Apache Corporation
APACHE CORP (Form: 10-Q, Received: 11/03/2017 06:09:12)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549  
  ________________________________________________________________
FORM 10-Q  
   ________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017
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
    APACHELOGOA06.JPG
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   ý     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   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
 
 
 
Emerging growth company
 
¨  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨     No   ý
Number of shares of registrant’s common stock outstanding as of October 31, 2017
380,942,629




 
TABLE OF CONTENTS
 
DESCRIPTION
Item
 
 
Page
 
PART I - FINANCIAL INFORMATION
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
PART II - OTHER INFORMATION
 
 
1.
 
1A.
 
2.
 
3.
 
4.
 
5.
 
6.
 



Forward-Looking Statements and Risk
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs, and plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on our examination of historical operating trends, the information that was used to prepare our estimate of proved reserves as of December 31, 2016 , and other data in our possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about:
 
the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;

our commodity hedging arrangements;

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

production and reserve levels;

drilling risks;

economic and competitive conditions;

the availability of capital resources;

capital expenditure and other contractual obligations;

currency exchange rates;

weather conditions;

inflation rates;

the availability of goods and services;

legislative, regulatory, or policy changes;

terrorism or cyber-attacks;

occurrence of property acquisitions or divestitures;

the integration of acquisitions;

the securities or capital markets and related risks such as general credit, liquidity, market, and interest-rate risks; and

other factors disclosed under Items 1 and 2—Business and Properties—Estimated Proved Reserves and Future Net Cash Flows, Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in our most recently filed Annual Report on Form 10-K, other risks and uncertainties in our third -quarter 2017 earnings release, other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q, and other filings that we make with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.




PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
 
 
 
 
 
 
 
Oil revenues
 
$
1,070

 
$
1,117

 
$
3,292

 
$
3,057

Gas revenues
 
238

 
263

 
726

 
695

Natural gas liquids revenues
 
81

 
59

 
229

 
160

 
 
1,389

 
1,439

 
4,247

 
3,912

Derivative instrument losses, net
 
(110
)
 

 
(69
)
 

Gain on divestitures
 
296

 
5

 
616

 
21

Other
 

 
(6
)
 
43

 
(30
)
 
 
1,575

 
1,438

 
4,837

 
3,903

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Lease operating expenses
 
358

 
382

 
1,066

 
1,119

Gathering and transportation
 
39

 
51

 
144

 
155

Taxes other than income
 
46

 
9

 
117

 
85

Exploration
 
231

 
161

 
431

 
347

General and administrative
 
98

 
102

 
307

 
298

Transaction, reorganization, and separation
 
20

 
12

 
14

 
36

Depreciation, depletion, and amortization:
 
 
 
 
 
 
 
 
Oil and gas property and equipment
 
524

 
610

 
1,598

 
1,875

Other assets
 
35

 
38

 
109

 
120

Asset retirement obligation accretion
 
30

 
40

 
103

 
116

Impairments
 

 
836

 
8

 
1,009

Financing costs, net
 
101

 
102

 
300

 
311

 
 
1,482

 
2,343

 
4,197

 
5,471

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
93

 
(905
)
 
640

 
(1,568
)
Current income tax provision
 
99

 
150

 
413

 
284

Deferred income tax benefit
 
(111
)
 
(529
)
 
(758
)
 
(755
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
105

 
(526
)
 
985

 
(1,097
)
Net loss from discontinued operations, net of tax
 

 
(33
)
 

 
(33
)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
105


(559
)

985


(1,130
)
Net income attributable to noncontrolling interest
 
42

 
48

 
137

 
93

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
63

 
$
(607
)
 
$
848

 
$
(1,223
)
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS:
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations attributable to common shareholders
 
$
63

 
$
(574
)
 
$
848

 
$
(1,190
)
Net loss from discontinued operations
 

 
(33
)
 

 
(33
)
Net income (loss) attributable to common shareholders
 
$
63

 
$
(607
)
 
$
848

 
$
(1,223
)
NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic net income (loss) from continuing operations per share
 
$
0.16

 
$
(1.51
)
 
$
2.23

 
$
(3.14
)
Basic net loss from discontinued operations per share
 

 
(0.09
)
 

 
(0.08
)
Basic net income (loss) per share
 
$
0.16

 
$
(1.60
)
 
$
2.23

 
$
(3.22
)
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
 
 
 
 
 
 
 
 
Diluted net income (loss) from continuing operations per share
 
$
0.16

 
$
(1.51
)
 
$
2.22

 
$
(3.14
)
Diluted net loss from discontinued operations per share
 

 
(0.09
)
 

 
(0.08
)
Diluted net income (loss) per share
 
$
0.16

 
$
(1.60
)
 
$
2.22

 
$
(3.22
)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
381

 
380

 
381

 
379

Diluted
 
383

 
380

 
383

 
379

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.25

 
$
0.25

 
$
0.75

 
$
0.75

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 September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
$
105

 
$
(559
)
 
$
985

 
$
(1,130
)
OTHER COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
 
Currency translation adjustment
 
109

 

 
109

 

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
214

 
(559
)
 
1,094

 
(1,130
)
Comprehensive income attributable to noncontrolling interest
 
42

 
48

 
137

 
93

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
172

 
$
(607
)
 
$
957

 
$
(1,223
)

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


2



APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income (loss) including noncontrolling interest
 
$
985

 
$
(1,130
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Loss from discontinued operations
 

 
33

Unrealized derivative instrument losses, net
 
42

 

Gain on divestitures
 
(616
)
 
