The following table provides detail of the Company’s other current liabilities as of September 30, 20172020 and December 31, 2016:2019:
The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the nine-month period ended September 30, 2017:2020:
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 Company is currently under audit by the Internal Revenue Service (IRS) began their audit offor the Company’s 2014 income2014-2017 tax year. The Companyyears and is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.
| |
8.10. | 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:debt:
|
| | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | (In millions) |
Notes and debentures before unamortized discount and debt issuance costs(1) | | $ | 8,324 |
| | $ | 8,217 |
|
Altus credit facility(2) | | 580 |
| | 396 |
|
Apache credit facility(2) | | 87 |
| | 0 |
|
Finance lease obligations | | 37 |
| | 48 |
|
Unamortized discount | | (35 | ) | | (42 | ) |
Debt issuance costs | | (59 | ) | | (53 | ) |
Total debt | | 8,934 |
| | 8,566 |
|
Current maturities | | (184 | ) | | (11 | ) |
Long-term debt | | $ | 8,750 |
| | $ | 8,555 |
|
|
| | | | | | | | |
| | 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 |
|
| |
(1) | The fair values of the Company’s notes and debentures were $7.6 billion and $8.4 billion as of September 30, 2020 and December 31, 2019, respectively. Apache uses a market approach to determine the fair values of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement). |
| |
(2) | The carrying amount of borrowings on credit facilities approximates fair value because the interest rates are variable and reflective of market rates. |
As of September 30, 2017,2020, current debt included $150$183 million, net of 7.0%discount, of 3.625% senior notes due February 1, 20182021 and $400$1 million of 6.9%finance lease obligations. On November 3, 2020, the Company redeemed the 3.625% senior notes due September 15, 2018.February 1, 2021 at a redemption price equal to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date. As of December 31, 2019, current debt included $11 million of finance lease obligations.
On August 17, 2020, the Company closed offerings of $1.25 billion in aggregate principal amount of senior unsecured notes, comprised of $500 million in aggregate principal amount of 4.625% notes due 2025 and $750 million in aggregate principal amount of 4.875% notes due 2027. The senior unsecured notes are redeemable at any time, in whole or in part, at Apache’s option, at the applicable redemption price. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers, repay a portion of outstanding borrowings under the Company’s senior revolving credit facility, and for general corporate purposes.
On August 18, 2020, the Company closed cash tender offers for certain outstanding notes. Apache accepted for purchase $644 million aggregate principal amount of certain notes covered by the tender offers. Apache paid holders an aggregate $644 million, reflecting principal, aggregate discount to par of $38 million, early tender premium of $32 million, and accrued and unpaid interest of $6 million. The Company recorded a net gain of $2 million on extinguishment of debt, including an acceleration of unamortized debt discount and issuance costs, in connection with the note purchases.
During the quarter ended September 30, 2020, the Company purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $89 million for an aggregate purchase price of $79 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $11 million. These repurchases resulted in a $10 million net gain on extinguishment of debt. The net gain includes an acceleration of related discount and debt issuance costs. The repurchases were financed by borrowings under the Company’s revolving credit facility.
During the quarter ended June 30, 2020, the Company purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $410 million for an aggregate purchase price of $267 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $147 million. These repurchases resulted in a $140 million net gain on extinguishment of debt. The net gain includes an acceleration of related discount and debt issuance costs. The repurchases were financed by borrowings under the Company’s revolving credit facility.
The Company records gains and losses on extinguishment of debt in “Financing costs, net” in the Company’s statement of consolidated operations.
In March 2018, the Company entered into a revolving credit facility with commitments totaling $4.0 billion. In March 2019, the term of this facility was extended by one year to March 2024 (subject to Apache’s remaining one-year extension option) pursuant to Apache’s exercise of an extension option. The Company can increase commitments up to $5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to $3.0 billion, of which $2.08 billion was committed as of September 30, 2020. The facility is for general corporate purposes, and available committed borrowing capacity supports Apache’s commercial paper program. As of September 30, 2017, the Company had a revolving credit facility that matures2020, there were $87 million of borrowings and an aggregate £637 million 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 letterletters 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 capacityoutstanding under this facility supports itsfacility. As of December 31, 2019, there were 0 borrowings or letters of credit outstanding under this facility. The outstanding letters of credit were issued to support North Sea decommissioning obligations, the terms of which required such support after Standard & Poor’s reduced the Company’s credit rating from BBB to BB+ on March 26, 2020.
The Company’s $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 atdays. As a result of downgrades in Apache’s credit ratings during 2020, the Company does not expect that its commercial paper program will be cost competitive interest rates.with its other financing alternatives and does not anticipate using it under such circumstances. As of September 30, 2017,2020 and December 31, 2019, the Company had no0 commercial paper or borrowings under committed bank facilities or uncommitted bank lines outstanding.
In November 2018, Altus Midstream LP entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream LP’s 2, one-year extension options). The agreement for this facility, as amended, provides aggregate commitments from a syndicate of banks of $800 million. All aggregate commitments include a letter of credit subfacility of up to $100 million and a swingline loan subfacility of up to $100 million. Altus Midstream LP may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of September 30, 2017, the Company had a letter2020 and December 31, 2019, there were $580 million and $396 million, respectively, 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 unavailableborrowings outstanding under thethis facility. As of September 30, 2017, three2020 and December 31, 2019, there were 0 letters of credit aggregating approximately £147.5 million and no borrowings were outstanding under this facility. The Altus Midstream LP credit facility is unsecured and is not guaranteed by Apache or any of Apache’s other subsidiaries.
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.
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, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (In millions) |
Interest expense | | $ | 113 |
| | $ | 107 |
| | $ | 327 |
| | $ | 323 |
|
Amortization of debt issuance costs | | 2 |
| | 2 |
| | 6 |
| | 5 |
|
Capitalized interest | | (3 | ) | | (9 | ) | | (9 | ) | | (26 | ) |
Loss (gain) on extinguishment of debt | | (12 | ) | | 0 |
| | (152 | ) | | 75 |
|
Interest income | | (1 | ) | | (5 | ) | | (4 | ) | | (12 | ) |
Financing costs, net | | $ | 99 |
| | $ | 95 |
| | $ | 168 |
| | $ | 365 |
|
|
| | | | | | | | | | | | | | | | |
| | 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 |
|
| |
9.11. | 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, 2017,2020, the Company has an accrued liability of approximately $37$69 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—11—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, 2016.2019.
Argentine Environmental Claims and Argentina Tariff
No material change in the status of the YPF Sociedad Anónima and Pioneer Natural Resources Company indemnities mattersmatter has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019.
Louisiana Restoration
As more fully described in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, numerous2019, Louisiana surface owners have filedoften file lawsuits or assert claims or sent demand letters to variousagainst oil and gas companies, including Apache, claiming that under either express or implied lease terms or Louisiana law,operators and working interest owners in the companieschain of title are liable for damageenvironmental damages on the leased premises, including damages measured by the cost of restoration of the leased premises to theirits original condition, as well as damages for contamination and cleanup.
On July 24, 2013, a lawsuit captioned Board of Commissionersregardless of the Southeast Louisiana Flood Protection Authority – East v. Tennessee Gas Pipelinevalue of the underlying property. From time to time, restoration lawsuits and claims are resolved by the 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 allegedamounts 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 dismissalare not material to the 5th Circuit Court of AppealsCompany, while new lawsuits and additionally challengedclaims are asserted against the defendants’ rightCompany. With respect to remove the case to federal court. On March 3, 2017, the 5th 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 dismissaleach of the action. The Plaintiff filed a Petition for a Writ of Certiorari withpending lawsuits and claims, the United States Supreme Court. On October 30, 2017,amount claimed is not currently determinable or is not material. Further, the United States Supreme Court denied reviewoverall exposure related to these lawsuits and declinedclaims is not currently determinable. While adverse judgments against the Company are possible, the Company intends to consider the plaintiff’s Petition of Certiorari.actively defend these lawsuits and claims.
Starting in November of 2013 and continuing into 2017,2020, several Parishesparishes in Louisiana have pending lawsuits against many oil and gas producers, including Apache. These cases are pending inwere all removed to federal and state courts in Louisiana. Some of the cases have been remanded to state court with the remand orders being appealed. 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 judgmentjudgments against Apachethe Company might be possible, Apachethe Company 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.
2019.
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 385th Judicial District Court, Midland County, Texas, plaintiffs have reduced their alleged damages to approximately $500in excess of $200 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 twoentered final judgment in favor of Apache’s motions for summary judgment further limiting the plaintiffs’ theoriesCompany, ruling that the plaintiffs take nothing by their claims and potential damages. Apache believes that plaintiffs’ claims lack merit,awarding the Company its attorneys’ fees and further that plaintiffs’ alleged damages, even as amended, are grossly inflated. Apache will vigorously opposecosts incurred in defending the claims.lawsuit. The plaintiffs have appealed. No other material change in the status of these mattersthis matter has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019.
Escheat AuditsAustralian Operations Divestiture Dispute
There has been no material change with respectPursuant to the review of the booksa Sale and records ofPurchase Agreement dated April 9, 2015 (Quadrant SPA), the Company and its subsidiaries divested their remaining Australian operations to Quadrant Energy Pty Ltd (Quadrant). Closing occurred on June 5, 2015. In April 2017, Apache filed suit against Quadrant for breach of the Quadrant SPA. In its suit, Apache seeks approximately AUD $80 million. In December 2017, Quadrant filed a defense of equitable set-off to Apache’s claim and related entitiesa counterclaim seeking approximately AUD $200 million in the aggregate. The Company believes that Quadrant’s claims lack merit and will not have a material adverse effect on the Company’s financial position, results of operation, or liquidity.
Canadian Operations Divestiture Dispute
Pursuant to a Sale and Purchase Agreement dated July 6, 2017 (Paramount SPA), the Company and its subsidiaries divested their remaining Canadian operations to Paramount Resources LTD (Paramount). Closing occurred on August 16, 2017. On September 11, 2019, 4 ex-employees of Apache Canada on behalf of themselves and individuals employed by Apache Canada LTD on July 6, 2017, filed an Amended Statement of Claim in a matter styled Stephen Flesch et. al. v Apache Corporation et. al., No. 1901-09160 Court of Queen’s Bench of Alberta against the StateCompany and others seeking class certification and a finding that the Paramount SPA amounted to a Change of Control of the Company, entitling them to accelerated vesting under the Company’s equity plans. In the suit, the purported class seeks approximately $60 million USD and punitive damages. The Company believes that Plaintiffs’ claims lack merit and will not have a material adverse effect on the Company’s financial position, results of operation, or liquidity.
California and Delaware Litigation
On July 17, 2017, in 3 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 and gas companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories. On December 20, 2017, in 2 separate actions, the City of Santa Cruz and Santa Cruz County and in a separate action on January 22, 2018, the City of Richmond, filed similar lawsuits against many of the same defendants. On November 14, 2018, the Pacific Coast Federation of Fishermen’s Associations, Inc. also filed a similar lawsuit against many of the same defendants. After removal of all such lawsuits to federal court, the district court remanded them back to state court. The remand decision, and further activity in the cases, has been stayed pending further appellate review.
On September 10, 2020, the state of Delaware Departmentfiled suit, individually and on behalf of Finance (Unclaimed Property)the people of the state of Delaware, against over 25 oil and gas companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories.
The Company believes that the claims made against it in the California and Delaware litigation are baseless and intends to vigorously defend these lawsuits.
Castex Lawsuit
In a case styled Apache Corporation v. Castex Offshore, Inc, et. al., Cause No. 2015-48580, in the 113th Judicial District Court of Harris County, Texas, Castex filed claims for alleged damages of approximately $200 million, relating to determine compliance withoverspend on the Delaware Escheat Laws, sinceBelle Isle Gas Facility upgrade, and the filingdrilling of five sidetracks on the Potomac #3 well. After a jury trial, a verdict of approximately $60 million, plus fees, costs, and interest was entered against the Company. The Company is appealing.
Oklahoma Class Actions
Apache is a party to two purported class actions in Oklahoma styled Bigie Lee Rhea v. Apache Corporation, Case No. 6:14-cv-00433-JH, and Albert Steven Allen v. Apache Corporation, Case No. CJ-2019-00219. The Rhea case has been certified, and Apache’s Annual Report on Form 10-Kappeal of the certification was recently denied. The case includes a class of royalty owners seeking damages in excess of $250 million for alleged breach of the fiscal year ended December 31, 2016.implied covenant to market relating to post-production deductions and alleged NGL uplift value. The Allen case has not been certified and seeks to represent a group of owners who have allegedly received late royalty payments under Oklahoma statutes. The amount of this claim is not yet reasonably determinable. While adverse judgments against the Company are possible, the Company intends to vigorously defend these lawsuits and claims.
Environmental Matters
As of September 30, 2017,2020, the Company had an undiscounted reserve for environmental remediation of approximately $4$2 million.
On September 11, 2020, Apache received a Notice of Violation and Finding of Violation, and accompanying Clean Air Act Information Request, from the U.S. Environmental Protection Agency (EPA) following site inspections in April 2019 at several of Apache’s oil and natural gas production facilities in Lea and Eddy Counties, New Mexico. The Notice and Information Request involve alleged emissions control and reporting violations. Apache is cooperating with the EPA and responding to its information requests. The EPA has not commenced enforcement proceedings, and at this time the Company is unable to reasonably estimate whether such proceedings will result in monetary sanctions and, if so, whether they would be more or less than $100,000, exclusive of interest and costs.
The Company is not aware of any environmental claims existing as of September 30, 2017,2020 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 subsidiaryPotential Asset Retirement Obligations
In 2013, Apache sold its Gulf of Mexico Shelf operations and properties (Transferred Assets) to Fieldwood Energy LLC (Fieldwood). Under the terms of the Company, previously reported produced water spillspurchase agreement (Agreement), Apache received cash consideration of $3.75 billion and Fieldwood assumed $1.5 billion of discounted asset abandonment liabilities. In respect of such abandonment liabilities, Fieldwood posted letters of credit in favor of Apache (Letters of Credit) and established a remote areatrust account (Trust A), which is funded by a 10 percent net profits interest depending on future oil prices and of which Apache is the beneficiary. On February 14, 2018, Fieldwood filed for protection under Chapter 11 of the Bellow Field andU.S. Bankruptcy Code. In connection with the 2018 bankruptcy, Fieldwood confirmed a hydrogen sulfide and oil emulsion leakplan under which Apache agreed, inter alia, to accept bonds 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 responsibilityexchange for certain of the acquirer.Letters of Credit. Currently, Apache holds two bonds (Bonds) and the remaining Letters of Credit to secure Fieldwood’s asset retirement obligations (AROs) on the Transferred Assets as and when such abandonment and decommissioning obligations are required to be performed over the remaining life of the Transferred Assets.
