Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number 1-4300

 

 

 

LOGO

APACHE CORPORATION

(exact name of registrant as specified in its charter)

 

 

 

Delaware   41-0747868

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification Number)

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

(Address of principal executive offices)

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

 

 

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

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

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

 

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

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

 

Number of shares of registrant’s common stock outstanding as of July 31, 2013

     389,422,942   

 

 

 


PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

 

     For the Quarter
Ended June 30,
    For the Six Months
Ended June 30,
 
     2013      2012     2013      2012  
     (In millions, except per common share data)  

REVENUES AND OTHER:

          

Oil and gas production revenues

   $ 4,119      $ 3,956     $ 8,265      $ 8,413  

Derivative instrument gains (losses), net

     247        —         147        —    

Other

     17        16       47        95  
  

 

 

    

 

 

   

 

 

    

 

 

 
     4,383        3,972       8,459        8,508  
  

 

 

    

 

 

   

 

 

    

 

 

 

OPERATING EXPENSES:

          

Depreciation, depletion and amortization:

          

Oil and gas property and equipment

          

Recurring

     1,311        1,194       2,576        2,329  

Additional

     —          648       65        1,169   

Other Assets

     93        90       198        174  

Asset retirement obligation accretion

     65        57       130        112  

Lease operating expenses

     829        704       1,600        1,377  

Gathering and transportation

     80        72       154        149  

Taxes other than income

     183        203       425        460  

General and administrative

     133        132       249        260  

Merger, acquisitions & transition

     —          16       —          22  

Financing costs, net

     51        45       104        85  
  

 

 

    

 

 

   

 

 

    

 

 

 
     2,745        3,161       5,501        6,137  
  

 

 

    

 

 

   

 

 

    

 

 

 

INCOME BEFORE INCOME TAXES

     1,638        811       2,958        2,371  

Current income tax provision

     284        460       781        1,185  

Deferred income tax provision (benefit)

     319        (5     425        33  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME

     1,035        356       1,752        1,153  

Preferred stock dividends

     19        19       38        38  
  

 

 

    

 

 

   

 

 

    

 

 

 

INCOME ATTRIBUTABLE TO COMMON STOCK

   $ 1,016      $ 337     $ 1,714      $ 1,115  
  

 

 

    

 

 

   

 

 

    

 

 

 

NET INCOME PER COMMON SHARE:

          

Basic

   $ 2.59      $ 0.87     $ 4.37      $ 2.88  

Diluted

   $ 2.54      $ 0.86     $ 4.30      $ 2.86  

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:

          

Basic

     392        389       392        387  

Diluted

     408        390       408        403  

DIVIDENDS DECLARED PER COMMON SHARE

   $ 0.20      $ 0.17     $ 0.40      $ 0.34  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

1


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)

 

     For the Quarter
Ended June 30,
    For the Six Months
Ended June 30,
 
     2013      2012     2013     2012  
     (In millions)  

NET INCOME

   $ 1,035      $ 356     $ 1,752     $ 1,153  

OTHER COMPREHENSIVE INCOME:

         

Commodity cash flow hedge activity, net of tax:

         

Reclassification of (gain) loss on settled derivative instruments

     8        (58     14       (92

Change in fair value of derivative instruments

     7        111       (1     112  
  

 

 

    

 

 

   

 

 

   

 

 

 
     15        53       13       20  
  

 

 

    

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME

     1,050        409       1,765       1,173  

Preferred stock dividends

     19        19       38       38  
  

 

 

    

 

 

   

 

 

   

 

 

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO COMMON STOCK

   $ 1,031      $ 390     $ 1,727     $ 1,135  
  

 

 

    

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

2


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS

(Unaudited)

 

     For the Six Months Ended June 30,  
     2013     2012  
     (In millions)  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 1,752     $ 1,153  

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation, depletion, and amortization

     2,839       3,672  

Asset retirement obligation accretion

     130       112  

Provision for deferred income taxes

     425       33  

Other

     (190     56  

Changes in operating assets and liabilities:

    

Receivables

     142       490  

Inventories

     (32     24  

Drilling advances

     281       (125

Deferred charges and other

     (135     (53

Accounts payable

     190       (113

Accrued expenses

     (13     (472

Deferred credits and noncurrent liabilities

     (9     22  
  

 

 

   

 

 

 

NET CASH PROVIDED BY OPERATING ACTIVITIES

     5,380       4,799  
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Additions to oil and gas property

     (5,138     (3,756

Additions to gas gathering, transmission, and processing facilities

     (495     (442

Acquisition of Cordillera Energy Partners III, LLC

     —         (2,607

Proceeds from Kitimat LNG transaction, net

     405       —    

Acquisition of Yara Pilbara Holdings Pty Limited

     —         (439

Acquisitions, other

     (148     (65

Other, net

     12       (277
  

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (5,364     (7,586
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Commercial paper and bank credit facilities, net

     931       431  

Fixed rate debt borrowings

     —         2,991  

Payments on fixed rate debt

     (500     (400

Dividends paid

     (183     (161

Treasury stock activity, net

     (249     2  

Other

     9       (10
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     8       2,853  
  

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     24       66  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     160       295  
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 184     $ 361  
  

 

 

   

 

 

 

SUPPLEMENTARY CASH FLOW DATA:

    

Interest paid, net of capitalized interest

   $ 79     $ 64  

Income taxes paid, net of refunds

     802       1,277  

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

3


APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

 

     June 30,
2013
    December 31,
2012
 
     (In millions)  

ASSETS

    

CURRENT ASSETS:

    

Cash and cash equivalents

   $ 184     $ 160  

Receivables, net of allowance

     2,914       3,086  

Inventories

     973       908  

Drilling advances

     298       584  

Derivative instruments

     87       31  

Prepaid assets and other

     302       193  
  

 

 

   

 

 

 
     4,758       4,962  
  

 

 

   

 

 

 

PROPERTY AND EQUIPMENT:

    

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

    

Proved properties

     83,287       78,383  

Unproved properties and properties under development, not being amortized

     8,628       8,754  

Gathering, transmission and processing facilities

     6,547       5,955  

Other

     1,031       1,055  
  

 

 

   

 

 

 
     99,493       94,147  

Less: Accumulated depreciation, depletion and amortization

     (43,672     (40,867
  

 

 

   

 

 

 
     55,821       53,280  
  

 

 

   

 

 

 

OTHER ASSETS:

    

Goodwill

     1,369       1,289  

Deferred charges and other

     1,402       1,206  
  

 

 

   

 

 

 
   $ 63,350     $ 60,737  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

CURRENT LIABILITIES:

    

Accounts payable

   $ 1,346     $ 1,092  

Current debt

     478       990  

Current asset retirement obligation

     475       478  

Derivative instruments

     22       116  

Other current liabilities

     2,837       2,860  
  

 

 

   

 

 

 
     5,158       5,536  
  

 

 

   

 

 

 

LONG-TERM DEBT

     12,297       11,355  
  

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

    

Income taxes

     8,496       8,024  

Asset retirement obligation

     4,278       4,100  

Other

     400       391  
  

 

 

   

 

 

 
     13,174       12,515  
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 8)

    

SHAREHOLDERS’ EQUITY:

    

Preferred stock, no par value, 10,000,000 shares authorized, 6% Cumulative Mandatory Convertible, Series D, $1,000 per share liquidation preference, 1,265,000 shares issued and outstanding

     1,227       1,227  

Common stock, $0.625 par, 860,000,000 shares authorized, 393,364,730 and 392,712,245 shares issued, respectively

     246       245  

Paid-in capital

     9,928       9,859  

Retained earnings

     21,718       20,161  

Treasury stock, at cost, 3,983,401 and 1,071,475 shares, respectively

     (280     (30

Accumulated other comprehensive loss

     (118     (131
  

 

 

   

 

 

 
     32,721       31,331  
  

 

 

   

 

 

 
   $ 63,350     $ 60,737  
  

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

4


APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY

(Unaudited)

 

