Apache Corporation
APACHE CORP (Form: 10-Q, Received: 05/08/2015 06:12:37)

 

 

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 March 31, 2015

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

(State or other jurisdiction of

incorporation or organization)

 

41-0747868

(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 April 30, 2015

     377,094,714   

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

 

     For The Quarter Ended March 31,  
     2015     2014  
     (In millions, except per share data)  

REVENUES AND OTHER:

    

Oil and gas production revenues:

    

Oil revenues

   $ 1,362     $ 2,815  

Gas revenues

     387       646  

Natural gas liquids revenues

     57       186  
  

 

 

   

 

 

 
  1,806     3,647  

Other

  12     28  
  

 

 

   

 

 

 
  1,818     3,675  
  

 

 

   

 

 

 

OPERATING EXPENSES:

Depreciation, depletion, and amortization:

Oil and gas property and equipment

Recurring

  1,089     1,109  

Additional

  7,220     —    

Other assets

  98     97  

Asset retirement obligation accretion

  44     44  

Lease operating expenses

  538     597  

Gathering and transportation

  56     70  

Taxes other than income

  84     181  

General and administrative

  79     103  

Acquisition, divestiture, and separation costs

  54     18  

Financing costs, net

  46     27  
  

 

 

   

 

 

 
  9,308     2,246  
  

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

  (7,490   1,429  

Current income tax provision

  44     416  

Deferred income tax provision (benefit)

  (2,898   162  
  

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

  (4,636   851  

Net income (loss) from discontinued operations, net of tax

  —       (517
  

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

  (4,636   334  

Net income attributable to noncontrolling interest

  15     98  
  

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

$ (4,651 $ 236  
  

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS:

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

$ (4,651 $ 753  

Net income (loss) from discontinued operations

  —       (517
  

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

$ (4,651 $ 236  
  

 

 

   

 

 

 

BASIC NET INCOME (LOSS) PER COMMON SHARE:

Basic net income (loss) from continuing operations per share

$ (12.34 $ 1.92  

Basic net income (loss) from discontinued operations per share

  —       (1.32
  

 

 

   

 

 

 

Basic net income (loss) per share

$ (12.34 $ 0.60  
  

 

 

   

 

 

 

DILUTED NET INCOME (LOSS) PER COMMON SHARE:

Diluted net income (loss) from continuing operations per share

$ (12.34 $ 1.90  

Diluted net income (loss) from discontinued operations per share

  —       (1.30
  

 

 

   

 

 

 

Diluted net income (loss) per share

$ (12.34 $ 0.60  
  

 

 

   

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

Basic

  377     394  

Diluted

  377     396  

DIVIDENDS DECLARED PER COMMON SHARE

$ 0.25   $ 0.25  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

1


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)

 

     For The Quarter Ended March 31,  
     2015     2014  
     (In millions)  

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

   $ (4,636   $ 334  

OTHER COMPREHENSIVE INCOME (LOSS):

    

Commodity cash flow hedge activity, net of tax:

    

Change in fair value of derivative instruments

     —         (1
  

 

 

   

 

 

 
  —       (1
  

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

  (4,636   333  

Comprehensive income attributable to noncontrolling interest

  15     98  
  

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

$ (4,651 $ 235  
  

 

 

   

 

 

 

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 Quarter Ended March 31,  
     2015     2014  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss) including noncontrolling interest

   $ (4,636   $ 334  

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Loss from discontinued operations

     —         517  

Depreciation, depletion, and amortization

     8,407       1,206  

Asset retirement obligation accretion

     44       44  

Provision for (benefit from) deferred income taxes

     (2,898     162  

Other

     (17     (41

Changes in operating assets and liabilities:

    

Receivables

     257       389  

Inventories

     48       85  

Drilling advances

     (85     37  

Deferred charges and other

     (102     (74

Accounts payable

     (199     (170

Accrued expenses

     (199     (286

Deferred credits and noncurrent liabilities

     30       8  
  

 

 

   

 

 

 

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES

  650     2,211  

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

  —       82  
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

  650     2,293  

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to oil and gas property

  (1,768   (2,318

Leasehold and property acquisitions

  (92   (44

Additions to gas gathering, transmission, and processing facilities

  (223   (344

Other, net

  (35   9  
  

 

 

   

 

 

 

NET CASH USED IN CONTINUING INVESTING ACTIVITIES

  (2,118   (2,697

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

  —       748  
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

  (2,118   (1,949

CASH FLOWS FROM FINANCING ACTIVITIES:

Commercial paper and bank credit facilities, net

  1,028     (2

Distributions to noncontrolling interest

  (21   —    

Dividends paid

  (94   (79

Treasury stock activity, net

  —       (484

Other

  15     —    
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

  928     (565

NET CASH USED IN DISCONTINUED OPERATIONS

  —       (42
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

  928     (607

NET DECREASE IN CASH AND CASH EQUIVALENTS

  (540   (263

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

  769     1,906  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 229   $ 1,643  
  

 

 

   

 

 

 

SUPPLEMENTARY CASH FLOW DATA:

Interest paid, net of capitalized interest

$ 89   $ 70  

Income taxes paid, net of refunds

  142     491  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

3


APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     March 31,
2015
    December 31,
2014
 
     (In millions)  
ASSETS     

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 229     $ 769  

Receivables, net of allowance

     1,767       2,024  

Inventories

     666       708  

Drilling advances

     468       388  

Assets held for sale

     1,804       1,628  

Deferred tax asset

     769       769  

Prepaid assets and other

     203       129  
  

 

 

   

 

 

 
  5,906     6,415  
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

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

Proved properties

  91,634     89,852  

Unproved properties and properties under development, not being amortized

  6,753     7,014  

Gathering, transmission and processing facilities

  5,472     5,440  

Other

  1,161     1,152  
  

 

 

   

 

 

 
  105,020     103,458  

Less: Accumulated depreciation, depletion and amortization

  (63,790   (55,382
  

 

 

   

 

 

 
  41,230     48,076  
  

 

 

   

 

 

 

OTHER ASSETS:

Goodwill

  87     87  

Deferred charges and other

  1,427     1,374  
  

 

 

   

 

 

 
$ 48,650   $ 55,952  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$ 1,010   $ 1,210  

Current debt

  2,598     —    

Current asset retirement obligation

  47     37  

Other current liabilities

  1,838     2,417  
  

 

 

   

 

 

 
  5,493     3,664  
  

 

 

   

 

 

 

LONG-TERM DEBT

  9,675     11,245  
  

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

Income taxes

  6,611     9,499  

Asset retirement obligation

  3,094     3,048  

Other

  372     359  
  

 

 

   

 

 

 
  10,077     12,906  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 7)

EQUITY:

Common stock, $0.625 par, 860,000,000 shares authorized, 410,110,362 and 409,706,347 shares issued, respectively

  256     256  

Paid-in capital

  12,456     12,438  

Retained earnings

  11,504     16,249  

Treasury stock, at cost, 33,192,567 and 33,201,455 shares, respectively

  (2,889   (2,890

Accumulated other comprehensive loss

  (116   (116
  

 

 

   

 

 

 

APACHE SHAREHOLDERS’ EQUITY

  21,211     25,937  

Noncontrolling interest

  2,194     2,200  
  

 

 

   

 

 

 

TOTAL EQUITY

  23,405     28,137  
  

 

 

   

 

 

 
$ 48,650   $ 55,952  
  

 

 

   

 

 

 

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)

 

    Common
Stock
    Paid-In
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
Loss
    APACHE
SHAREHOLDERS’
EQUITY
    Non
Controlling
Interest
    TOTAL
EQUITY
 

BALANCE AT DECEMBER 31, 2013

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

Net income

    —         —         236       —         —         236       98       334  

Commodity hedges, net of tax

    —         —         —         —         (1     (1     —         (1

Common dividends ($0.25 per share)

    —         —         (98     —         —         (98     —         (98

Common stock activity, net

    —         33       —         —         —         33       —         33  

Treasury stock activity, net

    —         —         —         (484     —         (484     —         (484
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT MARCH 31, 2014

$ 255   $ 12,284   $ 22,170   $ (1,511 $ (116 $ 33,082   $ 2,095   $ 35,177  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT DECEMBER 31, 2014

$ 256   $ 12,438   $ 16,249   $ (2,890 $ (116 $ 25,937   $ 2,200   $ 28,137  

Net income (loss)

  —       —       (4,651   —       —       (4,651   15     (4,636

Distributions to noncontrolling interest

  —       —       —       —       —       —       (21   (21

Common dividends ($0.25 per share)

  —       —       (94   —       —       (94   —       (94

Common stock activity, net

  —       18     —       —       —       18     —       18  

Treasury stock activity, net

  —       —       —       1     —       1     —       1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT MARCH 31, 2015

$ 256   $ 12,456   $ 11,504   $ (2,889 $ (116 $ 21,211   $ 2,194   $ 23,405  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014, 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 March 31, 2015, 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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 and assets held for sale, 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.

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. 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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. In the first quarter of 2015, the Company recorded $5.2 billion ($3.4 billion net of tax), $1.4 billion ($1.0 billion net of tax), and $632 million ($316 million net of tax) in non-cash write-downs of the carrying value of the Company’s U.S., Canada, and North Sea proved oil and gas properties, respectively.

 

6


New Pronouncements Issued But Not Yet Adopted

On April 7, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, which simplifies the presentation of debt issuance costs. The new standard requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability, whereas they are currently being presented as a component of “deferred charges and other” on the balance sheet. The new standard creates consistency in the way debt issuance costs and debt discounts are presented on the balance sheet and better aligns U.S. GAAP with International Financial Reporting Standards (IFRS). ASU 2015-03 is effective for annual and interim reporting periods beginning after December 15, 2015. The Company will apply the change retrospectively and does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

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, pending a one-year deferral currently under consideration. 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.

2. ACQUISITIONS AND DIVESTITURES

2015 Activity

LNG Projects Divestiture

In April 2015, Apache completed the previously disclosed sale of its interest in two LNG projects, Wheatstone LNG in Australia and Kitimat LNG in Canada, along with the associated upstream oil and gas assets, to Woodside Petroleum Limited (Woodside). Total proceeds for the sale were $3.7 billion, which includes reimbursement of Apache’s net expenditure in the Wheatstone and Kitimat LNG projects, changes in working capital and other contractual adjustments between the effective date, July 1, 2014, and closing.

As a result of the sale of these projects, the LNG facilities on Apache’s consolidated balance sheet and Apache’s investment in Pacific Trail Pipelines Limited Partnership qualify as held for sale as of March 31, 2015. A summary of the associated assets and liabilities classified as held for sale on our consolidated balance sheet as of March 31, 2015, and December 31, 2014, is detailed below:

 

     March 31, 2015      December 31, 2014  
     Canada      Australia      Total      Canada      Australia      Total  
     (In millions)  

ASSETS

                 

Current assets

   $ 15      $ —        $ 15      $ 30      $ —        $ 30  

GTP assets

     229        1,459        1,688        200        1,297        1,497  

Other long-term assets

     101        —          101        101        —          101  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Assets held for sale (1)

$ 345   $ 1,459   $ 1,804   $ 331   $ 1,297   $ 1,628  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

LIABILITIES

Current liabilities

$ 1   $ —     $ 1   $ 12   $ —     $ 12  

Other long-term liabilities

  6     —       6     7     —       7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities held for sale (1)

$ 7   $ —     $ 7   $ 19   $ —     $ 19  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)   Assets held for sale are classified as current assets in the Consolidated Balance Sheet. Liabilities held for sale are recorded in “Other current liabilities” in the Consolidated Balance Sheet.

 

7


In connection with classifying these assets to held for sale, a separate impairment analysis was performed for each long-lived asset within the disposal group. The analysis was based on the estimated fair value of the assets in the disposal group, which was equivalent to the allocated purchase price associated with the transaction. The transaction’s purchase price was allocated based on the fair value of each asset in the disposal group. Each asset’s fair value was determined using a combination of the income approach, specifically discounted cash flows, and the cost approach. The income approach considered management views on current operating measures as well as assumptions pertaining to market forces in the oil and gas industry, such as future production, future commodity prices, and costs. These assumptions were applied to develop future cash flow projections that were then discounted to estimate fair value, using a discount rate believed to be consistent with those used by principal market participants. The cost approach reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost) and is typically used to measure the fair value of tangible assets that are used in combination with other assets. Apache has classified these non-recurring fair value measurements as Level 3 in the fair value hierarchy.

In the fourth quarter of 2014, Apache recognized an impairment loss on held for sale assets totaling $1.0 billion ($753 million net of tax). As the sale and purchase agreements provide for Apache’s net expenditures incurred in connection with these projects subsequent to the effective date to be reimbursed by Woodside, the Company has recorded no further loss during the first quarter of 2015.

The upstream oil and natural gas properties associated with this sale are not presented as held for sale pursuant to the rules governing full-cost accounting for oil and gas properties. Approximately $1.4 billion and $500 million of the sale proceeds have been allocated to the Australia and Canada upstream assets, respectively. Proceeds from the disposition of oil and gas properties are accounted for as a reduction to capitalized costs unless a significant portion (greater than 25 percent) of the Company’s reserve quantities in a particular country are sold, in which case a gain or loss is recognized in income. Upon closing the transaction in the second quarter of 2015, a loss of approximately $900 million ($600 million net of tax) will be recognized for the sale of the Australian upstream assets that represented approximately 50 percent of the region’s total reserves. Reserves divested in Canada were not a significant portion of the region total.

Australia Divestiture

On April 8, 2015, Apache Corporation announced an agreement to sell its Australian subsidiary Apache Energy Limited (AEL) to a consortium of private equity funds managed by Macquarie Capital Group Limited and Brookfield Asset Management Inc. for cash consideration of $2.1 billion. The Company estimates a loss of approximately $1 billion upon closing the transaction. The ultimate amount of loss will be determined by date of completion, impact of customary post-closing adjustments and finalization of various estimates. The transaction is expected to close mid-year 2015 and is subject to necessary government and regulatory approvals. The effective date of the sale is October 1, 2014.

Upon closing, Apache will have exited essentially all of the Company’s Australian operations. The associated results of operations for Australia and the loss on disposals will be classified as discontinued operations for all periods presented in subsequent SEC filings.