In additionOn August 3, 2020, Fieldwood filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Apache has been engaged with Fieldwood and other interested parties to discuss Fieldwood’s plan of reorganization. However, as of the date of this report, Apache does not know if, or to what extent, Fieldwood will be able to continue to perform its AROs with respect to the mattersTransferred Assets. If Fieldwood fails to perform any of its AROs with respect to the Transferred Assets, then Apache’s remedy would be a claim for whichdamages against Fieldwood for breach of its contractual obligations under the Company has already accrued,Agreement.
If Fieldwood fails to perform any of its AROs on July 17, 2017, in three separate actions, San Mateo County, California, Marin County, California,the Transferred Assets, then Apache would expect the relevant governmental authorities to require Apache to perform, and hold Apache financially responsible for, such AROs to the Cityextent not performed by Fieldwood. Pending resolution of Imperial Beach, California, all filed suit individually and on behalfany claim by Apache for breach of the peopleAgreement, Apache may be forced to use available cash to cover the costs it incurs for performing such AROs. While Apache anticipates that all, or a portion, of such costs would be reimbursable to Apache under the remaining Letters of Credit, the Bonds and Trust A, it is possible that such decommissioning security may not be sufficient to cover all of the state of California against over 30 oil, gas,costs and coal companies alleging damagesexpenses incurred by Apache in performing such AROs or such decommissioning security may be reduced, restricted, or otherwise eliminated, in whole or in part, 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.Fieldwood’s current bankruptcy proceedings.
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.
| |
10.12. | REDEEMABLE NONCONTROLLING INTEREST - ALTUS |
Preferred Units Issuance
On June 12, 2019, Altus Midstream LP issued and sold Preferred Units for an aggregate issue price of $625 million in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Closing). Altus Midstream LP received approximately $611 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers.
Classification
The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of the Preferred Units, including the redemption rights with respect thereto.
Initial Measurement
Altus recorded the net transaction price of $611 million, calculated as the negotiated transaction price of $625 million, less issue discounts of $4 million and transaction costs totaling $10 million.
Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. Altus bifurcated and recognized at fair value an embedded derivative related to the Preferred Units at inception of $94 million for a redemption option of the Preferred Unit holders. The derivative is reflected in “Other” within “Deferred Credits and Other Noncurrent Liabilities” on the Company’s consolidated balance sheet at its current fair value of $179 million. The fair value of the embedded derivative, a Level 3 fair value measurement, was based on numerous factors including expected future interest rates using the Black-Karasinski model, Altus’ imputed interest rate, the timing of periodic cash distributions, and dividend yields of the Preferred Units. See Note 4—Derivative Instruments and Hedging Activities for more detail. The net transaction price was allocated to the preferred redeemable noncontrolling interest and the embedded features according to the associated initial fair value measurements as follows:
|
| | | | |
| | June 12, 2019 |
| | (In millions) |
Redeemable noncontrolling interest - Altus Preferred Unit limited partners | | $ | 517 |
|
Preferred Units embedded derivative | | 94 |
|
| | $ | 611 |
|
Subsequent Measurement
Altus applies a two-step approach to subsequent measurement of the redeemable noncontrolling interest related to the Preferred Units by first allocating a portion of the net income of Altus Midstream LP in accordance with the terms of the partnership agreement. An additional adjustment to the carrying value of the Preferred Unit redeemable noncontrolling interest at each period end may be recorded, if applicable. The amount of such adjustment is determined based upon the accreted value method to reflect the passage of time until the Preferred Units are exchangeable at the option of the holder. Pursuant to this method, the net transaction price is accreted using the effective interest method to the Redemption Price calculated at the seventh anniversary of the Closing. The total adjustment is limited to an amount such that the carrying amount of the Preferred Unit redeemable noncontrolling interest at each period end is equal to the greater of (a) the sum of (i) the carrying amount of the Preferred Units, plus (ii) the fair value of the embedded derivative liability and (b) the accreted value of the net transaction price.
Activity related to the Preferred Units during the nine months ended September 30, 2020 is as follows:
|
| | | | | | | |
| | Units Outstanding | | Financial Position(1) |
| | (In millions, except unit data) |
Redeemable noncontrolling interest - Altus Preferred Unit limited partners: at December 31, 2019 | | 638,163 |
| | $ | 555 |
|
Distribution of in-kind additional Preferred Units | | 22,531 |
| | 0 |
|
Cash distributions to Altus Preferred Unit limited partners | | — |
| | (11 | ) |
Allocation of Altus Midstream LP net income | | N/A |
| | 56 |
|
Redeemable noncontrolling interest - Altus Preferred Unit limited partners: at September 30, 2020 | | 660,694 |
| | 600 |
|
Preferred Units embedded derivative | | | | 179 |
|
| | | | $ | 779 |
|
| |
(1) | The Preferred Units are redeemable at Altus Midstream LP’s option at September 30, 2020 at a price (the Redemption Price) equal to (a) the greater of (i) an 11.5 percent internal rate of return and (ii) a 1.3 times multiple of invested capital. As of September 30, 2020, the greater of these two amounts was a 1.3 times multiple of invested capital which equaled $813 million. As of September 30, 2020, the aggregate Redemption Price using an 11.5 percent internal rate of return was $709 million. |
N/A - not applicable.
Net Income (Loss)Loss per Common Share
A reconciliation of the components of basic and diluted net income (loss)loss per common share for the quartersperiods presented in the consolidated financial statements is shown in the tables below.
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, |
| | 2020 | | 2019 |
| | Loss | | Shares | | Per Share | | Loss | | Shares | | Per Share |
| | (In millions, except per share amounts) |
Basic: | | | | | | | | | | | | |
Loss attributable to common stock | | $ | (4 | ) | | 378 |
| | $ | (0.01 | ) | | $ | (170 | ) | | 377 |
| | $ | (0.45 | ) |
Effect of Dilutive Securities: | | | | | | | | | | | | |
Stock options and other | | $ | 0 |
|
| 0 |
|
| $ | 0 |
| | $ | 0 |
| | 0 |
| | $ | 0 |
|
Redeemable noncontrolling interest - Altus Preferred Unit limited partners | | $ | (4 | ) | | 0 |
| | $ | (0.01 | ) | | $ | 0 |
| | 0 |
| | $ | 0 |
|
Diluted: | | | | | | | | | | | | |
Loss attributable to common stock | | $ | (8 | ) | | 378 |
| | $ | (0.02 | ) | | $ | (170 | ) | | 377 |
| | $ | (0.45 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the Nine Months Ended September 30, |
| | 2020 | | 2019 |
| | Loss | | Shares | | Per Share | | Loss | | Shares | | Per Share |
| | (In millions, except per share amounts) |
Basic: | | | | | | | | | | | | |
Loss attributable to common stock | | $ | (4,870 | ) | | 378 |
| | $ | (12.89 | ) | | $ | (577 | ) | | 377 |
| | $ | (1.53 | ) |
Effect of Dilutive Securities: | | | | | | | | | | | | |
Stock options and other | | $ | 0 |
| | 0 |
| | $ | 0 |
| | $ | 0 |
| | 0 |
| | $ | 0 |
|
Diluted: | | | | | | | | | | | | |
Loss attributable to common stock | | $ | (4,870 | ) | | 378 |
| | $ | (12.89 | ) | | $ | (577 | ) | | 377 |
| | $ | (1.53 | ) |
The Company uses the “if-converted method” to determine the potential dilutive effect of an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Altus’ common stock. The impact to net loss attributable to common stock on an assumed conversion of the Preferred Units was anti-dilutive for the quarter ended September 30, 2019 and for each of the nine months ended September 30, 20172020 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 | ) |
2019. The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 8.44.2 million and 4.75.2 million for the quarters ended September 30, 20172020 and 2016,2019, respectively, and 7.55.1 million and 6.5 million for each of the nine months ended September 30, 20172020 and 2016, respectively.2019.
Common Stock Dividends
For each of the quarters ended September 30, 2017,2020 and 2016,2019, Apache paid $95$9 million and $94 million, respectively, in dividends on its common stock. For the nine months ended September 30, 20172020 and 2016, the Company2019, Apache paid $285$113 million and $284$282 million, respectively. In the first quarter of 2020, Apache’s Board of Directors approved a reduction in the Company’s quarterly dividend per share from $0.25 to $0.025, effective for all dividends payable after March 12, 2020.
Stock Repurchase Program
In 2013 and 2014, Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2017,2020, had repurchased a total of 32.240 million shares at an average price of $88.96$79.18 per share. During the fourth quarter of 2018, the Company’s Board of Directors authorized the purchase of up to 40 million additional shares of the Company’s common stock. The Company is not obligated to acquire any specific number of shares and has not purchaseddid 0t purchase any shares during 2017.
| |
11. | ACCUMULATED OTHER COMPREHENSIVE LOSS |
The following table describes changes to the Company’s accumulated other comprehensive loss by component for the nine-month periodnine months ended September 30, 2017:2020.
|
| | | | | | | | | | | | |
| | 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. |
| |
12.14. | BUSINESS SEGMENT INFORMATION |
As of September 30, 2020, Apache is engaged in a single line of business. Both domesticallyexploration and internationally,production (Upstream) activities across 3 operating segments: Egypt, North Sea, and the CompanyU.S. Apache also has exploration interests in Suriname and other international locations that may, over time, result in reportable discoveries and development opportunities. Apache’s Upstream business 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,Apache’s midstream business is operated by Altus, which owns, develops, and offshore the United Kingdomoperates a midstream energy asset network 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.Permian Basin of West Texas, anchored by midstream service contracts to Apache’s production from its Alpine High resource play. Financial information for each areasegment is presented below:
| | | | United States | | Canada(1) | | Egypt(2) | | North Sea | | Other International | | Total | | Egypt(1) | | North Sea | | U.S. | | Altus | | Intersegment Eliminations & Other | | Total(2) |
| | (In millions) | | Upstream | | Midstream | |
For the Quarter Ended September 30, 2017 | | | | | | | | | | | | | |
Oil and Gas Production Revenues | | $ | 550 |
| | $ | 36 |
| | $ | 543 |
| | $ | 260 |
| | $ | — |
| | $ | 1,389 |
| |
| | | (In millions) |
For the Quarter Ended September 30, 2020 | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | |
Oil revenues | | | $ | 303 |
| | $ | 179 |
| | $ | 303 |
| | $ | 0 |
| | $ | 0 |
| | $ | 785 |
|
Natural gas revenues | | | 74 |
| | 13 |
| | 77 |
| | 0 |
| | 0 |
| | 164 |
|
Natural gas liquids revenues | | | 2 |
| | 5 |
| | 90 |
| | 0 |
| | 0 |
| | 97 |
|
Oil, natural gas, and natural gas liquids production revenues | | | 379 |
| | 197 |
| | 470 |
| | 0 |
| | — |
| | 1,046 |
|
Purchased oil and gas sales | | | 0 |
| | 0 |
| | 73 |
| | 1 |
| | 0 |
| | 74 |
|
Midstream service affiliate revenues | | | — |
| | — |
| | — |
| | 39 |
| | (39 | ) | | — |
|
| | | 379 |
| | 197 |
| | 543 |
| | 40 |
| | (39 | ) | | 1,120 |
|
Operating Expenses: | | | | | | | | | | | | | |
Lease operating expenses | | | 102 |
| | 79 |
| | 79 |
| | 0 |
| | (1 | ) | | 259 |
|
Gathering, processing, and transmission | | | 8 |
| | 10 |
| | 74 |
| | 9 |
| | (38 | ) | | 63 |
|
Purchased oil and gas costs | | | 0 |
| | 0 |
| | 74 |
| | 1 |
| | 0 |
| | 75 |
|
Taxes other than income | | | 0 |
| | 0 |
| | 30 |
| | 4 |
| | 0 |
| | 34 |
|
Exploration | | | 10 |
| | 10 |
| | 34 |
| | 0 |
| | 4 |
| | 58 |
|
Depreciation, depletion, and amortization | | | 144 |
| | 90 |
| | 161 |
| | 3 |
| | 0 |
| | 398 |
|
Asset retirement obligation accretion | | | 0 |
| | 18 |
| | 8 |
| | 1 |
| | 0 |
| | 27 |
|
| | | 264 |
| | 207 |
| | 460 |
| | 18 |
| | (35 | ) | | 914 |
|
Operating Income (Loss)(3) | | $ | (114 | ) | | $ | (1 | ) | | $ | 226 |
| | $ | 16 |
| | $ | (1 | ) | | $ | 126 |
| | $ | 115 |
| | $ | (10 | ) | | $ | 83 |
| | $ | 22 |
| | $ | (4 | ) | | 206 |
|
Other Income (Expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Gain on divestitures, net | | | | | | | | | | | | 296 |
| |
Derivative instrument losses, net | | | | | | | | | | | | (110 | ) | |
Derivative instrument gains, net | | | | | | | | | | | | | 16 |
|
Loss on divestitures, net | | | | | | | | | | | | | (1 | ) |
Other, net | | | | | | | | | | | | | 9 |
|
General and administrative | | | | | | | | | | | | (98 | ) | | | | | | | | | | | | (52 | ) |
Transaction, reorganization, and separation | | | | | | | | | | | | (20 | ) | | | | | | | | | | | | (7 | ) |
Financing costs, net | | | | | | | | | | | | (101 | ) | | | | | | | | | | | | (99 | ) |
Income Before Income Taxes | | | | | | | | | | | | $ | 93 |
| | | | | | | | | | | | $ | 72 |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2017 | | | | | | | | | | | | | |
Oil and Gas Production Revenues | | $ | 1,593 |
| | $ | 231 |
| | $ | 1,655 |
| | $ | 768 |
| | $ | — |
| | $ | 4,247 |
| |
Operating Income (Loss)(3) | | $ | (71 | ) | | $ | (33 | ) | | $ | 740 |
| | $ | 59 |
| | $ | (24 | ) | | $ | 671 |
| |
Other Income (Expense): | | | | | | | | | | | | | |
Gain on divestitures, net | | | | | | | | | | | | 616 |
| |
Derivative instrument losses, net | | | | | | | | | | | | (69 | ) | |
Other | | | | | | | | | | | | 43 |
| |
General and administrative | | | | | | | | | | | | (307 | ) | |
Transaction, reorganization, and separation | | | | | | | | | | | | (14 | ) | |
Financing costs, net | | | | | | | | | | | | (300 | ) | |
Income Before Income Taxes | | | | | | | | | | | | $ | 640 |
| |
Total Assets | | $ | 13,105 |
| | $ | — |
| | $ | 4,906 |
| | $ | 3,770 |
| | $ | 54 |
| | $ | 21,835 |
| |
| | | | | | | | | | | | | |
| |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion relates to Apache Corporation (Apache or the Company) and its consolidated subsidiaries and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as the Company’s consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019. Overview
Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids.liquids (NGLs). The CompanyCompany’s upstream business currently has exploration and production operations in three geographic areas: the United States (U.S.), Egypt, and offshore the United Kingdom (U.K.) in the North Sea (North Sea). Apache also has exploration interests in Suriname and other international locations that may, over time, result in a reportable discoverydiscoveries and development opportunity.opportunities. Apache’s midstream business is operated by Altus Midstream Company through its subsidiary Altus Midstream LP (collectively, Altus). Altus owns, develops, and operates a midstream energy asset network in the Permian Basin of West Texas.
