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Form 8-K APACHE CORP For: Aug 04

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August 5, 2016 6:12 AM EDT


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 8-K
________________
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 4, 2016
Commission file number 1-4300
________________________________________
APACHE CORPORATION
(Exact name of registrant as specified in its charter) 
Delaware
 
41-0747868
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices)
Registrant’s telephone number, including area code (713) 296-6000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))





ITEM 8.01
OTHER EVENTS

During the second quarter of 2016, Apache voluntarily changed its method of accounting for oil and gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, certain financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In addition, in the first quarter of 2016, the Company retrospectively adopted a new accounting standard update which requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability, consistent with debt discounts. The Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, that was filed by the Company on August 4, 2016 reflects these accounting changes and updates for the relevant periods therein.

We have recast certain information of our filing to reflect the retrospective changes in accounting principle for all periods presented in the following sections of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 (the “Previously Filed Quarterly Report”) as follows:

•
Part I, Item 1. Financial Statements and Notes to Consolidated Financial Statements
•
Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
•
Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk

As this Current Report on Form 8-K is being filed only for the purpose described above, and only affects the Items specified above, the other information in the Previously Filed Quarterly Report filed with the Securities Exchange Commission (SEC) on May 5, 2016 remains unchanged. No attempt has been made in this Current Report on Form 8-K to modify or update disclosures in the Previously Filed Quarterly Report, except for certain recast financial information as described above. This Current Report on Form 8-K does not reflect events occurring after the filing of the Previously Filed Quarterly Report. Accordingly, this Current Report on Form 8-K should be read in conjunction with the Previously Filed Quarterly Report and the Company’s filings made with the SEC subsequent to the filing of the Previously Filed Quarterly Report, including any amendments to those filings. In addition, on August 4, 2016, the Company filed a separate Current Report on Form 8-K for the fiscal year ended December 31, 2015, reflecting the retrospective change in accounting principle.

ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS

*99.1
-
Financial Statements and Notes to Consolidated Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
*101.INS
-
XBRL Instance Document.
*101.SCH
-
XBRL Taxonomy Schema Document.
*101.CAL
-
XBRL Calculation Linkbase Document.
*101.DEF
-
XBRL Definition Linkbase Document.
*101.LAB
-
XBRL Label Linkbase Document.
*101.PRE
-
XBRL Presentation Linkbase Document.

*    Filed herewith.





SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
 
 
APACHE CORPORATION
 
/s/ Stephen J. Riney
Stephen J. Riney
Executive Vice President and Chief Financial Officer
Dated: August 4, 2016





EXHIBIT INDEX
No.
 
Description
99.1
-
Financial Statements and Notes to Consolidated Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Quantitative and Qualitative Disclosures About Market Risk of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016.
101.INS
-
XBRL Instance Document.
101.SCH
-
XBRL Taxonomy Schema Document.
101.CAL
-
XBRL Calculation Linkbase Document.
101.DEF
-
XBRL Definition Linkbase Document.
101.LAB
-
XBRL Label Linkbase Document.
101.PRE
-
XBRL Presentation Linkbase Document.



Exhibit 99.1

PART I – FINANCIAL INFORMATION
ITEM 1 – FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)
 
 
For the Quarter Ended March 31,
 
 
2016*
 
2015*
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
Oil and gas production revenues
 
 
 
 
Oil revenues
 
$
822

 
$
1,293

Gas revenues
 
223

 
308

Natural gas liquids revenues
 
42

 
58

 
 
1,087

 
1,659

Other
 
(3
)
 
(6
)
Loss on divestitures
 
(1
)
 
(18
)
 
 
1,083

 
1,635

OPERATING EXPENSES:
 
 
 
 
Lease operating expenses
 
378

 
481

Gathering and transportation
 
52

 
56

Taxes other than income
 
11

 
73

Exploration
 
95

 
258

General and administrative
 
93

 
84

Depreciation, depletion, and amortization:
 
 
 
 
Oil and gas property and equipment
 
636

 
743

Other assets
 
42

 
83

Asset retirement obligation accretion
 
38

 
36

Impairments
 
—

 
1,912

Transaction, reorganization, and separation
 
15

 
54

Financing costs, net
 
105

 
124

 
 
1,465

 
3,904

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(382
)
 
(2,269
)
Current income tax provision (benefit)
 
(10
)
 
(52
)
Deferred income tax provision (benefit)
 
(1
)
 
(1,149
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(371
)
 
(1,068
)
Net loss from discontinued operations, net of tax
 
—

 
(238
)
NET LOSS INCLUDING NONCONTROLLING INTEREST
 
(371
)
 
(1,306
)
Net income attributable to noncontrolling interest
 
1

 
28

NET LOSS ATTRIBUTABLE TO COMMON STOCK
 
$
(372
)
 
$
(1,334
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
 
 
 
 
Net loss from continuing operations attributable to common shareholders
 
$
(372
)
 
$
(1,096
)
Net loss from discontinued operations
 
—

 
(238
)
Net loss attributable to common shareholders
 
$
(372
)
 
$
(1,334
)
NET LOSS PER COMMON SHARE:
 
 
 
 
Basic net loss from continuing operations per share
 
$
(0.98
)
 
$
(2.91
)
Basic net loss from discontinued operations per share
 
—

 
(0.63
)
Basic net loss per share
 
$
(0.98
)
 
$
(3.54
)
DILUTED NET LOSS PER COMMON SHARE:
 
 
 
 
Diluted net loss from continuing operations per share
 
$
(0.98
)
 
$
(2.91
)
Diluted net loss from discontinued operations per share
 
—

 
(0.63
)
Diluted net loss per share
 
$
(0.98
)
 
$
(3.54
)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
Basic
 
378

 
377

Diluted
 
378

 
377

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.25

 
$
0.25

*Financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

1


APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
For the Three Months Ended March 31,
 
 
2016*
 
2015*
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss including noncontrolling interest
 
$
(371
)
 
$
(1,306
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
 
Loss from discontinued operations
 
—

 
238

Loss on divestitures
 
1

 
18

Exploratory dry hole expense and unproved leasehold impairments
 
71

 
203

Depreciation, depletion, and amortization
 
678

 
826

Asset retirement obligation accretion
 
38

 
36

Impairments
 
—

 
1,912

Provision (benefit) from deferred income taxes
 
(1
)
 
(1,149
)
Other
 
55

 
(3
)
Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
135

 
247

Inventories
 
10

 
22

Drilling advances
 
(17
)
 
(169
)
Deferred charges and other
 
(117
)
 
(60
)
Accounts payable
 
(75
)
 
(190
)
Accrued expenses
 
(141
)
 
(193
)
Deferred credits and noncurrent liabilities
 
(27
)
 
77

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
 
239

 
509

NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 
—

 
60

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
239

 
569

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(546
)
 
(1,517
)
Leasehold and property acquisitions
 
(19
)
 
(91
)
Additions to gas gathering, transmission, and processing facilities
 
—

 
(63
)
Other, net
 
10

 
(72
)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
 
(555
)
 
(1,743
)
NET CASH USED IN DISCONTINUED OPERATIONS
 
—

 
(252
)
NET CASH USED IN INVESTING ACTIVITIES
 
(555
)
 
(1,995
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Commercial paper and bank credit facilities, net
 
—

 
1,028

Distributions to noncontrolling interest
 
(54
)
 
(21
)
Dividends paid
 
(95
)
 
(94
)
Other
 
2

 
15

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(147
)
 
928

 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(463
)
 
(498
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
1,467

 
679

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,004

 
$
181

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
141

 
$
141

Income taxes paid, net of refunds
 
84

 
142

*Financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

2


APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
March 31, 2016*
 
December 31, 2015*
 
 
(In millions)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,004

 
$
1,467

Receivables, net of allowance
 
1,120

 
1,253

Inventories
 
547

 
570

Drilling advances
 
190

 
172

Prepaid assets and other
 
399

 
290

 
 
3,260

 
3,752

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
42,161

 
41,728

Unproved properties and properties under development, not being amortized
 
2,241

 
2,277

Gathering, transmission and processing facilities
 
1,048

 
1,052

Other
 
1,094

 
1,093

 
 
46,544

 
46,150

Less: Accumulated depreciation, depletion, and amortization
 
(25,985
)
 
(25,312
)
 
 
20,559

 
20,838

OTHER ASSETS:
 
 
 
 
Deferred charges and other
 
915

 
910

 
 
$
24,734

 
$
25,500

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
571

 
$
618

Other current liabilities (Note 5)
 
994

 
1,223

 
 
1,565

 
1,841

LONG-TERM DEBT
 
8,718

 
8,716

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
2,533

 
2,529

Asset retirement obligation
 
2,586

 
2,562

Other
 
332

 
362

 
 
5,451

 
5,453

COMMITMENTS AND CONTINGENCIES (Note 9)
 
 
 
 
EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 411,708,123 and 411,218,105 shares issued, respectively
 
257

 
257

Paid-in capital
 
12,553

 
12,619

Accumulated deficit
 
(2,352
)
 
(1,980
)
Treasury stock, at cost, 33,175,728 and 33,183,930 shares, respectively
 
(2,888
)
 
(2,889
)
Accumulated other comprehensive loss
 
(119
)
 
(119
)
APACHE SHAREHOLDERS’ EQUITY
 
7,451

 
7,888

Noncontrolling interest
 
1,549

 
1,602

TOTAL EQUITY
 
9,000

 
9,490

 
 
$
24,734

 
$
25,500

*Financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

3


APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CHANGES IN EQUITY
(Unaudited)
 
 
 
Common
Stock
 
Paid-In
Capital
 
Retained Earnings (Accumulated Deficit)
 
Treasury
Stock
 
Accumulated
Other
Comprehensive
Loss
 
APACHE
SHAREHOLDERS’
EQUITY
 
Non
Controlling
Interest
 
TOTAL
EQUITY
 
 
(In millions)
BALANCE AT DECEMBER 31, 2014 previously reported
 
$
256

 
$
12,438

 
$
16,249

 
$
(2,890
)
 