Leasehold Acquisitions

During the first quarter of 2015, Apache completed $92 million of leasehold acquisitions primarily in our North America onshore regions.

2014 Activity

Anadarko Basin and Southern Louisiana Divestitures

In December 2014, Apache completed the sale of certain Anadarko basin and non-core southern Louisiana oil and gas assets for approximately $1.3 billion in two separate transactions. In the Anadarko basin, Apache sold approximately 115,000 net acres in Wheeler County, Texas, and western Oklahoma. In southern Louisiana, Apache sold its working interest in approximately 90,000 net acres. The effective date of both of these transactions was October 1, 2014.

Gulf of Mexico 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.

Canada Divestiture

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

 

8


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 plus the assumption of $52 million of bank debt as of June 30, 2013. The results of operations during 2014 related to Argentina have been classified as discontinued operations in this Quarterly Report on Form 10-Q. Sales and other operating revenues and the loss from discontinued operations related to the Argentina disposition were as follows:

 

     For the Quarter Ended
March 31,
 
     2015      2014  
     (In millions)  

Revenues and other from discontinued operations

   $ —        $ 87  
  

 

 

    

 

 

 

Loss from Argentina divestiture

  —       (539

Loss from operations in Argentina

  —       (1

Income tax benefit

  —       23  
  

 

 

    

 

 

 

Loss from discontinued operations, net of tax

$ —     $ (517
  

 

 

    

 

 

 

Leasehold Acquisitions

During the first quarter of 2014, Apache completed $44 million of leasehold acquisitions primarily in our North America onshore regions.

3. OTHER CURRENT LIABILITIES

The following table provides detail of our other current liabilities:

 

     March 31,
2015
     December 31,
2014
 
     (In millions)  

Accrued operating expenses

   $ 137      $ 163  

Accrued exploration and development

     1,194        1,606  

Accrued compensation and benefits

     127        204  

Accrued interest

     118        160  

Accrued income taxes

     27        54  

Other

     235        230  
  

 

 

    

 

 

 

Total Other current liabilities

$ 1,838   $ 2,417  
  

 

 

    

 

 

 

4. ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the three-month period ended March 31, 2015:

 

     (In millions)  

Asset retirement obligation at December 31, 2014

   $ 3,085  

Liabilities incurred

     41  

Liabilities settled

     (58

Accretion expense

     44  

Revisions in estimated liabilities

     29  
  

 

 

 

Asset retirement obligation at March 31, 2015

  3,141  

Less current portion

  (47
  

 

 

 

Asset retirement obligation, long-term

$ 3,094  
  

 

 

 

 

9


5. DEBT AND FINANCING COSTS

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

 

     March 31, 2015      December 31, 2014  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (In millions)  

Uncommitted bank lines

   $ 21      $ 21      $ —        $ —    

Commercial paper and committed bank facilities

     2,577        2,577        1,570        1,570  

Notes and debentures

     9,675        10,658        9,675        9,944  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

$ 12,273   $ 13,256   $ 11,245   $ 11,514  
  

 

 

    

 

 

    

 

 

    

 

 

 

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, committed bank facilities and uncommitted bank lines, 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 March 31, 2015, the Company had unsecured committed revolving credit facilities totaling $5.3 billion, of which $2.0 billion matures in December 2015, $1.0 billion matures in August 2016, and $2.3 billion matures in June 2018. Apache has $2.0 billion, $1.7 billion, and $1.0 billion U.S. facilities, a $300 million Australian facility, and a $300 million Canadian facility. As of March 31, 2015, aggregate available borrowing capacity under the Company’s credit facilities was $2.7 billion. The Company’s committed bank facilities are used to support Apache’s commercial paper program.

The Company has a $5.0 billion commercial paper program, which allows Apache to borrow funds for up to 270 days at competitive interest rates. As of March 31, 2015, the Company had $2.6 billion in current debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines. This amount was classified as current on Apache’s consolidated balance sheet based on an intent to repay the obligations with the proceeds from the LNG project divestitures. All current debt was repaid in April 2015 upon closing of those divestitures.

Financing Costs, Net

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

 

     For the Quarter Ended
March 31,
 
     2015      2014  
     (In millions)  

Interest expense

   $ 128      $ 124  

Amortization of deferred loan costs

     2        2  

Capitalized interest

     (80      (95

Interest income

     (4      (4
  

 

 

    

 

 

 

Financing costs, net

$ 46   $ 27  
  

 

 

    

 

 

 

 

10


6. INCOME TAXES

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. 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 first quarter of 2015, the Company recorded the income tax effect of the $7.2 billion non-cash write-downs of its U.S., Canada, and North Sea proved oil and gas properties, respectively, offset by an increase in the Canadian valuation allowance, as discrete items.

On March 26, 2015, U.K. Finance Bill 2015 received Royal Assent. Under the enacted legislation, the corporate income tax rate on North Sea oil and gas profits was reduced from 62 percent to 50 percent effective January 1, 2015. As a result of the enacted legislation in the first quarter of 2015, the Company recorded a deferred tax benefit of $619 million related to the remeasurement of the Company’s December 31, 2014 U.K. deferred income tax liability.

Apache and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. The Company is under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

7. COMMITMENTS AND CONTINGENCIES

Legal Matters

Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of March 31, 2015, the Company has an accrued liability of approximately $23 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 Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Argentine Environmental Claims and Argentina Tariff

No material change in the status of the YPF Sociedad Anonima and Pioneer Natural Resources Company indemnities matters has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2014 fiscal year.

Louisiana Restoration  

As more fully described in Apache’s Annual Report on Form 10-K for its 2014 fiscal year, 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 State of Louisiana and the Cameron Parish School Board v. Apache Corporation et al. , Docket No. 10-18672, in the 38 th Judicial District Court, Parish of Cameron, State of Louisiana, plaintiffs allege that defendants’ oil and gas exploration and production activities contaminated plaintiffs’ property, and claim an unspecified amount of damages. Apache, a defendant in the case, acquired its interest in the oil and gas operations on plaintiffs’ property from the former operator, defendant Davis Oil Company, and subsequently sold the interest to defendant Wagner Oil Company (Wagner). Apache claims indemnity from Wagner. The case is set for trial in November 2015. While an adverse judgment against Apache might be possible, Apache intends to vigorously oppose the claims.

No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2014 fiscal year.

 

11


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. The civil lawsuits concerning the pipeline explosion, all of which were filed in the Supreme Court of Western Australia, have been resolved fully and dismissed on confidential terms, including for an exchange of consideration that is not material to Apache. The lawsuits are described in Apache’s Annual Report on Form 10-K dated February 27, 2015 for its 2014 fiscal year. On April 10, 2015, the court dismissed the lawsuits filed by plaintiffs Alcoa (Civ. 1481 of 2011), Barrick (Civ. 2656 of 2013), EDL LNG (Civ. 1751 of 2014), and Yara (Civ. 1742 of 2014). On April 9, 2015, plaintiffs Harvey (Civ. 1749 of 2014), Iluka (Civ. 1748 of 2014), Newmont (Civ. 1727 of 2014), and Wesfarmers (Civ. 1740 of 2014) discontinued their lawsuits, which were never served on the Apache defendants. All matters relating to the Australia gas pipeline force majeure are concluded.

Apollo Exploration Lawsuit

In a second amended petition filed on February 27, 2015 in a case captioned Apollo Exploration, LLC, Cogent Exploration, Ltd. Co. & SellmoCo, LLC v. Apache Corporation , Cause No. CV50538 in the 385 th Judicial District Court, Midland County, Texas, plaintiffs allege damages in excess of $1.1 billion relating to certain purchase and sale agreements, mineral leases, and areas of mutual interest agreements concerning properties located in Hartley, Moore, Potter, and Oldham Counties, Texas. Apache believes the plaintiffs’ claims lack merit and will vigorously oppose them.

Escheat Audits

There has been no material change with respect to the review of the books and records of the Company and its subsidiaries and related entities by the State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), to determine compliance with the Delaware Escheat Laws, since the filing of Apache’s Annual Report on Form 10-K for its 2014 fiscal year.

Burrup-Related Gas Supply Lawsuits

In the lawsuit captioned Pankaj Oswal v. Apache Corporation , No. WAD 389/2013, in the Federal Court of Australia, District of Western Australia, General Division, on the eve of a trial that was to commence on February 9, 2015, plaintiff decided to discontinue his claim. On March 18, 2015, the court entered an order dismissing the case. The lawsuit is concluded in the Company’s favor.

In the cases captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al. , No. SCI 2011 4653 and Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al. , No. SCI 2012 01995, in the Supreme Court of Victoria, the cross-vesting of certain related proceedings (in which neither the Company nor its subsidiaries are parties) has caused the court to consider new scheduling orders. The Company and its subsidiaries believe the plaintiffs’ claims lack merit and will vigorously oppose them. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2014 fiscal year.

Environmental Matters

As of March 31, 2015, the Company had an undiscounted reserve for environmental remediation of approximately $63 million. The Company is not aware of any environmental claims existing as of March 31, 2015 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.

No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2014 fiscal year.

 

12


8. CAPITAL STOCK

Net Income (Loss) per Common Share

A reconciliation of the components of basic and diluted net income (loss) per common share for the quarters ended March 31, 2015 and 2014 is presented in the table below.

 

     For the Quarter Ended March 31,  
     2015     2014  
     Income     Shares      Per Share     Income     Shares      Per Share  
     (In millions, except per share amounts)  

Basic:

              

Income (loss) from continuing operations

   $ (4,651     377      $ (12.34   $ 753       394      $ 1.92  

Loss from discontinued operations

     —         377        —         (517     394        (1.32
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

$ (4,651   377   $ (12.34 $ 236     394   $ 0.60  
  

 

 

      

 

 

   

 

 

      

 

 

 

Effect of Dilutive Securities:

Stock options and other

$ —       —     $ —       2  

Diluted:

Income (loss) from continuing operations

$ (4,651   377   $ (12.34 $ 753     396   $ 1.90  

Loss from discontinued operations

  —       377     —       (517   396     (1.30
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

$ (4,651   377   $ (12.34 $ 236     396   $ 0.60  
  

 

 

      

 

 

   

 

 

      

 

 

 

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 9.1 million and 5.8 million for the quarters ending March 31, 2015 and 2014, respectively.

Common Stock Dividends

For the quarters ended March 31, 2015 and 2014, Apache paid $94 million and $79 million, respectively, in dividends on its common stock.

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 December 31, 2014, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company has not purchased any additional shares during 2015, and is not obligated to acquire any specific number of shares.

 

13


9. 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 March 31, 2015, 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
States
    Canada     Egypt  (1)      Australia     North Sea     Other
International
     Total  
     (In millions)  

For the Quarter Ended March 31, 2015

                

Oil and Gas Production Revenues

   $ 660     $ 133     $ 532      $ 168     $ 313     $ —        $ 1,806  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Operating Income (Loss) (2)

$ (5,320 $ (1,430 $ 102   $ (12 $ (663 $ —     $ (7,323
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

Other Income (Expense):

Other

  12  

General and administrative

  (79

Acquisition, divestiture, and separation costs

  (54

Financing costs, net

  (46

Net Loss From Continuing Operations

                

 

 

 

Before Income Taxes

$ (7,490
                

 

 

 

Total Assets

$ 21,577   $ 5,288   $ 7,247   $ 9,044   $ 5,376   $ 118   $ 48,650  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

For the Quarter Ended March 31, 2014

Oil and Gas Production Revenues

$ 1,505   $ 318   $ 950   $ 256   $ 618   $ —     $ 3,647  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Operating Income (2)

$ 663   $ 71   $ 536   $ 96   $ 183   $ —     $ 1,549  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

Other Income (Expense):

Other

  28  

General and administrative

  (103

Acquisition, divestiture, and separation costs

  (18

Financing costs, net

  (27

Net Income From Continuing Operations

                

 

 

 

Before Income Taxes

$ 1,429  
                

 

 

 

Total Assets

$ 30,618   $ 7,102   $ 7,350   $ 8,403   $ 7,599   $ 49   $ 61,121  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

(1)   Includes a noncontrolling interest in Egypt.
(2)   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. The first quarter 2015 operating income (loss) of U.S., Canada, and North Sea includes $5.2 billion, $1.4 billion, and $632 million, respectively, in non-cash write-downs of each region’s carrying value of oil and gas properties.

 

14


10. 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.

