Apache Corporation
APACHE CORP (Form: 10-Q, Received: 08/07/2015 07:11:26)

 

 

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 June 30, 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   41-0747868

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

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

(Address of principal executive offices)

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

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x   No   ¨

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

 

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

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

Number of shares of registrant’s common stock outstanding as of July 31, 2015 377,987,486

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

 

     For the Quarter
Ended June 30,
    For the Six Months
Ended June 30,
 
     2015     2014     2015     2014  
     (In millions, except per common share data)  

REVENUES AND OTHER:

        

Oil and gas production revenues

        

Oil revenues

   $ 1,599     $ 2,797     $ 2,879     $ 5,442  

Gas revenues

     295       505       595       1,065  

Natural gas liquids revenues

     58       169       116       355  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,952       3,471       3,590       6,862  

Derivative instrument gains (losses), net

     —         (174     —         (194

Other

     25       (8     17       9  
  

 

 

   

 

 

   

 

 

   

 

 

 
     1,977       3,289       3,607       6,677  
  

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

        

Depreciation, depletion, and amortization:

        

Oil and gas property and equipment

        

Recurring

     923        1,074       1,922        2,096  

Additional

     5,816        203       13,036        203  

Other assets

     83       81       166       159  

Asset retirement obligation accretion

     36       38       72       76  

Lease operating expenses

     467       560       948       1,108  

Gathering and transportation

     49       66       105       136  

Taxes other than income

     55       177       128       358  

General and administrative

     111       113       193       221  

Transaction, reorganization, and separation costs

     66       14       120       32  

Financing costs, net

     63       52       133       97  
  

 

 

   

 

 

   

 

 

   

 

 

 
     7,669        2,378       16,823        4,486  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     (5,692     911       (13,216     2,191  

Current income tax provision

     665       373       580       740  

Deferred income tax provision (benefit)

     (1,525     (19     (4,460     144  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     (4,832     557       (9,336     1,307  

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

     (732     56       (864     (360
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (5,564     613       (10,200     947  

Net income attributable to noncontrolling interest

     36       108       51       206  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (5,600   $ 505     $ (10,251   $ 741  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS:

        

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

   $ (4,868   $ 449     $ (9,387   $ 1,101  

Net income (loss) from discontinued operations

     (732     56       (864     (360
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

   $ (5,600   $ 505     $ (10,251   $ 741  
  

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) PER COMMON SHARE:

        

Basic net income (loss) from continuing operations per share

   $ (12.89   $ 1.17     $ (24.88   $ 2.83  

Basic net income (loss) from discontinued operations per share

     (1.94     0.14       (2.29     (0.93
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income (loss) per share

   $ (14.83   $ 1.31     $ (27.17   $ 1.90  
  

 

 

   

 

 

   

 

 

   

 

 

 

DILUTED NET INCOME (LOSS) PER COMMON SHARE:

        

Diluted net income (loss) from continuing operations per share

   $ (12.89   $ 1.17     $ (24.88   $ 2.82  

Diluted net income (loss) from discontinued operations per share

     (1.94     0.14       (2.29     (0.93
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per share

   $ (14.83   $ 1.31     $ (27.17   $ 1.89  
  

 

 

   

 

 

   

 

 

   

 

 

 

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

        

Basic

     378       385       377       390  

Diluted

     378       387       377       392  

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.25     $ 0.25     $ 0.50     $ 0.50  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

1


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

     For the Quarter
Ended June 30,
     For the Six Months
Ended June 30,
 
     2015     2014      2015     2014  
     (In millions)  

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

   $ (5,564   $ 613      $ (10,200   $ 947  

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

     (5,564     613        (10,200     946  

Comprehensive income attributable to noncontrolling interest

     36       108        51       206  
  

 

 

   

 

 

    

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (5,600   $ 505      $ (10,251   $ 740  
  

 

 

   

 

 

    

 

 

   

 

 

 

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 Six Months Ended June 30,  
     2015     2014  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss) including noncontrolling interest

   $ (10,200   $ 947  

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

    

Loss from discontinued operations

     864       360  

Depreciation, depletion, and amortization

     15,124       2,458  

Asset retirement obligation accretion

     72       76  

Provision for (benefit from) deferred income taxes

     (4,460     144  

Other

     26       12  

Changes in operating assets and liabilities:

    

Receivables

     333       391  

Inventories

     74       (13

Drilling advances

     118        67  

Deferred charges and other

     (171     (114

Accounts payable

     (410     (131

Accrued expenses

     298       (252

Deferred credits and noncurrent liabilities

     69       4  
  

 

 

   

 

 

 

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES

     1,737       3,949  

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

     196       683   
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     1,933       4,632  

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Additions to oil and gas property

     (2,987     (4,369

Leasehold and property acquisitions

     (128     (112

Additions to gas gathering, transmission, and processing facilities

     (94     (345

Proceeds from sale of Deepwater Gulf of Mexico assets

     —         1,367  

Restricted cash related to divestitures

     —         (1,367

Proceeds from sale of Kitimat LNG

     854       —    

Proceeds from sale of other oil and gas properties

     119       381  

Other, net

     (67     (33
  

 

 

   

 

 

 

NET CASH USED IN CONTINUING INVESTING ACTIVITIES

     (2,303     (4,478

NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS

     4,335       (13
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

     2,032       (4,491

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Commercial paper and bank credit facilities, net

     (1,570     (1

Distributions to noncontrolling interest

     (40     (66

Dividends paid

     (189     (176

Treasury stock activity, net

     —         (1,263

Other

     15       25  
  

 

 

   

 

 

 

NET CASH USED IN CONTINUING FINANCING ACTIVITIES

     (1,784     (1,481

NET CASH USED IN DISCONTINUED OPERATIONS

     —         (42
  

 

 

   

 

 

 

NET CASH USED IN FINANCING ACTIVITIES

     (1,784     (1,523

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     2,181       (1,382

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     769       1,906  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 2,950     $ 524  
  

 

 

   

 

 

 

SUPPLEMENTARY CASH FLOW DATA:

    

Interest paid, net of capitalized interest

   $ 110     $ 62  

Income taxes paid, net of refunds

     218       781  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

3


APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     June 30,
2015
    December 31,
2014
 
     (In millions)  
ASSETS     

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 2,950     $ 769  

Receivables, net of allowance

     1,589       2,024  

Inventories

     629       708  

Drilling advances

     193       388  

Assets held for sale

     —         1,628  

Deferred tax asset

     84       769  

Prepaid assets and other

     48       129  
  

 

 

   

 

 

 
     5,493       6,415  
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

    

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

    

Proved properties

     84,627       89,852  

Unproved properties and properties under development, not being amortized

     5,233       7,014  

Gathering, transmission and processing facilities

     4,299       5,440  

Other

     1,084       1,152  
  

 