$
(116
)
 
$
25,937

 
$
2,200

 
$
28,137

Effect of change in accounting principle
 
—

 
152

 
(7,594
)
 
—

 
—

 
(7,442
)
 
(154
)
 
(7,596
)
BALANCE AT DECEMBER 31, 2014 as recast
 
$
256

 
$
12,590

 
$
8,655

 
$
(2,890
)
 
$
(116
)
 
$
18,495

 
$
2,046

 
$
20,541

Net income (loss)
 
—

 
—

 
(1,334
)
 
—

 
—

 
(1,334
)
 
28

 
(1,306
)
Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(21
)
 
(21
)
Common dividends ($0.25 per share)
 
—

 
—

 
(94
)
 
—

 
—

 
(94
)
 
—

 
(94
)
Common stock activity, net
 
—

 
18

 
—

 
—

 
—

 
18

 
—

 
18

Treasury stock activity, net
 
—

 
—

 
—

 
1

 
—

 
1

 
—

 
1

BALANCE AT MARCH 31, 2015
 
$
256

 
$
12,608

 
$
7,227

 
$
(2,889
)
 
$
(116
)
 
$
17,086

 
$
2,053

 
$
19,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2015 previously reported
 
$
257

 
$
12,467

 
$
(7,153
)
 
$
(2,889
)
 
$
(116
)
 
$
2,566

 
$
1,662

 
$
4,228

Effect of change in accounting principle
 
—

 
152

 
5,173

 
—

 
(3
)
 
5,322

 
(60
)
 
5,262

BALANCE AT DECEMBER 31, 2015 as recast
 
$
257

 
$
12,619

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

 
$
1,602

 
$
9,490

Net income (loss)
 
—

 
—

 
(372
)
 
—

 
—

 
(372
)
 
1

 
(371
)
Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(54
)
 
(54
)
Common dividends ($0.25 per share)
 
—

 
(95
)
 
—

 
—

 
—

 
(95
)
 
—

 
(95
)
Other
 
—

 
29

 
—

 
1

 
—

 
30

 
—

 
30

BALANCE AT MARCH 31, 2016
 
$
257

 
$
12,553

 
$
(2,352
)
 
$
(2,888
)
 
$
(119
)
 
$
7,451

 
$
1,549

 
$
9,000

Financial information for all periods has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.


4


APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These consolidated financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited consolidated 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 Current Report on Form 8-K for the quarter ended March 31, 2016, should be read along with Apache’s Current Report on Form 8-K dated August 4, 2016 for the fiscal year ended December 31, 2015, which contains a summary of the Company’s significant accounting policies and other disclosures.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
As of March 31, 2016, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated August 4, 2016 for the fiscal year ended December 31, 2015.
The Company’s financial statements for prior periods include reclassifications that were made to conform to the current-period presentation. During the second quarter of 2015, Apache completed the sale of its Australian LNG business and oil and gas assets. Results of operations and consolidated cash flows for the divested Australia assets are reflected as discontinued operations in the Company’s financial statements for all periods presented. For more information regarding these divestitures, please refer to Note 3—Acquisitions and Divestitures.
Recast Financial Information for Change in Accounting Principle
In the second quarter of 2016, Apache voluntarily changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method of accounting. The financial information for prior periods has been recast to reflect retrospective application of the successful efforts method, as prescribed by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 932 “Extractive Activities—Oil and Gas.” Although the full cost method of accounting for oil and gas exploration and development activities continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the U.S. Securities and Exchange Commission (SEC) and is more widely used in the industry such that the change will improve comparability of the Company's financial statements to its peers. The Company believes the successful efforts method provides a more representational depiction of assets and operating results. The successful efforts method also provides for the Company's investments in oil and gas properties to be assessed for impairment in accordance with ASC 360 "Property, Plant, and Equipment" rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. For more detailed information regarding the effects of the change to the successful efforts method, please refer to Note 2—Change in Accounting Principle. The Company has recast certain historical information for all periods presented, including the Statement of Consolidated Operations, Statement of Consolidated Cash Flows, Consolidated Balance Sheet, Statement of Consolidated Changes in Equity, and related information in Notes 1, 2, 3, 4, 5, 7, 8, 10, 11, and 12.
In addition, the Company retrospectively adopted a new accounting standard update ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability, consistent with debt discounts. For more information regarding this update, please refer to Note 7—Debt and Financing Costs.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates with regard to these financial statements include the fair value determination of acquired assets and liabilities, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows therefrom, the assessment of asset retirement obligations, the estimates of fair value for long-lived assets and goodwill, and the estimate of income taxes. Actual results could differ from those estimates.

5


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

6


The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the first quarters of 2016 and 2015:
 
 
Three months ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
Proved
 
$
—

 
$
1,912

Unproved
 
42

 
168

The fair value of the impaired proved properties as of March 31, 2015 was $1.2 billion.
On the statement of consolidated operations, unproved impairments are recorded in exploration expense, and proved impairments are recorded in impairments. Gains and losses on significant divestitures are recognized in the statement of consolidated operations. See Note 3—Acquisitions and Divestitures for more detail.
New Pronouncements Issued But Not Yet Adopted
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, which seeks to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard requires the Company to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance is effective for fiscal years beginning after December 15, 2016.  Early adoption is permitted and if an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a joint revenue recognition standard, ASU 2014-09. The new standard removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers, and increases disclosure requirements. The guidance requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08, which provides further clarification on the principal versus agent evaluation. The guidance is effective for annual and interim periods beginning after December 15, 2017. The standard is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company is currently evaluating the level of effort needed to implement the standard, the impact of adopting this standard on its consolidated financial statements, and whether to use the full retrospective approach or the modified retrospective approach.

7


2.
CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter of 2016, the Company voluntarily changed its method of accounting for oil and gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration expenditures such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are charged against earnings as incurred, versus being capitalized under the full cost method of accounting. Successful efforts also provides for the assessment of potential property impairments under ASC 360 by comparing the net carrying value of oil and gas properties with associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized cost is reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and gas properties exceeds a full cost “ceiling,” using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the dispositions of oil and gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the remaining assets under the full cost method. Apache’s consolidated financial statements have been recast to reflect these differences.
The following tables present the effects of the change to the successful efforts method in the statement of consolidated operations:
 
Changes to the Statement of Consolidated Operations
For the Quarter Ended March 31, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
795

 
$
27

 
$
822

Natural gas revenues
223

 
—

 
223

NGL revenues
42

 
—

 
42

Oil and gas production revenues
1,060

 
27

 
1,087

Other
(5
)
 
2

 
(3
)
Loss on divestitures
(2
)
 
1

 
(1
)
Exploration
—

 
95

 
95

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
552

 
84

 
636

Additional
488

 
(488
)
 
—

Financing costs, net
90

 
15

 
105

Current income tax provision
35

 
(45
)
 
(10
)
Deferred income tax provision (benefit)
(181
)
 
180

 
(1
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(561
)
 
190

 
(371
)
   Net income (loss) attributable to noncontrolling interest
(72
)
 
73

 
1

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(489
)
 
117

 
(372
)
   Net loss from discontinued operations
—

 
—

 
—

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(489
)
 
117

 
(372
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(1.29
)
 
$
0.31

 
$
(0.98
)
Basic net loss from discontinued operations per share
—

 
—

 
—

Basic net loss per share
$
(1.29
)
 
$
0.31

 
$
(0.98
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(1.29
)
 
$
0.31

 
$
(0.98
)
Diluted net loss from discontinued operations per share
—

 
—

 
—

Diluted net loss per share
$
(1.29
)
 
$
0.31

 
$
(0.98
)

8


 
Changes to the Statement of Consolidated Operations
For the Quarter Ended March 31, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,280

 
$
13

 
$
1,293

Natural gas revenues
300

 
8

 
308

NGL revenues
58

 
—

 
58

Oil and gas production revenues
1,638

 
21

 
1,659

Other
(8
)
 
2

 
(6
)
Loss on divestitures
—

 
(18
)
 
(18
)
Exploration
—

 
258

 
258

General and administrative
82

 
2

 
84

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
999

 
(256
)
 
743

Additional
7,220

 
(7,220
)
 
—

Impairments
—

 
1,912

 
1,912

Financing costs, net
69

 
55

 
124

Current income tax provision (benefit)
(85
)
 
33

 
(52
)
Deferred income tax provision (benefit)
(2,935
)
 
1,786

 
(1,149
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(4,504
)
 
3,436

 
(1,068
)
   Net income attributable to noncontrolling interest
15

 
13

 
28

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(4,519
)
 
3,423

 
(1,096
)
   Net loss from discontinued operations
(132
)
 
(106
)
 
(238
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(4,651
)
 
3,317

 
(1,334
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(11.99
)
 
$
9.08

 
$
(2.91
)
Basic net loss from discontinued operations per share
(0.35
)
 
(0.28
)
 
(0.63
)
Basic net loss per share
$
(12.34
)
 
$
8.80

 
$
(3.54
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(11.99
)
 
$
9.08

 
$
(2.91
)
Diluted net loss from discontinued operations per share
(0.35
)
 
(0.28
)
 
(0.63
)
Diluted net loss per share
$
(12.34
)
 
$
8.80

 
$
(3.54
)

The following tables present the effects of the change to the successful efforts method in the statement of consolidated cash flows:
 
Changes to the Statement of Consolidated Cash Flows
For the Quarter Ended March 31, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(561
)
 
$
190

 
$
(371
)
Loss on divestitures, net
2

 
(1
)
 
1

Exploratory dry hole expense and unproved leasehold impairments
—

 
71

 
71

Depreciation, depletion, and amortization
1,082

 
(404
)
 
678

Provision for (benefit from) deferred income taxes
(181
)
 
180

 
(1
)
Changes in operating assets and liabilities
(159
)
 
(73
)
 
(232
)
Net cash provided by operating activities - continuing operations
276

 
(37
)
 
239

Additions to oil and gas property
(583
)
 
