10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

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

 

 

 

LOGO

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 Number)

One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400

(Address of principal executive offices)

Registrant’s Telephone Number, Including Area Code: (713) 296-6000

 

 

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  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Number of shares of registrant’s common stock outstanding as of October 31, 2014                     376,482,179

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

 

     For the Quarter
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2014     2013     2014     2013  
     (In millions, except per common share data)  

REVENUES AND OTHER:

        

Oil and gas production revenues

        

Oil revenues

   $ 2,753     $ 3,468     $ 8,518     $ 9,790  

Gas revenues

     538       645       1,773       2,048  

Natural gas liquids revenues

     177       175       532       473  
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,468       4,288       10,823       12,311  

Derivative instrument gains (losses), net

     273       (422     79       (275

Other

     (1     34       (3     78  
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,740       3,900       10,899       12,114  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Depreciation, depletion, and amortization:

        

Oil and gas property and equipment

        

Recurring

     1,173       1,272       3,437       3,740  

Additional

     1,562       627       1,765       627  

Other assets

     100       96       296       290  

Asset retirement obligation accretion

     46       65       135       192  

Lease operating expenses

     652       772       1,862       2,275  

Gathering and transportation

     67       81       203       231  

Taxes other than income

     170       176       532       574  

General and administrative

     112       120       309       359  

Acquisition, divestiture, and separation costs

     34       —         66       —    

Financing costs, net

     41       50       103       157  
  

 

 

   

 

 

   

 

 

   

 

 

 
     3,957       3,259       8,708       8,445  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     (217     641       2,191       3,669  

Current income tax provision

     297       409       1,038       1,190  

Deferred income tax provision (benefit)

     727       (203     930       229  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     (1,241     435       223       2,250  

Net loss from discontinued operations, net of tax

     —         (129     (517     (192
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (1,241     306       (294     2,058  

Preferred stock dividends

     —         6       —         44  

Net income attributable to noncontrolling interest

     89       —         295       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (1,330   $ 300     $ (589   $ 2,014  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS:

        

Net income (loss) from continuing operations attributable to common shareholders

   $ (1,330   $ 429     $ (72   $ 2,206  

Net loss from discontinued operations

     —         (129     (517     (192
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

   $ (1,330   $ 300     $ (589   $ 2,014  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) PER COMMON SHARE:

        

Basic net income (loss) from continuing operations per share

   $ (3.50   $ 1.08     $ (0.19   $ 5.59  

Basic net loss from discontinued operations per share

     —         (0.33     (1.33     (0.48
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per share

   $ (3.50   $ 0.75     $ (1.52   $ 5.11  
  

 

 

   

 

 

   

 

 

   

 

 

 

DILUTED NET INCOME (LOSS) PER COMMON SHARE:

        

Diluted net income (loss) from continuing operations per share

   $ (3.50   $ 1.07     $ (0.19   $ 5.53  

Diluted net loss from discontinued operations per share

     —         (0.32     (1.33     (0.47
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per share

   $ (3.50   $ 0.75     $ (1.52   $ 5.06  
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

        

Basic

     381       399       387       394  

Diluted

     381       401       387       407  

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.25     $ 0.20     $ 0.75     $ 0.60  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

1


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)

 

     For the Quarter
Ended September 30,
    For the Nine Months
Ended September 30,
 
     2014     2013     2014     2013  
     (In millions)  

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

   $ (1,241   $ 306     $ (294   $ 2,058  

OTHER COMPREHENSIVE INCOME (LOSS):

        

Commodity cash flow hedge activity, net of tax:

        

Reclassification of loss on settled derivative instruments

     —         (1     —         13  

Change in fair value of derivative instruments

     —         (5     (1     (6

Derivative hedge ineffectiveness reclassified into earnings

     —         1       —         1  
  

 

 

   

 

 

   

 

 

   

 

 

 
     —         (5     (1     8  
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (1,241     301       (295     2,066  

Preferred stock dividends

     —         6       —         44  

Comprehensive income attributable to noncontrolling interest

     89       —         295       —    
  

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (1,330   $ 295     $ (590   $ 2,022  
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

2


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS

(Unaudited)

 

     For the Nine Months
Ended September 30,
 
     2014     2013  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss) including noncontrolling interest

   $ (294   $ 2,058  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Loss from discontinued operations

     517       192  

Depreciation, depletion, and amortization

     5,498       4,657  

Asset retirement obligation accretion

     135       192  

Provision for deferred income taxes

     930       229  

Other

     (263     190  

Changes in operating assets and liabilities:

    

Receivables

     572       (49

Inventories

     78       (41

Drilling advances

     (84     123  

Deferred charges and other

     (244     (205

Accounts payable

     (303     183  

Accrued expenses

     (117     (369

Deferred credits and noncurrent liabilities

     21       40  
  

 

 

   

 

 

 

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES

     6,446       7,200  

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

     82       158  
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     6,528       7,358  

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Additions to oil and gas property

     (7,131     (7,186

Additions to gas gathering, transmission, and processing facilities

     (1,035     (852

Proceeds from divestiture of Gulf of Mexico Shelf properties

     —         3,594  

Proceeds from sale of Deepwater Gulf of Mexico assets

     1,367       —    

Restricted cash related to divestitures

     (545     —    

Proceeds from Kitimat LNG transaction, net

     —         396  

Proceeds from sale of other oil and gas properties

     390       199  

Leasehold and property acquisitions

     (655     (313

Other, net

     (80     (12
  

 

 

   

 

 

 

NET CASH USED IN CONTINUING INVESTING ACTIVITIES

     (7,689     (4,174

NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS

     748       (160
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (6,941     (4,334

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Commercial paper and bank credit facilities, net

     1,246       (539

Payments on fixed rate debt

     —         (900

Distributions to noncontrolling interest

     (124     —    

Dividends paid

     (271     (280

Treasury stock activity, net

     (1,830     (249

Other

     38       38  
  

 

 

   

 

 

 

NET CASH USED IN CONTINUING FINANCING ACTIVITIES

     (941     (1,930

NET CASH USED IN DISCONTINUED OPERATIONS

     (42     (3
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (983     (1,933

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (1,396     1,091  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     1,906       160  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 510     $ 1,251  
  

 

 

   

 

 

 

SUPPLEMENTARY CASH FLOW DATA:

    

Interest paid, net of capitalized interest

   $ 143     $ 185  

Income taxes paid, net of refunds

     1,134       1,344  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

3


APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     September 30,     December 31,  
     2014     2013  
     (In millions)  
ASSETS     

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 510     $ 1,906  

Short-term restricted cash

     74       —    

Receivables, net of allowance

     2,287       2,952  

Inventories

     713       891  

Drilling advances

     434       371  

Prepaid assets and other

     408       246  
  

 

 

   

 

 

 
     4,426       6,366  
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

    

Oil and gas, on the basis of full-cost accounting:

    

Proved properties

     86,963       83,390  

Unproved properties and properties under development, not being amortized

     7,928       8,363  

Gathering, transmission and processing facilities

     7,874       6,995  

Other

     1,107       1,071  
  

 

 

   

 

 

 
     103,872       99,819  

Less: Accumulated depreciation, depletion, and amortization

     (50,837     (47,398
  

 

 

   

 

 

 
     53,035       52,421  
  

 

 

   

 

 

 

OTHER ASSETS:

    

Long-term restricted cash

     471       —    

Goodwill

     1,369       1,369  

Deferred charges and other

     1,689       1,481  
  

 

 

   

 

 

 
   $ 60,990     $ 61,637  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

CURRENT LIABILITIES:

    

Accounts payable

   $ 1,316     $ 1,616  

Current debt

     20       53  

Current asset retirement obligation

     177       121  

Derivative instruments

     —         299  

Other current liabilities

     2,794       2,611  
  

 

 

   

 

 

 
     4,307       4,700  
  

 

 

   

 

 

 

LONG-TERM DEBT

     10,902       9,672  
  

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

    

Income taxes

     9,298       8,364  

Asset retirement obligation

     3,096       3,101  

Other

     401       407  
  

 

 

   

 

 

 
     12,795       11,872  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 8)

    

EQUITY:

    

Common stock, $0.625 par, 860,000,000 shares authorized, 409,671,364 and 408,041,088 shares issued, respectively

     256       255  

Paid-in capital

     12,379       12,251  

Retained earnings

     21,156       22,032  

Treasury stock, at cost, 32,853,183 and 12,268,180 shares, respectively

     (2,857     (1,027

Accumulated other comprehensive loss

     (116     (115
  

 

 

   

 

 

 

APACHE SHAREHOLDERS’ EQUITY

     30,818       33,396  

Noncontrolling interest

     2,168       1,997  
  

 

 

   

 

 

 

TOTAL EQUITY

     32,986       35,393  
  

 

 

   

 

 

 
   $ 60,990     $ 61,637  
  

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

4


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

(Unaudited)

 

    Series D
Preferred
Stock
    Common
Stock
    Paid-In
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
Loss
    APACHE
SHAREHOLDERS’
EQUITY
    Non
Controlling
Interest
    TOTAL
EQUITY
 
    (In millions)  

BALANCE AT DECEMBER 31, 2012

  $ 1,227     $ 245     $ 9,859     $ 20,161     $ (30   $ (131   $ 31,331     $ —       $ 31,331  

Net income

    —         —         —         2,058       —         —         2,058       —         2,058  

Commodity hedges, net of tax

    —         —         —         —         —         8       8       —         8  

Dividends:

                 

Preferred

    —         —         —         (44     —         —         (44     —         (44

Common ($0.60 per share)

    —         —         —         (237     —         —         (237     —         (237

Common shares issued

    —         9       1,218       —         —         —         1,227       —         1,227  

Common stock activity, net

    —         1       (12     —         —         —         (11     —         (11

Treasury stock activity, net

    —         —         (1     —         (250     —         (251     —         (251

Conversion of Series D preferred stock

    (1,227     —         —         —         —         —         (1,227     —         (1,227

Compensation expense

    —         —         135       —         —         —         135       —         135  

Other

    —         —         (8     —         —         —         (8     —         (8
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT SEPTEMBER 30, 2013

  $ —       $ 255     $ 11,191     $ 21,938     $ (280   $ (123   $ 32,981     $ —       $ 32,981  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT DECEMBER 31, 2013

  $ —       $ 255     $ 12,251     $ 22,032     $ (1,027   $ (115   $ 33,396     $ 1,997     $ 35,393  

Net income (loss)

    —         —         —         (589     —         —         (589     295       (294

Distributions to noncontrolling interest

    —         —         —         —         —         —         —         (124     (124

Commodity hedges, net of tax

    —         —         —         —         —         (1     (1     —         (1

Dividends:

                 

Common ($0.75 per share)

    —         —         —         (287     —         —         (287     —         (287

Common stock activity, net

    —         1       (12     —         —         —         (11     —         (11

Treasury stock activity, net

    —         —         (1     —         (1,830     —         (1,831     —         (1,831

Compensation expense

    —         —         145       —         —         —         145       —         145  

Other

    —         —         (4     —         —         —         (4     —         (4
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT SEPTEMBER 30, 2014

  $ —       $ 256     $ 12,379     $ 21,156     $ (2,857   $ (116   $ 30,818     $ 2,168     $ 32,986  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

5


APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These 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 statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. 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 (U.S. 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 Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013, which contains a summary of the Company’s significant accounting policies and other disclosures.

The Company’s financial statements for prior periods include reclassifications that were made to conform to the current-period presentation. In March 2014, Apache completed the sale of all of its operations in Argentina. Results of operations and cash flows for Argentina operations are reflected as discontinued operations in the Company’s financial statements for all periods presented. For more information regarding this divestiture, please refer to Note 2–Acquisitions and Divestitures.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of September 30, 2014, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013, other than the change in income taxes noted below and in Note 7—Income Taxes.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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, assessing asset retirement obligations, and the estimate of income taxes. Actual results could differ from those estimates.

Restricted Cash

The Company classifies cash balances as restricted cash when cash is restricted as to withdrawal or usage. As of September 30, 2014, the Company had $545 million of proceeds from the sale of deepwater Gulf of Mexico properties held by a qualified intermediary and available for use in a like-kind exchange under Section 1031 of the U.S. Internal Revenue Code. As of the date of this filing, the Company has utilized or plans to utilize $471 million of the cash held by the qualified intermediary in the acquisition of like-kind property, and as such, this amount is classified as long-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. The remaining $74 million of restricted cash was returned to Apache in October and, as such, is classified as short-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. For more information regarding the sale of the deepwater Gulf of Mexico properties, please refer to Note 2—Acquisitions and Divestitures.

Oil and Gas Property

The Company follows the full-cost method of accounting for its oil and gas property. Under this method of accounting, all costs incurred for both successful and unsuccessful exploration and development activities, including salaries, benefits and other internal costs directly identified with these activities, and oil and gas property acquisitions are capitalized. The net book value of oil and gas properties, less related deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is the estimated after-tax future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum and adjusted for designated cash flow hedges. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements.

Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as “Additional depreciation, depletion, and amortization” (DD&A) in the accompanying statement of consolidated operations. Such limitations are imposed separately on a country-by-country basis and are tested quarterly. For a discussion of the calculation of estimated future net cash flows, please refer to Note 14—Supplemental Oil and Gas Disclosures to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013.

 

6


In the third quarter of 2014, the Company recorded $1.5 billion ($996 million net of tax) and $17 million ($7 million net of tax) in non-cash write-downs of the carrying value of the Company’s U.S. and North Sea proved oil and gas properties, respectively. In the second quarter of 2014, the Company recorded a $203 million ($77 million net of tax) non-cash write-down of the carrying value of the Company’s North Sea proved oil and gas properties.

Income Taxes

Apache records deferred tax assets and liabilities to account for the expected future tax consequences of events that have been recognized in the financial statements and tax returns. The Company routinely assesses the realizability of its deferred tax assets. If the Company concludes that it is more likely than not that some or all of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil and gas prices) and changing tax laws.