 

   

 

 

 
     95,243       103,458  

Less: Accumulated depreciation, depletion, and amortization

     (66,928     (55,382
  

 

 

   

 

 

 
     28,315       48,076  
  

 

 

   

 

 

 

OTHER ASSETS:

    

Deferred charges and other

     1,504       1,461  
  

 

 

   

 

 

 
   $ 35,312     $ 55,952  
  

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY     

CURRENT LIABILITIES:

    

Accounts payable

   $ 710     $ 1,210  

Other current liabilities (Note 3)

     1,673       2,454  
  

 

 

   

 

 

 
     2,383       3,664  
  

 

 

   

 

 

 

LONG-TERM DEBT

     9,676       11,245  
  

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

    

Income taxes

     2,644       9,499  

Asset retirement obligation

     2,534       3,048  

Other

     320       359  
  

 

 

   

 

 

 
     5,498       12,906  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 7)

    

EQUITY:

    

Common stock, $0.625 par, 860,000,000 shares authorized, 411,169,515 and 409,706,347 shares issued, respectively

     257       256  

Paid-in capital

     12,483       12,438  

Retained earnings

     5,809       16,249  

Treasury stock, at cost, 33,181,176 and 33,201,455 shares, respectively

     (2,889     (2,890

Accumulated other comprehensive loss

     (116     (116
  

 

 

   

 

 

 

APACHE SHAREHOLDERS’ EQUITY

     15,544       25,937  

Noncontrolling interest

     2,211       2,200  
  

 

 

   

 

 

 

TOTAL EQUITY

     17,755       28,137  
  

 

 

   

 

 

 
   $ 35,312     $ 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

    —         —         741       —         —         741       206       947  

Distributions to noncontrolling interest

    —         —         —         —         —         —         (66     (66

Commodity hedges, net of tax

    —         —         —         —         (1     (1     —         (1

Common dividends ($0.50 per share)

    —         —         (192     —         —         (192     —         (192

Common stock activity, net

    1       (25     —         —         —         (24     —         (24

Treasury stock activity, net

    —         (1     —         (1,263     —         (1,264     —         (1,264

Compensation expense

    —         99       —         —         —         99       —         99  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2014

  $ 256     $ 12,324     $ 22,581     $ (2,290   $ (116   $ 32,755     $ 2,137     $ 34,892  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT DECEMBER 31, 2014

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

Net income (loss)

    —         —         (10,251     —         —         (10,251     51       (10,200

Distributions to noncontrolling interest

    —         —         —         —         —         —         (40     (40

Common dividends ($0.50 per share)

    —         —         (189     —         —         (189     —         (189

Other

    1       45       —         1       —         47       —         47  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2015

  $ 257     $ 12,483     $ 5,809     $ (2,889   $ (116   $ 15,544     $ 2,211     $ 17,755  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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. During the second quarter of 2015, Apache completed the sale of its Australian LNG business and oil and gas assets. In March 2014, Apache also completed the sale of all of its operations in Argentina. Results of operations and consolidated cash flows for the divested Australia assets and Argentina operations are reflected as discontinued operations in the Company’s financial statements for all periods presented. For more information regarding these divestitures, please refer to Note 2–Acquisitions and Divestitures.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 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, 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 second quarter of 2015, the Company recorded $4.3 billion ($2.8 billion net of tax), $835 million ($617 million net of tax), and $663 million ($331 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. In the first quarter of 2015, the Company recorded $5.3 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. In the second quarter of 2014, the Company recorded a $203 million ($77 million net of tax) non-cash write-down of the carrying value of the Company’s North Sea proved oil and gas properties.

 

6


New Pronouncements Issued But Not Yet Adopted

In April 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. In July 2015, the FASB announced a delay in the effective date of the revenue standard by one year. The deferral results in the new revenue standard being effective for annual and interim periods beginning after December 15, 2017. 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

Canada Divestiture

In April 2015, Apache completed the previously disclosed sale of its 50 percent interest in the Kitimat LNG project and related upstream acreage in the Horn River and Liard natural gas basins to Woodside Petroleum Limited (Woodside). Proceeds at closing were $854 million, of which approximately $345 million were associated with LNG assets and $510 million were associated with upstream assets. The proceeds are subject to customary post-closing adjustments.

The Kitimat LNG assets were impaired in the fourth quarter of 2014 and classified as held for sale on the consolidated balance sheet as of December 31, 2014. No material gain or loss was recognized for the LNG assets upon completion of the sale. No gain or loss was recognized on the sale of the upstream assets. In accordance with full cost accounting rules, sales of oil and gas properties are accounted for as adjustments of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves.

Australia Divestitures

Woodside Sale In April 2015, Apache completed the previously disclosed sale of the Wheatstone LNG project and associated upstream oil and gas assets to Woodside. Proceeds at closing were $2.8 billion, of which approximately $1.4 billion were associated with LNG assets and $1.4 billion were associated with the upstream assets. The proceeds are subject to customary post-closing adjustments.

The Wheatstone LNG assets were impaired in the fourth quarter of 2014 and classified as held for sale on the consolidated balance sheet as of December 31, 2014. No material gain or loss was recognized on the ultimate disposal of the LNG project. A loss of approximately $922 million was recognized on the sale of the Australian upstream assets.

Consortium Sale In June 2015, Apache completed the previously disclosed sale of 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. Total proceeds of $1.9 billion include customary, post-closing adjustments for the period between the effective date, October 1, 2014, and closing. A loss of approximately $1.3 billion was recognized for the sale of AEL.

 

7


Upon closing of the sale of substantially all Australian operations, the associated results of operations for the divested Australian assets and the losses on disposal were classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q. The carrying amounts of the major classes of consolidated assets and liabilities associated with the Australia dispositions were as follows:

 

     December 31,  
     2014  

ASSETS

  

Current assets

   $ 1,992  

Net property and equipment

     6,516  
  

 

 

 

Total assets

   $ 8,508  
  

 

 

 

LIABILITIES

  

Current liabilities

   $ 606  

Asset retirement obligations

     517  

Non-current deferred tax liability

     922  

Other long-term liabilities

     33  
  

 

 

 

Total liabilities

   $ 2,078  
  

 

 

 

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

 

     For the Quarter Ended      For the Six Months Ended  
     June 30,      June 30,  
     2015      2014      2015      2014  
     (In millions)  

Revenues and other from discontinued operations

   $ 101      $ 195      $ 288      $ 482  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss on Woodside sale

   $ (922    $ —        $ (922    $ —    

Loss on Consortium sale

     (1,329      —          (1,329      —    

Income (loss) from divested Australian operations

     (11      68        24        217  

Income tax benefit (expense)

     1,530        (12      1,363        (60
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) from Australian discontinued operations, net of tax

   $ (732    $ 56      $ (864    $ 157  
  

 

 

    

 

 

    

 

 

    

 

 

 

Leasehold and Property Acquisitions

During the second quarter and first six months of 2015, Apache completed $36 million and $128 million, respectively, of leasehold and property acquisitions primarily in our North America onshore regions.