DuringApache’s mission is to grow in an innovative, safe, environmentally responsible, and profitable manner for the quarter,long-term benefit of its stakeholders. Apache completed its strategic exit from Canada that was enabledis focused on rigorous portfolio management, disciplined financial structure, and optimization of returns.
The global economy and the energy industry have been deeply impacted by its Alpine High discovery. We believe this portfolio shift isthe effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. Uncertainty in the oil markets and the negative demand implications of the COVID-19 pandemic continue to impact oil supply and demand. As with previous changes in a significant upgradevolatile price environment, Apache has continued to respond quickly and decisively, taking the following actions:
Establishing and implementing a wide range of fit-for-purpose protocols and procedures to ensure a safe and productive work environment across the Company’s portfolio of assets, asdiversified global onshore and offshore operations.
Reducing upstream capital investments by over 50 percent from the Alpine High discovery offers higher returnscomparative prior-year period. This reduction included eliminating nearly all U.S. drilling and significantly more long-term growth potential. Apache’s U.S. assets are complementedcompletion activity by its international assetsMay 2020 and reducing planned activity in Egypt and the North Sea, each of which adds toSea.
Decreasing the Company’s deep inventorydividend by 90 percent beginning in the first quarter of exploration2020, preserving approximately $340 million of cash flow on an annualized basis and development opportunitiesstrengthening liquidity.
Completing an organizational redesign and generateachieving an estimated cost savings of $400 million annually.
Further protecting cash flows from downside price dislocation by entering into commodity hedging positions, as the Company believes there will be higher volatility risk over the near term.
Conducting, on a continuous basis, price sensitivity analyses and operational evaluations of producing wells across the Company’s portfolio that allow for a methodical and integrated approach to production shut-ins and curtailments with a focus on preserving cash flows in excess of current capital investments, facilitatinga distressed price environment and protecting the Company’s abilityassets.
The Company remains committed to develop Alpine High while maintaining financial flexibility.its longer-term objectives, which still hold true despite the current environment, to maintain a balanced asset portfolio, invest for long-term returns over production growth, and budget conservatively to generate free cash flow that can be directed on a priority basis to debt reduction. Apache closely monitors hydrocarbon pricing fundamentals and will reallocate capital as part of its ongoing planning process. For additional detail on the Company’s forward capital investment outlook, refer to “Capital and Operational Outlook” below. Apache reported third-quarter net incomea third quarter loss of $63$4 million, or $0.16$0.02 per diluted common share, compared to a loss of $607$170 million, or $1.60$0.45 per common share, in the third quarter of 2016. The increase in net income compared to the prior-year quarter is primarily the result of gains on divestitures in the current-year quarter, as well as lower impairment charges in the current period. Revenue gains from significant increases in realized commodity prices partially mitigated the impact of production declines.
2019. Daily production in the third quarter of 20172020 averaged 448 thousand barrels of oil equivalent per day (Mboe/d),445 Mboe/d, a decrease of 14only one percent from the comparative prior-year quarter driven by the salequarter. The Company generated $890 million of the Company’s Canadian operations. Excluding productioncash from Canada, Apache’s worldwide equivalent daily production decreased 8 percent due to natural decline. The production decline was driven by strategic decisions to curtail capital investments in the two preceding years in order to allow costs to re-align with the lower commodity price environment and to allocate a significant portion of this year’s capital investments to the development of the Alpine High field and infrastructure.
Duringoperating activities during the first nine months of 2017, the Company generated $1.8 billion in cash from operating activities, an 82020, a decrease of 57 percent increase from the comparative prior-year period,first nine months of 2019 driven by lower crude oil prices and $1.4 billion of cash proceeds from non-core asset divestments.associated revenues. Apache exitedended the quarter with $1.9 billion$162 million of cash, cash equivalents, and restricted cash, an increase of $565 million from year-end 2016. In addition, the Company reduced debt from year-end levels and has $3.5 billion of available committed borrowing capacity. In response to continued commodity price volatility, the Company entered commodity derivatives to secure deployment of high priority investments without compromising its financial strength or flexibility. We continuously monitor changes in our operating environment and have the ability, due to our dynamic capital allocation process, to adjust our capital investment program to levels that maximize value for our shareholders over the long-term.cash.
Operating
Operational Highlights
Significant operating activitiesKey operational highlights for the quarter include the following:include:
North AmericaUnited States
North America equivalent production decreased 17 percent for theThird quarter relative to the 2016 period, reflecting Apache’s exit from Canada. Excluding Canada, Apache’s North America equivalent production decreased 6 percent, in line with the Company’s expectations given the significant reduction in capital investments over the preceding two years and the allocation of a significant portion of our 2017 capital investments to infrastructure at Alpine High.
Third-quarter equivalent production from the Permian Basin region, which accounts for more than half of Apache’s total North American production, increased 1U.S. assets decreased three percent from the third quarter of 2016, which was driven by our Alpine High discovery and strong performance2019 as a result of reduced activity in response to commodity price weakness. The Company had no rigs or drilling activity in the Midland Basin. Third-quarterU.S. during the third quarter of 2020, compared to 10 average rigs in the prior-year quarter.
International
Egypt gross production increaseddecreased 11 percent, from the prior sequential quarter, a reflection of increased activity and the startup of Alpine High production.
Drilling and infrastructure development activities continue at Alpine High; specifically:
| |
◦ | First production from the Alpine High play was achieved in early May 2017. Net production averaged approximately 13.3 Mboe/d during the third quarter, and we anticipate production of 25 Mboe/d by the end of the year. |
| |
◦ | During the first nine months of 2017, Apache invested $389 million in midstream facilities at Alpine High, with development ongoing. |
| |
◦ | Three processing facilities are currently operating with a combined gross inlet capacity of 200 million cubic feet of natural gas per day (MMcf/d). Infrastructure buildout for two additional central processing facilities has been slightly delayed by a quarter as a result of Hurricane Harvey-related damage to Houston-area manufacturing facilities that are providing key infrastructure equipment. |
In 2017, Apache announced three separate transactions to sell its subsidiary Apache Canada Ltd. (ACL) and exit its Canadian operations. The sale of assets at Midale and House Mountain, located in Saskatchewan and Alberta, closed on June 30, 2017 for approximately $228 million of cash proceeds. The two remaining transactions to sell ACL and Provost assets in Alberta closed in August 2017 for approximately $478 million of cash proceeds. The sale of Apache’s Canadian operations further streamlines its portfolio, enabling the Company to allocate a higher percentage of capital to the Permian Basin.
International
The Egypt region net equivalent production decreased 123 percent from the third quarter of 2016 despite2019, primarily a result of natural decline of only 3 percent in gross production, a function of the Company’s production-sharing contracts. In August 2017, theand reduced drilling activity. The Company received final award of two new concessions totaling 1.6 million net acres. At the end of September 2017, the Company began acquiring high resolution 3D seismiccontinues to build and enhance its robust drilling inventory in the West Kalabsha concessioncountry, supplemented with recent seismic acquisitions and plans to expand this seismic activity to cover the majority of itsnew play concept evaluations on both new and existing acreage.
The North Sea region averageaveraged two rigs and completed three gross wells, of which two were productive, during the third quarter of 2020. The Company’s daily production decreased 5in the North Sea increased 11 percent from the third quarter of 2016,2019, primarily the result of extended turnaround activitiesits second well at the Garten field, which came on-line in the thirdfirst quarter of 20172020.
In July 2020, Apache announced a major oil discovery at the Kwaskwasi-1 well drilled offshore Suriname on Block 58. Kwaskwasi-1 was drilled to a depth of approximately 6,645 meters (21,800 feet) and natural well decline. The Callater discovery, which came onlinesuccessfully tested for the presence of hydrocarbons in late May 2017, has two wells producing with a third offset well expected to commence production latermultiple stacked targets in the upper Cretaceous-aged Campanian and Santonian intervals. Fluid samples and test results indicate at least 278 meters (912 feet) of net oil and oil/gas condensate pay in two intervals. This is the third consecutive oil discovery offshore Suriname.
In September 2020, the Company commenced drilling a fourth quarterexploration well in the block at the Keskesi prospect. Apache is in the process of 2017.transitioning operatorship of Block 58 to its partner, Total S.A, which will conduct all exploration and appraisal activities subsequent to Keskesi.
Results of Operations
Oil and Gas Production Revenues
The table below presentsApache’s oil and gas production revenues by geographic region and each region’s percentrespective contribution to revenues for 2017 and 2016.by country are as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | $ Value | | % Contribution | | $ Value | | % Contribution | | $ Value | | % Contribution | | $ Value | | % Contribution |
| | ($ in millions) |
Total Oil Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 381 |
| | 36 | % | | $ | 377 |
| | 34 | % | | $ | 1,133 |
| | 35 | % | | $ | 1,099 |
| | 36 | % |
Canada | | 14 |
| | 1 | % | | 47 |
| | 4 | % | | 110 |
| | 3 | % | | 132 |
| | 4 | % |
North America | | 395 |
| | 37 | % | | 424 |
| | 38 | % | | 1,243 |
| | 38 | % | | 1,231 |
| | 40 | % |
Egypt (1) | | 442 |
| | 41 | % | | 476 |
| | 43 | % | | 1,351 |
| | 41 | % | | 1,209 |
| | 40 | % |
North Sea | | 233 |
| | 22 | % | | 217 |
| | 19 | % | | 698 |
| | 21 | % | | 617 |
| | 20 | % |
International (1) | | 675 |
| | 63 | % | | 693 |
| | 62 | % | | 2,049 |
| | 62 | % | | 1,826 |
| | 60 | % |
Total (1) | | $ | 1,070 |
| | 100 | % | | $ | 1,117 |
| | 100 | % | | $ | 3,292 |
| | 100 | % | | $ | 3,057 |
| | 100 | % |
Total Natural Gas Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 97 |
| | 41 | % | | $ | 98 |
| | 37 | % | | $ | 266 |
| | 37 | % | | $ | 222 |
| | 32 | % |
Canada | | 19 |
| | 8 | % | | 36 |
| | 14 | % | | 104 |
| | 14 | % | | 100 |
| | 14 | % |
North America | | 116 |
| | 49 | % | | 134 |
| | 51 | % | | 370 |
| | 51 | % | | 322 |
| | 46 | % |
Egypt (1) | | 98 |
| | 41 | % | | 103 |
| | 39 | % | | 295 |
| | 41 | % | | 298 |
| | 43 | % |
North Sea | | 24 |
| | 10 | % | | 26 |
| | 10 | % | | 61 |
| | 8 | % | | 75 |
| | 11 | % |
International (1) | | 122 |
| | 51 | % | | 129 |
| | 49 | % | | 356 |
| | 49 | % | | 373 |
| | 54 | % |
Total (1) | | $ | 238 |
| | 100 | % | | $ | 263 |
| | 100 | % | | $ | 726 |
| | 100 | % | | $ | 695 |
| | 100 | % |
Total Natural Gas Liquids (NGL) Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 72 |
| | 89 | % | | $ | 49 |
| | 83 | % | | $ | 194 |
| | 85 | % | | $ | 132 |
| | 82 | % |
Canada | | 3 |
| | 4 | % | | 4 |
| | 7 | % | | 17 |
| | 7 | % | | 11 |
| | 7 | % |
North America | | 75 |
| | 93 | % | | 53 |
| | 90 | % | | 211 |
| | 92 | % | | 143 |
| | 89 | % |
Egypt (1) | | 3 |
| | 4 | % | | 2 |
| | 3 | % | | 9 |
| | 4 | % | | 8 |
| | 5 | % |
North Sea | | 3 |
| | 3 | % | | 4 |
| | 7 | % | | 9 |
| | 4 | % | | 9 |
| | 6 | % |
International (1) | | 6 |
| | 7 | % | | 6 |
| | 10 | % | | 18 |
| | 8 | % | | 17 |
| | 11 | % |
Total (1) | | $ | 81 |
| | 100 | % | | $ | 59 |
| | 100 | % | | $ | 229 |
| | 100 | % | | $ | 160 |
| | 100 | % |
Total Oil and Gas Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 550 |
| | 40 | % | | $ | 524 |