     Series D
Preferred
Stock
     Common
Stock
     Paid-In
Capital
    Retained
Earnings
    Treasury
Stock
    Accumulated
Other
Comprehensive
Income (Loss)
    Total
Shareholders’
Equity
 
     (In millions)  

BALANCE AT DECEMBER 31, 2011

   $ 1,227      $ 241      $ 9,066     $ 18,500     $ (32   $ (9   $ 28,993  

Net income

     —          —          —         1,153       —         —         1,153  

Commodity hedges, net of tax

     —          —          —         —         —         20       20  

Dividends:

                

Preferred

     —          —          —         (38     —         —         (38

Common ($0.34 per share)

     —          —          —         (131     —         —         (131

Common shares issued

     —          4        598       —         —         —         602  

Common stock activity, net

     —          —          (15     —         —         —         (15

Treasury stock activity, net

     —          —          1       —         2       —         3  

Compensation expense

     —          —          86       —         —         —         86  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2012

   $ 1,227      $ 245      $ 9,736     $ 19,484     $ (30   $ 11     $ 30,673  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT DECEMBER 31, 2012

   $ 1,227      $ 245      $ 9,859     $ 20,161     $ (30   $ (131   $ 31,331  

Net income

     —          —          —         1,752       —         —         1,752  

Commodity hedges, net of tax

     —          —          —         —         —         13       13  

Dividends:

                

Preferred

     —          —          —         (38     —         —         (38

Common ($0.40 per share)

     —          —          —         (157     —         —         (157

Common stock activity, net

     —          1        (18     —         —         —         (17

Treasury stock activity, net

     —          —          —         —         (250     —         (250

Compensation expense

     —          —          87       —         —         —         87   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE AT JUNE 30, 2013

   $ 1,227      $ 246      $ 9,928     $ 21,718     $ (280   $ (118   $ 32,721  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes to consolidated financial statements

are an integral part of this statement.

 

5


APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which contains a summary of the Company’s significant accounting policies and other disclosures. Additionally, the Company’s financial statements for prior periods may include reclassifications that were made to conform to the current-period presentation.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of June 30, 2013, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies of its consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates with regard to these financial statements include the fair value determination of acquired assets and liabilities, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows therefrom, assessing asset retirement obligations, and the estimate of income taxes. Actual results could differ from those estimates.

Oil and Gas Property

The Company follows the full-cost method of accounting for its oil and gas property. Under this method of accounting, all costs incurred for both successful and unsuccessful exploration and development activities, including salaries, benefits and other internal costs directly identified with these activities, and oil and gas property acquisitions are capitalized. The net book value of oil and gas properties, less related deferred income taxes, may not exceed a calculated “ceiling.” The ceiling limitation is the estimated after-tax future net cash flows from proved oil and gas reserves, discounted at 10 percent per annum and adjusted for designated cash flow hedges. Estimated future net cash flows are calculated using end-of-period costs and an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months, held flat for the life of the production, except where prices are defined by contractual arrangements.

Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as “Additional depreciation, depletion and amortization” (DD&A) in the accompanying statement of consolidated operations. Such limitations are imposed separately on a country-by-country basis and are tested quarterly. For a discussion of the calculation of estimated future net cash flows, please refer to Note 14—Supplemental Oil and Gas Disclosures in Apache’s Annual Report on Form 10-K for its 2012 fiscal year. For the six months ended June 30, 2013 and 2012, the Company recorded $65 million ($42 million net of tax) and $1.2 billion ($870 million net of tax), respectively, in non-cash write-downs of the carrying value of the Company’s Argentinian and Canadian proved oil and gas properties, respectively.

New Pronouncements Issued But Not Yet Adopted

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-04, which increases disclosures for certain liability arrangements. The guidance requires an entity that is joint and severally liable to measure the obligation as the sum of the amount the entity has agreed with co-obligors to pay and any additional amount it expects to pay on behalf of one or more co-obligors. Required disclosures include a description of the nature of the arrangement, how the liability arose, the relationship with co-obligors and the terms and conditions of the arrangement. ASU No. 2013-04 is effective for annual and interim reporting periods beginning after December 15, 2013. The Company is currently evaluating the impact of adopting this amendment on its consolidated financial statements; however, any changes will be applied retrospectively to all prior periods presented.

 

6


2. ACQUISITIONS AND DIVESTITURES

2013 Activity

Gulf of Mexico Shelf

On July 18, 2013, Apache announced that it had entered into an agreement to sell its Gulf of Mexico Shelf operations and properties to Fieldwood Energy LLC (Fieldwood), an affiliate of Riverstone Holdings. Under the terms of the agreement, Apache will receive cash proceeds of $3.75 billion and Fieldwood will assume liabilities estimated at $1.5 billion related to future abandonment of the assets (discounted asset retirement obligation as of June 30, 2013). Apache will retain a 50-percent ownership interest in all exploration blocks and in horizons below existing production in developed blocks. The effective date of the agreement is July 1, 2013, and the transaction is expected to close September 30, 2013, subject to customary regulatory approvals and closing conditions.

Kitimat LNG Project

In February 2013, Apache completed a transaction with Chevron Canada Limited (Chevron Canada) to build and operate the Kitimat LNG project and develop shale gas resources at the Liard and Horn River basins in British Columbia. Chevron Canada and Apache Canada are now each a 50-percent owner of the Kitimat LNG plant, the Pacific Trail Pipelines Limited Partnership (PTP), and 644,000 gross undeveloped acres in the Horn River and Liard basins. As part of the transaction, Apache Canada increased its ownership in the LNG plant and PTP pipeline from 40 percent, sold portions of its existing interests in Horn River and Liard, and purchased other additional interests in Horn River. Chevron Canada will operate the LNG plant and pipeline while Apache Canada will continue to operate the upstream assets. Apache’s net proceeds from the transaction were $405 million.

2012 Activity

Cordillera Energy Partners III, LLC

On April 30, 2012, Apache completed the acquisition of Cordillera Energy Partners III, LLC (Cordillera), a privately-held exploration and production company, in a stock and cash transaction. Cordillera’s properties included approximately 312,000 net acres in the Granite Wash, Tonkawa, Cleveland, and Marmaton plays in western Oklahoma and the Texas Panhandle.

Apache issued 6,272,667 shares of common stock and paid approximately $2.7 billion of cash to the sellers as consideration for the transaction. The transaction was accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the final estimates of the assets acquired and liabilities assumed in the acquisition.

 

     (In millions)  

Current assets

   $ 39  

Proved properties

     1,040  

Unproved properties

     2,299  

Gathering, transmission, and processing facilities

     1  

Goodwill(1)

     173  

Deferred tax asset

     64  
  

 

 

 

Total assets acquired

   $ 3,616  
  

 

 

 

Current liabilities

     88  

Deferred income tax liabilities

     237  

Other long-term obligations

     5  
  

 

 

 

Total liabilities assumed

   $ 330  
  

 

 

 

Net assets acquired

   $ 3,286  
  

 

 

 

 

(1) 

Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from assets acquired that could not be individually identified and separately recognized. Goodwill is not deductible for tax purposes.

Yara Pilbara Holdings Pty Limited

On January 31, 2012, a subsidiary of Apache Energy Limited completed the acquisition of a 49-percent interest in Yara Pilbara Holdings Pty Limited (YPHPL, formerly Burrup Holdings Limited) for $439 million, including working capital adjustments. The transaction was funded with debt. YPHPL is the owner of an ammonia plant on the Burrup Peninsula of Western Australia. Apache has supplied gas to the plant since operations commenced in 2006. Yara Australia Pty Ltd (Yara) owns the remaining 51 percent of

 

7


YPHPL and operates the plant. The investment in YPHPL is accounted for under the equity method of accounting, with the balance recorded as a component of “Deferred charges and other” in Apache’s consolidated balance sheet and results of operations recorded as a component of “Other” under “Revenues and Other” in the Company’s statement of consolidated operations.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production. Apache manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production. The Company utilizes various types of derivative financial instruments, including swaps and options, to manage fluctuations in cash flows resulting from changes in commodity prices.