Transaction, Reorganization, and Separation Costs

During the second quarter and first six months of 2015, Apache recorded $66 million and $120 million, respectively, in costs related to various asset transactions, company reorganization, and employee separation costs.

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.

 

8


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.

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. The 2014 loss from Argentina discontinued operations of $517 million is included in “Net income (loss) from discontinued operations, net of tax” on the Consolidated Statement of Operations.

 

     For the Six Months Ended  
     June 30,  
     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 and Property Acquisitions

During the second quarter and first six months of 2014, Apache completed $64 million and $112 million, respectively, of leasehold and property acquisitions primarily in our North America onshore regions.

Transaction, Reorganization, and Separation Costs

During the second quarter and first six months of 2014, Apache recorded $14 million and $32 million, respectively, in costs related to various asset transactions, company reorganization, and employee separation costs.

 

9


3. OTHER CURRENT LIABILITIES

The following table provides detail of our other current liabilities:

 

     June 30,
2015
     December 31,
2014
 
     (In millions)  

Accrued operating expenses

   $ 140      $ 163  

Accrued exploration and development

     682        1,606  

Accrued compensation and benefits

     150        204  

Accrued interest

     155        160  

Accrued income taxes

     352        54  

Current asset retirement obligation

     28        37  

Other

     166        230  
  

 

 

    

 

 

 

Total Other current liabilities

   $ 1,673      $ 2,454  
  

 

 

    

 

 

 

4. ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the six-month period ended June 30, 2015:

 

     (In millions)  

Asset retirement obligation at December 31, 2014

   $ 3,085  

Liabilities incurred

     47  

Liabilities divested

     (619

Liabilities settled

     (67

Accretion expense

     85  

Revisions in estimated liabilities

     31  
  

 

 

 

Asset retirement obligation at June 30, 2015

     2,562  

Less current portion

     (28
  

 

 

 

Asset retirement obligation, long-term

   $ 2,534  
  

 

 

 

Accretion expense for 2015 includes Australia discontinued operations of $13 million, which is included in “Net income (loss) from discontinued operations, net of tax” on the Consolidated Statement of Operations.

5. DEBT AND FINANCING COSTS

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

 

     June 30, 2015      December 31, 2014  
     Carrying
Amount
     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (In millions)  

Commercial paper and committed bank facilities

     —          —          1,570        1,570  

Notes and debentures

     9,676        9,885        9,675        9,944  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

   $ 9,676      $ 9,885      $ 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).

 

10


In June 2015, the Company entered into a $3.5 billion five-year revolving credit facility which matures in June 2020. Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its commercial paper program. In connection with entry into the $3.5 billion facility, Apache terminated existing credit facilities totaling $5.3 billion.

The Company has available a $3.5 billion commercial paper program which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. At June 30, 2015, the Company had no outstanding commercial paper.

On July 30, 2015, the Company gave notice to fully redeem its $500 million 5.625% notes due in 2017 and its $400 million 1.75% notes due in 2017 on September 1, 2015. The notes are being redeemed pursuant to the provisions of each respective note’s indenture using cash on hand.

Financing Costs, Net

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

 

     For the Quarter Ended      For the Six Months Ended  
     June 30,      June 30,  
     2015      2014      2015      2014  
     (In millions)  

Interest expense

   $ 123      $ 124      $ 251      $ 248  

Amortization of deferred loan costs

     2        1        4        3  

Capitalized interest

     (59      (72      (117      (150

Interest income

     (3      (1      (5      (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Financing costs, net

   $ 63      $ 52      $ 133      $ 97  
  

 

 

    

 

 

    

 

 

    

 

 

 

6. INCOME TAXES

The Company estimates its annual effective income tax rate for continuing operations in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash write-downs of the carrying value of the Company’s proved oil and gas properties, statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

During the second quarter of 2015 Apache’s effective tax rate was primarily impacted by an increase in the amount of valuation allowances. The Company repatriated the majority of net cash proceeds from the Kitimat LNG project and Australia divestitures and is now positioned to efficiently repatriate future foreign earnings. The Company utilized an existing deferred tax asset related to net operating losses to offset a portion of the taxable income from the repatriated proceeds. In addition, the Company established a deferred tax asset related to the creditable foreign taxes that accompanied the repatriated proceeds. Management has assessed the potential to utilize foreign tax credit carryforwards and has determined that more likely than not a portion of this deferred tax asset will not be realized. Accordingly the Company recorded tax expense of $853 million related to an increase in valuation allowance associated with the foreign tax credit carryforward.

Apache’s year-to-date effective tax rate is primarily driven by the impact described above, and an increase in the valuation allowance on Canadian deferred tax assets, partially offset by the first quarter deferred tax benefit from the previously announced U.K. tax rate change.

 

11


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 June 30, 2015, the Company has an accrued liability of approximately $15 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 Anónima 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. Plaintiffs claim damages in the range of $7 million to $96 million, depending upon the extent of any remediation that may be ordered. 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 disagrees with plaintiffs’ damage models and will vigorously oppose the claims.

In respect of three lawsuits filed by the Parish of Plaquemines against the Company and other oil and gas producers in the 25 th Judicial District Court for the Parish of Plaquemines, State of Louisiana (captioned Parish of Plaquemines v. Rozel Operating Company et al., Docket No. 60-996; Parish of Plaquemines v. Apache Oil Corporation et al., Docket No. 61-000; and Parish of Plaquemines v. HHE Energy Company et al., Docket No. 60-983), defendants filed notices to remove the cases to the United States District Court for the Eastern District of Louisiana, civil action Nos. 13-6722, 13-6711, and 13-6735. Plaintiff’s motions to remand have been granted.

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.

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 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.

 

12


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 that plaintiffs’ claims lack merit, and further that plaintiffs’ alleged damages are grossly inflated. Apache will vigorously oppose the claims.

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, trial is set to commence in March 2016. Certain Oswal-related proceedings (in which neither the Company nor its subsidiaries are parties) have been cross-vested with these proceedings. The Company and its subsidiaries believe that 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 June 30, 2015, the Company had an undiscounted reserve for environmental remediation of approximately $62 million. The Company is not aware of any environmental claims existing as of June 30, 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.

With respect to the June 1, 2013, leak of produced water from a below ground pipeline in the Zama Operations area in northern Alberta, the Alberta Energy Regulator has completed its investigation of the incident and issued an administrative penalty to Apache Canada Ltd. in the amount of $16,500 CAD. It is possible that additional discharges in Apache Canada Ltd. operating areas, including in the Zama Operations area, could result in additional government fines or sanction.

