SEC Info - Apache Corp - ‘10-K’ for 12/31/19

Assets:

Pipeline Capacity Embedded Derivative

i —

i 8

i —

i 8

i —

i 8

Foreign Currency Derivative Instruments

i —

i 1

i —

i 1

i —

i 1

Liabilities:

Preferred Units Embedded Derivative

i —

i 103

i —

i 103

Assets:

Commodity Derivative Instruments

i —

i 69

i —

i 69

( i 14

)

i 55

Liabilities:

Commodity Derivative Instruments

i —

i 25

i —

i 25

( i 14

)

i 11

/ /


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

F-24

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

All derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. i The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:



	December 31, 2019		December 31, 2018
	(In millions)
Current Assets: Other current assets	$	i 2	$	i 55
Noncurrent Assets: Deferred charges and other	i 7		i —
Total Assets	$	i 9	$	i 55

Current Liabilities: Other current liabilities	$	i —	$	i 11
Deferred Credits and Other Noncurrent Liabilities: Other	i 103		i —
Total Liabilities	$	i 103	$	i 11

Derivative Activity Recorded in the Statement of Consolidated Operations

The following table summarizes the effect of derivative instruments on the Company’s statement of consolidated operations:



	For the Year Ended December 31,
	2019			2018			2017
	(In millions)
Realized gain (loss):
Derivative settlements, realized gain (loss)	$	i 9		$	( i 81	)	$	i 24
Amortization of put premium, realized loss	i —			( i 39		)	( i 100		)
Unrealized gain (loss)	( i 44		)	i 103			( i 59		)
Derivative instrument losses, net	$	( i 35	)	$	( i 17	)	$	( i 135	)

Derivative instrument gains and losses are recorded in “Other” under “Revenues and Other” in the Company’s statement of consolidated operations. Unrealized gains and losses for derivative activity recorded in the statement of consolidated operations are reflected in the statement of consolidated cash flows as a component of “Other” in “Adjustments to reconcile net income (loss) to net cash provided by operating activities.”


5.	i OTHER CURRENT ASSETS

The following table provides detail of the Company’s other current assets as of December 31, 2019 and December 31, 2018:



	December 31, 2019		December 31, 2018
	(In millions)
Inventories	$	i 502	$	i 401
Drilling advances	i 92		i 218
Prepaid assets and other	i 58		i 160
Total Other current assets	$	i 652	$	i 779

F-25

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


6.	i EQUITY METHOD INTERESTS

Apache, through its ownership of Altus, has the following equity method interests in four Permian Basin long-haul pipeline entities which are accounted for under the equity method of accounting. For each of the equity method interests, Altus has the ability to exercise significant influence based on certain governance provisions and its participation in activities and decisions that impact the management and economic performance of the equity method interests.

Interest

Amount

Interest

Amount

($ in millions)

Gulf Coast Express Pipeline LLC

i 16.0

i 291

i 15.0

i 91

EPIC Crude Holdings, LP

i 15.0

i 163

i —

Permian Highway Pipeline LLC

i 26.7

i 311

i —

Shin Oak Pipeline (Breviloba, LLC)

i 33.0

i 493

i —

i 1,258

i 91

As of December 31, 2019 and December 31, 2018, unamortized basis differences included in the equity method interest balances were $ i 30 million and $ i 6 million, respectively. These amounts represent differences in contributions to date and Altus’ underlying equity in the separate net assets within the financial statements of the respective entities. Unamortized basis differences are amortized into net income over the useful lives of the underlying pipeline assets when they are placed into service.

The following table presents the activity in Altus’ equity method interests for the year ended December 31, 2019:

Gulf Coast Express Pipeline LLC

EPIC Crude Holdings, LP

Permian Highway Pipeline LLC

Breviloba, LLC

Total⁽²⁾

(In millions)

Balance at December 31, 2018

i 91

i —

i 91

Acquisitions

i 15

i 52

i 162

i 442

i 671

Capital contributions

i 184

i 123

i 147

i 47

i 501

Distributions

( i 16

)

i —

( i 9

)

( i 25

)

Capitalized interest⁽¹⁾

i —

i 2

i —

i 2

Equity income (loss), net

i 17

( i 11

)

i —

i 13

i 19

Accumulated other comprehensive loss

i —

( i 1

)

i —

( i 1

)

Balance at December 31, 2019

i 291

i 163

i 311

i 493

i 1,258


(1)	Altus’ proportionate share of the Permian Highway Pipeline (PHP) construction costs is funded with Altus’ revolving credit facility. Accordingly, Altus capitalized $ i 2 million of related interest expense, which is included in the basis of the PHP equity interest.


(2)	At December 31, 2019, consolidated retained earnings, net of amortized basis differences, included $ i 5 million related to undistributed earnings of equity method investments.

Summarized Combined Financial Information

The following presents summarized combined statement of operations information for Altus’ equity method interests (on a 100 percent basis):



	For the Year Ended December 31,
	2019⁽¹⁾			2018⁽¹⁾
	(In millions)
Operating revenues	$	i 302		$	i 2
Operating expenses	i 181			i 8
Operating income (loss)	i 121			( i 6		)
Net income (loss)	i 115			( i 6		)
Other comprehensive loss	( i 8		)	i —


(1)	The financial results for all equity method interests are presented for the entire twelve months for both periods for comparability.

F-26

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following presents summarized combined balance sheet information for Altus’ equity method interests (on a 100 percent basis):



	December 31,
	2019		2018
	(In millions)
Current assets	$	i 441	$	i 451
Noncurrent assets	i 6,431		i 2,377
Total assets	$	i 6,872	$	i 2,828

Current liabilities	$	i 478	$	i 805
Noncurrent liabilities	i 958		i 1
Equity	i 5,436		i 2,022
Total liabilities and equity	$	i 6,872	$	i 2,828

As of December 31, 2018, Apache also held an investment in Marine Well Containment Company. This investment was sold in the first quarter of 2019 for $ i 30 million, with i no gain or loss recorded on the sale.

7. i OTHER CURRENT LIABILITIES

The following table provides detail of the Company’s other current liabilities at December 31, 2019 and 2018:



	December 31,
	2019		2018
	(In millions)
Accrued operating expenses	$	i 143	$	i 65
Accrued exploration and development	i 319		i 667
Accrued gathering, processing, and transmission - Altus	i 17		i 81
Accrued compensation and benefits	i 212		i 177
Accrued interest	i 135		i 137
Accrued income taxes	i 51		i 58
Current asset retirement obligation	i 47		i 66
Current operating lease liability	i 169		i —
Other	i 56		i 90
Total Other current liabilities	$	i 1,149	$	i 1,341

F-27

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8. i ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the years ended December 31, 2019 and 2018:



	2019			2018
	(In millions)
Asset retirement obligation at beginning of year	$	i 1,932		$	i 1,835
Liabilities incurred	i 41			i 51
Liabilities divested	( i 56		)	i —
Liabilities settled	( i 56		)	( i 52		)
Accretion expense	i 107			i 108
Revisions in estimated liabilities	( i 110		)	( i 10		)
Asset retirement obligation at end of year	i 1,858			i 1,932
Less current portion	( i 47		)	( i 66		)
Asset retirement obligation, long-term	$	i 1,811		$	i 1,866

The ARO liability reflects the estimated present value of the amount of dismantlement, removal, site reclamation, and similar activities associated with Apache’s oil and gas properties and other long-lived assets. The Company utilizes current retirement costs to estimate the expected cash outflows for retirement obligations. The Company estimates the ultimate productive life of the properties, a risk-adjusted discount rate, and an inflation factor in order to determine the current present value of this obligation. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property or other long-lived asset balance.

During 2019 and 2018, the Company recorded $ i 41 million and $ i 51 million, respectively, in abandonment liabilities resulting from Apache’s exploration and development capital program. Liabilities settled primarily relate to individual properties, platforms, and facilities plugged and abandoned during the period. During 2019, approximately $ i 110 million net abandonment costs were revised downward to reflect changes in estimates of timing and costs, primarily in the North Sea. During 2018, approximately $ i 10 million of abandonment costs were revised downward, primarily in the U.S. and North Sea.

F-28

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. i DEBT AND FINANCING COSTS

Overview

All of the Company’s debt is senior unsecured debt and has equal priority with respect to the payment of both principal and interest. All indentures for the notes and debentures described below place certain restrictions on the Company, including limits on Apache’s ability to incur debt secured by certain liens. Certain of these indentures also restrict the Company’s ability to enter into certain sale and leaseback transactions and give holders the option to require the Company to repurchase outstanding notes and debentures upon certain changes in control. None of the indentures contain prepayment obligations in the event of a decline in credit ratings.

In January 2017, the Company purchased and canceled $ i 69 million aggregate principal amount of senior notes for $ i 71 million in cash, including accrued interest and $ i 1 million of premium, which completed the open market $ i 250 million repurchase program initiated in 2016. These repurchases resulted in a $ i 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 2018, Apache closed an offering of $ i 1.0 billion in aggregate principal amount of senior unsecured i 4.375% notes due October 15, 2028. The notes are redeemable at any time, in whole or in part, at Apache’s option, subject to a make-whole premium. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers, repay notes that matured in September 2018, and for general corporate purposes.

Also in August 2018, Apache closed cash tender offers for certain outstanding notes. Apache accepted for purchase $ i 731 million aggregate principal amount of certain notes covered by the tender offers. Apache paid holders an aggregate of approximately $ i 828 million reflecting principal, the discount to par, early tender premium, and accrued and unpaid interest. The Company recorded a net loss of $ i 94 million on extinguishment of debt, including $ i 5 million of unamortized debt issuance costs and discount, in connection with the note purchases.

On June 19, 2019, Apache closed offerings of $ i 1.0 billion in aggregate principal amount of senior unsecured notes, comprised of $ i 600 million in aggregate principal amount of i 4.250% notes due January 15, 2030 and $ i 400 million in aggregate principal amount of i 5.350% notes due July 1, 2049. The notes are redeemable at any time, in whole or in part, at Apache’s option, subject to a make-whole premium. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers and for general corporate purposes.

On June 21, 2019, the Company closed cash tender offers for certain outstanding notes. Apache accepted for purchase $ i 932 million aggregate principal amount of certain notes covered by the tender offers. Apache paid holders an aggregate of approximately $ i 1.0 billion reflecting principal, the net premium to par, early tender premium, and accrued and unpaid interest. The Company recorded a net loss of $ i 75 million on extinguishment of debt, including $ i 7 million of unamortized debt issuance costs and discount, in connection with the note purchases.

F-29

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table presents the carrying value of the Company’s debt at December 31, 2019 and 2018:



	December 31,
	2019			2018
	(In millions)
Commercial paper	$	i —		$	i —
7.625% notes due 2019⁽¹⁾	i —			i 150
3.625% notes due 2021⁽²⁾	i 293			i 393
3.25% notes due 2022⁽²⁾	i 463			i 687
2.625% notes due 2023⁽²⁾	i 181			i 403
7.7% notes due 2026	i 79			i 79
7.95% notes due 2026	i 133			i 133
4.375% notes due 2028⁽²⁾	i 1,000			i 1,000
7.75% notes due 2029⁽²⁾⁽³⁾	i 247			i 300
4.25% notes due 2030⁽²⁾	i 600			i —
6.0% notes due 2037⁽²⁾	i 467			i 800
5.1% notes due 2040⁽²⁾	i 1,499			i 1,499
5.25% notes due 2042⁽²⁾	i 500			i 500
4.75% notes due 2043⁽²⁾	i 1,413			i 1,413
4.25% notes due 2044⁽²⁾	i 753			i 753
7.375% debentures due 2047	i 150			i 150
5.35% notes due 2049⁽²⁾	i 400			i —
7.625% debentures due 2096	i 39			i 39
Notes and debentures before unamortized discount and debt issuance costs⁽⁴⁾	i 8,217			i 8,299
Altus credit facility⁽⁵⁾	i 396			i —
Finance lease obligations	i 48			i 40
Unamortized discount	( i 42		)	( i 44		)
Debt issuance costs	( i 53		)	( i 51		)
Total debt	i 8,566			i 8,244
Current maturities	( i 11		)	( i 151		)
Long-term debt	$	i 8,555		$	i 8,093


(1)	On July 1, 2019, Apache’s i 7.625% senior notes due 2019 in original principal amount of $ i 150 million matured and were repaid.