| | 36 | % | | $ | 1,593 |
| | 38 | % | | $ | 1,453 |
| | 37 | % |
Canada | | 36 |
| | 2 | % | | 87 |
| | 6 | % | | 231 |
| | 5 | % | | 243 |
| | 6 | % |
North America | | 586 |
| | 42 | % | | 611 |
| | 42 | % | | 1,824 |
| | 43 | % | | 1,696 |
| | 43 | % |
Egypt (1) | | 543 |
| | 39 | % | | 581 |
| | 41 | % | | 1,655 |
| | 39 | % | | 1,515 |
| | 39 | % |
North Sea | | 260 |
| | 19 | % | | 247 |
| | 17 | % | | 768 |
| | 18 | % | | 701 |
| | 18 | % |
International (1) | | 803 |
| | 58 | % | | 828 |
| | 58 | % | | 2,423 |
| | 57 | % | | 2,216 |
| | 57 | % |
Total (1) | | $ | 1,389 |
| | 100 | % | | $ | 1,439 |
| | 100 | % | | $ | 4,247 |
| | 100 | % | | $ | 3,912 |
| | 100 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | $ Value | | % Contribution | | $ Value | | % Contribution | | $ Value | | % Contribution | | $ Value | | % Contribution |
| | ($ in millions) |
Oil Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 303 |
| | 39 | % | | $ | 504 |
| | 42 | % | | $ | 929 |
| | 40 | % | | $ | 1,537 |
| | 39 | % |
Egypt(1) | | 303 |
| | 38 | % | | 472 |
| | 39 | % | | 823 |
| | 35 | % | | 1,509 |
| | 39 | % |
North Sea | | 179 |
| | 23 | % | | 231 |
| | 19 | % | | 578 |
| | 25 | % | | 868 |
| | 22 | % |
Total(1) | | $ | 785 |
| | 100 | % | | $ | 1,207 |
| | 100 | % | | $ | 2,330 |
| | 100 | % | | $ | 3,914 |
| | 100 | % |
Natural Gas Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 77 |
| | 47 | % | | $ | 50 |
| | 37 | % | | $ | 169 |
| | 41 | % | | $ | 203 |
| | 41 | % |
Egypt(1) | | 74 |
| | 45 | % | | 72 |
| | 53 | % | | 209 |
| | 50 | % | | 223 |
| | 46 | % |
North Sea | | 13 |
| | 8 | % | | 14 |
| | 10 | % | | 39 |
| | 9 | % | | 64 |
| | 13 | % |
Total(1) | | $ | 164 |
| | 100 | % | | $ | 136 |
| | 100 | % | | $ | 417 |
| | 100 | % | | $ | 490 |
| | 100 | % |
Natural Gas Liquids (NGL) Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 90 |
| | 93 | % | | $ | 88 |
| | 93 | % | | $ | 211 |
| | 91 | % | | $ | 261 |
| | 91 | % |
Egypt(1) | | 2 |
| | 2 | % | | 2 |
| | 2 | % | | 6 |
| | 3 | % | | 9 |
| | 3 | % |
North Sea | | 5 |
| | 5 | % | | 5 |
| | 5 | % | | 15 |
| | 6 | % | | 16 |
| | 6 | % |
Total(1) | | $ | 97 |
| | 100 | % | | $ | 95 |
| | 100 | % | | $ | 232 |
| | 100 | % | | $ | 286 |
| | 100 | % |
Oil and Gas Revenues: | | | | | | | | | | | | | | | | |
United States | | $ | 470 |
| | 45 | % | | $ | 642 |
| | 45 | % | | $ | 1,309 |
| | 44 | % | | $ | 2,001 |
| | 43 | % |
Egypt(1) | | 379 |
| | 36 | % | | 546 |
| | 38 | % | | 1,038 |
| | 35 | % | | 1,741 |
| | 37 | % |
North Sea | | 197 |
| | 19 | % | | 250 |
| | 17 | % | | 632 |
| | 21 | % | | 948 |
| | 20 | % |
Total(1) | | $ | 1,046 |
| | 100 | % | | $ | 1,438 |
| | 100 | % | | $ | 2,979 |
| | 100 | % | | $ | 4,690 |
| | 100 | % |
| |
(1) | Includes revenues attributable to a noncontrolling interest in Egypt. |
Production
The following table below presents the third-quarter and year-to-date 2017 and 2016 production and the relative increase or decrease from the prior period.volumes by country:
| | | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | Increase (Decrease) | | 2016 | | 2017 | | Increase (Decrease) | | 2016 | | 2020 | | Increase (Decrease) | | 2019 | | 2020 | | Increase (Decrease) | | 2019 |
Oil Volume – b/d | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | 90,883 |
| | (8 | )% | | 98,269 |
| | 89,228 |
| | (17 | )% | | 106,924 |
| | 83,178 |
| | (17 | )% | | 100,045 |
| | 93,051 |
| | (10 | )% | | 103,912 |
|
Canada | | 3,441 |
| | (73 | )% | | 12,619 |
| | 8,881 |
| | (33 | )% | | 13,331 |
| |
North America | | 94,324 |
| | (15 | )% | | 110,888 |
| | 98,109 |
| | (18 | )% | | 120,255 |
| |
Egypt(1)(2) | | 93,749 |
| | (15 | )% | | 110,809 |
| | 97,447 |
| | (7 | )% | | 105,118 |
| | 79,194 |
| | (6 | )% | | 84,114 |
| | 77,410 |
| | (10 | )% | | 86,470 |
|
North Sea | | 49,945 |
| | 2 | % | | 49,192 |
| | 49,274 |
| | (11 | )% | | 55,071 |
| | 48,755 |
| | 10 | % | | 44,281 |
| | 50,339 |
| | 2 | % | | 49,584 |
|
International | | 143,694 |
| | (10 | )% | | 160,001 |
| | 146,721 |
| | (8 | )% | | 160,189 |
| |
Total | | 238,018 |
| | (12 | )% | | 270,889 |
| | 244,830 |
| | (13 | )% | | 280,444 |
| | 211,127 |
| | (8 | )% | | 228,440 |
| | 220,800 |
| | (8 | )% | | 239,966 |
|
Natural Gas Volume – Mcf/d | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | 404,486 |
| | 2 | % | | 395,062 |
| | 378,625 |
| | (6 | )% | | 404,282 |
| | 597,686 |
| | 6 | % | | 563,162 |
| | 571,325 |
| | (10 | )% | | 633,239 |
|
Canada | | 107,524 |
| | (54 | )% | | 233,635 |
| | 175,787 |
| | (29 | )% | | 248,912 |
| |
North America | | 512,010 |
| | (19 | )% | | 628,697 |
| | 554,412 |
| | (15 | )% | | 653,194 |
| |
Egypt(1)(2) | | 378,426 |
| | (7 | )% | | 405,863 |
| | 389,533 |
| | (4 | )% | | 403,832 |
| | 286,744 |
| | 4 | % | | 275,569 |
| | 273,676 |
| | (5 | )% | | 289,397 |
|
North Sea | | 50,057 |
| | (28 | )% | | 69,509 |
| | 42,800 |
| | (36 | )% | | 66,884 |
| | 53,137 |
| | 11 | % | | 47,875 |
| | 57,659 |
| | 12 | % | | 51,596 |
|
International | | 428,483 |
| | (10 | )% | | 475,372 |
| | 432,333 |
| | (8 | )% | | 470,716 |
| |
Total | | 940,493 |
| | (15 | )% | | 1,104,069 |
| | 986,745 |
| | (12 | )% | | 1,123,910 |
| | 937,567 |
| | 6 | % | | 886,606 |
| | 902,660 |
| | (7 | )% | | 974,232 |
|
NGL Volume – b/d | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | 49,149 |
| | (13 | )% | | 56,355 |
| | 48,063 |
| | (14 | )% | | 55,897 |
| | 75,266 |
| | 5 | % | | 72,005 |
| | 75,468 |
| | 17 | % | | 64,329 |
|
Canada | | 2,183 |
| | (64 | )% | | 6,039 |
| | 3,780 |
| | (36 | )% | | 5,879 |
| |
North America | | 51,332 |
| | (18 | )% | | 62,394 |
| | 51,843 |
| | (16 | )% | | 61,776 |
| |
Egypt(1)(2) | | 916 |
| | (19 | )% | | 1,124 |
| | 917 |
| | (18 | )% | | 1,120 |
| | 611 |
| | (31 | )% | | 891 |
| | 812 |
| | (17 | )% | | 979 |
|
North Sea | | 1,219 |
| | (28 | )% | | 1,697 |
| | 1,044 |
| | (33 | )% | | 1,557 |
| | 1,976 |
| | 28 | % | | 1,540 |
| | 1,948 |
| | 16 | % | | 1,678 |
|
International | | 2,135 |
| | (24 | )% | | 2,821 |
| | 1,961 |
| | (27 | )% | | 2,677 |
| |
Total | | 53,467 |
| | (18 | )% | | 65,215 |
| | 53,804 |
| | (17 | )% | | 64,453 |
| | 77,853 |
| | 5 | % | | 74,436 |
| | 78,228 |
| | 17 | % | | 66,986 |
|
BOE per day(3) | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | 207,447 |
| | (6 | )% | | 220,468 |
| | 200,396 |
| | (13 | )% | | 230,202 |
| | 258,058 |
| | (3 | )% | | 265,910 |
| | 263,740 |
| | (4 | )% | | 273,781 |
|
Canada | | 23,544 |
| | (59 | )% | | 57,597 |
| | 41,959 |
| | (31 | )% | | 60,695 |
| |
North America | | 230,991 |
| | (17 | )% | | 278,065 |
| | 242,355 |
| | (17 | )% | | 290,897 |
| |
Egypt(2) | | 157,737 |
| | (12 | )% | | 179,575 |
| | 163,286 |
| | (6 | )% | | 173,544 |
| |
Egypt(1)(2) | | | 127,595 |
| | (3 | )% | | 130,934 |
| | 123,834 |
| | (9 | )% | | 135,681 |
|
North Sea(4) | | 59,507 |
| | (5 | )% | | 62,475 |
| | 57,451 |
| | (15 | )% | | 67,775 |
| | 59,588 |
| | 11 | % | | 53,800 |
| | 61,897 |
| | 3 | % | | 59,861 |
|
International | | 217,244 |
| | (10 | )% | | 242,050 |
| | 220,737 |
| | (9 | )% | | 241,319 |
| |
Total | | 448,235 |
| | (14 | )% | | 520,115 |
| | 463,092 |
| | (13 | )% | | 532,216 |
| | 445,241 |
| | (1 | )% | | 450,644 |
| | 449,471 |
| | (4 | )% | | 469,323 |
|
| |
(1) | Gross oil, natural gas, and NGL production in Egypt for the third quarter and nine-month period of 2017 and 2016 were as follows: |
|
| | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Oil (b/d) | | 159,941 |
| | 187,589 |
| | 171,778 |
| | 196,643 |
|
Natural Gas (Mcf/d) | | 649,566 |
| | 673,065 |
| | 648,995 |
| | 719,083 |
|
NGL (b/d) | | 1,175 |
| | 1,529 |
| | 1,534 |
| | 1,810 |
|
|
| | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Oil (b/d) | | 201,151 |
| | 210,755 |
| | 196,781 |
| | 210,939 |
|
Natural Gas (Mcf/d) | | 818,350 |
| | 826,548 |
| | 813,880 |
| | 828,950 |
|
NGL (b/d) | | 1,526 |
| | 1,853 |
| | 1,514 |
| | 1,918 |
|
| |
(2) | Includes net production volumes per day attributable to a noncontrolling interest in Egypt for the third quarter and nine-month period of 2017 and 2016 of: |
| | | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
Oil (b/d) | | 31,275 |
| | 36,839 |
| | 32,573 |
| | 34,964 |
| | 26,459 |
| | 28,052 |
| | 25,891 |
| | 28,839 |
|
Natural Gas (Mcf/d) | | 126,459 |
| | 135,233 |
| | 130,263 |
| | 134,591 |
| | 95,776 |
| | 92,212 |
| | 91,374 |
| | 96,706 |
|
NGL (b/d) | | 305 |
| | 374 |
| | 306 |
| | 373 |
| | 204 |
| | 297 |
| | 271 |
| | 326 |
|
| |
(3) | The table shows production on a barrel of oil equivalentboe basis (boe) in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This ratio is not reflective of the price ratio between the two products. |
| |
(4) | Average sales volumes from the North Sea were 57,207 boe/d and 65,171 boe/d for the third quarter of 20172020 and 2016,2019 were 57,099 boe/d and 49,349 boe/d, respectively, and 57,96361,771 boe/d and 67,22258,843 boe/d for the first nine months of 20172020 and 2016,2019, respectively. Sales volumes may vary from production volumes as a result of the timing of liftings in the Beryl field. |
Pricing
The following table presents pricing information by country:
The table below presents third-quarter and year-to-date 2017 and 2016 pricing and the relative increase or decrease from the prior period.
| | | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | Increase (Decrease) | | 2016 | | 2017 | | Increase (Decrease) | | 2016 | | 2020 | | Increase (Decrease) | | 2019 | | 2020 | | Increase (Decrease) | | 2019 |
Average Oil Price - Per barrel | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 45.68 |
| | 9 | % | | $ | 41.83 |
| | $ | 46.54 |
| | 24 | % | | $ | 37.53 |
| | $ | 39.60 |
| | (28 | )% | | $ | 54.70 |
| | $ | 36.45 |
| | (33 | )% | | $ | 54.16 |
|
Canada | | 42.23 |
| | 5 | % | | 40.17 |
| | 45.25 |
| | 26 | % | | 36.04 |
| |
North America | | 45.56 |
| | 9 | % | | 41.65 |
| | 46.42 |
| | 24 | % | | 37.36 |
| |
Egypt | | 51.23 |
| | 10 | % | | 46.54 |
| | 50.78 |
| | 21 | % | | 41.97 |
| | 41.51 |
| | (32 | )% | | 61.10 |
| | 38.79 |
| | (39 | )% | | 63.96 |
|
North Sea | | 53.11 |
| | 17 | % | | 45.47 |
| | 51.35 |
| | 24 | % | | 41.28 |
| | 42.10 |
| | (33 | )% | | 63.12 |
| | 41.99 |
| | (36 | )% | | 65.45 |
|
International | | 51.87 |
| | 12 | % | | 46.20 |
| | 50.97 |
| | 22 | % | | 41.74 |
| |
Total | | 49.34 |
| | 11 | % | | 44.35 |
| | 49.15 |
| | 23 | % | | 39.86 |
| | 40.88 |
| | (30 | )% | | 58.60 |
| | 38.53 |
| | (36 | )% | | 60.00 |
|
Average Natural Gas Price - Per Mcf | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 2.62 |
| | (2 | )% | | $ | 2.66 |
| | $ | 2.58 |
| | 29 | % | | $ | 2.00 |
| | $ | 1.40 |
| | 44 | % | | $ | 0.97 |
| | $ | 1.08 |
| | (8 | )% | | $ | 1.17 |
|
Canada | | 1.90 |
| | 11 | % | | 1.71 |
| | 2.17 |
| | 48 | % | | 1.47 |
| |
North America | | 2.47 |
| | 7 | % | | 2.31 |
| | 2.45 |
| | 36 | % | | 1.80 |
| |
Egypt | | 2.81 |
| | 2 | % | | 2.75 |
| | 2.77 |
| | 3 | % | | 2.69 |
| | 2.82 |
| | — | % | | 2.81 |
| | 2.79 |
| | (1 | )% | | 2.82 |
|
North Sea | | 5.27 |
| | 27 | % | | 4.14 |
| | 5.27 |
| | 28 | % | | 4.12 |
| | 2.58 |
| | (19 | )% | | 3.20 |
| | 2.46 |
| | (46 | )% | | 4.56 |
|
International | | 3.10 |
| | 5 | % | | 2.96 |
| | 3.02 |
| | 4 | % | | 2.89 |
| |
Total | | 2.75 |
| | 6 | % | | 2.59 |
| | 2.70 |
| | 19 | % | | 2.26 |
| | 1.90 |
| | 14 | % | | 1.66 |
| | 1.69 |
| | (8 | )% | | 1.84 |
|
Average NGL Price - Per barrel | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 15.77 |
| | 64 | % | | $ | 9.59 |
| | $ | 14.75 |
| | 71 | % | | $ | 8.65 |
| | $ | 13.06 |
| | (2 | )% | | $ | 13.26 |
| | $ | 10.20 |
| | (32 | )% | | $ | 14.93 |
|
Canada | | 15.80 |
| | 159 | % | | 6.10 |
| | 16.39 |
| | 148 | % | | 6.61 |
| |
North America | | 15.77 |
| | 70 | % | | 9.25 |
| | 14.87 |
| | 76 | % | | 8.46 |
| |
Egypt | | 36.47 |
| | 30 | % | | 28.12 |
| | 35.98 |
| | 31 | % | | 27.54 |
| | 25.88 |
| | (7 | )% | | 27.76 |
| | 26.24 |
| | (21 | )% | | 33.17 |
|
North Sea | | 26.92 |
| | 10 | % | | 24.45 |
| | 30.51 |
| | 40 | % | | 21.82 |
| | 27.08 |
| | 2 | % | | 26.63 |
| | 28.54 |
| | (16 | )% | | 33.98 |
|
International | | 31.02 |
| | 20 | % | | 25.91 |
| | 33.07 |
| | 37 | % | | 24.21 |
| |
Total | | 16.38 |
| | 64 | % | | 9.97 |
| | 15.53 |
| | 70 | % | | 9.11 |
| | 13.51 |
| | (1 | )% | | 13.71 |
| | 10.83 |
| | (31 | )% | | 15.68 |
|
Third-Quarter 20172020 compared to Third-Quarter 20162019
Crude Oil Revenues Crude oil revenues for the third quarter of 20172020 totaled $1.1 billion,$785 million, a $47$422 million decrease from the comparative 20162019 quarter. A 1230 percent decrease in average daily productionrealized prices reduced third-quarter 20172020 revenues by $172$365 million compared to the prior-year quarter, while 118 percent higherlower average realized prices increaseddaily production decreased revenues by $125$57 million. Crude oil accounted for 7775 percent of Apache’s oil and gas production revenues and 5347 percent of its equivalentthe Company’s worldwide production in the third quarter of 2017.2020. Crude oil prices realized in the third quarter of 20172020 averaged $49.34$40.88 per barrel, compared with $44.35$58.60 per barrel in the comparative prior-year quarter.
