, including Apache, claiming that operators and working interest owners in the chain of title are liable for environmental damages on the leased premises, including damages measured by the cost of restoration of the leased premises to its original condition, regardless of the value of the underlying property. From time to time restoration lawsuits and claims are resolved by the Company for amounts that are not material to the Company, while new lawsuits and claims are asserted against the Company. With respect to each of the pending lawsuits and claims, the amount claimed is not currently determinable or is not material, except as noted. Further, the overall exposure related to these lawsuits and claims is not currently determinable. While an adverse judgment against Apache is possible, Apache intends to actively defend these lawsuits and claims.
Starting in November of 2013 and continuing into 2019, several parishes in Louisiana have pending lawsuits against many oil and gas producers, including Apache. These cases have all been removed to federal courts in Louisiana. In these cases, the Parishes, as plaintiffs, allege that defendants’ oil and gas exploration, production, and transportation operations in specified fields were conducted in violation of the State and Local Coastal Resources Management Act of 1978, as amended, and applicable regulations, rules, orders, and ordinances promulgated or adopted thereunder by the Parish or the State of Louisiana. Plaintiffs allege that defendants caused substantial damage to land and water bodies located in the coastal zone of Louisiana. Plaintiffs seek, among other things, unspecified damages for alleged violations of applicable law within the coastal zone, the payment of costs necessary to clear, re-vegetate, detoxify, and otherwise restore the subject coastal zone as near as practicable to its original condition, and actual restoration of the coastal zone to its original condition. While an adverse judgment against Apache might be possible, Apache intends to vigorously oppose these claims.

16



No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
Apollo Exploration Lawsuit
In a case captioned Apollo Exploration, LLC, Cogent Exploration, Ltd. Co. & SellmoCo, LLC v. Apache Corporation , Cause No. CV50538 in the 385 th Judicial District Court, Midland County, Texas, plaintiffs alleged damages in excess of $200 million (having previously claimed in excess of $1.1 billion ) relating to purchase and sale agreements, mineral leases, and areas of mutual interest agreements concerning properties located in Hartley, Moore, Potter, and Oldham Counties, Texas. The Court recently granted motions filed by Apache reducing the plaintiffs’ alleged damages to an amount that is not material to the Company. Apache believes that plaintiffs’ claims lack merit and will vigorously oppose the claims. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 .
Australian Operations Divestiture Dispute
By a Sale and Purchase Agreement dated April 9, 2015 (SPA), the Company and its subsidiaries divested their remaining Australian operations to Quadrant Energy Pty Ltd (Quadrant). Closing occurred on June 5, 2015. In April 2017, Apache filed suit against Quadrant for breach of the SPA. In its suit, Apache seeks approximately $80 million . In December 2017, Quadrant filed a defense of equitable set-off to Apache’s claim and a counterclaim seeking approximately $200 million in the aggregate. The Company believes that Quadrant’s claims lack merit and will not have a material adverse effect on the Company’s financial position, results of operation, or liquidity.
California Litigation
On July 17, 2017, in three separate actions, San Mateo County, California, Marin County, California, and the City of Imperial Beach, California, all filed suit individually and on behalf of the people of the state of California against over 30 oil, gas, and coal companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories. On December 20, 2017, in two separate actions, the City of Santa Cruz and Santa Cruz County and in a separate action on January 22, 2018, the City of Richmond, filed similar lawsuits against many of the same defendants. On November 14, 2018, the Pacific Coast Federation of Fishermen’s Associations, Inc. also filed a similar lawsuit against many of the same defendants. Apache believes that the claims made against it are baseless and intends to vigorously defend these lawsuits.
Castex Lawsuit
In a case styled Apache Corporation v. Castex Offshore, Inc, et. al., Cause No. 2015-48580, in the 113rd Judicial District Court of Harris County, Texas, Castex filed claims for alleged damages which they recently disclosed to be approximately $200 million , relating to overspend on the Belle Isle Gas Facility upgrade, and the drilling of five sidetracks on the Potomac #3 Well. After a jury trial, a verdict of approximately $60 million was entered against Apache. Apache intends to appeal.
Environmental Matters
As of March 31, 2019 , the Company had an undiscounted reserve for environmental remediation of approximately $5 million . The Company is not aware of any environmental claims existing as of March 31, 2019 , that have not been provided for or would otherwise have a material impact on its financial position, results of operations, or liquidity. There can be no assurance, however, that current regulatory requirements will not change or past non-compliance with environmental laws will not be discovered on the Company’s properties.

17



11.
CAPITAL STOCK
Net Income (Loss) per Common Share
A reconciliation of the components of basic and diluted net income (loss) per common share for the quarters ended March 31, 2019 and 2018 , is presented in the table below.
 
