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

FORM 10-Q 
(Mark One)  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 1-4300
APACHE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
41-0747868
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices) (Zip Code)
(713) 296-6000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.625 par value
 
APA
 
New York Stock Exchange
Common Stock, $0.625 par value
 
APA
 
Chicago Stock Exchange
Common Stock, $0.625 par value
 
APA
 
Nasdaq Global Select Market
7.75% Notes Due 2029
 
APA/29
 
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
Accelerated filer
 
Non-accelerated filer
 
 
Smaller reporting company
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  
Number of shares of registrant’s common stock outstanding as of April 30, 2020
377,426,033







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 the Company’s 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 the Company’s examination of historical operating trends, the information that was used to prepare its estimate of proved reserves as of December 31, 2019, and other data in the Company’s 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,” “continue,” “seek,” “guidance,” “might,” “outlook,” “possibly,” “potential,” “should,” “would,” or similar terminology. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable under the circumstances, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, its assumptions about:
 
the scope, duration, and reoccurrence of any epidemics or pandemics (including specifically the coronavirus disease 2019 (COVID-19) pandemic) and the actions taken by third parties, including, but not limited to, governmental authorities, customers, contractors, and suppliers, in response to such epidemics or pandemics;

the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services;

the Company’s 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, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring, or water disposal;

the Company’s performance on environmental, social, and governance measures;

terrorism or cyberattacks;

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;

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 the Company’s most recently filed Annual Report on Form 10-K;

other risks and uncertainties in the Company’s first-quarter 2020 earnings release;

other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q; and

other filings that the Company makes with the Securities and Exchange Commission.



Other factors or events that could cause the Company’s actual results to differ may emerge from time to time, and it is not possible for the Company to predict all of them. 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. Except as required by law, the Company assumes no duty to update or revise its forward-looking statements, whether based on changes in internal estimates or expectations, new information, future developments, or otherwise.




PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
 
For the Quarter Ended March 31,
 
 
2020
 
2019
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
Oil, natural gas, and natural gas liquids production revenues
 
$
1,236

 
$
1,654

Purchased oil and gas sales
 
108

 
24

Total revenues
 
1,344

 
1,678

Derivative instrument losses, net
 
(103
)
 
(30
)
Gain on divestitures, net
 
25

 
3

Other, net
 
13

 
6

 
 
1,279

 
1,657

OPERATING EXPENSES:
 
 
 
 
Lease operating expenses
 
335

 
365

Gathering, processing, and transmission
 
71

 
88

Purchased oil and gas costs
 
86

 
22

Taxes other than income
 
33

 
51

Exploration
 
57

 
69

General and administrative
 
68

 
123

Transaction, reorganization, and separation
 
27

 
4

Depreciation, depletion, and amortization
 
566

 
646

Asset retirement obligation accretion
 
27

 
27

Impairments
 
4,472

 

Financing costs, net
 
103

 
97

 
 
5,845

 
1,492

NET INCOME (LOSS) BEFORE INCOME TAXES
 
(4,566
)
 
165

Current income tax provision
 
89

 
186

Deferred income tax benefit
 
(33
)
 
(19
)
NET LOSS INCLUDING NONCONTROLLING INTERESTS
 
(4,622
)
 
(2
)
Net income (loss) attributable to noncontrolling interest - Egypt
 
(151
)
 
44

Net income (loss) attributable to noncontrolling interest - Altus
 
(9
)
 
1

Net income attributable to Altus Preferred Unit limited partners
 
18

 

NET LOSS ATTRIBUTABLE TO COMMON STOCK
 
$
(4,480
)
 
$
(47
)
 
 
 
 
 
NET LOSS PER COMMON SHARE:
 
 
 
 
Basic
 
$
(11.86
)
 
$
(0.12
)
Diluted
 
$
(11.86
)
 
$
(0.12
)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
 
378

 
376

Diluted
 
378

 
376


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 March 31,
 
 
2020
 
2019
 
 
(In millions)
NET LOSS INCLUDING NONCONTROLLING INTERESTS
 
$
(4,622
)
 
$
(2
)
OTHER COMPREHENSIVE LOSS, NET OF TAX:
 
 
 