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.

LNG Divestiture Dispute

In respect of the purchase by Woodside of the Wheatstone and Kitimat LNG projects and accompanying upstream oil and gas reserves from the Company and its subsidiaries, the base purchase price is subject to adjustment in accordance with the terms of the applicable sale and purchase agreement. Woodside has notified the Company and its subsidiaries that it seeks purchase price adjustments in the net amounts of $175 million (for working capital adjustments) and $214 million (for all other adjustments). To the extent the parties are unable to resolve their differences, the dispute will be referred to an independent accounting expert for final determination under the terms of the applicable sale and purchase agreement. The Company believes that under the terms of the sale and purchase agreements, Woodside’s requests for payment of purchase price adjustments lack merit; therefore, the Company has not recorded a liability associated with this dispute.

 

13


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 and six-month periods ended June 30, 2015, and 2014 is presented in the table below.

 

     For the Quarter Ended June 30,  
     2015     2014  
     Loss     Shares      Per Share     Income      Shares      Per Share  
     (In millions, except per share amounts)  

Basic:

  

            

Income (loss) from continuing operations

   $ (4,868     378      $ (12.89   $ 449        385      $ 1.17  

Income (loss) from discontinued operations

     (732     378        (1.94     56        385        0.14  
  

 

 

      

 

 

   

 

 

       

 

 

 

Income (loss) attributable to common stock

   $ (5,600     378      $ (14.83   $ 505        385      $ 1.31  
  

 

 

      

 

 

   

 

 

       

 

 

 

Effect of Dilutive Securities:

               

Stock options and other

     —         —            —          2     

Diluted:

               

Income (loss) from continuing operations

   $ (4,868     378      $ (12.89   $ 449        387      $ 1.17  

Income (loss) from discontinued operations

     (732     378        (1.94     56        387        0.14  
  

 

 

      

 

 

   

 

 

       

 

 

 

Income (loss) attributable to common stock

   $ (5,600     378      $ (14.83   $ 505        387      $ 1.31  
  

 

 

      

 

 

   

 

 

       

 

 

 

 

     For the Six Months Ended June 30,  
     2015     2014  
     Loss     Shares      Per Share     Income
(loss)
    Shares      Per Share  
     (In millions, except per share amounts)  

Basic:

  

           

Income (loss) from continuing operations

   $ (9,387     377      $ (24.88   $ 1,101       390      $ 2.83  

Loss from discontinued operations

     (864     377        (2.29     (360     390        (0.93
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (10,251     377      $ (27.17   $ 741       390      $ 1.90  
  

 

 

      

 

 

   

 

 

      

 

 

 

Effect of Dilutive Securities:

              

Stock options and other

     —         —            —         2     

Diluted:

              

Income (loss) from continuing operations

   $ (9,387     377      $ (24.88   $ 1,101       392      $ 2.82  

Loss from discontinued operations

     (864     377        (2.29     (360     392        (0.93
  

 

 

      

 

 

   

 

 

      

 

 

 

Income (loss) attributable to common stock

   $ (10,251     377      $ (27.17   $ 741       392      $ 1.89  
  

 

 

      

 

 

   

 

 

      

 

 

 

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 8.3 million and 3.2 million for the quarters ended June 30, 2015 and 2014, respectively, and 8.3 million and 5 million for the six months ended June 30, 2015, and 2014, respectively.

Common and Preferred Stock Dividends

For the quarters ended June 30, 2015, and 2014, Apache paid $95 million and $97 million, respectively, in dividends on its common stock. For the six months ended June 30, 2015, and 2014, Apache paid $189 million and $176 million, respectively.

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.

 

14


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 June 30, 2015, the Company had production in four countries: the United States, Canada, Egypt, and the United Kingdom (U.K.) North Sea. Apache also pursues exploration interests in other countries that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:

 

     United                        Other         
     States     Canada     Egypt (1)      North Sea     International      Total (3)  
     (In millions)  

For the Quarter Ended June 30, 2015

              

Oil and Gas Production Revenues

   $ 767     $ 138     $ 664      $ 383     $ —        $ 1,952  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating Income (Loss) (2)

   $ (4,224   $ (886   $ 214      $ (581   $ —        $ (5,477
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

Other Income (Expense):

              

Other

                 25  

General and administrative

                 (111

Transaction, reorganization, and separation costs

                 (66

Financing costs, net

                 (63
              

 

 

 

Loss Before Income Taxes

               $ (5,692
              

 

 

 

For the Six Months Ended June 30, 2015

              

Oil and Gas Production Revenues

   $ 1,427     $ 271     $ 1,196      $ 696     $ —        $ 3,590  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating Income (Loss) (2)

   $ (9,546   $ (2,314   $ 318      $ (1,245   $ —        $ (12,787
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

Other Income (Expense):

              

Other

                 17  

General and administrative

                 (193

Transaction, reorganization, and separation costs

                 (120

Financing costs, net

                 (133
              

 

 

 

Loss Before Income Taxes

               $ (13,216
              

 

 

 

Total Assets

   $ 18,615     $ 3,585     $ 7,679      $ 4,838     $ 595      $ 35,312  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

For the Quarter Ended June 30, 2014

              

Oil and Gas Production Revenues

   $ 1,529     $ 293     $ 989      $ 660     $ —        $ 3,471  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating Income (Loss) (2)

   $ 679     $ 47     $ 585      $ (39   $ —        $ 1,272  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

Other Income (Expense):

              

Derivative instrument gains (losses), net

                 (174

Other

                 (8

General and administrative

                 (113

Transaction, reorganization, and separation costs

                 (14

Financing costs, net

                 (52
              

 

 

 

Income Before Income Taxes

               $ 911  
              

 

 

 

For the Six Months Ended June 30, 2014

              

Oil and Gas Production Revenues

   $ 3,034     $ 611     $ 1,939      $ 1,278     $ —        $ 6,862  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Operating Income (2)

   $ 1,342     $ 119     $ 1,121      $ 144     $ —        $ 2,726  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

Other Income (Expense):

              

Derivative instrument gains (losses), net

                 (194

Other

                 9  

General and administrative

                 (221

Transaction, reorganization, and separation costs

                 (32

Financing costs, net

                 (97
              

 

 

 

Income Before Income Taxes

               $ 2,191  
              

 

 

 

Total Assets

   $ 31,547     $ 6,842     $ 7,264      $ 6,713     $ 534      $ 52,900  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(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 operating income (loss) of U.S., Canada, and North Sea for the second quarter of 2015 includes non-cash write-downs of each region’s carrying value of oil and gas properties of $4.3 billion, $835 million and $663 million, respectively. For the first six months of 2015, operating income (loss) of U.S., Canada, and North Sea include non-cash write-downs of each region’s carrying value of oil and gas properties of $9.6 billion, $2.2 billion, and $1.3 billion, respectively. North Sea’s operating income (loss) for the second quarter and first six months of 2014 includes a $203 million non-cash write-down of the carrying value of oil and gas properties.
(3)   Amounts for 2014 have been restated to exclude Argentina and Australia discontinued operations. Total Assets for the 2014 periods also excludes $8.3 million of divested Australian assets.