 
 
For the Quarter Ended March 31,
 
 
2019
 
2018
 
 
Loss
 
Shares
 
Per Share
 
Income
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) attributable to common stock
 
$
(47
)
 
376

 
$
(0.12
)
 
$
145

 
382

 
$
0.38

Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 
$




$

 
$

 
2

 
$

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) attributable to common stock
 
$
(47
)
 
376

 
$
(0.12
)
 
$
145

 
384

 
$
0.38

 

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 5.5 million and 6.7 million for the quarters ended March 31, 2019 and 2018 , respectively.
Common Stock Dividends
For the quarters ended March 31, 2019 , and 2018 , Apache paid $94 million and $95 million , respectively, in dividends on its common stock.
Stock Repurchase Program
In 2013 and 2014, Apache’s Board of Directors authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased from time to time either in the open market or through privately negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through March 31, 2019 , had repurchased a total of 40 million shares at an average price of $79.18 per share. During the fourth quarter of 2018, the Company’s Board of Directors authorized the purchase of up to 40 million additional shares of the Company’s common stock. The Company is not obligated to acquire any specific number of shares and has no t purchased any shares during 2019 .

18



12.
BUSINESS SEGMENT INFORMATION
As of March 31, 2019 , Apache is engaged in exploration and production (Upstream) activities across three operating segments: Egypt, the North Sea, and the U.S. Apache also has exploration interests in Suriname that may, over time, result in a reportable discovery and development opportunity. Apache’s Upstream business explores for, develops, and produces natural gas, crude oil and natural gas liquids. During the fourth quarter of 2018, Apache established a new reporting segment for its U.S. midstream business separate from its upstream oil and gas development activities. The midstream business is operated by Altus, which owns, develops, and operates a midstream energy asset network in the Permian Basin of West Texas, anchored by midstream service contracts to Apache’s production from its Alpine High resource play. Altus primarily generates revenue by providing fee-based natural gas gathering, compression, processing, and transportation services. Financial information for each segment is presented below:
 
 
Egypt (1)
 
North Sea
 
U.S.
 
Altus
 
Intersegment Eliminations & Other
 
Total (2)
 
 
Upstream
 
Midstream
 
 
 
 
(In millions)
For the Quarter Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Oil revenues
 
$
514

 
$
300

 
$
496

 
$

 
$

 
$
1,310

Natural gas revenues
 
81

 
32

 
123

 

 

 
236

Natural gas liquids revenues
 
4

 
6

 
98

 

 

 
108

Oil and gas production revenues
 
599

 
338

 
717

 

 

 
1,654

Midstream service affiliate revenues
 

 

 

 
34

 
(34
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
118

 
72

 
176

 

 
(1
)
 
365

Gathering, processing, and transmission
 
12

 
12

 
81

 
16

 
(33
)
 
88

Taxes other than income
 

 

 
48

 
3

 

 
51

Exploration
 
32

 
1

 
33

 

 
3

 
69

Depreciation, depletion, and amortization
 
188

 
99

 
352

 
7

 

 
646

Asset retirement obligation accretion
 

 
19

 
8

 

 

 
27

 
 
350

 
203

 
698

 
26

 
(31
)
 
1,246

Operating Income (Loss) (3)
 
$
249

 
$
135

 
$
19

 
$
8

 
$
(3
)
 
408

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain on divestitures
 
 
 
 
 
 
 
 
 
 
 
3

Derivative instrument losses, net
 
 
 
 
 
 
 
 
 
 
 
(30
)
Other (4)
 
 
 
 
 
 
 
 
 
 
 
8

General and administrative
 
 
 
 
 
 
 
 
 
 
 
(123
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(4
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(97
)
Income Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
165

 
 
 
 
 
 
 
 
 
 
 
 
 
Total Assets (5)
 
$
4,065

 
$
2,601

 
$
13,205

 
$
1,825

 
$
55

 
$
21,751

 
 
 
 
 
 
 
 
 
 
 
 
 

19



 
 
Egypt (1)
 
North Sea
 
U.S.
 
Altus
 
Intersegment Eliminations & Other
 
Total (2)
 
 
Upstream
 
Midstream
 
 
 
 
(In millions)
For the Quarter Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Oil revenues
 
$
569

 
$
271

 
$
553

 
$

 
$

 
$
1,393

Natural gas revenues
 
88

 
24

 
110

 

 

 
222

Natural gas liquids revenues
 
3

 
4

 
111

 

 

 
118

Oil and gas production revenues
 
660

 
299

 
774

 

 

 
1,733

Midstream service affiliate revenues
 

 

 

 
12

 
(12
)
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
98

 
93

 
158

 

 

 
349

Gathering, processing, and transmission
 
12

 
10

 
65

 
11

 
(12
)
 
86

Taxes other than income
 

 

 
52

 
3

 

 
55

Exploration
 
28

 
14

 
33

 

 
1

 
76

Depreciation, depletion, and amortization
 
186

 
95

 
269

 
3

 

 
553

Asset retirement obligation accretion
 

 
19

 
8

 

 

 
27

 
 
324

 
231

 
585

 
17

 
(11
)
 
1,146

Operating Income (Loss) (3)
 
$
336

 
$
68

 
$
189

 
$
(5
)
 
$
(1
)
 
587

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain on divestitures
 
 
 
 
 
 
 
 
 
 
 
7

Derivative instrument gains, net
 
 
 
 
 
 
 
 
 
 
 
2

Other (4)
 
 
 
 
 
 
 
 
 
 
 
5

General and administrative
 
 
 
 
 
 
 
 
 
 
 
(114
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(99
)
Income Before Income Taxes