 
Share of equity method interests other comprehensive loss
 
(1
)
 

COMPREHENSIVE LOSS INCLUDING NONCONTROLLING INTERESTS
 
(4,623
)
 
(2
)
Comprehensive income (loss) attributable to noncontrolling interest - Egypt
 
(151
)
 
44

Comprehensive income (loss) attributable to noncontrolling interest - Altus
 
(9
)
 
1

Comprehensive income attributable to Altus Preferred Unit limited partners
 
18

 

COMPREHENSIVE LOSS ATTRIBUTABLE TO COMMON STOCK
 
$
(4,481
)
 
$
(47
)

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 Three Months Ended March 31,
 
 
2020
 
2019
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss including noncontrolling interests
 
$
(4,622
)
 
$
(2
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Unrealized derivative instrument losses, net
 
103

 
45

Gain on divestitures
 
(25
)
 
(3
)
Exploratory dry hole expense and unproved leasehold impairments
 
43

 
33

Depreciation, depletion, and amortization
 
566

 
646

Asset retirement obligation accretion
 
27

 
27

Impairments
 
4,472

 

Deferred income tax benefit
 
(33
)
 
(19
)
Other
 
(8
)
 
9

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
221

 
8

Inventories
 
30

 
(33
)
Drilling advances
 
(20
)
 
5

Deferred charges and other
 
(13
)
 
(4
)
Accounts payable
 
(80
)
 
(50
)
Accrued expenses
 
(173
)
 
(46
)
Deferred credits and noncurrent liabilities
 
14

 
(18
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
 
502

 
598

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(511
)
 
(729
)
Additions to Altus gathering, processing, and transmission facilities
 
(19
)
 
(119
)
Leasehold and property acquisitions
 
(1
)
 
(15
)
Altus equity method interests
 
(83
)
 
(118
)
Proceeds from sale of oil and gas properties
 
126

 
9

Other, net
 
(21
)
 
34

NET CASH USED IN INVESTING ACTIVITIES
 
(509
)
 
(938
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Commercial paper and credit facility
 
250

 
159

Proceeds from Altus credit facility
 
72

 

Distributions to noncontrolling interest - Egypt
 
(32
)
 
(107
)
Dividends paid
 
(94
)
 
(94
)
Other
 
(8
)
 
(5
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
188

 
(47
)
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
181

 
(387
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
247

 
714

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
428

 
$
327

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
126

 
$
115

Income taxes paid, net of refunds
 
98

 
165


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

3



APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
In millions except share and per-share amounts
 
March 31, 2020
 
December 31, 2019
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents ($19 and $6 related to Altus VIE)
 
$
428

 
$
247

Receivables, net of allowance of $89 and $88
 
838

 
1,062

Other current assets (Note 5) ($5 and $5 related to Altus VIE)
 
642

 
652

 
 
1,908

 
1,961

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
40,795

 
40,540

Unproved properties and properties under development
 
628

 
666

Gathering, processing, and transmission facilities ($209 and $203 related to Altus VIE)
 
674

 
799

Other ($4 and $4 related to Altus VIE)
 
1,141

 
1,140

 
 
43,238

 
43,145

Less: Accumulated depreciation, depletion, and amortization ($4 and $1 related to Altus VIE)
 
(33,652
)
 
(28,987
)
 
 
9,586

 
14,158

OTHER ASSETS:
 
 
 
 
Equity method interests (Note 6) ($1,337 and $1,258 related to Altus VIE)
 
1,337

 
1,258

Deferred charges and other ($4 and $4 related to Altus VIE)
 
560

 
730

 
 
$
13,391

 
$
18,107

LIABILITIES, NONCONTROLLING INTEREST, AND EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
528

 
$
695

Current debt (nil and $10 related to Altus VIE)
 
544

 
11

Other current liabilities (Note 7) ($12 and $21 related to Altus VIE)
 
953

 
1,149

 
 
2,025

 
1,855

LONG-TERM DEBT (Note 10) ($468 and $396 related to Altus VIE)
 
8,336

 
8,555

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
309

 
346

Asset retirement obligation (Note 8) ($61 and $60 related to Altus VIE)
 