 

15


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 31, 2015

 

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

REVENUES AND OTHER:

         

Oil and gas production revenues

  $ 365     $ —       $ 1,441     $ —       $ 1,806  

Equity in net income (loss) of affiliates

    (1,085     (654     1       1,738       —    

Other

    (40     14       38       —         12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  (760   (640   1,480     1,738     1,818  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

Depreciation, depletion and amortization

  5,499     —       2,908     —       8,407  

Asset retirement obligation accretion

  4     —       40     —       44  

Lease operating expenses

  124     —       414     —       538  

Gathering and transportation

  9     —       47     —       56  

Taxes other than income

  34     —       50     —       84  

General and administrative

  64     —       15     —       79  

Acquisition, divestiture, and separation costs

  54     —       —       —       54  

Financing costs, net

  52     10     (16   —       46  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  5,840     10     3,458     —       9,308  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

  (6,600   (650   (1,978   1,738     (7,490

Provision (benefit) for income taxes

  (1,949   3     (908   —       (2,854
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

  (4,651   (653   (1,070   1,738     (4,636

Net income (loss) from discontinued operations, net of tax

  —       —       —       —       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

  (4,651   (653   (1,070   1,738     (4,636

Net income attributable to noncontrolling interest

  —       —       15     —       15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

$ (4,651 $ (653 $ (1,085 $ 1,738   $ (4,651
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

$ (4,651 $ (653 $ (1,085 $ 1,738   $ (4,651
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

16


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended March 31, 2014

 

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

REVENUES AND OTHER:

         

Oil and gas production revenues

  $ 892     $ —       $ 2,755     $ —       $ 3,647  

Equity in net income (loss) of affiliates

    253       29       (6     (276     —    

Other

    (23     14       38       (1     28  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  1,122     43     2,787     (277   3,675  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

Depreciation, depletion and amortization

  328     —       878     —       1,206  

Asset retirement obligation accretion

  7     —       37     —       44  

Lease operating expenses

  128     —       469     —       597  

Gathering and transportation

  14     —       56     —       70  

Taxes other than income

  79     —       102     —       181  

General and administrative

  91     —       13     (1   103  

Acquisition, divestiture, and separation costs

  18     —       —       —       18  

Financing costs, net

  32     10     (15   —       27  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  697     10     1,540     (1   2,246  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

  425     33     1,247     (276   1,429  

Provision for income taxes

  62     10     506     —       578  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

  363     23     741     (276   851  

Net loss from discontinued operations, net of tax

  (127   —       (390   —       (517
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

  236     23     351     (276   334  

Net income attributable to noncontrolling interest

  —       —       98     —       98  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

$ 236   $ 23   $ 253   $ (276 $ 236  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

$ 235   $ 23   $ 253   $ (276 $ 235  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

17


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Quarter Ended March 31, 2015

 

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

CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES

   $ (396   $ (3   $ 1,049     $ —       $ 650  

CASH PROVIDED BY DISCONTINUED OPERATIONS

     —         —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  (396   (3   1,049     —       650  

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to oil and gas property

  (771   —       (997   —       (1,768

Leasehold and property acquisition

  (92   —       —       —       (92

Additions to gas gathering, transmission and processing facilities

  (22   —       (201   —       (223

Investment in subsidiaries, net

  105     —       —       (105   —    

Other

  (18   —       (17   —       (35
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING INVESTING ACTIVITIES

  (798   —       (1,215   (105   (2,118

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

  —       —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

  (798   —       (1,215   (105   (2,118

CASH FLOWS FROM FINANCING ACTIVITIES:

Commercial paper and bank credit facilities, net

  1,028     —       —       —       1,028  

Intercompany borrowings

  —       (1   (104   105     —    

Distributions to noncontrolling interest

  —       —       (21   —       (21

Dividends paid

  (94   —       —       —       (94

Common stock activity

  —       4     (4   —       —    

Other

  2     —       13     —       15  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

  936     3     (116   105      928   

NET CASH USED IN DISCONTINUED OPERATIONS

  —       —       —       —       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

  936     3     (116   105     928  

NET DECREASE IN CASH AND CASH EQUIVALENTS

  (258   —       (282   —       (540

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

  267     —       502     —       769  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 9   $ —     $ 220   $ —     $ 229  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Quarter Ended March 31, 2014

 

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

CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES

   $ (186   $ (15   $ 2,412     $ —       $ 2,211  

CASH PROVIDED BY DISCONTINUED OPERATIONS

     —         —         82       —         82  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

  (186   (15   2,494     —       2,293  

CASH FLOWS FROM INVESTING ACTIVITIES:

Additions to oil and gas property

  (704   —       (1,614   —       (2,318

Leasehold and property acquisitions

  (36   —       (8   —       (44

Additions to gas gathering, transmission and processing facilities

  (19   —       (325   —       (344

Investment in subsidiaries, net

  1,320     —       —       (1,320   —    

Other

  (7   —       16     —       9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING INVESTING ACTIVITIES

  554     —       (1,931   (1,320   (2,697

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

  —       —       748     —       748  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

  554     —       (1,183   (1,320   (1,949

CASH FLOWS FROM FINANCING ACTIVITIES:

Commercial paper and bank credit facilities, net

  42     —       (44   —       (2

Intercompany borrowings

  —       10     (1,329   1,319     —    

Dividends paid

  (79   —       —       —       (79

Payments on fixed rate debt

  (484   —       —       —       (484

Other common stock activity, net

  —       5     (6   1     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

  (521   15     (1,379   1,320     (565

NET CASH USED IN DISCONTINUED OPERATIONS

  —       —       (42   —       (42
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

  (521   15     (1,421   1,320     (607

NET DECREASE IN CASH AND CASH EQUIVALENTS

  (153   —       (110   —       (263

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

  155     3     1,748     —       1,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$ 2   $ 3   $ 1,638   $ —     $ 1,643  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

March 31, 2015

 

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

CURRENT ASSETS:

            

Cash and cash equivalents

   $ 9      $ —        $ 220     $ —       $ 229  

Receivables, net of allowance

     512        —          1,255       —         1,767  

Inventories

     53        —          613       —         666  

Drilling advances

     20        —          448       —         468  

Assets held for sale

     —          —          1,804       —         1,804  

Deferred tax asset

     612        —          157       —         769  

Prepaid assets and other

     114        —          89       —         203  

Intercompany receivable

     5,250        —          —         (5,250     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  6,570     —       4,586     (5,250   5,906  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

  9,127     —       32,103     —       41,230  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

OTHER ASSETS:

Intercompany receivable

  —       —       713     (713   —    

Equity in affiliates

  24,707     213     437     (25,357   —    

Goodwill

  —       —       87     —       87  

Deferred charges and other

  173     1,001     1,253     (1,000   1,427  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
$ 40,577   $ 1,214   $ 39,179   $ (32,320 $ 48,650  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$ 564   $ 9   $ 437   $ —     $ 1,010  

Current debt

  2,598     —       —       —       2,598  

Asset retirement obligation

  28     —       19     —       47  

Other current liabilities

  663     7     1,168     —       1,838  

Intercompany payable

  —       —       5,250     (5,250   —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  3,853     16     6,874     (5,250   5,493  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LONG-TERM DEBT

  9,377     298     —       —       9,675  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER

NONCURRENT LIABILITIES:

Intercompany payable

  713     —       —       (713   —    

Income taxes

  3,220     —       3,391     —       6,611  

Asset retirement obligation

  216     —       2,878     —       3,094  

Other

  1,987     250     (865   (1,000   372  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  6,136     250     5,404     (1,713   10,077  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

APACHE SHAREHOLDERS’ EQUITY

  21,211     650     24,707     (25,357   21,211  

Noncontrolling interest

  —       —       2,194     —       2,194  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

  21,211     650     26,901     (25,357   23,405  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
$ 40,577   $ 1,214   $ 39,179   $ (32,320 $ 48,650  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

20


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2014

 

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

CURRENT ASSETS:

            

Cash and cash equivalents

   $ 267      $ —        $ 502     $ —       $ 769  

Receivables, net of allowance

     837        —          1,187       —         2,024  

Inventories

     24        —          684       —         708  

Drilling advances

     34        1        353       —         388  

Assets held for sale

     —          —          1,628       —         1,628  

Deferred tax asset

     612        —          157       —         769  

Prepaid assets and other

     32        —          97       —         129  

Intercompany receivable

     4,939        —          —         (4,939     —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  6,745     1     4,608     (4,939   6,415  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

  13,940     —       34,136     —       48,076  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

OTHER ASSETS:

Intercompany receivable

  —       —       608     (608   —    

Equity in affiliates

  25,791     869     444     (27,104   —    

Goodwill

  —       —       87     —       87  

Deferred charges and other

  175     1,002     1,197     (1,000   1,374  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
$ 46,651   $ 1,872   $ 41,080   $ (33,651 $ 55,952  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES:

Accounts payable

$ 748   $ 10   $ 452   $ —     $ 1,210  

Asset retirement obligation

  28     —       9     —       37  

Other current liabilities

  1,014     1     1,402     —       2,417  

Intercompany payable

  —       —       4,939     (4,939   —    
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  1,790     11     6,802     (4,939   3,664  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

LONG-TERM DEBT

  10,947     298     —       —       11,245  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER

NONCURRENT LIABILITIES:

Intercompany payable

  608     —       —       (608   —    

Income taxes

  5,076     —       4,423     —       9,499  

Asset retirement obligation

  211     —       2,837     —       3,048  

Other

  2,082     250     (973   (1,000   359  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
  7,977     250     6,287     (1,608   12,906  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

APACHE SHAREHOLDERS’ EQUITY

  25,937     1,313     25,791     (27,104   25,937  

Noncontrolling interest

  —       —       2,200     —       2,200  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

  25,937     1,313     27,991     (27,104   28,137  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 
$ 46,651   $ 1,872   $ 41,080   $ (33,651 $ 55,952  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

21


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 Annual Report on Form 10-K for our 2014 fiscal year.

Strategic Overview

The Company’s foundation for future growth is driven by our significant producing asset base and large undeveloped acreage positions. This allows for growth through sustainable lower-risk drilling opportunities, balanced by higher-risk, higher-reward exploration. We closely monitor drilling and acquisition cost trends in each of our core areas relative to product prices and, when appropriate, adjust our capital budgets accordingly and allocate funds to projects based on expected value. We do this through a disciplined and focused process that includes analyzing current economic conditions, projected rate of return on internally generated drilling inventories, and opportunities for tactical acquisitions or leasehold purchases that add substantial drilling prospects or, occasionally, provide access to new core areas that could enhance our portfolio.

Over the last five years, Apache has increasingly focused on its North American onshore resource base. Recent drilling successes and acquisitions of acreage positions across North America have built a robust drilling inventory for our Permian, Gulf Coast, and other onshore regions. We believe that this area is capable of driving our growth and performance over the next several years. As part of this strategy, we also conducted a company-wide review of our portfolio and our operations in an effort to best position Apache for the long-term benefit of our shareholders. This review has resulted in several key divestitures during the last eighteen months including the recently completed sale of our Kitimat and Wheatstone LNG projects and the announcement of the sale of substantially all of our operations in Australia, which is expected to close in mid-2015. The Company believes the resulting portfolio, which includes a significant onshore North America resource base coupled with Brent-linked, free cash flow generating assets in the North Sea and Egypt, provides flexibility in capital allocation and a platform for sustainable growth in a volatile commodity price environment.

The decline in the prices of oil and natural gas at the end of 2014 and during the first quarter of 2015 was dramatic; however, we believe this environment will provide future growth opportunities for companies that have moved aggressively in response to the price drop. As we cannot predict the length or depth of this commodity price correction, or the timing and extent of any potential rebound, we moved quickly and decisively regarding certain matters within our control: the timing and levels of capital spending and our cost structure. We are currently operating only 15 rigs onshore in North America, but we are prepared to ramp-up activity when we believe service costs are aligned with the current commodity price environment. We closely monitor commodity prices, service cost levels, regulatory impacts, and numerous other industry factors and routinely adjust our budgets in response to changing market conditions and operating cash flow forecasts.

Financial Highlights

Results for the quarter ended March 31, 2015 include:

 

    Average daily production in the first quarter of 2015 totaled 601 thousand barrels of oil equivalent (Mboe) compared to 640 Mboe from the comparative 2014 quarter, reflecting divestiture activity during the prior year.

 

    Liquids production for the quarter averaged 373 Mboe/d, with crude oil representing 85 percent of total liquids production. Liquids production increased slightly from the prior-year quarter despite the significant divestiture activity during 2014.

 

    Oil and gas production revenues totaled $1.8 billion, down 50 percent from $3.6 billion in the prior-year quarter, reflecting the significant decrease in realized commodity prices and lower production.

 

    For the first quarter of 2015, Apache reported a loss of $4.7 billion, or $12.34 per diluted common share, compared with earnings of $236 million, or $0.60 per diluted share, for the prior-year quarter. The loss for the quarter reflects after-tax write-downs of oil and gas properties in the U.S., Canada, and U.K. North Sea totaling $4.7 billion.

 

22


Operational Developments

Our internally generated exploration and drilling opportunities provide the foundation for our growth. Highlights of our 2015 drilling successes and other operational developments are discussed below.

North America

 

    North America onshore production of 307 Mboe/d in the first quarter of 2015 represents 51 percent of Apache’s total worldwide production for the period.

 

    Apache’s Permian Basin region increased production 6 percent relative to the first quarter of 2014 despite only operating an average of 15 rigs during the current period compared to 39 rigs in the first quarter of 2014. Apache plans to complete the wells drilled during 2015 in the normal course of business and continues to work through completing prior-year wells in backlog as service costs are reduced. The Permian represents almost a third of Apache’s total liquids production for the first quarter of 2015.

International

 

    In April 2015, Apache announced the agreement to sell its Australian subsidiary Apache Energy Limited to a consortium of private equity funds managed by Macquarie Capital Group Limited and Brookfield Asset Management Inc. for cash consideration of $2.1 billion. The transaction is expected to close mid-year 2015 and is subject to necessary government and regulatory approvals and customary post-closing adjustments. The effective date of the sale is October 1, 2014.

 

    Also during April 2015, Apache completed the previously disclosed sale of its interest in two LNG projects, Wheatstone LNG in Australia and Kitimat LNG in Canada, along with the associated upstream oil and gas assets, to Woodside Petroleum Limited for total proceeds of approximately $3.7 billion, which includes reimbursement of Apache’s net expenditure in the Wheatstone and Kitimat LNG projects, changes in working capital and other contractual adjustments between the effective date, July 1, 2014, and closing.

 

    During the first quarter of 2015, Apache reported strong appraisal- and development-drilling results from Egypt’s recent new oil fields, Berenice and Ptah, in the Western Desert. Three wells in the Berenice field are currently producing more than 9,500 barrels of oil per day (b/d). Up to four additional wells are planned during the first phase of development in the Berenice field. In the Ptah field, the discovery well is currently producing 2,350 b/d. A second well started production in March 2015 at a rate of 2,000 b/d.

 

23


Results of Operations

Oil and Gas Revenues

Oil and gas production revenues for the first quarter of 2015 totaled $1.8 billion, a 50 percent decrease from the comparative 2014 quarter. The table below presents revenues by region and each region’s percent contribution to revenues for the first quarter of 2015 and 2014, respectively.