Counterparty Risk

The use of derivative instruments exposes the Company to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of June 30, 2013, Apache had derivative positions with 17 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from lower commodity prices.

The Company executes commodity derivative transactions under master agreements that have netting provisions that provide for offsetting payables against receivables. In general, if a party to a derivative transaction incurs a material deterioration in its credit ratings, as defined in the applicable agreement, the other party has the right to demand the posting of collateral, demand a transfer, or terminate the arrangement. The Company’s net derivative liability position at June 30, 2013 represents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position. The Company has not provided any collateral to any of its counterparties as of June 30, 2013.

Derivative Instruments

As of June 30, 2013, Apache had the following open crude oil derivative positions:

 

           Fixed-Price Swaps      Collars  

Production

Period

   Settlement Index    Mbbls      Weighted
Average
Fixed Price
     Mbbls      Weighted
Average
Floor Price
     Weighted
Average
Ceiling Price
 

2013 (1)

   NYMEX WTI      444      $ 77.66        1,058      $ 78.48      $ 103.20  

2013 (1)

   Dated Brent      —          —          1,656        86.39        117.93  

2013

   NYMEX WTI      11,040        90.85        —          —          —    

2013

   Dated Brent      11,956        106.47        —          —          —    

2014 (1)

   NYMEX WTI      76        74.50        —          —          —    

2014

   NYMEX WTI      22,813        90.83        —          —          —    

2014

   Dated Brent      22,812        100.05        —          —          —    

 

(1) 

For 2013 and 2014, these fixed-price swaps and collars have been designated as cash flow hedges with unrealized gains and losses deferred in accumulated other comprehensive loss.

Subsequent to June 30, 2013, Apache entered into additional crude oil derivatives not designated as cash flow hedges totaling 4 million barrels for the fourth quarter of 2013, 8.4 million barrels for 2014, and 1.5 million barrels for 2015 at ICE Brent pricing. These derivatives were entered in connection with the Gulf of Mexico Shelf divestiture and the total position (including any potential gain or loss at that time) will be novated to Fieldwood upon close. In the event the transaction does not close, the positions will be cash settled with Fieldwood and a separate guarantee with Riverstone Holdings is in place to protect Apache from potential liability.

 

8


As of June 30, 2013, Apache had the following open natural gas derivative positions:

 

     Fixed-Price Swaps      Collars  

Production

Period        

   MMBtu
(in 000’s)
     Weighted
Average
Fixed Price(1)
     MMBtu
(in 000’s)
     Weighted
Average
Floor Price (1)
     Weighted
Average
Ceiling Price (1)
 

2013

     5,034      $ 6.71        2,300      $ 5.35      $ 6.67  

2013 (2)

     44,160        4.20        —          —          —    

2014

     1,295        6.72        —          —          —    

 

(1) 

U.S. natural gas prices represent a weighted-average of several contracts entered into on a per-million British thermal units (MMBtu) basis and are settled primarily against NYMEX Henry Hub.

(2) 

For 2013, these fixed-price swaps have not been designated as cash flow hedges, and changes in fair value are reflected directly in earnings. All other derivative positions have been designated as cash flow hedges.

Fair Value Measurements

Apache’s commodity derivative instruments consist of variable-to-fixed price commodity swaps and options. The fair values of the Company’s derivatives are not actively quoted in the open market. The Company uses a market approach to estimate the fair values of its derivative instruments, utilizing commodity futures price strips for the underlying commodities provided by a reputable third party.

The following table presents the Company’s derivative assets and liabilities measured at fair value on a recurring basis:

 

     Fair Value Measurements Using                      
     Quoted
Price in
Active
Markets
(Level 1)
     Significant
Other
Inputs
(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
     Total
Fair
Value
     Netting(1)     Carrying
Amount
 
     (In millions)  

June 30, 2013

                

Assets:

                

Derivatives designated as cash flow hedges

   $ —        $ 24      $ —        $ 24       

Derivatives not designated as cash flow hedges

     —          148        —          148       
  

 

 

    

 

 

    

 

 

    

 

 

      

Total Derivative assets

   $ —        $ 172      $ —        $ 172      $ (21   $ 151  

Liabilities:

                

Derivatives designated as cash flow hedges

   $ —        $ 9      $ —        $ 9       

Derivatives not designated as cash flow hedges

     —          34        —          34       
  

 

 

    

 

 

    

 

 

    

 

 

      

Total Derivative liabilities

   $ —        $ 43      $ —        $ 43      $ (21   $ 22  

December 31, 2012

                

Assets:

                

Derivatives designated as cash flow hedges

   $ —        $ 48      $ —        $ 48      $ (15   $ 33  

Liabilities:

                

Derivatives designated as cash flow hedges

   $ —        $ 51      $ —        $ 51       

Derivatives not designated as cash flow hedges

     —          80        —          80       
  

 

 

    

 

 

    

 

 

    

 

 

      

Total Derivative liabilities

   $ —        $ 131      $ —        $ 131      $ (15   $ 116  

 

(1) 

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

 

9


Derivative Assets and Liabilities Recorded in the Consolidated Balance Sheet

The Company accounts for derivative instruments and hedging activity in accordance with Accounting Standards Codification (ASC) Topic 815, “Derivatives and Hedging,” and all derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:

 

     June 30,
2013
     December 31,
2012
 
     (In millions)  

Current Assets: Derivative instruments

   $ 87      $ 31  

Other Assets: Deferred charges and other

     64        2  
  

 

 

    

 

 

 

Total Assets

   $ 151      $ 33  
  

 

 

    

 

 

 

Current Liabilities: Derivative instruments

   $ 22      $ 116  
  

 

 

    

 

 

 

Total Liabilities

   $ 22      $ 116  
  

 

 

    

 

 

 

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:

 

   

Gain (Loss) on Derivatives

Recognized in Income

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

June 30,
 
      2013     2012     2013     2012  
        (In millions)  

Gain (loss) on cash flow hedges reclassified from accumulated other comprehensive loss

  Oil and Gas Production Revenues   $ (11   $ 78     $ (20   $ 119  

Gain (loss) for ineffectiveness on cash flow hedges

  Derivative instrument gains (losses), net   $ —       $ —       $ —       $ —    

Gain (loss) on derivatives not designated as cash flow hedges

  Derivative instrument gains (losses), net   $ 247     $ —       $ 147     $ —    

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

Derivative Activity in Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss in the statement of consolidated shareholders’ equity related to Apache’s cash flow hedges is presented in the table below. Derivative activity represents all of the reclassifications out of accumulated other comprehensive loss to income for the periods presented.

 

     For the Six Months Ended June 30,  
     2013     2012  
     Before
tax
    After
tax
    Before
tax
    After
tax
 
     (In millions)  

Unrealized gain (loss) on derivatives at beginning of period

   $ (10   $ (6   $ 145     $ 114  

Realized amounts reclassified into earnings

     20       14       (119     (92

Net change in derivative fair value

     —         (1     171       112  

Ineffectiveness reclassified into earnings

     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized gain on derivatives at end of period

   $ 10     $ 7     $ 197     $ 134  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains and losses on existing hedges will be realized in future earnings through 2014, in the same period as the related sales of natural gas and crude oil production occur. Included in accumulated other comprehensive loss as of June 30, 2013, is a net gain of approximately $10 million ($6 million after tax) that applies to the next 12 months; however, estimated and actual amounts are likely to vary materially as a result of changes in market conditions.