(2)	These notes are redeemable, as a whole or in part, at Apache’s option, subject to a make-whole premium, except that the i 7.75% notes due 2029 are only redeemable as whole for principal and accrued interest in the event of certain Canadian tax law changes. The remaining notes and debentures are not redeemable.


(3)	Assumed by Apache in August 2017 as permitted by terms of these notes originally issued by a subsidiary and guaranteed by Apache. Since these notes historically have been included in Apache’s long-term debt, the assumption did not change Apache’s long-term debt or total debt.


(4)	The fair value of the Company’s notes and debentures was $ i 8.4 billion and $ i 7.8 billion as of December 31, 2019 and 2018, respectively. 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).


(5)	The carrying amount of borrowings by Altus Midstream LP on its credit facility approximate fair value because the interest rates are variable and reflective of market rates.

Maturities for the Company’s notes and debentures excluding discount and debt issuance costs as of December 31, 2019 are as follows:



	(In millions)
2020	$	i —
2021	i 293
2022	i 463
2023	i 181
2024	i —
Thereafter	i 7,280
Notes and debentures, excluding discounts and debt issuance costs	$	i 8,217

F-30

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Money Market and Overdraft Lines of Credit

The Company has certain uncommitted money market and overdraft lines of credit that are used from time to time for working capital purposes. As of December 31, 2019 and 2018, there were i no outstanding balances on Apache’s lines of credit.

Unsecured Committed Bank Credit Facilities

In March 2018, Apache entered into a revolving credit facility with commitments totaling $ i 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 $ i 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 $ i 3.0 billion, of which $ i 2.08 billion was committed as of December 31, 2019. The facility is for general corporate purposes and committed borrowing capacity fully supports Apache’s commercial paper program. Letters of credit are available for security needs, including in respect of abandonment obligations assumed in various North Sea acquisitions. As of December 31, 2019, there were i no borrowings or letters of credit outstanding under this facility. As of December 31, 2018, letters of credit aggregating approximately £ i 112.5 million and no borrowings were outstanding under this facility. In February 2019, £ i 109.4 million of these letters of credit no longer were required and were terminated. In connection with entry into this facility, Apache terminated $ i 3.5 billion and £ i 900 million in commitments under i two former credit facilities and wrote off $ i 4 million of associated debt issuance costs, which is included in “Financing costs, net” in the Company’s consolidated statement of operations.

At Apache’s option, the interest rate per annum for borrowings under the 2018 facility is either a base rate, as defined, plus a margin, or the London Inter-bank Offered Rate (LIBOR), plus a margin. Apache also pays quarterly a facility fee at a per annum rate on total commitments. The margins and the facility fee vary based upon the Company’s senior long-term debt rating. At December 31, 2019, the base rate margin was i 0.075 percent, the LIBOR margin was i 1.075 percent, and the facility fee was i 0.175 percent. A commission is payable quarterly to lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks.

The financial covenants of the 2018 credit facility require Apache to maintain an adjusted debt-to-capital ratio of not greater than i 60 percent at the end of any fiscal quarter. For purposes of this calculation, capital excludes the effects of non-cash write-downs, impairments, and related charges occurring after June 30, 2015.

The 2018 facility’s negative covenants restrict the ability of Apache and its subsidiaries to create liens securing debt on its hydrocarbon-related assets, with exceptions for liens typically arising in the oil and gas industry; liens securing debt incurred to finance the acquisition, construction, improvement, or capital lease of assets, provided that such debt, when incurred, does not exceed the subject purchase price and costs, as applicable, and related expenses; liens on subsidiary assets located outside of the United States and Canada; and liens arising as a matter of law, such as tax and mechanics’ liens. Apache also may incur liens on assets if debt secured thereby does not exceed i 15 percent of Apache’s consolidated net tangible assets, or approximately $ i 2.4 billion as of December 31, 2019. Negative covenants also restrict Apache’s ability to merge with another entity unless it is the surviving entity, dispose of substantially all of its assets, and guarantee debt of non-consolidated entities in excess of the stated threshold.

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 i two, one-year extension options). The agreement for this facility, as amended, provides aggregate commitments from a syndicate of banks of $ i 800 million. All aggregate commitments include a letter of credit subfacility of up to $ i 100 million and a swingline loan subfacility of up to $ i 100 million. Altus Midstream LP may increase commitments up to an aggregate $ i 1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of December 31, 2019, there were $ i 396 million of borrowings and i no letters of credit outstanding under this facility. There were i no outstanding borrowings or letters of credit under this facility as of December 31, 2018.

The agreement for Altus Midstream LP’s credit facility, as amended, restricts distributions in respect of capital to Apache and other unit holders in certain circumstances. Unless the Leverage Ratio is less than or equal to i 4.00:1.00, the agreement limits such distributions to $ i 30 million per calendar year until either (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the agreement, for three consecutive calendar months equals or exceeds $ i 350.0 million on an annualized basis or (ii) Altus Midstream LP has a specified senior long-term debt rating; in addition, before the occurrence of one of those two events, the Leverage Ratio must be less than or equal to i 5.00:1.00. In no event can any distribution be made that would, after giving effect to it on a pro forma basis, result in a Leverage Ratio greater than (i) i 5.00:1.00 or (ii) for a specified period after a qualifying acquisition, i 5.50:1.00. The Leverage Ratio is the ratio of (1) the consolidated indebtedness of Altus Midstream LP and its restricted subsidiaries to (2) EBITDA (as defined in the agreement) of Altus Midstream LP and its

F-31

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

restricted subsidiaries for the 12-month period ending immediately before the determination date. The Leverage Ratio as of December 31, 2019 was less than i 4.00:1.00.

The Altus Midstream LP credit facility is unsecured and is not guaranteed by Apache or any of Apache’s other subsidiaries.

Commercial Paper Program

As of December 31, 2019, Apache has available a $ i 3.5 billion commercial paper program which, subject to market availability, facilitates Apache borrowing funds for up to i 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under Apache’s 2018 $ i 4.0 billion committed credit facility. At December 31, 2019 and 2018, Apache had i no commercial paper outstanding.

Financing Costs, Net

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

For the Year Ended December 31,

2019

2018

2017

(In millions)

Interest expense

i 430

i 441

i 457

Amortization of debt issuance costs

i 7

i 9

Capitalized interest

( i 37

)

( i 44

)

( i 51

)

Loss on extinguishment of debt

i 75

i 94

i 1

Interest income

( i 13

)

( i 22

)

( i 19

)

Financing costs, net

i 462

i 478

i 397

As of December 31, 2019, the Company has $ i 42 million of debt discounts, which will be charged to interest expense over the life of the related debt issuances. Discount amortization of $ i 2 million was recorded as interest expense in 2019 and $ i 3 million in each of 2018 and 2017.

F-32

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10. i INCOME TAXES

Income (loss) before income taxes is composed of the following:



	For the Year Ended December 31,
	2019			2018			2017
	(In millions)
U.S.	$	( i 4,397	)	$	( i 723	)	$	( i 3,620	)
Foreign	i 1,389			i 1,681			i 4,538
Total	$	( i 3,008	)	$	i 958		$	i 918

/ i

The total income tax provision (benefit) consists of the following:

For the Year Ended December 31,

2019

2018

2017

(In millions)

Current income taxes:

Federal

i 1

( i 1

)

( i 38

)

State

i —

( i 8

)

Foreign

i 659

i 895

i 641

i 660

i 894

i 595

Deferred income taxes:

Federal

i 67

( i 65

)

( i 1,010

)

State

i —

i 2

i —

Foreign

( i 53

)

( i 159

)

( i 170

)

i 14

( i 222

)

( i 1,180

)

Total

i 674

i 672

( i 585

)

The total income tax provision (benefit) differs from the amounts computed by applying the U.S. statutory income tax rate to income (loss) before income taxes. i A reconciliation of the tax on the Company’s income (loss) before income taxes and total tax expense is shown below:

For the Year Ended December 31,

2019

2018

2017

(In millions)

Income tax expense (benefit) at U.S. statutory rate

( i 631

)

i 201

i 321

State income tax, less federal effect⁽¹⁾

i 1

i 2

( i 6

)

Taxes related to foreign operations

i 328

i 436

( i 105

)

Tax credits

( i 6

)

( i 13

)

( i 33

)

Tax on deemed repatriation of foreign earnings

i —

i 103

i 419

Foreign tax credits

i —

( i 336

)

( i 201

)

Deferred tax on undistributed foreign earnings

i —

( i 1,872

)

Change in U.S. tax rate

i —

i 161

i 516

Net change in tax contingencies

i 1

( i 2

)

( i 1

)

Sale of Canadian assets

i —

i 279

Sale of North Sea assets

i —

( i 30

)

( i 48

)

Valuation allowances⁽¹⁾

i 972

i 118

i 161

All other, net

i 9

i 32

( i 15

)

i 674

i 672

( i 585

)


(1)	The change in state valuation allowance is included as a component of state income tax.

F-33

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The net deferred income tax liability reflects the net tax impact of temporary differences between the asset and liability amounts carried on the balance sheet under GAAP and amounts utilized for income tax purposes. i The net deferred income tax liability consists of the following:



	December 31,
	2019			2018
	(In millions)
Deferred tax assets:
U.S. and state net operating losses	$	i 2,108		$	i 1,633
Capital losses	i 626			i 636
Tax credits and other tax incentives	i 32			i 39
Foreign tax credits	i 2,241			i 2,241
Accrued expenses and liabilities	i 97			i 117
Asset retirement obligation	i 618			i 649
Equity investments	i —			i 4
Investment in Altus Midstream LP	i 107			i —
Net interest expense limitation	i 162			i 65
Lease liability	i 108			i —
Other	i 88			i 97
Total deferred tax assets	i 6,187			i 5,481
Valuation allowance	( i 4,959		)	( i 3,947		)
Net deferred tax assets	i 1,228			i 1,534
Deferred tax liabilities:
Deferred income	i 1			i 10
Investment in Altus Midstream LP	i —			i 73
Property and equipment	i 1,432			i 1,747
Right-of-use asset	i 106			i —
Other	i 6			i 4
Total deferred tax liabilities	i 1,545			i 1,834
Net deferred income tax liability	$	i 317		$	i 300

Net deferred tax assets and liabilities are included in the consolidated balance sheet as follows:



	December 31,
	2019		2018
	(In millions)
Assets:
Deferred charges and other	$	i 29	$	i 91
Liabilities:
Deferred income taxes	i 346		i 391
Net deferred income tax liability	$	i 317	$	i 300

On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA) was signed into law. In addition to reducing the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018, certain provisions in the TCJA move the U.S. away from a worldwide tax system and closer to a territorial system for earnings of foreign corporations, establishing a participation exemption system for taxation of foreign income. The new law includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers were required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder. In 2017, the Company recorded a $ i 419 million provisional deferred tax expense attributable to the deemed repatriation of foreign earnings required under the TCJA.

F-34

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Also on December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (SAB 118) which provides guidance for the application of ASC Topic 740, Income Taxes, for the income tax effects of the TCJA. SAB 118 provides a measurement period which should not extend beyond one year of the enactment date of the TCJA. In 2018, the Company recorded an additional $ i 103 million deferred tax expense attributable to the deemed repatriation of foreign earnings. This deferred tax expense combined with the provisional amount recorded in 2017 were fully offset by available foreign tax credits. Additional guidance issued by the Internal Revenue Service in 2018 clarified, among other things, the ability for taxpayers generating current tax losses to utilize foreign tax credits to fully offset taxes attributable to the deemed repatriation of foreign earnings, rather than utilizing 2017 current year losses. In light of the new guidance, the Company increased its 2017 net operating losses by $ i 1.2 billion, which resulted in incremental $ i 161 million deferred tax expense associated with the remeasurement of the 2017 net operating loss deferred tax asset from 35 percent to 21 percent. The Company completed its analysis of the income tax effects of the TCJA in the fourth quarter of 2018.

The Company has recorded an increase in valuation allowance against certain deferred tax assets, primarily driven by asset impairments. The Company has assessed the future potential to realize these deferred tax assets and has concluded that it is more likely than not that these deferred tax assets will not be realized based on current economic conditions and expectations for the future.