37

 
(546
)
Net cash used in investing activities - continuing operations
(592
)
 
37

 
(555
)
NET INCREASE (DECREASE) IN CASH
(463
)
 
—

 
(463
)
BEGINNING CASH BALANCE
1,467

 
—

 
1,467

ENDING CASH BALANCE
1,004

 
—

 
1,004


9


 
Changes to the Statement of Consolidated Cash Flows
For the Quarter Ended March 31, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(4,636
)
 
$
3,330

 
$
(1,306
)
Loss from discontinued operations
132

 
106

 
238

Loss on divestitures, net
—

 
18

 
18

Exploratory dry hole expense and unproved leasehold impairments
—

 
203

 
203

Depreciation, depletion, and amortization
8,302

 
(7,476
)
 
826

Impairments
—

 
1,912

 
1,912

Provision for (benefit from) deferred income taxes
(2,935
)
 
1,786

 
(1,149
)
Changes in operating assets and liabilities
(319
)
 
53

 
(266
)
Net cash provided by operating activities - continuing operations
577

 
(68
)
 
509

Net cash provided by operating activities - discontinued operations
73

 
(13
)
 
60

Additions to oil and gas property
(1,627
)
 
110

 
(1,517
)
Net cash used in investing activities - continuing operations
(1,853
)
 
110

 
(1,743
)
Net cash used in investing activities - discontinued operations
(265
)
 
13

 
(252
)
NET INCREASE (DECREASE) IN CASH
(540
)
 
42

 
(498
)
BEGINNING CASH BALANCE
769

 
(90
)
 
679

ENDING CASH BALANCE
229

 
(48
)
 
181

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheet:
 
Changes to the Consolidated Balance Sheet
March 31, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Prepaid assets and other
$
361

 
$
38

 
$
399

PROPERTY AND EQUIPMENT:
 
 
 
 
 
Property and equipment - cost
94,326

 
(47,782
)
 
46,544

Less: Accumulated depreciation, depletion, and amortization
(80,784
)
 
54,799

 
(25,985
)
PROPERTY AND EQUIPMENT, NET
13,542

 
7,017

 
20,559

TOTAL ASSETS
17,679

 
7,055

 
24,734

Other current liabilities
1,027

 
(33
)
 
994

Income taxes
891

 
1,642

 
2,533

Paid-in capital
12,407

 
146

 
12,553

Accumulated deficit
(7,642
)
 
5,290

 
(2,352
)
Accumulated other comprehensive loss
(116
)
 
(3
)
 
(119
)
Noncontrolling interest
1,536

 
13

 
1,549

TOTAL EQUITY
3,554

 
5,446

 
9,000

 
Changes to the Consolidated Balance Sheet
December 31, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
PROPERTY AND EQUIPMENT:
 
 
 
 
 
Property and equipment - cost
$
93,825

 
$
(47,675
)
 
$
46,150

Less: Accumulated depreciation, depletion, and amortization
(79,706
)
 
54,394

 
(25,312
)
PROPERTY AND EQUIPMENT, NET
14,119

 
6,719

 
20,838

TOTAL ASSETS
18,781

 
6,719

 
25,500

Income taxes
1,072

 
1,457

 
2,529

Paid-in capital
12,467

 
152

 
12,619

Accumulated deficit (1)
(7,153
)
 
5,173

 
(1,980
)
Accumulated other comprehensive loss
(116
)
 
(3
)
 
(119
)
Noncontrolling interest
1,662

 
(60
)
 
1,602

TOTAL EQUITY
4,228

 
5,262

 
9,490

*In conjunction with recasting the financial information for the adoption of the successful efforts method of accounting, we corrected certain immaterial errors
in the North Sea pertaining to the improper calculation of deferred tax liabilities associated with capitalized interest under the full cost method.
(1) The cumulative effect of the change to the successful efforts method on retained earnings (accumulated deficit) as of January 1, 2015 was a decrease of $7.6 billion.


10


3.
ACQUISITIONS AND DIVESTITURES
2015 Activity
Canada Divestiture
In April 2015, Apache's subsidiaries completed the sale of its 50 percent interest in the Kitimat LNG project and upstream acreage in the Horn River and Liard natural gas basins to Woodside Petroleum Limited (Woodside). Proceeds at closing were $854 million, of which approximately $344 million were associated with LNG assets and $510 million were associated with upstream assets. The proceeds are subject to post-closing adjustments. For additional details related to post-closing adjustments, please see Note 9—Commitments and Contingencies.
The Kitimat LNG assets classified as held for sale as of December 31, 2014 were impaired $655 million in the fourth quarter of 2014. Apache recognized a $146 million gain on the sale of the upstream assets upon completion of the sale.
Australia Divestitures
Woodside Sale In April 2015, Apache's subsidiaries completed the sale of its interest in the Wheatstone LNG project and associated upstream oil and gas assets to Woodside. Proceeds at closing were $2.8 billion, of which approximately $1.4 billion were associated with LNG assets and $1.4 billion were associated with the upstream assets. The proceeds are subject to post-closing adjustments. For additional details related to post-closing adjustments, please see Note 9—Commitments and Contingencies.
The Wheatstone LNG assets and associated upstream assets were impaired $833 million in the fourth quarter of 2014 and classified as held for sale as of December 31, 2014. An additional impairment of approximately $49 million was recognized in the first quarter of 2015. No additional gain or loss was recognized on the ultimate disposal of the LNG project and upstream assets.
Consortium Sale In June 2015, Apache's subsidiaries completed the sale of the Company's Australian subsidiary Apache Energy Limited (AEL) to a consortium of private equity funds managed by Macquarie Capital Group Limited and Brookfield Asset Management Inc. Total proceeds of $1.9 billion included customary, post-closing adjustments for the period between the effective date, October 1, 2014, and closing. A loss of approximately $139 million was recognized for the sale of AEL.

Upon closing of the sale of substantially all Australian operations, the associated results of operations for the divested Australian assets and the losses on disposal were classified as discontinued operations in all periods presented in this Current Report on Form 8-K. Sales and other operating revenues and loss from discontinued operations related to the Australia dispositions were as follows:
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Revenues and other from discontinued operations
 
$
—

 
$
187

Impairment on Woodside sale
 
$
—

 
$
(49
)
Income from divested Australian operations
 
—

 
10

Income tax expense
 
—

 
(199
)
Loss from Australian discontinued operations, net of tax
 
$
—

 
$
(238
)
Leasehold and Property Acquisitions
During the first quarter of 2015, Apache completed $91 million of leasehold and property acquisitions primarily in our North America onshore regions.
Transaction, Reorganization, and Separation
During the first quarter of 2015, Apache recorded $54 million in expense related to various asset transactions, company reorganization, and employee separation.


11


4.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $240 million and $245 million at March 31, 2016​ and December 31, 2015, respectively. The decrease is primarily attributable to successful transfers and dry hole write-offs, partially offset by drilling activities. During the three months ended March 31, 2016, changes to exploratory well costs previously capitalized for a period greater than one year since the completion of drilling at December 31, 2015 were not material. Projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling are those identified by management as exhibiting sufficient quantities of hydrocarbons to justify potential development. Management is actively pursuing efforts to assess whether reserves can be attributed to these projects.
5.
OTHER CURRENT LIABILITIES
The following table provides detail of our other current liabilities as of March 31, 2016 and December 31, 2015:
 
 
March 31, 2016
 
December 31, 2015
 
 
(In millions)
Accrued operating expenses
 
$
125

 
$
139

Accrued exploration and development
 
537

 
637

Accrued compensation and benefits
 
75

 
166

Accrued interest
 
108

 
144

Accrued income taxes
 
48

 
47

Current debt
 
1

 
1

Current asset retirement obligation
 
36

 
36

Other
 
64

 
53

Total Other current liabilities
 
$
994

 
$
1,223

6.
ASSET RETIREMENT OBLIGATION
The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the three-month period ended March 31, 2016:
 
 
 
 
 
 
(In millions)
Asset retirement obligation at December 31, 2015
 
$
2,598

Liabilities incurred
 
1

Liabilities settled
 
(15
)
Accretion expense
 
38

Asset retirement obligation at March 31, 2016
 
2,622

Less current portion
 
36

Asset retirement obligation, long-term
 
$
2,586



12


7.
DEBT AND FINANCING COSTS
The following table presents the carrying amounts and estimated fair values of the Company’s outstanding debt as of March 31, 2016 and December 31, 2015:
 
 
 
March 31, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
(In millions)
Commercial paper and committed bank facilities
 
$
—

 
$
—

 
$
—

 
$
—

Notes and debentures
 
8,719

 
8,561

 
8,717

 
8,330

Total Debt
 
$
8,719

 
$
8,561

 
$
8,717

 
$
8,330

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

As of March 31, 2016, the Company had a $3.5 billion five-year revolving credit facility which matures in June 2020. Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its $3.5 billion commercial paper program. The commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270 days at competitive interest rates. As of March 31, 2016, the Company had no debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines.

As of March 31, 2016, the Company had a £900 million three-year letter of credit facility which matures in February 2019. The facility is available for letters of credit and loans to cash collateralize letter of credit obligations to the extent letters of credit are unavailable under the facility.