 

     For the Quarter Ended March 31,  
     2015     2014  
     $ Value      % Contribution     $ Value      % Contribution  
     ($ in millions)  

Total Oil Revenues:

          

United States

   $ 510        38   $ 1,092        39

Canada

     60        4     140        5
  

 

 

    

 

 

   

 

 

    

 

 

 

North America

  570     42   1,232     44
  

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

  433     32   846     30

Australia

  81     6   170     6

North Sea

  278     20   567     20
  

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

  792     58   1,583     56
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

$ 1,362     100 $ 2,815     100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Gas Revenues:

United States

$ 103     27 $ 266     41

Canada

  67     17   148     23
  

 

 

    

 

 

   

 

 

    

 

 

 

North America

  170     44   414     64
  

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

  96     25   103     16

Australia

  87     22   86     13

North Sea

  34     9   43     7
  

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

  217     56   232     36
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

$ 387     100 $ 646     100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Natural Gas Liquids (NGL) Revenues:

United States

$ 47     82 $ 147     79

Canada

  6     11   30     16
  

 

 

    

 

 

   

 

 

    

 

 

 

North America

  53     93   177     95
  

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

  3     5   1     1

North Sea

  1     2   8     4
  

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

  4     7   9     5
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

$ 57     100 $ 186     100
  

 

 

    

 

 

   

 

 

    

 

 

 

Total Oil and Gas Revenues:

United States

$ 660     37 $ 1,505     41

Canada

  133     7   318     9
  

 

 

    

 

 

   

 

 

    

 

 

 

North America

  793     44   1,823     50
  

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

  532     29   950     26

Australia

  168     9   256     7

North Sea

  313     18   618     17
  

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

  1,013     56   1,824     50
  

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

$ 1,806     100 $ 3,647     100
  

 

 

    

 

 

   

 

 

    

 

 

 

Discontinued Operations – Argentina

Oil Revenue

$ —     $ 45  

Gas Revenue

  —       39  

NGL Revenue

  —       3  
  

 

 

      

 

 

    

Total

$ —     $ 87  
  

 

 

      

 

 

    

(1) Includes revenues attributable to a noncontrolling interest in Egypt.

 

24


Production

The table below presents first quarter 2015 and 2014 production and the relative increase or decrease from the prior period.

 

     For the Quarter Ended March 31,  
     2015      Increase
(Decrease)
    2014  

Oil Volume – b/d

       

United States

     126,639        (1 %)      127,951  

Canada

     16,875        (4 %)      17,589  
  

 

 

      

 

 

 

North America

  143,514     (1 %)    145,540  
  

 

 

      

 

 

 

Egypt (1)(2)

  91,971     4   88,093  

Australia

  20,905     24   16,825  

North Sea

  61,699     4   59,092  
  

 

 

      

 

 

 

International

  174,575     6   164,010  
  

 

 

      

 

 

 

Total

  318,089     3   309,550  
  

 

 

      

 

 

 

Natural Gas Volume – Mcf/d

United States

  435,818     (26 %)    592,685  

Canada

  287,556     (24 %)    377,712  
  

 

 

      

 

 

 

North America

  723,374     (25 %)    970,397  
  

 

 

      

 

 

 

Egypt (1)(2)

  363,989     (4 %)    377,357  

Australia

  230,691     7   215,792  

North Sea

  50,445     12   45,071  
  

 

 

      

 

 

 

International

  645,125     1   638,220  
  

 

 

      

 

 

 

Total

  1,368,499     (15 %)    1,608,617  
  

 

 

      

 

 

 

NGL Volume – b/d

United States

  47,221     (11 %)    53,058  

Canada

  5,853     (25 %)    7,769  
  

 

 

      

 

 

 

North America

  53,074     (13 %)    60,827  
  

 

 

      

 

 

 

Egypt (1)(2)

  1,031     342   233  

North Sea

  886     (19 %)    1,091  
  

 

 

      

 

 

 

International

  1,917     45   1,324  
  

 

 

      

 

 

 

Total

  54,991     (12 %)    62,151  
  

 

 

      

 

 

 

BOE per day (3)

United States

  246,497     (12 %)    279,790  

Canada

  70,653     (20 %)    88,310  
  

 

 

      

 

 

 

North America

  317,150     (14 %)    368,100  
  

 

 

      

 

 

 

Egypt (2)

  153,667     2   151,219  

Australia

  59,353     12   52,790  

North Sea

  70,993     5   67,695  
  

 

 

      

 

 

 

International

  284,013     5   271,704  
  

 

 

      

 

 

 

Total

  601,163     (6 %)    639,804  
  

 

 

      

 

 

 

Discontinued Operations – Argentina

Oil (b/d)

  —       6,885  

Gas (Mcf/d)

  —       141,352  

NGL (b/d)

  —       1,287  

BOE/d

  —       31,731  

 

(1) Gross oil, natural gas, and NGL production in Egypt for the first quarter of 2015 and 2014 were as follows:

 

     2015      2014  

Oil (b/d)

     197,785        198,619  

Gas (Mcf/d)

     861,933        921,440  

NGL (b/d)

     2,321        649  

 

(2) Includes net production volumes per day attributable to a noncontrolling interest in Egypt:

 

     2015      2014  

Oil (b/d)

     30,671        29,066  

Gas (Mcf/d)

     121,408        124,799  

NGL (b/d)

     343        78  

 

(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.

 

25


Pricing

The table below presents first quarter 2015 and 2014 pricing and the relative increase or decrease from the prior periods.

 

     For the Quarter Ended March 31,  
     2015      Increase
(Decrease)
    2014  

Average Oil Price — Per barrel

       

United States

   $ 44.73        (53 %)    $ 94.84  

Canada

     39.76        (55 %)      88.19  

North America

     44.14        (53 %)      94.03  

Egypt

     52.29        (51 %)      106.70  

Australia

     43.17        (62 %)      112.26  

North Sea

     49.95        (53 %)      106.60  

International

     50.37        (53 %)      107.24  

Total

     47.56        (53 %)      101.03  

Average Natural Gas Price — Per Mcf

       

United States

   $ 2.63        (47 %)    $ 4.98  

Canada

     2.58        (41 %)      4.38  

North America

     2.61        (45 %)      4.75  

Egypt

     2.92        (3 %)      3.02  

Australia

     4.19        (5 %)      4.42  

North Sea

     7.40        (31 %)      10.69  

International

     3.73        (7 %)      4.03  

Total

     3.14        (30 %)      4.46  

Average NGL Price — Per barrel

       

United States

   $ 11.00        (64 %)    $ 30.81  

Canada

     11.09        (74 %)      42.09  

North America

     11.01        (66 %)      32.25  

Egypt

     36.29        (44 %)      64.34  

North Sea

     24.74        (69 %)      79.84  

International

     30.95        (60 %)      77.11  

Total

     11.71        (65 %)      33.20  

Discontinued Operations — Argentina

       

Oil price ($/Bbl)

   $ —          $ 72.70  

Gas price ($/Mcf)

     —            3.04  

NGL price ($/Bbl)

     —            24.57  

Crude Oil Revenues

Crude oil revenues for the first quarter of 2015 totaled $1.4 billion, a $1.5 billion decrease from the comparative 2014 quarter. The $1.5 billion decrease was a result of substantially lower realized prices, slightly offset by higher production volumes which increased revenues by $37 million. Crude oil accounted for 75 percent of oil and gas production revenues and 53 percent of worldwide production in the first quarter of 2015.

Worldwide production increased 8.5 thousand barrels of oil per day (Mb/d) from the first quarter of 2014 to 318.1 Mb/d in the first quarter of 2015, primarily from our international operations and drilling activity in North American onshore regions offsetting recent divestitures. Excluding production from North American assets divested between the periods, worldwide oil production increased 23.8 Mb/d.

Natural Gas Revenues

Natural gas revenues for the first quarter of 2015 totaled $387 million, down $259 million from the first quarter of 2014. A 30 percent decrease in average realized prices decreased revenues by $191 million as compared to the prior-year quarter, while a 15 percent decrease in average production further reduced natural gas revenues by $68 million. Natural gas accounted for 21 percent of our oil and gas production revenues and 38 percent of our equivalent production during the first quarter of 2015.

Worldwide production for the first quarter of 2015 decreased 240 MMcf/d from the comparative 2014 quarter, primarily as a result of divestitures made during 2014 and lower levels of drilling activity in the recent low commodity price environment. Excluding production from North American assets divested between the periods, gas production increased 36 MMcf/d.

 

26


NGL Revenues

NGL revenues for the first quarter of 2015 totaled $57 million, down $129 million from the first quarter of 2014. A 65 percent decrease in average realized prices decreased revenues by $121 million compared to the prior-year quarter, while a 12 percent decrease in average production further decreased NGL revenues by $8 million. NGLs accounted for 3 percent of our oil and gas production revenues and 9 percent of our equivalent production during the first quarter of 2015.

Worldwide production of NGLs decreased 7.2 Mb/d to 55.0 Mb/d in the first quarter of 2015, primarily as a result of divestitures made during 2014 and lower levels of drilling activity in the recent low commodity price environment. Excluding production from North American assets divested between the periods, NGL production increased 5.0 Mb/d.

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 March 31,  
     2015      2014      2015      2014  
     (In millions)      (Per boe)  

Depreciation, depletion and amortization:

           

Oil and gas property and equipment

           

Recurring

   $ 1,089      $ 1,109      $ 20.13      $ 19.26  

Additional

     7,220        —          133.44        —    

Other assets

     98        97        1.81        1.68  

Asset retirement obligation accretion

     44        44        0.82        0.77  

Lease operating costs

     538        597        9.94        10.37  

Gathering and transportation costs

     56        70        1.02        1.19  

Taxes other than income

     84        181        1.54        3.15  

General and administrative expense

     79        103        1.46        1.79  

Acquisition, divestiture, and separation costs

     54        18        1.00        0.31  

Financing costs, net

     46        27        0.86        0.48  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 9,308   $ 2,246   $ 172.02   $ 39.00  
  

 

 

    

 

 

    

 

 

    

 

 

 

Recurring Depreciation, Depletion and Amortization (DD&A) The following table details the changes in DD&A of oil and gas properties between the first quarters of 2015 and 2014:

 

     For the Quarter
Ended
March 31,
 
     (In millions)  

2014 DD&A

   $ 1,109  

Volume change

     (46

DD&A Rate change

     26  
  

 

 

 

2015 DD&A

$ 1,089  
  

 

 

 

Recurring full-cost depletion expense decreased $20 million compared to the prior-year quarter on an absolute dollar basis: $46 million from lower volumes, partially offset by an increase of $26 million from a higher average cost rate per boe. Our full-cost depletion rate increased $0.87 to $20.13 per boe reflecting increased cost for exploration and development activity over the past several years.

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.

 

27


During the first quarter of 2015, we recorded $5.2 billion ($3.4 billion net of tax), $1.4 billion ($1.0 billion net of tax), and $632 million ($316 million net of tax) in non-cash write-downs of the carrying value of the Company’s U.S., Canada, and North Sea proved oil and gas properties, respectively. If commodity prices do not recover significantly from the current prices, the Company expects further write-downs of the carrying value of its oil and gas properties, which may be material to the Company’s consolidated financial statements, throughout the remainder of 2015.

Lease Operating Expenses (LOE) LOE decreased $59 million, or 10 percent, on an absolute dollar basis, for the quarter ended March 31, 2015, relative to the comparable period of 2014. On a per unit basis, LOE decreased 4 percent to $9.94 per boe for the first quarter of 2015, as compared to the same prior-year period. The following table identifies changes in Apache’s LOE rate between the first quarter of 2015 and 2014.

 

     Per boe  

First-Quarter 2014 LOE

   $ 10.37  

Divestitures (1)

     0.35  

Equipment rental

     0.20  

Saltwater disposal

     0.10  

Workover costs

     (0.16

Labor and overhead costs

     (0.16

Power and fuel costs

     (0.32

FX impact

     (0.45

Other

     0.24  

Other increased production

     (0.23
  

 

 

 

First-Quarter 2015 LOE

$ 9.94  
  

 

 

 

 

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

Gathering and Transportation Gathering and transportation costs totaled $56 million in the first quarter of 2015, down $14 million from the first quarter of 2014 on lower North American production. On a per-unit basis, gathering and transportation costs of $1.02 for the first quarter of 2015 were down 14 percent from the prior-year quarter. 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
March 31,
 
     2015      2014  
     (In millions)  

Canada

   $ 26      $ 34  

U.S.

     16        22  

Egypt

     10        10  

North Sea

     4        4  
  

 

 

    

 

 

 

Total Gathering and transportation

$ 56   $ 70  
  

 

 

    

 

 

 

Taxes other than Income Taxes other than income totaled $84 million for the first quarter of 2015, a decrease of $97 million from the comparative prior-year period. The following table presents a comparison of these expenses:

 

     For the Quarter Ended
March 31,
 
     2015      2014  
     (In millions)  

Australia PRRT and U.K. PRT

   $ 24      $ 63  

Severance taxes

     30        73  

Ad valorem taxes

     24        40  

Other

     6        5  
  

 

 

    

 

 

 

Total Taxes other than income

$ 84   $ 181  
  

 

 

    

 

 

 

 

28


Australia Petroleum Resource Rent Tax (PRRT) is a levy assessed on the sale of hydrocarbons derived from specific developmental areas in Australia. The North Sea Petroleum Revenue Tax (PRT) is assessed on qualifying fields in the U.K. North Sea. For the first quarter of 2015, Australian PRRT and U.K. PRT were $39 million lower than the 2014 period based on a decrease in revenues from qualifying fields during the first quarter. Severance tax expense and ad valorem tax expense decreased $43 million and $16 million, respectively, on lower production and oil and gas prices.

General and Administrative Expenses General and administrative expenses (G&A) for the first quarter of 2015 decreased $24 million from the comparable 2014 period on lower incentive and stock-based compensation costs following a headcount reduction in January 2015, as well as other lower corporate costs and foreign exchange benefits.

Acquisition, Divestiture, and Separation Costs Acquisition, divestiture, and separation costs for the first quarter of 2015 totaled $54 million, a $36 million increase as compared to the prior-year quarter, primarily driven by separation payments and other costs related to an overall headcount reduction of approximately 5 percent, as well as the retirement of our former Chairman and Chief Executive Officer during the quarter. Acquisition, divestiture, and separation costs for the period also include costs related to recent divestiture and leasehold acquisition activity.

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

 

     For the Quarter Ended
March 31,
 
     2015      2014  
     (In millions)  

Interest expense

   $ 128      $ 124  

Amortization of deferred loan costs

     2        2  

Capitalized interest

     (80      (95

Interest income

     (4      (4
  

 

 

    

 

 

 

Financing costs, net

$ 46   $ 27  
  

 

 

    

 

 

 

Net financing costs increased $19 million in the first quarter of 2015 compared to the same 2014 period primarily from a $15 million decrease in capitalized interest as a result of divestitures made throughout 2014 and a $4 million increase in interest expense during 2015.

Provision for Income Taxes The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

On March 26, 2015, U.K. Finance Bill 2015 received Royal Assent. Under the enacted legislation, the corporate income tax rate on North Sea oil and gas profits was reduced from 62 percent to 50 percent effective January 1, 2015. As a result of the enacted legislation in the first quarter of 2015, the Company recorded a discrete deferred tax benefit of $619 million related to the remeasurement of the Company’s December 31, 2014 U.K. deferred income tax liability.