 

10


4. OTHER CURRENT LIABILITIES

The following table provides detail of our other current liabilities:

 

     June 30,
2013
     December 31,
2012
 
     (In millions)  

Accrued operating expenses

   $ 224      $ 211  

Accrued exploration and development

     1,573        1,792  

Accrued compensation and benefits

     136        198  

Accrued interest

     187        160  

Accrued income taxes

     370        297  

Accrued United Kingdom Petroleum Revenue Tax

     196        53  

Other

     151        149  
  

 

 

    

 

 

 

Total Other current liabilities

   $ 2,837      $ 2,860  
  

 

 

    

 

 

 

5. ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the six-month period ended June 30, 2013:

 

     (In millions)  

Asset retirement obligation at December 31, 2012

   $ 4,578  

Liabilities incurred

     251  

Liabilities acquired

     53  

Liabilities settled

     (270

Accretion expense

     130  

Revisions in estimated liabilities

     11  
  

 

 

 

Asset retirement obligation at June 30, 2013

     4,753  

Less current portion

     (475
  

 

 

 

Asset retirement obligation, long-term

   $ 4,278  
  

 

 

 

6. DEBT AND FINANCING COSTS

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

 

     June 30, 2013      December 31, 2012  
     

Carrying

Amount

     Fair
Value
     Carrying
Amount
     Fair
Value
 
     (In millions)  

Uncommitted credit lines

   $ 78      $ 78      $ 91      $ 91  

Commercial paper

     1,430        1,430        489        489  

Notes and debentures

     11,267        11,762        11,765        13,340  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Debt

   $ 12,775      $ 13,270      $ 12,345      $ 13,920  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company’s debt is recorded at the carrying amount, net of unamortized discount, on its consolidated balance sheet. The carrying amount of the Company’s commercial paper and uncommitted credit facilities and overdraft lines approximates fair value because the interest rates are variable and reflective of market rates. Apache uses a market approach to determine the fair value of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).

During the second quarter, Apache repaid the $500 million aggregate principal amount of 5.25-percent notes that matured on April 15, 2013, by borrowing under our commercial paper program. As of June 30, 2013, current debt included $400 million 6.00-percent notes due in September 2013. Additionally, current debt included $78 million and $91 million borrowed on uncommitted credit facilities and overdraft lines as of June 30, 2013 and December 31, 2012, respectively.

 

11


As of June 30, 2013, the Company had unsecured committed revolving credit facilities totaling $3.3 billion, of which $1.0 billion matures in August 2016 and $2.3 billion matures in June 2017. The facilities consist of a $1.7 billion facility and $1.0 billion facility for the U.S., a $300 million facility for Australia, and a $300 million facility for Canada. As of June 30, 2013, available borrowing capacity under the Company’s credit facilities was $1.9 billion. The Company’s committed credit facilities are used to support Apache’s commercial paper program.

The Company has available a $3.0 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under our committed credit facilities. As of June 30, 2013, the Company had $1.4 billion in commercial paper outstanding, compared with $489 million as of December 31, 2012.

Financing Costs, Net

 

     For the Quarter  Ended
June 30,
    For the Six Months  Ended
June 30,
 
     2013     2012     2013     2012  
     (In millions)  

Interest expense

   $ 143     $ 131     $ 291     $ 239  

Amortization of deferred loan costs

     2       2       4       3  

Capitalized interest

     (90     (85     (183     (151

Interest income

     (4     (3     (8     (6
  

 

 

   

 

 

   

 

 

   

 

 

 

Financing costs, net

   $ 51     $ 45     $ 104     $ 85  
  

 

 

   

 

 

   

 

 

   

 

 

 

7. INCOME TAXES

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. Accordingly, the Company recorded the income tax impact of a $65 million non-cash write-down of its Argentinian proved oil and gas properties as a discrete item in the first quarter of 2013. Additionally, the Company recorded the income tax impact of a $521 million and $641 million non-cash write-down of its Canadian proved oil and gas properties as a discrete item in the first and second quarters of 2012, respectively.

The Company recorded a $9 million decrease and a $16 million increase in the Argentina and Canada valuation allowances, respectively, during the second quarter of 2013 for deferred tax assets the Company does not expect to realize. During the first quarter of 2013, the Company recorded an increase in the valuation allowances in Argentina and Canada totaling $27 million and $12 million, respectively.

Apache and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. The Company is under audit with the Internal Revenue Service (IRS) for the 2011 tax year. The Company is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

 

12


8. 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. The Company has an accrued liability of approximately $16 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 Environmental Claims

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, in 2006 the Company acquired a subsidiary of Pioneer Natural Resources in Argentina (PNRA) that is involved in various administrative proceedings with environmental authorities in the Neuquén Province relating to permits for and discharges from operations in that province. In addition, PNRA was named in a suit initiated against oil companies operating in the Neuquén basin entitled Asociación de Superficiarios de la Patagonia v. YPF S.A., et. al., originally filed on August 21, 2003, in the Argentine National Supreme Court of Justice relating to various environmental and remediation claims. The plaintiff in that case, known as ASSUPA, in 2012 asserted similar lawsuits and claims against numerous oil and gas producers relating to other geographic areas of Argentina, including claims against a Company subsidiary relating to the Austral Basin. While it is possible that one or more of the Company’s subsidiaries may incur liabilities related to these claims, no reasonable prediction can be made as the Company’s subsidiaries’ exposure related to these lawsuits is not currently determinable. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

U.S. Royalty Litigation

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, on August 20, 2012, in Foster v. Apache Corporation, Civil Action No. CIV-10-0573-HE, in the United States District Court for the Western District of Oklahoma, the District Court denied plaintiff’s motion for class certification. The plaintiff filed a motion for reconsideration, which was also denied, and petitioned the United States Court of Appeals for the Tenth Circuit to accept an appeal of the District Court’s ruling denying class certification. The plaintiff withdrew the petition to appeal following decisions on July 8, 2013, by the United States Court of Appeals for the Tenth Circuit to vacate District Court class certification orders in two unrelated lawsuits – Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc., No. 12-3176, and Chieftain Royalty Company v. XTO Energy, Inc., No. 12-7047. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

Louisiana Restoration 

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either expressed or implied lease terms or Louisiana law, they are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup. No material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

On July 24, 2013, a lawsuit was filed captioned Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East v. Tennessee Gas Pipeline Company et al., Case No. 2013-6911 in the Civil District Court for the Parish of Orleans, State of Louisiana, in which plaintiff on behalf of itself and as the board governing the levee districts of Orleans, Lake Borgne Basin, and East Jefferson alleges that Louisiana coastal lands have been damaged as a result of oil and gas industry activity, including a network of canals for access and pipelines. The plaintiff seeks damages and injunctive relief in the form of abatement and restoration based on claims of negligence, strict liability, natural servitude of drain, public nuisance, private nuisance, and breach of contract – third party beneficiary. Apache has been indiscriminately named as one of approximately 100 defendants in the lawsuit. The overall exposure related to this lawsuit is not currently determinable. While an adverse judgment against Apache might be possible, Apache intends to vigorously defend the case.

 

13


Hurricane-Related Litigation

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, on May 27, 2011, in the case styled Comer et al. v. Murphy Oil USA, Inc. et al., Case No. 1:11-cv-220 HS0-JMR, in the United States District Court for the Southern District of Mississippi, the District Court granted defendants’ motion to dismiss plaintiffs’ claims, and plaintiffs appealed the decision to the United States Court of Appeals for the Fifth Circuit. On May 14, 2013, the United States Court of Appeals for the Fifth Circuit affirmed the District Court’s decision in case No. 12-60291. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

Australia Gas Pipeline Force Majeure 

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, in 2008 Company subsidiaries reported a pipeline explosion that interrupted deliveries of natural gas in Australia to customers under various long-term contracts. No material change in the status of these matters has occurred since the filing of Apache’s most recent Annual Report on Form 10-K for its 2012 fiscal year except as follows:

 

   

In the case captioned Alcoa of Australia Limited v. Apache Energy Limited, Apache Northwest Pty Ltd, Tap (Harriet) Pty Ltd, and Kufpec Australia Pty Ltd, Civ. 1481 of 2011, in the Supreme Court of Western Australia, on June 20, 2012, the Supreme Court struck out Alcoa’s claim that the liquidated damages provisions under two long-term contracts are unenforceable as a penalty and also struck out Alcoa’s claim for damages for breach of statutory duty. The Company subsidiaries have filed an appeal in the Supreme Court of Western Australia Court of Appeal asking that Alcoa’s remaining tort claim for economic loss be dismissed or, alternatively, struck out. The hearing on appeal took place on April 10, 2013, and the parties await the Court of Appeal’s ruling.