In April 2015, the FASB issued ASU 2015-03 "Simplifying the Presentation of Debt Issuance Costs," which requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability. The Company adopted this update in the first quarter of 2016 and applied the changes retrospectively for all periods presented. At December 31, 2015, the Company had debt issuance costs of $61 million classified as a long-term asset as a component of "deferred charges and other" on the balance sheet that have been netted against "long-term debt" in these unaudited interim financial statements. As of March 31, 2016, long-term debt is presented net of debt issuance costs of $59 million.
Financing Costs, Net
The following table presents the components of Apache’s financing costs, net:
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Interest expense
 
$
116

 
$
128

Amortization of deferred loan costs
 
1

 
2

Capitalized interest
 
(11
)
 
(4
)
Interest income
 
(1
)
 
(2
)
Financing costs, net
 
$
105

 
$
124



13


8.
INCOME TAXES
The Company estimates its annual effective income tax rate for continuing operations in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash write-downs of the carrying value of the Company’s proved oil and gas properties, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
During the first quarter of 2016, Apache’s effective income tax rate was primarily impacted by an increase in the valuation allowance on Canadian deferred tax assets. During the first quarter of 2015, Apache’s effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company's proved oil and gas properties and a $414 million discrete deferred tax benefit associated with a reduction in the U.K. statutory income tax rate from 62 percent to 50 percent.
9.
COMMITMENTS AND CONTINGENCIES
Legal Matters
Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of March 31, 2016, the Company has an accrued liability of approximately $14 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. Apache’s estimates are based on information known about the matters and its experience in contesting, litigating, and settling similar matters. Although actual amounts could differ from management’s estimate, none of the actions are believed by management to involve future amounts that would be material to Apache’s financial position, results of operations, or liquidity after consideration of recorded accruals. For material matters that Apache believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and a range of potential exposure, unless an estimate cannot be made at this time. It is management’s opinion that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
For additional information on each of the Legal Matters described below, please see Note 9—Commitments and Contingencies to the consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Argentine Environmental Claims and Argentina Tariff
No material change in the status of the YPF Sociedad Anónima and Pioneer Natural Resources Company indemnities matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Louisiana Restoration 
As more fully described in Apache’s Annual Report on Form 10-K for its 2015 fiscal year, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either express or implied lease terms or Louisiana law, the companies are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup.
In respect of three lawsuits filed by the Parish of Plaquemines against the Company and other oil and gas producers in the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana (captioned Parish of Plaquemines v. Rozel Operating Company et al., Docket No. 60-996; Parish of Plaquemines v. Apache Oil Corporation et al., Docket No. 61-000; and Parish of Plaquemines v. HHE Energy Company et al., Docket No. 60-983), in April 2016 the Plaquemines Parish Council reversed course and decided not to dismiss the lawsuits. The Louisiana Attorney General has announced his intention to intervene in the three Plaquemines Parish proceedings and in the Cameron Parish proceedings in the Parish’s 38th Judicial District Court, captioned Parish of Cameron v. BEPCO, L.P., et al., Docket No. 10-19572; Parish of Cameron v. BP America Production Company et al., Docket No. 10-19576; Parish of Cameron v. Apache Corporation (of Delaware) et al., Docket No. 10-19579; Parish of Cameron v. Atlantic Richfield Company et al., Docket No. 10-19577; Parish of Cameron v. Alpine Exploration Companies, Inc., et al., Docket No. 19580; and Parish of Cameron v. Auster Oil and Gas, Inc., et al, Docket No. 10-19582.
No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.


14


Apollo Exploration Lawsuit
In a fourth amended petition filed on March 21, 2016, in a case captioned Apollo Exploration, LLC, Cogent Exploration, Ltd. Co. & SellmoCo, LLC v. Apache Corporation, Cause No. CV50538 in the 385th Judicial District Court, Midland County, Texas, plaintiffs have reduced their alleged damages to approximately $500 million (having previously claimed in excess of $1.1 billion) relating to certain purchase and sale agreements, mineral leases, and areas of mutual interest agreements concerning properties located in Hartley, Moore, Potter, and Oldham Counties, Texas. Apache believes that plaintiffs’ claims lack merit, and further that plaintiffs’ alleged damages, even as amended, are grossly inflated. Apache will vigorously oppose the claims. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Escheat Audits
There has been no other material change with respect to the review of the books and records of the Company and its subsidiaries and related entities by the State of Delaware, Department of Finance (Unclaimed Property), to determine compliance with the Delaware Escheat Laws, since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Burrup-Related Gas Supply Lawsuits
In the cases captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653 and Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2012 01995, in the Supreme Court of Victoria, trial is set to commence on May 30, 2016. 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 the fiscal year ended December 31, 2015.
Environmental Matters
As of March 31, 2016, the Company had an undiscounted reserve for environmental remediation of approximately $56 million. The Company is not aware of any environmental claims existing as of March 31, 2016, 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.

With respect to the summons and information containing charges relating to a leak of produced water in the Zama area that occurred on or between October 3 and October 25, 2013, and the summons and information containing charges relating to a leak of produced water in the Belloy Field operating area that occurred on or about January 20, 2014, the Company does not expect the economic impact of these incidents to have a material effect on the Company’s financial position, results of operations, or liquidity. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
LNG Divestiture Dispute

In respect of the purchase by Woodside of the Wheatstone and Kitimat LNG projects and accompanying upstream oil and gas reserves from the Company and its subsidiaries, several court proceedings are pending in the Supreme Court of Western Australia (Case Nos. 2315 of 2015, 2798 of 2015, 1504 of 2016, 1520 of 2016, and 1521 of 2016) concerning or arising out of the Wheatstone sale and purchase agreement, including whether certain amounts are due and owing Apache from Woodside and whether certain of Woodside’s purchase price adjustment claims are time-barred. In addition, Woodside is attempting to commence third party expert determination proceedings at the ICC International Centre for ADR in respect of certain aspects of its purchase price adjustment claims. The Company believes that under the terms of the sale and purchase agreements, Woodside’s requests for payment of purchase price adjustments lack merit and further that Woodside must reimburse Apache certain costs relating to Wheatstone and Kitimat; therefore, the Company has not recorded a liability associated with this dispute. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.



15


10.
CAPITAL STOCK
Net Loss per Common Share
A reconciliation of the components of basic and diluted net loss per common share for the quarters ended March 31, 2016 and 2015 is presented in the table below.
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
Loss
 
Shares
 
Per Share
 
Loss
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(372
)
 
378

 
$
(0.98
)
 
$
(1,096
)
 
377

 
$
(2.91
)
Loss from discontinued operations
 
—

 
378

 
—

 
(238
)
 
377

 
(0.63
)
Loss attributable to common stock
 
$
(372
)
 
378

 
$
(0.98
)
 
$
(1,334
)
 
377

 
$
(3.54
)
Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 
$
—

 
—

 
$
—

 
$
—

 
—

 
$
—

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(372
)
 
378

 
$
(0.98
)
 
$
(1,096
)
 
377

 
$
(2.91
)
Loss from discontinued operations
 
—

 
378

 
—

 
(238
)
 
377

 
(0.63
)
Loss attributable to common stock
 
$
(372
)
 
378

 
$
(0.98
)
 
$
(1,334
)
 
377

 
$
(3.54
)
 
The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 7.1 million and 9.1 million for the quarters ended March 31, 2016 and 2015, respectively.
Common Stock Dividends
For the quarters ended March 31, 2016, and 2015, Apache paid $95 million and $94 million, respectively, in dividends on its common stock.
Stock Repurchase Program
Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through December 31, 2015, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company is not obligated to acquire any specific number of shares and has not purchased any shares during 2016.


16


11.
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 March 31, 2016, the Company had production in four reporting segments: the United States, Canada, Egypt, and offshore the United Kingdom in the North Sea (North Sea). Apache also pursues exploration interests in other areas that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:
 
 
 
United
States
 
Canada
 
Egypt(1)
 
North Sea
 
Other
International
 
Total(3)
 
 
(In millions)
For the Quarter Ended March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
409

 
$
83

 
$
392

 
$
203

 
$
—

 
$
1,087

Operating Income (Loss)(2)
 
$
(159
)
 
$
(62
)
 
$
42

 
$
14

 
$
—

 
$
(165
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Loss on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
(1
)
Other
 
 
 
 
 
 
 
 
 
 
 
(3
)
General and administrative
 
 
 
 
 
 
 
 
 
 
 
(93
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(15
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(105
)
Loss From Continuing Operations Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(382
)
Total Assets
 
$
12,726

 
$
2,118

 
$
5,527

 
$
4,314

 
$
49

 
$
24,734

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarter Ended March 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
660

 
$
133

 
$
553

 
$
313

 
$
—

 
$
1,659

Operating Income (Loss)(2)
 
$
(2,019
)
 
$
(96
)
 
$
164

 
$
(31
)
 
$
(1
)
 
$
(1,983
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Loss on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
(18
)
Other
 
 
 
 
 
 
 
 
 
 
 
(6
)
General and administrative
 
 
 
 
 
 
 
 
 
 
 
(84
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(54
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(124
)
Loss From Continuing Operations Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(2,269
)
Total Assets
 
$
19,522

 
$
4,696

 
$
6,920

 
$
4,386

 
$
645

 
$
36,169

(1)
Includes a noncontrolling interest in Egypt.
(2)
Operating Income (Loss) consists of oil and gas production revenues less lease operating expenses, gathering and transportation costs, taxes other than income, exploration costs, depreciation, depletion, and amortization, asset retirement obligation accretion, and impairments. The operating income (loss) of U.S., Canada, Egypt, and North Sea for the first quarter of 2015 includes asset impairments totaling $1.9 billion, $26 million, $8 million, and $104 million, respectively.
(3)
Amounts for 2015 have been restated to exclude Australia discontinued operations.


17


12.
SUPPLEMENTAL GUARANTOR INFORMATION
In December 1999, Apache Finance Canada issued approximately $300 million of publicly-traded notes due in 2029. The notes 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 is 100 percent owned by Apache Corporation. As such, these condensed consolidating financial statements should be read in conjunction with Apache’s consolidated financial statements and the notes thereto, of which this note is an integral part.