(21
)
Exploratory dry hole expense and unproved leasehold impairments
 
350

 
260

Depreciation, depletion, and amortization
 
1,707

 
1,995

Asset retirement obligation accretion
 
103

 
116

Impairments
 
8

 
1,009

Deferred income tax benefit
 
(758
)
 
(755
)
Other
 
167

 
126

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
(70
)
 
192

Inventories
 
17

 
(2
)
Drilling advances
 
(72
)
 
(36
)
Deferred charges and other
 
(60
)
 
40

Accounts payable
 
2

 
(93
)
Accrued expenses
 
(65
)
 
(67
)
Deferred credits and noncurrent liabilities
 
20

 
(33
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
1,760

 
1,634

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(1,471
)
 
(1,281
)
Leasehold and property acquisitions
 
(142
)
 
(169
)
Additions to gas gathering, transmission, and processing facilities
 
(384
)
 
(33
)
Proceeds from sale of Canadian assets, net of cash divested
 
661

 

Proceeds from sale of oil and gas properties
 
743

 
74

Other, net
 
(30
)
 
47

NET CASH USED IN INVESTING ACTIVITIES
 
(623
)
 
(1,362
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Payments on fixed-rate debt
 
(70
)
 
(1
)
Distributions to noncontrolling interest
 
(212
)
 
(215
)
Dividends paid
 
(285
)
 
(284
)
Other
 
(5
)
 
(9
)
NET CASH USED IN FINANCING ACTIVITIES
 
(572
)
 
(509
)
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
 
565

 
(237
)
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT BEGINNING OF YEAR
 
1,377

 
1,467

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH AT END OF PERIOD
 
$
1,942

 
$
1,230

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
341

 
$
345

Income taxes paid, net of refunds
 
315

 
256

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



3



APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,846

 
$
1,377

Restricted cash
 
96

 

Receivables, net of allowance
 
1,145

 
1,128

Inventories
 
396

 
476

Drilling advances
 
151

 
81

Prepaid assets and other
 
135

 
179

 
 
3,769

 
3,241

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
38,569

 
42,693

Unproved properties and properties under development
 
1,810

 
1,969

Gathering, transmission, and processing facilities
 
1,363

 
976

Other
 
1,012

 
1,111

 
 
42,754

 
46,749

Less: Accumulated depreciation, depletion, and amortization
 
(25,099
)
 
(27,882
)
 
 
17,655

 
18,867

OTHER ASSETS:
 
 
 
 
Deferred charges and other
 
411

 
411

 
 
$
21,835

 
$
22,519

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
583

 
$
585

Current debt
 
550

 

Other current liabilities (Note 5)
 
1,332

 
1,258

 
 
2,465

 
1,843

LONG-TERM DEBT
 
7,933

 
8,544

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
948

 
1,710

Asset retirement obligation
 
1,831

 
2,432

Other
 
281

 
311

 
 
3,060

 
4,453

COMMITMENTS AND CONTINGENCIES (Note 9)
 

 

EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 414,108,944 and 412,612,102 shares issued, respectively
 
259

 
258

Paid-in capital
 
12,186

 
12,364

Accumulated deficit
 
(2,544
)
 
(3,385
)
Treasury stock, at cost, 33,171,015 and 33,172,426 shares, respectively
 
(2,887
)
 
(2,887
)
Accumulated other comprehensive loss
 
(3
)
 
(112
)
APACHE SHAREHOLDERS’ EQUITY
 
7,011

 
6,238

Noncontrolling interest
 
1,366

 
1,441

TOTAL EQUITY
 
8,377

 
7,679

 
 
$
21,835

 
$
22,519

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
 
Accumulated Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
APACHE
SHAREHOLDERS’
EQUITY
 
Noncontrolling
Interest
 
TOTAL
EQUITY
 
 
(In millions)
BALANCE AT DECEMBER 31, 2015
 
$
257

 
$
12,619

 
$
(1,980
)
 
$
(2,889
)
 
$
(119
)
 
$
7,888

 
$
1,602

 
$
9,490

Net income (loss)
 

 

 
(1,223
)
 

 

 
(1,223
)
 
93

 
(1,130
)
Distributions to noncontrolling interest
 

 

 

 

 

 

 
(215
)
 
(215
)
Common dividends ($0.75 per share)
 

 
(284
)
 

 

 

 
(284
)
 

 
(284
)
Other
 
1

 
86

 

 
1

 

 
88

 

 
88

BALANCE AT SEPTEMBER 30, 2016
 
$
258

 
$
12,421

 
$
(3,203
)
 
$
(2,888
)
 
$
(119
)
 
$
6,469

 
$
1,480

 
$
7,949

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2016
 
$
258

 
$
12,364

 
$
(3,385
)
 
$
(2,887
)
 
$
(112
)
 
$
6,238

 
$
1,441

 
$
7,679

Net income
 

 

 
848

 

 

 
848

 
137

 
985

Distributions to noncontrolling interest
 

 

 

 

 

 

 
(212
)
 
(212
)
Common dividends ($0.75 per share)
 

 
(286
)
 

 

 

 
(286
)
 

 
(286
)
Other
 
1

 
108

 
(7
)
 

 
109

 
211

 

 
211

BALANCE AT SEPTEMBER 30, 2017
 
$
259

 
$
12,186

 
$
(2,544
)
 
$
(2,887
)
 
$
(3
)
 