Apache is required to assess whether the undistributed earnings of its foreign subsidiaries will be permanently reinvested. In the third quarter of 2014, Apache evaluated its permanent reinvestment position and determined that undistributed earnings from certain subsidiaries located in Apache’s Australia, Egypt, and North Sea regions will no longer be permanently reinvested. As a result of this change in position, Apache recorded a U.S. deferred income tax liability of $814 million on the undistributed earnings of subsidiaries located in these regions. Undistributed earnings of Apache’s Canadian subsidiaries remain permanently reinvested. Apache does not record U.S. deferred income taxes on foreign subsidiaries that are deemed to be permanently reinvested. When such earnings are no longer deemed permanently reinvested, Apache will recognize the appropriate U.S. current or deferred income tax liabilities. In addition, the Company recorded $249 million of U.S. deferred income tax expense on foreign earnings that were distributed to the U.S. in the third quarter of 2014.

New Pronouncements Issued But Not Yet Adopted

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08—Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 modifies the criteria for disposals to qualify as discontinued operations and expands related disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2014. Adoption of this amendment will not have a material effect on our financial position or results of operations.

In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a joint revenue recognition standard, ASU 2014-09. The new standard removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers, and increases disclosure requirements. The guidance requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. The standard is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company is currently evaluating the level of effort needed to implement the standard, the impact of adopting this standard on its consolidated financial statements, and whether to use the full retrospective approach or the modified retrospective approach.

In August 2014, the FASB issued ASU No. 2014-15, which requires management of public and private companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, to disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

2. ACQUISITIONS AND DIVESTITURES

2014 Activity

Gulf of Mexico Deepwater Divestiture

On June 30, 2014, Apache completed the sale of non-operated interests in the Lucius and Heidelberg development projects and 11 primary term deepwater exploration blocks in the Gulf of Mexico for $1.4 billion. The effective date of the transaction was May 1, 2014. Apache’s net book value of oil and gas properties was reduced by $850 million of proved property costs and $518 million of unproved property costs as a result of the transaction.

 

7


Canada Divestiture

On April 30, 2014, Apache completed the sale of primarily dry gas producing hydrocarbon assets in the Deep Basin area of western Alberta and British Columbia, Canada, for $374 million. The assets comprise 328,400 net acres in the Ojay, Noel, and Wapiti areas. Apache retained 100 percent of its working interest in horizons below the Cretaceous in the Wapiti area, including rights to the liquids-rich Montney and other deeper horizons. The effective date of the transaction was January 1, 2014.

Argentina Divestiture

On March 12, 2014, Apache’s subsidiaries completed the sale of all of the Company’s operations in Argentina to YPF Sociedad Anónima for cash consideration of $800 million (subject to customary closing adjustments) plus the assumption of $52 million of bank debt as of June 30, 2013. The results of operations related to Argentina have been classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q. The carrying amounts of the major classes of assets and liabilities associated with the disposition were as follows:

 

     December 31,  
     2013  
     (In millions)  

ASSETS

  

Current assets

   $ 150  

Net property and equipment

     1,416  

Other assets

     12  
  

 

 

 

Total assets

   $ 1,578  
  

 

 

 

LIABILITIES

  

Current debt

   $ 51  

Other current liabilities

     95  

Asset retirement obligations

     91  

Other long-term liabilities

     21  
  

 

 

 

Total liabilities

   $ 258  
  

 

 

 

Sales and other operating revenues and loss from discontinued operations related to the Argentina disposition were as follows:

 

     For the Quarter Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2014      2013     2014     2013  
     (In millions)  

Revenues and other from discontinued operations

   $ —        $ 118     $ 87     $ 364  
  

 

 

    

 

 

   

 

 

   

 

 

 

Loss from Argentina divestiture

     —          —         (539     —    

Loss from operations in Argentina

     —          (129     (1     (192

Income tax benefit

     —          —         23       —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Loss from discontinued operations, net of tax

   $ —        $ (129   $ (517   $ (192
  

 

 

    

 

 

   

 

 

   

 

 

 

2013 Activity

Egypt Partnership

On November 14, 2013, Apache completed the sale of a one-third minority participation in its Egypt oil and gas business to a subsidiary of Sinopec International Petroleum Exploration and Production Corporation (Sinopec). Apache received cash consideration of $2.95 billion after customary closing adjustments. Apache continues to operate its Egypt upstream oil and gas business. Apache recorded

 

8


$1.9 billion of the proceeds as a noncontrolling interest, which is reflected as a separate component of equity in the Company’s consolidated balance sheet. This represents one-third of Apache’s net book value of its Egypt holdings at the time of the transaction. The remaining proceeds were recorded as additional paid-in capital. Included in “Net income including noncontrolling interest” for the quarter ended September 30, 2014, is net income attributable to Sinopec’s interest totaling $89 million. For the first nine months of 2014, net income attributable to Sinopec’s interest totaled $295 million, of which the Company has distributed $124 million to Sinopec.

Gulf of Mexico Shelf Divestiture

On September 30, 2013, Apache completed the sale of its Gulf of Mexico Shelf operations and properties to Fieldwood Energy LLC (Fieldwood), an affiliate of Riverstone Holdings. Under the terms of the agreement, Apache received cash consideration of $3.7 billion, and Fieldwood assumed $1.5 billion of discounted asset abandonment liabilities. Additionally, Apache retained 50 percent of its ownership interest in all exploration blocks and in horizons below production in developed blocks.

Canada LNG Project

In February 2013, Apache completed a transaction with Chevron Canada Limited (Chevron Canada) under which each company became a 50-percent owner of the Kitimat LNG plant, the Pacific Trail Pipelines Limited Partnership (PTP), and 644,000 gross undeveloped acres in the Horn River and Liard basins. Chevron Canada will operate the LNG plant and pipeline while Apache Canada will continue to operate the upstream assets. Apache’s net proceeds from the transaction were $396 million after post-closing adjustments, and no gain or loss was recorded.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production. Apache manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production. The Company utilizes various types of derivative financial instruments, including swaps and options, to manage fluctuations in cash flows resulting from changes in commodity prices.

Counterparty Risk

The use of derivative instruments exposes the Company to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments. 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, 2014, 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.

The Company executes commodity derivative transactions under master agreements that have netting provisions that provide for offsetting payables against receivables. In general, if a party to a derivative transaction incurs a material deterioration in its credit ratings, as defined in the applicable agreement, the other party has the right to demand the posting of collateral, demand a transfer, or terminate the arrangement. The Company’s net derivative asset position at September 30, 2014, represents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net asset position. The Company has not provided any collateral to any of its counterparties as of September 30, 2014.

 

9


Derivative Instruments

As of September 30, 2014, Apache had the following commodity derivative positions:

 

              Fixed-Price Swaps  
Production                    MMBtu      Weighted Average  

Period

   Commodity    Settlement Index   Mbbls      (in 000’s)      Fixed Price  

2014

   Crude Oil    NYMEX WTI     5,750        —        $ 90.83  

2014

   Crude Oil    Dated Brent     5,750        —          100.05  

2014

   Natural Gas    Various(1)     —          16,235        4.37  

 

(1)  The natural gas price represents a weighted-average of several contracts entered into on a per-million British thermal units (MMBtu) basis. These contracts are settled against NYMEX Henry Hub and various Inside FERC indices.

Apache has currently elected not to designate any of its qualifying natural gas and oil derivatives as cash flow hedges. Changes in the fair value of these derivatives for the current period are recorded in the Company’s statement of consolidated operations.

Fair Value Measurements

Apache’s commodity derivative instruments consist of variable-to-fixed price commodity swaps. The fair values of the Company’s derivatives are not actively quoted in the open market. The Company uses a market approach to estimate the fair values of its derivative instruments, utilizing commodity futures price strips for the underlying commodities provided by a reputable third party.

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      Significant      Significant                      
     Active      Other      Unobservable      Total               
     Markets      Inputs      Inputs      Fair            Carrying  
     (Level 1)      (Level 2)      (Level 3)      Value      Netting(1)     Amount  
     (In millions)               

September 30, 2014

                

Assets:

                

Commodity Derivative Instruments

   $ —        $ 41      $ —        $ 41      $ —       $ 41  

Liabilities:

                

Commodity Derivative Instruments

     —          —          —          —          —         —    

December 31, 2013

                

Assets:

                

Commodity Derivative Instruments

   $ —        $ 3      $ —        $ 3      $ (2   $ 1  

Liabilities:

                

Commodity Derivative Instruments

     —          301        —          301        (2     299  

 

(1)  The derivative fair values are based on analysis of each contract on a gross basis, excluding the impact of netting agreements with counterparties.

 

10


Derivative Assets and Liabilities Recorded in the Consolidated Balance Sheet

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,      December 31,  
     2014      2013  
     (In millions)  

Current Assets: Prepaid assets and other

   $ 41      $ 1  

Current Liabilities: Derivative instruments

   $ —        $ 299  

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     For the Nine Months Ended  
     Gain (Loss) on Derivatives    September 30,     September 30,  
    

Recognized in Income

   2014     2013     2014     2013  
          (In millions)  

Gain (loss) on cash flow hedges reclassified from accumulated other comprehensive loss

   Oil and Gas Production Revenues    $ —       $ 2     $ —       $ (18

Loss for ineffectiveness on cash flow hedges

   Revenues and other: Other    $ —       $ (1   $ —       $ (1

Derivatives not designated as cash flow hedges:

           

Realized loss

      $ (41   $ (91   $ (262   $ (138

Unrealized gain (loss)

        314       (331     341       (137
     

 

 

   

 

 

   

 

 

   

 

 

 

Gain (loss) on derivatives not designated as cash flow hedges

   Derivative instrument gains (losses), net    $ 273     $ (422   $ 79     $ (275

Unrealized gains and losses for derivative activity recorded in the statement of consolidated operations is reflected in the statement of consolidated cash flows as a component of “Other” in “Adjustments to reconcile net income to net cash provided by operating activities.”

Derivative Activity in Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss in the statement of consolidated changes in equity related to Apache’s cash flow hedges is presented in the table below. The Company has no derivatives designated as cash flow hedges as of September 30, 2014.

 

     For the Nine Months Ended
September 30,
 
     2014     2013  
     Before     After     Before     After  
     tax     tax     tax     tax  
     (In millions)  

Unrealized gain (loss) on derivatives at beginning of period

   $ 1     $ 1     $ (10   $ (6

Realized amounts reclassified into earnings

     —         —         18       13  

Net change in derivative fair value

     (1     (1     (7     (6

Ineffectiveness reclassified into earnings

     —         —         1       1  
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gain on derivatives at end of period

   $ —       $ —       $ 2     $ 2  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

11


4. OTHER CURRENT LIABILITIES

The following table provides detail of our other current liabilities:

 

     September 30,      December 31,  
     2014      2013  
     (In millions)  

Accrued operating expenses

   $ 127      $ 190  

Accrued exploration and development

     1,723        1,582  

Accrued compensation and benefits

     217        242  

Accrued interest

     119        161  

Accrued income taxes

     297        248  

Accrued U.K. Petroleum Revenue Tax

     47        9  

Other

     264        179  
  

 

 

    

 

 

 

Total Other current liabilities

   $ 2,794      $ 2,611  
  

 

 

    

 

 

 

5. 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, 2014:

 

     (In millions)  

Asset retirement obligation at December 31, 2013

   $ 3,222  

Liabilities incurred

     86  

Liabilities divested

     (91

Liabilities settled

     (79

Accretion expense

     135  
  

 

 

 

Asset retirement obligation at September 30, 2014

     3,273  

Less current portion

     (177
  

 

 

 

Asset retirement obligation, long-term

   $ 3,096  
  

 

 

 

6. DEBT AND FINANCING COSTS

The following table presents the carrying amounts and estimated fair values of the Company’s outstanding debt:

 

     September 30, 2014      December 31, 2013  
     Carrying      Fair      Carrying      Fair  
     Amount      Value      Amount      Value  
     (In millions)  

Uncommitted credit lines

   $ 20      $ 20      $ 53      $ 53  

Commercial paper

     1,228        1,228        —          —    

Notes and debentures

     9,674        10,463        9,672        10,247  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

   $ 10,922      $ 11,711      $ 9,725      $ 10,300  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s debt is recorded at the carrying amount, net of unamortized discount, on its consolidated balance sheet. The carrying amount of the Company’s commercial paper and uncommitted credit facilities and overdraft 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).

As of September 30, 2014, the Company had unsecured committed revolving credit facilities totaling $3.3 billion, of which $1.0 billion matures in August 2016 and $2.3 billion matures in June 2018 pursuant to a one-year extension approved in May 2014 under the terms of the $2.3 billion facilities. The facilities consist of a $1.7 billion facility and $1.0 billion facility for the U.S., a $300 million facility for Australia, and a $300 million facility for Canada. As of September 30, 2014, available borrowing capacity under the Company’s credit facilities was $2.1 billion. The Company’s committed credit facilities are used to support Apache’s commercial paper program.

 

12


The Company has available a $3.0 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under our committed credit facilities. As of September 30, 2014, the Company had $1.2 billion outstanding in commercial paper. There was no outstanding commercial paper as of December 31, 2013.

As of September 30, 2014, the Company had $20 million of current debt outstanding borrowed on uncommitted credit facilities and overdraft lines, compared with $53 million as of December 31, 2013.

Financing Costs, Net

The following table presents the components of Apache’s financing costs, net:

 

     For the Quarter Ended     For the Nine Months Ended  
     September 30,     September 30,  
     2014     2013     2014     2013  
     (In millions)  

Interest expense

   $ 126     $ 142     $ 374     $ 429  

Amortization of deferred loan costs

     2       2       5       6  

Capitalized interest

     (85     (91     (270     (268

Interest income

     (2     (3     (6     (10
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing costs, net

   $ 41     $ 50     $ 103     $ 157  
  

 

 

   

 

 

   

 

 

   

 

 

 

7. INCOME TAXES

In the third quarter of 2014, Apache evaluated its permanent reinvestment position and determined that undistributed earnings from certain foreign subsidiaries located in Apache’s Australia, Egypt, and North Sea regions will no longer be permanently reinvested. As a result of this change in position, the Company recorded $814 million of U.S. deferred income tax expense on undistributed earnings that were previously considered permanently reinvested. In addition, the Company recorded $249 million of U.S. deferred income tax expense on foreign earnings that were distributed to the U.S. in the third quarter of 2014.