 

15


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.

 

16


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 30, 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

   $ 434     $ —       $ 1,518     $ —        $ 1,952  

Equity in net income of affiliates

     (1,987     (393     (1     2,381         —    

Other

     (10     12       4       19        25  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     (1,563     (381     1,521       2,400         1,977  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

OPERATING EXPENSES:

           

Depreciation, depletion, and amortization

     4,346       —         2,476        —          6,822   

Asset retirement obligation accretion

     3       —         33       —          36  

Lease operating expenses

     108       —         359       —          467  

Gathering and transportation

     7       —         42       —          49  

Taxes other than income

     33       —         22       —          55  

General and administrative

     74       —         18       19        111  

Transaction, reorganization, and separation costs

     66       —         —         —          66  

Financing costs, net

     71       11       (19     —          63  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 
     4,708       11       2,931        19        7,669   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     (6,271     (392     (1,410     2,381         (5,692

Provision (benefit) for income taxes

     (843     2       (19     —          (860
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     (5,428     (394     (1,391     2,381         (4,832

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

     (172     —         (560     —          (732
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     (5,600     (394     (1,951     2,381         (5,564

Net income attributable to noncontrolling interest

     —         —         36       —          36  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (5,600   $ (394   $ (1,987   $ 2,381       $ (5,600
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ (5,600   $ (394   $ (1,987   $ 2,381      $ (5,600
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

17


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 30, 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

   $ 895     $ —       $ 2,576     $ —       $ 3,471  

Equity in net income (loss) of affiliates

     491       24       11       (526     —    

Derivative instrument gains (losses), net

     (125     —         (49     —         (174

Other

     (69     13       44       4       (8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,192       37       2,582       (522     3,289  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

          

Depreciation, depletion, and amortization

     356       —         1,002       —         1,358  

Asset retirement obligation accretion

     8       —         30       —         38  

Lease operating expenses

     121       —         439       —         560  

Gathering and transportation

     14       —         52       —         66  

Taxes other than income

     47       —         130       —         177  

General and administrative

     96       —         13       4       113  

Transaction, reorganization, and separation costs

     14       —         —         —         14  

Financing costs, net

     41       10       1       —         52  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     697       10       1,667       4       2,378  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

     495       27       915       (526     911  

Provision (benefit) for income taxes

     (10     (8     372       —         354  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

     505       35       543       (526     557  

Net income from discontinued operations, net of tax

     —         —         56       —         56  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

     505       35       599       (526     613  

Net income attributable to noncontrolling interest

     —         —         108       —         108  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 505     $ 35     $ 491     $ (526   $ 505  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 505     $ 35     $ 491     $ (526   $ 505  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

18


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 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

  $ 799     $ —       $ 2,791     $ —       $ 3,590  

Equity in net income (loss) of affiliates

    (3,072     (1,047     —         4,119        —    

Other

    (50     26       22       19       17  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    (2,323     (1,021     2,813       4,138        3,607  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

         

Depreciation, depletion, and amortization

    9,845       —         5,279        —         15,124   

Asset retirement obligation accretion

    7       —         65       —         72  

Lease operating expenses

    232       —         716       —         948  

Gathering and transportation

    16       —         89       —         105  

Taxes other than income

    67       —         61       —         128  

General and administrative

    138       —         36       19       193  

Transaction, reorganization, and separation costs

    120       —         —         —         120  

Financing costs, net

    123       21       (11     —         133  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    10,548       21       6,235        19       16,823   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

    (12,871     (1,042     (3,422     4,119        (13,216

Provision (benefit) for income taxes

    (2,792     5       (1,093     —         (3,880
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

    (10,079     (1,047     (2,329     4,119        (9,336

Net loss from discontinued operations, net of tax

    (172     —         (692     —         (864
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

    (10,251     (1,047     (3,021     4,119        (10,200

Net income attributable to noncontrolling interest

    —         —         51       —         51  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

  $ (10,251   $ (1,047   $ (3,072   $ 4,119      $ (10,251
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

  $ (10,251   $ (1,047   $ (3,072   $ 4,119      $ (10,251
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

19


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 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

  $ 1,787     $ —       $ 5,075     $ —       $ 6,862  

Equity in net income (loss) of affiliates

    744       53       4       (801     —    

Derivative instrument gains (losses), net

    (145     —         (49     —         (194

Other

    (73     27       52       3       9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    2,313       80       5,082       (798     6,677  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OPERATING EXPENSES:

         

Depreciation, depletion, and amortization

    684       —         1,774       —         2,458  

Asset retirement obligation accretion

    15       —         61       —         76  

Lease operating expenses

    249       —         859       —         1,108  

Gathering and transportation

    28       —         108       —         136  

Taxes other than income

    126       —         232       —         358  

General and administrative

    189       —         29       3       221  

Transaction, reorganization, and separation costs

    30       —         2       —         32  

Financing costs, net

    73       20       4       —         97  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,394       20       3,069       3       4,486  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

    919       60       2,013       (801     2,191  

Provision for income taxes

    52       2       830       —         884  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST

    867       58       1,183       (801     1,307  

Net loss from discontinued operations, net of tax

    (127     —         (233     —         (360
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST

    740       58       950       (801     947  

Net income attributable to noncontrolling interest

    —         —         206       —         206  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

  $ 740     $ 58     $ 744     $ (801   $ 741  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

  $ 739     $ 58     $ 744     $ (801   $ 740  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(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.