$
7,011

 
$
1,366

 
$
8,377

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 consolidated financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited financial statements. 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, 2016 , which contains a summary of the Company’s significant accounting policies and other disclosures.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of September 30, 2017 , Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies of its consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 , with the exception of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-09, “Improvements to Employee Share-Based Payment Accounting” and ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (see “Recently Adopted Accounting Pronouncements” in this Note 1 below).
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, the assessment of asset retirement obligations, the estimates of fair value for long-lived assets and goodwill, and the estimate of income taxes. Actual results could differ from those estimates.
Fair Value Measurements
Certain assets and liabilities are reported at fair value on a recurring basis in Apache’s consolidated balance sheet. Accounting Standards Codification (ASC) 820-10-35, “Fair Value Measurement” (ASC 820), provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach, and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models, and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Apache also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. The Company recorded no asset impairments in connection with fair value assessments in the third quarter of 2017 . For the nine -month period ended September 30, 2017 , the Company recorded asset impairments totaling $8 million in connection with fair value assessments.
In 2016, the U.K. government enacted Finance Bill 2016, providing tax relief to exploration and production (E&P) companies operating in the U.K. North Sea. Under the enacted legislation, the U.K. Petroleum Revenue Tax (PRT) rate was reduced to zero from the previously enacted 35 percent rate in effect from January 1, 2016. PRT expense ceased prospectively from that date. During the first quarter of 2017, the Company fully impaired the aggregate remaining value of the recoverable PRT decommissioning asset of $8 million that would have been realized from future abandonment activities. The recoverable value of the PRT decommissioning asset was estimated using the income approach. The expected future cash flows used in the determination were based on anticipated spending and timing of planned future abandonment activities for applicable fields, considering all available information at the date of review. Apache has classified this fair value measurement as Level 3 in the fair value hierarchy.

6



For the quarter ended September 30, 2016 , the Company recorded asset impairments totaling $836 million in connection with fair value assessments including $355 million for proved oil and gas properties in Canada and $481 million for the impairment of the recoverable value of the PRT decommissioning asset. For the nine -month period ended September 30, 2016 , the Company recorded asset impairments totaling $1.0 billion in connection with fair value assessments including $423 million for proved oil and gas properties in the U.S. and Canada, $481 million for the impairment of the recoverable value of the PRT decommissioning asset, and $105 million for the impairment of certain gas gathering, transmission, and processing (GTP) assets, which were written down to their fair values of $175 million .
Oil and Gas Property
The Company follows the successful efforts method of accounting for its oil and gas property. Under this method of accounting, exploration costs such as exploratory geological and geophysical costs, delay rentals, and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead, and similar activities are expensed as incurred. If an exploratory well provides evidence to justify potential development of reserves, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas depending on, among other things, the amount of hydrocarbons discovered, the outcome of planned geological and engineering studies, the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan, and government sanctioning of development activities in certain international locations. At the end of each quarter, management reviews the status of all suspended exploratory well costs in light of ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.
Acquisition costs of unproved properties are assessed for impairment at least annually and are transferred to proved oil and gas properties to the extent the costs are associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on the Company’s current exploration plans. Unproved oil and gas properties with individually insignificant lease acquisition costs are amortized on a group basis over the average lease term at rates that provide for full amortization of unsuccessful leases upon lease expiration or abandonment. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and gas properties. Costs of maintaining and retaining unproved properties, as well as amortization of individually insignificant leases and impairment of unsuccessful leases, are included in exploration costs in the statement of consolidated operations.
Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized. Depreciation of the cost of proved oil and gas properties is calculated using the unit-of-production (UOP) method. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the carrying value of those reserves. The reserve base used to calculate depreciation for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate the depreciation for capitalized costs of exploratory wells and development costs is the sum of proved developed reserves only. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are included in the depreciable cost.
Oil and gas properties are grouped for depreciation in accordance with ASC 932, “Extractive Activities - Oil and Gas.” The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
When circumstances indicate that proved oil and gas properties may be impaired, the Company compares unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on Apache’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820. If applicable, the Company utilizes prices and other relevant information generated by market transactions involving assets and liabilities that are identical or comparable to the item being measured as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. Apache has classified these fair value measurements as Level 3 in the fair value hierarchy.

7



The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the third quarters and first nine months of 2017 and 2016 :
 
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
 
 
 
 
Proved
 
$

 
$
355

 
$

 
$
423

Unproved
 
160

 
114

 
214

 
222

Proved properties impaired during the second and third quarters of 2016 had aggregate fair values of $143 million and $163 million , respectively.
On the statement of consolidated operations, unproved impairments are recorded in exploration expense, and proved impairments are recorded in impairments.
Recently Adopted Accounting Pronouncements
Stock Compensation
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” ASU 2016-09 simplifies several aspects of accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The guidance was effective for fiscal years beginning after December 15, 2016. The Company adopted ASU 2016-09 effective January 1, 2017.
Upon adoption, the Company elected to account for forfeitures as they occur rather than estimate expected forfeitures using a modified retrospective transition method. As a result of this election, the Company recorded a cumulative-effect adjustment of $11 million , representing an increase in accumulated deficit, with the offset to paid-in capital. During the first quarter of 2017, the Company recorded a $4 million deferred tax asset related to this adjustment, with the offset to accumulated deficit.
ASU 2016-09 requires excess tax benefits and deficiencies to be recognized prospectively as part of the provision for income taxes rather than paid-in capital. The adoption did not have a material impact on the Company’s accounting of provision for income taxes. ASU 2016-09 also requires excess tax benefits to be presented as a component of operating cash flows rather than financing cash flows. The Company has adopted this requirement prospectively and accordingly, prior periods have not been adjusted. Excess tax benefits were not material for all periods presented.
Additionally, ASU 2016-09 requires that employee taxes paid when an employer withholds shares for tax-withholding purposes be reported as financing activities in the consolidated statements of cash flows, which is how the Company has historically classified these amounts.
Restricted Cash
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.” ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the total beginning and ending amounts for the periods shown on the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2017, and is required to be adopted using a retrospective approach, with early adoption permitted. The Company adopted ASU 2016-18 in the third quarter of 2017. Other than the change in presentation within the statement of consolidated cash flows, the adoption of ASU 2016-18 did not have an impact on the Company’s consolidated financial statements.