 

   

In the case captioned Burrup Fertilisers Pty Ltd v. Apache Corporation, Apache Energy Limited, and Apache Northwest Pty Ltd, Cause No. 2009-79834, in the District Court of Harris County, Texas, on March 22, 2013, Burrup Fertilisers agreed to dismiss its Texas lawsuit based on Apache Corporation’s motion to dismiss on the ground of forum non conveniens. Accordingly, the District Court entered an agreed order dismissing Burrup Fertilisers’ Texas lawsuit on the ground of forum non conveniens. By its terms, the order of dismissal does not prevent Burrup Fertilisers from re-filing its lawsuit in the civil courts of Western Australia.

 

   

As noted in Apache’s most recent Annual Report on Form 10-K for its 2012 fiscal year, other customers have threatened to file suit challenging the declaration of force majeure under their contracts. At least one third party that is not a customer has also threatened to file suit. In the event it is determined that the pipeline explosion was not a force majeure, Company subsidiaries believe that liquidated damages should be the extent of the damages under long-term contracts with such provisions. Approximately 90 percent of the natural gas volumes sold by Company subsidiaries under long-term contracts have liquidated damages provisions. The Company’s subsidiaries’ share of contractual liquidated damages under the long-term contracts with such provisions would not be expected to exceed $50 million AUD exclusive of interest. This is a reduction from the previous estimate of $200 million AUD. No assurance can be given that customers and/or third parties would not assert claims in excess of contractual liquidated damages, and exposure related to such claims is not currently determinable. While an adverse judgment against Company subsidiaries (and the Company, in the case of the Burrup Fertilisers lawsuit) is possible, the Company and Company subsidiaries do not believe any such claims would have merit and plan to vigorously pursue their defenses against any such claims.

Breton Lawsuit

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, on October 29, 2012, plaintiffs filed an amended complaint in Breton Energy, L.L.C. et al. v. Mariner Energy Resources, Inc., et al., Case 4:11-cv-03561, in the United States District Court for the Southern District of Texas, Houston Division, seeking compensation from defendants for allegedly depriving plaintiffs of rights to hydrocarbons in a reservoir described by plaintiffs as a common reservoir in West Cameron Blocks 171 and 172 offshore Louisiana in the Gulf of Mexico. On May 28, 2013, the United States District Court for the Southern District of Texas dismissed the plaintiffs’ claims and entered judgment in favor of the defendants. On June 3, 2013, the plaintiffs filed a notice of appeal in the United States Court of Appeals for the Fifth Circuit. The appeal is pending. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

 

14


Escheat Audits

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, the State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), has notified numerous companies, including Apache Corporation, that the State intends to examine its books and records and those of its subsidiaries and related entities to determine compliance with the Delaware Escheat Laws. The review is ongoing, and no material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

Burrup-Related Gas Supply Lawsuits

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, on May 19, 2011, a lawsuit captioned Pankaj Oswal et al. v. Apache Corporation, Cause No. 2011-30302, in the District Court of Harris County, Texas, was filed in which plaintiffs assert claims against the Company under the Australian Trade Practices Act. Following a hearing on March 22, 2013, the District Court on April 5, 2013, granted Apache Corporation’s motion to dismiss on the ground of forum non conveniens and entered an order dismissing the Texas lawsuit. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

No material change in the status of the case captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653, in the Supreme Court of Victoria, has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

Concerning the action filed by Tap (Harriet) Pty Ltd (Tap) against Burrup Fertilisers Pty Ltd et al., Civ. 2329 of 2009, in the Supreme Court of Western Australia, no material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

Environmental Matters

As of June 30, 2013, the Company had an undiscounted reserve for environmental remediation of approximately $98 million. The Company is not aware of any environmental claims existing as of June 30, 2013, 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.

As more fully described in Note 8 of the financial statements in Apache’s Annual Report on Form 10-K for its 2012 fiscal year, on May 25, 2011, a panel of the Bureau of Ocean Energy Management (BOEMRE, as it was then known) published a report dated May 23, 2011, and titled “OCS G-2580, Vermilion Block 380 Platform A, Incidents of Noncompliance.” The report concerned the BOEMRE’s investigation of a fire on the Vermillion 380 A platform located in the Gulf of Mexico. Apache currently operates the platform, however, at the time of the incident Mariner Energy was the operator. On April 17, 2013, the Office of Hearings and Appeals, Interior Board of Land Appeals of the United States Department of the Interior, No. IBLA 2012-183, affirmed certain Incidents of Noncompliance issued by the Bureau of Safety and Environmental Enforcement arising out of Mariner Energy’s operation of the Vermilion 380 platform. The Company is considering its options, including but not limited to, whether to appeal this determination. Civil penalties have not yet been assessed. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for its 2012 fiscal year.

On June 1, 2013 Apache Canada Ltd. discovered a leak of produced water from a below ground pipeline in the area of our Zama Operations in northern Alberta. The pipeline was associated with a produced water disposal well. The spill resulted in approximately 60 thousand barrels of produced water being released to the marsh land environment. The applicable government agencies were immediately notified of the event and the line was shut down. Apache Canada Ltd. is currently conducting clean up and monitoring activities in the affected area. It is communicating with appropriate parties including regulatory and First Nation representatives. Investigation of the incident is underway. While the exposure related to this incident is not currently determinable, the Company does not expect the economic impact of this incident to have a material effect on the Company’s financial position, results of operations, or liquidity.

 

15


9. CAPITAL STOCK

Net Income per Common Share

A reconciliation of the components of basic and diluted net income per common share for the quarters and six-month periods ended June 30, 2013 and 2012 is presented in the table below.

 

     For the Quarter Ended June 30,  
     2013      2012  
     Income      Shares      Per Share      Income      Shares      Per Share  
     (In millions, except per share amounts)  

Basic:

                 

Income attributable to common stock

   $ 1,016        392      $ 2.59      $ 337        389      $ 0.87  
        

 

 

          

 

 

 

Effect of Dilutive Securities:

                 

Mandatory Convertible Preferred Stock

     19        14           —          —       

Stock options and other

     —          2           —          1     
  

 

 

    

 

 

       

 

 

    

 

 

    

Diluted:

                 

Income attributable to common stock, including assumed conversions

   $ 1,035        408      $ 2.54      $ 337        390      $ 0.86  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     For the Six Months Ended June 30,  
     2013      2012  
     

Income

     Shares      Per Share      Income      Shares      Per Share  
     (In millions, except per share amounts)  

Basic:

                 

Income attributable to common stock

   $ 1,714        392      $ 4.37      $ 1,115        387      $ 2.88  
        

 

 

          

 

 

 

Effect of Dilutive Securities:

                 

Mandatory Convertible Preferred Stock

     38        14           38        14     

Stock options and other

     —          2           —          2     
  

 

 

    

 

 

       

 

 

    

 

 

    

Diluted:

                 

Income attributable to common stock, including assumed conversions

   $ 1,752        408      $ 4.30      $ 1,153        403      $ 2.86  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 6.7 million and 4.4 million for the quarters ending June 30, 2013 and 2012, and 7.4 million and 3.7 million for the six months ended June 30, 2013 and 2012, respectively. For the quarter ended June 30, 2012, 14.4 million shares related to the assumed conversion of the Mandatory Convertible Preferred Stock were also anti-dilutive.

Common and Preferred Stock Dividends

For the quarter and six months ended June 30, 2013, Apache paid $78 million and $145 million, respectively, in dividends on its common stock. For the quarter and six months ended June 30, 2012, Apache paid $65 million and $123 million, respectively.

For each of the quarters and six months ended June 30, 2013 and June 30, 2012, Apache paid $19 million and $38 million in dividends on its Series D Preferred Stock, respectively.

During the first quarter of 2013, Apache’s Board of Directors approved an 18-percent increase for the regular quarterly cash dividend on the Company’s common stock to $0.20 per share. This increase applied to the dividend on common stock payable on May 22, 2013, to stockholders of record on April 22, 2013.