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. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. Accordingly, in the third quarter of 2014, the Company recorded $814 million of U.S. deferred income tax expense on foreign earnings no longer deemed to be permanently reinvested as well as the income tax effect of the $1.5 billion and $17 million non-cash write-downs of its U.S. and North Sea proved oil and gas properties, respectively, as discrete items in the third quarter of 2014. In the second quarter of 2014, the Company recorded the income tax impact of a $203 million non-cash write-down of its North Sea proved oil and gas properties as a discrete item. In the third quarter of 2013, the Company recorded the income tax impact of a $552 million non-cash write-down and a $75 million non-cash impairment on its U.S. and Kenyan oil and gas properties, respectively, as discrete items.

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. In October 2014, the Internal Revenue Service concluded its audit of the 2011 and 2012 tax years. The Company is under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

 

13


8. 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 September 30, 2014, the Company has an accrued liability of approximately $21 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 8—Commitments and Contingencies to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013.

Argentine Environmental Claims and Argentina Tariff

The Asociación de Superficiarios de la Patagonia (ASSUPA) filed lawsuits against Company subsidiaries in Argentina courts relating to various environmental and remediation claims concerning certain geographic areas of Argentina, including in 2003 the Neuquén basin and in 2012 the Austral basin. In addition, effective December 1, 2011, Enargas, an autonomous entity that functions under the Argentine Ministry of Economy, created a tariff charge on all fuel gas used by oil and gas producers in field operations, which is likewise the subject of legal proceedings in Argentina.

On March 12, 2014, the Company and its subsidiaries completed the sale of all of the Company’s subsidiaries’ operations and properties in Argentina to YPF Sociedad Anonima (YPF). As part of that sale, YPF assumed responsibility for all of the past, present, and future litigation in Argentina involving Company subsidiaries, including the ASSUPA and Enargas matters, except that Company subsidiaries have agreed to indemnify YPF for certain environmental, tax, and royalty obligations capped at an aggregate of $100 million. The indemnity is subject to specific agreed conditions precedent, thresholds, contingencies, limitations, claim deadlines, loss sharing, and other terms and conditions. On April 11, 2014, YPF provided its first notice of claims pursuant to the indemnity. Company subsidiaries have not paid any amounts under the indemnity, but will continue to review and consider claims presented by YPF. Further, Company subsidiaries retain the right to enforce certain Argentina-related indemnification obligations against Pioneer Natural Resources Company (Pioneer) in an amount up to $67.5 million pursuant to the terms and conditions of stock purchase agreements entered in 2006 between Company subsidiaries and certain subsidiaries of Pioneer. No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Louisiana Restoration 

Numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either expressed or implied lease terms or Louisiana law, they are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup.

In a case captioned Heloise, LLC, et al. v. BP America Production Company, et al., Case No. 120113 in the District Court for the Parish of Lafourche, plaintiff landowners allege that defendants’ oil and gas operations contaminated their property primarily with chlorides. Apache, a defendant in the case, acquired its interest in the oil and gas operations on plaintiffs’ property from the former operator, Amoco Production Company, when the Company purchased the stock of Amoco’s subsidiary, MW Petroleum Corporation, in 1991. BP America Production Company (BP America), as Amoco’s successor in interest, and Apache dispute whether and to what extent they might owe each other indemnity in the case. Plaintiffs’ expert opined that the cost of remediating plaintiffs’ 825 acres exceeds $200 million. Prior to trial, Apache and BP America each settled with plaintiff. The amount paid by Apache in settlement is not material and does not have a material effect on the Company’s financial position, results of operations, or liquidity. Further, as part of the overall settlement, each of Apache and BP America released and waived its indemnity claim against the other arising out of this litigation. The lawsuit is concluded.

With respect to Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East v. Tennessee Gas Pipeline Company et al., Civil Action no. 13-5410, in the United States District Court for the Eastern District of Louisiana, the federal court has retained jurisdiction over the matter after denying plaintiff’s motion to remand on June 27, 2014. Further, the Louisiana state government has passed a new law (SB 469) clarifying that only entities authorized under the Coastal Zone Management Act may bring litigation to assert claims arising out of the permitted activities. Plaintiff is not one of those authorized entities. The Company and other defendants seek dismissal of the case, including pursuant to SB 469.

 

14


No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Australia Gas Pipeline Force Majeure 

In 2008, Company subsidiaries reported a pipeline explosion that interrupted deliveries of natural gas in Australia to customers under various long-term contracts.

In the case captioned Alcoa of Australia Limited v. Apache Energy Limited, Apache Northwest Pty Ltd, Tap (Harriet) Pty Ltd, and Kufpec Australia Pty Ltd, Civ. 1481 of 2011, in the Supreme Court of Western Australia, on June 20, 2012, the Supreme Court struck out Alcoa’s claim that the liquidated damages provisions under two long-term contracts are unenforceable as a penalty and also struck out Alcoa’s claim for damages for breach of statutory duty. On September 17, 2013, the Western Australia Court of Appeal dismissed the Company subsidiaries’ appeal concerning Alcoa’s remaining tort claim for economic loss. On October 15, 2013, the Company subsidiaries applied to the High Court of Australia for special leave to appeal. On April 11, 2014, the High Court refused special leave to appeal. However, on October 8, 2014, the High Court decided a separate case on point captioned Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor, [2014] HCA 36. The High Court’s holding in the Brookfield case strongly favors the Company subsidiaries’ defenses to Alcoa’s remaining tort claim for economic loss. All of the Company subsidiaries’ defenses remain intact for further proceedings at the trial court level, including the defenses that were the subject of the special leave application and that have now been considered separately by the High Court in the Brookfield case. Further, in January 2014, an Alcoa affiliate pleaded guilty in United States of America v. Alcoa World Alumina LLC, Criminal No. 14-7, in the United States District Court for the Western District of Pennsylvania, to a charge under the Foreign Corrupt Practices Act (FCPA) anti-bribery provisions, 15 U.S.C. Section 78dd-2 and 18 U.S.C. Section 2. This matter overlaps with Alcoa’s claims against Company subsidiaries in that both cases concern alumina produced from Alcoa’s alumina refineries in Western Australia during the period of the gas supply disruption in 2008-2009. In the circumstances of the admitted, agreed, and stipulated facts set forth in the Alcoa affiliate’s Plea Agreement, which is a public document, Company subsidiaries will defend against Alcoa’s claims on the basis that Alcoa is barred by law from recovering economic losses.

In the week prior to expiration of the applicable six-year limitations period on June 3, 2014, the following civil lawsuits were filed in connection with the Varanus Island pipeline explosion (the Incident), and the amounts specified do not include plaintiffs’ alleged interest and costs:

 

    As previously reported, a lawsuit filed by Burrup Fertilisers Pty Ltd (Burrup Fertilisers) in Texas in December 2009 was dismissed in March 2013 on the ground of forum non conveniens. On May 29, 2014, Burrup Fertilisers (now known as Yara Pilbara Fertilisers Pty Ltd, YPFPL) re-filed the lawsuit in Western Australia, captioned Yara Pilbara Fertilisers Pty Ltd vs. Apache Energy Limited et al., Civ. 1742 of 2014, in the Supreme Court of Western Australia. In the lawsuit, which is being pressed by YPFPL’s insurers, YPFPL alleges that a joint venture whose members include an Apache subsidiary supplied YPFPL with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred damages in the amount of nearly $166 million USD for economic losses and, alternatively, contractual liquidated damages and “abnormal costs” in the amount of approximately $13 million USD. In addition to all of their other defenses, the Company and its subsidiaries will defend against YPFPL’s claims on the basis that during the gas supply disruption there was no enforceable gas supply contract between YPFPL and Company subsidiaries.

 

    In Wesfarmers LPG Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1740 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that Alinta Sales Pty Ltd (Alinta) supplied them (and associated entities) with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred an unspecified amount of damages for alleged lost profits, alternative gas, and associated expenses. Plaintiffs’ Indorsement of Claim (a short form of pleading) has been filed with the court but not yet served on the Apache defendants.

 

    In Iluka Resources Limited vs. Apache Energy Limited et al., Civ. 1748 of 2014, in the Supreme Court of Western Australia, plaintiff alleges that Alinta supplied it with natural gas and power and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred damages of approximately $23 million (no currency is specified) for alleged lost profits, alternative energy, and associated expenses. Plaintiff’s lawyers have since clarified that the amount sought by plaintiff is $32 million. Plaintiff’s Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

 

15


    In Harvey Industries Group Pty Ltd vs. Apache Energy Limited et al., Civ. 1749 of 2014, in the Supreme Court of Western Australia, plaintiff alleges that Alinta supplied it with natural gas and power and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred an unspecified amount of damages for alleged lost profits, the cost of alternative gas and power, and associated expenses. Plaintiff’s Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

 

    In EDL LNG (WA) Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1751 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that an Apache subsidiary and Santos (BOL) Pty Ltd supplied one such plaintiff with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred damages of approximately $17.5 million (no currency is specified) for alleged alternative gas and diesel, and, alternatively, plaintiffs seek an unspecified amount of liquidated damages from their gas sellers.

 

    In Newmont Mining Services Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1727 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that Santos (BOL) Pty Ltd supplied one such plaintiff with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred an unspecified amount of damages for alleged alternative energy and associated expenses, except that as an alternative measure of damage plaintiffs seek to recover $6.4 million (no currency is specified) in liquidated damages from Santos (BOL) Pty Ltd. Plaintiffs’ Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

With respect to the claims in which the plaintiffs have not specified an amount of alleged damages in their court filings, the exposure related to such claims is not material or, in the case of Wesfarmers, not currently determinable but not expected to be material. Insurance statistics maintained by the Insurance Council of Australia show that the total insured loss resulting from the gas supply disruption was $230 million AUD.

The applicable six-year limitations period has expired. In six years none of the above-referenced plaintiffs presented a claim to Apache or its subsidiaries prior to filing suit and instead, each allowed the same plaintiff law firm to file suit in Western Australia at the latest possible moment. The Apache defendants do not believe that any of the claims have merit and will vigorously pursue their defenses against such claims. The plaintiffs seek relief primarily in tort, in circumvention of their own positive arrangements regarding risk allocation and in contravention of the High Court’s decision in the Brookfield case. In respect of the pending claims filed prior to expiration of the limitations period, contractual liquidated damages under the long-term contracts with such provisions, and under which an Apache subsidiary is a gas supplier, would not be expected to exceed $20 million AUD exclusive of interest. This is a reduction from previous estimates. In addition, Company subsidiaries have received confirmation of liability insurance coverage from both the primary insurer and the excess insurers.

No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Breton Lawsuit

On October 29, 2012, plaintiffs filed an amended complaint in Breton Energy, L.L.C. et al. v. Mariner Energy Resources, Inc., et al., Case 4:11-cv-03561, in the United States District Court for the Southern District of Texas, Houston Division, seeking compensation from defendants for allegedly depriving plaintiffs of rights to hydrocarbons in a reservoir described by plaintiffs as a common reservoir in West Cameron Blocks 171 and 172 offshore Louisiana in the Gulf of Mexico. Plaintiffs assert claims for waste and drainage. On May 28, 2013, the United States District Court for the Southern District of Texas dismissed the plaintiffs’ claims and entered judgment in favor of the defendants. Plaintiffs appealed. On August 12, 2014, the United States Court of Appeals for the Fifth Circuit affirmed the District Court as to the claims for waste against all defendants except International Paper and also affirmed the District Court as to the claims for drainage against all defendants. The Company’s subsidiary, Mariner Energy Resources, Inc. (now known as Apache Shelf, Inc.), was dismissed from the case but is obligated to indemnify the remaining defendant, International Paper, against the sole remaining claim. Prior to trial, which was to commence on November 3, 2014, plaintiffs settled their remaining claim in an amount that is not material and does not have a material effect on the Company’s financial position, results of operations, or liquidity. The lawsuit is concluded.

Escheat Audits

The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), has notified numerous companies, including Apache Corporation, that the State intends to examine its books and records and those of its subsidiaries and related entities to determine compliance with the Delaware Escheat Laws. The review is ongoing, and no material change in the status of this matter has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

 

16


Burrup-Related Gas Supply Lawsuits

On October 11, 2013, a lawsuit captioned Pankaj Oswal v. Apache Corporation, No. WAD 389/2013, in the Federal Court of Australia, District of Western Australia, General Division, was filed in which plaintiff asserts claims against the Company under the Australian Trade Practices Act. The case has been set for a preliminary hearing commencing December 8, 2014. The Company does not believe the lawsuit has merit and will vigorously defend against it. No other material change in the status of this matter has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

In the case captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653, in the Supreme Court of Victoria, plaintiff filed an application seeking to amend her statement of claim in order to add parties as defendants to the proceedings, including the Company and certain of its subsidiaries. Similarly, in a companion case captioned Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2012 01995, in the Supreme Court of Victoria, plaintiff also filed an application seeking to amend his statement of claim in order to add parties as defendants to the proceedings, including the Company and certain of its subsidiaries. This was the second attempt by the plaintiffs to amend their pleadings, with their first attempt having been unsuccessful. While reserving all rights, including all defenses to the plaintiffs’ proposed amended pleadings, the Company and its subsidiaries did not object to the plaintiffs’ revised applications to amend their pleadings, which is a procedural matter. The court granted plaintiffs’ applications and entered a scheduling order with respect to the filing of all amended pleadings. On July 23, 2014, the Apache defendants filed their responsive pleadings, which include substantial counterclaims against the Oswals by a Company subsidiary. The Company and its subsidiaries do not believe the plaintiffs’ claims have merit and will vigorously defend against them. Trial is set to commence August 3, 2015. No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Concerning the action filed by Tap (Harriet) Pty Ltd (Tap) against Burrup Fertilisers Pty Ltd et al., Civ. 2329 of 2009, in the Supreme Court of Western Australia, the remaining parties have settled and the lawsuit has been discontinued by consent. The lawsuit is concluded.