In 2019, 2018, and 2017, the Company’s valuation allowance increased by $ i 1.0 billion, increased by $ i 131 million, and decreased by $ i 1.6 billion, respectively, as detailed in the table below:

2019

2018

2017

(In millions)

Balance at beginning of year

i 3,947

i 3,816

i 5,401

State⁽¹⁾

i 41

i 15

i 139

U.S.

i 971

i 124

i 905

Foreign⁽²⁾

i —

( i 8

)

( i 2,629

)

Balance at end of year

i 4,959

i 3,947

i 3,816


(1)	Reported as a component of state income taxes.


(2)	In 2017, the Company completed the sale of its Canadian assets. As such, except for capital losses incurred on the sale, the deferred tax assets, liabilities, and valuation allowance related to these assets were removed for 2017.

On December 31, 2019, the Company had net operating losses as follows:



	Amount		Expiration
	(In millions)
Net operating losses:
U.S.	$	i 8,052	2019 - Indefinite
State	i 6,090		Various

The Company has a U.S. net operating loss carryforward of $ i 8.1 billion, which includes $ i 196 million of net operating loss subject to annual limitation under Section 382 of the Internal Revenue Code (Code). Net operating losses generated in tax years beginning after 2017 are subject to an 80 percent taxable income limitation with indefinite carryover under the TCJA. The Company also has a net interest expense carryover of $ i 735 million under Section 163(j) of the Code subject to indefinite carryover, a U.S. capital loss carryforward of $ i 1.8 billion, which has a five year carryover period expiring in 2023 and a Canadian capital loss carryforward of $ i 836 million which has an indefinite carryover. The Company has recorded a full valuation allowance against the U.S. net operating losses, the state net operating losses, the net interest expense carryover, the U.S. capital loss, and the Canadian capital loss because it is probable that these attributes will not be realized.

On December 31, 2019, the Company had foreign tax credits as follows:

F-35

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company has a $ i 2.2 billion U.S. foreign tax credit carryforward. The Company has recorded a full valuation allowance against the U.S. foreign tax credits listed above because it is probable that these attributes will expire unutilized.

The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes,” which prescribes a minimum recognition threshold a tax position must meet before being recognized in the financial statements. Tax positions generally refer to a position taken in a previously filed income tax return or expected to be included in a tax return to be filed in the future that is reflected in the measurement of current and deferred income tax assets and liabilities. i A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

2019

2018

2017

(In millions)

Balance at beginning of year

i 24

i 26

i 15

Additions based on tax positions related to prior year

i 49

i —

Additions based on tax positions related to the current year

i 9

i —

i 12

Reductions for tax positions of prior years

i —

( i 2

)

( i 1

)

Balance at end of year

i 82

i 24

i 26

The Company records interest and penalties related to unrecognized tax benefits as a component of income tax expense. Each quarter the Company assesses the amounts provided for and, as a result, may increase or reduce the amount of interest and penalties. During the years ended December 31, 2019, 2018, and 2017, the Company recorded tax expense of $ i 1 million, $ i 1 million, and i nil, respectively, for interest and penalties. At December 31, 2019, 2018, and 2017, the Company had an accrued liability for interest and penalties of $ i 2 million, $ i 1 million, and i nil, respectively.

In 2019, 2018, and 2017, the Company recorded a $ i 58 million net increase, $ i 2 million net reduction, and an $ i 11 million net increase, respectively, in its reserve for uncertain tax positions. The 2019 increase of unrecognized tax benefits is primarily related to the Company’s interpretation of certain proposed regulations issued since the passage of the TCJA. The Company is currently under IRS audit for the 2014 through 2017 tax years.

Apache and its subsidiaries are subject to U.S. federal income tax as well as income tax in various states and foreign jurisdictions. The Company’s uncertain tax positions are related to tax years that may be subject to examination by the relevant taxing authority. Apache’s earliest open tax years in its key jurisdictions are as follows:

Jurisdiction



U.S.	2014
Egypt	2005
U.K.	2018

F-36

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. i 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 December 31, 2019, the Company has an accrued liability of approximately $ i 21 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.

Argentine Claims

On March 12, 2014, the Company and its subsidiaries completed the sale of all of the Company’s subsidiaries’ operations and properties in Argentina to YPF Sociedad Anonima (YPF). As part of that sale, YPF assumed responsibility for all of the past, present, and future litigation in Argentina involving Company subsidiaries, except that Company subsidiaries have agreed to indemnify YPF for certain environmental, tax, and royalty obligations capped at an aggregate of $ i 100 million. The indemnity is subject to specific agreed conditions precedent, thresholds, contingencies, limitations, claim deadlines, loss sharing, and other terms and conditions. On April 11, 2014, YPF provided its first notice of claims pursuant to the indemnity. Company subsidiaries have not paid any amounts under the indemnity but will continue to review and consider claims presented by YPF. Further, Company subsidiaries retain the right to enforce certain Argentina-related indemnification obligations against Pioneer Natural Resources Company (Pioneer) in an amount up to $ i 45 million pursuant to the terms and conditions of stock purchase agreements entered in 2006 between Company subsidiaries and subsidiaries of Pioneer.

Louisiana Restoration

Louisiana surface owners often file lawsuits or assert claims against oil and gas companies, including Apache, claiming that operators and working interest owners in the chain of title are liable for environmental damages on the leased premises, including damages measured by the cost of restoration of the leased premises to its original condition, regardless of the value of the underlying property. From time to time restoration lawsuits and claims are resolved by the Company for amounts that are not material to the Company, while new lawsuits and claims are asserted against the Company. With respect to each of the pending lawsuits and claims, the amount claimed is not currently determinable or is not material. Further, the overall exposure related to these lawsuits and claims is not currently determinable. While an adverse judgment against the Company is possible, the Company intends to actively defend these lawsuits and claims.

Starting in November of 2013 and continuing into 2019, several parishes in Louisiana have pending lawsuits against many oil and gas producers, including Apache. These cases were all removed to federal courts in Louisiana. Some of the cases have been remanded to state court with the remand orders being appealed. Other of the cases have been stayed pending appeal. 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 law within the coastal zone, the payment of costs necessary to clear, re-vegetate, detoxify, and otherwise restore the subject coastal zone as near as practicable to its original condition, and actual restoration of the coastal zone to its original condition. While an adverse judgment against the Company is possible, the Company intends to vigorously oppose these claims.

Apollo Exploration Lawsuit

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 alleged damages in excess of $ i 200 million (having previously claimed in excess of $ i 1.1 billion) relating to 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 entered final judgment in favor of the Company, ruling that the plaintiffs take nothing by their claims and awarding the Company its attorneys’ fees and costs incurred in defending the lawsuit. The plaintiffs have appealed.

F-37

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Australian Operations Divestiture Dispute

Pursuant to a Sale and Purchase 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 $ i 80 million. In December 2017, Quadrant filed a defense of equitable set-off to Apache’s claim and a counterclaim seeking approximately AUD $ i 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, four 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 Company 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 $ i 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 Litigation

On July 17, 2017, in three separate actions, San Mateo County, California, Marin County, California, and the City of Imperial Beach, California, all filed suit individually and on behalf of the people of the state of California against over 30 oil, gas, and coal companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories. On December 20, 2017, in two 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. The Company believes that the claims made against it 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 $ i 200 million, relating to overspend on the Belle Isle Gas Facility upgrade, and the drilling of five sidetracks on the Potomac #3 Well. After a jury trial, a verdict of approximately $ i 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 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 the appeal of the certification was recently denied. The case includes a class of royalty owners seeking damages of over $ i 100 million for alleged breach of the implied covenant to market relating to post-production deductions and NGL uplift value. The Allen case has not been certified and seeks to represent a group of owners who have allegedly received late payments under Oklahoma statutes. The amount of this claim is not yet reasonably determinable. While an adverse judgment against the Company is possible, the Company intends to vigorously defend these lawsuits and claims.

Environmental Matters

The Company, as an owner or lessee and operator of oil and gas properties, is subject to various federal, state, local, and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. The Company maintains insurance coverage, which it believes is customary in the industry, although the Company is not fully insured against all environmental risks.

Apache manages its exposure to environmental liabilities on properties to be acquired by identifying existing problems and assessing the potential liability. The Company also conducts periodic reviews, on a Company-wide basis, to identify changes in

F-38

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

its environmental risk profile. These reviews evaluate whether there is a probable liability, the amount, and the likelihood that the liability will be incurred. The amount of any potential liability is determined by considering, among other matters, incremental direct costs of any likely remediation and the proportionate cost of employees who are expected to devote a significant amount of time directly to any possible remediation effort. As it relates to evaluations of purchased properties, depending on the extent of an identified environmental problem, the Company may exclude a property from the acquisition, require the seller to remediate the property to Apache’s satisfaction, or agree to assume liability for the remediation of the property. The Company’s general policy is to limit any reserve additions to any incidents or sites that are considered probable to result in an expected remediation cost exceeding $ i 300,000. Any environmental costs and liabilities that are not reserved for are treated as an expense when actually incurred. In Apache’s estimation, neither these expenses nor expenses related to training and compliance programs are likely to have a material impact on its financial condition.

As of December 31, 2019, the Company had an undiscounted reserve for environmental remediation of approximately $ i 2 million. The Company is not aware of any environmental claims existing as of December 31, 2019 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.

Leases and Contractual Obligations

On January 1, 2019, Apache adopted ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize separate right-of-use (ROU) assets and lease liabilities for most leases classified as operating leases under previous GAAP. Prior to adoption, the FASB issued transition guidance permitting an entity the option to not evaluate under ASU 2016-02 those existing or expired land easements that were not previously accounted for as leases, as well as an option to apply the provisions of the new standard at its adoption date instead of the earliest comparative period presented in the financial statements. Apache elected both transitional practical expedients. Under these transition options, comparative reporting was not required, and the provisions of the standard were applied prospectively to leases in effect at the date of adoption.

As allowed under the standard, the Company also applied practical expedients to carry forward its historical assessments of whether existing agreements contain a lease, classification of existing lease agreements, and treatment of initial direct lease costs. Apache also elected to exclude short-term leases (those with terms of 12 months or less) from the balance sheet presentation and accounts for non-lease and lease components as a single lease component for all asset classes. Short-term lease expense in 2019 was $ i 18 million, primarily related to drilling activities in Block 58 offshore Suriname.

The Company determines if an arrangement is an operating or finance lease at the inception of each contract. If the contract is classified as an operating lease, Apache records an ROU asset and corresponding liability reflecting the total remaining present value of fixed lease payments over the expected term of the lease agreement. The expected term of the lease may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. If the Company’s lease does not provide an implicit rate in the contract, the Company uses its incremental borrowing rate when calculating the present value. In the normal course of business, Apache enters into various lease agreements for real estate, drilling rigs, vessels, aircraft, and equipment related to its exploration and development activities, which are typically classified as operating leases under the provisions of the standard. ROU assets are reflected within “Deferred charges and other” within “Other” assets on the Company’s consolidated balance sheet, and the associated operating lease liabilities are reflected within “Other current liabilities” and “Other” within “Deferred Credits and Other Noncurrent Liabilities,” as applicable.

Operating lease expense associated with ROU assets is recognized on a straight-line basis over the lease term. Lease expense is reflected on the statement of consolidated operations commensurate with the leased activities and nature of the services performed. Gross fixed operating lease expense, inclusive of amounts billable to partners and other working interest owners, was $ i 222 million in 2019.

In addition, the Company periodically enters into finance leases that are similar to those leases classified as capital leases under previous GAAP. Finance lease assets are included in “Other” within “Property and Equipment” on the consolidated balance sheet, and the associated finance lease liabilities are reflected within “Current debt” and “Long-term debt,” as applicable. Prior periods include the reclassification of $ i 39 million finance lease obligations from “Other” within “Deferred Credits and Other Noncurrent Liabilities” to “Long-term debt” on the Company’s consolidated balance sheet to conform with this presentation. There was no material impact to the Company’s statement of consolidated operations and statement of consolidated cash flows for its treatment of finance leases. Depreciation on the Company’s finance lease assets was $ i 7 million in 2019. Interest on the Company’s finance lease assets was $ i 3 million in 2019.