8



The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheet to the amounts shown in the statement of consolidated cash flows:
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Cash and cash equivalents
 
$
1,846

 
$
1,377

Restricted cash
 
96

 

Total cash, cash equivalents, and restricted cash shown in the statement of consolidated cash flows
 
$
1,942

 
$
1,377

For information regarding the restricted cash balance, please refer to Note 2—Acquisitions and Divestitures.
New Pronouncements Issued But Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, and the Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Early adoption is permitted; however, the Company does not intend to early adopt. As part of the assessment to date, the Company has formed an implementation work team and is continuing to evaluate contracts to determine the impact this ASU will have on its consolidated financial statements. At this time, the Company cannot reasonably estimate the financial impact this will have on its consolidated financial statements; however, the Company believes adoption and implementation of this ASU will significantly impact its balance sheet, resulting in an increase in both assets and liabilities relating to its leasing activities.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a joint revenue recognition standard, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” The new standard removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers, and increases disclosure requirements. The codification was amended through additional ASUs and, as amended, 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. The guidance is 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 continues to make progress on evaluating the accounting implications of this ASU and its assessment of contracts with customers is largely complete. Based on the Company’s evaluation to date, it does not expect the adoption of this ASU to have a material impact on net earnings, however, the Company is analyzing whether the classification of certain items in revenue and expense will be impacted. The Company continues to evaluate the disclosure requirements, develop accounting policies, and assess changes to the relevant business processes and the control activities within them as a result of the provisions of this ASU. The Company will adopt the new standard on January 1, 2018, utilizing the modified retrospective approach.

9



2.
ACQUISITIONS AND DIVESTITURES

2017 Activity
Canada Divestitures
During the third quarter, Apache announced the sale of its subsidiary Apache Canada Ltd. (ACL) and complete exit of its Canadian operations. On June 30, 2017, Apache completed the sale of its Canadian assets at Midale and House Mountain, located in Saskatchewan and Alberta, for aggregate cash proceeds of approximately $228 million . The Company recognized a $52 million loss during the second quarter of 2017 in association with this sale.
In August of 2017, Apache completed the sale of its remaining Canadian operations for aggregate cash proceeds of approximately $478 million . The Company recognized a $74 million gain upon closing of these transactions in the third quarter of 2017. The Company has classified $96 million of proceeds as “Restricted cash” on the Company’s consolidated balance sheet, pending the Alberta Energy Regulator’s clearance of the transfer of Provost area licenses from ACL to the buyer.
A summary of the assets and liabilities at closing of the August transactions is detailed below:
 
 
(In millions)
ASSETS
 
 
Current assets
 
$
110

Property, plant & equipment
 
1,132

Total Assets
 
$
1,242

LIABILITIES
 
 
Current liabilities, excluding asset retirement obligation
 
$
120

Asset retirement obligation
 
780

Other long-term liabilities
 
46

Total Liabilities
 
$
946

The net carrying value of the assets disposed included a currency translation loss of $109 million , which was recorded in “Accumulated Other Comprehensive Loss” on the Company’s consolidated balance sheet at December 31, 2016. The currency translation loss was recognized as a reduction of the net gain on sale during the third quarter of 2017 upon closing of the transactions.
Apache’s Canadian operations recorded pretax losses of $12 million and $141 million for the third quarter and first nine months of 2017 , respectively, compared to pretax losses of $483 million and $644 million , respectively, for the comparable periods in 2016 .

U.S. Divestitures
During the first nine months of 2017, Apache completed the sale of certain non-core assets, primarily leasehold acreage in the Permian and Midcontinent/Gulf Coast regions, in multiple transactions for cash proceeds of $783 million , subject to customary closing adjustments. A refundable deposit of $40 million was received in the fourth quarter of 2016 in connection with certain of these transactions. The Company recognized gains of approximately $594 million during the first nine months of 2017 in connection with these transactions.

North Sea GTP Divestiture
During the fourth quarter of 2016, Apache entered into an agreement to sell its 30.28 percent interest in the Scottish Area Gas Evacuation system (SAGE) and its 60.56 percent interest in the Beryl pipeline in the North Sea to Ancala Midstream Acquisitions Limited (Ancala). The transaction is subject to regulatory and third-party approvals, which are ongoing in 2017. The Company received a refundable deposit in connection with this transaction, which is recorded in “Other current liabilities” on the consolidated balance sheet. The refundable deposit was $149 million as of September 30, 2017 .
Leasehold and Property Acquisitions
During the third quarter and first nine months of 2017 , Apache purchased $75 million and $142 million , respectively, of leasehold and property acquisitions primarily in its North America onshore regions.

10



2016 Activity
Leasehold and Property Acquisitions
During the third quarter and first nine months of 2016 , Apache purchased $51 million and $169 million , respectively, of leasehold and property acquisitions primarily in its North America onshore regions and Egypt.
Discontinued Operations
Apache sold its operations in Argentina and Australia in 2014 and 2015, respectively. The results of operations related to the Argentina and Australia dispositions and the losses on disposals were classified as discontinued operations in the Company’s financial statements. During 2016, the Company incurred additional losses on these dispositions. The components of the Company’s loss from discontinued operations were as follows:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Loss from Australia divestiture
 
$

 
$
(23
)
 
$

 
$
(23
)
Loss from Argentina divestiture
 

 
(10
)
 

 
(10
)
Loss from discontinued operations, net of tax
 
$

 
$
(33
)
 
$

 
$
(33
)
Transaction, Reorganization, and Separation
During the third quarter and first nine months of 2017 , Apache recorded $20 million and $14 million , respectively, in expense related to asset divestitures in the U.S. and Canada and employee separation. During the third quarter and first nine months of 2016 , Apache recorded $12 million and $36 million , respectively, in expense related to various asset divestitures, company reorganization, and employee separation.