18


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 2016
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
$
217

 
$
—

 
$
870

 
$
—

 
$
1,087

Equity in net income of affiliates
 
(108
)
 
(26
)
 
—

 
134

 
—

Other
 
28

 
12

 
(43
)
 
—

 
(3
)
Gain (loss) on divestiture
 
(1
)
 
—

 
—

 
—

 
(1
)
 
 
136

 
(14
)
 
827

 
134

 
1,083

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
78

 
—

 
300

 
—

 
378

Gathering and transportation
 
8

 
—

 
44

 
—

 
52

Taxes other than income
 
21

 
—

 
(10
)
 
—

 
11

Exploration
 
50

 
—

 
45

 
—

 
95

General and administrative
 
77

 
—

 
16

 
—

 
93

Depreciation, depletion, and amortization
 
156

 
—

 
522

 
—

 
678

Asset retirement obligation accretion
 
4

 
—

 
34

 
—

 
38

Impairments
 
—

 
—

 
—

 
—

 
—

Transaction, reorganization, and separation
 
15

 
—

 
—

 
—

 
15

Financing costs, net
 
61

 
10

 
34

 
—

 
105

 
 
470

 
10

 
985

 
—

 
1,465

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(334
)
 
(24
)
 
(158
)
 
134

 
(382
)
Provision (benefit) for income taxes
 
37

 
2

 
(50
)
 
—

 
(11
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(371
)
 
(26
)
 
(108
)
 
134

 
(371
)
Net income (loss) from discontinued operations, net of tax
 
—

 
—

 
—

 
—

 
—

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
(371
)
 
(26
)
 
(108
)
 
134

 
(371
)
Net loss attributable to noncontrolling interest
 
—

 
—

 
1

 
—

 
1

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(371
)
 
$
(26
)
 
$
(109
)
 
$
134

 
$
(372
)


19


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 2015
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
$
365

 
$
—

 
$
1,294

 
$
—

 
$
1,659

Equity in net income (loss) of affiliates
 
(1,246
)
 
(53
)
 
1

 
1,298

 
—

Other
 
(38
)
 
14

 
18

 
—

 
(6
)
Gain (loss) on divestiture
 
(13
)
 
—

 
(5
)
 
—

 
(18
)
 
 
(932
)
 
(39
)
 
1,308

 
1,298

 
1,635

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
124

 
—

 
357

 
—

 
481

Gathering and transportation
 
9

 
—

 
47

 
—

 
56

Taxes other than income
 
33

 
—

 
40

 
—

 
73

Exploration
 
95

 
—

 
163

 
—

 
258

General and administrative
 
64

 
—

 
20

 
—

 
84

Depreciation, depletion, and amortization
 
262

 
—

 
564

 
—

 
826

Asset retirement obligation accretion
 
4

 
—

 
32

 
—

 
36

Impairments
 
1,164

 
—

 
748

 
—

 
1,912

Transaction, reorganization, and separation
 
54

 
—

 
—

 
—

 
54

Financing costs, net
 
99

 
10

 
15

 
—

 
124

 
 
1,908

 
10

 
1,986

 
—

 
3,904

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(2,840
)
 
(49
)
 
(678
)
 
1,298

 
(2,269
)
Provision (benefit) for income taxes
 
(1,506
)
 
3

 
302

 
—

 
(1,201
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(1,334
)
 
(52
)
 
(980
)
 
1,298

 
(1,068
)
Net loss from discontinued operations, net of tax
 
—

 
—

 
(238
)
 
—

 
(238
)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
(1,334
)
 
(52
)
 
(1,218
)
 
1,298

 
(1,306
)
Net income attributable to noncontrolling interest
 
—

 
—

 
28

 
—

 
28

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(1,334
)
 
$
(52
)
 
$
(1,246
)
 
$
1,298

 
$
(1,334
)


20


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended March 31, 2016
 
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
CASH PROVIDED BY OPERATING ACTIVITIES
 
$
44

 
$
11

 
$
184

 
$
—

 
$
239

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Additions to oil and gas property
 
(81
)
 
—

 
(465
)
 
—

 
(546
)
Leasehold and property acquisitions
 
(19
)
 
—

 
—

 
—

 
(19
)
Additions to gas gathering, transmission, and processing facilities
 
1

 
—

 
(1
)
 
—

 
—

Investment in subsidiaries, net
 
(6
)
 
—

 
—

 
6

 
—

Other
 
(34
)
 
—

 
44

 
—

 
10

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(139
)
 
—

 
(422
)
 
6

 
(555
)
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Intercompany borrowings
 
—

 
(7
)
 
13

 
(6
)
 
—

Distributions to noncontrolling interest
 
—

 
—

 
(54
)
 
—

 
(54
)
Dividends paid
 
(95
)
 
—

 
—

 
—

 
(95
)
Other
 
1

 
(4
)
 
5

 
—

 
2

NET CASH USED IN FINANCING ACTIVITIES
 
(94
)
 
(11
)
 
(36
)
 
(6
)
 
(147
)
 
 
 
 
 
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(189
)
 
—

 
(274
)
 
—

 
(463
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
378

 
—

 
1,089

 
—

 
1,467

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
189

 
$
—

 
$
815

 
$
—

 
$
1,004


21


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Quarter Ended March 31, 2015
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES
 
$
(470
)
 
$
(3
)
 
$
982

 
$
—

 
$
509

CASH PROVIDED BY DISCONTINUED OPERATIONS
 
—

 
—

 
60

 
—

 
60

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
(470
)
 
(3
)
 
1,042

 
—

 
569

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Additions to oil and gas property
 
(697
)
 
—

 
(820
)
 
—

 
(1,517
)
Leasehold and property acquisitions
 
(92
)
 
—

 
1

 
—

 
(91
)
Additions to gas gathering, transmission, and processing facilities
 
(22
)
 
—

 
(41
)
 
—

 
(63
)
Investment in subsidiaries, net
 
105

 
—

 
—

 
(105
)
 
—

Other
 
(18
)
 
—

 
(54
)
 
—

 
(72
)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
 
(724
)
 
—

 
(914
)
 
(105
)
 
(1,743
)
NET CASH USED IN DISCONTINUED OPERATIONS
 
—

 
—

 
(252
)
 
—

 
(252
)
NET CASH USED IN INVESTING ACTIVITIES
 
(724
)
 
—

 
(1,166
)
 
(105
)
 
(1,995
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Commercial paper and bank credit facilities, net
 
1,028

 
—

 
—

 
—

 
1,028

Intercompany borrowings
 
—

 
(1
)
 
(104
)
 
105

 
—

Distributions to noncontrolling interest
 
—

 
—

 
(21
)
 
—

 
(21
)
Dividends paid
 
(94
)
 
—

 
—

 
—

 
(94
)
Other
 
2

 
4

 
9

 
—

 
15

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES
 
936

 
3

 
(116
)
 
105

 
928

NET CASH USED IN DISCONTINUED OPERATIONS
 
—

 
—

 
—

 
—

 
—

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
936

 
3

 
(116
)
 
105

 
928

NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(258
)
 
—

 
(240
)
 
—

 
(498
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
267

 
—

 
412

 
—

 
679

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
9

 
$
—

 
$
172

 
$
—

 
$
181


22


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
March 31, 2016
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
ASSETS
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
189

 
$
—

 
$
815

 
$
—

 
$
1,004

Receivables, net of allowance
 
314

 
—

 
806

 
—

 
1,120

Inventories
 
34

 
—

 
513

 
—

 
547

Drilling advances
 
15

 
—

 
175

 
—

 
190

Deferred tax asset
 
(28
)
 
—

 
28

 
—

 
—

Prepaid assets and other
 
238

 
—

 
161

 
—

 
399

Intercompany receivable
 
5,330

 
—

 
—

 
(5,330
)
 
—

 
 
6,092

 
—

 
2,498

 
(5,330
)
 
3,260

PROPERTY AND EQUIPMENT, NET
 
6,529

 
—

 
14,030

 
—

 
20,559

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Intercompany receivable
 
—

 
14

 
10,894

 
(10,908
)
 
—

Equity in affiliates
 
15,984

 
(839
)
 
452

 
(15,597
)
 
—

Deferred charges and other
 
98

 
1,000

 
817

 
(1,000
)
 
915

 
 
$
28,703

 
$
175

 
$
28,691

 
$
(32,835
)
 
$
24,734

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
330

 
$
4

 
$
237

 
$
—

 
$
571

Other current liabilities
 
351

 
7

 
636

 
—

 
994

Intercompany payable
 
—

 
—

 
5,330

 
(5,330
)
 
—

 
 
681

 
11

 
6,203

 
(5,330
)
 
1,565

LONG-TERM DEBT
 
8,421

 
297

 
—

 
—

 
8,718

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Intercompany payable
 
10,908

 
—

 
—

 
(10,908
)
 
—

Income taxes
 
67

 
5

 
2,461

 
—

 
2,533

Asset retirement obligation
 
274

 
—

 
2,312

 
—

 
2,586

Other
 
901

 
249

 
182

 
(1,000
)
 
332

 
 
12,150

 
254

 
4,955

 
(11,908
)
 
5,451

COMMITMENTS AND CONTINGENCIES
 

 

 

 

 

APACHE SHAREHOLDERS’ EQUITY
 
7,451

 
(387
)
 
15,984

 
(15,597
)
 
7,451

Noncontrolling interest
 
—

 
—

 
1,549

 
—

 
1,549

TOTAL EQUITY
 
7,451

 
(387
)
 
17,533

 
(15,597
)
 
9,000

 
 
$
28,703

 
$
175

 
$
28,691

 
$
(32,835
)
 
$
24,734



23


APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2015 
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
ASSETS
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
378

 
$
—

 
$
1,089

 
$
—

 
$
1,467

Receivables, net of allowance
 
314

 
—

 
939

 
—

 
1,253

Inventories
 
34

 
—

 
536

 
—

 
570

Drilling advances
 
16

 
—

 
156

 
—

 
172

Prepaid assets and other
 
102

 
—

 
188

 
—

 
290

Intercompany receivable
 
5,212

 
—

 
—

 
(5,212
)
 
—

 
 
6,056

 
—

 
2,908

 
(5,212
)
 
3,752

PROPERTY AND EQUIPMENT, NET
 
6,546

 
—

 
14,292

 
—

 
20,838

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Intercompany receivable
 
—

 
—

 
10,744

 
(10,744
)
 
—

Equity in affiliates
 
16,092

 
(807
)
 
446

 
(15,731
)
 
—

Deferred charges and other
 
96

 
1,001

 
813

 
(1,000
)
 