F-39

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table represents the Company’s weighted average lease term and discount rate as of December 31, 2019:

/ i i i

At December 31, 2019, contractual obligations for long-term operating leases, finance leases, and purchase obligations are as follows:

Net Minimum Commitments⁽¹⁾

Operating Leases⁽²⁾

Finance Leases⁽³⁾

Purchase Obligations⁽⁴⁾⁽⁵⁾

(In millions)

2020

i 165

i 13

i 152

2021

i 82

i 3

i 191

2022

i 50

i 3

i 181

2023

i 33

i 3

i 213

2024

i 27

i 3

i 195

Thereafter

i 32

i 37

i 910

Total future minimum payments

i 389

i 62

i 1,842

Less: imputed interest

( i 23

)

( i 14

)

N/A

Total lease liabilities

i 366

i 48

N/A

Current portion

i 169

i 11

N/A

Non-current portion

i 197

i 37

N/A


(1)	Excludes commitments for jointly owned fields and facilities for which the Company is not the operator.


(2)	Amounts represent future payments associated with oil and gas operations inclusive of amounts billable to partners and other working interest owners. Such payments may be capitalized as a component of oil and gas properties and subsequently depreciated, impaired, or written off as exploration expense.


(3)	Amounts represent the Company’s finance lease obligation related to physical power generators being leased on a one-year term with the right to purchase and a separate lease for the Company’s Midland, Texas regional office building.

(4)

Amounts represent any agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms. These include minimum commitments associated with take-or-pay contracts, NGL processing agreements, drilling work program commitments, and agreements to secure capacity rights on third-party pipelines. Amounts exclude certain product purchase obligations related to marketing and trading activities for which there are no minimum purchase requirements or the amounts are not fixed or determinable. Total costs incurred under take-or-pay and throughput obligations were $ i 111 million, $ i 132 million, and $ i 134 million for 2019, 2018, and 2017, respectively.

/ / /


(5)	Subsequent to December 31, 2019, Apache entered into an agreement to assign approximately $ i 171 million of its firm transportation obligations beginning in March 2020.

The lease liability reflected in the table above represents the Company’s fixed minimum payments that are settled in accordance with the lease terms. Actual lease payments during the period may also include variable lease components such as common area maintenance, usage-based sales taxes and rate differentials, or other similar costs that are not determinable at the inception of the lease. Gross variable lease payments, inclusive of amounts billable to partners and other working interest owners in 2019 was $ i 78 million.

F-40

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As a result of e i lecting the transitional practical expedient to apply the provisions of the standard at its adoption date instead of the earliest comparative period presented, below are the required ASU Leases (Topic 840) disclosures for prior periods:



	Operating Leases⁽¹⁾		Finance Leases⁽²⁾
	(In millions)
Year ended December 31, 2018
2019	$	i 61	$	i 1
2020-2021	i 64		i 3
2022-2023	i 53		i 4
2024 & Beyond	i 42		i 32
Total	$	i 220	$	i 40

Year ended December 31, 2017
2018	$	i 54	$	i 1
2019-2020	i 81		i 3
2021-2022	i 57		i 3
2023 & Beyond	i 41		i 34
Total	$	i 233	$	i 41

(1)

Includes leases for buildings, facilities, and related equipment with varying expiration dates through 2042. Amounts represent future payments associated with oil and gas operations inclusive of amounts billable to partners and other working interest owners. Such payments may be capitalized as a component of oil and gas properties and subsequently depreciated, impaired, or written off as exploration expense. Total rent expense, net of amounts capitalized and sublease income was $ i 76 million and $ i 82 million for 2018, and 2017, respectively.


(2)	This represents the Company’s capital lease obligation related to its Midland, Texas office building. The imputed interest rate necessary to reduce the net minimum lease payments to present value of the lease term is i 4.4 percent, or $ i 16 million and $ i 18 million as of December 31, 2018 and December 31, 2017, respectively.

12. i RETIREMENT AND DEFERRED COMPENSATION PLANS

Apache Corporation provides retirement benefits to its U.S. employees through the use of multiple plans: a 401(k) savings plan, a money purchase retirement plan, a non-qualified retirement/savings plan, and a non-qualified restorative retirement savings plan. The 401(k) savings plan provides participating employees the ability to elect to contribute up to i 50 percent of eligible compensation, as defined, to the plan with the Company making matching contributions up to a maximum of i 8 percent of each employee’s annual eligible compensation. In addition, the Company annually contributes i 6 percent of each participating employee’s annual eligible compensation to a money purchase retirement plan. The 401(k) savings plan and the money purchase retirement plan are subject to certain annually-adjusted, government-mandated restrictions that limit the amount of employee and Company contributions. For certain eligible employees, the Company also provides a non-qualified retirement/savings plan or a non-qualified restorative retirement savings plan. These plans allow the deferral of up to i 50 percent of each employee’s base salary, up to i 75 percent of each employee’s annual bonus (that accepts employee contributions) and the Company’s matching contributions in excess of the government mandated limitations imposed in the 401(k) savings plan and money purchase retirement plan.

Vesting in the Company’s contributions in the 401(k) savings plan, the money purchase retirement plan, the non-qualified retirement savings plan and the non-qualified restorative retirement savings plan occurs at the rate of i 20 percent for every completed year of employment. Upon a change in control of ownership of Apache Corporation, immediate and full vesting occurs.

Additionally, Apache North Sea Limited maintains a separate retirement plan, as required under the laws of the U.K.

The aggregate annual cost to Apache of all U.S. and international savings plans, the money purchase retirement plan, non-qualified retirement/savings plan, and non-qualified restorative retirement savings plan was $ i 52 million, $ i 52 million, and $ i 55 million for 2019, 2018, and 2017, respectively.

Apache also provides a funded noncontributory defined benefit pension plan (U.K. Pension Plan) covering certain employees of the Company’s North Sea operations in the U.K. The plan provides defined pension benefits based on years of service and final salary. The plan applies only to employees who were part of BP North Sea’s pension plan as of April 2, 2003, prior to the acquisition of BP North Sea by the Company effective July 1, 2003.

Additionally, the Company offers postretirement medical benefits to U.S. employees who meet certain eligibility requirements. Eligible participants receive medical benefits up until the age of 65 or at the date they become eligible for Medicare, provided the participant remits the required portion of the cost of coverage. The plan is contributory with participants’ contributions

F-41

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

adjusted annually. The postretirement benefit plan does not cover benefit expenses once a covered participant becomes eligible for Medicare.

The following tables set forth the benefit obligation, fair value of plan assets and funded status as of December 31, 2019, 2018, and 2017, and the underlying weighted average actuarial assumptions used for the U.K. Pension Plan and U.S. postretirement benefit plan. Apache uses a measurement date of December 31 for its pension and postretirement benefit plans.

2019

2018

2017

Pension

Benefits

Postretirement

Benefits

Pension

Benefits

Postretirement

Benefits

Pension

Benefits

Postretirement

Benefits

(In millions)

Change in Projected Benefit Obligation

Projected benefit obligation at beginning of year

i 187

i 27

i 216

i 27

i 202

i 26

Service cost

i 3

i 2

i 4

i 2

i 4

i 2

Interest cost

i 5

i 1

i 5

i 1

i 6

i 1

Foreign currency exchange rates

i 7

i —

( i 11

)

i —

i 20

i —

Actuarial losses (gains)

i 15

( i 9

)

( i 11

)

( i 2

)

( i 4

)

i 1

Plan settlements

( i 14

)

i —

( i 11

)

i —

Benefits paid

( i 4

)

( i 2

)

( i 5

)

( i 3

)

( i 12

)

( i 4

)

Retiree contributions

i —

i 1

i —

i 2

i —

i 1

Projected benefit obligation at end of year

i 199

i 20

i 187

i 27

i 216

i 27

Change in Plan Assets

Fair value of plan assets at beginning of year

i 208

i —

i 238

i —

i 206

i —

Actual return on plan assets

i 25

i —

( i 6

)

i —

i 17

i —

Foreign currency exchange rates

i 8

i —

( i 13

)

i —

i 22

i —

Employer contributions

i 5

i 1

i 5

i 2

i 5

i 3

Plan settlements

( i 14

)

i —

( i 11

)

i —

Benefits paid

( i 4

)

( i 2

)

( i 5

)

( i 4

)

( i 12

)

( i 4

)

Retiree contributions

i —

i 1

i —

i 2

i —

i 1

Fair value of plan assets at end of year

i 228

i —

i 208

i —

i 238

i —

Funded status at end of year

i 29

( i 20

)

i 21

( i 27

)

i 22

( i 27

)

Amounts recognized in Consolidated Balance Sheet

Current liability

i —

( i 2

)

i —

( i 2

)

i —

( i 2

)

Non-current asset (liability)

i 29

( i 18

)

i 21

( i 25

)

i 22

( i 25

)

i 29

( i 20

)

i 21

( i 27

)

i 22

( i 27

)

Pre-tax Amounts Recognized in Accumulated Other Comprehensive Income (Loss)

Accumulated gain (loss)

( i 7

)

i 19

( i 13

)

i 10

( i 11

)

i 8

Weighted Average Assumptions used as of December 31

Discount rate

i 2.10

i 3.00

i 2.90

i 4.13

i 2.60

i 3.44

Salary increases

i 4.30

N/A

i 4.70

N/A

i 4.70

N/A

Expected return on assets

i 2.80

N/A

i 2.80

N/A

i 2.90

N/A

Healthcare cost trend

Initial

N/A

i 6.25

N/A

i 6.50

N/A

i 6.75

Ultimate in 2025

N/A

i 5.00

N/A

i 5.00

N/A

i 5.00

F-42

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of December 31, 2019, 2018, and 2017, the accumulated benefit obligation for the U.K. Pension Plan was $ i 181 million, $ i 167 million, and $ i 193 million, respectively.

Apache’s defined benefit pension plan assets are held by a non-related trustee who has been instructed to invest the assets in a blend of equity securities and low-risk debt securities. The Company intends that this blend of investments will provide a reasonable rate of return such that the benefits promised to members are provided. The U.K. Pension Plan policy is to target an ongoing funding level of i 100 percent through prudent investments and includes policies and strategies such as investment goals, risk management practices, and permitted and prohibited investments. i A breakout of previous allocations for plan asset holdings and the target allocation for the Company’s plan assets are summarized below:



	Target Allocation		Percentage of Plan Assets at Year-End
	2019		2019		2018
Asset Category
Equity securities:
Overseas quoted equities	i 22	%	i 23	%	i 22	%
Total equity securities	i 22	%	i 23	%	i 22	%
Debt securities:
U.K. Government bonds	i 62	%	i 62	%	i 62	%
U.K. corporate bonds	i 16	%	i 15	%	i 15	%
Total debt securities	i 78	%	i 77	%	i 77	%
Cash	i —		i —		i 1	%
Total	i 100	%	i 100	%	i 100	%

The plan’s assets do not include any direct ownership of equity or debt securities of Apache. The fair value of plan assets at December 31, 2019 and 2018 are based upon unadjusted quoted prices for identical instruments in active markets, which is a Level 1 fair value measurement. i The following tables present the fair values of plan assets for each major asset category based on the nature and significant concentration of risks in plan assets at December 31, 2019 and December 31, 2018:



	December 31, 2019		December 31, 2018
	(In millions)
Equity securities:
Overseas quoted equities⁽¹⁾	$	i 52	$	i 46
Total equity securities	i 52		i 46
Debt securities:
U.K. Government bonds⁽²⁾	i 140		i 129
U.K. corporate bonds⁽³⁾	i 35		i 32
Total debt securities	i 175		i 161
Cash	i 1		i 1
Fair value of plan assets	$	i 228	$	i 208

(1)

This category includes overseas equities, which comprises i 20 percent passive global equities benchmarked against the MSCI World (NDR) Index, i 25 percent passive global equities (hedged) benchmarked against the MSCI World (NDR) Hedged Index, i 20 percent fundamental indexation global equities benchmarked against the FTSE RAFI Developed 1000 index, i 25 percent fundamental indexation global equities (hedged) benchmarked against the FTSE RAFI Developed 1000 Hedge Index, and i 10 percent emerging markets benchmarked against the MSCI Emerging Markets (NDR) Index, which has a performance target of i 2 percent per annum over the benchmark over a rolling three-year period.


(2)	This category includes U.K. Government bonds, which comprises i 61 percent index-linked gilts benchmarked against the FTSE Actuaries Government Securities Index-Linked Over i 5 Years Index, i 8 percent sterling nominal LDI bonds, and i 31 percent sterling inflation linked LDI bonds, both benchmarked against ILIM Custom Benchmark index.


(3)	This category comprises U.K. corporate bonds benchmarked against the BofAML Sterling Corporate & Collaterlised (excluding Subordinated) Index.