The 2015 first-quarter income tax benefit was $2.9 billion, representing an effective income tax rate of 38 percent for the quarter compared to 40 percent during the 2014 period. The 2015 effective rates reflect the tax benefit from the $7.2 billion non-cash write-downs of our U.S., Canada, and North Sea proved oil and gas properties, the tax benefit related to the change in U.K. income tax rate from 62 percent to 50 percent, and the Canadian valuation allowance. The 2014 effective rate reflects the Canadian valuation allowance and deferred tax expense related to mark-to-market commodity derivatives. Excluding these items, the first-quarter 2015 and 2014 effective rates would have been 28 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.

Apache’s operating cash flows, both in the short-term and the long-term, are impacted by highly 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.

 

29


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.

We believe the liquidity and capital resource alternatives available to Apache, combined with proactive measures to adjust our capital budget to reflect lower oil prices and anticipated operating 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 commitments and 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 2014 fiscal year.

Sources and Uses of Cash

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

 

     For the Three Months Ended
March 31,
 
     2015      2014  
     (In millions)  

Sources of Cash and Cash Equivalents:

     

Net cash provided by continuing operating activities

   $ 650      $ 2,211  

Commercial paper and bank loan borrowings, net

     1,028        —    

Net cash provided by Argentina discontinued operations

     —          788  

Other

     15        9  
  

 

 

    

 

 

 
  1,693     3,008  
  

 

 

    

 

 

 

Uses of Cash and Cash Equivalents:

Capital expenditures (1)

$ 1,991   $ 2,706  

Leasehold and property acquisitions

  92     44  

Dividends paid

  94     79  

Treasury stock activity, net

  —       484  

Other

  56     2  
  

 

 

    

 

 

 
  2,233     3,315  
  

 

 

    

 

 

 

Increase (decrease) in cash and cash equivalents

$ (540 $ (307
  

 

 

    

 

 

 

 

(1)   The table presents capital expenditures on a cash basis; therefore, the amounts may differ from those discussed elsewhere in this document, which include accruals.

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 three months of 2015 totaled $650 million, a decrease of $1.6 billion from the first three months of 2014. The decrease is primarily a result of the loss from operations from low oil prices and lower production during the first quarter of 2015 and changes in working capital.

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.

Commercial paper and bank loan borrowings During the first quarter of 2015, Apache’s net borrowings on committed bank facilities, uncommitted bank lines, and commercial paper totaled $1.0 billion. Outstanding debt under these programs totaled $2.6 billion as of March 31, 2015, and was classified as current on Apache’s consolidated balance sheet based on an intent to repay the obligations with proceeds from the LNG project divestitures. All current debt was repaid in April 2015 upon closing of those divestitures.

 

30


Capital Expenditures Worldwide E&D expenditures for the first three months of 2015 totaled $1.8 billion, compared to $2.3 billion for the first three months of 2014. Apache’s E&D capital spending was primarily focused on North American onshore assets. With the focused reduction of drilling rigs and activity occurring during the first quarter of 2015, we expect capital expenditures to be significantly reduced for the remainder of the year. In the North America onshore region, Apache operated an average of 32 drilling rigs during the first quarter of 2015.

Apache also completed leasehold and property acquisitions totaling $92 million and $44 million during the first quarters of 2015 and 2014, respectively. Our 2015 acquisition investments continue to focus on adding new leasehold positions to our North American onshore portfolio.

Apache’s investment in gas gathering, transmission, and processing (GTP) facilities totaled $223 million during the first quarter of 2015 compared to $344 million in the comparative prior-year period.

Dividends For the three-month periods ended March 31, 2015 and 2014, the Company paid $94 million and $79 million, respectively, in dividends on its common stock.

Liquidity

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

 

     March 31,
2015
    December 31,
2014
 
     (In millions of dollars, except as indicated)  

Cash and cash equivalents

   $ 229     $ 769  

Total debt

     12,273       11,245  

Equity

     23,405       28,137  

Available committed borrowing capacity

     2,702       3,730  

Percent of total debt-to-capitalization

     34     29

Cash and cash equivalents We had $229 million in cash and cash equivalents as of March 31, 2015, compared to $769 million at December 31, 2014. At March 31, 2015, approximately $210 million of the cash was held by foreign subsidiaries. The cash held by foreign subsidiaries is subject to additional U.S. income taxes if repatriated. The majority of the cash is invested in highly liquid, investment grade securities with maturities of three months or less at the time of purchase.

Debt As of March 31, 2015, outstanding debt, which consisted of notes, debentures, commercial paper, committed bank facilities, and uncommitted bank lines, totaled $12.3 billion. Current debt of $2.6 billion was outstanding as of March 31, 2015.

Available committed borrowing capacity As of March 31, 2015, the Company had unsecured committed revolving syndicated bank credit facilities totaling $5.3 billion, of which $2.0 billion matures in December 2015, $1.0 billion matures in August 2016, and $2.3 billion matures in June 2018. Apache has $2.0 billion, $1.7 billion, and $1.0 billion U.S. facilities, a $300 million Australian facility, and a $300 million Canadian facility. As of March 31, 2015, available borrowing capacity under the Company’s credit facilities was $2.7 billion. The Company’s committed credit facilities are used to support Apache’s commercial paper program.

The Company has a $5.0 billion commercial paper program, which allows Apache to borrow funds for up to 270 days at competitive interest rates. As of March 31, 2015, the Company had $2.6 billion in current debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines. This amount was classified as current on Apache’s consolidated balance sheet based on an intent to repay the obligations with the proceeds from the LNG project divestitures. All current debt was repaid in April 2015 upon closing of those divestitures.

The Company was in compliance with the terms of all credit facilities as of March 31, 2015.

Percent of total debt-to-capitalization The Company’s debt-to-capitalization ratio at March 31, 2015 and December 31, 2014 was 34 percent and 29 percent, respectively.

 

31


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 53 percent to $47.56 per barrel in the first quarter of 2015 from $101.03 per barrel in the comparable period of 2014. Our average natural gas price realizations decreased 30 percent to $3.14 per Mcf from $4.46 per Mcf in the comparable period of 2014.

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. Apache periodically uses futures contracts, swaps, and options to mitigate commodity price risk. Apache does not hold or issue derivative instruments for trading purposes. As of March 31, 2015, Apache had no open commodity derivative positions.

Interest Rate Risk

The Company considers its interest rate risk exposure to be minimal as a result of fixing interest rates on approximately 79 percent of the Company’s debt. At March 31, 2015, total debt included $2.6 billion of floating-rate debt. As a result, Apache’s annual interest costs will fluctuate based on short-term interest rates on approximately 21 percent of our total debt outstanding at March 31, 2015. The impact on cash flow of a 10 percent change in the floating interest rate based on debt balances at March 31, 2015, would be approximately $588,570 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 mixture of fixed-price U.S. dollar and Australian dollar 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 10 percent strengthening or weakening of the Australian dollar, Canadian dollar, and British pound as of March 31, 2015, would result in a foreign currency net loss or gain, respectively, of approximately $163 million.

 

32


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, 2014, 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 derivative and hedging arrangements;

 

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

 

    production and reserve levels;

 

    drilling risks;

 

    economic and competitive conditions;

 

    the availability of capital resources;

 

    capital expenditure and other contractual obligations;

 

    currency exchange rates;

 

    weather conditions;

 

    inflation rates;

 

    the availability of goods and services;

 

    legislative or regulatory changes;

 

    the impact on our operations due to changes in the Egyptian government;

 

    the integration of acquisitions;

 

    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, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in our most recently filed Annual Report on Form 10-K, other risks and uncertainties in our first-quarter 2015 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.

 

33


ITEM 4 – CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

John J. Christmann, the Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and Stephen J. Riney, 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 March 31, 2015, 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 Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, and Note 7—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 both Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, 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

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 December 31, 2014, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company has not purchased any additional shares during 2015, and is not obligated to acquire any specific number of shares.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

 

ITEM 4. MINE SAFETY DISCLOSURES

None

 

ITEM 5. OTHER INFORMATION

None

 

34


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 February 19, 2015 (incorporated by reference to Exhibit 3.1

to Registrant’s Current Report on Form 8-K filed February 23, 2015, SEC File No. 001-4300).

*10.1

Form of 2015 Performance Share Program Award Notice and Agreement.

*10.2

2015 Long Term Cash Performance Program Award Notice and Agreement between

Registrant and Stephen J. Riney, dated April 8, 2015.

10.3

Retirement Agreement, dated January 19, 2015, between Registrant and G. Steven Farris

(incorporated by reference to Exhibit 10.39 to Registrant’s Annual Report on Form 10-K for

the year ended December 31, 2014, SEC File No. 001-4300).

10.4

Amendment of Stock Option Grants (2011 Omnibus Equity Compensation Plan), dated

January 20, 2015, between Registrant and G. Steven Farris (incorporated by reference to

Exhibit 10.63 to Registrant’s Annual Report on Form 10-K for the year ended December 31,

2014, SEC File No. 001-4300).

10.5

Amendment of Restricted Stock Unit Awards (2007 and 2011 Omnibus Equity Compensation

Plans), dated January 20, 2015, between Registrant and G. Steven Farris (incorporated by

reference to Exhibit 10.64 to Registrant’s Annual Report on Form 10-K for the year ended

December 31, 2014, SEC File No. 001-4300).

10.6

Amendment of 2014 Performance Program (Business Performance) Award (2011 Omnibus

Compensation Plan), dated January 20, 2015, between Registrant and G. Steven Farris

(incorporated by reference to Exhibit 10.65 to Registrant’s Annual Report on Form 10-K for

the year ended December 31, 2014, SEC File No. 001-4300).

*10.7

Restricted Stock Unit Award Agreement between Registrant and John J. Christmann, dated February 18, 2015.

*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 

XBRLDefinition Linkbase Document.

* Filed herewith

 

35


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: May 7, 2015

/s/ STEPHEN J. RINEY

Stephen J. Riney

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Dated: May 7, 2015

/s/ REBECCA A. HOYT

Rebecca A. Hoyt

Senior Vice President, Chief Accounting Officer,

and Controller

(Principal Accounting Officer)

 

36

Exhibit 10.1

SCHEDULE A

Apache Corporation

2015 Performance Share Program

AWARD NOTICE

 

Recipient Name: [Name]
Company: Apache Corporation
Notice: A summary of the terms of Conditional Grants of Restricted Stock Units (“RSUs”) under the 2015 Performance Share Program is set out in this notice (the “Award Notice”) but subject always to the terms of the Apache Corporation 2011 Omnibus Equity Compensation Plan (the “Plan”) and the 2015 Performance Share Program Agreement (the “Agreement”). In the event of any inconsistency between the terms of this Award Notice, the terms of the Plan and the Agreement, the terms of the Plan and the Agreement shall prevail.
Selected Eligible Persons have been awarded a conditional grant of Apache Corporation RSUs in accordance with the terms of the Plan and the Agreement.
Details of the RSUs which you are conditionally entitled to receive is provided to you in this Award Notice and maintained on your account at netbenefits.fidelity.com
Type of Award: A conditional award of RSUs based on a target percentage of annual base salary determined at the beginning of the Performance Period derived from job level (the “Conditional Grant”). RSUs granted pursuant to this Conditional Grant are not eligible for dividends or dividend equivalents.
Restricted Stock Unit: A Restricted Stock Unit (“RSU”) as defined in the Plan and meaning the right granted to the Recipient of the Conditional Grant, as adjusted at the end of the Performance Period, to receive one share of Stock for each Restricted Stock Unit at the end of the specified Vesting Period.
Stock: The $0.625 par value common stock of the Company or as otherwise defined in the Plan.
Grant: A Conditional Grant related to              Restricted Stock Units (“Target Amount”)
Grant Date: [Date]

 

1


Conditions: Subject always to the terms of the Plan and the Agreement, the Conditional Grant of RSUs shall be made as of the Grant Date. At the end of the Performance Period, the Committee shall derive and confirm the number of Conditional Grant RSUs that will actually be awarded as RSUs to the Recipient based upon measurement of the specific performance goals, applicable performance percentage levels and applicable weighting percentages during the Performance Period as set forth in Schedule B to the Agreement, provided that the Recipient remains an Eligible Person and employed by the Company or its Affiliate as of the final day of the Performance Period. Once granted at the conclusion of the Performance Period, such RSUs shall remain subject to a vesting schedule (as set forth below) (the “Vesting Period”). Once vested, the Recipient shall be paid the value of his or her RSUs in shares of Stock (net of shares withheld for applicable tax withholdings) provided that the Recipient remains employed as an Eligible Person during the Vesting Period including the vesting date.
Performance Measure: The performance measures for the Conditional Grant, the performance percentage levels, and the applicable weighting percentages to be applied over the Performance Period are set forth on Schedule B to the Agreement.
At the end of the Performance Period, the Committee shall determine and certify the attainment of each performance goal based on the established performance percentage levels and apply the applicable weighting percentages to determine the Final Amount of RSUs to be awarded to each Recipient.
Performance Period: The three-year period commencing January 1, 2015 and ending December 31, 2017.
Vesting Period: Except upon a change of control (as described below), death, or total and permanent disability (as described below), cessation of employment during the Performance Period shall result in the immediate forfeiture of the entire amount of the Conditional Grant. To the extent all or a part of a Conditional Grant RSU award is earned as of the end of the Performance Period, an award equal to the Final Amount shall be made in RSUs to the Recipient as soon as administratively practical, but not later than March 15 following the end of the Performance Period. Any such RSUs awarded shall vest in accordance with the following schedule, provided that the Recipient remains employed as an Eligible Person as of such vesting date:
First day following the close of the Performance Period – 50% vested.