910

 
 
$
28,790

 
$
194

 
$
29,203

 
$
(32,687
)
 
$
25,500

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
409

 
$
—

 
$
209

 
$
—

 
$
618

Other current liabilities
 
539

 
3

 
681

 
—

 
1,223

Intercompany payable
 
—

 
—

 
5,212

 
(5,212
)
 
—

 
 
948

 
3

 
6,102

 
(5,212
)
 
1,841

LONG-TERM DEBT
 
8,418

 
298

 
—

 
—

 
8,716

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Intercompany payable
 
10,744

 
—

 
—

 
(10,744
)
 
—

Income taxes
 
(412
)
 
4

 
2,937

 
—

 
2,529

Asset retirement obligation
 
271

 
—

 
2,291

 
—

 
2,562

Other
 
933

 
250

 
179

 
(1,000
)
 
362

 
 
11,536

 
254

 
5,407

 
(11,744
)
 
5,453

COMMITMENTS AND CONTINGENCIES
 

 

 

 

 

APACHE SHAREHOLDERS’ EQUITY
 
7,888

 
(361
)
 
16,092

 
(15,731
)
 
7,888

Noncontrolling interest
 
—

 
—

 
1,602

 
—

 
1,602

TOTAL EQUITY
 
7,888

 
(361
)
 
17,694

 
(15,731
)
 
9,490

 
 
$
28,790

 
$
194

 
$
29,203

 
$
(32,687
)
 
$
25,500


24


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following 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 Current Report on Form 8-K, 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 Current Report on Form 8-K dated August 4, 2016 for the fiscal year ended December 31, 2015. Financial information for all periods has been recast to reflect the retrospective application of the successful efforts method of accounting, as discussed under Note 1 in Part I, Item 1 of this Current Report on Form 8-K. Results of operations and consolidated cash flows for our divested Australia assets are reflected as discontinued operations in all periods presented in this Current Report on Form 8-K for the quarter ended March 31, 2016.
Overview
Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. The Company has exploration and production interests in four geographic areas: the United States (U.S.), Canada, Egypt, and offshore the United Kingdom (U.K.) in the North Sea (North Sea). Apache also pursues exploration interests in other areas that may over time result in reportable discoveries and development opportunities.
The downward pressure on crude oil prices that began in late 2014 and extended throughout 2015 continues to impact 2016 results. Apache’s average realized crude oil prices decreased 34 percent for the quarter from the first quarter of 2015. Additionally, natural gas and natural gas liquids prices are significantly lower than the comparable 2015 period. In response to these price declines, Apache continues to focus on matters within our control: capital spending, overhead, and lease operating costs.
•
We significantly reduced capital spending in 2016, with first quarter capital spending decreasing approximately 65 percent from the comparable 2015 period. We will continue to adjust our capital spending in response to future commodity price fluctuations, cost realignments, and forecasted operating cash flows.
•
We are realizing improved drilling efficiencies and cost reductions in our drilling and completion well costs. For example, in areas in North America where we are actively drilling, average drilling and completion costs on recent wells are down 45 percent compared to average 2014 well costs.
•
We continue to monitor total overhead costs with a focus on balancing our operating cost structure with current and expected activity levels. Last year's organizational changes and steps to streamline our operational structure are allowing us to manage overhead levels and respond appropriately. We continue to make progress on our internal initiatives with a focus on reducing annualized rates.
•
We have made significant progress reducing lease operating costs, which on a per-unit basis were 21 percent lower than the first quarter of 2015.
•
We exited the quarter with $1.0 billion in cash and $3.5 billion in available committed borrowing capacity.
2016 Outlook
Apache remains committed to achieving "cash flow neutrality" in 2016 under our current budget. As planned, we were not cash flow neutral in the first quarter; however, we expect to generate a surplus for the balance of the year. As such, we believe we are on track to exit the year with no significant change in net debt (debt less cash) relative to year-end 2015. In addition, in response to strong performance from our North American assets, we expect less of a production decline from 2015 levels than originally expected and have updated our outlook to a decline in the 6 percent to 10 percent range, after adjusting for divestitures and volumes associated with Egypt's noncontrolling interest and taxes.
Operating Highlights
Significant operating activities for the quarter include the following:
Overall
•
Equivalent production decline from first quarter of 2015 levels was 2 percent, despite a significant reduction in capital investments in 2015 and the first quarter of 2016 when compared to historical levels.

25


•
Liquids production for the first quarter of 2016 averaged 350 thousand barrels of oil equivalent per day (Mboe/d), with crude oil representing 81 percent of total liquids production. Liquids production decreased 1 percent from the first quarter of 2015.
North America
•
Onshore equivalent production was down 3 percent for the quarter relative to the 2015 period. This production performance is notable given a significant reduction in North American onshore exploration and development capital spending during 2015 and the first quarter of 2016.
•
First quarter equivalent production from the Permian Basin region, which accounts for more than half of our total onshore North American production, increased 8 percent from the first quarter of 2015 despite significantly fewer wells placed on production during the first quarter of 2016.
International and Offshore
•
In Egypt, we averaged 10 rigs and placed 23 wells on production during the quarter. Gross equivalent production increased 3 percent over the first quarter of 2015, driven by an increase of 6 percent in higher margin oil production, which was partially offset by a decline in lower margin natural gas production. On a net basis, equivalent production grew 2 percent from the first quarter of 2015.
•
North Sea average daily production decreased by 1 percent for the first three months of 2016 from the first quarter of last year. This quarter’s production was negatively impacted by downtime from unexpected outages on third-party infrastructure, temporarily offsetting the impact of  four successful new wells placed on production in the quarter.
•
Despite the impact of the unplanned third party facility downtime in the North Sea, we believe we are on track to achieve our full year International and Offshore production outlook of 170 to 190 Mboe/d.

26


Results of Operations
Oil and Gas Revenues
The table below presents revenues by geographic region and each region’s percent contribution to revenues for the first quarters of 2016 and 2015.
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
$
Value
 
%
Contribution
 
$
Value
 
%
Contribution
 
 
($ in millions)
Total Oil Revenues:
 
 
 
 
 
 
 
 
United States
 
$
313

 
38
%
 
$
510

 
39
%
Canada
 
39

 
5
%
 
60

 
5
%
North America
 
352

 
43
%
 
570

 
44
%
Egypt (1)
 
296

 
36
%
 
446

 
35
%
North Sea
 
174

 
21
%
 
277

 
21
%
International (1)
 
470

 
57
%
 
723

 
56
%
Total (1)
 
$
822

 
100
%
 
$
1,293

 
100
%
Total Natural Gas Revenues:
 
 
 
 
 
 
 
 
United States
 
$
62

 
28
%
 
$
103

 
33
%
Canada
 
41

 
18
%
 
67

 
22
%
North America
 
103

 
46
%
 
170

 
55
%
Egypt (1)
 
93

 
42
%
 
104

 
34
%
North Sea
 
27

 
12
%
 
34

 
11
%
International (1)
 
120

 
54
%
 
138

 
45
%
Total (1)
 
$
223

 
100
%
 
$
308

 
100
%
Total Natural Gas Liquids (NGL)
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
United States
 
$
34

 
81
%
 
$
47

 
81
%
Canada
 
3

 
7
%
 
6

 
10
%
North America
 
37

 
88
%
 
53

 
91
%
Egypt (1)
 
3

 
7
%
 
3

 
5
%
North Sea
 
2

 
5
%
 
2

 
4
%
International (1)
 
5

 
12
%
 
5

 
9
%
Total (1)
 
$
42

 
100
%
 
$
58

 
100
%
Total Oil and Gas Revenues:
 
 
 
 
 
 
 
 
United States
 
$
409

 
37
%
 
$
660

 
40
%
Canada
 
83

 
8
%
 
133

 
8
%
North America
 
492

 
45
%
 
793

 
48
%
Egypt (1)(2)
 
392

 
36
%
 
553

 
33
%
North Sea
 
203

 
19
%
 
313

 
19
%
International (1)
 
595

 
55
%
 
866

 
52
%
Total (1)
 
$
1,087

 
100
%
 
$
1,659

 
100
%
Discontinued Operations:
 
 
 
 
 
 
 
 
Oil Revenues
 
$
—

 
 
 
$
81

 
 
Natural Gas Revenues
 
—

 
 
 
87

 
 
NGL Revenues
 
—

 
 
 
—

 
 
Total
 
$
—

 
 
 
$
168

 
 

(1)
Includes revenues attributable to a noncontrolling interest in Egypt.





27


Production
The table below presents the first-quarter 2016 and 2015 production and the relative increase or decrease from the prior period.
 