The expected long-term rate of return on assets assumptions are derived relative to the yield on long-dated fixed-interest bonds issued by the U.K. government (gilts). For equities, outperformance relative to gilts is assumed to be i 3.5 percent per year.

F-43

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables set forth the components of the net periodic cost and the underlying weighted average actuarial assumptions used for the pension and postretirement benefit plans as of December 31, 2019, 2018, and 2017:

2019

2018

2017

Pension

Benefits

Postretirement

Benefits

Pension

Benefits

Postretirement

Benefits

Pension

Benefits

Postretirement

Benefits

(In millions)

Components of Net Periodic Benefit Cost

Service cost

i 3

i 2

i 4

i 2

i 4

i 2

Interest cost

i 5

i 1

i 5

i 1

i 6

i 1

Expected return on assets

( i 5

)

i —

( i 7

)

i —

( i 8

)

i —

Amortization of actuarial (gain) loss

i —

( i 1

)

i —

( i 1

)

Settlement loss

i —

i 1

i —

Net periodic benefit cost

i 3

i 2

i 3

i 2

Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost for the Years Ended December 31

Discount rate

i 2.90

i 4.13

i 2.60

i 3.44

i 2.70

i 3.76

Salary increases

i 4.70

N/A

i 4.70

N/A

i 4.80

N/A

Expected return on assets

i 2.80

N/A

i 2.90

N/A

i 3.40

N/A

Healthcare cost trend

Initial

N/A

i 6.50

N/A

i 6.75

N/A

i 7.00

Ultimate in 2025

N/A

i 5.00

N/A

i 5.00

N/A

i 5.00

Assumed health care cost trend rates affect amounts reported for postretirement benefits. i A one-percentage-point change in assumed health care cost trend rates would have the following effects:



	Postretirement Benefits
	1% Increase		1% Decrease
	(In millions)
Effect on service and interest cost components	$	i 1	$	( i 1	)
Effect on postretirement benefit obligation	i 2		( i 1		)

Apache expects to contribute approximately $ i 6 million to its pension plan and $ i 2 million to its postretirement benefit plan in 2020. i The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:



	Pension Benefits		Postretirement Benefits
	(In millions)
2020	$	i 5	$	i 2
2021	i 4		i 2
2022	i 5		i 2
2023	i 6		i 2
2024	i 6		i 2
Years 2025-2029	i 32		i 8

F-44

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


13.	i REDEEMABLE NONCONTROLLING INTEREST - ALTUS

Preferred Units Issuance

On June 12, 2019, Altus Midstream LP issued and sold Series A Cumulative Redeemable Preferred Units (the Preferred Units) for an aggregate issue price of $ i 625 million in a private offering exempt from the registration requirements of the Securities Act of 1933 (the Closing). Altus Midstream LP received approximately $ i 611 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers. Pursuant to the partnership agreement of Altus Midstream LP:


•	The Preferred Units bear quarterly distributions at a rate of i 7 percent per annum, increasing after the fifth anniversary of Closing and upon the occurrence of specified events. Altus Midstream LP may pay distributions in-kind for the first six quarters after the Preferred Units are issued.

•

The Preferred Units are redeemable at Altus Midstream LP’s option at any time in cash at a redemption price (the Redemption Price) equal to the greater of an i 11.5 percent internal rate of return (increasing after the fifth anniversary of Closing to i 13.75 percent) and a i 1.3x multiple of invested capital. The Preferred Units will be redeemable at the holder’s option upon a change of control or liquidation of Altus Midstream LP and certain other events, including certain asset dispositions.

•

The Preferred Units will be exchangeable for shares of ALTM’s Class A common stock at the holder’s election after the seventh anniversary of Closing or upon the occurrence of specified events. Each Preferred Unit will be exchangeable for a number of shares of ALTM’s Class A common stock equal to the Redemption Price divided by the volume-weighted average trading price of ALTM’s Class A common stock on the Nasdaq Capital Market for the i 20 trading days immediately preceding the second trading day prior to the applicable exchange date, less a i 6 percent discount.


•	Each outstanding Preferred Unit has a liquidation preference equal to the Redemption Price payable before any amounts are paid in respect of Altus Midstream LP’s common units and any other units that rank junior to the Preferred Units with respect to distributions or distributions upon liquidation.


•	Preferred Units holders have rights to approve certain partnership business, financial, and governance-related matters.

•

Altus Midstream LP is restricted from declaring or making cash distributions on its common units until all required distributions on the Preferred Units have been paid. In addition, before the fifth anniversary of Closing, aggregate cash distributions on, and redemptions of, Altus Midstream LP’s common units are limited to $ i 650 million of cash from ordinary course operations if permitted under its credit facility. Cash distributions on, and redemptions of, Altus Midstream LP’s common units also are subject to satisfaction of leverage ratio requirements specified in its partnership agreement.

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 $ i 611 million, calculated as the negotiated transaction price of $ i 625 million, less issue discounts of $ i 4 million and transaction costs totaling $ i 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 $ i 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 $ i 103 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, imputed interest rate of Altus, the timing of periodic cash distributions, and dividend yields of the Preferred Units. See Note 4—Derivative Instruments and Hedging Activities for more detail.

F-45

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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	$	i 517
Preferred Units embedded derivative	i 94
	$	i 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 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)(i) the carrying amount of the Preferred Units, plus (ii) the fair value of the embedded derivative liability or (b) the accreted value of the net transaction price.

Activity related to the Preferred Units for the year ended December 31, 2019 is as follows:



	Units Outstanding	Financial Position⁽²⁾
	(In millions, except unit data)
Redeemable noncontrolling interest - Altus Preferred Unit Limited Partners: beginning of period	i —	$	i —
Issuance of Preferred Units, net	i 625,000	i 517
Distribution of in-kind additional Preferred Units⁽¹⁾	i 13,163	i —
Allocation of Altus Midstream LP net income	N/A	i 38
Redeemable noncontrolling interest - Altus Preferred Unit Limited Partners: end of period	i 638,163	i 555
Preferred Units embedded derivative		i 103
		$	i 658

(1)

Subsequent to the balance sheet date, Altus Midstream LP provided notice to the Preferred Unit holders of record at December 31, 2019 of the amount of the distribution on the Preferred Units for the quarter ended December 31, 2019. The holders also were notified that Altus Midstream LP elected to pay the entire amount of the approximate $ i 11 million distribution in-kind in additional Preferred Units (PIK Units) on February 14, 2020. In total, i 11,168 PIK Units were issued in satisfaction of the required distribution.


(2)	As at December 31, 2019, the aggregate Redemption Price was $ i 664 million, based on an internal rate of return of i 11.5 percent.

N/A - not applicable.

F-46

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. CAPITAL STOCK

Common Stock Outstanding

A summary of the shares issued and outstanding for the years ended December 31, 2019, 2018, and 2017 is presented in the table below.



	2019	2018		2017
Balance, beginning of year	i 374,696,222	i 380,954,864		i 379,439,676
Shares issued for stock-based compensation plans:
Treasury shares issued	i 31,701	i 2,454		i 1,411
Common shares issued	i 1,334,747	i 1,566,237		i 1,513,777
Treasury shares acquired	i —	( i 7,827,333	)	i —
Balance, end of year	i 376,062,670	i 374,696,222		i 380,954,864

Net Income (Loss) per Common Share

A reconciliation of the components of basic and diluted net income (loss) per common share for the years ended December 31, 2019, 2018, and 2017 is presented in the table below.



	2019							2018					2017
	Loss			Shares	Per Share			Income		Shares	Per Share		Income		Shares	Per Share
	(In millions, except per share amounts)
Basic:
Income (loss) attributable to common stock	$	( i 3,553	)	i 377	$	( i 9.43	)	$	i 40	i 382	$	i 0.11	$	i 1,304	i 381	$	i 3.42
Effect of Dilutive Securities:
Stock options and other	$	—		i —	$	i —		$	—	i 2	$	i —	$	—	i 2	$	( i 0.01	)
Diluted:
Income (loss) attributable to common stock	$	( i 3,553	)	i 377	$	( i 9.43	)	$	i 40	i 384	$	i 0.11	$	i 1,304	i 383	$	i 3.41

The diluted EPS calculation excludes options and restricted shares that were anti-dilutive totaling i 5.0 million, i 5.6 million, and i 7.3 million for the years ended December 31, 2019, 2018, and 2017, respectively. The impact to net income (loss) attributable to common stock on an assumed conversion of the redeemable noncontrolling Preferred Units interest in Altus Midstream LP were anti-dilutive for the year ended December 31, 2019.

Stock Repurchase Program

In 2013 and 2014, Apache’s Board of Directors authorized the purchase of up to i 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through December 31, 2019, had repurchased a total of i 40 million shares at an average price of $ i 79.18 per share. During the fourth quarter of 2018, the Company’s Board of Directors authorized the purchase of up to i 40 million additional shares of the Company’s common stock. The Company is not obligated to acquire any specific number of shares and did not purchase any shares during 2019.

Common Stock Dividend

For each of the years ended December 31, 2019, 2018, and 2017, the Company paid common stock dividends of $ i 1.00 per share.

F-47

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock Compensation Plans

The Company has several stock-based compensation plans, which include stock options, restricted stock, and conditional restricted stock unit plans. On May 12, 2016, the Company’s shareholders approved the 2016 Omnibus Compensation Plan (the 2016 Plan), which is intended to provide eligible employees with equity-based incentives. The 2016 Plan provides for the granting of Incentive Stock Options, Non-Qualified Stock Options, Performance Awards, Restricted Stock Awards, Restricted Stock Units, Stock Appreciation Rights, Cash Awards, or any combination of the foregoing. A total of i 14.4 million shares were authorized and available for grant under the 2016 Plan as of December 31, 2019. Previously approved plans remain in effect solely for the purpose of governing grants still outstanding that were issued prior to approval of the 2016 Plan. All new grants are issued from the 2016 Plan. In 2018, the Company began issuing cash-settled awards (phantom units) under the restricted stock and conditional restricted stock unit plans. The phantom units represent a hypothetical interest in the Company’s stock and, once vested, are settled in cash.

Costs related to the plans are capitalized or expensed to “Lease operating expenses,” “Exploration,” or “General and administrative” in the Company’s statement of consolidated operations based on the nature of each employee’s activities. i A description of the Company’s stock-settled and cash-settled units compensation plans and related costs follows:

For the Year Ended December 31,

2019

2018

2017

(In millions)

Stock-settled and cash-settled compensation expensed

i 110

i 157

i 142

Stock-settled and cash-settled compensation capitalized

i 28

i 37

i 41

Total stock-settled and cash-settled compensation costs

i 138

i 194

i 183

Stock Options

As of December 31, 2019, the Company had issued options to purchase shares of the Company’s common stock under the 2007 Omnibus Equity Compensation Plan, the 2011 Omnibus Equity Compensation Plan (2011 Plan), and the 2016 Plan (together, the Omnibus Plans). New shares of Company stock will be issued for employee stock option exercises. Under the Omnibus Plans, the exercise price of each option equals the closing price of Apache’s common stock on the date of grant. Options issued prior to 2016 generally become exercisable ratably over a four-year period and expire i 10 years after granted. Options granted in or after 2016 become exercisable ratably over a three-year period and expire i 10 years after granted. The Omnibus Plans were submitted to and approved by the Company’s shareholders.

A summary of stock options issued and outstanding under the Omnibus Plans is presented in the table below for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):

2019

2018

2017

Shares
Under Option

Weighted Average

Exercise Price

Under Option

Weighted Average

Exercise Price

Under Option

Weighted Average

Exercise Price

Outstanding, beginning of year

i 4,872

i 75.95

i 4,593

i 83.36

i 5,113

i 84.89

Granted

i —

i 812

i 45.93

i 490

i 63.25

Exercised

i —

( i 29

)

i 41.79

( i 15

)

i 41.24

Forfeited

( i 80

)

i 34.58

( i 121

)

i 74.58

( i 691

)

i 84.65

Expired

( i 494

)

i 88.82

( i 383

)

i 104.21

( i 304

)

i 76.09

Outstanding, end of year⁽¹⁾

i 4,298

i 75.24

i 4,872

i 75.95

i 4,593

i 83.36

Expected to vest⁽²⁾

i 495

i 49.11

i 1,274

i 48.74

i 947

i 51.83

Exercisable, end of year⁽³⁾

i 3,803

i 78.64

i 3,598

i 85.59

i 3,646

i 91.56


(1)	As of December 31, 2019, options outstanding had a weighted average remaining contractual life of i 4.1 years and i no intrinsic value.