1,814

 
1,811

Other ($170 and $107 related to Altus VIE)
 
562

 
520

 
 
2,685

 
2,677

COMMITMENTS AND CONTINGENCIES (Note 11)
 

 

REDEEMABLE NONCONTROLLING INTEREST - ALTUS PREFERRED UNIT LIMITED PARTNERS (Note 12)
 
573

 
555

EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 418,374,523 and 417,026,863 shares issued, respectively
 
262

 
261

Paid-in capital
 
11,747

 
11,769

Accumulated deficit
 
(10,081
)
 
(5,601
)
Treasury stock, at cost, 40,950,727 and 40,964,193 shares, respectively
 
(3,189
)
 
(3,190
)
Accumulated other comprehensive income
 
15

 
16

APACHE SHAREHOLDERS’ EQUITY (DEFICIT)
 
(1,246
)
 
3,255

Noncontrolling interest - Egypt
 
954

 
1,137

Noncontrolling interest - Altus
 
64

 
73

TOTAL EQUITY (DEFICIT)
 
(228
)
 
4,465

 
 
$
13,391

 
$
18,107


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 AND NONCONTROLLING INTEREST
(Unaudited)
 
 
 
Redeemable Noncontrolling Interest — Altus Preferred Unit Limited Partners
 
 
Common
Stock
 
Paid-In
Capital
 
Accumulated Deficit
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Income (Loss)
 
APACHE
SHAREHOLDERS’
EQUITY (DEFICIT)
 
Noncontrolling
Interests
 
TOTAL
EQUITY (DEFICIT)
 
 
 
 
 
(In millions)
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2018
 
$

 
 
$
260

 
$
12,106

 
$
(2,048
)
 
$
(3,192
)
 
$
4

 
$
7,130

 
$
1,682

 
$
8,812

Net loss attributable to common stock
 

 
 

 

 
(47
)
 

 

 
(47
)
 

 
(47
)
Net income attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
44

 
44

Net income attributable to noncontrolling interest - Altus
 

 
 

 

 

 

 

 

 
1

 
1

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

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

 
 

 
(94
)
 

 

 

 
(94
)
 

 
(94
)
Other
 

 
 
1

 
(3
)
 

 
2

 

 

 

 

BALANCE AT MARCH 31, 2019
 
$

 
 
$
261

 
$
12,009

 
$
(2,095
)
 
$
(3,190
)
 
$
4

 
$
6,989

 
$
1,620

 
$
8,609

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2019
 
$
555

 
 
$
261

 
$
11,769

 
$
(5,601
)
 
$
(3,190
)
 
$
16

 
$
3,255

 
$
1,210

 
$
4,465

Net loss attributable to common stock
 

 
 

 

 
(4,480
)
 

 

 
(4,480
)
 

 
(4,480
)
Net loss attributable to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(151
)
 
(151
)
Net loss attributable to noncontrolling interest - Altus
 

 
 

 

 

 

 

 

 
(9
)
 
(9
)
Net income attributable to Altus Preferred Unit limited partners
 
18

 
 

 

 

 

 

 

 

 

Distributions to noncontrolling interest - Egypt
 

 
 

 

 

 

 

 

 
(32
)
 
(32
)
Common dividends ($0.025 per share)
 

 
 

 
(10
)
 

 

 

 
(10
)
 

 
(10
)
Other
 

 
 
1

 
(12
)
 

 
1

 
(1
)
 
(11
)
 

 
(11
)
BALANCE AT MARCH 31, 2020
 
$
573

 
 
$
262

 
$
11,747

 
$
(10,081
)
 
$
(3,189
)
 
$
15

 
$
(1,246
)
 