11



3.   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Objectives and Strategies
The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production. Apache manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production. The Company utilizes various types of derivative financial instruments to manage fluctuations in cash flows resulting from changes in commodity prices. The Company’s derivatives are not designated as cash flow hedges, therefore, changes in fair value are recognized currently in earnings.
Counterparty Risk
The use of derivative instruments exposes the Company to credit loss in the event of nonperformance by the counterparty. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of September 30, 2017 , Apache had derivative positions with 14 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from lower commodity prices.
Derivative Instruments
As of September 30, 2017 , Apache had the following open crude oil derivative positions:
 
 
 
 
Put Options (1)(2)
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Strike Price
October—December 2017
 
NYMEX WTI
 
8,464
 
$50.00
October—December 2017
 
Dated Brent
 
7,636
 
$51.00
(1)
The remaining unamortized premium paid as of September 30, 2017 , was $50 million .
(2)
Subsequent to September 30, 2017 , Apache entered into put option contracts settling against Dated Brent totaling 3,650 Mbbls with a strike price of $50 for the calendar year 2018.
 
 
 
 
Fixed-Price Swaps
 
Collars (3)
 
Call Options (4)
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Fixed Price
 
Mbbls
 
Weighted Average Floor Price
 
Weighted Average Ceiling Price
 
Mbbls
 
Strike Price
January—June 2018
 
NYMEX WTI
 
2,715
 
$51.23
 
2,715
 
$45.00
 
$56.45
 
 
January—June 2018
 
Dated Brent
 
2,172
 
$54.57
 
2,172
 
$50.00
 
$58.77
 
 
January—December 2018
 
NYMEX WTI
 
 
 
6,023
 
$45.00
 
$57.02
 
6,023
 
$60.00
(3)
Subsequent to September 30, 2017 , Apache entered into crude oil contracts settling against NYMEX WTI totaling 730 Mbbls with a floor and ceiling of $45.00 and $56.90 , respectively, for the calendar year 2018.
(4)
The remaining unamortized premium paid as of September 30, 2017 , was $9 million .

12



As of September 30, 2017 , Apache had the following open natural gas derivative positions:
 
 
 
 
Fixed-Price Swaps (1)
Production Period
 
Settlement Index
 
MMBtu
(in 000’s)
 
Weighted Average Fixed Price
October—December 2017
 
NYMEX Henry Hub
 
4,370
 
$3.32
January—March 2018
 
NYMEX Henry Hub
 
13,500
 
$3.39
January—June 2018
 
NYMEX Henry Hub
 
22,625
 
$3.17
April—June 2018
 
NYMEX Henry Hub
 
16,835
 
$2.92
July—December 2018
 
NYMEX Henry Hub
 
18,400
 
$2.97
(1)
Subsequent to September 30, 2017 , Apache entered into fixed-price natural gas swaps settling against NYMEX Henry Hub totaling 15,180,000 MMBtu with a weighted average fixed-price of $2.95 for the second half of 2018.
As of September 30, 2017 , Apache had the following open natural gas financial basis swap contracts:
Production Period
 
Settlement Index
 
MMBtu
(in 000’s)
 
Weighted Average Price Differential
January—March 2018
 
NYMEX Henry Hub/Waha
 
9,450
 
$(0.43)
July—December 2018
 
NYMEX Henry Hub/Waha
 
33,120
 
$(0.53)
October—December 2018
 
NYMEX Henry Hub/Waha
 
1,380
 
$(0.51)
January—March 2019
 
NYMEX Henry Hub/Waha
 
1,350
 
$(0.54)
January—June 2019
 
NYMEX Henry Hub/Waha
 
32,580
 
$(0.53)
January—December 2019
 
NYMEX Henry Hub/Waha
 
14,600
 
$(0.45)
Fair Value Measurements
Apache’s commodity derivative instruments consist of variable-to-fixed price commodity swaps, options, and collars. The fair values of the Company’s derivatives are not actively quoted in the open market. The Company uses a market approach to estimate the fair values of its derivative instruments on a recurring basis, utilizing commodity futures pricing for the underlying commodities provided by a reputable third party, a Level 2 fair value measurement.
The following table presents the Company’s derivative assets and liabilities measured at fair value on a recurring basis:
 
 
Fair Value Measurements Using
 
 
 
 
 
 
 
 
Quoted Price in Active Markets (Level 1)
 
Significant Other Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Fair Value
 
Netting (1)
 
Carrying Amount
 
 
(In millions)
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$
24

 
$

 
$
24

 
$
(7
)
 
$
17

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 
7

 

 
7

 
(7
)
 

December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$

 
$

 
$

 
$

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 

 

 

 

 

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

13



All derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Current Assets: Prepaid assets and other
 
$
13

 
$

Other Assets: Deferred charges and other
 
4

 

Total Assets
 
$
17

 
$

Derivative Activity Recorded in the Statement of Consolidated Operations
The following table summarizes the effect of derivative instruments on the Company’s statement of consolidated operations:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Realized gain (loss):
 
 
 
 
 
 
 
 
Derivative settlements, realized gain
 
$
23

 
$

 
$
23

 
$

Amortization of put premium, realized loss
 
(50
)
 

 
(50
)
 

Unrealized loss
 
(83
)
 

 
(42
)
 

Derivative instrument losses, net
 
$
(110
)
 
$

 
$
(69
)
 