 
For the Quarter Ended March 31,
 
 
2016
 
Increase
(Decrease)
 
2015
Oil Volume – b/d
 
 
 
 
 
 
United States
 
115,859

 
(9
)%
 
126,639

Canada
 
14,463

 
(14
)%
 
16,875

North America
 
130,322

 
(9
)%
 
143,514

Egypt(1)(2)
 
98,259

 
3
 %
 
95,076

North Sea
 
56,962

 
(8
)%
 
61,699

International
 
155,221

 
(1
)%
 
156,775

Total
 
285,543

 
(5
)%
 
300,289

Natural Gas Volume – Mcf/d
 
 
 
 
 
 
United States
 
409,761

 
(6
)%
 
435,818

Canada
 
266,438

 
(7
)%
 
287,556

North America
 
676,199

 
(7
)%
 
723,374

Egypt(1)(2)
 
397,598

 
—
 %
 
396,602

North Sea
 
70,795

 
40
 %
 
50,445

International
 
468,393

 
5
 %
 
447,047

Total
 
1,144,592

 
(2
)%
 
1,170,421

NGL Volume – b/d
 
 
 
 
 
 
United States
 
55,700

 
18
 %
 
47,221

Canada
 
6,503

 
11
 %
 
5,853

North America
 
62,203

 
17
 %
 
53,074

Egypt(1)(2)
 
1,288

 
15
 %
 
1,119

North Sea
 
1,409

 
59
 %
 
886

International
 
2,697

 
35
 %
 
2,005

Total
 
64,900

 
18
 %
 
55,079

BOE per day(3)
 
 
 
 
 
 
United States
 
239,853

 
(3
)%
 
246,497

Canada
 
65,372

 
(7
)%
 
70,653

North America
 
305,225

 
(4
)%
 
317,150

Egypt(2)
 
165,813

 
2
 %
 
162,295

North Sea
 
70,170

 
(1
)%
 
70,993

International
 
235,983

 
1
 %
 
233,288

Total
 
541,208

 
(2
)%
 
550,438

Discontinued Operations:
 
 
 
 
 
 
Oil (b/d)
 
—

 
 
 
20,905

Natural Gas (Mcf/d)
 
—

 
 
 
230,691

NGL (b/d)
 
—

 
 
 
—

BOE/d
 
—

 
 
 
59,353

 
(1)
Gross oil, natural gas, and NGL production in Egypt for the first quarters of 2016 and 2015 were as follows:
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
Oil (b/d)
 
209,847

 
197,785

Natural Gas (Mcf/d)
 
846,047

 
861,933

NGL (b/d)
 
2,145

 
2,321

 
(2)
Includes production volumes per day attributable to a noncontrolling interest in Egypt for the first quarters of 2016 and 2015 as follows:
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
Oil (b/d)
 
32,676

 
31,692

Natural Gas (Mcf/d)
 
132,503

 
132,201

NGL (b/d)
 
429

 
373

 
(3)
The table shows production on a barrel of oil equivalent basis (boe) in which natural gas is converted to an equivalent barrel of oil based on a 6:1 energy equivalent ratio. This ratio is not reflective of the price ratio between the two products.


28


Pricing

The table below presents first-quarter 2016 and 2015 pricing and the relative increase or decrease from the prior periods.
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
Increase
(Decrease)
 
2015
Average Oil Price - Per barrel
 
 
 
 
 
 
United States
 
$
29.77

 
(33
)%
 
$
44.73

Canada
 
29.40

 
(26
)%
 
39.76

North America
 
29.73

 
(33
)%
 
44.14

Egypt
 
33.04

 
(37
)%
 
52.06

North Sea
 
33.50

 
(33
)%
 
49.95

International
 
33.21

 
(35
)%
 
51.23

Total
 
31.62

 
(34
)%
 
47.84

Average Natural Gas Price - Per Mcf
 
 
 
 
 
 
United States
 
$
1.65

 
(37
)%
 
$
2.63

Canada
 
1.69

 
(34
)%
 
2.58

North America
 
1.67

 
(36
)%
 
2.61

Egypt
 
2.58

 
(12
)%
 
2.92

North Sea
 
4.24

 
(43
)%
 
7.40

International
 
2.83

 
(17
)%
 
3.43

Total
 
2.14

 
(27
)%
 
2.93

Average NGL Price - Per barrel
 
 
 
 
 
 
United States
 
$
6.61

 
(40
)%
 
$
11.00

Canada
 
5.58

 
(50
)%
 
11.09

North America
 
6.50

 
(41
)%
 
11.01

Egypt
 
26.92

 
(25
)%
 
35.85

North Sea
 
18.13

 
(27
)%
 
24.74

International
 
22.33

 
(28
)%
 
30.94

Total
 
7.16

 
(39
)%
 
11.74

Discontinued Operations:
 
 
 
 
 
 
Oil price ($/Bbl)
 
$
—

 
 
 
$
43.17

Natural Gas price ($/Mcf)
 
—

 
 
 
4.19

NGL price ($/Bbl)
 
—

 
 
 
—


Crude Oil Revenues Crude oil revenues for the first quarter of 2016 totaled $822 million, a $471 million decrease from the comparative 2015 quarter. A 5 percent decrease in average daily production reduced first-quarter 2016 revenues by $33 million compared to the prior-year quarter, while 34 percent lower average realized prices decreased revenues by $438 million. Crude oil prices realized in the first quarter of 2016 averaged $31.62 per barrel, compared with $47.84 per barrel in the comparative prior-year quarter. Crude oil accounted for 76 percent of oil and gas production revenues and 53 percent of worldwide production in the first quarter of 2016.
Worldwide oil production decreased 14.7 Mb/d to 285.5 Mb/d, primarily a result of reduced drilling activity in response to low commodity prices. Decreases from natural decline were partially offset by new production in the North Sea’s Beryl field and in Egypt.
Natural Gas Revenues Gas revenues for the first quarter of 2016 totaled $223 million, an $85 million decrease from the comparative 2015 quarter, driven by 27 percent lower average realized prices. Worldwide natural gas production was essentially flat between the periods. Natural gas accounted for 21 percent of our oil and gas production revenues and 35 percent of our equivalent production.

29


NGL Revenues NGL revenues for the first quarter of 2016 totaled $42 million, a $16 million decrease from the comparative 2015 quarter. An 18 percent increase in average daily production increased first-quarter 2016 revenues by $7 million, while 39 percent lower average realized prices decreased revenues by $23 million. NGLs accounted for 3 percent of our oil and gas production revenues and 12 percent of our equivalent production.
Worldwide production of NGLs increased 9.8 Mb/d to 64.9 Mb/d in the first quarter of 2016, primarily the result of new production from completion activity in our North American onshore areas, gas processing plant downtime in the prior year period, and changes to existing gas processing arrangements.

Operating Expenses
The table below presents a comparison of our expenses on an absolute dollar basis and a boe basis. Our discussion may reference expenses on a boe basis, on an absolute dollar basis or both, depending on their relevance. Operating expenses include costs attributable to a noncontrolling interest in Egypt but, for the quarter ended March 31, 2015, exclude discontinued operations in Australia.
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
 
(Per boe)
Lease operating expense
 
$
378

 
$
481

 
$
7.67

 
$
9.70

Gathering and transportation
 
52

 
56

 
1.06

 
1.12

Taxes other than income
 
11

 
73

 
0.23

 
1.48

Exploration
 
95

 
258

 
1.93

 
5.22

General and administrative
 
93

 
84

 
1.90

 
1.70

Depreciation, depletion, and amortization:
 
 
 
 
 
 
 
 
Oil and gas property and equipment
 
636

 
743

 
12.91

 
15.01

Other assets
 
42

 
83

 
0.85

 
1.68

Asset retirement obligation accretion
 
38

 
36

 
0.76

 
0.74

Impairments
 
—

 
1,912

 
—

 
38.59

Transaction, reorganization, and separation
 
15

 
54

 
0.31

 
1.09

Financing costs, net
 
105

 
124

 
2.11

 
2.49

Total
 
$
1,465

 
$
3,904

 
$
29.73

 
$
78.82

Lease Operating Expenses (LOE) LOE decreased $103 million, or 21 percent for the quarter on an absolute dollar basis relative to the comparable period of 2015. On a per-unit basis, LOE decreased 21 percent to $7.67 per boe for the first quarter of 2016 as compared to the prior-year period. These reductions reflect the impact of our continued focus on costs, a decrease in cost types that trend downward in lower commodity price environments, the timing of workovers and other expenditures in the Permian and North Sea, and the favorable impact of the strengthening U.S. dollar period over period.
Gathering and Transportation Gathering and transportation costs totaled $52 million in the first quarter of 2016, a decrease of $4 million from the first quarter of 2015 on lower production volumes and rate changes primarily in our North American onshore properties.
Taxes other than Income Taxes other than income totaled $11 million for the first quarter of 2016, a decrease of $62 million from the comparative prior-year period. The North Sea Petroleum Revenue Tax (PRT) is assessed on qualifying fields in the U.K. North Sea. For the first quarter of 2016, U.K. PRT was $41 million lower than the 2015 period as a result of lower revenues during the first quarter of 2016, a lower PRT rate, and additional qualifying costs reducing prior-year PRT. Severance tax expense and ad valorem tax expense decreased $11 million and $8 million, respectively, on lower oil production and commodity prices during the first quarter compared to the prior year period.
On March 24, 2016, the U.K. government released Finance Bill 2016, which provides tax relief to exploration and production (E&P) companies operating in the North Sea. The bill is expected to receive Royal Assent later this year. Under the bill, the U.K. PRT rate will be reduced to zero from the current 35 percent rate and will be effective January 1, 2016. Upon enactment, PRT expense ceases prospectively. As a further result of this change, the Company expects to record a charge of approximately $290 million (after-tax) for PRT benefits that are no longer expected to be realizable from future abandonment activities.

30


Exploration Expense Exploration expense includes unproved leasehold impairments, exploration dry hole expense, geological and geophysical expenses, and the costs of maintaining and retaining unproved leasehold properties. Exploration expenses in the first quarter of 2016 decreased $163 million, or 63 percent, compared to the first quarter of 2015, as a result of a reduction in unproved leasehold impairments and reduced drilling activity in response to lower commodity prices. The following table presents a summary of exploration expense:
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Unproved leasehold impairments
 
$
42

 
$
168

Dry hole expense
 
29

 
34

Geological and geophysical expense
 
5

 
30

Exploration overhead and other
 
19

 
26

 
 
$
95

 
$
258

General and Administrative (G&A) Expenses Despite our continued focus on cost reduction efforts, G&A expense for the quarter was $9 million higher than the first quarter of 2015, which included $14 million in reductions from lower than expected incentive compensation payouts and lower stock based compensation expense. Absent these benefits to the first-quarter 2015 G&A, this quarter's G&A expense would have been $5 million lower.
Depreciation, Depletion, and Amortization (DD&A) Oil and gas property DD&A expense of $636 million in the first quarter of 2016 decreased $107 million compared to the first quarter of 2015. The Company's oil and gas property DD&A rate decreased $2.10 per boe in the first quarter of 2016 compared to the first quarter of 2015. The primary factor driving both lower absolute dollar expense and lower DD&A per boe rates was the reduction in the Company's oil and gas properties as a result of impairments to proved properties in 2015.
Impairments During the first quarter of 2016, the Company did not record any material asset impairments of oil and gas proved properties, compared to $1.9 billion of impairments in the first quarter of 2015.
Transaction, Reorganization, and Separation The Company incurred $15 million for the first quarter of 2016 related to company reorganization costs. The costs incurred for the year includes approximately $11 million for employee separation and $4 million for consolidation of office space and other reorganization efforts.