$
1,018

 
$
(228
)
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, with the exception of recently adopted accounting pronouncements discussed below. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which contains a summary of the Company’s significant accounting policies and other disclosures.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of March 31, 2020, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies of its Notes to Consolidated Financial Statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, with the exception of Accounting Standards Update (ASU) 2016-13, “Financial Instruments-Credit Losses” (see “Accounts Receivable and Allowance for Credit Losses” section in this Note 1 below). The Company’s financial statements for prior periods include reclassifications that were made to conform to the current-year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Apache and its subsidiaries after elimination of intercompany balances and transactions. The Company’s undivided interests in oil and gas exploration and production ventures and partnerships are proportionately consolidated.
The Company consolidates all other investments in which, either through direct or indirect ownership, Apache has more than a 50 percent voting interest or controls the financial and operating decisions. Noncontrolling interests represent third-party ownership in the net assets of a consolidated Apache subsidiary and are reflected separately in the Company’s financial statements. Sinopec International Petroleum Exploration and Production Corporation (Sinopec) owns a one-third minority participation in Apache’s Egypt oil and gas business as a noncontrolling interest, which is reflected as a separate component of equity in Apache’s consolidated balance sheet.
Additionally, third-party investors own a minority interest of approximately 21 percent of Altus Midstream Company (ALTM), which is reflected as a separate noncontrolling interest component of equity in Apache’s consolidated balance sheet. Apache consolidates the activities of ALTM, which qualifies as a variable interest entity (VIE) under GAAP. Apache has concluded that it is the primary beneficiary of the VIE. On June 12, 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) through a private offering that admitted additional limited partners with separate rights for the Preferred Unit holders. Refer to Note 12—Redeemable Noncontrolling Interest - Altus for more detail.
Investments in which Apache holds less than 50 percent of the voting interest are typically accounted for under the equity method of accounting, with the balance recorded separately as “Equity method interests” in Apache’s consolidated balance sheet and results of operations recorded as a component of “Other, net” under “Revenues and Other” in the Company’s statement of consolidated operations. Refer to Note 6—Equity Method Interests for more detail.
Use of Estimates
Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities 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. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Apache evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of its financial statements and changes in these estimates are recorded when known. Significant estimates with regard to these financial statements include 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 (see Note 8—Asset Retirement Obligation), the estimates

6



of fair value for long-lived assets (see “Fair Value Measurements,” “Oil and Gas Property,” and “Gathering, Processing, and Transmission Facilities” sections in this Note 1 below), and the estimate of income taxes (see Note 9—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.
Recurring fair value measurements are presented in further detail in Note 4—Derivative Instruments and Hedging Activities and Note 10—Debt and Financing Costs.
Apache also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. The following table presents a summary of asset impairments recorded in connection with fair value assessments:
 
 
For the Quarter Ended March 31,
 
 
2020
 
2019
 
 
(In millions)
Oil and gas proved property
 
$
4,299

 
$

Gathering, processing, and transmission facilities
 
68

 

Goodwill
 
87

 

Inventory and other
 
18

 

Total Impairments
 
$
4,472

 
$


Given the recent crude oil price collapse on lower demand and economic activity resulting from the coronavirus disease 2019 (COVID-19) global pandemic and related governmental action, the Company assessed its oil and gas property and gathering, processing, and transmission (GPT) assets for impairment based on the net book value of its assets as of March 31, 2020. During the first quarter of 2020, the Company recorded asset impairments totaling $4.5 billion in connection with fair value assessments. The Company recorded proved property impairments totaling $3.9 billion, $354 million, and $7 million in the U.S., Egypt, and North Sea, respectively, all of which were impaired to their estimated fair values as a result of lower forecasted commodity prices, changes to planned development activity, and increasing market uncertainty. These impairments are discussed in further detail below in “Oil and Gas Property.” Impairments totaling $68 million were similarly recorded for GPT facilities in Egypt. This impairment is discussed in further detail below in “Gathering, Processing, and Transmission Facilities.”
During the first quarter of 2020, the Company performed an interim impairment analysis of the goodwill related to its Egypt reporting unit under ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which was adopted during the quarter. Reductions in estimated net present value of expected future cash flows from oil and gas properties resulted in implied fair values below the carrying values of the Company’s Egypt reporting unit. As a result of these assessments, the Company recognized non-cash impairments of the entire amount of recorded goodwill in the Egypt reporting unit of $87 million. The Company also recorded impairments of $13 million for the early termination of a drilling rig leases and $5 million for inventory revaluations, both in the U.S. The Company recorded no asset impairments in connection with fair value assessments during the first quarter of 2019.
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,