Stock Repurchase Program

In May 2013, Apache’s Board of Directors authorized the purchase of up to 30 million shares of the Company’s common stock, valued at approximately $2 billion when first announced. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the program on June 10, 2013, with the repurchase of 2,924,271 shares at an average price of $85.47 during the month of June. The Company anticipates that further purchases will primarily be made with proceeds from asset dispositions, but the Company is not obligated to acquire any specific number of shares.

 

16


Series D Preferred Stock

On July 28, 2010, Apache issued 25.3 million depositary shares, each representing a 1/20th interest in a share of Apache’s 6.00-percent Mandatory Convertible Preferred Stock, Series D (Preferred Share), or 1.265 million Preferred Shares. Upon conversion of the outstanding Preferred Shares on August 1, 2013, 14.4 million Apache common shares were issued.

 

17


10. BUSINESS SEGMENT INFORMATION

Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil and natural gas liquids. At June 30, 2013, the Company had production in six countries: the United States, Canada, Egypt, Australia, the United Kingdom (U.K.) North Sea, and Argentina. Apache also pursues exploration interests in other countries that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:

 

     United
States
     Canada     Egypt      Australia      North Sea      Argentina     Other
International
    Total  
     (In millions)  

For the Quarter Ended June 30, 2013

                    

Oil and Gas Production Revenues

   $ 1,836      $ 329     $ 893      $ 291      $ 652      $ 118     $ —       $ 4,119  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating Income (Loss) (1)

   $ 712      $ 14     $ 512      $ 119      $ 202      $ (1   $ —       $ 1,558  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

Other Income (Expense):

                    

Derivative instrument gains (losses), net

                       247  

Other

                       17  

General and administrative

                       (133

Financing costs, net

                       (51
                    

 

 

 

Income Before Income Taxes

                     $ 1,638  
                    

 

 

 

For the Six Months Ended June 30, 2013

                    

Oil and Gas Production Revenues

   $ 3,513      $ 627     $ 1,902      $ 588      $ 1,392      $ 243     $ —       $ 8,265  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating Income (Loss) (1)

   $ 1,298      $ 11     $ 1,170      $ 254      $ 448      $ (64   $ —       $ 3,117  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

Other Income (Expense):

                    

Derivative instrument gains (losses), net

                       147  

Other

                       47  

General and administrative

                       (249

Financing costs, net

                       (104
                    

 

 

 

Income Before Income Taxes

                     $ 2,958  
                    

 

 

 

Total Assets

   $ 33,376      $ 6,927     $ 6,951      $ 7,124      $ 7,114      $ 1,728     $ 130     $ 63,350  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

For the Quarter Ended June 30, 2012

                    

Oil and Gas Production Revenues

   $ 1,442      $ 295     $ 1,011      $ 388      $ 694      $ 126     $ —       $ 3,956  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating Income (Loss)(1)

   $ 526      $ (671   $ 672      $ 202      $ 251      $ 15     $ (7   $ 988  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

Other Income (Expense):

                    

Other

                       16  

General and administrative

                       (132

Merger, acquisitions & transition

                       (16

Financing costs, net

                       (45
                    

 

 

 

Income Before Income Taxes

                     $ 811  
                    

 

 

 

For the Six Months Ended June 30, 2012

                    

Oil and Gas Production Revenues

   $ 2,992      $ 648     $ 2,260      $ 814      $ 1,436      $ 263     $ —       $ 8,413  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Operating Income (Loss) (1)

   $ 1,197      $ (1,158   $ 1,599      $ 453      $ 515      $ 44     $ (7   $ 2,643  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

Other Income (Expense):

                    

Other

                       95  

General and administrative

                       (260

Merger, acquisitions & transition

                       (22

Financing costs, net

                       (85
                    

 

 

 

Income Before Income Taxes

                     $ 2,371  
                    

 

 

 

Total Assets

   $ 28,453      $ 7,932     $ 6,916      $ 5,487      $ 6,541      $ 1,810     $ 78     $ 57,217  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

(1) 

Operating Income (Loss) consists of oil and gas production revenues less depreciation, depletion and amortization, asset retirement obligation accretion, lease operating expenses, gathering and transportation costs, and taxes other than income. Argentina’s operating loss for the first six months of 2013 includes additional depletion of $65 million to write-down the carrying value of oil and gas properties. Canada’s operating loss for the first quarter and second quarter of 2012 includes additional depletion of $521 million and $641 million, respectively, to write-down the carrying value of oil and gas properties.

 

18


11. SUPPLEMENTAL GUARANTOR INFORMATION

In December 1999, Apache Finance Canada Corporation (Apache Finance Canada) issued approximately $300 million of publicly-traded notes due in 2029. In May 2003, Apache Finance Canada issued an additional $350 million of publicly-traded notes due in 2015. Both are fully and unconditionally guaranteed by Apache. The following condensed consolidating financial statements are provided as an alternative to filing separate financial statements.

Apache Finance Canada has been fully consolidated in Apache’s consolidated financial statements. As such, these condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and subsidiaries and notes thereto, of which this note is an integral part.

 

19


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 30, 2013

 

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

REVENUES AND OTHER:

            

Oil and gas production revenues

   $ 1,255      $ —       $ 2,864      $ —       $ 4,119  

Equity in net income (loss) of affiliates

     718        (6     2        (714     —    

Derivative instrument gains (losses), net

     247        —         —          —         247  

Other

     3        15       —          (1     17  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     2,223        9       2,866        (715     4,383  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES:

            

Depreciation, depletion and amortization

     470        —         934        —         1,404  

Asset retirement obligation accretion

     20        —         45        —         65  

Lease operating expenses

     267        —         562        —         829  

Gathering and transportation

     17        —         63        —         80  

Taxes other than income

     57        —         126        —         183  

General and administrative

     102        —         32        (1     133  

Financing costs, net

     34        14       3        —         51  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     967        14       1,765        (1     2,745  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     1,256        (5     1,101        (714     1,638  

Provision (benefit) for income taxes

     221        (1     383        —         603  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS)

     1,035        (4     718        (714     1,035  

Preferred stock dividends

     19        —         —          —         19  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 1,016      $ (4   $ 718      $ (714   $ 1,016  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ 1,031      $ (4   $ 718      $ (714   $ 1,031  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) 

Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

20


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended June 30, 2012

 

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

REVENUES AND OTHER:

            

Oil and gas production revenues

   $ 982      $ —       $ 2,974      $ —       $ 3,956  

Equity in net income (loss) of affiliates

     217        (227     59        (49     —    

Other

     —          17       —          (1     16  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     1,199        (210     3,033        (50     3,972  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES:

            

Depreciation, depletion and amortization

     356        —         1,576        —         1,932  

Asset retirement obligation accretion

     18        —         39        —         57  

Lease operating expenses

     216        —         488        —         704  

Gathering and transportation

     11        —         61        —         72  

Taxes other than income

     44        —         159        —         203  

General and administrative

     102        —         31        (1     132  

Merger, acquisitions & transition

     14        —         2        —         16  

Financing costs, net

     7        14       24        —         45  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     768        14       2,380        (1     3,161  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     431        (224     653        (49     811  

Provision (benefit) for income taxes

     75        (56     436        —         455  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS)

     356        (168     217        (49     356  

Preferred stock dividends

     19        —         —          —         19  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 337      $ (168   $ 217      $ (49   $ 337  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ 390      $ (168   $ 217      $ (49   $ 390  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) 

Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

21


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2013

 

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

REVENUES AND OTHER:

            

Oil and gas production revenues

   $ 2,401      $ —       $ 5,864      $ —       $ 8,265  

Equity in net income (loss) of affiliates

     1,328        (17     5        (1,316     —    

Derivative instrument gains (losses), net

     147        —         —          —         147  

Other

     1        30       19        (3     47  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     3,877        13       5,888        (1,319     8,459  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES:

            