WorldwideThe Company’s worldwide oil production decreased 32.917.3 Mb/d to 238.0211.1 Mb/d in the third quarter of 20172020 from the comparative prior-year period, primarily the result of the Canada divestitures and natural decline. Decreases were slightly offset by a 2 percent increase in the North Sea region, a result of production decline in the Callater field coming online in late May 2017.U.S.
Natural Gas Revenues Gas revenues for the third quarter of 20172020 totaled $238$164 million, a $25$28 million decreaseincrease from the comparative 20162019 quarter. A 1514 percent decreaseincrease in average daily production reducedrealized prices increased third-quarter 2020 revenues by $42$19 million compared to the prior-year quarter, while 6 percent higher average realized pricesdaily production increased revenues by $17$9 million. Natural gas accounted for 1716 percent of Apache’s oil and gas production revenues and 35 percent of its equivalent production during the third quarter of 2017.2020.
WorldwideThe Company’s worldwide natural gas production decreased 164increased 51 MMcf/d to 940938 MMcf/d in the third quarter of 20172020 from the comparative prior-year period, primarily thea result of the Canada divestitures and maintenance activity in the North Sea. Decreases were slightly offset by a 2 percent increase in the U.S., primarily onPermian Basin drilling activity at Alpine High.and the timing of well completions in late 2019.
NGL Revenues NGL revenues for the third quarter of 20172020 totaled $81$97 million, a $22$2 million increase from the comparative 20162019 quarter. An 18A 1 percent decrease in average daily productionrealized prices reduced third-quarter 20172020 revenues by approximately $17$2 million compared to the prior-year quarter, while 645 percent higher average realized pricesdaily production increased revenues by $39$4 million. NGLs accounted for 69 percent of Apache’s oil and gas production revenues and 1218 percent of its equivalent production during the third quarter of 2017.2020.
WorldwideThe Company’s worldwide production of NGLs decreased 11.7increased 3.4 Mb/d to 53.577.9 Mb/d in the third quarter of 20172020 from the comparative prior-year period, primarily thea result of the Canada divestituresAlpine High development and natural decline in all regions.cryogenic processing capacity commencing during the second half of 2019.
Year-to-Date 20172020 compared to Year-to-Date 20162019
Crude Oil Revenues Crude oil revenues for the first nine months of 20172020 totaled $3.3$2.3 billion, a $235 million increase$1.6 billion decrease from the comparative 20162019 period. A 1336 percent decrease in average realized prices reduced 2020 oil revenues by $1.4 billion compared to the prior-year period, while 8 percent lower average daily production reduced 2017 oil revenues by $478$183 million. Crude oil accounted for 78 percent of oil and gas production revenues and 49 percent of worldwide production for the first nine months of 2020, compared to 83 percent and 51 percent, respectively, for the 2019 period. Crude oil prices realized in the first nine months of 2020 averaged $38.53 per barrel, compared with $60.00 per barrel in the comparative prior-year period.
The Company’s worldwide oil production decreased 19.2 Mb/d to 220.8 Mb/d in the first nine months of 2020 from the comparative prior-year period, primarily a result of the sale of the Company’s Woodford-SCOOP and STACK plays and western Anadarko Basin assets and natural decline in the U.S., as well as lower gross production in Egypt due to natural decline.
Natural Gas Revenues Gas revenues for the first nine months of 2020 totaled $417 million, a $73 million decrease from the comparative 2019 period. An 8 percent decrease in average realized prices reduced 2020 natural gas revenues by $41 million compared to the prior-year period, while 237 percent higherlower average realized prices increaseddaily production decreased revenues by $713$32 million. Crude oilNatural gas accounted for 7814 percent of Apache’s oil and gas production revenues and 5333 percent of its equivalent production for the first nine months of 2017. Crude oil prices realized in the first nine months of 2017 averaged $49.15 per barrel,2020, compared with $39.86 per barrel in the comparative prior-year period.
Worldwide production decreased 35.6 Mb/d to 244.8 Mb/d in the first nine months of 2017 from the comparative prior-year period, primarily the result of the Canada divestitures10 percent and natural decline in all regions.
Natural Gas Revenues Gas revenues35 percent, respectively, for the first nine months of 2017 totaled $726 million, a $31 million increase from the comparative 20162019 period. A 12 percent decrease in average daily production reduced 2017 natural gas revenues by $104 million compared to the prior-year period, while 19 percent higher average realized prices increased revenues by $135 million. Natural gas accounted for 17 percent of Apache’s oil and gas production revenues and 36 percent of its equivalent production during the first nine months of 2017.
WorldwideThe Company’s worldwide natural gas production decreased 13771.6 MMcf/d to 987902.7 MMcf/d in the first nine months of 20172020 from the comparative prior-year period, primarily thea result of the Canada divestitures, maintenance activitiessale of the Company’s Woodford-SCOOP and STACK plays and western Anadarko Basin assets, as well as lower gross production in the North Sea, andEgypt due to natural decline in all regions.decline.
NGL RevenuesNGL revenues for the first nine months of 20172020 totaled $229$232 million, a $69$54 million increasedecrease from the comparative 20162019 period. A 1731 percent decrease in average production reduced 2017realized prices decreased 2020 NGL revenues by $45$88 million compared to the prior-year period, while 7017 percent higher average realized pricesdaily production increased revenues by $114$34 million. NGLs accounted for 5nearly 8 percent of Apache’s oil and gas production revenues and 1118 percent of its equivalent production for the first nine months of 2017.2020, compared to 7 percent and 14 percent, respectively, for the 2019 period.
WorldwideThe Company’s worldwide production of NGLs decreased 10.6increased 11.2 Mb/d to 53.878.2 Mb/d in the first nine months of 20172020 from the comparative prior-year period, primarily thea result of the Canada divestituresAlpine High development partially offset by the sale of the Company’s Woodford-SCOOP and STACK plays and western Anadarko Basin assets in the U.S.
Altus Midstream Revenues
Altus Midstream services revenues generated through Altus’ fee-based contractual arrangements with Apache totaled $39 million and $34 million during the third quarters of 2020 and 2019, respectively, and $111 million and $92 million during the first nine months of 2020 and 2019, respectively. These affiliated revenues are eliminated upon consolidation. The increases compared to the prior-year periods were primarily driven by higher throughput of rich natural declinegas volumes at Alpine High due to increased capacity at Altus’ Diamond cryogenic processing facilities.
Purchased Oil and Gas Sales
Purchased oil and gas sales for the third quarter and first nine months of 2020 totaled $74 million and $237 million, respectively, a $44 million and $165 million increase from the prior-year periods, respectively, and were primarily offset by associated costs totaling $75 million and $207 million in all regions.the third quarter and first nine months of 2020, respectively.
Operating Expenses
The table below presents a comparison of Apache’s expenses on an absolute dollar basis and a boe basis. Apache’s discussion may reference expenses on a boe basis, on an absolute dollar basis or both, depending on their relevance. Operatingthe Company’s operating expenses. All operating expenses include costs attributable to a noncontrolling interest in Egypt.
Egypt and Altus.
| | | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| | (In millions) | | (Per boe) | | (In millions) | | (Per boe) | | (In millions) |
Lease operating expenses(1) | | $ | 358 |
| | $ | 382 |
| | $ | 8.74 |
| | $ | 7.94 |
| | $ | 1,066 |
| | $ | 1,119 |
| | $ | 8.42 |
| | $ | 7.68 |
| | $ | 259 |
| | $ | 350 |
| | $ | 858 |
| | $ | 1,104 |
|
Gathering and transportation(1) | | 39 |
| | 51 |
| | 0.91 |
| | 1.08 |
| | 144 |
| | 155 |
| | 1.13 |
| | 1.06 |
| |
Gathering, processing, and transmission | | | 63 |
| | 66 |
| | 206 |
| | 230 |
|
Purchased oil and gas costs | | | 75 |
| | 23 |
| | 207 |
| | 60 |
|
Taxes other than income | | 46 |
| | 9 |
| | 1.12 |
| | 0.19 |
| | 117 |
| | 85 |
| | 0.93 |
| | 0.58 |
| | 34 |
| | 44 |
| | 90 |
| | 141 |
|
Exploration | | 231 |
| | 161 |
| | 5.60 |
| | 3.36 |
| | 431 |
| | 347 |
| | 3.41 |
| | 2.38 |
| | 58 |
| | 56 |
| | 187 |
| | 220 |
|
General and administrative | | 98 |
| | 102 |
| | 2.39 |
| | 2.13 |
| | 307 |
| | 298 |
| | 2.43 |
| | 2.04 |
| | 52 |
| | 98 |
| | 214 |
| | 323 |
|
Transaction, reorganization, and separation | | 20 |
| | 12 |
| | 0.48 |
| | 0.25 |
| | 14 |
| | 36 |
| | 0.11 |
| | 0.24 |
| | 7 |
| | 7 |
| | 44 |
| | 17 |
|
Depreciation, depletion, and amortization: | | | | | | | | | | | | | | | | | | | | | | | | |
Oil and gas property and equipment(1) | | 524 |
| | 610 |
| | 12.76 |
| | 12.67 |
| | 1,598 |
| | 1,875 |
| | 12.63 |
| | 12.87 |
| |
Oil and gas property and equipment | | | 366 |
| | 667 |
| | 1,284 |
| | 1,836 |
|
GPT assets | | | 19 |
| | 28 |
| | 58 |
| | 76 |
|
Other assets | | 35 |
| | 38 |
| | 0.83 |
| | 0.79 |
| | 109 |
| | 120 |
| | 0.86 |
| | 0.82 |
| | 13 |
| | 16 |
| | 40 |
| | 47 |
|
Asset retirement obligation accretion | | 30 |
| | 40 |
| | 0.75 |
| | 0.83 |
| | 103 |
| | 116 |
| | 0.82 |
| | 0.79 |
| | 27 |
| | 27 |
| | 81 |
| | 80 |
|
Impairments | | — |
| | 836 |
| | — |
| | 17.47 |
| | 8 |
| | 1,009 |
| | 0.06 |
| | 6.92 |
| | — |
| | 9 |
| | 4,492 |
| | 249 |
|
Financing costs, net | | 101 |
| | 102 |
| | 2.45 |
| | 2.13 |
| | 300 |
| | 311 |
| | 2.38 |
| | 2.13 |
| | 99 |
| | 95 |
| | 168 |
| | 365 |
|
(1) For expenses impacted by the timing of 2017 liftings in the North Sea, per-boe calculations are based on sales volumes rather than production volumes.
Lease Operating Expenses (LOE) LOE decreased $24$91 million, or 626 percent, and $246 million, or 22 percent, for the third quarter of 2017, and decreased $53 million, or 5 percent for the first nine months of 2017,2020, respectively, on an absolute dollar basis relative to the comparable periods of 2016.2019. On a per-unit basis, LOE increased 10decreased 25 percent to $8.74 per boeand 19 percent for the third quarter of 2017, and 10 percent to $8.42 per boe for the first nine months of 2017, as2020, respectively, compared to the prior-year periods. The per-barrel increasedecrease in absolute dollar costs was driven by reduced activity, labor costs, and fuel costs associated with lower commodity prices, the Company’s organizational redesign, and other cost cutting efforts. In addition, absolute dollar costs are lower in the current year as a result of the divestitures of the Company’s Woodford-SCOOP and STACK plays and western Anadarko Basin assets in the U.S. in the third quarter of 2019.
Gathering, Processing, and Transmission (GPT) GPT expenses include processing and transmission costs paid to third-party carriers and to Altus for both comparative periodsApache’s upstream natural gas production associated with its Alpine High play. GPT expenses also include midstream operating costs incurred by Altus. The following table presents a summary of these expenses:
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (In millions) |
Third-party processing and transmission costs | | $ | 54 |
| | $ | 53 |
| | $ | 177 |
| | $ | 187 |
|
Midstream service affiliate costs | | 38 |
| | 34 |
| | 110 |
| | 90 |
|
Upstream processing and transmission costs | | 92 |
| | 87 |
| | 287 |
| | 277 |
|
Midstream operating expenses | | 9 |
| | 13 |
| | 29 |
| | 43 |
|
Intersegment eliminations | | (38 | ) | | (34 | ) | | (110 | ) | | (90 | ) |
Total Gathering, processing, and transmission | | $ | 63 |
| | $ | 66 |
| | $ | 206 |
| | $ | 230 |
|
GPT costs decreased $3 million and $24 million from the third quarter and first nine months of 2019, respectively. Third-party processing and transmission costs increased $1 million compared to the third quarter of 2019 and decreased $10 million compared to the first nine months of 2019. The year-to-date decrease is primarily driven by a decrease in contracted pricing and the Company’s sale of non-core assets in Oklahoma and Texas. Midstream operating expenses decreased $4 million and $14 million from the third quarter and first nine months of 2019, respectively, primarily driven by increased operational efficiency as a result of a declinetransitioning from mechanical refrigeration units to Altus’ centralized Diamond cryogenic complex starting in productionthe second
quarter of 2019. The transition resulted in all regionsdecreases in employee-related costs, contract labor, lower supplies expenses, and generally risinglower equipment rentals.