7



whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.
Acquisition costs of unproved properties are assessed for impairment at least annually and are transferred to proved oil and gas properties to the extent the costs are associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on the Company’s current exploration plans. Unproved oil and gas properties with individually insignificant lease acquisition costs are amortized on a group basis over the average lease term at rates that provide for full amortization of unsuccessful leases upon lease expiration or abandonment. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and gas properties. Costs of maintaining and retaining unproved properties, as well as amortization of individually insignificant leases and impairment of unsuccessful leases, are included in exploration costs in the statement of consolidated operations.
Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized. Depreciation of the cost of proved oil and gas properties is calculated using the unit-of-production (UOP) method. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the carrying value of associated proved oil and gas properties. The reserve base used to calculate depreciation for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. The reserve base used to calculate the depreciation for capitalized well costs is the sum of proved developed reserves only. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are included in the depreciable cost.
Oil and gas properties are grouped for depreciation in accordance with ASC 932, “Extractive Activities—Oil and Gas.” The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
When circumstances indicate that the carrying value of proved oil and gas properties may not be recoverable, the Company compares unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on Apache’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally estimated using the income approach described in ASC 820. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments, a Level 3 fair value measurement. A 10 percent discount rate was used to value all of Apache’s asset groups which were subject to impairment charges in the first quarter of 2020. Additionally, expected cash inflows were estimated based on management’s views of published West Texas Intermediate (WTI), Brent, and Henry Hub forward pricing as of March 31, 2020. Other significant unobservable inputs used to calculate Apache’s proved property impairments as of March 31, 2020 were calculated on a basis consistent with assumptions used to value the Company’s reserves as previously disclosed in Apache’s Annual Report on Form 10-K for December 31, 2019.
The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved properties:
 
 
For the Quarter Ended March 31,
 
 
2020
 
2019
 
 
(In millions)
Proved Properties:
 
 
 
 
U.S.
 
$
3,938

 
$

Egypt
 
354

 

North Sea
 
7

 

Total Proved
 
$
4,299

 
$

Unproved Properties:
 
 
 
 
U.S.
 
$
17

 
$
21

Egypt
 
2

 
2

Total Unproved
 
$
19

 
$
23


Proved properties impaired during the first quarter of 2020 had aggregate fair values as of March 31, 2020 of $1.9 billion.

8



On the statement of consolidated operations, unproved leasehold impairments are typically recorded as a component of “Exploration” expense. Gains and losses on divestitures of the Company’s oil and gas properties are recognized in the statement of consolidated operations upon closing of the transaction. See Note 2—Acquisitions and Divestitures for more detail.
Gathering, Processing, and Transmission Facilities
The Company assesses the carrying amount of its GPT facilities whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the carrying amount of these facilities is more than the sum of the undiscounted cash flows, an impairment loss is recognized for the excess of the carrying value over its fair value.
As discussed under “Fair Value Measurements” above, Apache assessed its long-lived infrastructure assets for impairment and recorded an impairment of $68 million on its GPT assets in Egypt. The fair values of the impaired assets were determined to be $46 million and were estimated using the income approach. The income approach considered internal estimates based on future throughput volumes from applicable development concessions in Egypt and estimated costs to operate. These assumptions were applied based on throughput assumptions developed in relation to the oil and gas proved property impairment assessment as discussed above to develop future cash flow projections that were then discounted to estimated fair value, using a 10 percent discount rate believed to be consistent with that which would be applied by market participants. Apache has classified these non-recurring fair value measurements as Level 3 in the fair value hierarchy.
Revenue Recognition
There have been no significant changes to the Company’s contracts with customers during the three months ended March 31, 2020 and 2019. Prior periods include the reclassification of $24 million from “Other, net” to “Purchased oil and gas sales,” both within “Revenues and Other” and the associated $22 million purchased oil and gas costs from “Other, net” within “Revenues and Other” to “Purchased oil and gas costs” within “Operating Expenses” on the Company’s consolidated statement of operations to conform to the current-year presentation.
Upstream
The Company’s upstream oil and gas segments primarily generate revenue from contracts with customers from the sale of its crude oil, natural gas, and natural gas liquids (NGLs) production volumes. Because the Company’s production fluctuates with potential operational issues, it is occasionally necessary to purchase third-party oil and gas to fulfill sales obligations and commitments. Sales proceeds related to third-party oil and gas purchases are also classified as revenue from customers. Under these short-term commodity sales contracts, the physical delivery of each unit of quantity represents a single, distinct performance obligation on behalf of the Company. Contract prices are determined based on market-indexed prices, adjusted for quality, transportation, and other market-reflective differentials. Revenue is measured by allocating an entirely variable market price to each performance obligation and recognized at a point in time when control is transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, and the Company’s right to payment. Control typically transfers to customers upon the physical delivery at specified locations within each contract and the transfer of title.
Oil and gas production revenues from non-customer totaled $48 million and $119 million in the first quarter of 2020 and 2019, respectively, and represents income taxes paid to the Arab Republic of Egypt by Egyptian General Petroleum Corporation on behalf of the Company. Revenue and associated expenses related to such tax volumes are recorded as “Oil, natural gas, and natural gas liquids production revenues” and “Current income tax provision,” respectively, in the Company’s statement of consolidated operations. Refer to Note 14—Business Segment Information for a disaggregation of revenue by product and reporting segment.
Midstream
The Company’s Altus segment generates revenue from contracts with its customer from its gathering, compression, processing, and transmission services provided on Apache’s natural gas and natural gas liquid production volumes. Under these long-term commercial service contracts, providing the related service represents a single, distinct performance obligation on behalf of Altus that is satisfied over time. In accordance with the terms of these agreements, Altus receives a fixed fee for each contract year, subject to yearly fee escalation recalculations. Revenue is measured using the output method and recognized in the amount to which Altus has the right to invoice, as performance completed to date corresponds directly with the value to its customers. For the periods presented, midstream segment revenues were primarily attributable to sales between Altus and Apache. All midstream revenues between Apache and Altus are fully eliminated upon consolidation.