 

2


First anniversary of the first day following the close of the Performance Period – an additional 50% vested.
Except as described below, cessation of employment will result in the immediate forfeiture of all unvested RSUs.
Vesting is accelerated to 100% upon the Recipient’s death or total and permanent Disability during the Performance Period or the subsequent Vesting Period. Upon death or total and permanent Disability during the Performance Period, the number of RSUs (and related shares of Stock) granted shall be deemed to be 1.00 times the Conditional Grant amount of RSUs (the Target Amount). Upon vesting, the applicable shares of Stock, subject to required tax withholding, shall be transferred by the Company to the Recipient (or, in the event of the Recipient’s death, to his beneficiary) within thirty (30) days of the vesting date. The Recipient can name a beneficiary on a form approved by the Committee.
Vesting is accelerated to 100% upon a Recipient’s Involuntary Termination or Voluntary Termination with Cause occurring (i) on or after a 409A Change of Control during the Vesting Period provided that the Recipient is an Eligible Person at the time of such termination and (ii) after completion of the Performance Period. Upon vesting, the applicable shares of Stock, subject to required tax withholding, shall be transferred by the Company to the Recipient within thirty (30) days of the vesting date.
In the event of the Recipient’s Involuntary Termination or Voluntary Termination with Cause which occurs (i) on or after a 409A Change of Control of the Company and (ii) on or prior to the end of the Performance Period, the Recipient will become 100% fully vested upon the occurrence of his Involuntary Termination or Voluntary Termination with Cause on or after the 409A Change of Control in the number of RSUs determined by applying the multiple of 1.00 to the Target Amount. Upon vesting, the applicable shares of Stock, subject to required tax withholding, shall be transferred by the Company to the Recipient within thirty (30) days of the later of (i) the date of the Recipient’s Involuntary Termination or Voluntary Termination with Cause or (ii) the end of the Performance Period. Notwithstanding the foregoing, if the payment of the Final Amount is subject to Internal Revenue Code Section 409A, payment will not occur until the earlier of (1) the date payment would have been due if the 409A Change of Control had not occurred or (2) the date that the 409A Change of Control

 

3


constitutes a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Internal Revenue Code Section 409A(a)(2)(A)(v).
If, during the Vesting Period, and after the end of the Performance Period, the Recipient’s termination of employment from the Company and the Affiliates occurs by reason of his or her Retirement, the Recipient may be deemed to continue to be employed as an Eligible Person for purposes of this Grant and may continue to vest over the Vesting Period provided that the Recipient meets the Retirement Conditions set forth in section 6 of the Agreement. In the event of a 409A Change of Control during such continued Vesting Period, vesting is accelerated to 100%.
Withholding: The Company and the Recipient will comply with all federal and state laws and regulations respecting the required withholding, deposit and payment of any income, employment or other taxes relating to the Grant.
Acceptance Please complete the on-line grant acceptance as promptly as possible to accept or reject your Conditional Grant. You can access this through your account at netbenefits.fidelity.com. By accepting your Conditional Grant, you will have agreed to the terms and conditions set forth in the Agreement, including, but not limited to, the non-compete and non-disparagement provisions set forth in sections 6 and 7 of the Agreement, and the terms and conditions of the Plan. If you do not accept your grant you will be unable to receive your Conditional Grant or the related RSUs.

 

4


SCHEDULE B

Apache Corporation

2015 Performance Share Program

PERFORMANCE MEASURES

 

Performance Goals: 1. Total Shareholder Return
At the end of the Performance Period, the Committee shall derive and confirm a portion of the number of Conditional Grant RSUs that will actually be awarded as RSUs to the Recipient based upon measurement of total shareholder return (“TSR”) of Stock as compared to a designated Peer Group during the Performance Period, provided that the Recipient remains an Eligible Person and employed by the Company or its Affiliate as of the final day of the Performance Period.
TSR is determined by dividing (i) the sum of the cumulative amount of a company’s dividends for the performance period (assuming same-day reinvestment into the company’s common stock on the ex-dividend date) and the share price of the company at the end of the performance period minus the share price at the beginning of the performance period by (ii) the share price at the beginning of the performance period.
Begin Price = Average per share closing price of a share or share equivalent on the applicable stock exchange for the 60 business (trading) days preceding the beginning of the performance period
End Price = Average per share closing price of a share or share equivalent on the applicable stock exchange for the last 60 business (trading) days of the performance period
Dividends = Includes dividends paid throughout performance period
TSR ranking compared to designated Peer Group (11 companies selected)

•    Anadarko Petroleum Corporation

•    Chesapeake Energy Corporation

•    ConocoPhillips Company

 

5


   

•    Devon Energy Corporation

   

•    EOG Resources, Inc.

   

•    Hess Corporation

   

•    Marathon Oil Corporation

   

•    Murphy Oil Corporation

   

•    Noble Energy Inc.

   

•    Occidental Petroleum Corporation

   

•    Pioneer Natural Resources Co.

    Apache’s performance over a three-year performance period will be directly ranked within the peer group, resulting in the application of a single multiplier to the target shares to derive the number of shares awarded. The multiplier will range from 0 for performance in the bottom quartile to 1.5 for ranking 1 st among the peer group.
    Should consolidation among peers in the marketplace occur, the ranking schedule would adjust to accommodate the reduced number of peers.
 

2. Business Performance

 

At the end of the Performance Period, the Committee shall derive and confirm a portion of the number of Conditional Grant RSUs that will actually be awarded as RSUs to the Recipient based upon quantitative performance measures related to the following criteria:

   

•  Cash Flow from Operations; and

 

   

•  Reserves Added per Debt Adjusted Share

 

The Committee will consider all of the above performance measures related to the Company as a whole as follows:

 

Metric

   Weighting     Threshold     Target   Max

Total Shareholder Return

     50     9 th      Between 6 th  - 7 th   1 st  – 3 rd

Cash Flow from Operations

     25     -10   Plan   +10%

Reserves added per debt adjusted share

     25     -10   Plan   +10%

 

Performance Period:    Three calendar years   
    1/1/2015 to 12/31/17

 

6


Measurement:   At the conclusion of the three-year performance period, a calculation of TSR performance will be made and confirmed. 50% of the total Target Amount of RSUs will be determined based upon the final TSR performance as follows:

 

Rank Against Peers

   Payout
Multiple
 

1

     1.50   

2

     1.50   

3

     1.50   

4

     1.30   

5

     1.20   

6

     1.10   

7

     0.90   

8

     0.80   

9

     0.70   

10

     0.00   

11

     0.00   

12

     0.00   

 

  Cash Flow from Operations will be evaluated annually during the three-year performance period against their respective performance targets as determined at the beginning of each year (performance target for each calendar year to be determined prior to March 31). Performance will be measured as a percentage above or below target. 25% of the total Target Amount of RSUs will be determined based upon the three-year average of the Cash Flow from Operations performance.
  Reserves Added per Debt Adjusted Share will be evaluated annually during the three-year performance period against their respective performance targets as determined at the beginning of each year (performance target for each calendar year to be determined prior to March 31). Performance will be measured as a percentage above or below target. 25% of the total Target Amount of RSUs will be determined based upon the three-year average Reserves Added per Debt Adjusted Share.

 

7


  The three-year average performance for cash flow from operations and reserves added per debt adjusted share will be interpolated as follows to determine the final achievement percentage for each metric.

 

Metric

   Threshold
(50%)
    Target
(100%)
   Max
(150%)
 

Cash Flow from Operations

     -10   Plan      +10

Reserves added per debt adjusted share

     -10   Plan      +10

 

  If Apache’s absolute TSR for the performance period is negative, the RSU grant will be capped at target (100%), regardless of the percentage achieved.

 

8


Apache Corporation

2015 Performance Share Program Agreement

This 2015 Performance Share Program Agreement (the “Agreement”) relating to a conditional grant of Restricted Stock Units (as defined in the rules of the Apache Corporation 2011 Omnibus Equity Compensation Plan (the “Plan”) (the “Conditional Grant”), dated as of the Grant Date set forth in the Notice of Award under the 2015 Performance Share Program attached as Schedule A hereto (the “Award Notice”), is made between Apache Corporation (together with its Affiliates, the “Company”) and each Recipient. The Award Notice is included in and made part of this Agreement.

In this Agreement and each Award Notice, unless the context otherwise requires, words and expressions shall have the meanings given to them in the Plan except as herein defined.

Definitions

409A Change of Control ” means a Change of Control that constitutes, with respect to the Company, a “change in the ownership or effective control of the corporation, or in the ownership of a substantial portion of the assets of the corporation” within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code of 1986, as amended (the “Code”) and Treasury Regulations Section 1.409A-3(i)(5).

Award Notice ” means the separate notice, along with Schedule B, given to each Recipient specifying the Target Amount and other applicable performance percentage levels, performance criteria and applicable weighting percentages for that individual.

Base Salary ” means, with regard to any Recipient, such Recipient’s annual base compensation as an employee of the Company determined immediately prior to the beginning of the Performance Period, without regard to any bonus, pension, profit sharing, stock option, life insurance or salary continuation plan which the Recipient either receives or is otherwise entitled to have paid on his or her behalf.

Conditional Grant ” means the conditional entitlement, evidenced by this Agreement to receive all or a portion of a Target Amount and Final Amount, subject to and in accordance with the provisions of this Agreement.

Disability ” means total and permanent disability as determined pursuant to the Company’s Group Long-Term Disability Plan or any successor.

Fair Market Value ” means the closing price of the Stock as reported on The New York Stock Exchange, Inc. Composite Transactions Reporting System (“Composite Tape”) for a particular date or, if the Stock is not so listed at any time, as reported on NASDAQ or on such other exchange or electronic trading system as, on the date in question, reports the largest number of traded shares of stock. If there are no Stock transactions on such date, the Fair Market

 

9


Value shall be determined as of the immediately preceding date on which there were Stock transactions. If the foregoing provisions are not applicable, the fair market value of a share of the Stock shall be as determined by the Committee by the reasonable application of such reasonable valuation method, consistently applied, as the Committee deems appropriate.

Final Amount ” means with regard to any Recipient, such number of shares of Restricted Stock Units (“RSUs”) as specified in each Recipient’s Award Notice, times the applicable multiple factor determined under the Performance Measures at the end of the Performance Period.

Involuntary Termination ” means the termination of employment of the Recipient by the Company or its successor for any reason on or after a 409A Change of Control; provided, that the termination does not result from an act of the Recipient that (i) constitutes common-law fraud, a felony, or a gross malfeasance of duty, or (ii) is materially detrimental to the best interests of the Company or its successor.

Payout Amount ” means the vested portion of the Final Amount expressed as shares of Stock underlying the RSUs.

Peer Group ” means the group of companies selected by the Committee for purposes of this Agreement as set forth in the Award Notice. Should consolidation among any Peer Group companies in the marketplace occur during the Performance Period, the Committee will determine the appropriate adjustments to accommodate the reduced number of Peer Group companies for the Performance Period. Should a Change of Control of the Company occur during the Performance Period, the Committee will determine the appropriate adjustments to measure Apache Corporation’s TSR for the Performance Period. The Peer Group companies for any particular Performance Period shall be determined at the commencement of such Performance Period.

Performance Measures ” means, as set forth in the Award Notice, (i) Apache Corporation’s TSR over the Performance Period compared to the TSR of the Company’s Peer Group over the Performance Period, or (ii) Apache Corporation’s achievement of pre-established performance goals over the Performance Period, as applicable. For purposes of determining TSR performance, at the end of the Performance Period, the Peer Group companies and the Company will be ranked together based on their TSR for the Performance Period from the highest TSR being number 1 to the lowest TSR being the number of Peer Group companies, including the Company, remaining in the group at the end of the Performance Period. Based on the Company’s relative TSR rank amongst the Peer Group companies for the Performance Period, a Recipient who remains employed as of the last day of the Performance Period will be issued RSUs at the close of the Performance Period as determined by the Company’s percentile rank as set forth in the Award Notice (the Final Amount). At the end of the Performance Period, the Committee shall also determine and certify the levels of other specific performance goals achieved and apply the applicable performance percentage levels and weighting percentages as set forth in the Award Notice. Based on the Company’s level of goal achievement, a Recipient who remains employed as of the last day of the Performance Period will be issued RSUs on the day following the close of the Performance Period as determined by the Committee as set forth in the Award Notice (the Final Amount).

 

10


Performance Period ” means the three-year period as specified in the Award Notice.

Recipient ” means an Eligible Person who has been designated by the Committee at the Grant Date at the beginning of the Performance Period to receive one or more Conditional Grants under the Plan. For purposes of this Agreement, the group of Eligible Persons shall include all full-time and designated part-time employees of the Company who are employed as employees of the Company (as designated by the Company for payroll purposes) on the date immediately prior to the beginning of the Performance Period, but excluding Egyptian nationals employed outside of the United States, employees categorized by the Company (for payroll purposes) as non-exempt support and field staff, leased employees, interns, or any employee of the Company who is covered under a collective bargaining agreement, unless such collective bargaining agreement specifically provides for coverage under the Plan.

Retirement ” means, with respect to a Recipient and for purposes of this Agreement, the date the Recipient terminates employment with the Company after (i) attaining age 65 and (ii) earning at least 15 Years of Service.

Years of Service ” means the total number of months from the Recipient’s date of hire by the Company to the date of termination of employment divided by 12.

Target Amount ” means, with regard to any Recipient, such number of RSUs as specified in each Recipient’s Award Notice. Such Target Amount shall be based upon a target percentage of annual Base Salary determined at the beginning of the Performance Period derived from job level.

Total Shareholder Return ” or “ TSR ” is determined by dividing (i) the sum of the cumulative amount of a company’s dividends for the Performance Period (assuming same-day reinvestment into the company’s common stock on the ex-dividend date) and the share price of the company at the end of the Performance Period minus the share price at the beginning of the Performance Period, by (ii) the share price at the beginning of the Performance Period.

Voluntary Termination with Cause ” occurs upon a Recipient’s separation from service of his own volition and one or more of the following conditions occurs without the Recipient’s consent on or after a 409A Change of Control:

 

  (a) There is a material diminution in the Recipient’s base compensation, compared to his rate of base compensation on the date of the 409A Change of Control.

 

  (b) There is a material diminution in the Recipient’s authority, duties or responsibilities.

 

  (c) There is a material diminution in the authority, duties or responsibilities of the Recipient’s supervisor, such as a requirement that the Recipient (or his supervisor) report to a corporate officer or employee instead of reporting directly to the board of directors.

 

11


  (d) There is a material diminution in the budget over which the Recipient retains authority.

 

  (e) There is a material change in the geographic location at which the Recipient must perform his service, including, for example the assignment of the Recipient to a regular workplace that is more than 50 miles from his regular workplace on the date of the 409A Change of Control.