 

20


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 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

  $ 192     $ (21   $ 1,566      $ —       $ 1,737  

CASH PROVIDED BY DISCONTINUED OPERATIONS

    —         —         196       —         196  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

    192       (21     1,762        —         1,933  

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Additions to oil and gas property

    (1,222     —         (1,765     —         (2,987

Leasehold and property acquisitions

    (124 )     —         (4     —         (128

Additions to gas gathering, transmission, and processing facilities

    (24     —         (70     —         (94

Proceeds from sale of Kitimat LNG

    —         —         854       —         854  

Proceeds from sale of other oil and gas properties

    4       —         115        —         119  

Investment in subsidiaries, net

    82       —         —         (82     —    

Other

    (16     —         (51     —         (67
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN CONTINUING INVESTING ACTIVITIES

    (1,300     —         (921     (82     (2,303

NET CASH PROVIDED BY DISCONTINUED OPERATIONS

    —         —         4,335       —         4,335  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

    (1,300     —         3,414       (82     2,032  

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Commercial paper and bank credit facilities, net

    (1,570     —         —         —         (1,570

Intercompany borrowings

    4,551       (10     (4,623     82       —    

Distributions to noncontrolling interest

    —         —         (40     —         (40

Dividends paid

    (189     —         —         —         (189

Treasury stock activity, net

    —         —         —         —         —    

Other

    2       31       (18     —         15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

    2,794        21       (4,681     82       (1,784
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

    2,794        21       (4,681     82       (1,784

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    1,686       —         495        —         2,181  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

    267       —         502       —         769  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 1,953     $ —       $ 997     $ —       $ 2,950  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

21


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 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

  $ 70     $ (33   $ 3,912     $ —       $ 3,949  

CASH PROVIDED BY DISCONTINUED OPERATIONS

    —         —         683        —         683   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

    70       (33     4,595       —         4,632  

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Additions to oil and gas property

    (1,625     —         (2,744     —         (4,369

Leasehold and property acquisitions

    (83     —         (29     —         (112

Additions to gas gathering, transmission, and processing facilities

    (2     —         (343     —         (345

Proceeds from sale of Deepwater Gulf of Mexico assets

    1,367       —         —         —         1,367  

Restricted cash related to divestitures

    (1,367     —         —         —         (1,367

Proceeds from sale of other oil and gas properties

    69       —         312       —         381  

Investment in subsidiaries, net

    2,899       —         —         (2,899     —    

Other

    (35     —         2       —         (33
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING INVESTING ACTIVITIES

    1,223       —         (2,802     (2,899     (4,478

NET CASH USED IN DISCONTINUED OPERATIONS

    —         —         (13     —         (13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

    1,223       —         (2,815     (2,899     (4,491

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Commercial paper and bank credit facilities, net

    —         —         (1     —         (1

Intercompany borrowings

    —         11       (2,909     2,898       —    

Distributions to noncontrolling interest

    —         —         (66     —         (66

Dividends paid

    (176     —         —         —         (176

Treasury stock activity, net

    (1,263     —         —         —         (1,263

Other

    —         19       5       1       25  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES

    (1,439     30       (2,971     2,899       (1,481

NET CASH USED IN DISCONTINUED OPERATIONS

    —         —         (42     —         (42
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

    (1,439     30       (3,013     2,899       (1,523

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

    (146     (3     (1,233     —         (1,382

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

    155       3       1,748       —         1,906  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 9     $ —       $ 515     $ —       $ 524  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2015

 

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

CURRENT ASSETS:

         

Cash and cash equivalents

  $ 1,953     $ —       $ 997     $ —       $ 2,950  

Receivables, net of allowance

    470       —         1,119       —         1,589  

Inventories

    38       —         591       —         629  

Drilling advances

    17       1       175       —         193  

Deferred tax asset

    72        —          12        —          84   

Prepaid assets and other

    22        —         26        —         48   

Intercompany receivable

    5,420       —         —         (5,420 )     —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    7,992       1       2,920       (5,420     5,493  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

    5,096       —         23,219       —         28,315  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTHER ASSETS:

         

Intercompany receivable

    —         —         691       (691     —    

Equity in affiliates

    21,663       149       452       (22,264     —    

Deferred charges and other

    176       1,000       1,328       (1,000     1,504  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 34,927     $ 1,150     $ 28,610     $ (29,375   $ 35,312  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY          

CURRENT LIABILITIES:

         

Accounts payable

  $ 449     $ —       $ 261     $ —       $ 710  

Other current liabilities

    838        1       834       —         1,673  

Intercompany payable

    —         —         5,420       (5,420     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,287       1       6,515       (5,420     2,383  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LONG-TERM DEBT

    9,378       298       0       —         9,676  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

         

Intercompany payable

    691       —         —         (691     —    

Income taxes

    502       —         2,142       —         2,644  

Asset retirement obligation

    220       —         2,314       —         2,534  

Other

    7,305       250       (6,235     (1,000     320  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    8,718       250       (1,779     (1,691     5,498  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES APACHE SHAREHOLDERS’ EQUITY

    15,544       601       21,663       (22,264     15,544  

Noncontrolling interest

    —         —         2,211       —         2,211  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

TOTAL EQUITY

    15,544       601       23,874        (22,264     17,755  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 34,927     $ 1,150     $ 28,610     $ (29,375   $ 35,312  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

23


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  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


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 four countries: the United States (U.S.), Canada, Egypt, 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. Results of operations and consolidated cash flows for our divested Australia assets and Argentina operations are reflected as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q.

Strategic Overview

The Company’s strategic outlook and foundation for growth are based on our core producing asset base and large undeveloped acreage positions. We believe our holdings provide for growth through sustainable lower-risk drilling opportunities onshore in North America, balanced by higher-risk, higher-reward exploration in Egypt, the North Sea, and other offshore areas. 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 success and the acquisition of acreage positions across North America add to our robust drilling inventory in the Permian Basin and other key onshore operating areas. As part of our strategy, this quarter we completed the sales of our Kitimat and Wheatstone LNG projects and our upstream assets in Australia. The Company believes our current 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.

In response to the significant drop in commodity prices in late 2014, we moved quickly and decisively on matters within our control: capital spending, overhead, and lease operating costs. We significantly reduced capital spending in 2015; however, we are prepared to ramp up activity when commodity prices and service costs realign. We have also taken steps to reduce our operating cost structure, including organizational changes to better integrate our human resources. As part of these efforts, we streamlined our organizational structure and are in the process of closing our regional office in Tulsa, Oklahoma. By the end of 2015, we will have consolidated our corporate and Houston region employee bases into a single location, which we believe will foster increased collaboration and communication as well as accelerate technology development and transfer among our core asset teams.

The decline in the price of oil and natural gas at the end of 2014 and during the first half of 2015 was dramatic; however, we believe this low price environment will provide future growth opportunities for companies that move aggressively to reduce spending and maintain a strong balance sheet position.

Financial Highlights

Results for the quarter and six months ended June 30, 2015, include:

 

    Average daily equivalent production increased 7 percent for both the quarter and six months when compared to the prior-year periods adjusted for asset divestitures.

 

    Liquids production for the second quarter of 2015 averaged 365 Mboe per day (Mboe/d), with crude oil representing 83 percent of total liquids production. Liquids production, adjusted for asset divestitures, increased 8 percent from both the second quarter and first six months of 2014.

 

    Oil and gas production revenues for the second quarter and first six months of 2015 totaled $2.0 billion and $3.6 billion, respectively, down 44 and 48 percent from respective prior-year periods, reflecting the significant decrease in realized commodity prices.