Financing Costs, Net Financing costs incurred during the period comprised the following:
 
 
 
For the Quarter Ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Interest expense
 
$
116

 
$
128

Amortization of deferred loan costs
 
1

 
2

Capitalized interest
 
(11
)
 
(4
)
Interest income
 
(1
)
 
(2
)
Financing costs, net
 
$
105

 
$
124

Net financing costs decreased $19 million in the first quarter of 2016 compared to the same prior-year period on lower interest expense.

31


Provision for Income Taxes The Company estimates its annual effective income tax rate for continuing operations in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash impairments of the carrying value of the Company’s proved and unproved oil and gas properties, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
During the first quarter of 2016, Apache’s effective income tax rate was primarily impacted by an increase in the valuation allowance on Canadian deferred tax assets. During the first quarter of 2015, Apache’s effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company's proved oil and gas properties and a $414 million discrete deferred tax benefit associated with a reduction in the U.K. statutory income tax rate from 62 percent to 50 percent.
On March 24, 2016, the U.K. government released Finance Bill 2016. The bill is expected to receive Royal Assent later this year. Under the bill, the U.K. corporate income tax rate will be reduced from 50 percent to 40 percent, effective January 1, 2016. Under U.S. GAAP, the effect of a change in tax rate will be recognized at the date of enactment (i.e., the date when the bill receives Royal Assent). As such, the proposed rate change is not reflected in the current financial statements. Upon the bill receiving Royal Assent, the Company will record a deferred tax benefit of approximately $239 million related to the remeasurement of the Company's December 31, 2015 U.K. deferred income tax liability.

32


Capital Resources and Liquidity
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 sale of nonstrategic assets for all other liquidity and capital resource needs.
Apache’s operating cash flows, both in the short-term and the long-term, are impacted by highly volatile oil and natural gas prices, as well as costs and sales volumes. Significant changes in commodity prices impact our revenues, earnings, and cash flows. These changes potentially impact our liquidity if costs do not trend with changes in commodity prices. Historically, costs have trended with commodity prices, albeit with a lag. Sales volumes also impact cash flows; however, they have a less volatile impact in the short-term.
Apache’s long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of our drilling program and our ability to add reserves economically. Deterioration in commodity prices also impacts estimated quantities of proved reserves. In the first quarter of 2016, we recognized negative reserve revisions of approximately 5 percent of our year-end 2015 estimated proved reserves as a result of lower prices. If realized prices for the remainder of 2016 approximate commodity future prices as of March 31, 2016, the Company is reasonably likely to report additional negative revisions, currently estimated at 4 to 6 percent of year-end 2015 estimated proved reserves.
We believe the liquidity and capital resource alternatives available to Apache, combined with proactive measures to adjust our capital budget to reflect lower commodity prices and anticipated operating cash flows, will be adequate to fund short-term and long-term operations, including our capital spending program, repayment of debt maturities, payment of dividends, and any amount that may ultimately be paid in connection with commitments and contingencies.
For additional information, please see Part II, Item 1A, “Risk Factors” of the Previously Filed Quarterly Report and Part I, Items 1 and 2, “Business and Properties,” and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for our 2015 fiscal year.
Sources and Uses of Cash
The following table presents the sources and uses of our cash and cash equivalents for the periods presented.
 
 
 
For the Three months ended March 31,
 
 
2016
 
2015
 
 
(In millions)
Sources of Cash and Cash Equivalents:
 
 
 
 
Net cash provided by continuing operating activities
 
$
239

 
$
509

Net commercial paper and bank loan borrowings
 
—

 
1,028

Other
 
12

 
—

 
 
251

 
1,537

Uses of Cash and Cash Equivalents:
 
 
 
 
Capital expenditures(1)
 
$
546

 
$
1,580

Leasehold and property acquisitions
 
19

 
91

Net cash used by Australia discontinued operations
 
—

 
192

Dividends paid
 
95

 
94

Distributions to noncontrolling interest
 
54

 
21

Other
 
—

 
57

 
 
714

 
2,035

Increase (decrease) in cash and cash equivalents
 
$
(463
)
 
$
(498
)
 
(1)
The table presents capital expenditures on a cash basis; therefore, the amounts may differ from those discussed elsewhere in this document, which include accruals.

33


Net Cash Provided by Continuing Operating Activities Operating cash flows are our primary source of capital and liquidity and are impacted, both in the short-term and the long-term, by volatile oil and natural gas prices. The factors that determine operating cash flow are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, exploratory dry hole expense, asset impairments, asset retirement obligation (ARO) accretion, and deferred income tax expense, which affect earnings but do not affect cash flows.
Net cash provided by continuing operating activities for the first three months of 2016 totaled $239 million, a decrease of $270 million from the first three months of 2015. The decrease primarily reflects lower commodity prices.
For a detailed discussion of commodity prices, production, and expenses, refer to the “Results of Operations” of this Item 2. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, please see the statement of consolidated cash flows in Part I, Item 1, Financial Statements of this Current Report on Form 8-K.
Capital Expenditures Worldwide exploration and development (E&D) expenditures for the first three months of 2016 totaled $546 million, compared to $1.5 billion for the first three months of 2015. Apache operated an average of 24 drilling rigs during the first quarter of 2016.
Apache also completed leasehold and property acquisitions totaling $19 million and $91 million during the first three months of 2016 and 2015, respectively. Our 2016 acquisition investments continue to focus on adding new leasehold positions to our North American onshore portfolio.
Apache’s investment in gas gathering, transmission, and processing facilities totaled $63 million in the first three months of 2015. No meaningful expenses were incurred during 2016.
Dividends For the three-month periods ended March 31, 2016 and 2015, the Company paid $95 million and $94 million, respectively, in dividends on its common stock.

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Liquidity
The following table presents a summary of our key financial indicators at the dates presented:
 
 
 
March 31, 2016
 
December 31, 2015
 
 
(In millions)
Cash and cash equivalents
 
$
1,004

 
$
1,467

Total debt
 
8,719

 
8,717

Equity
 
9,000

 
9,490

Available committed borrowing capacity
 
3,500

 
3,500

Cash and cash equivalents The Company had $1.0 billion in cash and cash equivalents as of March 31, 2016, compared to $1.5 billion at December 31, 2015. At March 31, 2016, approximately $810 million of the cash was held by foreign subsidiaries. The cash held by foreign subsidiaries should not be subject to additional U.S. income taxes if repatriated. The majority of the cash is invested in highly liquid, investment grade securities with maturities of three months or less at the time of purchase.
Debt As of March 31, 2016, outstanding debt, which consisted of notes and debentures, totaled $8.7 billion. As of March 31, 2016, Apache had $416,000 of notes due June 2016 and $483,000 of notes due March 2017 classified as short-term debt on the consolidated balance sheet.
Available committed borrowing capacity In June 2015, the Company entered into a $3.5 billion five-year revolving credit facility which matures in June 2020. Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its $3.5 billion commercial paper program. The commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270 days at competitive interest rates. As of March 31, 2016, the Company had no debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines.
In February 2016, the Company entered into a three-year letter of credit facility providing £900 million in commitments, with options to increase commitments to £1.075 billion and extend the term by one year. The facility is available for letters of credit and loans to cash collateralize letter of credit obligations to the extent letters of credit are unavailable under the facility. The facility’s representations and warranties, covenants, and events of default are substantially similar to those in the Company’s $3.5 billion revolving credit facility. Commissions are payable on outstanding letters of credit and borrowings bear interest (at a base rate or LIBOR), plus a margin. Letter of credit commissions, the interest margin, and the facility fee vary depending on the Company’s senior unsecured long-term debt rating. The Company has not requested any letters of credit or borrowings under this facility as of the date of the Previously Filed Quarterly Report. This facility is available for the Company’s letter of credit needs, particularly those which may arise in respect of abandonment obligations assumed in various North Sea acquisitions.
The Company was in compliance with the terms of all credit facilities as of March 31, 2016.


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ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk
The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, natural gas, and NGLs, which have historically been very volatile because of unpredictable events such as economic growth or retraction, weather, political climate, and global supply and demand. Our average crude oil realizations have decreased 34 percent to $31.62 per barrel in the first quarter of 2016 from $47.84 per barrel in the comparable period of 2015. Our average natural gas price realizations have decreased 27 percent to $2.14 per Mcf in the first quarter of 2016 from $2.93 per Mcf in the comparable period of 2015.
We periodically enter into derivative positions on a portion of our projected oil and natural gas production through a variety of financial and physical arrangements intended to manage fluctuations in cash flows resulting from changes in commodity prices. Apache periodically uses futures contracts, swaps, and options to mitigate commodity price risk. Apache does not hold or issue derivative instruments for trading purposes. As of March 31, 2016, Apache had no open commodity derivative positions.
Foreign Currency Risk
The Company’s cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. In Canada, oil and gas prices and costs, such as equipment rentals and services, are generally denominated in Canadian dollars but heavily influenced by U.S. markets. Our North Sea production is sold under U.S. dollar contracts, and the majority of costs incurred are paid in British pounds. In Egypt, all oil and gas production is sold under U.S. dollar contracts, and the majority of the costs incurred are denominated in U.S. dollars. Revenue and disbursement transactions denominated in Canadian dollars and British pounds are converted to U.S. dollar equivalents based on average exchange rates during the period.
Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Currency gains and losses are included as either a component of “Other” under “Revenues and Other” or, as is the case when we re-measure our foreign tax liabilities, as a component of the Company’s provision for income tax expense on the statement of consolidated operations. A foreign currency net gain or loss of $133 million would result from a 10 percent weakening or strengthening, respectively, in the Canadian dollar and British pound as of March 31, 2016.


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