$

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

14



4.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $369 million and $264 million at  September 30, 2017 and  December 31, 2016 , respectively. The increase is primarily attributable to additional drilling activities in the U.S. during the period, partially offset by successful transfers and dry hole write-offs. No suspended exploratory well costs previously capitalized for greater than one year at December 31, 2016 were charged to dry hole expense during the nine months ended September 30, 2017 . Projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling are those identified by management as exhibiting sufficient quantities of hydrocarbons to justify potential development. Management is actively pursuing efforts to assess whether reserves can be attributed to these projects.
5.
OTHER CURRENT LIABILITIES
The following table provides detail of the Company’s other current liabilities as of September 30, 2017 and December 31, 2016 :
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Accrued operating expenses
 
$
73

 
$
110

Accrued exploration and development
 
691

 
463

Accrued compensation and benefits
 
99

 
201

Accrued interest
 
108

 
145

Accrued income taxes
 
68

 
22

Current asset retirement obligation
 
35

 
66

Refundable deposits
 
149

 
174

Other
 
109

 
77

Total other current liabilities
 
$
1,332

 
$
1,258

6.
ASSET RETIREMENT OBLIGATION
The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the nine -month period ended September 30, 2017 :
 
 
(In millions)
Asset retirement obligation at December 31, 2016
 
$
2,498

Liabilities incurred
 
39

Liabilities divested
 
(810
)
Liabilities settled
 
(30
)
Accretion expense
 
103

Revisions in estimated liabilities
 
66

Asset retirement obligation at September 30, 2017
 
1,866

Less current portion
 
35

Asset retirement obligation, long-term
 
$
1,831


15



7.
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 impairments of the carrying value of the Company’s oil and gas properties, gains and losses on the sale of assets, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
In August 2017, Apache completed the sale of ACL. For more information regarding this transaction, please refer to Note 2—Acquisitions and Divestitures. As a result of this transaction, Apache recorded a deferred tax asset associated with its realizable capital loss on the sale of ACL, and a decrease in the Company’s deferred tax liability associated with its investment in foreign subsidiaries. In the third and second quarters of 2017, the Company recorded a $2 million deferred income tax expense and a $674 million deferred income tax benefit, respectively, in connection with these transactions.
Apache’s third quarter of 2017 effective income tax rate was primarily impacted by gains on the sale of oil and gas properties and a $30 million current tax benefit associated with U.S. federal income tax credits. On September 15, 2016, U.K. Finance Act 2016 received Royal Assent. Under the enacted legislation, the corporate income tax rate on North Sea oil and gas profits was reduced from 50 percent to 40 percent effective January 1, 2016. As a result of the enacted legislation, in the third quarter of 2016 the Company recorded a deferred tax benefit of $235 million related to the remeasurement of the Company’s December 31, 2015 U.K. deferred income tax liability.
Apache’s 2017 year-to-date effective income tax rate is primarily impacted by the decrease in deferred taxes associated with its investments in foreign subsidiaries, gains on the sale of oil and gas properties, non-cash impairments of the Company’s PRT decommissioning asset, and the current tax benefit associated with U.S. federal income tax credits. Apache’s 2016 year-to-date effective income tax rate was primarily impacted by non-cash impairments of the carrying value of the Company’s oil and gas properties, non-cash impairments of the Company’s PRT decommissioning asset, the impact of the change in U.K. statutory income tax rate, and an increase in the amount of valuation allowances on U.S. and Canadian deferred tax assets.
Apache and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. In April 2017, the Internal Revenue Service (IRS) began their audit of the Company’s 2014 income tax year. The Company is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

16



8.
DEBT AND FINANCING COSTS
The following table presents the carrying amounts and estimated fair values of the Company’s outstanding debt as of September 30, 2017 and December 31, 2016 :
 
 
 
September 30, 2017
 
December 31, 2016
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
(In millions)
Commercial paper and committed bank facilities
 
$

 
$

 
$

 
$

Notes and debentures
 
8,483

 
9,094

 
8,544

 
9,183

Total Debt
 
$
8,483

 
$
9,094

 
$
8,544

 
$
9,183

The Company’s debt is recorded at the carrying amount, net of related unamortized discount and debt issuance costs, on its consolidated balance sheet. When recorded, the carrying amount of the Company’s commercial paper, committed bank facilities, and uncommitted bank lines approximates fair value because the interest rates are variable and reflective of market rates. Apache uses a market approach to determine the fair value of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).
The following table presents the carrying value of the Company’s debt as of September 30, 2017 and December 31, 2016 :
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Debt before unamortized discount and debt issuance costs
 
$
8,580

 
$
8,650

Unamortized discount
 
(48
)
 
(50
)
Debt issuance costs
 
(49
)
 
(56
)
Total debt
 
8,483

 
8,544

Current maturities
 
(550
)
 

Long-term debt
 
$
7,933

 
$
8,544


As of September 30, 2017 , current debt included $150 million of 7.0% senior notes due February 1, 2018 and $400 million of 6.9% senior notes due September 15, 2018.

As of September 30, 2017 , the Company had a revolving credit facility that matures in June 2020 , subject to Apache’s two one -year extension options. The facility provides for aggregate commitments of $3.5 billion (including a $750 million letter of credit subfacility), with rights to increase commitments up to an aggregate $4.5 billion . Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its $3.5 billion commercial paper program. The commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270  days at competitive interest rates. As of September 30, 2017 , the Company had no commercial paper or borrowings under committed bank facilities or uncommitted bank lines outstanding.