Environmental Matters

As of September 30, 2014, the Company had an undiscounted reserve for environmental remediation of approximately $86 million. The Company is not aware of any environmental claims existing as of September 30, 2014, 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.

On May 25, 2011, a panel of the Bureau of Ocean Energy Management (BOEMRE, as it was then known) published a report dated May 23, 2011, and titled “OCS G-2580, Vermilion Block 380 Platform A, Incidents of Noncompliance.” The report concerned the BOEMRE’s investigation of a fire on the Vermilion 380 A platform located in the Gulf of Mexico. At the time of the incident, Mariner operated the platform. On December 27, 2011, the Bureau of Safety and Environmental Enforcement (BSEE, successor to BOEMRE) issued several Incidents of Non-Compliance, which may provide the basis for the assessment of civil penalties against Mariner. The Company’s subsidiary, Apache Deepwater LLC, which is the successor by merger to Mariner effective November 10, 2010, has been presented with a BSEE notice of proposed civil penalty assessment in an amount that is not material and that will not have a material effect on the Company’s financial position, results of operations, or liquidity.

No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

 

17


9. 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 and nine-month periods ended September 30, 2014 and 2013 is presented in the table below.

 

     For the Quarter Ended September 30,  
     2014     2013  
     Loss     Shares      Per
Share
    Income
(Loss)
    Shares      Per
Share
 
     (In millions, except per share amounts)  

Basic:

              

Income (loss) from continuing operations

   $ (1,330     381      $ (3.50   $ 429       399      $ 1.08  

Loss from discontinued operations

     —         381        —         (129     399        (0.33
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (1,330     381      $ (3.50   $ 300       399      $ 0.75  
  

 

 

      

 

 

   

 

 

      

 

 

 

Effect of Dilutive Securities:

              

Stock options and other

     —         —            —         2     

Diluted:

              

Income (loss) from continuing operations

   $ (1,330     381      $ (3.50   $ 429       401      $ 1.07  

Loss from discontinued operations

     —         381        —         (129     401        (0.32
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (1,330     381      $ (3.50   $ 300       401      $ 0.75  
  

 

 

      

 

 

   

 

 

      

 

 

 
     For the Nine Months Ended September 30,  
     2014     2013  
     Loss     Shares      Per
Share
    Income
(Loss)
    Shares      Per
Share
 
     (In millions, except per share amounts)  

Basic:

              

Income (loss) from continuing operations

   $ (72     387      $ (0.19   $ 2,206       394      $ 5.59  

Loss from discontinued operations

     (517     387        (1.33     (192     394        (0.48
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (589     387      $ (1.52   $ 2,014       394      $ 5.11  
  

 

 

      

 

 

   

 

 

      

 

 

 

Effect of Dilutive Securities:

              

Mandatory Convertible Preferred Stock

     —         —            44       11     

Stock options and other

     —         —            —         2     

Diluted:

              

Income (loss) from continuing operations

   $ (72     387      $ (0.19   $ 2,250       407      $ 5.53  

Loss from discontinued operations

     (517     387        (1.33     (192     407        (0.47
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (589     387      $ (1.52   $ 2,058       407      $ 5.06  
  

 

 

      

 

 

   

 

 

      

 

 

 

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 4.7 million and 5.4 million for the quarters ending September 30, 2014 and 2013, respectively, and 5.5 million and 6.0 million for the nine months ended September 30, 2014 and 2013, respectively. For the quarter ended September 30, 2013, 4.8 million shares related to the assumed conversion of the Mandatory Convertible Preferred Stock were also anti-dilutive.

Common and Preferred Stock Dividends

For the quarters ended September 30, 2014 and 2013, Apache paid $95 million and $78 million, respectively, in dividends on its common stock. For the nine months ended September 30, 2014 and 2013, Apache paid $271 million and $223 million, respectively.

 

18


In the first nine months of 2013, the Company also paid $57 million in dividends on its Series D Preferred Stock, which was converted to common stock in August 2013.

Stock Repurchase Program

Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2014 has repurchased a total of 31.8 million shares at an average price of $88.90 per share. For the nine-month period ended September 30, 2014, the Company repurchased a total of 20.6 million shares at an average price of $88.92 per share. The Company is not obligated to acquire any specific number of shares.

 

19


10. BUSINESS SEGMENT INFORMATION

Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil and natural gas liquids. At September 30, 2014, the Company had production in five countries: the United States, Canada, Egypt, Australia, and the United Kingdom (U.K.) North Sea. Apache also pursues exploration interests in other countries that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:

 

     United                                 Other        
     States     Canada      Egypt(2)      Australia      North Sea      International     Total  
     (In millions)  

For the Quarter Ended September 30, 2014

                  

Oil and Gas Production Revenues

   $ 1,481     $ 268      $ 910      $ 287      $ 522      $ —       $ 3,468  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating Income (Loss) (1)

   $ (988   $ 11      $ 481      $ 70      $ 124      $ —       $ (302
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Other Income (Expense):

                  

Derivative instrument gains (losses), net

                     273  

Other

                     (1

General and administrative

                     (112

Acquisition, divestiture, and separation costs

                     (34

Financing costs, net

                     (41
                  

 

 

 

Loss Before Income Taxes

                   $ (217
                  

 

 

 

For the Nine Months Ended September 30, 2014

                  

Oil and Gas Production Revenues

   $ 4,515     $ 879      $ 2,849      $ 780      $ 1,800      $ —       $ 10,823  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating Income(1)

   $ 354     $ 131      $ 1,601      $ 239      $ 268      $ —       $ 2,593  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Other Income (Expense):

                  

Derivative instrument gains (losses), net

                     79  

Other

                     (3

General and administrative

                     (309

Acquisition, divestiture, and separation costs

                     (66

Financing costs, net

                     (103
                  

 

 

 

Income Before Income Taxes

                   $ 2,191  
                  

 

 

 

Total Assets

   $ 30,613     $ 7,100      $ 7,246      $ 9,148      $ 6,824      $ 59     $ 60,990  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

For the Quarter Ended September 30, 2013

                  

Oil and Gas Production Revenues(3)

   $ 2,029     $ 325      $ 1,022      $ 279      $ 633      $ —       $ 4,288  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating Income (Loss)(1)(3)

   $ 310     $ 4      $ 658      $ 117      $ 186      $ (76   $ 1,199  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Other Income (Expense):

                  

Derivative instrument gains (losses), net

                     (422

Other

                     34  

General and administrative

                     (120

Financing costs, net

                     (50
                  

 

 

 

Income Before Income Taxes(3)

                   $ 641  
                  

 

 

 

For the Nine Months Ended September 30, 2013

                  

Oil and Gas Production Revenues(3)

   $ 5,543     $ 952      $ 2,924      $ 867      $ 2,025      $ —       $ 12,311  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Operating Income (Loss) (1)(3)

   $ 1,607     $ 17      $ 1,827      $ 373      $ 634      $ (76   $ 4,382  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

Other Income (Expense):

                  

Derivative instrument gains (losses), net

                     (275

Other

                     78  

General and administrative

                     (359

Financing costs, net

                     (157
                  

 

 

 

Income Before Income Taxes(3)

                   $ 3,669  
                  

 

 

 

Total Assets(3)

   $ 29,503     $ 7,083      $ 7,142      $ 7,567      $ 7,292      $ 54     $ 58,641  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)  Operating Income (Loss) consists of oil and gas production revenues less depreciation, depletion, and amortization, asset retirement obligation accretion, lease operating expenses, gathering and transportation costs, and taxes other than income. U.S.’s operating income (loss) for the third quarter and the first nine months of 2014 includes a $1.5 billion non-cash write-down of its carrying value of oil and gas properties. North Sea’s operating income (loss) for the third quarter and first nine months of 2014 include non-cash write-downs of the carrying value of oil and gas properties totaling $17 million and $220 million, respectively.
(2)  Includes a noncontrolling interest in Egypt for the quarter and nine months ended September 30, 2014.
(3)  Amounts for 2013 have been recast to exclude discontinued operations.

 

20


11. SUPPLEMENTAL GUARANTOR INFORMATION

In December 1999, Apache Finance Canada issued approximately $300 million of publicly-traded notes due in 2029. The notes are fully and unconditionally guaranteed by Apache. The following condensed consolidating financial statements are provided as an alternative to filing separate financial statements.

Apache Finance Canada is 100 percent owned by Apache Corporation. As such, these condensed consolidating financial statements should be read in conjunction with Apache’s consolidated financial statements and the notes thereto, of which this note is an integral part.

 

21


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended September 30, 2014

 

     Apache
Corporation
    Apache
Finance
Canada
     All Other
Subsidiaries
of Apache
Corporation
    Reclassifications
& Eliminations
    Consolidated  
     (In millions)  

REVENUES AND OTHER:

           

Oil and gas production revenues

   $ 882     $ —        $ 2,586     $ —       $ 3,468  

Equity in net income (loss) of affiliates

     491       5        1       (497     —    

Derivative instrument gains (losses), net

     320       —          (47     —         273  

Other

     (34     14        17       2       (1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     1,659       19        2,557       (495     3,740  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

           

Depreciation, depletion, and amortization

     1,914       —          921       —         2,835  

Asset retirement obligation accretion

     8       —          38       —         46  

Lease operating expenses

     137       —          515       —         652  

Gathering and transportation

     15       —          52       —         67  

Taxes other than income

     67       —          103       —         170  

General and administrative

     89       —          21       2       112  

Acquisition, divestiture, and separation costs

     34       —          —         —         34  

Financing costs, net

     45       11        (15     —         41  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     2,309       11        1,635       2       3,957  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     (650     8        922       (497     (217

Provision (benefit) for income taxes

     678       2        344       —         1,024  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     (1,328     6        578       (497     (1,241

Net loss from discontinued operations, net of tax

     —         —          —         —         —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (1,328     6        578       (497     (1,241

Net income attributable to noncontrolling interest

     —         —          89       —         89  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (1,328   $ 6      $ 489     $ (497   $ (1,330
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK (1)

   $ (1,328   $ 6      $ 489     $ (497   $ (1,330
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)  Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

22


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended September 30, 2013

 

     Apache
Corporation
    Apache
Finance
Canada
    All Other
Subsidiaries
of Apache
Corporation
    Reclassifications
& Eliminations
    Consolidated  
     (In millions)  

REVENUES AND OTHER:

          

Oil and gas production revenues

   $ 1,374     $ —       $ 2,914     $ —       $ 4,288  

Equity in net income (loss) of affiliates

     619       (4     3       (618     —    

Derivative instrument gains (losses), net

     (422     —         —         —         (422

Other

     2       16       17       (1     34  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,573       12       2,934       (619     3,900  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

          

Depreciation, depletion, and amortization

     1,041       —         954       —         1,995  

Asset retirement obligation accretion

     20       —         45       —         65  

Lease operating expenses

     254       —         518       —         772  

Gathering and transportation

     18       —         63       —         81  

Taxes other than income

     62       —         114       —         176  

General and administrative

     103       —         18       (1     120  

Financing costs, net

     36       14       —         —         50  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,534       14       1,712       (1     3,259  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     39       (2     1,222       (618     641  

Provision (benefit) for income taxes

     (267     (1     474       —         206  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     306       (1     748       (618     435  

Net loss from discontinued operations, net of tax

     —         —         (129     —         (129
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     306       (1     619       (618     306  

Preferred stock dividends

     6       —         —         —         6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 300     $ (1   $ 619     $ (618   $ 300  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK (1)

   $ 295     $ (1   $ 619     $ (618   $ 295  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

23


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2014

 

     Apache
Corporation
    Apache
Finance
Canada
     All Other
Subsidiaries
of Apache
Corporation
    Reclassifications
& Eliminations
    Consolidated  
     (In millions)  

REVENUES AND OTHER:

           

Oil and gas production revenues

   $ 2,669     $ —        $ 8,154     $ —       $ 10,823  

Equity in net income (loss) of affiliates

     1,233       58        6       (1,297     —    

Derivative instrument gains (losses), net

     175       —          (96     —         79  

Other

     (106     41        57       5       (3
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     3,971       99        8,121       (1,292     10,899  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

           

Depreciation, depletion, and amortization

     2,598       —          2,900       —         5,498  

Asset retirement obligation accretion

     23       —          112       —         135  

Lease operating expenses

     386       —          1,476       —         1,862  

Gathering and transportation

     43       —          160       —         203  

Taxes other than income

     193       —          339       —         532  

General and administrative

     276       —          28       5       309  

Acquisition, divestiture, and separation costs

     66       —          —         —         66  

Financing costs, net

     118       31        (46     —         103  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 
     3,703       31        4,969       5       8,708  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     268       68        3,152       (1,297     2,191  

Provision for income taxes

     730       4        1,234       —         1,968  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     (462     64        1,918       (1,297     223  

Net loss from discontinued operations, net of tax

     (127     —          (390     —         (517
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (589     64        1,528       (1,297     (294

Net income attributable to noncontrolling interest

     —         —          295       —         295  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (589   $ 64      $ 1,233     $ (1,297   $ (589
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK(1)

   $ (590   $ 64      $ 1,233     $ (1,297   $ (590
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

(1)  Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

24


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2013

 

     Apache
Corporation
    Apache
Finance
Canada
    All Other
Subsidiaries
of Apache
Corporation
    Reclassifications
& Eliminations
    Consolidated  
     (In millions)  

REVENUES AND OTHER:

          

Oil and gas production revenues

   $ 3,775     $ —       $ 8,536     $ —       $ 12,311  

Equity in net income (loss) of affiliates

     1,947       (21     8       (1,934     —    

Derivative instrument gains (losses), net

     (275     —         —         —         (275

Other

     3       46       33       (4     78  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     5,450       25       8,577       (1,938     12,114  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

          