9



Payment Terms and Contract Balances
Payment terms under all contracts with customers are typically due and received within a short-term period of one year or less, after physical delivery of the product or service has been rendered. Receivables from contracts with customers, net of allowance for credit losses, totaled $715 million and $945 million as of March 31, 2020 and December 31, 2019, respectively.
In accordance with the provisions of ASC 606, “Revenue from Contracts with Customers,” variable market prices for each short-term commodity sale are allocated entirely to each performance obligation as the terms of payment relate specifically to the Company’s efforts to satisfy its obligations. As such, we have elected the practical expedients available under the standard to not disclose the aggregate transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations as of the end of the reporting period.
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are stated at amortized cost net of an allowance for credit losses. The Company routinely assesses the collectability of its financial assets measured at amortized cost. In June 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-13, “Financial Instruments-Credit Losses.” The standard changes the impairment model for trade receivables, held-to-maturity debt securities, net investments in leases, loans, and other financial assets measured at amortized cost. This ASU requires the use of a new forward-looking “expected loss” model compared to the current “incurred loss” model, resulting in accelerated recognition of credit losses. Apache adopted this update in the first quarter of 2020. This ASU primarily applies to the Company’s accounts receivable, of which the majority are due within 30 days. The Company monitors the credit quality of its counterparties through review of collections, credit ratings, and other analyses. The Company develops its estimated allowance for credit losses primarily using an aging method and analyses of historical loss rates as well as consideration of current and future conditions that could impact its counterparties’ credit quality and liquidity. The adoption and implementation of this ASU did not have a material impact on the Company’s financial statements.
Transaction, Reorganization, and Separation (TRS)
Apache recorded $27 million and $4 million of TRS costs during the first quarters of 2020 and 2019, respectively. TRS costs incurred in the first quarter of 2020 relate to $25 million of separation costs associated with the Company’s reorganization and $2 million for consulting fees on various transactions during the quarter.
In recent years, the Company has streamlined its portfolio through strategic divestitures and began centralizing certain operational activities in an effort to capture greater efficiencies and cost savings through shared services. During the second half of 2019, management initiated a comprehensive redesign of Apache’s organizational structure and operations. Initial reorganizational efforts were substantially completed for the technical functions by the end of the first quarter and changes for the corporate support functions will be ongoing through most of 2020. Apache has incurred a cumulative total of $53 million of reorganization costs through March 31, 2020, of which $27 million was paid in the first quarter. The remaining liability will be paid throughout 2020. The Company expects to incur an estimated $10 million to $20 million of additional expenses associated with this reorganization throughout the remainder of 2020 for anticipated severance, relocation, and similar costs.
2.
ACQUISITIONS AND DIVESTITURES
2020 Activity
During the first quarter of 2020, Apache completed leasehold and property acquisitions for total cash consideration of $1 million, primarily in its U.S. onshore regions. During the first quarter, the Company also completed the sale of certain non-core assets and leasehold, primarily in the Permian Basin, in multiple transactions for total cash proceeds of $45 million. The Company recognized a gain of approximately $6 million upon closing of these transactions.
Suriname Joint Venture Agreement
In December 2019, Apache entered into a joint venture agreement with Total S.A. to explore and develop Block 58 offshore Suriname. Under the terms of the agreement, Apache and Total S.A. each hold a 50 percent working interest in Block 58. Apache operated the drilling of the first two wells, the Maka Central-1 and Sapakara West-1, and is also operating the drilling of the Kwaskwasi-1 and the expected fourth exploration well in the block. Operatorship will subsequently transfer to Total. In connection with the agreement, Apache received $100 million from Total S.A. upon closing in the fourth quarter of 2019 and $79 million upon satisfying certain closing conditions in the first quarter of 2020 for reimbursement of 50 percent of all costs incurred on Block 58 as of December 31, 2019. All proceeds were applied against the carrying value of the Company’s Suriname properties and associated inventory. The Company recognized a $19 million gain in the first quarter of 2020 associated with the transaction.