The Recipient must notify the Company of the existence of one or more adverse conditions specified in clauses (a) through (e) above within 90 days of the initial existence of the adverse condition. The notice must be provided in writing to Apache Corporation’s Executive Vice President, Human Resources or his/her delegate. The notice may be provided by personal delivery or it may be sent by email, inter-office mail, regular mail (whether or not certified), fax, or any similar method. Apache Corporation’s Executive Vice President, Human Resources, or his/her delegate shall acknowledge receipt of the notice within 5 business days; the acknowledgement shall be sent to the Recipient by certified mail. Notwithstanding the foregoing provisions of this definition, if the Company remedies the adverse condition within 30 days of being notified of the adverse condition, no Voluntary Termination with Cause shall occur.

Terms

1. Conditional Grant of RSUs . Subject to the provisions of this Agreement and the provisions of the Plan and Award Notice, the Company shall conditionally grant to the Recipient, pursuant to the Plan, a right to receive the Target Amount of RSUs set forth in the Recipient’s Award Notice. Such Target Amount shall be adjusted to a Final Amount at the end of the Performance Period based upon the results of the Performance Measures, as determined by the Committee. Notwithstanding the foregoing, the Target Amount shall be adjusted to a Final Amount of RSUs at the conclusion of the Performance Period solely for each Recipient who remains employed as of the last day of the Performance Period. The award of the Final Amount shall give the Recipient the right, upon vesting, to an equal number of shares of $0.625 par value common stock of the Company (“Stock”).

2. Vesting and Payment of Stock . Subject to the provisions of Section 3, the Payout Amounts shall be payable in increments strictly in accordance with the following schedule:

(a) The entitlement to receive the number of shares of Stock pursuant to the RSUs comprising the Final Amount shall vest fifty percent (50%) and become transferable as of the first day following the close of the Performance Period, provided that the Recipient remains employed as an Eligible Person on such date. Such Stock, subject to applicable withholding, shall be transferred by the Company to the Recipient within thirty (30) days of the vesting date and not later than March 15 of the year following the year in which the RSUs vest.

(b) The entitlement to receive the remaining fifty percent (50%) of the shares of Stock pursuant to the RSUs comprising the Final Amount shall vest and become transferable as of the first anniversary of the first day following the close of the Performance Period, provided that the Recipient remains employed as an Eligible Person on such applicable vesting date. Such Stock, subject to applicable withholding, shall be transferred by the Company to the Recipient within thirty (30) days of the respective vesting date and not later than March 15 of the year following the year in which the RSUs vest.

 

12


3. Termination of Employment, Death, or Disability on or prior to the end of the Performance Period . Except as set forth below, a cessation of employment with the Company prior to the end of the Performance Period will result in the Target Amount being forfeited for all purposes.

(a) If the Recipient dies while employed by the Company, or on the date the Recipient becomes Disabled (as defined in this Agreement), during the Performance Period, the Recipient shall immediately receive an amount equal to the Target Amount of RSUs and shall become 100% vested in such Target Amount. Payment shall occur as soon as administratively convenient following the date the Recipient dies or becomes Disabled, but in no event shall the payment occur later than March 15 of the calendar year immediately following the calendar year in which the Recipient died or became Disabled. If the Recipient dies before receiving payment, the payment shall be made to the Recipient’s designated beneficiary, legal representatives, heirs, or legatees, as applicable. Each Recipient may designate a beneficiary on a form approved by the Committee.

4. Termination of Employment, Retirement, Death or Disability after the end of the Performance Period . Except as set forth below, each Conditional Grant shall be subject to the condition that the Recipient has remained an Eligible Person from the award of the Conditional Grant of RSUs until the applicable vesting date as follows:

(a) If the Recipient voluntarily leaves the employment of the Company (other than for reason of Retirement), or if the employment of the Recipient is terminated by the Company for any reason or no reason, any Final Amounts not previously vested shall thereafter be void and forfeited for all purposes.

(b) A Recipient shall become 100% fully vested in all Final Amounts on the date the Recipient dies while employed by the Company (or while continuing to vest pursuant to section 4(c) below), or on the date the Recipient becomes Disabled (as defined for purposes of this Agreement) while employed by the Company. Payment shall occur as soon as administratively convenient following the date the Recipient dies or becomes Disabled, but in no event shall the payment occur later than March 15 of the calendar year immediately following the calendar year in which the Recipient died or became Disabled. If the Recipient dies before receiving payment, the payment shall be made to the Recipient’s designated beneficiary, legal representatives, heirs, or legatees, as applicable. Each Recipient may designate a beneficiary on a form approved by the Committee.

(c) If the Recipient leaves the employment of the Company by reason of Retirement, any Final Amounts not previously vested may continue to vest following the Recipient’s termination of employment by reason of Retirement after the end of the Performance Period as if the Recipient remained an Eligible Person in the employ of the Company, provided that such Recipient shall be entitled to continue vesting only if such Recipient satisfies the Retirement Conditions set forth in section 6 below (except in the case of death).

 

13


5. Change of Control .

(a) Pursuant to Section 12.1(d) of the Plan, the following provisions of this section 5 of the Agreement shall supersede Sections 12.1(a), (b) and (c) of the Plan. Without any further action by the Committee or the Board, in the event of the Recipient’s Involuntary Termination or Voluntary Termination with Cause which occurs (i) on or after a 409A Change of Control of the Company and (ii) prior to the end of the Performance Period, the Recipient shall become 100% fully vested upon the occurrence of his Involuntary Termination or Voluntary Termination with Cause on or after the 409A Change of Control in the number of RSUs determined by applying the multiple of 1.00 to the Target Amount. Subject to section 13(d) of this Agreement, payment shall occur within thirty (30) days of the later of (1) the date of the Involuntary Termination or Voluntary Termination with Cause of the Recipient following the 409A Change of Control or (2) the end of the Performance Period.

(b) In the event of a Recipient’s Involuntary Termination or Voluntary Termination with Cause occurring on or after a 409A Change of Control of the Company which occurs after the end of the Performance Period, the Recipient shall become 100% fully vested in the Final Amount of RSUs as of the date of his Involuntary Termination or Voluntary Termination with Cause. Subject to section 13(d) of this Agreement, payment shall occur within thirty (30) days of the date of such Involuntary Termination or Voluntary Termination with Cause.

(c) In the event of a 409A Change of Control of the Company following the Recipient’s termination of employment by reason of Retirement after the end of the Performance Period while the Recipient is continuing to vest pursuant to section 4(c), the Recipient shall become 100% fully vested in the unvested Final Amount of RSUs as of the date of the 409A Change of Control. Subject to section 13(d) of this Agreement, payment shall occur within thirty (30) days of the 409A Change of Control.

6. Conditions to Post-Retirement Vesting . If the Recipient has attained age 65 and has completed at least 15 Years of Service and such Recipient terminates employment with the Company and the Affiliates by reason of Retirement, it is agreed by the Company and the Recipient that:

(a) subject to the provisions of this section 6(a) and sections 6(b) and 6(c), such Recipient may continue to vest in the unvested Final Amount of RSUs following the date of his or her termination by reason of Retirement as if the Recipient continued in employment as an Eligible Person provided that the Grant Date of the unvested RSUs is at least three (3) months prior to such termination date and the Recipient has provided not less than three (3) months’ advance written notice prior to such termination date to Apache Corporation’s Executive Vice President, Human Resources, or his or her delegate, and to his or her direct manager, regarding the Recipient’s intent to terminate employment for reason of Retirement; provided , however , a Recipient who is at least age 65 and has completed at least 15 Years of Service need not provide such three (3) months’ advance written notice of his or her intent to terminate employment by reason of Retirement if the Company elects to require such Recipient to, or (as part of a reduction in force or otherwise in writing in exchange for a written release) offers such Recipient the opportunity to, terminate employment with the Company by reason of Retirement; and it is further agreed that

 

14


(b) in consideration for the continued vesting treatment afforded to the Recipient under section 6(a), Recipient shall, during the continuing Vesting Period after Retirement (the “Continued Vesting Period”) refrain from becoming employed by, or consulting with, or becoming substantially involved in the business of, any business that competes with the Company or its Affiliate in the business of exploration or production of oil or natural gas within the geographic area in which the Recipient is working or has worked for the Company or its Affiliate, and/or for which the Recipient is or was responsible, at the time of termination of employment or the immediately preceding three-year period (a “Competitive Business”); provided , that the Recipient may purchase and hold for investment purposes less than five percent (5%) of the shares of any Competitive Business whose shares are regularly traded on a national securities exchange or inter-dealer quotation system, and provided further, that the Recipient may provide services solely as a director to a Competitive Business if, during the Continued Vesting Period, the Recipient is not involved directly in the day-to-day management, supervision or operations of such Competitive Business; and it is further agreed that

(c) in consideration for the continued vesting treatment afforded to the Recipient under section 6(a), Recipient shall, during the Continued Vesting Period, refrain from making, or causing or assisting any other person to make, any oral or written communication to any third party about the Company, any Affiliate and/or any of the employees, officers or directors of the Company or any Affiliate which impugns or attacks, or is otherwise critical of, the reputation, business or character of such entity or person; or that discloses private or confidential information about their business affairs; or that constitutes an intrusion into their seclusion or private lives; or that gives rise to unreasonable publicity about their private lives; or that places them in a false light before the public; or that constitutes a misappropriation of their name or likeness.

Notwithstanding the foregoing provisions of this section 6 of the Agreement, in the event that the Recipient fails to satisfy any of the conditions set forth in sections 6(a), (b) and (c) above, the Recipient shall not be entitled to vest in any unvested Final Amount of RSUs after the date of Retirement and the unvested Final Amount of RSUs subject to this Agreement shall be forfeited.

7. Prohibited Activity . In consideration for this Grant, the Recipient agrees not to engage in any “Prohibited Activity” while employed by the Company or within three years after the date of the Recipient’s termination of employment. A “Prohibited Activity” will be deemed to have occurred, as determined by the Committee in its sole and absolute discretion, if the Recipient (i) divulges any non-public, confidential or proprietary information of the Company, but excluding information that (a) becomes generally available to the public other than as a result of the Recipient’s public use, disclosure, or fault, or (b) becomes available to the Recipient on a non-confidential basis after the Recipient’s employment termination date from a source other than the Company prior to the public use or disclosure by the Recipient, provided that such source is not bound by a confidentiality agreement or otherwise prohibited from transmitting the information by contractual, legal or fiduciary obligation, (ii) directly or indirectly, consults with or becomes affiliated with, participate or engage in, or becomes employed by any business that is competitive with the Company, wherever from time to time conducted throughout the world, including situations where the Recipient solicits or participates in or assists in any way in the solicitation or recruitment, directly or indirectly, of any employees of the Company; or (iii) engages in publishing any oral or written statements about the Company, and/or any of its

 

15


directors, officers, or employees that are disparaging, slanderous, libelous, or defamatory; or that disclose private or confidential information about their business affairs; or that constitute an intrusion into their seclusion or private lives; or that give rise to unreasonable publicity about their private lives; or that place them in a false light before the public; or that constitute a misappropriation of their name or likeness.

8. Payment and Tax Withholding . Upon receipt of any entitlement to Stock under this Agreement and, if applicable, upon the Recipient’s attainment of eligibility to terminate employment by reason of Retirement pursuant to section 4(c), the Recipient shall make appropriate arrangements with the Company to provide for the amount of minimum tax withholding required by law, including without limitation Sections 3102 and 3402 or any successor section(s) of the Internal Revenue Code and applicable state and local income and other tax laws. Upon receipt of entitlement to Stock under this Agreement, each payment of the Payout Amount shall be made in shares of Stock, determined by the Committee, such that the withheld number of shares shall be sufficient to cover the withholding amount required by this Section (including any amount to cover benefit tax charges arising thereon). The payment of a Payout Amount shall be based on the Fair Market Value of the shares of Stock on the applicable date of vesting to which such tax withholding relates. Where appropriate, shares shall be withheld by the Company to satisfy applicable tax withholding requirements rather than paid directly to the Recipient.

9. No Ownership Rights Prior to Issuance of Stock . Neither the Recipient nor any other person shall become the beneficial owner of the Stock underlying the Conditional Grant, nor have any rights of a shareholder (including, without limitation, dividend and voting rights) with respect to any such Stock, unless and until and after such Stock has been actually issued to the recipient and transferred on the books and records of the Company or its agent in accordance with the terms of the Plan and this Agreement.

10. Non-Transferability of Stock . Stock issued pursuant to a Conditional Grant shall not be transferable otherwise than by will or the laws of descent and distribution, subject to the conditions and exceptions set forth in Section 14.2 of the Plan.

11. No Right to Continued Employment . Neither the RSUs or Stock issued pursuant to a Conditional Grant nor any terms contained in this Agreement shall confer upon the Recipient any express or implied right to be retained in the employment or service of the Company for any period, nor restrict in any way the right of the Company, which right is hereby expressly reserved, to terminate the Recipient’s employment or service at any time for any reason or no reason. The Recipient acknowledges and agrees that any right to receive RSUs or Stock pursuant to a Conditional Grant is earned only by continuing as an employee of the Company at the will of the Company, or satisfaction of any other applicable terms and conditions contained in the Plan and this Agreement, and not through the act of being hired, being granted the Conditional Grant, or acquiring RSUs or Stock pursuant to the Conditional Grant hereunder.

12. The Plan . In consideration for this Conditional Grant, the Recipient agrees to comply with the terms of the Plan and this Agreement. This Agreement is subject to all the terms, provisions and conditions of the Plan, which are incorporated herein by reference, and to such regulations as may from time to time be adopted by the Committee. Unless defined herein,

 

16


capitalized terms are used herein as defined in the Plan. In the event of any conflict between the provisions of the Plan and this Agreement, the provisions of the Plan shall control, and this Agreement shall be deemed to be modified accordingly. The Plan and the prospectus describing the Plan can be found on the Company’s HR intranet and the Plan document can be found on Fidelity’s website (netbenefits.fidelity.com). A paper copy of the Plan and the prospectus shall be provided to the recipient upon the Recipient’s written request to the Company at 2000 Post Oak Blvd., Suite 100, Houston, Texas 77056-4400, Attention: Corporate Secretary.