(2)	As of December 31, 2019, options expected to vest had a weighted average remaining contractual life of i 7.8 years and i no intrinsic value.


(3)	As of December 31, 2019, options exercisable had a weighted average remaining contractual life of i 3.6 years and i no intrinsic value.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model, a Level 2 fair value measurement. Assumptions used in the valuation are disclosed in the following table. Expected volatilities are based on historical volatility of the Company’s common stock and other factors. The expected dividend yield is based on historical yields on the date of grant. The expected term of stock options granted represents the period of time that the stock options are

F-48

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

expected to be outstanding and is derived from historical exercise behavior, current trends, and values derived from lattice-based models. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.



	2019	2018			2017
Expected volatility	N/A	i 33.47		%	i 34.58		%
Expected dividend yields	N/A	i 2.16		%	i 1.58		%
Expected term (in years)	N/A	i 6			i 6
Risk-free rate	N/A	i 2.42		%	i 2.02		%
Weighted-average grant-date fair value	N/A	$	i 13.15		$	i 19.38

N/A - not applicable.

There were i no options issued and i no options exercised during 2019. The intrinsic values of options exercised during 2018 and 2017 were approximately $ i 0.1 million and $ i 0.2 million, respectively. As of December 31, 2019, the total compensation cost related to non-vested options not yet recognized was $ i 2 million, which will be recognized over the remaining vesting period of the options.

Restricted Stock Units and Restricted Stock Phantom Units

The Company has restricted stock unit and restricted stock phantom unit (cash-settled) plans for eligible employees including officers. The programs created under the Omnibus Plans have been approved by Apache’s Board of Directors. The value of the stock-settled awards issued is established by the market price on the date of grant and is being recorded as compensation expense ratably over the vesting terms. The cash-settled awards compensation expense is recorded as a liability and remeasured at the end of each reporting period over the vesting terms. The restricted stock phantom units represent a hypothetical interest in either the Company’s stock or in ALTM’s common stock, as applicable, and, once vested, are settled in cash. The cash-settled awards compensation expense is recorded as a liability and remeasured at the end of each reporting period over the vesting terms. During 2019, 2018, and 2017, compensation-expense related to restricted stock units and cash-based units was $ i 104 million, $ i 101 million, and $ i 108 million, respectively. In 2019, 2018, and 2017, $ i 24 million, $ i 29 million, and $ i 35 million were capitalized, respectively.

The following table is a summary of stock-settled restricted stock unit activity for the years ended December 31, 2019, 2018, and 2017 (shares in thousands):

2019

2018

2017

Stock-settled Restricted Stocks Units

Weighted-

Average Grant-

Date Fair Value

Weighted-
Average Grant-
Date Fair Value

Non-vested, beginning of year

i 3,153

i 55.54

i 4,920

i 56.67

i 6,062

i 55.11

Granted

i 1,479

i 36.81

i 608

i 45.59

i 1,948

i 62.74

Vested⁽³⁾

( i 1,899

)

i 53.99

( i 2,023

)

i 55.10

( i 2,288

)

i 58.77

Forfeited

( i 285

)

i 45.06

( i 352

)

i 56.69

( i 802

)

i 55.54

Non-vested, end of year⁽¹⁾⁽²⁾

i 2,448

i 46.65

i 3,153

i 55.54

i 4,920

i 56.67


(1)	As of December 31, 2019, there was $ i 18 million of total unrecognized compensation cost related to i 2,447,910 unvested stock-settled restricted stock units.


(2)	As of December 31, 2019, the weighted-average remaining life of unvested stock-settled restricted stock units is approximately i 0.7 years.


(3)	The grant date fair values of the stock-settled awards vested during 2019, 2018, and 2017 were approximately $ i 103 million, $ i 111 million, and $ i 135 million, respectively.

The following table is a summary of cash-settled restricted stock phantom unit activity for the years ended December 31, 2019 and 2018 (in thousands):



Cash-settled Restricted Stock Phantom Units⁽¹⁾	2019		2018
Non-vested, beginning of year	i 1,818		i 59
Granted⁽²⁾	i 4,831		i 1,973
Vested	( i 616	)	( i 38	)
Forfeited	( i 649	)	( i 176	)
Non-vested, end of year⁽³⁾	i 5,384		i 1,818


(1)	The Company issued no cash-settled restricted stock phantom units in 2017.

F-49

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)


(2)	The 2019 restricted stock phantom units included i 3,401,477 awards based on the per-share market price of Apache’s common stock and i 1,429,135 awards based on the per-share market price of ALTM’s common stock.


(3)	The outstanding liability for the unvested cash-settled restricted stock phantom units that has not been recognized as of December 31, 2019 was approximately $ i 52 million.

In January 2020, the Company awarded i 961,368 restricted stock units and i 3,340,495 restricted stock phantom units based on Apache’s weighted-average per-share market price of $ i 25.69 under the 2016 Plan to eligible employees. Total compensation cost for restricted stock units and restricted stock phantom units absent any forfeitures, is estimated to be $ i 25 million and $ i 86 million, respectively, and was calculated based on the fair market value of a share of the Company’s common stock as of the grant date. Compensation cost will be recognized over a three-year vesting period for both plans. The phantom units will be classified as a liability and remeasured at the end of each reporting period based on the change in fair value of one share of the Company’s common stock.

Also during January 2020, the Company awarded i 1,425,513 restricted stock phantom units based on ALTM’s weighted-average per-share market price of $ i 2.70. The restricted stock phantom units represent a hypothetical interest in ALTM’s common stock and, once vested, are settled in cash. Total compensation cost for these restricted stock phantom units, absent any forfeitures, is estimated to be $ i 4 million and was calculated based on the fair market value of ALTM’s common stock as of the grant date. The restricted stock phantom units will be classified as a liability and remeasured at the end of each reporting period based on the change in fair value of one share of ALTM’s common stock.

Performance Program

To provide long-term incentives for Apache employees to deliver competitive returns to the Company’s stockholders, the Company has granted conditional restricted stock units to eligible employees. Apache has a performance program for certain eligible employees with payout for i 50 percent of the shares based upon measurement of total shareholder return (TSR) of Apache common stock as compared to a designated peer group during a three-year performance period. Payout for the remaining i 50 percent of the shares is based on performance and financial objectives as defined in the plan. The overall results of the objectives are calculated at the end of the award’s stated performance period and, if a payout is warranted, applied to the target number of restricted stock units awarded. The performance shares will immediately vest i 50 percent at the end of the three-year performance period, with the remaining i 50 percent vesting at the end of the following year. Grants from the performance programs outstanding at December 31, 2019, are as described below:

•

In January 2016, the Company’s Board of Directors approved the 2016 Performance Program, pursuant to the 2011 Plan. Eligible employees received initial stock-settled conditional restricted stock unit awards totaling i 871,369. The results for the performance period ending December 31, 2018, yielded a payout of i 100 percent of target. A total of i 325,008 units were outstanding as of December 31, 2019.


•	In January 2017, the Company’s Board of Directors approved the 2017 Performance Program, pursuant to the 2016 Plan. Eligible employees received initial stock-settled conditional restricted stock unit awards totaling i 620,885 units. A total of i 455,499 units were outstanding as of December 31, 2019. The results for the performance period yielded a payout of i 54 percent of target.

•

In January 2018, the Company’s Board of Directors approved the 2018 Performance Program, pursuant to the 2016 Plan. Eligible employees received initial cash-settled conditional phantom units totaling i 931,049 units. The actual amount of shares awarded will be between i zero and i 200 percent of target. A total of i 796,829 phantom units were outstanding as of December 31, 2019, from which a minimum of i zero to a maximum of i 1,593,658 phantom units could be awarded.

•

In January 2019, the Company’s Board of Directors approved the 2019 Performance Program, pursuant to the 2016 Plan. Eligible employees received initial cash-settled conditional phantom units totaling i 1,679,832 units. The actual amount of shares awarded will be between i zero and i 200 percent of target. A total of i 1,523,360 phantom units were outstanding as of December 31, 2019, from which a minimum of i zero to a maximum of i 3,046,720 phantom units could be awarded.

F-50

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The fair value cost of the stock-settled awards was estimated on the date of grant and is being recorded as compensation expense ratably over the vesting terms. The fair value of the cash-settled awards are remeasured at the end of each reporting period over the vesting terms. During 2019, 2018, and 2017, $ i 24 million, $ i 38 million, and $ i 23 million, respectively, were charged to expense. During 2019, 2018, and 2017, $ i 3 million, $ i 7 million, and $ i 4 million were capitalized, respectively.

A summary of stock-settled conditional restricted stock unit activity for the year ended December 31, 2019, is presented below:



Stock-settled Conditional Restricted Stock Units	Shares		Weighted Average Grant- Date Fair Value⁽¹⁾
	(In thousands)
Non-vested, beginning of year	i 1,347		$	i 49.58
Granted	i 345		i 32.75
Vested	( i 510	)	i 45.62
Forfeited	( i 71	)	i 53.96
Expired	( i 330	)	i 29.78
Non-vested, end of year⁽²⁾⁽³⁾	i 781		i 52.69

(1)

The fair value of each conditional restricted stock unit award is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a three-year continuous risk-free interest rate; (ii) a constant volatility assumption based on the historical realized stock price volatility of the Company and the designated peer group; and (iii) the historical stock prices and expected dividends of the common stock of the Company and its designated peer group.


(2)	As of December 31, 2019, there was $ i 2 million of total unrecognized compensation cost related to i 780,507 unvested stock-settled conditional restricted stock units.


(3)	As of December 31, 2019, the weighted-average remaining life of the unvested stock-settled conditional restricted stock units is approximately i 0.3 years.

A summary of cash-settled conditional restricted stock unit activity for the year ended December 31, 2019, is presented below:



Cash-settled Conditional Restricted Stock Phantom Units	Phantom Units
	(In thousands)
Non-vested, beginning of year	i 890
Granted	i 1,680
Vested	( i 2	)
Forfeited	( i 248	)
Non-vested, end of year⁽¹⁾	i 2,320


(1)	As of December 31, 2019, the outstanding liability for the unvested cash-settled conditional restricted stock units that has not been recognized was approximately $ i 26 million.

In January 2020, the Company’s Board of Directors approved the 2020 Performance Program, pursuant to the 2016 Plan. Payout for i 50 percent of the shares is based upon measurement of total shareholder return (TSR) of Apache common stock as compared to a designated peer group and the S&P 500 Index during a three-year performance period. Payout for the remaining i 50 percent of the shares is based on performance and financial objectives as defined in the plan. Eligible employees received the initial cash-settled conditional phantom units totaling i 1,658,781 units, with the ultimate number of phantom units to be awarded ranging from i zero to a maximum of i 3,317,562 units. These phantom units represent a hypothetical interest in the Company’s stock, and, once vested, are settled in cash. The TSR component of the award had a grant date fair value per award of $ i 33.77 based on a Monte Carlo simulation. The grant date fair value per award for the remaining i 50 percent was $ i 25.69 based on the weighted-average fair market value of a share of common stock of the Company as of the grant date. These phantom units will be classified as a liability and remeasured at the end of each reporting period.

F-51

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15. i ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Components of accumulated other comprehensive income (loss) include the following:



	As of December 31,
	2019			2018		2017
	(In millions)
Share of equity method interests other comprehensive loss	$	( i 1	)	$	i —	$	i —
Pension and postretirement benefit plan (Note 12)	i 17			i 4		i 4
Accumulated other comprehensive income	$	i 16		$	i 4	$	i 4

16. i MAJOR CUSTOMERS



	For the Year Ended December 31,
	2019		2018		2017
BP plc⁽¹⁾	i 10	%	i 17	%	i 12	%
China Petroleum & Chemical Corporation (Sinopec)⁽²⁾	i 11	%	i 15	%	i 16	%
Egyptian General Petroleum Corporation⁽³⁾	i 9	%	i 10	%	i 11	%


(1)	Sales to BP plc were reported as revenue in the Company’s U.S., Egypt, and North Sea upstream segments in the years ended 2019, 2018, and 2017.


(2)	Sales to Sinopec were reported as revenue in the Company’s Egypt upstream segment in the year ended 2019 and in the Company’s Egypt and North Sea upstream segments in the years ended 2018 and 2017.