 

25


    For the second quarter, Apache reported a loss from continuing operations of $4.9 billion, or $12.89 per diluted common share, compared with earnings of $449 million, or $1.17 per diluted share in the second quarter of 2014. The current period loss included after-tax charges for a ceiling test impairment of $3.7 billion.

 

    For the first half of 2015, Apache reported a loss from continuing operations of $9.4 billion or $24.88 per diluted share, compared with earnings of $1.1 billion, or $2.82 per diluted share, respectively, for the prior year period. The loss for 2015 includes after-tax write-downs of oil and gas properties in the U.S., Canada, and U.K. North Sea totaling $8.4 billion.

 

    Net cash provided by continuing operating activities totaled $1.7 billion for the first half of 2015, compared to $3.9 billion in the comparable prior-year period, reflecting a significant decline in commodity prices.

 

    The proceeds received from asset divestments enabled us to reduce total debt 21 percent during the quarter, to $9.7 billion, and exit the quarter with $3 billion in cash. We have also initiated steps to pay off $900 million of outstanding 2017 bonds.

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 in the second quarter and first six months of 2015 of 317 Mboe/d and 312 Mboe/d, respectively, represents 56 percent of Apache’s total worldwide production for each respective period.

 

    Onshore oil production during the second quarter of 2015 decreased 2 percent from the prior-year quarter; however, production was up 7 percent when excluding volumes from 2014 divestitures. This production performance is notable given that Apache reduced its North American onshore exploration and development capital spending by 68 percent in the second quarter of 2015 compared to the prior-year quarter.

 

    Production from the Permian Basin region, which accounts for more than half of Apache’s total onshore North American production, increased 8 percent in the second quarter of 2015 compared to the second quarter of 2014. The increase in production was achieved despite a 75 percent reduction in exploration and development capital spending in the second quarter of 2015 compared to the prior-year quarter.

International and Offshore

 

    In Egypt, second quarter 2015 gross production of 349 Mboe/d was down slightly compared to the second quarter of 2014 as strong growth in higher margin oil production was offset by a decline in low margin natural gas production. Gross oil production of 203 thousand barrels of oil per day (Mb/d) was up 3 percent compared to the 2014 second quarter as Apache continued to successfully delineate the Ptah and Berenice oil discoveries. Gross production from the Ptah and Berenice fields achieved a combined daily peak rate of more than 22 Mb/d.

 

    Apache drilled 8 wells in the North Sea during the second quarter of 2015 with a 90 percent success rate. Production of 69 Mboe/d was down approximately 3 Mboe/d a result of annual platform maintenance programs that are typically performed during the third quarter. Excluding the associated downtime, North Sea production in the second quarter was approximately flat compared to the second quarter of 2014.

 

    During the second quarter of 2015, Apache completed the previously disclosed sale of its 50 percent interest in the Kitimat LNG project in Canada, along with the associated upstream oil and gas assets, to Woodside Petroleum Limited (Woodside) for total proceeds of approximately $854 million. Proceeds include reimbursement of Apache’s net expenditure in the project, changes in working capital and other contractual adjustments between the effective date, July 1, 2014, and closing.

 

    Apache completed the sale of the Wheatstone LNG project and associated upstream oil and gas assets in Australia to Woodside for total proceeds of $2.8 billion during the second quarter of 2015. Proceeds include reimbursement of Apache’s net expenditure in the project, changes in working capital, and other contractual adjustments between the effective date, July 1, 2014, and closing.

 

    Also in the second quarter of 2015, Apache completed the sale of 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 $1.9 billion which includes customary, post-closing adjustments. The effective date of the sale is October 1, 2014.

 

26


Results of Operations

Oil and Gas Revenues

The table below presents revenues by geographic region and each region’s percent contribution to revenues for 2015 and 2014.

 

     For the Quarter Ended June 30,     For the Six Months Ended June 30,  
     2015     2014     2015     2014  
     $      %     $      %     $      %     $      %  
    

Value

     Contribution     Value      Contribution     Value      Contribution     Value      Contribution  
     ($ in millions)  

Total Oil Revenues:

                    

United States

   $ 627        39   $ 1,145        41   $ 1,137        39   $ 2,237        41

Canada

     75        5     154        5     135        5     294        6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     702        44     1,299        46     1,272        44     2,531        47
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     553        35     885        32     986        34     1,731        32

North Sea

     344        22     613        22     621        22     1,180        21
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     897        56     1,498        54     1,607        56     2,911        53
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 1,599        100   $ 2,797        100   $ 2,879        100   $ 5,442        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Gas Revenues:

                    

United States

   $ 90        31   $ 245        49   $ 193        32   $ 511        48

Canada

     61        20     122        24     128        22     270        25
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     151        51     367        73     321        54     781        73
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     107        36     99        19     203        34     202        19

North Sea

     37        13     39        8     71        12     82        8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     144        49     138        27     274        46     284        27
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 295        100   $ 505        100   $ 595        100   $ 1,065        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Natural Gas Liquids (NGL)

                    

Revenues:

                    

United States

   $ 50        86   $ 139        82   $ 97        84   $ 286        81

Canada

     2        3     17        10     8        7     47        13
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     52        90     156        92     105        91     333        94
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     4        7     5        3     7        6     6        2

North Sea

     2        3     8        5     4        3     16        4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     6        10     13        8     11        9     22        6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 58        100   $ 169        100   $ 116        100   $ 355        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total Oil and Gas Revenues:

                    

United States

   $ 767        39   $ 1,529        44   $ 1,427        40   $ 3,034        44

Canada

     138        7     293        8     271        7     611        9
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

North America

     905        46     1,822        52     1,698        47     3,645        53
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Egypt (1)

     664        34     989        29     1,196        33     1,939        28

North Sea

     383        20     660        19     696        20     1,278        19
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

International (1)

     1,047        54     1,649        48     1,892        53     3,217        47
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total (1)

   $ 1,952        100   $ 3,471        100   $ 3,590        100   $ 6,862        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Discontinued Operations—Argentina and Australia

                    

Oil Revenues

   $ 57        $ 153        $ 138        $ 368     

Gas Revenues

     53          84          140          209     

NGL Revenues

     —            —            —            3     
  

 

 

      

 

 

      

 

 

      

 

 

    

Total

   $ 110        $ 237        $ 278        $ 580     
  

 

 

      

 

 

      

 

 

      

 

 

    

 

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

 

27


Production

The table below presents the second-quarter and year-to-date 2015 and 2014 production and the relative increase or decrease from the prior period.