Depreciation, depletion, and amortization

     1,912       —         2,745       —         4,657  

Asset retirement obligation accretion

     60       —         132       —         192  

Lease operating expenses

     802       —         1,473       —         2,275  

Gathering and transportation

     49       —         182       —         231  

Taxes other than income

     163       —         411       —         574  

General and administrative

     305       —         58       (4     359  

Financing costs, net

     104       42       11       —         157  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     3,395       42       5,012       (4     8,445  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     2,055       (17     3,565       (1,934     3,669  

Provision (benefit) for income taxes

     (3     (4     1,426       —         1,419  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     2,058       (13     2,139       (1,934     2,250  

Net loss from discontinued operations, net of tax

     —         —         (192     —         (192
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     2,058       (13     1,947       (1,934     2,058  

Preferred stock dividends

     44       —         —         —         44  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 2,014     $ (13   $ 1,947     $ (1,934   $ 2,014  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK (1)

   $ 2,022     $ (13   $ 1,947     $ (1,934   $ 2,022  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

25


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2014

 

                 All Other              
     Apache
Corporation
    Apache
Finance
Canada
    Subsidiaries
of Apache
Corporation
    Reclassifications
& Eliminations
    Consolidated  
     (In millions)  

CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES

   $ 3,574     $ (37   $ 2,909     $ —       $ 6,446  

CASH PROVIDED BY DISCONTINUED OPERATIONS

     —         —         82       —         82  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     3,574       (37     2,991       —         6,528  

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Additions to oil and gas property

     (5,425     —         (1,706     —         (7,131

Additions to gas gathering, transmission, and processing facilities

     (21     —         (1,014     —         (1,035

Proceeds from sale of Deepwater Gulf of Mexico assets

     1,367       —         —         —         1,367  

Restricted cash related to divestitures

     (545     —         —         —         (545

Proceeds from sale of other oil and gas properties

     35       —         355       —         390  

Leasehold and property acquisitions

     (503     —         (152     —         (655

Investment in subsidiaries, net

     2,303       —         —         (2,303     —    

Other

     (67     —         (13     —         (80
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN CONTINUING INVESTING ACTIVITIES

     (2,856     —         (2,530     (2,303     (7,689

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

     —         —         748       —         748  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (2,856     —         (1,782     (2,303     (6,941

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Commercial paper and bank credit facilities, net

     1,248       —         (2     —         1,246  

Intercompany borrowings

     —         10       (2,322     2,312       —    

Distributions to noncontrolling interest

     —         —         (124     —         (124

Dividends paid

     (271     —         —         —         (271

Treasury stock activity, net

     (1,830     —         —         —         (1,830

Other

     —         24       23       (9     38  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

     (853     34       (2,425     2,303       (941

NET CASH USED IN DISCONTINUED OPERATIONS

     —         —         (42     —         (42
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (853     34       (2,467     2,303       (983

NET DECREASE IN CASH AND CASH EQUIVALENTS

     (135     (3     (1,258     —         (1,396

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     155       3       1,748       —         1,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 20     $ —       $ 490     $ —       $ 510  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2013

 

                 All Other              
           Apache     Subsidiaries              
     Apache     Finance     of Apache     Reclassifications        
     Corporation     Canada     Corporation     & Eliminations     Consolidated  
     (In millions)        

CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES

   $ 1,434     $ (89   $ 5,855     $ —       $ 7,200  

CASH PROVIDED BY DISCONTINUED OPERATIONS

     —         —         158       —         158  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     1,434        (89     6,013       —         7,358  

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Additions to oil and gas property

     (2,798     —         (4,388     —         (7,186

Additions to gas gathering, transmission, and processing facilities

     (85     —         (767     —         (852

Proceeds from divestiture of Shelf

     3,594       —         —         —         3,594  

Proceeds from Kitimat LNG transaction, net

     —         —         396       —         396  

Proceeds from the sale of other oil and gas properties

     —         —         199       —         199  

Leasehold and property acquisitions

     (158     —         (155     —         (313

Investment in subsidiaries, net

     596       —         —         (596     —    

Other

     (41     —         29       —         (12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING INVESTING ACTIVITIES

     1,108       —         (4,686     (596     (4,174

NET CASH USED IN DISCONTINUED OPERATIONS

     —         —         (160     —         (160
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

     1,108        —         (4,846     (596     (4,334

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Commercial paper and bank credit facilities, net

     (502     —         (37     —         (539

Intercompany borrowings

     —         1       (585     584       —    

Payments on fixed rate debt

     (900     —         —         —         (900

Dividends paid

     (280     —         —         —         (280

Treasury stock activity, net

     (249     —         —         —         (249

Other

     17       88       (79     12       38  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

     (1,914     89       (701     596       (1,930

NET CASH USED IN DISCONTINUED OPERATIONS

     —         —         (3     —         (3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     (1,914     89       (704     596       (1,933

NET INCREASE IN CASH AND CASH EQUIVALENTS

     628       —         463        —         1,091  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     —          —         160       —         160  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 628      $ —       $ 623     $ —       $ 1,251  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2014

 

                   All Other              
            Apache      Subsidiaries              
     Apache      Finance      of Apache     Reclassifications        
     Corporation      Canada      Corporation     & Eliminations     Consolidated  
     (In millions)  
ASSETS   

CURRENT ASSETS:

            

Cash and cash equivalents

   $ 20      $ —        $ 490     $ —       $ 510  

Short-term restricted cash

     74        —          —         —         74  

Receivables, net of allowance

     836        —          1,451       —         2,287  

Inventories

     31        —          682       —         713  

Drilling advances

     25        1        408       —         434  

Derivative instruments

     41        —          —         —         41  

Prepaid assets and other

     91        —          276       —         367  

Intercompany receivable

     6,442        —          —         (6,442     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     7,560        1        3,307       (6,442     4,426  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

     17,039        —          35,996       —         53,035  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

OTHER ASSETS:

            

Intercompany receivable

     —          —          740       (740     —    

Equity in affiliates

     25,975        1,205        440       (27,620     —    

Long-term restricted cash

     471        —          —         —         471  

Goodwill, net

     173        —          1,196       —         1,369  

Deferred charges and other

     221        1,004        1,464       (1,000     1,689  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 51,439      $ 2,210      $ 43,143     $ (35,802   $ 60,990  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY             

CURRENT LIABILITIES:

            

Accounts payable

   $ 736      $ 12      $ 568     $ —       $ 1,316  

Current debt

     20        —          —         —         20  

Asset retirement obligation

     115        —          62       —         177  

Other current liabilities

     1,300        5        1,489       —         2,794  

Intercompany payable

     —          —          6,442       (6,442     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     2,171        17        8,561       (6,442     4,307  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LONG-TERM DEBT

     10,604        298        —         —         10,902  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

            

Intercompany payable

     740        —          —         (740     —    

Income taxes

     4,258        —          5,040       —         9,298  

Asset retirement obligation

     466        —          2,630       —         3,096  

Other

     2,382        250        (1,231     (1,000     401  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
     7,846        250        6,439       (1,740     12,795  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES APACHE SHAREHOLDERS’ EQUITY

     30,818        1,645        25,975       (27,620     30,818  

Noncontrolling interest

     —          —          2,168       —         2,168  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

     30,818        1,645        28,143       (27,620     32,986  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
   $ 51,439      $ 2,210      $ 43,143     $ (35,802   $ 60,990  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

28


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2013

 

                   All Other               
            Apache      Subsidiaries               
     Apache      Finance      of Apache      Reclassifications        
     Corporation      Canada      Corporation      & Eliminations     Consolidated  
                   (In millions)               
ASSETS              

CURRENT ASSETS:

             

Cash and cash equivalents

   $ 155      $ 3      $ 1,748      $ —       $ 1,906  

Receivables, net of allowance

     1,043        —          1,909        —         2,952  

Inventories

     48        —          843        —         891  

Drilling advances

     49        —          322        —         371  

Derivative instruments

     1        —          —          —         1  

Prepaid assets and other

     99        —          146        —         245  

Intercompany receivable

     5,357        —          —          (5,357     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     6,752        3        4,968        (5,357     6,366  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

     16,092        —          36,329        —         52,421  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

OTHER ASSETS:

             

Intercompany receivable

     1,572        —          —          (1,572     —    

Equity in affiliates

     24,743        1,155        449        (26,347     —    

Goodwill, net

     173        —          1,196        —         1,369  

Deferred charges and other

     166        1,006        1,309        (1,000     1,481  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 49,498      $ 2,164      $ 44,251      $ (34,276   $ 61,637  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY              

CURRENT LIABILITIES:

             

Accounts payable

   $ 956      $ 2      $ 658      $ —       $ 1,616  

Current debt

     —          —          53        —         53  

Asset retirement obligation

     115        —          6        —         121  

Derivative instruments

     299        —          —          —         299  

Other current liabilities

     896        10        1,705        —         2,611  

Intercompany payable

     —          —          5,357        (5,357     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     2,266        12        7,779        (5,357     4,700  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LONG-TERM DEBT

     9,374        298        —          —         9,672  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

             

Intercompany payable

     —          —          1,572        (1,572     —    

Income taxes

     3,586        —          4,778        —         8,364  

Asset retirement obligation

     430        —          2,671        —         3,101  

Other

     446        250        711        (1,000     407  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     4,462        250        9,732        (2,572     11,872  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES APACHE SHAREHOLDERS’ EQUITY

     33,396        1,604        24,743        (26,347     33,396  

Noncontrolling interest

     —          —          1,997        —         1,997  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

TOTAL EQUITY

     33,396        1,604        26,740        (26,347     35,393  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 49,498      $ 2,164      $ 44,251      $ (34,276   $ 61,637  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

29


ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops and produces natural gas, crude oil, and natural gas liquids. The Company has exploration and production interests in five countries: the United States (U.S.), Canada, Egypt, Australia, and the United Kingdom (U.K.) North Sea. Apache also pursues exploration interests in other countries that may over time result in reportable discoveries and development opportunities.

This discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Current Report on Form 8-K dated July 17, 2014 for our 2013 fiscal year.

Strategic Overview

Over the last five years, Apache has greatly enlarged and enhanced its North American onshore resource base, which we believe is capable of driving our growth and performance for the foreseeable future. During the last 18 months, we have further increased the focus on our North American Onshore business by divesting $10 billion of properties. In North America, we completed the sale of our Gulf of Mexico Shelf region assets, certain non-producing assets in the deepwater Gulf of Mexico, and non-strategic, primarily dry-gas, assets in Canada. Internationally, we sold a one-third noncontrolling interest in our Egypt operations and all of our assets in Argentina. In addition, we intend to completely exit the Wheatstone and Kitimat LNG projects, and, in light of our expanding opportunity set in North American Onshore, we are evaluating our international assets and exploring multiple opportunities, including the potential separation of some or all of them through the capital markets.

In addition, in June 2013 we launched a share repurchase program. Through September 30, 2014, we have repurchased a total of 31.8 million of the 40 million shares authorized by our Board of Directors. Under the program, we are not obligated to acquire any specific number of shares.

Financial Highlights

 

    Net cash provided by operating activities (operating cash flows or cash flows) totaled $6.5 billion for the first nine months of 2014, driven by the strength of our North American drilling program.

 

    For the third quarter of 2014, Apache reported a loss of $1.3 billion, or $3.50 per diluted common share, compared with earnings of $300 million, or $0.75 per diluted share, for the prior-year quarter. The loss for the 2014 third quarter reflects after-tax write-downs of oil and gas properties in the U.S. and U.K. North Sea totaling $1.0 billion, a deferred tax charge on undistributed foreign earnings totaling $814 million, and a deferred tax charge on distributed foreign earnings of $249 million. These expenses were partially offset by an unrealized after-tax gain on commodity derivative mark-to-market changes of $202 million.

 

    Results for the first nine months of 2014 reflected a loss of $589 million, or $1.52 per diluted common share, compared with earnings of $2.0 billion, or $5.06 per diluted share, in the comparable prior-year period. The loss for the 2014 nine-month period reflects after-tax write-downs of oil and gas properties in the U.S. and U.K. North Sea totaling $1.1 billion, third-quarter deferred tax adjustments noted above, and an after-tax loss of $517 million on discontinued operations in Argentina. These expenses were partially offset by an unrealized after-tax gain on commodity derivative mark-to-market changes of $220 million.

Third Quarter Operational Developments

Average daily production in the third quarter of 2014 totaled 637 thousand barrels of oil equivalent (Mboe), a decrease of 105 Mboe from the comparative 2013 quarter. The prior-year quarter includes volumes from properties in the Gulf of Mexico Shelf and Canada that have since been divested.

North America

 

    North American onshore liquids averaged 211,402 barrels per day, up 12 percent over the prior-year quarter.

 

30


    North American onshore liquids production represented nearly 55 percent of our worldwide liquids production and 33 percent of our overall production.

 

    The Permian region averaged 42 operated rigs during the quarter, drilling 195 gross wells, 144 net wells. Combined, drilling activity in the region resulted in a production increase of 23 percent relative to the prior-year period.

 

    The Central region averaged 31 operated rigs during the quarter, drilling 70 gross wells, 46 net wells, in plays such as the Granite Wash, Marmaton and Cleveland. In the Canyon Lime play, the region averaged 2 rigs in the third quarter, increasing to 5 by October.

 

    Gulf Coast region averaged 10 operated rigs during the quarter, drilling 19 gross wells, 14 net wells. In the East Texas Eagle Ford play, the region brought on 6 new wells in the Reveille area of Brazos County with an average 30-day initial production of 687 barrels of oil equivalent per day (boe/d).

 

    The Canada region averaged 8 operated rigs, 2 at Kitimat, during the quarter, drilling 25 gross wells, 20 net wells. Apache spud initial wells at the Duvernay seven well pad and drilled the first well at the Montney two well pad.

International

 

    The Australia region averaged 2 rigs, drilling 5 gross wells, 2 net wells, during the quarter. Production was up 12 percent over the second quarter of 2014 as a result of the successful commencement of production from the Balnaves Oil Development. In addition, during the quarter, the Company made a significant first oil discovery in Australia’s offshore Canning Basin at the Phoenix South-1 well which encountered oil in 4 discrete columns, the results of which are still being evaluated.