10



Apache will also receive various other forms of consideration, including $5 billion of cash carry on Apache’s first $7.5 billion of appraisal and development capital, 25 percent cash carry on all of Apache’s appraisal and development capital beyond the first $7.5 billion, a $75 million cash payment upon achieving first oil production, and future contingent royalty payments from successful joint development projects.
2019 Activity
During the first quarter of 2019, Apache completed leasehold and property acquisitions for total cash consideration of $15 million primarily in its U.S. onshore regions. During the first quarter, the Company also completed the sale of certain non-core assets, primarily in the Permian region, in multiple transactions for total cash proceeds of $9 million. The Company recognized a total gain of approximately $3 million upon closing of these transactions. For discussion on the Company’s acquisition of equity method interests during the period, refer to Note 6—Equity Method Interests.
3.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $127 million and $141 million at March 31, 2020 and December 31, 2019, respectively. The decrease is primarily attributable to the joint venture agreement with Total S.A. which reduced Apache’s ownership interest in Suriname to 50 percent, the successful transfer of well costs, and dry hole write-offs, partially offset by additional drilling activity. Dry hole expenses from suspended exploratory well costs previously capitalized for greater than one year at December 31, 2019 totaled $14 million during the three months ended March 31, 2020. Projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling are those identified by management as exhibiting sufficient quantities of hydrocarbons to justify potential development. Management is actively pursuing efforts to assess whether proved reserves can be attributed to these projects.
4.   DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Objectives and Strategies
The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production, as well as transactions denominated in foreign currencies. The Company manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production and foreign currency transactions. The Company also utilizes various types of derivative financial instruments to manage fluctuations in cash flows resulting from changes in commodity prices or foreign currency values.
Counterparty Risk
The use of derivative instruments exposes the Company to credit loss in the event of nonperformance by the counterparty. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of March 31, 2020, Apache had derivative positions with 12 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 changes in commodity prices, currency exchange rates, or interest rates.
Derivative Instruments
Commodity Derivative Instruments
As of March 31, 2020, Apache had the following open crude oil derivative positions:
 
 
 
 
Fixed Price Swaps
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Fixed Price
April—June 2020
 
NYMEX WTI
 
7,917

 
$25.84
July—September 2020
 
NYMEX WTI
 
2,208

 
$26.65
April—June 2020
 
Dated Brent
 
5,597

 
$27.45
July—September 2020
 
Dated Brent
 
2,300

 
$29.75

11



 
 
 
 