Depreciation, depletion and amortization

     871        —         1,968        —         2,839  

Asset retirement obligation accretion

     40        —         90        —         130  

Lease operating expenses

     548        —         1,052        —         1,600  

Gathering and transportation

     31        —         123        —         154  

Taxes other than income

     101        —         324        —         425  

General and administrative

     202        —         50        (3     249  

Financing costs, net

     68        28       8        —         104  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
     1,861        28       3,615        (3     5,501  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     2,016        (15     2,273        (1,316     2,958  

Provision (benefit) for income taxes

     264        (3     945        —         1,206  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS)

     1,752        (12     1,328        (1,316     1,752  

Preferred stock dividends

     38        —         —          —         38  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 1,714      $ (12   $ 1,328      $ (1,316   $ 1,714  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ 1,727      $ (12   $ 1,328      $ (1,316   $ 1,727  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) 

Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

22


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Six Months Ended June 30, 2012

 

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

REVENUES AND OTHER:

           

Oil and gas production revenues

   $ 2,040     $ —       $ 6,373      $ —       $ 8,413  

Equity in net income (loss) of affiliates

     772       (401     105        (476     —    

Other

     (1     34       64        (2     95  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     2,811       (367     6,542        (478     8,508  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

OPERATING EXPENSES:

           

Depreciation, depletion and amortization

     648       —         3,024        —         3,672  

Asset retirement obligation accretion

     37       —         75        —         112  

Lease operating expenses

     431       —         946        —         1,377  

Gathering and transportation

     23       —         126        —         149  

Taxes other than income

     94       —         366        —         460  

General and administrative

     205       —         57        (2     260  

Merger, acquisitions & transition

     16       —         6        —         22  

Financing costs, net

     51       28       6        —         85  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     1,505       28       4,606        (2     6,137  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) BEFORE INCOME TAXES

     1,306       (395     1,936        (476     2,371  

Provision (benefit) for income taxes

     153       (99     1,164        —         1,218  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

NET INCOME (LOSS)

     1,153       (296     772        (476     1,153  

Preferred stock dividends

     38       —         —          —         38  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK

   $ 1,115     $ (296   $ 772      $ (476   $ 1,115  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

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

   $ 1,135     $ (296   $ 772      $ (476   $ 1,135  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) 

Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

 

23


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2013

 

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

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

   $ 688     $ (76   $ 4,768     $ —       $ 5,380  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Additions to oil and gas property

     (1,854     —         (3,284     —         (5,138

Additions to gas gathering, transmission and processing facilities

     (54     —         (441     —         (495

Proceeds from Kitimat LNG transaction, net

     —         —         405       —         405  

Acquisitions, other

     —         —         (148     —         (148

Investment in subsidiaries, net

     1,258       —         —         (1,258     —    

Other

     (58     —         70       —         12  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (708     —         (3,398     (1,258     (5,364
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Commercial paper and bank credit facilities, net

     945       —         (14     —         931  

Intercompany borrowings

     —         1       (1,253     1,252       —    

Payments on fixed rate debt

     (500     —         —         —         (500

Dividends paid

     (183     —         —         —         (183

Treasury stock activity, net

     (249     —         —         —         (249

Other

     7       75       (79     6       9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     20       76       (1,346     1,258       8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE IN CASH AND CASH EQUIVALENTS

     —         —         24       —         24  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     —         —         160       —         160  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ —       $ —       $ 184     $ —       $ 184  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six Months Ended June 30, 2012

 

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

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

   $ 908     $ (59   $ 3,950     $ —       $ 4,799  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

          

Additions to oil and gas property

     (1,328     —         (2,428     —         (3,756

Additions to gas gathering, transmission and processing facilities

     (25     —         (417     —         (442

Acquisition of Cordillera

     (2,607     —         —         —         (2,607

Acquisition of Yara Pilbara Holdings Pty Limited

     —         —         (439     —         (439

Acquisitions, other

     (1     —         (64     —         (65

Proceeds from sales of oil and gas properties

     5       —         4       —         9  

Investment in subsidiaries, net

     612       —         —         (612     —    

Other

     (456     —         170       —         (286
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH USED IN INVESTING ACTIVITIES

     (3,800     —         (3,174     (612     (7,586
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

          

Commercial paper and bank credit facilities, net

     393       —         38       —         431  

Intercompany borrowings

     —         —         (587     587       —    

Fixed rate debt borrowings

     2,991       —         —         —         2,991  

Payments on fixed rate debt

     (400     —         —         —         (400

Dividends paid

     (161     —         —         —         (161

Treasury stock activity, net

     2       —         —         —         2  

Other

     35       55       (125     25       (10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

     2,860       55       (674     612       2,853  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     (32     (4     102       —         66  

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

     41       5       249       —         295  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

   $ 9     $ 1     $ 351     $ —       $ 361  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

June 30, 2013

 

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

CURRENT ASSETS:

             

Cash and cash equivalents

   $ —        $ —        $ 184      $ —       $ 184  

Receivables, net of allowance

     979        —          1,935        —         2,914  

Inventories

     93        —          880        —         973  

Drilling advances

     7        1        290        —         298  

Derivative instruments

     87        —          —          —         87  

Prepaid assets and other

     157        —          247        (102     302  

Intercompany receivable

     4,503        —          —          (4,503     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     5,826        1        3,536        (4,605     4,758  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

     19,893        —          35,928        —         55,821  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

OTHER ASSETS:

             

Intercompany receivable

     3,376        —          —          (3,376     —    

Equity in affiliates

     22,389        938        94        (23,421     —    

Goodwill, net

     173        —          1,196        —         1,369  

Deferred charges and other

     234        1,002        1,166        (1,000     1,402  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 51,891      $ 1,941      $ 41,920      $ (32,402   $ 63,350  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY              

CURRENT LIABILITIES:

             

Accounts payable

   $ 874      $ 2      $ 470      $ —       $ 1,346  

Current debt

     417        —          61        —         478  

Asset retirement obligation

     471        —          4        —         475  

Derivative instruments

     22        —          —          —         22  

Other current liabilities

     957        4        1,978        (102     2,837  

Intercompany payable

     —          —          4,503        (4,503     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     2,741        6        7,016        (4,605     5,158  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LONG-TERM DEBT

     11,649        647        1        —         12,297  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

             

Intercompany payable

     —          —          3,376        (3,376     —    

Income taxes

     3,323        6        5,167        —         8,496  

Asset retirement obligation

     1,048        —          3,230        —         4,278  

Other

     409        250        741        (1,000     400  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     4,780        256        12,514        (4,376     13,174  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY

     32,721        1,032        22,389        (23,421     32,721  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 51,891      $ 1,941      $ 41,920      $ (32,402   $ 63,350  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

26


APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2012

 

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

CURRENT ASSETS:

             

Cash and cash equivalents

   $ —        $ —        $ 160      $ —       $ 160  

Receivables, net of allowance

     876        —          2,210        —         3,086  

Inventories

     95        —          813        —         908  

Drilling advances

     21        1        562        —         584  

Derivative instruments

     31        —          —          —         31  

Prepaid assets and other

     102        —          91        —         193  

Intercompany receivable

     3,766        —          —          (3,766     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     4,891        1        3,836        (3,766     4,962  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

PROPERTY AND EQUIPMENT, NET

     18,517        —          34,763        —         53,280  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

OTHER ASSETS:

             

Intercompany receivable

     4,628        —          —          (4,628     —    

Equity in affiliates

     21,047        934        97        (22,078     —    

Goodwill, net

     173        —          1,116        —         1,289  

Deferred charges and other

     152        1,002        1,052        (1,000     1,206  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 49,408      $ 1,937      $ 40,864      $ (31,472   $ 60,737  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
LIABILITIES AND SHAREHOLDERS’ EQUITY              

CURRENT LIABILITIES:

             

Accounts payable

   $ 639      $ 1      $ 452      $ —       $ 1,092  

Current debt

     912        —          78        —         990  

Asset retirement obligation

     471        —          7        —         478  

Derivative instruments

     96        —          20        —         116  

Other current liabilities

     893        3        1,964        —         2,860  

Intercompany payable

     —          —          3,766        (3,766     —    
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     3,011        4        6,287        (3,766     5,536  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

LONG-TERM DEBT

     10,706        647        2        —         11,355  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:

             

Intercompany payable

     —          —          4,628        (4,628     —    

Income taxes

     2,990        5        5,029        —         8,024  

Asset retirement obligation

     992        —          3,108        —         4,100  

Other

     378        250        763        (1,000     391  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
     4,360        255        13,528        (5,628     12,515  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES SHAREHOLDERS’ EQUITY

     31,331        1,031        21,047        (22,078     31,331  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
   $ 49,408      $ 1,937      $ 40,864      $ (31,472   $ 60,737  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

27


ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops and produces natural gas, crude oil, and natural gas liquids. The Company has exploration and production interests in six countries: the U.S., Canada, Egypt, Australia, the United Kingdom (U.K.) North Sea, and Argentina. Apache also pursues exploration interests in other countries that may over time result in reportable discoveries and development opportunities.

This discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for our 2012 fiscal year.

Financial Overview

For the second quarter of 2013, Apache reported earnings of $1.0 billion, or $2.54 per diluted common share, compared with $337 million, or $0.86 per share, in the prior-year period. Earnings for the first half of 2013 totaled $1.7 billion, or $4.30 per diluted share. Apache’s adjusted earnings for the second quarter of 2013, which exclude certain items impacting the comparability of results, were $801 million, or $2.01 per diluted common share, down from $821 million, or $2.07 per share, in the second quarter of 2012. Adjusted earnings for the first half of 2013 totaled $1.6 billion, or $4.03 per diluted share, down from $2.0 billion or $5.06 per share in the comparable prior-year period. Adjusted earnings is not a financial measure prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). For a description of adjusted earnings and a reconciliation of adjusted earnings to income attributable to common stock, the most directly comparable GAAP financial measure, please see “Non-GAAP Measures” in this Item 2.

Underpinning earnings was a 42-percent increase in onshore North America liquids production over the prior-year quarter. This growth resulted in a 2-percent increase in worldwide production to 790 thousand barrels of oil equivalent per day (Mboe/d) and a 4-percent increase in production revenues to $4.1 billion. Worldwide liquids production for the quarter was 10 percent higher than the comparative 2012 quarter averaging 426 Mboe/d, of which 84 percent was crude oil.

The strength of our crude oil portfolio helped drive net cash provided by operating activities (operating cash flows or cash flows) which totaled $2.8 billion for the second quarter of 2013, consistent with the second quarter of 2012. Operating cash flows is a key measure for us as it provides liquidity for our active drilling program and large-scale development projects currently in progress. With our significant acquisitions over the past three years and increased production levels, the Company’s operating cash flows have been trending upward. This additional cash flow has primarily been invested in exploration and development activities, including increased drilling on our expanded acreage positions. We routinely adjust our capital budget on a quarterly basis in response to changing market conditions and operating cash flow forecasts.

Although operating cash flows are the Company’s primary source of liquidity, we may also elect to utilize available committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the occasional sale of assets for all other liquidity needs. Earlier this year, the Company announced plans to divest approximately $4 billion of assets by year-end 2013 to enhance financial flexibility and rebalance our portfolio, after several years of acquisitions, to an asset mix we believe will continue to generate strong returns, drive more predictable growth, and deliver value to our shareholders. The Company intends to use the proceeds from these divestitures to reduce debt and to repurchase Apache common shares under a 30-million share repurchase program authorized by the Company’s Board of Directors. As of the date of this filing, approximately 2.9 million shares have been repurchased. For additional information on this share repurchase program, please see Part II, Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds” of this Form 10-Q.

As an important first step to our asset divestiture plan, in July 2013 Apache announced that it had entered into an agreement to sell its Gulf of Mexico Shelf operations and properties to Fieldwood Energy LLC (Fieldwood), an affiliate of Riverstone Holdings. Under the terms of the agreement, Apache will receive cash proceeds of $3.75 billion and Fieldwood will assume liabilities estimated at $1.5 billion related to future abandonment of the assets (discounted asset retirement obligation as of June 30, 2013). Apache will retain a 50-percent ownership interest in all exploration blocks and in horizons below existing production in developed blocks. The effective date of the agreement is July 1, 2013, and the transaction is expected to close September 30, 2013, subject to customary regulatory approvals and closing conditions.

 

28


Operational Developments

Apache has a significant producing asset base as well as large undeveloped acreage positions that provide a platform for organic growth through sustainable lower-risk drilling opportunities, balanced by higher-risk, higher-reward exploration. We are also continuing to advance several longer-term, individually significant development projects, as more fully discussed in our 2012 Annual Report on Form 10-K. Notable operational developments include:

North America

 

   

In the second quarter, the Central region saw production increase for the fifth consecutive quarter as we continue to deploy capital across our nearly two million gross acres in the Anadarko basin. Production was up 65 percent relative to the prior-year quarter as the result of our active oil and liquids-rich drilling program and full integration of production from our Cordillera acquisition. During the quarter we operated an average of 28 drilling rigs, drilling 87 gross wells with 100 percent success.

 

   

Our active drilling program in the Permian Basin during the second quarter of 2013 resulted in a production increase of 18 percent relative to the second quarter of 2012. Over 55 percent of the region’s production is crude oil and 18 percent is natural gas liquids (NGL). Combined this represents 21 percent of Apache’s total liquids production for the second quarter of 2013.

 

   

Second quarter 2013 U.S. production represents 45 percent of Apache’s total worldwide production, a 20-percent increase over the U.S. share in the second quarter of 2012. Focused drilling programs in the Permian Basin and Anadarko basin continue to provide momentum for Apache’s U.S. production growth.

International

 

   

On July 16, 2013, Apache announced its Bianchi-1 natural gas discovery located 4 miles northeast of the 2011 Zola gas discovery offshore Western Australia in the Carnarvon Basin. The well logged 367 feet of net pay in eight reservoir zones between 15,577 and 17,530 feet subsea. Apache is in the early stages of evaluating the discovery results and assessing potential commercial opportunities. Apache operates and owns a 30.25-percent working interest in the well.

 

   

During the second quarter of 2013, major milestones were met on the Forties Alpha Satellite Platform project in the North Sea. The bridge and topsides module were successfully delivered and installed offshore. The project is now in the final stages leading up to commissioning with drilling scheduled to commence in the third quarter of 2013. This platform is bridge-linked to the adjacent main Forties Alpha platform and provides an additional 18 drilling slots, plus power and processing capacity.

 

   

On August 1, 2013, Apache announced that the third development well in the Bacchus Field in the U.K. North Sea has pushed field production past 17,600 barrels of oil per day. Apache has a 50 percent interest in the field. Following the recent success at Bacchus, Apache has extended its current Forties 3D seismic survey area to cover other Jurassic development and exploration targets in Apache licenses in the Bacchus area.

 

   

On August 1, 2013, Apache announced seven oil and gas discoveries in four different geologic basins in Egypt’s Western Desert. In particular, the Riviera SW-1X discovery in the Abu Gharadig basin test-flowed 5,800 barrels of oil and 2.8 million cubic feet of gas per day from a Lower Bahariya sand with 24 feet of net pay. All seven discoveries have been tested and the Riviera SW-1X is already producing.

Notable Events

Egypt Political Unrest

In February 2011, former Egyptian president Hosni Mubarak stepped down, and the Egyptian Supreme Council of the Armed Forces took power, announcing that it would remain in power until presidential and parliamentary elections could be held. In June 2012, President Mohamed Morsi of the Muslim Brotherhood’s Freedom and Justice Party was elected as Egypt’s new president, and in December 2012, the people of Egypt ratified a new constitution.

In July 2013, the Egyptian military removed President Morsi from power and installed Egypt’s Chief Justice, Adly Mansour, as acting president of a temporary government, which is seeking to set a schedule for new parliamentary and presidential elections in 2014.

Apache’s operations, located in remote locations in the Western Desert, have not experienced production interruptio