 

    The North Sea region averaged 5 rigs, drilling 4 gross wells, 4 net wells. During the quarter, the region successfully completed the regular scheduled annual maintenance turnaround across all operated assets ahead of schedule and without incident.

 

    The Egypt region averaged 27 rigs during the quarter, drilling 63 gross wells, 54 net wells.

 

31


Results of Operations

Oil and Gas Revenues

Oil and gas production revenues for the third quarter of 2014 totaled $3.5 billion, a $820 million decrease from the comparative 2013 quarter. The table below presents revenues by region and each region’s percent contribution to revenues for 2014 and 2013.

 

     For the Quarter Ended September 30,     For the Nine Months Ended September 30,  
     2014     2013     2014     2013  
     $      %     $      %     $      %     $      %  
     Value      Contribution     Value      Contribution     Value      Contribution     Value      Contribution  
     ($ in millions)  

Total Oil Revenues:

                    

United States

   $ 1,121        41   $ 1,594        46   $ 3,358        40   $ 4,253        43

Canada

     140        5     167        5     434        5     442        5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     1,261        46     1,761        51     3,792        45     4,695        48
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     805        29     925        26     2,536        30     2,633        27

Australia

     200        7     201        6     523        6     603        6

North Sea

     487        18     581        17     1,667        19     1,859        19
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     1,492        54     1,707        49     4,726        55     5,095        52
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total(1)(2)

   $ 2,753        100   $ 3,468        100   $ 8,518        100   $ 9,790        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Gas Revenues:

                    

United States

   $ 210        39   $ 286        44   $ 721        41   $ 894        44

Canada

     112        21     139        22     382        21     457        22
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     322        60     425        66     1,103        62     1,351        66
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     101        19     97        15     303        17     291        14

Australia

     87        16     78        12     257        15     264        13

North Sea

     28        5     45        7     110        6     142        7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     216        40     220        34     670        38     697        34
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total(1)(3)

   $ 538        100   $ 645        100   $ 1,773        100   $ 2,048        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Natural Gas Liquids (NGL)

                    

Revenues:

                    

United States

   $ 150        85   $ 149        85   $ 436        82   $ 396        84

Canada

     16        9     19        11     63        12     53        11
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     166        94     168        96     499        94     449        95
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     4        2     —          0     10        2     —          0

North Sea

     7        4     7        4     23        4     24        5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     11        6     7        4     33        6     24        5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 177        100   $ 175        100   $ 532        100   $ 473        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Oil and Gas Revenues:

                    

United States

   $ 1,481        42   $ 2,029        47   $ 4,515        42   $ 5,543        45

Canada

     268        8     325        8     879        8     952        8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     1,749        50     2,354        55     5,394        50     6,495        53
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     910        27     1,022        24     2,849        26     2,924        24

Australia

     287        8     279        6     780        7     867        7

North Sea

     522        15     633        15     1,800        17     2,025        16
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     1,719        50     1,934        45     5,429        50     5,816        47
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 3,468        100   $ 4,288        100   $ 10,823        100   $ 12,311        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Discontinued Operations - Argentina

                    

Oil Revenues

   $ —          $ 71        $ 45        $ 200     

Gas Revenues

     —            47          39          148     

NGL Revenues

     —            4          3          16     
  

 

 

      

 

 

      

 

 

      

 

 

    

Total

   $ —          $ 122        $ 87        $ 364     
  

 

 

      

 

 

      

 

 

      

 

 

    

 

(1)  Includes revenues attributable to a noncontrolling interest in Egypt for the quarter and nine months ended September 30, 2014.
(2)  Financial derivative hedging activities decreased oil revenues $2 million for the 2014 nine-month period, and $7 million and $44 million for the 2013 third quarter and nine-month period, respectively.
(3)  Financial derivative hedging activities increased natural gas revenues $2 million for the 2014 nine-month period, and $9 million and $26 million for the 2013 third quarter and nine-month period, respectively.

 

32


Production

The table below presents third-quarter and year-to-date 2014 and 2013 production and the relative increase or decrease from the prior period.

 

     For the Quarter Ended September 30,     For the Nine Months Ended September 30,  
                   Increase                   Increase  
     2014      2013      (Decrease)     2014      2013      (Decrease)  

Oil Volume – b/d

                

United States

     133,613        163,690        (18 %)      130,675        156,803        (17 %) 

Canada

     17,672        18,573        (5 %)      17,748        18,112        (2 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     151,285        182,263        (17 %)      148,423        174,915        (15 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt(1)(2)

     87,499        89,294        (2 %)      88,076        89,530        (2 %) 

Australia

     22,014        18,787        17     17,817        20,195        (12 %) 

North Sea

     55,247        57,861        (5 %)      58,636        63,291        (7 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     164,760        165,942        (1 %)      164,529        173,016        (5 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     316,045        348,205        (9 %)      312,952        347,931        (10 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Natural Gas Volume – Mcf/d

                

United States

     579,188        830,423        (30 %)      589,565        848,173        (30 %) 

Canada

     300,803        529,402        (43 %)      331,470        523,163        (37 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     879,991        1,359,825        (35 %)      921,035        1,371,336        (33 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt(1)(2)

     377,838        350,504        8     374,384        357,747        5

Australia

     201,386        212,141        (5 %)      209,163        212,845        (2 %) 

North Sea

     50,647        46,971        8     50,209        50,108        0
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     629,871        609,616        3     633,756        620,700        2
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     1,509,862        1,969,441        (23 %)      1,554,791        1,992,036        (22 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

NGL Volume – b/d

                

United States

     61,712        57,510        7     57,163        54,639        5

Canada

     5,381        7,012        (23 %)      6,349        6,788        (6 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     67,093        64,522        4     63,512        61,427        3
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt(1)(2)

     726        —          NM        616        —          NM   

North Sea

     1,294        1,097        18     1,251        1,263        (1 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     2,020        1,097        84     1,867        1,263        48
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     69,113        65,619        5     65,379        62,690        4
  

 

 

    

 

 

      

 

 

    

 

 

    

BOE per day(3)

                

United States

     291,857        359,604        (19 %)      286,099        352,804        (19 %) 

Canada

     73,187        113,819        (36 %)      79,341        112,095        (29 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     365,044        473,423        (23 %)      365,440        464,899        (21 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt(2)

     151,198        147,711        2     151,090        149,154        1

Australia

     55,578        54,144        3     52,677        55,669        (5 %) 

North Sea

     64,982        66,787        (3 %)      68,255        72,905        (6 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     271,758        268,642        1     272,022        277,728        (2 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     636,802        742,065        (14 %)      637,462        742,627        (14 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Discontinued Operations – Argentina

                

Oil (b/d)

     —          9,560        NM        2,269        9,408        NM   

Gas (Mcf/d)

     —          185,962        NM        46,599        186,241        NM   

NGL (b/d)

     —          1,713        NM        424        2,254        NM   

BOE/d

     —          42,266        NM        10,461        42,702        NM   

 

(1) Gross oil, natural gas, and NGL production in Egypt for the third quarter and nine-month periods of 2014 and 2013 were as follows:

 

     For the Quarter Ended
September 30,
     For the Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

Oil (b/d)

     195,165        193,869         196,938        195,442  

Gas (Mcf/d)

     891,392        915,965         906,751        910,599  

NGL (b/d)

     1,978        —           1,780        —    

 

(2) Includes production volumes per day attributable to a noncontrolling interest in Egypt for the third quarter and nine-month periods of 2014 of:

 

     For the Quarter Ended
September 30,
     For the Nine Months Ended
September 30,
 
     2014      2013      2014      2013  

Oil (b/d)

     29,201        —           29,259        —    

Gas (Mcf/d)

     127,020        —           124,836        —    

NGL (b/d)

     242        —           205        —    

 

(3) The table shows production on a barrel of oil equivalent basis (boe) in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This ratio is not reflective of the price ratio between the two products.

NM — Not meaningful

 

33


Pricing

The table below presents third-quarter and year-to-date 2014 and 2013 pricing and the relative increase or decrease from the prior periods.

 

     For the Quarter Ended September 30,     For the Nine Months Ended September 30,  
     2014      2013      Increase
(Decrease)
    2014      2013      Increase
(Decrease)
 

Average Oil Price—Per barrel

                

United States

   $ 91.26      $ 105.82        (14 %)    $ 94.14      $ 99.35        (5 %) 

Canada

     85.43        97.58        (12 %)      89.45        89.33        0

North America

     90.58        104.98        (14 %)      93.58        98.31        (5 %) 

Egypt

     100.06        112.61        (11 %)      105.50        107.73        (2 %) 

Australia

     98.82        116.21        (15 %)      107.50        109.40        (2 %) 

North Sea

     95.80        109.33        (12 %)      104.13        107.61        (3 %) 

International

     98.47        111.87        (12 %)      105.23        107.88        (2 %) 

Total(1)

     94.69        108.27        (13 %)      99.71        103.07        (3 %) 

Average Natural Gas Price—Per Mcf

                

United States

   $ 3.94      $ 3.75        5   $ 4.48      $ 3.86        16

Canada

     4.04        2.87        41     4.22        3.20        32

North America

     3.97        3.41        16     4.39        3.61        22

Egypt

     2.91        3.01        (3 %)      2.96        2.98        (1 %) 

Australia

     4.70        3.98        18     4.51        4.54        (1 %) 

North Sea

     6.10        10.29        (41 %)      8.06        10.37        (22 %) 

International

     3.74        3.91        (4 %)      3.88        4.11        (6 %) 

Total(2)

     3.88        3.56        9     4.18        3.77        11

Average NGL Price—Per barrel

                

United States

   $ 26.39      $ 28.25        (7 %)    $ 27.96      $ 26.55        5

Canada

     33.50        28.77        16     36.40        28.49        28

North America

     26.96        28.30        (5 %)      28.81        26.76        8

Egypt

     52.80        —          NM        56.57        —          NM   

North Sea

     59.47        69.77        (15 %)      66.18        70.51        (6 %) 

International

     57.07        69.77        (18 %)      63.01        70.51        (11 %) 

Total

     27.84        29.00        (4 %)      29.78        27.64        8

Discontinued Operations—Argentina

                

Oil price ($/Bbl)

   $ —        $ 79.77        NM      $ 72.70      $ 77.66        (6 %) 

Gas price ($/Mcf)

     —          2.76        NM        3.04        2.91        4

NGL price ($/Bbl)

     —          22.19        NM        24.57        25.11        (2 %) 

 

(1)  Reflects a per-barrel decrease of $0.02 from derivative hedging activities for the 2014 nine-month period, and a decrease of $0.22 and $0.45 from derivative hedging activities for the comparative 2013 third quarter and nine-month period, respectively.
(2)  Reflects a per-Mcf increase of $0.05 and $0.04 from derivative hedging activities for the comparative 2013 third quarter and nine-month period, respectively.

NM — Not meaningful

Third-Quarter 2014 compared to Third-Quarter 2013

Crude Oil Revenues Crude oil revenues for the third quarter of 2014 totaled $2.8 billion, a $715 million decrease from the comparative 2013 quarter. A 9 percent decrease in average daily production decreased third-quarter 2014 revenues by $280 million compared to the prior-year quarter, while 13 percent lower realized prices decreased revenues by $435 million. Crude oil prices realized in the third quarter of 2014 averaged $94.69 per barrel, compared with $108.27 in the comparative prior-year quarter. Crude oil accounted for 79 percent of oil and gas production revenues and 50 percent of worldwide production in the third quarter of 2014.

Worldwide production decreased 32 thousand barrels of oil per day (Mb/d) from the third quarter of 2013 to 316 Mb/d, primarily as a result of the divestiture of our Gulf of Mexico Shelf assets on September 30, 2013. Exclusive of production from these divested assets, oil production increased 13 Mb/d, primarily on drilling and recompletion activity in the U.S. Permian region, partially offset by production decreases in Canada, Egypt and the North Sea.

Natural Gas Revenues Gas revenues for the third quarter of 2014 totaled $538 million, down 17 percent from the third quarter of 2013. A 23 percent decrease in average production reduced natural gas revenues by $164 million as compared to the prior-year quarter, while a 9 percent increase in average realized prices increased revenues by $57 million. Natural gas accounted for 16 percent of our oil and gas production revenues and 40 percent of our equivalent production.

 

34


Worldwide natural gas production was 460 million cubic feet per day (MMcf/d) lower than the third quarter of 2013, primarily as a result of the divestiture of our Gulf of Mexico Shelf assets on September 30, 2013 and certain Western Canadian assets over the last 12 months. Exclusive of production from these divested assets, our worldwide gas production was essentially flat.

NGL Revenues NGL revenues for the third quarter of 2014 totaled $177 million, up $2 million from the third quarter of 2013. A 5 percent increase in average NGL production increased NGL revenues by $9 million compared to the prior-year quarter, while a 4 percent decrease in average realized prices decreased revenues by $7 million. NGLs accounted for approximately 5 percent of our oil and gas production revenues and 10 percent of our equivalent production during the third quarter of 2014.

Worldwide production of NGLs increased 3.5 Mb/d to 69.1 Mb/d in the third quarter of 2014, primarily from increased drilling activity in the Permian region offset by the divestiture of our Gulf of Mexico Shelf assets on September 30, 2013. Exclusive of production from these divested assets, our worldwide NGL production increased 8.7 Mb/d.

Year-to-Date 2014 compared to Year-to-Date 2013

Crude Oil Revenues Crude oil revenues for the first nine months of 2014 totaled $8.5 billion, $1.3 billion lower than the comparative 2013 period, the result of a 10 percent decrease in worldwide production and a 3 percent decrease in average realized prices. Crude oil accounted for 79 percent of oil and gas production revenues and 49 percent of worldwide production for the first nine months of 2014. Lower production volumes reduced revenue by $952 million compared to the first nine months of 2013, and lower realized prices reduced revenues by $320 million. Crude oil prices realized in the first nine months of 2014 averaged $99.71 per barrel, compared with $103.07 in the comparative prior-year period.