(3)	Sales to EGPC were reported as revenue in the Company’s Egypt upstream segment in the years ended 2019, 2018, and 2017.

F-52

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

17. i BUSINESS SEGMENT INFORMATION

As of December 31, 2019, Apache is engaged in exploration and production (Upstream) activities across i three operating segments: Egypt, North Sea, and the U.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. During 2018, Apache established a new reporting segment for its U.S. midstream business separate from its upstream oil and gas development activities. The midstream business is operated by Altus, which owns, develops, and operates a midstream energy asset network in the Permian Basin of West Texas, anchored by midstream service contracts to Apache’s production from its Alpine High resource play. Additionally, Altus owns equity interests in a total of four Permian Basin pipelines that will access various points along the Texas Gulf Coast, providing it with fully integrated, wellhead-to-water connectivity. i Financial information for each segment is presented below:

Egypt⁽¹⁾

North Sea

U.S.

Altus Midstream

Intersegment Eliminations & Other

Total⁽²⁾

Upstream

(In millions)

2019

Oil revenues

i 1,969

i 1,163

i 2,098

i —

i 5,230

Natural gas revenues

i 295

i 90

i 293

i —

i 678

Natural gas liquids revenues

i 12

i 23

i 372

i —

i 407

Oil and gas production revenues

i 2,276

i 1,276

i 2,763

i —

—

i 6,315

Midstream service affiliate revenues

i —

i 136

( i 136

)

—

Operating Expenses:

Lease operating expenses

i 484

i 320

i 645

i —

( i 2

)

i 1,447

Gathering, processing, and transmission

i 40

i 45

i 299

i 56

( i 134

)

i 306

Taxes other than income

i —

i 194

i 13

i —

i 207

Exploration

i 100

i 2

i 688

i —

i 15

i 805

Depreciation, depletion, and amortization

i 708

i 366

i 1,566

i 40

i —

i 2,680

Asset retirement obligation accretion

i —

i 76

i 29

i 2

i —

i 107

Impairments

i —

i 1,648

i 1,301

i —

i 2,949

i 1,332

i 809

i 5,069

i 1,412

( i 121

)

i 8,501

Operating Income (Loss)

i 944

i 467

( i 2,306

)

( i 1,276

)

( i 15

)

( i 2,186

)

Other Income (Expense):

Gain on divestitures, net

i 43

Other⁽³⁾

i 53

General and administrative

( i 406

)

Transaction, reorganization, and separation

( i 50

)

Financing costs, net

( i 462

)

Loss Before Income Taxes

( i 3,008

)

Net Property and Equipment

i 2,573

i 1,956

i 9,385

i 206

i 38

i 14,158

Total Assets⁽⁵⁾

i 3,700

i 2,473

i 10,388

i 1,479

i 67

i 18,107

Additions to Net Property and Equipment

i 454

i 183

i 1,696

i 308

i 93

i 2,734

F-53

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Egypt⁽¹⁾

North Sea

U.S.

Altus Midstream

Intersegment Eliminations & Other

Total⁽²⁾

Upstream

(In millions)

2018

Oil revenues

i 2,396

i 1,179

i 2,271

i —

i 5,846

Natural gas revenues

i 339

i 122

i 458

i —

i 919

Natural gas liquids revenues

i 13

i 20

i 550

i —

i 583

Oil and gas production revenues

i 2,748

i 1,321

i 3,279

i —

—

i 7,348

Midstream service affiliate revenues

i —

i 77

( i 77

)

—

Operating Expenses:

Lease operating expenses

i 428

i 341

i 670

i —

i 1,439

Gathering, processing, and transmission

i 47

i 42

i 282

i 54

( i 77

)

i 348

Taxes other than income

i —

i 207

i 8

i —

i 215

Exploration

i 88

i 192

i 219

i —

i 4

i 503

Depreciation, depletion, and amortization

i 745

i 375

i 1,266

i 19

i —

i 2,405

Asset retirement obligation accretion

i —

i 75

i 32

i 1

i —

i 108

Impairments

i 63

i 10

i 438

i —

i 511

i 1,371

i 1,035

i 3,114

i 82

( i 73

)

i 5,529

Operating Income (Loss)

i 1,377

i 286

i 165

( i 5

)

( i 4

)

i 1,819

Other Income (Expense):

Gain on divestitures, net

i 23

Other⁽³⁾

i 53

General and administrative

( i 431

)

Transaction, reorganization, and separation

( i 28

)

Financing costs, net

( i 478

)

Income Before Income Taxes

i 958

Net Property and Equipment

i 2,856

i 2,148

i 12,145

i 1,227

i 45

i 18,421

Total Assets⁽⁵⁾

i 4,260

i 2,456

i 12,962

i 1,857

i 47

i 21,582

Additions to Net Property and Equipment

i 594

i 223

i 2,544

i 545

i 8

i 3,914

F-54

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Egypt

North Sea

Canada⁽⁴⁾

U.S.

Altus Midstream

Intersegment Eliminations & Other

Total⁽²⁾

Upstream

(In millions)

2017

Oil revenues

i 1,901

i 971

i 110

i 1,616

i —

i 4,598

Natural gas revenues

i 395

i 92

i 104

i 368

i —

i 959

Natural gas liquids revenues

i 11

i 15

i 17

i 287

i —

i 330

Oil and gas production revenues

i 2,307

i 1,078

i 231

i 2,271

i —

—

i 5,887

Midstream service affiliate revenues

i —

i 15

( i 15

)

—

Operating Expenses:

Lease operating expenses

i 362

i 335

i 103

i 584

i —

i 1,384

Gathering, processing, and transmission

i 44

i 30

i 34

i 86

i 16

( i 15

)

i 195

Taxes other than income

i —

( i 14

)

i 12

i 153

i —

i 151

Exploration

i 62

i 86

i 11

i 363

i —

i 27

i 549

Depreciation, depletion, and amortization

i 758

i 446

i 76

i 994

i 6

i —

i 2,280

Asset retirement obligation accretion

i —

i 72

i 27

i 31

i —

i 130

Impairments

i —

i 8

i —

i 8

i 1,226

i 963

i 263

i 2,211

i 22

i 12

i 4,697

Operating Income (Loss)

i 1,081

i 115

( i 32

)

i 60

( i 7

)

( i 27

)

i 1,190

Other Income (Expense):

Gain on divestitures, net

i 627

Other⁽³⁾

( i 91

)

General and administrative

( i 395

)

Transaction, reorganization, and separation

( i 16

)

Financing costs, net

( i 397

)

Income Before Income Taxes

i 918

Net Property and Equipment

i 3,099

i 2,553

i —

i 11,370

i 700

i 37

i 17,759

Total Assets⁽⁵⁾

i 4,658

i 2,977

i —

i 13,522

i 706

i 59

i 21,922

Additions to Net Property and Equipment

i 517

i 374

i —

i 1,847

i 550

i 14

i 3,302


(1)	Includes revenue from non-customers for the years ended 2019 and 2018 of:



	For the Year Ended December 31,
	2019		2018
	(In millions)
Oil	$	i 410	$	i 592
Natural gas	i 40		i 58
Natural gas liquids	i 1		i 2


(2)	Includes a noncontrolling interest in Egypt for years 2019, 2018, and 2017, and Altus for the years 2019 and 2018.


(3)	Included in Other are sales proceeds related to U.S. third-party purchased oil and gas volumes which are determined to be revenue from customers. Proceeds for these volumes totaled $ i 176 million and $ i 357 million for the years ended 2019 and 2018, respectively.


(4)	During 2017, Apache completed the sale of its Canadian operations. For more information regarding this divestiture, please refer to Note 2—Acquisitions and Divestitures.


(5)	Intercompany balances are excluded from total assets.

F-55

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

18. i SUPPLEMENTAL OIL AND GAS DISCLOSURES (Unaudited)

Oil and Gas Operations

The following table sets forth revenue and direct cost information relating to the Company’s oil and gas exploration and production activities. Apache has no long-term agreements to purchase oil or gas production from foreign governments or authorities.

United

States

Canada⁽³⁾

Egypt⁽⁴⁾

North Sea

Other

International

Total⁽⁴⁾

(In millions, except per boe)

2019

Oil and gas production revenues

i 2,763

i —

i 2,276

i 1,276

i —

i 6,315

Operating cost:

Depreciation, depletion, and amortization⁽¹⁾

i 1,508

i —

i 641

i 363

i —

i 2,512

Asset retirement obligation accretion

i 29

i —

i 76

i —

i 105

Lease operating expenses

i 645

i —

i 484

i 320

i —

i 1,449

Gathering, processing, and transmission

i 299

i —

i 40

i 45

i —

i 384

Exploration expenses

i 688

i —

i 100

i 2

i 15

i 805

Impairments related to oil and gas properties

i 1,633

i —

i 1,633

Production taxes⁽²⁾

i 191

i —

i 191

Income tax

( i 468

)

i —

i 455

i 188

i —

i 175

i 4,525

i —

i 1,720

i 994

i 15

i 7,254

Results of operations

( i 1,762

)

i —

i 556

i 282

( i 15

)

( i 939

)

2018

Oil and gas production revenues

i 3,279

i —

i 2,748

i 1,321

i —

i 7,348

Operating cost:

Depreciation, depletion, and amortization⁽¹⁾

i 1,206

i —

i 688

i 371

i —

i 2,265

Asset retirement obligation accretion

i 32

i —

i 75

i —

i 107

Lease operating expenses

i 670

i —

i 428

i 341

i —

i 1,439

Gathering, processing, and transmission

i 282

i —

i 47

i 42

i —

i 371

Exploration expenses

i 219

i —

i 88

i 192

i 4

i 503

Impairments related to oil and gas properties

i 265

i —

i 63

i 10

i —

i 338

Production taxes⁽²⁾

i 203

i —

i 203

Income tax

i 87

i —

i 645

i 116

i —

i 848

i 2,964

i —

i 1,959

i 1,147

i 4

i 6,074

Results of operations

i 315

i —

i 789

i 174

( i 4

)

i 1,274

2017

Oil and gas production revenues

i 2,271

i 231

i 2,307

i 1,078

i —

i 5,887

Operating cost:

Depreciation, depletion, and amortization⁽¹⁾

i 924

i 72

i 707

i 433

i —

i 2,136

Asset retirement obligation accretion

i 31

i 27

i —

i 72

i —

i 130

Lease operating expenses

i 584

i 103

i 362

i 335

i —

i 1,384

Gathering, processing, and transmission

i 86

i 34

i 44

i 30

i —

i 194

Exploration expenses

i 363

i 11

i 62

i 86

i 27

i 549

Production taxes⁽²⁾

i 153

i 11

i —

( i 14

)

i —

i 150

Income tax

i 45

( i 7

)

i 509

i 54

i —

i 601

i 2,186

i 251

i 1,684

i 996

i 27

i 5,144

Results of operations

i 85

( i 20

)

i 623

i 82

( i 27

)

i 743


(1)	This amount only reflects DD&A of capitalized costs of oil and gas properties and, therefore, does not agree with DD&A reflected on Note 17—Business Segment Information.


(2)	Only reflects amounts directly related to oil and gas producing properties and, therefore, does not agree with taxes other than income reflected on Note 17—Business Segment Information.


(3)	During the third quarter of 2017, Apache completed the sale of its Canadian operations. For more information regarding this divestiture, please refer to Note 2—Acquisitions and Divestitures


(4)	Includes noncontrolling interest in Egypt.