As of September 30, 2017 , the Company had a letter of credit facility, which provides for £900 million in commitments and rights to increase commitments to £1.075 billion . This facility matures in February 2020 . The facility is available for letters of credit and loans to cash collateralize letters of credit or obligations to provide letters of credit, in each case, to the extent letters of credit are unavailable under the facility. As of September 30, 2017 , three letters of credit aggregating approximately £147.5 million and no borrowings were outstanding under this facility.

In November 2016, the Company initiated a program to purchase in the open market up to $250 million in aggregate principal amount of senior notes issued under its indentures. In the fourth quarter of 2016, the Company purchased and canceled $181 million aggregate principal amount of its senior notes through open market repurchases for $182 million in cash, including accrued interest and $0.5 million of premium.


17



In January 2017, the Company purchased and canceled an additional $69 million aggregate principal amount of senior notes for $71 million in cash, including accrued interest and $1 million of premium, which completed the open market repurchase program. These repurchases resulted in a $1 million net loss on extinguishment of debt, which is included in “Financing costs, net” in the Company’s consolidated statement of operations. The net loss includes an acceleration of related discount and deferred financing costs.

In August 2017, the Company assumed the obligations of Apache Finance Canada Corporation (AFCC) in respect of $300 million 7.75% notes due in 2029 which AFCC issued and the Company guaranteed pursuant to the governing indenture. The assumption was permitted by the indenture and effected pursuant to a supplemental indenture thereto. As a result of the assumption, the Company is the obligor under the notes and indenture, and AFCC is released from its obligations thereunder. The $300 million 7.75% notes historically have been included in the Company’s long-term debt; accordingly, the assumption did not change the Company’s long-term debt or total debt.
Financing Costs, Net
The following table presents the components of Apache’s financing costs, net:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Interest expense
 
$
113

 
$
116

 
$
344

 
$
348

Amortization of deferred loan costs
 
3

 
2

 
7

 
5

Capitalized interest
 
(12
)
 
(13
)
 
(39
)
 
(36
)
Loss on extinguishment of debt
 

 

 
1

 

Interest income
 
(3
)
 
(3
)
 
(13
)
 
(6
)
Financing costs, net
 
$
101

 
$
102

 
$
300

 
$
311



18



9.
COMMITMENTS AND CONTINGENCIES
Legal Matters
Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of September 30, 2017 , the Company has an accrued liability of approximately $37 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 10—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, 2016 .
Argentine Environmental Claims and Argentina Tariff
No material change in the status of the YPF Sociedad Anónima and Pioneer Natural Resources Company indemnities matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .
Louisiana Restoration  
As more fully described in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 , numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either express or implied lease terms or Louisiana law, the companies 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.
On July 24, 2013, a lawsuit captioned Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East v. Tennessee Gas Pipeline Company et al. , Case No. 2013-6911 was filed in the Civil District Court for the Parish of Orleans, State of Louisiana, in which plaintiff on behalf of itself and as the board governing the levee districts of Orleans, Lake Borgne Basin, and East Jefferson alleged that Louisiana coastal lands have been damaged as a result of oil and gas industry activity, including a network of canals for access and pipelines. The defendants removed the case from state court to federal court and, on February 13, 2015, the federal court entered judgment in favor of defendants dismissing all of plaintiff’s claims with prejudice. Plaintiff appealed the lower court’s dismissal to the 5 th Circuit Court of Appeals and additionally challenged the defendants’ right to remove the case to federal court. On March 3, 2017, the 5 th Circuit Court of Appeals affirmed the propriety of federal jurisdiction based in part on Apache’s argument that plaintiff’s state-based claims required a resolution of substantial questions of federal law and also affirmed the dismissal of the action. The Plaintiff filed a Petition for a Writ of Certiorari with the United States Supreme Court. On October 30, 2017, the United States Supreme Court denied review and declined to consider the plaintiff’s Petition of Certiorari.
Starting in November of 2013 and continuing into 2017, several Parishes in Louisiana have pending lawsuits against many oil and gas producers, including Apache. These cases are pending in federal and state courts in Louisiana. In these cases, the Parishes, as plaintiffs, allege that defendants’ oil and gas exploration, production, and transportation operations in specified fields were conducted in violation of the State and Local Coastal Resources Management Act of 1978, as amended, and applicable regulations, rules, orders, and ordinances promulgated or adopted thereunder by the Parish or the State of Louisiana. Plaintiffs allege that defendants caused substantial damage to land and water bodies located in the coastal zone of Louisiana. Plaintiffs seek, among other things, unspecified damages for alleged violations of applicable state law within the coastal zone, the payment of costs necessary to clear, re-vegetate, detoxify, and otherwise restore the subject coastal zone as near as practicable to its original condition, and actual restoration of the coastal zone to its original condition. While an adverse judgment against Apache might be possible, Apache intends to vigorously oppose these claims.
No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .


19



Apollo Exploration Lawsuit
In a fourth amended petition filed on March 21, 2016, 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 have reduced their alleged damages to approximately $500 million (having previously claimed 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. The Court recently granted two of Apache’s motions for summary judgment further limiting the plaintiffs’ theories and potential damages. Apache believes that plaintiffs’ claims lack merit, and further that plaintiffs’ alleged damages, even as amended, are grossly inflated. Apache will vigorously oppose the claims. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .
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 (Unclaimed Property), to determine compliance with the Delaware Escheat Laws, since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 .
Environmental Matters
As of September 30, 2017 , the Company had an undiscounted reserve for environmental remediation of approximately $4 million . The Company is not aware of any environmental claims existing as of September 30, 2017 , 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.
ACL, a former subsidiary of the Company, previously reported produced water spills in a remote area of the Bellow Field and a hydrogen sulfide and oil emulsion leak in the Zama area. The Company sold ACL in a transaction that was completed in the third quarter of 2017. The Canadian environmental litigation and liabilities remained with ACL and are now the responsibility of the acquirer.
In addition to the matters for which the Company has already accrued, on July 17, 2017, in three separate actions, San Mateo County, California, Marin County, California, and the City of Imperial Beach, California, all filed suit individually and on behalf of the people of the state of California against over 30 oil, gas, and coal companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories. Apache believes that the claims made against it are baseless and intends to vigorously defend these lawsuits.
Australian Operations Divestiture Dispute
By a Sale and Purchase Agreement dated April 9, 2015 (SPA), the Company and its subsidiaries divested their remaining Australian operations to Viraciti Energy Pty Ltd, which has since been renamed Quadrant Energy Pty Ltd (Quadrant). Closing occurred on June 5, 2015. By letter dated June 6, 2016, Quadrant provided the Company with a placeholder notice of claim under the SPA concerning tax and other issues totaling approximately $200 million in the aggregate. The Company believes that these claims lack merit and intends to vigorously defend against them. Moreover, on September 22, 2017, subsidiaries of the Company filed suit against Quadrant for breaching the SPA and wrongfully withholding tax refunds owed under the SPA. This claim totals approximately $80 million AUD.

20



10.
CAPITAL STOCK
Net Income (Loss) per Common Share
A reconciliation of the components of basic and diluted net income (loss) per common share for the quarters and nine months ended September 30, 2017 and 2016 , is presented in the table below.
 
 
 
For the Quarter Ended September 30,
 
 
2017
 
2016
 
 
Income
 
Shares
 
Per Share
 
Loss
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
63

 
381

 
$
0.16

 
$
(574
)
 
380

 
$
(1.51
)
Loss from discontinued operations
 

 
381

 

 
(33
)
 
380

 
(0.09
)
Income (loss) attributable to common stock
 
$
63

 
381

 
$
0.16

 
$
(607
)
 
380

 
$
(1.60
)
Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 
$

 
2

 
$

 
$

 

 
$

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
63

 
383

 
$
0.16

 
$
(574
)
 
380

 
$
(1.51
)
Loss from discontinued operations
 

 
383

 

 
(33
)
 
380

 
(0.09
)
Income (loss) attributable to common stock
 
$
63

 
383

 
$
0.16

 
$
(607
)
 
380

 
$
(1.60
)
 
 
For the Nine Months Ended September 30,
 
 
2017
 
2016
 
 
Income
 
Shares
 
Per Share
 
Loss
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
848

 
381

 
$
2.23

 
$
(1,190
)
 
379

 
$
(3.14
)
Loss from discontinued operations
 

 
381

 

 
(33
)
 
379

 
(0.08
)
Income (loss) attributable to common stock
 
$
848

 
381

 
$
2.23

 
$
(1,223
)
 
379

 
$
(3.22
)
Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 
$

 
2

 
$
(0.01
)
 
$

 

 
$

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
848

 
383

 
$
2.22

 
$
(1,190
)
 
379

 
$
(3.14
)
Loss from discontinued operations
 

 
383

 

 
(33
)
 
379

 
(0.08
)
Income (loss) attributable to common stock
 
$
848

 
383

 
$
2.22

 
$
(1,223
)
 
379

 
$
(3.22
)

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 8.4 million and 4.7 million for the quarters ended September 30, 2017 and 2016 , respectively, and 7.5 million and 6.5 million for the nine months ended September 30, 2017 and 2016 , respectively.
Common Stock Dividends
For each of the quarters ended September 30, 2017 , and 2016 , Apache paid $95 million in dividends on its common stock. For the nine months ended September 30, 2017 and 2016 , the Company paid $285 million and $284 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 negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2017 , had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company is not obligated to acquire any specific number of shares and has not purchased any shares during 2017 .

21



11.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table describes changes to the Company’s accumulated other comprehensive loss by component for the nine -month period ended September 30, 2017 :
 
 
Currency Translation Adjustment
 
Pension and Postretirement Benefit Plan
 
Total
 
 
(In millions)
Accumulated other comprehensive loss at December 31, 2016
 
$
(109
)
 
$
(3
)
 
$
(112
)
Currency translation adjustment divested (1)
 
109

 

 
109

Accumulated other comprehensive loss at September 30, 2017
 
$

 
$
(3
)
 
$
(3
)
(1)
Currency translation adjustments resulting from translating the Canadian subsidiaries’ financial statements into U.S. dollar equivalents, prior to adoption of the U.S. dollar as their functional currency, were reported separately and accumulated in other comprehensive loss. This currency translation loss was recognized as a reduction of the net gain on divestiture during the third quarter of 2017 in connection with the Canada divestitures. For more information regarding these divestitures, please refer to Note 2—Acquisitions and Divestitures.
12.
BUSINESS SEGMENT INFORMATION
Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil, and natural gas liquids. At September 30, 2017 , the Company had production in three reporting segments: the United States, Egypt, and offshore the United Kingdom in the North Sea (North Sea). Apache also has exploration interests in Suriname that may, over time, result in a reportable discovery and development opportunity. Financial information for each area is presented below:
 
 
 
United
States
 
Canada (1)
 
Egypt (2)
 
North Sea
 
Other
International
 
Total
 
 
(In millions)
For the Quarter Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
550

 
$
36

 
$
543

 
$
260

 
$

 
$
1,389

Operating Income (Loss) (3)
 
$
(114
)
 
$
(1
)
 
$
226

 
$
16

 
$
(1
)
 
$
126

Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
296

Derivative instrument losses, net
 
 
 
 
 
 
 
 
 
 
 
(110
)
General and administrative
 
 
 
 
 
 
 
 
 
 
 
(98
)
Transaction, reorganization, and separation