Worldwide production declined 35 Mb/d to 313 Mb/d in the first nine months of this year from the same period last year, primarily as a result of the divestiture of our Gulf of Mexico Shelf assets on September 30, 2013. Exclusive of production from these divested assets, worldwide production increased 10 Mb/d, primarily a result of drilling and recompletion activity in our Permian region.

Natural Gas Revenues Gas revenues for the first nine months of 2014 totaled $1.8 billion, down 13 percent from the comparative 2013 period. A 22 percent decline in average production reduced natural gas revenues by $499 million, partially offset by an 11 percent increase in average realized prices that added $224 million to revenues. Natural gas accounted for 16 percent of our oil and gas production revenues and 41 percent of our equivalent production, compared to 17 percent and 45 percent, respectively, for the 2013 period.

Our worldwide natural gas production was 437 MMcf/d lower than the first nine months of 2013 as a result of the divestiture of our Gulf of Mexico Shelf assets on September 30, 2013 and certain Western Canadian assets over the last 12 months. Exclusive of production from these divested assets, worldwide production was essentially flat.

NGL Revenues NGL revenues for the first nine months of 2014 totaled $532 million, up $59 million from the comparative 2013 period. A 4 percent increase in average production increased NGL revenues by $22 million as compared to the prior-year period, and an 8 percent increase in average realized prices increased revenues by $37 million. NGLs accounted for nearly 5 percent of our oil and gas production revenues and 10 percent of our equivalent production during the first nine months of 2014.

Worldwide production of NGLs increased 2.7 Mb/d to 65.4 Mb/d in the first nine months of 2014, primarily from drilling and recompletion activity in the Central and Permian regions. Exclusive of production from divested assets, our worldwide NGL production increased 9.4 Mb/d.

 

35


Operating Expenses

The table below presents a comparison of our expenses on an absolute dollar basis and a boe basis. Our discussion may reference expenses on a boe basis, on an absolute dollar basis or both, depending on their relevance. Operating expenses include costs attributable to a noncontrolling interest in Egypt but exclude discontinued operations in Argentina.

 

     For the Quarter Ended September 30,      For the Nine Months Ended September 30,  
     2014      2013      2014      2013      2014      2013      2014      2013  
     (In millions)      (Per boe)      (In millions)      (Per boe)  

Depreciation, depletion, and amortization:

                       

Oil and gas property and equipment

                       

Recurring

   $ 1,173      $ 1,272      $ 20.03      $ 18.63      $ 3,437      $ 3,740      $ 19.75      $ 18.45  

Additional

     1,562        627        26.65        9.18        1,765        627        10.14        3.09  

Other assets

     100        96        1.72        1.41        296        290        1.70        1.43  

Asset retirement obligation accretion

     46        65        0.78        0.95        135        192        0.78        0.95  

Lease operating costs

     652        772        11.13        11.31        1,862        2,275        10.70        11.22  

Gathering and transportation costs

     67        81        1.16        1.19        203        231        1.16        1.13  

Taxes other than income

     170        176        2.90        2.56        532        574        3.06        2.83  

General and administrative expense

     112        120        1.91        1.78        309        359        1.78        1.77  

Acquisition, divestiture, and separation costs

     34        —          0.58        —          66        —          0.38        —    

Financing costs, net

     41        50        0.69        0.74        103        157        0.59        0.78  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 3,957      $ 3,259      $ 67.55      $ 47.75      $ 8,708      $ 8,445      $ 50.04      $ 41.65  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Recurring Depreciation, Depletion, and Amortization (DD&A) The following table details the changes in recurring DD&A of oil and gas properties between the third quarter and nine-month periods of 2014 and 2013:

 

     For the Quarter Ended
September 30,
    For the Nine Months Ended
September 30,
 
     (In millions)     (In millions)  

2013 DD&A

   $ 1,272     $ 3,740  

Volume change

     (157     (487

DD&A rate change

     58       184  
  

 

 

   

 

 

 

2014 DD&A

   $ 1,173     $ 3,437  
  

 

 

   

 

 

 

Oil and gas property recurring DD&A expense of $1.2 billion in the third quarter of 2014 decreased $99 million compared to the prior-year quarter on an absolute dollar basis: $157 million from lower volumes offset by $58 million increase on rate. Oil and gas property recurring DD&A expense of $3.4 billion in the first nine months of 2014 decreased $303 million compared to the prior-year period on an absolute dollar basis: $487 million from lower volumes offset by $184 million increase on rate. The Company’s oil and gas property recurring DD&A rate increased $1.40 and $1.30 per boe for the third quarter and first nine months of 2014, respectively, compared to the prior-year periods.

Additional DD&A Under the full-cost method of accounting, the Company is required to review the carrying value of its proved oil and gas properties each quarter on a country-by-country basis. Under these rules, capitalized costs of oil and gas properties, net of accumulated DD&A and deferred income taxes, may not exceed the present value of estimated future net cash flows from proved oil and gas reserves, net of related tax effects and discounted 10 percent per annum. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements. Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as “Additional DD&A” in the statement of consolidated operations.

In the third quarter of 2014, the Company recorded $1.5 billion ($996 million net of tax) and $17 million ($7 million net of tax) in non-cash write-down of the carrying value of the Company’s U.S. and North Sea proved oil and gas properties, respectively. In the second quarter of 2014, the Company recorded a $203 million ($77 million net of tax) non-cash write-down of the carrying value of the Company’s North Sea proved oil and gas properties.

 

36


Lease Operating Expenses (LOE) LOE decreased $120 million, or 16 percent, for the quarter, and $413 million, or 18 percent, for the nine-month period, on an absolute dollar basis relative to the comparable periods of 2013. The following table identifies changes in Apache’s LOE rate between the third quarters and nine-month periods of 2014 and 2013.

 

For the Quarter Ended September 30,

   

For the Nine Months Ended September 30,

 
     Per boe          Per boe  

2013 LOE

   $ 11.31     2013 LOE    $ 11.22  

Labor and overhead costs

     0.42    

Labor and overhead costs

     0.18  

Saltwater disposal

     0.12    

Saltwater disposal

     0.09  

Materials

     0.07    

Materials

     0.07  

Divestitures(1)

     (0.75  

Repairs and maintenance

     0.07  

Other

     0.30    

Transportation

     0.05  

Other increased production

     (0.34  

Equipment rental

     0.04  
    

Workovers

     0.04  
    

Divestitures(1)

     (1.16
    

Other

     0.36  
    

Other increased production

     (0.26
  

 

 

      

 

 

 

2014 LOE

   $ 11.13     2014 LOE    $                     10.70  
  

 

 

      

 

 

 

 

(1)  Per-unit impact of divestitures is shown net of associated production.

Gathering and Transportation Gathering and transportation costs totaled $67 million and $203 million in the third quarter and first nine months of 2014, respectively, down $14 million and $28 million from the third quarter and first nine months of 2013, respectively. The following table presents gathering and transportation costs paid by Apache directly to third-party carriers for each of the periods presented:

 

     For the Quarter Ended
September 30,
     For the Nine Months Ended
September 30,
 
     2014      2013      2014      2013  
     (In millions)  

Canada

   $ 29      $ 38      $ 93      $ 118  

U.S.

     24        23        69        67  

Egypt

     10        11        31        31  

North Sea

     4        9        10        15  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Gathering and transportation

   $ 67      $ 81      $ 203      $ 231  
  

 

 

    

 

 

    

 

 

    

 

 

 

Taxes other than Income Taxes other than income totaled $170 million and $532 million for the third quarter and the first nine months of 2014, respectively, a decrease of $6 million and $42 million, respectively, from the comparative prior-year periods. The following table presents a comparison of these expenses:

 

     For the Quarter Ended
September 30,
     For the Nine Months Ended
September 30,
 
     2014      2013      2014      2013  
     (In millions)  

Australia PRRT and U.K. PRT

   $ 61      $ 66      $ 215      $ 273  

Severance taxes

     75        71        199        185  

Ad valorem taxes

     26        29        89        88  

Other

     8        10        29        28  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Taxes other than income

   $ 170      $ 176      $ 532      $ 574  
  

 

 

    

 

 

    

 

 

    

 

 

 

Australia Petroleum Resource Rent Tax (PRRT) expense is a levy assessed on the sale of hydrocarbons derived from specific developmental areas in Australia. We incurred a $45 million charge in the third quarter of 2014. Prior periods reflect no PRRT expense as sales subject to PRRT were fully offset by credits derived from exploration and development expenditures. The North Sea Petroleum Revenue Tax (PRT) is assessed on qualifying fields in the U.K. North Sea. U.K. PRT for the third quarter of 2014 was lower than the 2013 period based on lower revenues. Severance tax expense increased $4 million as a result of higher U.S. onshore production.

 

37


U.K. PRT for the first nine months of 2014 was lower when compared to the 2013 period based on a decrease in production revenue. For the first nine months of 2014, higher sales volumes increased severance taxes by $14 million as compared to the first nine months of 2013.

General and Administrative Expenses General and administrative expenses (G&A) for the third quarter of 2014 decreased $8 million from the third quarter of 2013 on an absolute basis and increased $0.13 per boe on a per-unit basis. For the first nine months of 2014 G&A decreased $50 million on an absolute basis from the comparable 2013 period and increased $0.01 per boe on a per-unit basis. Expense for the nine-month 2014 period includes a $25 million benefit from nonrecurring third party cost reimbursements.

Acquisition, Divestiture and Separation Costs During the third quarter of 2014, the Company recognized $34 million in acquisition, divestiture, and separation costs related to acquisition and divestiture activity. For the nine-month 2014 period, the Company recognized $66 million in acquisition, divestiture, and separation costs.

Financing Costs, Net Financing costs incurred during the period comprised the following:

 

     For the Quarter Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2014     2013     2014     2013  
     (In millions)  

Interest expense

   $ 126     $ 142     $ 374     $ 429  

Amortization of deferred loan costs

     2       2       5       6  

Capitalized interest

     (85     (91     (270     (268

Interest income

     (2     (3     (6     (10
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing costs, net

   $ 41     $ 50     $ 103     $ 157  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net financing costs were down $9 million and $54 million in the third quarter and first nine months of 2014, respectively, compared to the same 2013 periods. The $16 million and $55 million decreases in interest expense in the third quarter and first nine months of 2014, respectively, were a result of lower average debt balances.

Provision for Income Taxes In the third quarter of 2014, Apache evaluated its permanent reinvestment position and determined that undistributed earnings from certain foreign subsidiaries located in Apache’s Australia, Egypt, and North Sea regions will no longer be permanently reinvested. As a result of this change in position, the Company recorded $814 million of U.S. deferred income tax expense on the undistributed earnings that were previously considered permanently reinvested. In addition, the Company recorded $249 million of U.S. deferred income tax expense on foreign earnings that were distributed to the U.S. in the third quarter of 2014.

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. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. Accordingly, in the third quarter of 2014, the Company recorded $814 million of U.S. deferred income tax expense on foreign earnings no longer deemed to be permanently reinvested as well as the income tax effect of the $1.5 billion and $17 million non-cash write-downs of its U.S. and North Sea proved oil and gas properties, respectively, as discrete items in the third quarter of 2014. In the second quarter of 2014, the Company recorded the income tax impact of a $203 million non-cash write-down of its North Sea proved oil and gas properties as a discrete item. In the third quarter of 2013, the Company recorded the income tax impact of a $552 million non-cash write-down and a $75 million non-cash impairment on its U.S. and Kenyan oil and gas properties, respectively, as discrete items. Excluding these items and certain other tax adjustments, the third quarter 2014 and 2013 rates would have been 44 percent and 41 percent, respectively.

Capital Resources and Liquidity

Operating cash flows are the Company’s primary source of liquidity. We may also elect to utilize available committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs. As a majority of our capital investment activity is discretionary, we routinely adjust our capital budget on a quarterly basis in response to changing market conditions and operating cash flow forecasts.

Apache’s operating cash flows, both in the short-term and the long-term, are impacted by volatile oil and natural gas prices. Significant deterioration in commodity prices negatively impacts our revenues, earnings and cash flows, and potentially our liquidity if spending does not trend downward as well. Sales volumes and costs also impact cash flows; however, these historically have not been as volatile and have less impact than commodity prices in the short-term.

Apache’s long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of our drilling program and our ability to add reserves at reasonable costs.

 

38


We believe the liquidity and capital resource alternatives available to Apache, combined with internally generated cash flows, will be adequate to fund short-term and long-term operations, including our capital spending program, repayment of debt maturities, and any amount that may ultimately be paid in connection with contingencies.

For additional information, please see Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q and Part I, Items 1 and 2, “Business and Properties,” and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for our 2013 fiscal year.

Sources and Uses of Cash

The following table presents the sources and uses of our cash and cash equivalents, and the sources of our restricted cash for the periods presented.

 

     For the Nine Months Ended
September 30,
 
     2014     2013  
     (In millions)  

Sources of Cash and Cash Equivalents:

    

Net cash provided by continuing operating activities

   $ 6,446     $ 7,200  

Proceeds from the sale of Argentina

     786       —    

Net cash provided by Argentina operations

     2       —    

Proceeds from sale of Deepwater Gulf of Mexico assets

     1,367       —    

Proceeds from divestiture of Gulf of Mexico Shelf properties

     —         3,594  

Proceeds from Kitimat LNG transaction, net

     —         396  

Proceeds from sale of other oil and gas properties

     390       199  

Net commercial paper and bank loan borrowings

     1,246       —    

Other

     —         26  
  

 

 

   

 

 

 
     10,237       11,415  
  

 

 

   

 

 

 

Uses of Cash and Cash Equivalents:

    

Capital expenditures for exploration and development (E&D) activity

   $ 7,131      $ 7,186   

Capital expenditures for gas gathering, transmission, and processing facilities

     1,035       852  

Net cash used by Argentina operations

     —         5  

Leasehold and property acquisitions

     655        313   

Restricted cash from sale of Deepwater Gulf of Mexico assets

     545       —    

Payments on fixed rate debt

     —         900  

Net commercial paper and bank loan repayments

     —         539  

Dividends

     271       280  

Treasury stock activity, net

     1,830       249  

Distributions to noncontrolling interest

     124       —    

Other

     42       —    
  

 

 

   

 

 

 
     11,633       10,324  
  

 

 

   

 

 

 

Increase (decrease) in cash and cash equivalents

   $ (1,396   $ 1,091  
  

 

 

   

 

 

 

Sources of Restricted Cash:

    

Short-term restricted cash from sale of Deepwater Gulf of Mexico assets

     74       —    

Long-term restricted cash from sale of Deepwater Gulf of Mexico assets

     471       —    
  

 

 

   

 

 

 

Increase in restricted cash

   $ 545     $ —    
  

 

 

   

 

 

 

Net Cash Provided by Continuing Operating Activities Operating cash flows are our primary source of capital and liquidity and are impacted, both in the short-term and the long-term, by volatile oil and natural gas prices. The factors that determine operating cash flow are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, asset retirement obligation (ARO) accretion, and deferred income tax expense, which affect earnings but do not affect cash flows.