Midstream service affiliate costs commensurate with higher commodity prices.
Gathering and Transportation Gathering and transportation costs totaled $39increased $4 million and $144$20 million from the third quarter and first nine months of 2019, primarily driven by higher throughput of rich natural gas volumes at Alpine High.
Purchased Oil and Gas Costs Purchased oil and gas costs for the third quarter and first nine months of 2020 totaled $75 million and $207 million, respectively, an increase of $52 million and $147 million, respectively, from the prior-year periods, and were offset by associated sales totaling $74 million and $237 million in the third quarter and first nine months of 2017, respectively, a decrease of $12 million from the third quarter of 2016 and a decrease of $11 million from the first nine months of 2016. The decrease was directly related to the Canadian divestitures.2020, respectively.
Taxes other than Income Taxes other than income totaled $46decreased $10 million and $117 million for the third quarter and first nine months of 2017, respectively, an increase of $37 million and $32$51 million from the third quarter and first nine months of 2016, respectively. Third-quarter 2017 expense consists2019, respectively, primarily the result of a decrease in severance and ad valorem taxes which combined increased $4 million on higherlower commodity prices duringand the third quarter compared todivestiture of the prior year quarter. For the first nine months of 2017, severance tax expenseCompany’s non-core assets in Oklahoma and ad valorem tax expense increased $12 million and $5 million, respectively, compared to the first nine months of 2016. In addition, in the third quarter and first nine months of 2016, Apache recognized a $33 million benefit related to the U.K. Petroleum Revenue Tax (PRT). The U.K. PRT rate, historically assessed on qualifying fields in the U.K. North Sea, was reduced to zero during 2016.Texas.
Exploration Expense Expenses Exploration expense includesexpenses include unproved leasehold impairments, exploration dry hole expense, geological and geophysical expenses, and the costs of maintaining and retaining unproved leasehold properties. The following table presents a summary of exploration expenses:
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
| | (In millions) |
Unproved leasehold impairments | | $ | 36 |
| | $ | 12 |
| | $ | 86 |
| | $ | 74 |
|
Dry hole expense | | 5 |
| | 5 |
| | 52 |
| | 33 |
|
Geological and geophysical expense | | 7 |
| | 18 |
| | 14 |
| | 54 |
|
Exploration overhead and other | | 10 |
| | 21 |
| | 35 |
| | 59 |
|
Total Exploration | | $ | 58 |
| | $ | 56 |
| | $ | 187 |
| | $ | 220 |
|
Exploration expenses in the third quarter and first nine months of 20172020 increased $70$2 million and $84decreased $33 million, respectively, compared to the prior-year periods.
The following table presents a summary of exploration expense:
|
| | | | | | | | | | | | | | | | |
| | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions) |
Unproved leasehold impairments | | $ | 160 |
| | $ | 114 |
| | $ | 214 |
| | $ | 222 |
|
Dry hole expense | | 38 |
| | 7 |
| | 136 |
| | 38 |
|
Geological and geophysical expense | | 12 |
| | 21 |
| | 24 |
| | 30 |
|
Exploration overhead and other | | 21 |
| | 19 |
| | 57 |
| | 57 |
|
| | $ | 231 |
| | $ | 161 |
| | $ | 431 |
| | $ | 347 |
|
Unproved leasehold impairments in the third quarter of 2017 increased $46 million compared to the third quarter of 2016, primarily relate to legacy acreage Geological and a reallocation of capital budgets in the U.S. For the first nine months of 2017, unproved leasehold impairmentsgeophysical expense decreased $8 million compared to the prior-year period, primarily a result of stabilizing commodity and leasehold prices. Dry hole expense increased $31$11 million and $98 million for the third quarter and first nine months of 2017, respectively, from the comparative prior-year periods primarily related to unsuccessful international offshore exploration.
General and Administrative (G&A) Expenses G&A expense for the third quarter of 2017 was $4 million lower than the third quarter of 2016. For the first nine months of 2017, G&A expense increased $9 million compared to the prior-year period, primarily related to non-cash stock-based compensation expense and other corporate costs.
Transaction, Reorganization, and Separation (TRS) Costs The Company recorded TRS expense of $20 million and $14 million for the third quarter and first nine months of 2017, respectively, related to asset divestitures in the U.S. and Canada and employee separation. The Company recorded TRS expense of $12 million and $36$40 million in the third quarter and first nine months of 2016,2020, respectively, and exploration overhead and other decreased $11 million and $24 million in the third quarter and first nine months of 2020, respectively. The 2019 periods reflect large-scale seismic surveys in Egypt and higher delay rentals in the U.S. Dry hole expense remained flat compared to the third quarter of 2019 and increased $19 million in the first nine months of 2020 compared to the prior-year period. The year-to-date increase is primarily related to various assetonshore exploration wells in the U.S. and Egypt and a Beryl exploration well in the North Sea. Unproved leasehold impairments increased $24 million and $12 million in the third quarter and first nine months of 2020, respectively. Higher leasehold impairments in the 2020 period were associated with U.S. leasehold acreage.
General and Administrative (G&A) Expenses G&A expense for the third quarter and first nine months of 2020 decreased $46 million and $109 million, respectively, compared to the prior-year periods, primarily related to cost-cutting measures associated with the Company’s organizational redesign efforts, as well as lower cash-based stock compensation expense resulting from a decrease in the Company’s stock price and expected payout of performance awards.
Transaction, Reorganization, and Separation (TRS) Costs TRS costs for the third quarter and first nine months of 2020 totaled $7 million and $44 million, respectively. TRS costs remained flat compared to the third quarter of 2019 and increased $27 million in the first nine months of 2020 compared to the prior-year period. The year-to-date increase was related to severance costs associated with the Company’s reorganization efforts initiated in the second half of 2019.
In recent years, the Company has streamlined its portfolio through strategic divestitures company reorganization, and employee separation.centralized 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 that it believes will better position the Company to be competitive for the long-term and further reduce recurring costs. Apache has achieved an estimated cost savings of more than $400 million annually. Reorganization efforts were substantially completed during the first half of 2020.
Depreciation, Depletion, and Amortization (DD&A) Oil and gas property DD&A expense of $524decreased $301 million in the third quarter of 2017 decreased $86and $552 million compared to the third quarter of 2016. For theand first nine months of 2017, oil and gas property DD&A expense decreased $277 million compared to the prior-year period.2019, respectively. The Company’s oil and gas property DD&A rate increased $0.09decreased $7.25 per boe and decreased $0.24$3.93 per boe in the third quarter and first nine months of 2017,2020, respectively, compared tofrom the comparable prior-year periods. The primary factor drivingdecreases are primarily the result of lower absolute dollar expense was a decrease in production volumes and lower asset property balances associated with proved property impairments recorded in the first quarter of 2020 and fourth quarter of 2019. GPT depreciation decreased $9 million and $18 million from the comparative prior-year periods.third quarter and first nine months of 2019, respectively, primarily the result of impairments recorded to the carrying value of the Altus GPT facilities in the fourth quarter of 2019.
ImpairmentsThe Company did not record anyrecorded no asset impairments in connection with fair value assessments in the third quarter of 2017. During2020 and $4.5 billion in the first nine months of 2020. The Company recorded a $20 million proved property impairment in Egypt in the second quarter of 2020. In the first quarter of 2017,2020, the Company recorded impairments of $4.3 billion for oil and gas proved properties in the U.S., Egypt, and North Sea, $68 million for GPT facilities in Egypt, $87 million for goodwill in Egypt, and $18 million for inventory and other miscellaneous assets, including charges for the early termination of drilling rig leases. The Company recorded asset impairments in connection with fair value assessments totaling $8 million for a U.K. PRT decommissioning asset that is no longer expected to be realizable from future abandonment activities in the North Sea. The Company recorded $836$9 million and $1.0 billion of impairments in connection with fair value assessments$249 million in the third quarter and first nine months of 2016,2019, respectively. The Company recorded a $9 million impairment in the third quarter of 2019 on certain Altus Midstream held-for-sale assets, as well as a $240 million impairment during the second quarter of 2019 on assets held-for-sale in the western Anadarko Basin in Oklahoma and Texas. For more information regarding asset impairments, please refer to “Fair Value Measurements”Measurements,” “Oil and Gas Property,” and “Gathering, Processing, and Transmission Facilities” within Note 1—Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Part 1,I, Item 1 of this Quarterly Report on Form 10-Q.
Financing Costs, Net Financing costs incurred during the periodperiods comprised the following:
| | | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, | | For the Quarter Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 | | 2020 | | 2019 |
| | (In millions) | | (In millions) |
Interest expense | | $ | 113 |
| | $ | 116 |
| | $ | 344 |
| | $ | 348 |
| | $ | 113 |
| | $ | 107 |
| | $ | 327 |
| | $ | 323 |
|
Amortization of deferred loan costs | | 3 |
| | 2 |
| | 7 |
| | 5 |
| |
Amortization of debt issuance costs | | | 2 |
| | 2 |
| | 6 |
| | 5 |
|
Capitalized interest | | (12 | ) | | (13 | ) | | (39 | ) | | (36 | ) | | (3 | ) | | (9 | ) | | (9 | ) | | (26 | ) |
Loss on extinguishment of debt | | — |
| | — |
| | 1 |
| | — |
| |
Loss (gain) on extinguishment of debt | | | (12 | ) | | — |
| | (152 | ) | | 75 |
|
Interest income | | (3 | ) | | (3 | ) | | (13 | ) | | (6 | ) | | (1 | ) | | (5 | ) | | (4 | ) | | (12 | ) |
Financing costs, net | | $ | 101 |
| | $ | 102 |
| | $ | 300 |
| | $ | 311 |
| | $ | 99 |
| | $ | 95 |
| | $ | 168 |
| | $ | 365 |
|
Net financing costs decreased $1increased $4 million and $11decreased $197 million incompared with the third quarter and first nine months of 2017,2019, respectively. The $11year-to-date decrease is primarily a result of a $152 million decreasegain on extinguishment of debt in the first nine months of 2017 was primarily2020, compared to a $75 million loss on extinguishment of debt in the first nine months of 2019. In addition, capitalized interest decreased in the current year as a result of higher capitalized interestlower drilling activity and interest income.construction activities at Alpine High.
Provision for 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 in the Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. 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. InDuring the third and second quarters of 2017, the Company recorded a $2 million deferred income tax expense2020 and a $674 million deferred income tax benefit, respectively, in connection with these transactions.
2019, 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,an increase in the third quarteramount of 2016 the Company recorded avaluation allowance against its U.S. deferred tax benefit of $235 million related to the remeasurement of the Company’s December 31, 2015 U.K. deferred income tax liability.
assets. 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 20162020 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-cashasset impairments, of the Company’s PRT decommissioning asset, the impact of the change in U.K. statutory income tax rate,a goodwill impairment, and an increase in the amount of valuation allowances onallowance against its U.S. and Canadian deferred tax assets. Apache’s 2019 year-to-date effective income tax rate was primarily impacted by an increase in the amount of valuation allowance against the Company’s U.S. deferred tax assets.
Apache recorded a full valuation allowance against its U.S. net deferred tax assets. Apache will continue to maintain a full valuation allowance on its U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.
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 Company is currently under audit by the Internal Revenue Service (IRS) began their audit offor the Company’s 2014 income2014-2017 tax year. The Companyyears and is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.
Capital and Operational Outlook
The Company continues to prudently manage its capital program against a volatile price environment and the prolonged effects of the COVID-19 pandemic. In response to the current crises, Apache’s immediate course of action was to actively reduce its cost structure, protect its balance sheet, and manage operations to preserve cash flow. Under a reduced capital budget for 2020, these actions include:
continuing to advance exploratory and appraisal programs in Suriname under the terms of the Company’s joint venture with Total S.A.;
allocating a portion of the reduced capital spending to Egypt and the North Sea to maintain their capacity to generate cash flow and generally higher returns in lower price environments; and
eliminating virtually all U.S. drilling and completion activity by May 2020 until service costs and commodity prices provide for competitive returns. As a result of compelling service cost reductions in the Permian Basin, Apache has begun a limited program beginning in November to complete its backlog of drilled but uncompleted wells.
Apache’s diversified global portfolio provides the ability to quickly optimize capital allocation as market conditions change. The current crisis, however, is still evolving and may become more severe and complex. As a result, the COVID-19 pandemic may still materially and adversely affect Apache’s results in a manner that is either not currently known or that the Company does not currently consider to be a significant risk to its business. For additional information about the business risks relating to the COVID-19 pandemic and related governmental actions, please refer to Part II, Item 1A—Risk Factors of this Current Report on Form 10-Q. Capital Resources and Liquidity
Operating cash flows are the Company’s primary source of liquidity. The Company may also elect to use available cash on hand, available committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs.
Apache’s operating cash flows, both in the short termshort-term and the long term,long-term, are impacted by highly volatile oil and natural gas prices, as well as costs and sales volumes. Significant changes in commodity prices impact Apache’s revenues, earnings, and cash flows. These changes potentially impact Apache’s liquidity if costs do not trend with changes in commodity prices. Historically, costs have trended with commodity prices, albeit withon a lag. Sales volumes also impact cash flows; however, they have a less volatile impact in the short term.
Apache’s long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of Apache’s drilling program and its ability to add reserves economically. Changes in commodity prices also impact estimated quantities of proved reserves. In the first nine months of 2017,2020, Apache recognized positivenegative reserve revisions of approximately 27 percent of its year-end 20162019 estimated proved reserves as a result of higherlower prices. If prices for the remainder of 2020 were to approximate commodity future prices as of September 30, 2020, Apache would likely report additional negative revisions when calculated on a basis consistent with previous reserve disclosures. However, as a result of the substantial uncertainty surrounding economic conditions, such as worldwide supply and demand, future service costs, and other prolonged effects of the COVID-19 pandemic, the Company is unable to estimate any future revisions at this time.