 

     For the Quarter Ended June 30,     For the Six Months Ended June 30,  
                   Increase                   Increase  
     2015      2014      (Decrease)     2015      2014      (Decrease)  

Oil Volume – b/d

                

United States

     127,698        130,398        (2 %)      127,171        129,181        (2 %) 

Canada

     15,791        17,981        (12 %)      16,330        17,786        (8 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     143,489        148,379        (3 %)      143,501        146,967        (2 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt (1)(2)

     99,975        88,643        13     95,995        88,370        9

North Sea

     58,873        61,610        (4 %)      60,279        60,358        0
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     158,848        150,253        6     156,274        148,728        5
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     302,337        298,632        1     299,775        295,695        1
  

 

 

    

 

 

      

 

 

    

 

 

    

Natural Gas Volume – Mcf/d

                

United States

     446,788        596,970        (25 %)      441,333        594,840        (26 %) 

Canada

     282,971        316,740        (11 %)      285,251        347,057        (18 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     729,759        913,710        (20 %)      726,584        941,897        (23 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt (1)(2)

     405,544        367,950        10     384,881        372,628        (23 %) 

North Sea

     56,367        54,848        3     53,423        49,986        7
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     461,911        422,798        9     438,304        422,614        4
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     1,191,670        1,336,508        (11 %)      1,164,888        1,364,511        (15 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

NGL Volume – b/d

                

United States

     54,944        56,625        (3 %)      51,104        54,851        (7 %) 

Canada

     5,825        5,921        (2 %)      5,839        6,840        (15 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     60,769        62,546        0     56,943        61,691        (8 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt (1)(2)

     1,214        884        37     1,123        560        101

North Sea

     826        1,367        (40 %)      856        1,230        (30 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     2,040        2,251        (9 %)      1,979        1,790        11
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     62,809        64,797        (3 %)      58,922        63,481        (7 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

BOE per day (3)

                

United States

     257,107        286,518        (10 %)      251,831        283,173        (11 %) 

Canada

     68,778        76,692        (10 %)      69,711        82,469        (15 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

North America

     325,885        363,210        (10 %)      321,542        365,642        (12 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Egypt (2)

     168,779        150,853        12     161,264        151,035        7

North Sea

     69,094        72,118        (4 %)      70,038        69,918        0
  

 

 

    

 

 

      

 

 

    

 

 

    

International

     237,873        222,971        7     231,302        220,953        5
  

 

 

    

 

 

      

 

 

    

 

 

    

Total

     563,758        586,181        (4 %)      552,844        586,595        (6 %) 
  

 

 

    

 

 

      

 

 

    

 

 

    

Discontinued Operations — Argentina and Australia

                

Oil (b/d)

     9,849        14,555          15,346        19,107     

Gas (Mcf/d)

     149,336        210,470          189,789        283,402     

NGL (b/d)

     —          —            —          640     

BOE/d

     34,738        49,633          46,978        66,981     

 

(1)    Gross oil, natural gas, and NGL production in Egypt for the second quarter and six-month period of 2015 and 2014 were as follows:

        

 

     For the Quarter Ended
June 30,
   For the Six Months Ended
June 30,
     2015      2014           2015      2014       

Oil (b/d)

     203,319        197,069           200,568        197,839     

Gas (Mcf/d)

     861,181        907,752           861,555        914,558     

NGL (b/d)

     2,549        2,698           2,436        1,679     

 

(2) Includes production volumes per day attributable to a noncontrolling interest in Egypt for the second quarter and six-month period of 2015 and 2014 of:

 

     For the Quarter Ended
June 30,
   For the Six Months Ended
June 30,
     2015      2014           2015      2014       

Oil (b/d)

     33,247        29,508           31,966        29,288     

Gas (Mcf/d)

     134,445        122,665           127,963        123,726     

NGL (b/d)

     404        295           374        187     
  

 

(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.

 

28


Pricing

The table below presents second-quarter and year-to-date 2015 and 2014 pricing and the relative increase or decrease from the prior periods.

 

     For the Quarter Ended June 30,     For the Six Months Ended June 30,  
                   Increase                   Increase  
     2015      2014      (Decrease)     2015      2014      (Decrease)  

Average Oil Price—Per barrel

                

United States

   $ 53.94      $ 96.46        (44 %)    $ 49.38      $ 95.66        (48 %) 

Canada

     52.22        94.66        (45 %)      45.81        91.47        (50 %) 

North America

     53.75        96.24        (44 %)      48.97        95.15        (49 %) 

Egypt

     60.83        109.74        (45 %)      56.76        108.24        (48 %) 

North Sea

     64.03        109.33        (41 %)      56.86        108.00        (47 %) 

International

     62.02        109.57        (43 %)      56.80        108.14        (47 %) 

Total (1)

     58.09        102.95        (44 %)      53.05        101.69        (48 %) 

Average Natural Gas Price—Per Mcf

                

United States

   $ 2.21      $ 4.51        (51 %)    $ 2.42      $ 4.75        (49 %) 

Canada

     2.34        4.21        (44 %)      2.46        4.30        (43 %) 

North America

     2.26        4.41        (49 %)      2.44        4.58        (47 %) 

Egypt

     2.91        2.96        (2 %)      2.92        2.99        (2 %) 

North Sea

     7.35        7.75        (5 %)      7.37        9.07        (19 %) 

International

     3.45        3.58        (4 %)      3.46        3.71        (7 %) 

Total (2)

     2.73        4.15        (34 %)      2.82        4.31        (35 %) 

Average NGL Price—Per barrel

                

United States

   $ 10.11      $ 27.06        (63 %)    $ 10.52      $ 28.86        (64 %) 

Canada

     4.41        31.67        (86 %)      7.74        37.56        (79 %) 

North America

     9.56        27.50        (65 %)      10.23        29.83        (66 %) 

Egypt

     28.82        57.67        (50 %)      32.23        59.05        (45 %) 

North Sea

     30.94        61.81        (50 %)      27.75        69.77        (60 %) 

International

     29.68        60.19        (51 %)      30.29        66.41        (54 %) 

Total

     10.21        28.64        (64 %)      10.91        30.86        (65 %) 

Discontinued Operations — Argentina and Australia

                

Oil price ($/Bbl)

   $ 63.60      $ 115.34        $ 49.76      $ 106.35     

Gas price ($/Mcf)

     3.88        4.40          4.07        4.07     

NGL price ($/Bbl)

     —          —            —          24.57     

Second-Quarter 2015 compared to Second-Quarter 2014

Crude Oil Revenues Crude oil revenues for the second quarter of 2015 totaled $1.6 billion, a $1.2 billion decrease from the comparative 2014 quarter. A one percent increase in average daily production increased second-quarter 2015 revenues by $20 million compared to the prior-year quarter, while 44 percent lower realized prices decreased revenues by $1.2 billion. Crude oil prices realized in the second quarter of 2015 averaged $58.09 per barrel, compared with $102.95 in the comparative prior-year quarter. Crude oil accounted for 82 percent of oil and gas production revenues and 5