Net cash provided by continuing operating activities for the first nine months of 2014 totaled $6.4 billion, a decrease of $754 million from the first nine months of 2013. The decrease primarily reflects the impact of 2013 divestitures and comparative changes in working capital during the periods.

 

39


For a detailed discussion of commodity prices, production, and expenses, refer to the “Results of Operations” of this Item 2. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, please see the statement of consolidated cash flows in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.

Proceeds from the Sale of Argentina In March 2014, we completed the previously disclosed sale of our Argentina operations and properties to YPF Sociedad Anònima for cash consideration of $800 million (subject to customary closing adjustments) plus the assumption of $52 million of bank debts as of June 30, 2013. The results of operations related to Argentina have been classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q.

Capital Expenditures During the first nine months of 2014, capital spending for E&D activities totaled $7.1 billion compared to $7.2 billion in the prior year period. Apache’s E&D capital spending was primarily focused on our North American onshore assets. In the Permian region we averaged 42 operated drilling rigs during the quarter. Our recent drilling successes in the Permian have led the region to increase the number of horizontal drilling rigs being utilized, and now two-thirds of our rigs are drilling horizontal wells that, given their nature, are more costly than vertical wells. In our Gulf Coast region, we are increasing activity on our Eagle Ford acreage in Texas and have nearly tripled E&D spending over the 2013 nine-month period.

Apache also completed leasehold and property acquisitions totaling $655 million during the first nine months of 2014, compared with $313 million in the 2013 period. Our 2014 acquisition investments focused on adding new leasehold positions to our North American onshore portfolio.

Apache’s investment in gas gathering, transmission, and processing facilities totaled $1.0 billion during the first nine months of 2014 compared to $852 million in the prior year period. Apache’s 2014 GTP capital expenditures were primarily for the Wheatstone and Kitimat LNG facilities.

Dividends For the nine-month periods ended September 30, 2014 and 2013, the Company paid $271 million and $223 million, respectively, in dividends on its common stock. In the first nine months of 2013, the Company also paid $57 million in dividends on its Series D Preferred Stock, which was converted to common stock in August 2013.

Shares Repurchased Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2014 has repurchased a total of 31.8 million shares at an average price of $88.90 per share. For the nine-month period ended September 30, 2014, the Company repurchased a total of 20.6 million shares at an average price of $88.92 per share. The Company is not obligated to acquire any specific number of shares.

Restricted Cash The Company classifies cash balances as restricted cash when cash is restricted as to withdrawal or usage. As of September 30, 2014, the Company had $545 million of proceeds from the sale of deepwater Gulf of Mexico properties held by a qualified intermediary and available for use in a like-kind exchange under Section 1031 of the U.S. Internal Revenue Code. As of the date of this filing, the Company has utilized or plans to utilize $471 million of the cash held by the qualified intermediary in the acquisition of like-kind property, and as such, this amount is classified as long-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. The remaining $74 million of restricted cash was returned to Apache in October and, as such, is classified as short-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. For more information regarding the sale of the deepwater Gulf of Mexico properties, please refer to Note 2—Acquisitions and Divestitures.

Liquidity

The following table presents a summary of our key financial indicators at the dates presented:

 

     September 30,     December 31,  
     2014     2013  
     (In millions of dollars, except as indicated)  

Cash and cash equivalents

   $ 510     $ 1,906  

Short-term restricted cash

     74       —    

Total debt

     10,922       9,725  

Equity

     32,986        35,393  

Available committed borrowing capacity

     2,072       3,300  

Percent of total debt-to-capitalization

     25     22

Cash and cash equivalents The Company had $510 million in cash and cash equivalents as of September 30, 2014, compared to $1.9 billion at December 31, 2013. Approximately $487 million of the cash was held by foreign subsidiaries. The cash held by foreign subsidiaries may be subject to additional U.S. income taxes if repatriated. Almost all of the cash is denominated in U.S. dollars and, at times, is invested in highly liquid investment grade securities with maturities of three months or less at the time of purchase.

 

40


Debt As of September 30, 2014, outstanding debt, which consisted of notes, debentures, and uncommitted bank lines, totaled $10.9 billion. The Company had approximately $20 million of current debt outstanding borrowed on uncommitted credit facilities and overdraft lines as of September 30, 2014, compared with $53 million as of December 31, 2013.

Available committed borrowing capacity As of September 30, 2014, the Company had unsecured committed revolving syndicated bank credit facilities totaling $3.3 billion, of which $1.0 billion matures in August 2016 and $2.3 billion matures in June 2018 pursuant to a one-year extension approved in May 2014 under the terms of the $2.3 billion facilities. The facilities consist of a $1.7 billion facility and a $1.0 billion facility in the U.S., a $300 million facility in Australia, and a $300 million facility in Canada. As of September 30, 2014, available borrowing capacity under the Company’s credit facilities was $2.1 billion. The Company’s committed credit facilities are used to support Apache’s commercial paper program.

The Company has available a $3.0 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under the Company’s committed credit facilities. As of September 30, 2014, the Company had $1.2 billion of outstanding commercial paper. There was no outstanding commercial paper as of December 31, 2013.

The Company was in compliance with the terms of all credit facilities as of September 30, 2014.

Percent of total debt-to-capitalization The Company’s debt-to-capitalization ratio at September 30, 2014 and December 31, 2013 was 25 percent and 22 percent, respectively.

 

41


ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Risk

The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, natural gas and NGLs, which have historically been very volatile because of unpredictable events such as economic growth or retraction, weather, and political climate. Our average crude oil realizations decreased to $94.69 per barrel in the third quarter of 2014 from $108.27 per barrel in the comparable period of 2013. Our average natural gas price realizations increased 9 percent to $3.88 per Mcf in the third quarter of 2014 from $3.56 per Mcf in the comparable period of 2013.

We periodically enter into derivative positions on a portion of our projected oil and natural gas production through a variety of financial and physical arrangements intended to manage fluctuations in cash flows resulting from changes in commodity prices. For the third quarter and first nine months of 2014, approximately 11 percent and 9 percent, respectively, of our natural gas production and approximately 40 percent of our crude oil production in each period was subject to financial derivatives. Apache does not hold or issue derivative instruments for trading purposes.

On September 30, 2014, the Company had open natural gas derivatives in an asset position with a fair value of $6 million. A 10 percent movement in natural gas prices would move the fair value by approximately $6 million. The Company also had open oil derivatives in an asset position with a fair value of $35 million. A 10 percent decrease in oil prices would increase the asset by approximately $107 million, while a 10 percent increase in prices would move the derivatives to a liability position of $71 million. These fair value changes assume volatility based on prevailing market parameters at September 30, 2014. See Note 3—Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for notional volumes and terms associated with the Company’s derivative contracts.

Interest Rate Risk

The Company considers its interest rate risk exposure to be minimal as a result of fixing interest rates on approximately 89 percent of the Company’s debt. At September 30, 2014, total debt included approximately $1.2 billion of floating-rate debt. As a result, Apache’s annual interest costs will fluctuate based on short-term interest rates on 11 percent of our total debt outstanding at September 30, 2014. The impact on cash flow of a 10 percent change in the floating interest rate based on debt balances at September 30, 2014, would be approximately $103,000 per quarter.

Foreign Currency Risk

The Company’s cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. In Australia, oil production is sold under U.S. dollar contracts, and gas production is sold under a combination of Australian dollar and U.S. dollar fixed-price contracts. Approximately 40 percent of the costs incurred for Australian operations are paid in U.S. dollars. In Canada, oil and gas prices and costs, such as equipment rentals and services, are generally denominated in Canadian dollars but heavily influenced by U.S. markets. Our North Sea production is sold under U.S. dollar contracts, and the majority of costs incurred are paid in British pounds. In Egypt, all oil and gas production is sold under U.S. dollar contracts, and the majority of the costs incurred are denominated in U.S. dollars. Revenue and disbursement transactions denominated in Australian dollars, Canadian dollars, and British pounds are converted to U.S. dollar equivalents based on average exchange rates during the period.

Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Currency gains and losses are included as either a component of “Other” under “Revenues and Other” or, as is the case when we re-measure our foreign tax liabilities, as a component of the Company’s provision for income tax expense on the statement of consolidated operations. A foreign currency net gain or loss of $176 million would result from a 10 percent weakening or strengthening, respectively, in the Australian dollar, Canadian dollar, and British pound as of September 30, 2014.

 

42


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, 2013, 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, NGLs, and other products or services;

 

    our commodity hedging arrangements;

 

    the integration of acquisitions;

 

    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 or regulatory changes;

 

    the impact on our operations from changes in the Egyptian government;

 

    terrorism or cyber-attacks;

 

    occurrence of property acquisitions or divestitures;

 

    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 and elsewhere in our most recently filed Form 10-K, 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 Current Report on Form 8-K dated July 17, 2014, other risks and uncertainties in our third-quarter 2014 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.

 

43


ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

G. Steven Farris, the Company’s Chairman of the Board, Chief Executive Officer, and President, in his capacity as principal executive officer, and P. Anthony Lannie, the Company’s Executive Vice President and Chief Financial Officer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2014, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective, providing effective means to ensure that information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls, and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

Please refer to both Note 8—Commitments and Contingencies of the notes to the consolidated financial statements for the fiscal year ended December 31, 2013 contained in Apache’s Current Report on Form 8-K dated July 17, 2014, and Note 8—Commitments and Contingencies of the notes to the consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a description of material legal proceedings.

 

ITEM 1A. RISK FACTORS

Please refer to Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and as noted above in Part I, Item 3—Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table presents information on shares of common stock repurchased by the Company during the quarter ended September 30, 2014:

 

Issuer Purchases of Equity Securities

 

Period

   Total Number
of Shares
Purchased
     Average Price
Paid per Share
     Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs(1)
     Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs(1)
 

July 1 to July 31, 2014

     —        $ —          —          13,922,662  

August 1 to August 31, 2014

     2,504,119        99.68        2,504,119        11,418,543  

September 1 to September 30, 2014

     3,239,674        97.93        3,239,674        8,178,869  
  

 

 

    

 

 

       

Total

     5,743,793      $ 98.69        
  

 

 

    

 

 

       

 

(1)  On May 9, 2013, the Company announced that its Board of Directors authorized the repurchase of up to 30 million shares of the Company’s common stock. Additionally, on May 15, 2014, the Company announced that the Board of Directors had authorized the repurchase of an additional 10 million shares, supplementing the May 2013 authorization. The Company may buy shares from time to time on the open market, in privately negotiated transactions, or a combination of both. The timing and amounts of any repurchases will be at the discretion of Apache’s management and will depend on a variety of factors, including the stock price, corporate and regulatory requirements, and other market and economic conditions. Repurchased shares will be available for general corporate purposes.

 

44


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

 

ITEM 4. MINE SAFETY DISCLOSURES

None

 

ITEM 5. OTHER INFORMATION

None

 

ITEM 6. EXHIBITS

 

      3.1      Restated Certificate of Incorporation of Registrant, dated September 19, 2013, as filed with the Secretary of State of Delaware on September 19, 2013 (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed September 20, 2013, SEC File No. 001-4300).
      3.2      Bylaws of Registrant, as amended May 16, 2013 (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed May 17, 2013, SEC File No. 001-4300).
  *10.1      2014 Employee Release and Settlement Agreement, by and between Registrant and Thomas P. Chambers, effective as of August 31, 2014.
  *10.2      Amendment of Stock Option Grants (2007 and 2011 Omnibus Equity Compensation Plans) by and between Registrant and Thomas P. Chambers, effective as of August 31, 2014.
  *10.3      Amendment of Restricted Stock Unit Awards (2007 and 2011 Omnibus Equity Compensation Plans) by and between Registrant and Thomas P. Chambers, effective as of August 31, 2014.
  *10.4      Employee Resignation Agreement by and between Registrant and Alfonso Leon, effective as of October 13, 2014.
  *10.5      Amendment of Stock Option Grants (2007 and 2011 Omnibus Equity Compensation Plans) by and between Registrant and Alfonso Leon, effective as of October 9, 2014.
  *10.6      Amendment of Restricted Stock Unit Awards (2007 and 2011 Omnibus Equity Compensation Plans), effective October 9, 2014, between Registrant and Alfonso Leon.
  *31.1      Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Executive Officer.
  *31.2      Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Financial Officer.
  *32.1      Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Executive Officer and Principal Financial Officer.
*101.INS      XBRL Instance Document.
*101.SCH      XBRL Taxonomy Schema Document.
*101.CAL      XBRL Calculation Linkbase Document.
*101.LAB      XBRL Label Linkbase Document.
*101.PRE      XBRL Presentation Linkbase Document.
*101.DEF      XBRL Definition Linkbase Document.

 

* Filed herewith

 

45


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  APACHE CORPORATION
Dated: November 6, 2014  

/s/ P. ANTHONY LANNIE

  P. Anthony Lannie
 

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Dated: November 6, 2014  

/s/ REBECCA A. HOYT

  Rebecca A. Hoyt
 

Senior Vice President, Chief Accounting Officer

and Controller

(Principal Accounting Officer)

 

46