13. Compliance with Laws and Regulations .

(a) The Conditional Grant and any obligation of the Company to deliver RSUs or Stock hereunder shall be subject in all respects to (i) all applicable laws, rules and regulations and (ii) any registration, qualification, approvals or other requirements imposed by any government or regulatory agency or body which the Committee shall, in its discretion, determine to be necessary or applicable. Moreover, the Company shall not deliver any certificates for Stock to the Recipient or any other person pursuant to this Agreement if doing so would be contrary to applicable law. If at any time the Company determines, in its discretion, that the listing, registration or qualification of Stock upon any national securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable, the Company shall not be required to deliver any certificates for Stock to the Recipient or any other person pursuant to this Agreement unless and until such listing, registration, qualification, consent or approval has been effected or obtained, or otherwise provided for, free of any conditions not acceptable to the Company.

(b) It is intended that any Stock received in respect of the Conditional Grant shall have been registered under the Securities Act of 1933 (“Securities Act”). If the Recipient is an “affiliate” of the Company, as that term is defined in Rule 144 under the Securities Act (“Rule 144”), the Recipient may not sell the Stock received except in compliance with Rule 144. Certificates representing Stock issued to an “affiliate” of the Company may bear a legend setting forth such restrictions on the disposition or transfer of the Stock as the Company deems appropriate to comply with Federal and state securities laws.

(c) If, at any time, the Stock is not registered under the Securities Act, and/or there is no current prospectus in effect under the Securities Act with respect to the Stock, the Recipient shall execute, prior to the delivery of any Stock to the Recipient by the Company pursuant to this Agreement, an agreement (in such form as the Company may specify) in which the Recipient represents and warrants that the Recipient is purchasing or acquiring the Stock acquired under this Agreement for the Recipient’s own account, for investment only and not with a view to the resale or distribution thereof, and represents and agrees that any subsequent offer for sale or distribution of any kind of such Stock shall be made only pursuant to either (i) a registration statement on an appropriate form under the Securities Act, which registration statement has become effective and is current with regard to the Stock being offered or sold, or (ii) a specific exemption from the registration requirements of the Securities Act, but in claiming such exemption the Recipient shall, prior to any offer for sale of such Stock, obtain a prior favorable written opinion, in form and substance satisfactory to the Company, from counsel for or approved by the Company, as to the applicability of such exemption thereto.

 

17


(d) This Conditional Grant is intended to comply with, or be exempt from, the applicable requirements of Section 409A of the Code and the rules and regulations issued thereunder and shall be administered accordingly. Notwithstanding anything in this Agreement to the contrary, if the RSUs constitute “deferred compensation” under Section 409A of the Code and any RSUs become payable pursuant to the Recipient’s termination of employment, settlement of the RSUs shall be delayed for a period of six months after the Recipient’s termination of employment if the Recipient is a “specified employee” as defined under Code Section 409A(a)(2)(B)(i) and if required pursuant to Section 409A of the Code. If settlement of the RSUs is delayed, the RSUs shall be settled on the first day of the first calendar month following the end of the six-month delay period. If the Recipient dies during the six-month delay, the RSUs shall be settled and paid to the Recipient’s designated beneficiary, legal representatives, heirs or legatees, as applicable, as soon as practicable after the date of death. Notwithstanding any provision to the contrary herein, payments made with respect to this Conditional Grant may only be made in a manner and upon an event permitted by Section 409A of the Code, and all payments to be made upon a termination of employment hereunder may only be made upon a “separation from service,” as such term is defined in Section 10.1 of the Plan. This Agreement may be amended without the consent of the Recipient in any respect deemed by the Board or the Committee to be necessary in order to preserve compliance with Section 409A of the Code.

14. Notices . All notices by the Recipient or the Recipient’s assignees shall be addressed to the Administrative Agent, Fidelity, through the Recipient’s account at netbenefits.fidelity.com, or such other address as the Company may from time to time specify. All notices to the Recipient shall be addressed to the Recipient at the Recipient’s address in the Company’s records.

15. Other Plans . The Recipient acknowledges that any income derived from the Conditional Grant shall not affect the Recipient’s participation in, or benefits under, any other benefit plan or other contract or arrangement maintained by the Company or any Affiliate.

16. Terms of Employment . The Plan is a discretionary plan. The Recipient hereby acknowledges that neither the plan nor this Agreement forms part of his terms of employment and nothing in the Plan may be construed as imposing on the Company or any Affiliate a contractual obligation to offer participation in the Plan to any employee of the Company or any Affiliate. The Company or any Affiliate is under no obligation to grant further Stock to any Recipient under the Plan. The Recipient hereby acknowledges that if he ceases to be an employee of the Company or any Affiliate for any reason or no reason, he shall not be entitled by way of compensation for loss of office or otherwise howsoever to any sum.

17. Data Protection . By accepting this Agreement (whether by electronic means or otherwise), the Recipient hereby consents to the holding and processing of personal data provided by him to the Company for all purposes necessary for the operation of the Plan. These include, but are not limited to:

(a) administering and maintaining Recipient records;

(b) providing information to any registrars, brokers or third party administrators of the Plan; and

 

18


(c) providing information to future purchasers of the Company or the business in which the Recipient works.

18. Severability . If any provision of this Agreement is held invalid or unenforceable, the remainder of this Agreement shall nevertheless remain in full force and effect, and if any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances, to the fullest extent permitted by law.

*****

 

19

Exhibit 10.2

SCHEDULE A

Apache Corporation

2015 Long Term Cash Performance Program

For

Stephen J. Riney

AWARD NOTICE

 

Recipient Name: Stephen J. Riney
Company: Apache Corporation
Type of Award: A conditional performance award based on a target percentage of annual base salary determined as of the Grant Date (the Conditional Grant ).
Target Amount: 210% of Base Salary
Grant Date: February 19, 2015
Conditions: Subject always to the terms of the Agreement, the Conditional Grant shall be made as of the Grant Date. At the end of the Performance Period, the Committee shall derive and confirm the Final Amount based upon measurement of the specific performance goals, applicable performance percentage levels and applicable weighting percentages during the Performance Period as set forth in Schedule B to the Agreement, provided that the Recipient remains employed by the Company or an Affiliate as of the final day of the Performance Period. Payment of the Final Amount shall be subject to a vesting schedule as set forth below (the “Vesting Period”). Once vested, the Recipient shall be paid the applicable value of his or her vested cash award (subject to applicable withholdings) provided that the Recipient remains employed as an employee of the Company or an Affiliate during the Vesting Period including the respective vesting date.
Performance Measures: The performance measures for the Conditional Grant, the performance percentage levels, and the applicable weighting percentages to be applied over the Performance Period are set forth on Schedule B to the Agreement.
At the end of the Performance Period, the Committee shall determine the attainment of each performance goal based on the established performance percentage levels and apply the applicable weighting percentages to determine the Final Amount to be awarded to the Recipient.
Performance Period: The three-year period commencing January 1, 2015 and ending December 31, 2017.

 

1


 

Vesting Period:

 

Except upon a change of control (as defined in the Agreement), death, or total and permanent disability (as defined in the Agreement), cessation of employment during the Performance Period shall result in the immediate forfeiture of the entire amount of the Conditional Grant. Any Final Amount shall vest in accordance with the schedule set forth in Section 2 of the Agreement.

Vesting is accelerated to 100% upon the Recipient’s death or total and permanent Disability during the Performance Period or the subsequent Vesting Period. Upon death or total and permanent Disability during the Performance Period, the Final Amount shall be determined by applying the multiple of 1.00 to the Target Amount. In addition, vesting is accelerated to 100% upon a Recipient’s Involuntary Termination or Voluntary Termination with Cause occurring (i) on or after a 409A Change of Control during the Vesting Period provided that the Recipient is an employee of the Company at the time of such termination and (ii) after completion of the Performance Period.
In the event of the Recipient’s Involuntary Termination or Voluntary Termination with Cause which occurs (i) on or after a 409A Change of Control of the Company and (ii) on or prior to the end of the Performance Period, the Recipient will become 100% fully vested upon the occurrence of his Involuntary Termination or Voluntary Termination with Cause on or after the 409A Change of Control in the Final Amount determined by applying the multiple of 1.00 to the Target Amount.
Withholding: The Company and the Recipient will comply with all federal and state laws and regulations respecting the required withholding, deposit and payment of any income, employment or other taxes relating to any Payout Amount.
Share Purchase: Recipient agrees and covenants that upon receipt of each cash payment pursuant to this Agreement, Recipient shall invest the same into Apache common stock as soon as practicable after receipt of the cash amounts; provided, however, Recipient may delay such stock purchases (i) if a black-out period is then in effect at the Company, until the expiration of such blackout period; (ii) if he is aware of any material non-public information at the time of the receipt of any cash payment, until such information has been made public; and (iii) if he has sold any Apache common stock in a non-exempt transaction within six months prior to Recipient’s receipt of such cash payment, until such six month period has expired in order to avoid any issues with the short-swing profit recovery provisions of Section 16(b) of the Securities and Exchange Act of 1934.

 

2


 

Acceptance

 

Please sign the Agreement as promptly as possible and return the signed Agreement to Apache Corporation’s Executive Vice President, Human Resources to accept or reject your Conditional Grant. By accepting your Conditional Grant, you will have agreed to the terms and conditions set forth in the Agreement. If you do not accept your grant you will be unable to receive your Conditional Grant or any related cash payments.

 

3


SCHEDULE B

Apache Corporation

2015 Long Term Cash Performance Program

For

Stephen J. Riney

PERFORMANCE MEASURES

 

Performance Goals: 1. Total Shareholder Return
At the end of the Performance Period, the Committee shall derive and confirm a portion of the cash award that will be eligible for payment to the Recipient based upon measurement of total shareholder return (“TSR”) of Stock as compared to a designated Peer Group during the Performance Period, provided that the Recipient remains employed by the Company or an Affiliate as of the final day of the Performance Period.
TSR is determined by dividing (i) the sum of the cumulative amount of a company’s dividends for the performance period (assuming same-day reinvestment into the company’s common stock on the ex-dividend date) and the share price of the company at the end of the performance period minus the share price at the beginning of the performance period by (ii) the share price at the beginning of the performance period.
Begin Price = Average per share closing price of a share or share equivalent on the applicable stock exchange for the 60 business (trading) days preceding the beginning of the performance period
End Price = Average per share closing price of a share or share equivalent on the applicable stock exchange for the last 60 business (trading) days of the performance period
Dividends = Includes dividends paid throughout performance period
TSR ranking compared to designated Peer Group (11 companies selected)
Anadarko Petroleum Corporation
Chesapeake Energy Corporation
ConocoPhillips Company
Devon Energy Corporation
EOG Resources, Inc.

 

4


      Hess Corporation
      Marathon Oil Corporation
      Murphy Oil Corporation
      Noble Energy Inc.
      Occidental Petroleum Corporation
      Pioneer Natural Resources Co.
    Apache Corporation’s performance over a three-year performance period will be directly ranked within the peer group, resulting in the application of a single multiplier to the Target Amount to derive the amount of cash bonus awarded. The multiplier will range from 0 for performance in the bottom quartile to 1.5 for ranking in the top quartile among the Peer Group.
    Should consolidation among peers in the marketplace occur, the ranking schedule would adjust to accommodate the reduced number of peers.
  2. Business Performance
  At the end of the Performance Period, the Committee shall derive and confirm a portion of the cash award that will be eligible for payment to the Recipient based upon quantitative performance measures related to the following criteria:
      Cash Flow from Operations; and
      Reserves Added per Debt Adjusted Share
  The Committee will consider all of the above performance measures related to the Company as a whole as follows:

 

Metric

  Weighting     Threshold     Target   Max
Total Shareholder Return     50     9 th      Between 6 th  - 7 th   1 st  – 3 rd
Cash Flow from Operations     25     -10   Plan   +10%
Reserves added per debt adjusted share     25     -10   Plan   +10%

 

Performance Period:   Three calendar years
 

 

• 1/1/2015 to 12/31/17

 

5


 

Measurement:

 

 

At the conclusion of the three-year performance period, a calculation of TSR performance will be made and confirmed. 50% of the total Target Amount will be determined based upon the final TSR performance as follows:

 

Rank Against Peers

  Payout
Multiple
 

1

    1.50   

2

    1.50   

3

    1.50   

4

    1.30   

5

    1.20   

6

    1.10   

7

    0.90   

8

    0.80   

9

    0.70   

10

    0.00   

11

    0.00   

12

    0.00   

 

  Cash Flow from Operations will be evaluated annually during the three-year performance period against their respective performance targets as determined at the beginning of each year (performance target for each calendar year to be determined prior to March 31). Performance will be measured as a percentage above or below target. 25% of the total Target Amount will be determined based upon the three-year average of the Cash Flow from Operations performance.
  Reserves Added per Debt Adjusted Share will be evaluated annually during the three-year performance period against their respective performance targets as determined at the beginning of each year (performance target for each calendar year to be determined prior to March 31). Performance will be measured as a percentage above or below target. 25% of the total Target Amount will be determined based upon the three-year average Reserves Added per Debt Adjusted Share.

 

6


  The three-year average performance for Cash Flow from Operations and Reserves Added per Debt Adjusted Share will be interpolated as follows to determine the final achievement percentage for each metric.

 

Metric

   Threshold
(50%)
    Target
(100%)
   Max
(150%)
 

Cash Flow from Operations

     -10   Plan      +10

Reserves added per debt adjusted share

     -10   Plan      +10

 

   If Apache Corporation’s absolute TSR for the performance period is negative, the Final Amount will be capped at target (100%), regardless of the percentage achieved.
   Following the calculation of performance achievement, a stock price modifier will be applied to the cash amount upon vesting as follows:
         January 1, 2018 Stock Price Modifier:
        

Apache closing stock price on 1/1/18

        

$67.05*

         January 1, 2019 Stock Price Modifier:
        

Apache closing stock price on 1/1/19

        

$67.05*

     

*  Closing stock price on 2/13/15.

 

7


Apache Corporation

2015 Long Term Cash Performance Program Agreement

for

Stephen J. Riney

This 2015 Long Term Cash Performance Program Agreement (the “Agreement”) relating to a conditional cash performance award dated as of the Grant Date set forth in the Notice of Award under the Agreement attached as Schedule A hereto (the “Award Notice”), is made between Apache Corporation, a Delaware corporation (together with its Affiliates, the “Company,” except