F-56

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Costs Incurred in Oil and Gas Property Acquisitions, Exploration, and Development Activities

United

States

Canada

Egypt⁽²⁾

North Sea

Other

International

Total⁽²⁾

(In millions)

2019

Acquisitions:

Proved

i 3

i —

i 5

i —

i 8

Unproved

i 47

i —

i 10

i —

i 57

Exploration

i 162

i —

i 139

i 62

i 105

i 468

Development

i 1,500

i —

i 374

i 119

i 3

i 1,996

Costs incurred⁽¹⁾

i 1,712

i —

i 528

i 181

i 108

i 2,529

⁽¹⁾ Includes capitalized interest and asset retirement costs as follows:

Capitalized interest

i 23

i —

i 5

i 4

i 32

Asset retirement costs

i 14

i —

( i 111

)

i —

( i 97

)

2018

Acquisitions:

Proved

i —

i 6

i —

i 6

Unproved

i 111

i —

i 16

i —

i 127

Exploration

i 640

i —

i 175

i 113

i 12

i 940

Development

i 1,791

i —

i 457

i 133

i —

i 2,381

Costs incurred⁽¹⁾

i 2,542

i —

i 654

i 246

i 12

i 3,454

⁽¹⁾Includes capitalized interest and asset retirement costs as follows:

Capitalized interest

i 23

i —

i 11

i 2

i 36

Asset retirement costs

i 93

i —

( i 62

)

i —

i 31

2017

Acquisitions:

Proved

i 3

i —

i 4

i —

i 7

Unproved

i 136

i 5

i 40

i —

i 181

Exploration

i 602

i 11

i 122

i 131

i 25

i 891

Development

i 1,118

i 52

i 387

i 250

i —

i 1,807

Costs incurred⁽¹⁾

i 1,859

i 68

i 553

i 381

i 25

i 2,886

⁽¹⁾ Includes capitalized interest and asset retirement costs as follows:

Capitalized interest

i 23

i 2

i —

i 17

i 2

i 44

Asset retirement costs

i 15

i —

i 55

i —

i 70

⁽²⁾ Includes a noncontrolling interest in Egypt.

F-57

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Capitalized Costs

The following table sets forth the capitalized costs and associated accumulated depreciation, depletion, and amortization relating to the Company’s oil and gas acquisition, exploration, and development activities:

United

States

Egypt⁽¹⁾

North

Sea

Other

International

Total⁽¹⁾

(In millions)

2019

Proved properties

i 20,291

i 11,614

i 8,635

i —

i 40,540

Unproved properties

i 509

i 109

i 10

i 38

i 666

i 20,800

i 11,723

i 8,645

i 38

i 41,206

Accumulated DD&A

( i 11,783

)

( i 9,377

)

( i 6,700

)

i —

( i 27,860

)

i 9,017

i 2,346

i 1,945

i 38

i 13,346

2018

Proved properties

i 22,699

i 11,184

i 8,462

i —

i 42,345

Unproved properties

i 1,275

i 110

i 5

i 45

i 1,435

i 23,974

i 11,294

i 8,467

i 45

i 43,780

Accumulated DD&A

( i 12,217

)

( i 8,736

)

( i 6,332

)

i —

( i 27,285

)

i 11,757

i 2,558

i 2,135

i 45

i 16,495

⁽¹⁾ Includes a noncontrolling interest in Egypt.

Oil and Gas Reserve Information

Estimated reserves that can be produced economically through application of improved recovery techniques are included in the “proved” classification when successful testing by a pilot project or the operation of an active, improved recovery program using reliable technology establishes the reasonable certainty for the engineering analysis on which the project or program is based. Economically producible means a resource that generates revenue that exceeds, or is reasonably expected to exceed, the costs of the operation. Reasonable certainty means a high degree of confidence that the quantities will be recovered. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field-tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. In estimating its proved reserves, Apache uses several different traditional methods that can be classified in three general categories: (1) performance-based methods; (2) volumetric-based methods; and (3) analogy with similar properties. Apache will, at times, utilize additional technical analysis such as computer reservoir models, petrophysical techniques, and proprietary 3-D seismic interpretation methods to provide additional support for more complex reservoirs. Information from this additional analysis is combined with traditional methods outlined above to enhance the certainty of the Company’s reserve estimates.

There are numerous uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production and timing of development expenditures. The reserve data in the following tables only represent estimates and should not be construed as being exact.

F-58

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Crude Oil and Condensate

(Thousands of barrels)

United

States

Canada

Egypt⁽¹⁾

North

Sea

Total⁽¹⁾

Proved developed reserves:

i 300,900

i 51,508

i 138,771

i 91,138

i 582,317

i 304,279

i —

i 124,568

i 92,598

i 521,445

i 300,484

i —

i 110,014

i 104,491

i 514,989

i 278,145

i —

i 103,573

i 101,712

i 483,430

Proved undeveloped reserves:

i 21,088

i 7,906

i 20,187

i 10,784

i 59,965

i 31,904

i —

i 16,198

i 14,013

i 62,115

i 45,182

i —

i 9,484

i 11,278

i 65,944

i 46,716

i —

i 10,831

i 10,049

i 67,596

Total proved reserves:

Balance December 31, 2016

i 321,988

i 59,414

i 158,958

i 101,922

i 642,282

Extensions, discoveries and other additions

i 48,391

i 14,025

i 27,140

i 16,023

i 105,579

Purchases of minerals in-place

i 46

i 375

i —

i 421

Revisions of previous estimates

i 825

i 1,829

( i 9,839

)

i 6,510

( i 675

)

Production

( i 33,394

)

( i 2,425

)

( i 35,493

)

( i 17,844

)

( i 89,156

)

Sales of minerals in-place

( i 1,673

)

( i 73,218

)

i —

( i 74,891

)

Balance December 31, 2017

i 336,183

i —

i 140,766

i 106,611

i 583,560

Extensions, discoveries and other additions

i 61,976

i —

i 22,473

i 15,682

i 100,131

Purchases of minerals in-place

i 140

i —

i 140

Revisions of previous estimates

( i 14,334

)

i —

( i 9,556

)

i 10,613

( i 13,277

)

Production

( i 38,252

)

i —

( i 34,185

)

( i 17,137

)

( i 89,574

)

Sales of minerals in-place

( i 47

)

i —

( i 47

)

Balance December 31, 2018

i 345,666

i —

i 119,498

i 115,769

i 580,933

Extensions, discoveries and other additions

i 52,297

i —

i 21,039

i 9,017

i 82,353

Purchases of minerals in-place

i —

Revisions of previous estimates

( i 16,446

)

i —

i 4,752

i 5,132

( i 6,562

)

Production

( i 38,344

)

i —

( i 30,885

)

( i 18,157

)

( i 87,386

)

Sales of minerals in-place

( i 18,312

)

i —

( i 18,312

)

Balance December 31, 2019

i 324,861

i —

i 114,404

i 111,761

i 551,026


(1)	2019, 2018, 2017, and 2016 includes proved reserves of i 38 MMbbls, i 40 MMbbls, i 47 MMbbls, and i 53 MMbbls, respectively, attributable to a noncontrolling interest in Egypt.

F-59

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Natural Gas Liquids

(Thousands of barrels)

United

States

Canada

Egypt⁽¹⁾

North

Sea

Total⁽¹⁾

Proved developed reserves:

i 155,124

i 13,866

i 1,266

i 1,627

i 171,883

i 171,005

i —

i 685

i 2,025

i 173,715

i 197,574

i —

i 502

i 1,938

i 200,014

i 158,794

i —

i 667

i 2,317

i 161,778

Proved undeveloped reserves:

i 17,311

i 2,473

i 131

i 646

i 20,561

i 29,559

i —

i 39

i 353

i 29,951

i 33,796

i —

i 60

i 631

i 34,487

i 23,569

i —

i 90

i 660

i 24,319

Total proved reserves:

Balance December 31, 2016

i 172,435

i 16,339

i 1,397

i 2,273

i 192,444

Extensions, discoveries and other additions

i 33,806

i 1,794

i 50

i 845

i 36,495

Purchases of minerals in-place

i 206

i 199

i —

i 405

Revisions of previous estimates

i 12,982

( i 1,060

)

( i 425

)

( i 321

)

i 11,176

Production

( i 17,766

)

( i 1,032

)

( i 298

)

( i 419

)

( i 19,515

)

Sales of minerals in-place

( i 1,099

)

( i 16,240

)

i —

( i 17,339

)

Balance December 31, 2017

i 200,564

i —

i 724

i 2,378

i 203,666

Extensions, discoveries and other additions

i 60,990

i —

i 144

i 1,444

i 62,578

Purchases of minerals in-place

i 40

i —

i 40

Revisions of previous estimates

( i 9,250

)

i —

i 31

( i 819

)

( i 10,038

)

Production

( i 20,969

)

i —

( i 337

)

( i 434

)

( i 21,740

)

Sales of minerals in-place

( i 5

)

i —

( i 5

)

Balance December 31, 2018

i 231,370

i —

i 562

i 2,569

i 234,501

Extensions, discoveries and other additions

i 41,343

i —

i 27

i 697

i 42,067

Purchases of minerals in-place

i —

Revisions of previous estimates

( i 32,569

)

i —

i 508

i 345

( i 31,716

)

Production

( i 24,959

)

i —

( i 340

)

( i 634

)

( i 25,933

)

Sales of minerals in-place

( i 32,822

)

i —

( i 32,822

)

Balance December 31, 2019

i 182,363

i —

i 757

i 2,977

i 186,097

(1) 2019, 2018, 2017, and 2016 includes proved reserves of i 252 Mbbls, i 187 Mbbls, i 241 Mbbls, and i 466 Mbbls, respectively, attributable to a noncontrolling interest in Egypt.

F-60

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Natural Gas

(Millions of cubic feet)

United

States

Canada

Egypt⁽¹⁾

North

Sea

Total⁽¹⁾

Proved developed reserves:

i 1,200,379

i 553,724

i 675,559

i 86,948

i 2,516,610

i 1,347,009

i —

i 540,667

i 83,342

i 1,971,018

i 1,626,403

i —

i 476,132

i 95,347

i 2,197,882

i 945,938

i —

i 433,382

i 106,329

i 1,485,649

Proved undeveloped reserves:

i 231,304

i 45,312

i 42,109

i 23,813

i 342,538

i 297,226

i —

i 47,255

i 11,063

i 355,544

i 267,090

i —

i 33,006

i 15,804

i 315,900

i 115,040

i —

i 24,704

i 16,604

i 156,348

Total proved reserves:

Balance December 31, 2016

i 1,431,683

i 599,036

i 717,668

i 110,761

i 2,859,148

Extensions, discoveries and other additions

i 378,747

i 49,780

i 81,245

i 17,646

i 527,418

Purchases of minerals in-place

i 4,434

i 4,319

i —

i 8,753

Revisions of previous estimates

( i 5,431

)

i 92,207

( i 70,030

)

( i 17,387

)

( i 641

)

Production

( i 143,943

)

( i 47,990

)

( i 140,961

)

( i 16,615

)

( i 349,509

)

Sales of minerals in-place

( i 21,255

)

( i 697,352

)

i —

( i 718,607

)

Balance December 31, 2017

i 1,644,235

i —

i 587,922

i 94,405

i 2,326,562

Extensions, discoveries and other additions

i 704,135

i —

i 79,394

i 55,274

i 838,803

Purchases of minerals in-place

i 906

i —

i 906

Revisions of previous estimates

( i 239,204

)

i —

( i 38,892

)

( i 21,933

)

( i 300,029

)

Production

( i 216,538

)

i —

( i 119,286

)

( i 16,595

)

( i 352,419

)

Sales of minerals in-place

( i 41

)

i —

( i 41

)

Balance December 31, 2018

i 1,893,493

i —

i 509,138

i 111,151

i 2,513,782

Extensions, discoveries and other additions

i 249,205

i —

i 34,758

i 27,711

i 311,674

Purchases of minerals in-place

i —

Revisions of previous estimates

( i 509,753

)

i —

i 18,570

i 4,015

( i 487,168

)

Production

( i 233,447

)

i —

( i 104,380

)

( i 19,944

)

( i 357,771

)

Sales of minerals in-place

( i 338,520

)

i —

( i 338,520

)

Balance December 31, 2019

i 1,060,978

i —

i 458,086

i 122,933

i 1,641,997

(1) 2019, 2018, 2017, and 2016 include proved reserves of i 153 Bcf, i 170 Bcf, i 196 Bcf, and i 239 Bcf, respectively, attributable to a noncontrolling interest in Egypt.

F-61

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Total Equivalent Reserves

(Thousands barrels of oil equivalent)

United

States

Canada

Egypt⁽¹⁾

North

Sea

Total⁽¹⁾

Proved developed reserves:

i 656,087

i 157,662

i 252,630

i 107,256

i 1,173,635

i 699,786

i —

i 215,364

i 108,513

i 1,023,663

i 769,125

i —

i 189,871

i 122,320

i 1,081,316

i 594,595

i —

i 176,470

i 121,751

i 892,816

Proved undeveloped reserves:

i 76,950

i 17,931

i 27,336

i 15,399

i 137,616

i 111,001

i —

i 24,112

i 16,210

i 151,323

i 123,493

i —

i 15,045

i 14,543

i 153,081