Collars
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Floor Sold Price
 
Weighted Average Floor Purchased Price
 
Weighted Average Ceiling Price
July—September 2020
 
NYMEX WTI
 
2,208

 
$20.00
 
$25.00
 
$38.83
October—December 2020
 
NYMEX WTI
 
1,748

 
$15.00
 
$20.00
 
$45.55
July—September 2020
 
Dated Brent
 
874

 
$20.00
 
$25.00
 
$43.66
October—December 2020
 
Dated Brent
 
1,518

 
$15.00
 
$20.00
 
$51.63
As of March 31, 2020, Apache had the following open crude oil financial basis swap contracts:
Production Period
 
Settlement Index
 
Mbbls
 
Weighted Average Price Differential
April—December 2020
 
Midland-WTI/Cushing-WTI
 
19,835

 
$(2.10)

Foreign Currency Derivative Instruments
Apache has open foreign currency costless collar contracts in GBP/USD for £13.5 million per month for the calendar year 2020 with a weighted average floor and ceiling price of $1.26 and $1.38, respectively.
Embedded Derivatives
Altus Preferred Units Embedded Derivative
During the second quarter of 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units. Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. For further discussion of this derivative, see “Fair Value Measurements” below and Note 12—Redeemable Noncontrolling Interest - Altus.
Pipeline Capacity Embedded Derivatives
During the fourth quarter of 2019 and first quarter of 2020, Apache entered into separate agreements to assign a portion of its contracted capacity under an existing transportation agreement to third parties. Embedded in these agreements are arrangements under which Apache has the potential to receive payments calculated based on pricing differentials between Houston Ship Channel and Waha during calendar years 2020 and 2021. These features require bifurcation and measurement of the change in market values for each period. Unrealized gains or losses in the fair value of these features are recorded as “Derivative instrument losses, net” under “Revenues and Other” in the statement of consolidated operations. Any proceeds received will be deferred and reflected in income over the original tenure of the transportation agreements.

12



Fair Value Measurements
The following table presents the Company’s derivative assets and liabilities measured at fair value on a recurring basis:
 
 
Fair Value Measurements Using
 
 
 
 
 
 
 
 
Quoted Price in Active Markets (Level 1)
 
Significant Other Inputs (Level 2)
 
Significant Unobservable Inputs
(Level 3)
 
Total Fair Value
 
Netting(1)
 
Carrying Amount
 
 
(In millions)
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 
$

 
$
28

 
$

 
$
28

 
$
(4
)
 
$
24

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Commodity Derivative Instruments
 

 
11

 

 
11

 
(4
)
 
7

Pipeline Capacity Embedded Derivatives
 

 
45

 

 
45

 

 
45

Foreign Currency Derivative Instruments
 

 
4

 

 
4

 

 
4

Preferred Units Embedded Derivative
 

 

 
165

 
165

 

 
165

December 31, 2019
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Pipeline Capacity Embedded Derivative
 
$

 
$
8

 
$

 
$
8

 
$

 
$
8

Foreign Currency Derivative Instruments
 

 
1

 

 
1

 

 
1

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Preferred Units Embedded Derivative
 

 

 
103

 
103

 

 
103

(1)
The derivative fair values are based on analysis of each contract on a gross basis, excluding the impact of netting agreements with counterparties.
The fair values of the Company’s derivative instruments and pipeline capacity embedded derivatives are not actively quoted in the open market. The Company primarily uses a market approach to estimate the fair values of these derivatives on a recurring basis, utilizing futures pricing for the underlying positions provided by a reputable third party, a Level 2 fair value measurement.
The fair value of the Preferred Units embedded derivative, a Level 3 fair value measurement, was based on numerous factors including expected future interest rates using the Black-Karasinski model, the imputed interest rate of Altus, the timing of periodic cash distributions, and dividend yields of the Preferred Units. Increases or decreases in interest rates would result in a higher/lower fair value measurement.
As of the March 31, 2020 valuation date, the Company used the forward B-rated Energy Bond Yield curve to develop the following key unobservable inputs used to value this embedded derivative:
 
 
Quantitative Information About Level 3 Fair Value Measurements
 
 
Fair Value at March 31, 2020
 
Valuation Technique
 
Significant Unobservable Inputs
 
Range/Value