Combined with proactive measures to adjust its capital budget, decrease its dividend, protect further downside price risk through entering into new hedge positions, and reduce its operating cost structure in the current volatile commodity price environment, Apache believes the liquidity and capital resource alternatives available to the Company combined with proactive measures to adjust its capital budget to reflect volatile commodity prices and anticipated operating cash flows, will be adequate to fund short-termits operations and long-term operations, includingprovide flexibility until commodity prices and industry conditions improve. This includes supporting Apache’s capital spendingdevelopment program, repayment of debt maturities, payment of dividends, and any amount that may ultimately be paid in connection with commitments and contingencies.
The Company may also elect to utilize available cash on hand, committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs.
For additional information, please see Part I, Items 1 and 2, “Business and Properties,” and Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019.
Sources and Uses of Cash
The following table presents the sources and uses of the Company’s cash and cash equivalents and restricted cash for the periods presented.
| | | | For the Nine Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2017 | | 2016 | | 2020 | | 2019 |
| | (In millions) | | (In millions) |
Sources of Cash, Cash Equivalents, and Restricted Cash: | | | | | |
Sources of Cash and Cash Equivalents: | | | | | |
Net cash provided by operating activities | | $ | 1,760 |
| | $ | 1,634 |
| | $ | 890 |
| | $ | 2,089 |
|
Proceeds from Apache credit facility, net | | | 87 |
| | — |
|
Proceeds from Altus credit facility, net | | | 184 |
| | 235 |
|
Proceeds from sale of oil and gas properties | | 1,404 |
| | 74 |
| | 132 |
| | 590 |
|
Fixed-rate debt borrowings | | | 1,238 |
| | 989 |
|
Redeemable noncontrolling interest - Altus Preferred Unit limited partners | | | — |
| | 611 |
|
| | | 2,531 |
| | 4,514 |
|
Uses of Cash and Cash Equivalents: | | | | | |
Additions to oil and gas property(1) | | | $ | 1,075 |
| | $ | 2,015 |
|
Additions to Altus gathering, processing, and transmission facilities(1) | | | 27 |
| | 294 |
|
Leasehold and property acquisitions | | | 3 |
| | 39 |
|
Contributions to Altus equity method interests | | | 286 |
| | 338 |
|
Acquisition of Altus equity method interests | | | — |
| | 670 |
|
Payments on fixed-rate debt | | | 980 |
| | 1,150 |
|
Dividends paid | | | 113 |
| | 282 |
|
Distributions to noncontrolling interest - Egypt | | | 61 |
| | 235 |
|
Distributions to Altus Preferred Unit limited partners | | | 11 |
| | — |
|
Other | | — |
| | 38 |
| | 60 |
| | 42 |
|
| | 3,164 |
| | 1,746 |
| | 2,616 |
| | 5,065 |
|
Uses of Cash and Cash Equivalents: | | | | | |
Capital expenditures(1) | | $ | 1,855 |
| | $ | 1,314 |
| |
Leasehold and property acquisitions | | 142 |
| | 169 |
| |
Payments on fixed-rate debt | | 70 |
| | 1 |
| |
Dividends paid | | 285 |
| | 284 |
| |
Distributions to noncontrolling interest | | 212 |
| | 215 |
| |
Other | | 35 |
| | — |
| |
| | 2,599 |
| | 1,983 |
| |
Increase (decrease) in cash, cash equivalents, and restricted cash | | $ | 565 |
| | $ | (237 | ) | |
Decrease in cash and cash equivalents | | | $ | (85 | ) | | $ | (551 | ) |
| |
(1) | The table presents capital expenditures on a cash basis; therefore, the amounts may differ from those discussed elsewhere in this document,Quarterly Report on Form 10-Q, which include accruals. |
Sources of Cash and Cash Equivalents
Net Cash Provided by Operating Activities Operating cash flows are Apache’s primary source of capital and liquidity and are impacted, both in the short term and the long term, by volatile oil and natural gas prices. The factors that determine operating cash flowflows are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, exploratory dry hole expense, asset impairments, asset retirement obligation (ARO) accretion, and deferred income tax expense, which affect earnings but do not affect cash flows.expense.
Net cash provided by operating activities for the first nine months of 20172020 totaled $1.8$890 million, a decrease of $1.2 billion an increase of $126 million from the first nine months of 2016.2019. The increasedecrease primarily reflects higherlower commodity prices compared to the prior-year period.
For a detailed discussion of commodity prices, production, and expenses, refer to the “Results“Results of Operations”Operations” of this Item 2. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, please see the statementStatement of consolidated cash flowsConsolidated Cash Flows in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q. Proceeds from Apache Credit Facility, Net As of September 30, 2020, Apache had outstanding borrowings of $87 million under its credit facility, which is classified as long-term debt. The Company had no borrowings under the revolver as of September 30, 2019.
Proceeds from Altus Credit Facility, Net The construction of Altus’ gathering and processing assets and the exercise of its options for equity interests in four Permian Basin long-haul pipeline entities required capital expenditures in excess of Altus’ cash on hand and operational cash flows. During the first nine months of 2020 and 2019, Altus Midstream LP borrowed $184 million and $235 million, respectively, under its revolving credit facility. With the Shin Oak NGL Pipeline, Gulf Coast Express Pipeline Project, and EPIC crude oil pipeline already in service, the Company anticipates Altus Midstream LP’s existing capital resources will be sufficient to fund Altus Midstream LP’s continuing obligations, primarily related to the remaining construction of the Permian Highway Pipeline.
Asset Divestitures The Company recorded proceeds from non-core asset divestitures totaling $1.4 billion$132 million and $74$590 million in the first nine months of 20172020 and 2016,2019, respectively. For more information regarding the Company’s acquisitions and divestitures, please see Note 2—Acquisitions and Divestitures in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Fixed-Rate Debt Borrowings On August 17, 2020, the Company closed offerings of $1.25 billion in aggregate principal amount of senior unsecured notes, comprised of $500 million in aggregate principal amount of 4.625% notes due 2025 and $750 million in aggregate principal amount of 4.875% notes due 2027. The senior unsecured notes are redeemable at any time, in whole or in part, at Apache’s option, at the applicable redemption price. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers, repay a portion of outstanding borrowings under the Company’s senior revolving credit facility, and for general corporate purposes.
On June 19, 2019, Apache closed offerings of $1.0 billion in aggregate principal amount of senior unsecured notes, comprised of $600 million in aggregate principal amount of 4.250% notes due January 15, 2030 (2030 notes) and $400 million in aggregate principal amount of 5.350% notes due July 1, 2049 (2049 notes). The notes are redeemable at any time, in whole or in part, at Apache’s option, subject to a make-whole premium. The aggregate net proceeds of $989 million from the sale of the notes were used to purchase certain outstanding notes in cash tender offers and for general corporate purposes.
Redeemable Noncontrolling Interest - Altus Preferred Unit Limited Partners On June 12, 2019, Altus Midstream LP, an indirectly controlled subsidiary of Apache, issued and sold Series A Cumulative Redeemable Preferred Units for an aggregate issue price of $625 million in a private offering. Altus Midstream LP received approximately $611 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers. For more information, please refer to Note 12—Redeemable Noncontrolling Interest - Altus in the Notes to Consolidated Financial Statements in Part 1, Item 1 of this Quarterly Report on Form 10-Q. Capital Expenditures Worldwide explorationUses of Cash and development (E&D) cash expenditures forCash Equivalents
Additions to Oil & Gas Property During the first nine months of 20172020, exploration and development cash expenditures totaled $1.5$1.1 billion, compared to $1.3$2.0 billion for the first nine months of 2016.2019, a reflection of the Company’s reduced capital program. A majority of the expenditures shifted from Apache’s Permian Basin assets to its Egypt assets over the first half of 2020 as the Company eliminated nearly all drilling and completion activities in the U.S. by May 2020. Apache operated an average of 368 drilling rigs during the third quarter of 2017.2020 compared to 20 drilling rigs in the prior-year quarter.
Apache also completed leasehold and property acquisitions totaling $142Additions to Altus GPT Facilities Apache’s cash expenditures in GPT facilities totaled $27 million and $169$294 million in the first nine months of 2020 and 2019, respectively, nearly all comprising midstream infrastructure expenditures incurred by Altus, which were substantially completed as of December 31, 2019. Altus management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to service Apache’s production from Alpine High and any potential third-party customers. As such, Altus expects capital requirements for its existing infrastructure assets for the remainder of 2020 to be primarily related to maintenance of these assets.
Contributions to Altus Equity Method Interests Altus made contributions of $286 million and $338 million in the first nine months of 2020 and 2019, respectively, for equity interests in four Permian Basin long-haul pipeline entities. For more information regarding the Company’s equity method interests, please see Note 6—Equity Method Interests in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Acquisition of Altus Equity Method Interests Altus made no acquisitions of equity method interests during the first nine months of 2020 and $670 million during the first nine months of 2017 and 2016, respectively.2019. For more information regarding the Company’s equity method interests, please see Note 6—Equity Method Interests in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Apache’s investment in gas gathering, transmission, and processing (GTP) facilities totaled $384
Payments on Fixed-Rate Debt On August 18, 2020, the Company closed cash tender offers for certain outstanding notes. Apache accepted for purchase $644 million aggregate principal amount of certain notes covered by the tender offers. Apache paid holders an aggregate $644 million, reflecting principal, aggregate discount to par of $38 million, early tender premium of $32 million, and $33accrued and unpaid interest of $6 million. The Company recorded a net gain of $2 million on extinguishment of debt, including an acceleration of unamortized debt discount and issuance costs, in connection with the note purchases.
During the quarter ended September 30, 2020, the Company purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $89 million for an aggregate purchase price of $79 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $11 million. These repurchases resulted in a $10 million net gain on extinguishment of debt, which is included in “Financing costs, net” in the Company’s statement of consolidated operations. The net gain includes an acceleration of related discount and debt issuance costs.
During the quarter ended June 30, 2020, the Company purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $410 million for an aggregate purchase price of $267 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $147 million. These repurchases resulted in a $140 million net gain on extinguishment of debt, which is included in “Financing costs, net” in the Company’s statement of consolidated operations. The net gain includes an acceleration of related discount and debt issuance costs.
The open-market repurchases during the first nine monthsquarters ended June 30, 2020 and September 30, 2020 were financed by borrowings under the Company’s revolving credit facility.
On June 21, 2019, the Company closed cash tender offers for certain outstanding notes. Apache accepted for purchase $932 million aggregate principal amount of 2017notes for approximately $1.0 billion, which included principal, the net premium to par, and 2016, respectively. Expendituresan early tender premium totaling $28 million, as well as accrued and unpaid interest of $14 million. The Company recorded a net loss of $75 million on extinguishment of debt, including $7 million of unamortized debt issuance costs and discounts, in 2017 primarily comprise investments in infrastructure forconnection with the Alpine High play.note purchases.
Dividends For each of the nine-month periods ended September 30, 20172020 and 2016,2019, the Company paid $285$113 million and $284$282 million, respectively, in dividends on its common stock. In the first quarter of 2020, Apache’s Board of Directors approved a reduction in the Company’s quarterly dividend per share from $0.25 to $0.025, effective for all dividends payable after March 12, 2020.
Egypt Noncontrolling Interest Sinopec International Petroleum Exploration and Production Corporation (Sinopec) holds a one-third minority participation interest in Apache’s oil and gas business in Egypt. Apache made cash distributions totaling $61 million and $235 million to Sinopec in the first nine months of 2020 and 2019, respectively.
Distributions to Altus Preferred Units limited partners Altus Midstream LP made cash distributions totaling $11 million to Altus Preferred Unit limited partners in the first nine months of 2020. No cash distributions were made during the first nine months of 2019.
Liquidity
The following table presents a summary of the Company’s key financial indicators at the dates presented:
|
| | | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
Cash and cash equivalents | | $ | 1,846 |
| | $ | 1,377 |
|
Total debt | | 8,483 |
| | 8,544 |
|
Equity | | 8,377 |
| | 7,679 |
|
Available committed borrowing capacity | | 3,500 |
| | 3,500 |
|
|
| | | | | | | | |
| | September 30, 2020 | | December 31, 2019 |
| | (In millions) |
Cash and cash equivalents | | $ | 162 |
| | $ | 247 |
|
Total debt - Apache | | 8,354 |
| | 8,170 |
|
Total debt - Altus | | 580 |
| | 396 |
|
Equity (deficit) | | (637 | ) | | 4,465 |
|
Available committed borrowing capacity - Apache | | 3,090 |
| | 4,000 |
|
Available committed borrowing capacity - Altus | | 220 |
| | 404 |
|
Cash and cash equivalentsCash Equivalents The Company had $1.8 billion$162 million in cash and cash equivalents as of September 30, 2017, compared to $1.4 billion at December 31, 2016. At September 30, 2017,2020, of which approximately $1.3 billion of the cash$2 million was held by foreign subsidiaries. The cash held by foreign subsidiaries should not be subject to additional U.S. income taxes if repatriated.Altus. The majority of the cash is invested in highly liquid, investment grade securitiesinstruments with maturities of three months or less at the time of purchase. The Company also had $96 million of restricted cash at September 30, 2017, expected to be released in the fourth quarter of 2017.
Debt As of September 30, 2017,2020, outstanding debt, which consisted of notes, debentures, credit facility borrowings, and debentures,finance lease obligations, totaled $8.5$8.9 billion. Current debt asAs of September 30, 2017,2020, current debt included $150$183 million, net of 7.0%discount, of 3.625% senior notes due February 1, 2018 and $400 million of 6.9% senior notes due September 15, 2018.
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.
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 interest2021 and $1 million of premium, which completedfinance lease obligations. On November 3, 2020, the open market repurchase program. These repurchases resulted inCompany redeemed the 3.625% senior notes due February 1, 2021 at a $1 million net loss on extinguishmentredemption price equal to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date. Apache intends to reduce 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.
outstanding under its indentures from time to time.
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.
Available committed borrowing capacity In June 2015,March 2018, the Company entered into a five-year revolving credit facility with commitments totaling $4.0 billion. In March 2019, the term of this facility was extended by one year to March 2024 (subject to Apache’s remaining one-year extension option) pursuant to Apache’s exercise of an extension option. The Company can increase commitments up to $5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to $3.0 billion, of which $2.08 billion was committed as of September 30, 2020. The facility is for general corporate purposes, and available committed borrowing capacity supports Apache’s commercial paper program. The facility has no collateral requirements, is not subject to borrowing base redetermination, and has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. As of September 30, 2020, there were $87 million of borrowings and aggregate £637 million in letters of credit outstanding under this facility. As of December 31, 2019, there were no borrowings or letters of credit outstanding under this facility. The outstanding letters of credit were issued to support North Sea decommissioning obligations, the terms of which required such support after Standard & Poor’s reduced the Company’s credit rating from BBB to BB+ on March 26, 2020.
In November 2018, Altus Midstream LP entered into a revolving credit facility for general corporate purposes that matures in June 2020, subjectNovember 2023 (subject to Apache’sAltus Midstream LP’s two, one-year extension options.options). The agreement for this facility, as amended, provides for aggregate commitments from a syndicate of $3.5 billion (includingbanks of $800 million. All aggregate commitments include a $750 million letter of credit subfacility)subfacility of up to $100 million and rightsa swingline loan subfacility of up to $100 million. Altus Midstream LP may increase commitments up to $4.5 billion. Proceeds froman aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of September 30, 2020 and December 31, 2019, there were $580 million and $396 million, respectively, of borrowings may be used for general corporate purposes. Apache’s available borrowing capacityoutstanding under this facility. As of September 30, 2020 and December 31, 2019, there were no letters of credit outstanding under this facility. The Altus Midstream LP credit facility supportsis unsecured and is not guaranteed by Apache or any of Apache’s other subsidiaries.
The Company was in compliance with the terms of its commercial paper program, currentlycredit facilities as of September 30, 2020.
The Company’s $3.5 billion. Thebillion commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270 days atdays. As a result of downgrades in Apache’s credit ratings during 2020, the Company does not expect that its commercial paper program will be cost competitive interest rates.with its other financing alternatives and does not anticipate using it under such circumstances. As of September 30, 2017,2020 and December 31, 2019, the Company had no commercial paper or borrowings under committed bank facilities or uncommitted bank lines outstanding.
Off-Balance Sheet Arrangements Apache enters into customary agreements in the oil and gas industry for drilling rig commitments, firm transportation agreements, and other obligations as described in “Contractual Obligations” in Part II, Item 7 of the Form 10-K for the year ended December 31, 2019. There have been no material changes to the contractual obligations described therein.
Potential Asset Retirement Obligations
In February 2016,2013, Apache sold its Gulf of Mexico Shelf operations and properties (Transferred Assets) to Fieldwood Energy LLC (Fieldwood). Under the Company entered into a letterterms of credit facility providing £900 million in commitmentsthe purchase agreement (Agreement), Apache received cash consideration of $3.75 billion and rights to increase commitments to £1.075 billion. This facility matures in February 2020 and is available for the Company’s letterFieldwood assumed $1.5 billion of credit needs, particularly those which may arise indiscounted asset abandonment liabilities. In respect of such abandonment obligations assumed in various North Sea acquisitions. The facility also is available for loans to cash collateralize letters of credit or obligations to provideliabilities, Fieldwood posted letters of credit in each case,favor of Apache (Letters of Credit) and established a trust account (Trust A), which is funded by a 10 percent net profits interest depending on future oil prices and of which Apache is the beneficiary. On February 14, 2018, Fieldwood filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In connection with the 2018 bankruptcy, Fieldwood confirmed a plan under which Apache agreed, inter alia, to accept bonds in exchange for certain of the Letters of Credit. Currently, Apache holds two bonds (Bonds) and the remaining Letters of Credit to secure Fieldwood’s asset retirement obligations (AROs) on the Transferred Assets as and when such abandonment and decommissioning obligations are required to be performed over the remaining life of the Transferred Assets.
On August 3, 2020, Fieldwood filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Apache has been engaged with Fieldwood and other interested parties to discuss Fieldwood’s plan of reorganization. However, as of the date of this report, Apache does not know if, or to what extent, Fieldwood will be able to continue to perform its AROs with respect to the Transferred Assets. If Fieldwood fails to perform any of its AROs with respect to the Transferred Assets, then Apache’s remedy would be a claim for damages against Fieldwood for breach of its contractual obligations under the Agreement.
If Fieldwood fails to perform any of its AROs on the Transferred Assets, then Apache would expect the relevant governmental authorities to require Apache to perform, and hold Apache financially responsible for, such AROs to the extent lettersnot performed by Fieldwood. Pending resolution of credit are unavailableany claim by Apache for breach of the Agreement, Apache may be forced to use available cash to cover the costs it incurs for performing such AROs. While Apache anticipates that all, or a portion, of such costs would be reimbursable to Apache under the facility. Asremaining Letters of September 30, 2017, three lettersCredit, the Bonds and Trust A, it is possible that such decommissioning security may not be sufficient to cover all of credit aggregating approximately £147.5 millionthe costs and no borrowings were outstanding under this facility.expenses incurred by Apache in performing such AROs or such decommissioning security may be reduced, restricted, or otherwise eliminated, in whole or in part, as a result of Fieldwood’s current bankruptcy proceedings.
The Company was in compliance with the terms of these credit facilities as of September 30, 2017.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices the Company receives for its crude oil, natural gas, and NGLs, which have historically been very volatile because of unpredictable events such as economic growth or retraction, weather, political climate, and global supply and demand. These factors have only been heightened with uncertainty in oil markets being amplified late in the first quarter as the negative demand implications of the rapidly spreading COVID-19 pandemic became more apparent. The Company continually monitors its market risk exposure, including the impact and developments related to the COVID-19 pandemic, which introduced significant volatility in the financial markets subsequent to the year ended December 31, 2019.
For the third quarter of 2020, the Company’s average crude oil realizations have increased 11decreased 30 percent to $49.34$40.88 per barrel from $58.60 per barrel in the comparable period of 2019. The Company’s average natural gas price realizations increased 14 percent to $1.90 per Mcf in the third quarter of 2020 from $1.66 per Mcf in the comparable period of 2019. The Company’s average NGL realizations decreased 1 percent to $13.51 per barrel in the third quarter of 20172020 from $44.35$13.71 per barrel in the comparable period of 2016. The Company’s average natural gas price realizations have increased 6 percent to $2.75 per Mcf in the third quarter of 2017 from $2.59 per Mcf in the comparable period of 2016.2019. Based on average daily production for the third quarter of 2017,2020, a $1.00 per barrel change in the weighted average realized oil price would have increased or decreased revenues for the quarter by approximately $22$19 million, and a $0.10 per Mcf change in the weighted average realized price of natural gas would have increased or decreased revenues for the quarter by approximately $9 million, and a $1.00 per barrel change in the weighted average realized NGL price would have increased or decreased revenues for the quarter by approximately $7 million.
Apache periodically enters into derivative positions on a portion of its projected oil and natural gas production through a variety of financial and physical arrangements intended to manage fluctuations in cash flows resulting from changes in commodity prices. Such derivative positions may include the use of futures contracts, swaps, and/or options. Apache does not hold or issue derivative instruments for trading purposes. As of September 30, 2017,2020, the Company had open natural gas derivatives not designated as cash flow hedges in an asset position with a fair value of $6$12 million. A 10 percent increase in gas prices would movedecrease the derivatives to a liability position of $17asset by approximately $7 million, while a 10 percent decrease in prices would increase the asset by approximately $17$7 million. As of September 30, 2017,2020, the Company had open oil derivatives not designated as cash flow hedges in an asseta liability position with a fair value of $11$15 million. A 10 percent increase in oil prices would moveincrease the derivatives to a liability position of $50by approximately $18 million, while a 10 percent decrease in prices would increasedecrease the assetliability by approximately $84$15 million. These fair value changes assume volatility based on prevailing market parameters at September 30, 2017.2020. See Note 3—4—Derivative Instruments and Hedging Activities of in the Notes to Consolidated Financial Statements set forth in Part 1,I, Item 1 of this Quarterly Report on Form 10-Q for notional volumes and terms associated with the Company’s derivative contracts. Interest Rate Risk
At September 30, 2020, Apache had approximately $8.3 billion net carrying value of notes and debentures outstanding, all of which was fixed-rate debt, with a weighted average interest rate of 4.95 percent. Although near-term changes in interest rates may affect the fair value of Apache’s fixed-rate debt, they do not expose the Company to the risk of earnings or cash flow loss associated with that debt. Apache is also exposed to interest rate risk related to its interest-bearing cash and cash equivalents balances and amounts outstanding under its commercial paper program and credit facilities. As of September 30, 2020, the Company’s cash and cash equivalents totaled approximately $162 million, approximately 68 percent of which was invested in money market funds and short-term investments with major financial institutions. As of September 30, 2020, the Company had credit facility borrowings of $87 million and $580 million under its Apache and Altus credit facilities, respectively. A change in the interest rate applicable to the Company’s short-term investments and credit facility borrowings would have an immaterial impact on earnings and cash flows but could impact interest costs associated with future debt issuances or any future borrowings under its commercial paper program, revolving credit facilities, and money market lines of credit.
Foreign Currency Exchange Rate Risk
The Company’s cash flow streamactivities relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. The Company’s North Sea production is sold under U.S. dollar contracts, and the majority of costs incurred are paid in British pounds. In Egypt, substantially all oil and gas production is sold under U.S. dollar contracts, and the majority of the costs incurred are denominated in U.S. dollars. Revenue and disbursement transactionsTransactions denominated in British pounds are converted to U.S. dollar equivalents based on the average exchange rates during the period.
Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Currency gains and losses are included as either a component of “Other” under “Revenues and Other” or, as is the case when the Company re-measures its foreign tax liabilities, as a component of the Company’s provision for income tax expense on the statement of consolidated operations. A foreign currency net gain or loss of $6$5 million would result from a 10 percent weakening or strengthening, respectively, in the British pound as of September 30, 2017.2020.
The Company is subject to increased foreign currency risk associated with the effects of the U.K.’s withdrawal from the European Union. Apache has entered into foreign exchange contracts in order to minimize the impact of fluctuating exchange rates for the British pound on the Company’s operating expenses. As of September 30, 2020, the Company had outstanding foreign exchange contracts with a total notional amount of £41 million. A 10 percent strengthening of the British pound against the U.S. dollar would result in a foreign currency net gain of $3 million, while a 10 percent weakening of the British pound against the U.S. dollar would result in a loss of $4 million.
ITEM 4 – CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
John J. Christmann IV, the Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and Stephen J. Riney, the Company’s Executive Vice President and Chief Financial Officer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2017,2020, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective, providing effective means to ensure that information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls, and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.reporting including any changes related to the COVID-19 pandemic and the transition to our remote working environment.
PART II - OTHER INFORMATION
Please refer to Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (filed with the SEC on February 24, 2017)2019 and Note 9—11—Commitments and Contingencies in the notesNotes to the consolidated financial statementsConsolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a description of material legal proceedings.
Please refer to Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2019, Part II, Item 1A—Risk Factors of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and Part I, Item 3—Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q. There have been no material changesGiven the nature of its business, Altus Midstream Company may be subject to our risk factors since our annual reportdifferent and additional risks than those described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2019, Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, and this Quarterly Report on Form 10-Q. For a description of these risks, please refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and the Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2020 and June 30, 2020 filed by Altus Midstream Company.
The global economy and the energy industry have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. As of the date of this report, efforts to contain COVID-19 have not succeeded in many regions, and the global pandemic remains ongoing. Uncertainty in the oil markets and the negative demand implications of the COVID-19 pandemic continue to impact oil supply and demand. The COVID-19 pandemic and its unprecedented consequences have amplified, and may continue to amplify, certain risks identified in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020, including, without limitation, risks related to: the market prices of and supply and demand for oil, natural gas, NGLs, and other products or services; economic and competitive conditions; the availability of capital resources; the Company’s commodity hedging arrangements; production and reserve levels; capital expenditures and other contractual obligations; currency exchange rates; inflation rates; the availability of goods and services; legislative, regulatory, or policy changes; terrorism or cyberattacks; the occurrence of property acquisitions or divestitures; the impact of health and safety and other governmental regulations; deterioration of the political, economic, and social conditions in Egypt; the ability to access the capital markets; market-related risks; the Company’s ability to declare and pay dividends; and the Company’s exposure to customer, partner, and counterparty credit risk. Given the uncertainty regarding the duration and scope of the COVID-19 pandemic and its prolonged impact on the global economy and the energy industry, there can be no assurance that the pandemic will not materially and adversely affect the Company’s business, financial condition, cash flows, and results of operations in the future.
Any discussion of the impact of the COVID-19 pandemic included in this Quarterly Report on Form 10-Q speaks only as of the filing date of this Quarterly Report on Form 10-Q and is subject to change without notice, as the Company cannot predict all risks related to this rapidly evolving event.
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ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
In 2013 and 2014, 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 from time to time either in the open market or through privately negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2017,2020, had repurchased a total of 32.240 million shares at an average price of $88.96$79.18 per share. During the fourth quarter of 2018, the Company’s Board of Directors authorized the purchase of up to 40 million additional shares of the Company’s common stock. The Company is not obligated to acquire any specific number of shares and hasdid not purchasedpurchase any additional shares during 2017.
the first nine months of 2020.
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ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
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ITEM 4. | MINE SAFETY DISCLOSURES |
None
None
| | 3.1 | – | | – | |
3.2 | – | | – | |
3.3 | – | | – | |
*4.1 | – | | |
4.1 | | – | |
4.2 | | – | |
*10.1 | | – | |
*31.1 | – | | – | |
*31.2 | – | | – | |
*32.1 | – | | – | |
*101.INS | – | XBRL Instance Document. | |
*101 | | – | The following financial statements from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL: (i) Statement of Consolidated Operations, (ii) Statement of Consolidated Comprehensive Income (Loss), (iii) Statement of Consolidated Cash Flows, (iv) Consolidated Balance Sheet, (v) Statement of Consolidated Changes in Equity (Deficit) and Noncontrolling Interest and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
*101.SCH | – | XBRL Taxonomy Schema Document. | – | Inline XBRL Taxonomy Schema Document. |
*101.CAL | – | XBRL Calculation Linkbase Document. | – | Inline XBRL Calculation Linkbase Document. |
*101.DEF | – | XBRL Definition Linkbase Document. | – | Inline XBRL Definition Linkbase Document. |
*101.LAB | – | XBRL Label Linkbase Document. | – | Inline XBRL Label Linkbase Document. |
*101.PRE | – | XBRL Presentation Linkbase Document. | – | Inline XBRL Presentation Linkbase Document. |
*104 | | – | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | | APACHE CORPORATION |
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Dated: | November 2, 20175, 2020 | | /s/ STEPHEN J. RINEY |
| | | Stephen J. Riney |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
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Dated: | November 2, 20175, 2020 | | /s/ REBECCA A. HOYT |
| | | Rebecca A. Hoyt |
| | | Senior Vice President, Chief Accounting Officer, and Controller |
| | | (Principal Accounting Officer) |