Edgar Filing: APACHE CORP

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

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

For the transition period from to

Commission File Number 1-4300

LOGO

APACHE CORPORATION

(exact name of registrant as specified in its charter)

Delaware

41-0747868

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

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

(Address of principal executive offices)

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

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

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

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

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

Number of shares of registrant’s common stock outstanding as of October 31, 2014 376,482,179

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)


	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues
Oil revenues	$	2,753		$	3,468		$	8,518		$	9,790
Gas revenues		538			645			1,773			2,048
Natural gas liquids revenues		177			175			532			473

		3,468			4,288			10,823			12,311
Derivative instrument gains (losses), net		273			(422	)		79			(275	)
Other		(1	)		34			(3	)		78

		3,740			3,900			10,899			12,114

OPERATING EXPENSES:
Depreciation, depletion, and amortization:
Oil and gas property and equipment
Recurring		1,173			1,272			3,437			3,740
Additional		1,562			627			1,765			627
Other assets		100			96			296			290
Asset retirement obligation accretion		46			65			135			192
Lease operating expenses		652			772			1,862			2,275
Gathering and transportation		67			81			203			231
Taxes other than income		170			176			532			574
General and administrative		112			120			309			359
Acquisition, divestiture, and separation costs		34			—			66			—
Financing costs, net		41			50			103			157

		3,957			3,259			8,708			8,445

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(217	)		641			2,191			3,669
Current income tax provision		297			409			1,038			1,190
Deferred income tax provision (benefit)		727			(203	)		930			229

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST		(1,241	)		435			223			2,250
Net loss from discontinued operations, net of tax		—			(129	)		(517	)		(192	)

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		(1,241	)		306			(294	)		2,058
Preferred stock dividends		—			6			—			44
Net income attributable to noncontrolling interest		89			—			295			—

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	(1,330	)	$	300		$	(589	)	$	2,014

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS:
Net income (loss) from continuing operations attributable to common shareholders	$	(1,330	)	$	429		$	(72	)	$	2,206
Net loss from discontinued operations		—			(129	)		(517	)		(192	)

Net income (loss) attributable to common shareholders	$	(1,330	)	$	300		$	(589	)	$	2,014

NET INCOME (LOSS) PER COMMON SHARE:
Basic net income (loss) from continuing operations per share	$	(3.50	)	$	1.08		$	(0.19	)	$	5.59
Basic net loss from discontinued operations per share		—			(0.33	)		(1.33	)		(0.48	)

Basic net income (loss) per share	$	(3.50	)	$	0.75		$	(1.52	)	$	5.11

DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Diluted net income (loss) from continuing operations per share	$	(3.50	)	$	1.07		$	(0.19	)	$	5.53
Diluted net loss from discontinued operations per share		—			(0.32	)		(1.33	)		(0.47	)

Diluted net income (loss) per share	$	(3.50	)	$	0.75		$	(1.52	)	$	5.06

WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic		381			399			387			394
Diluted		381			401			387			407
DIVIDENDS DECLARED PER COMMON SHARE	$	0.25		$	0.20		$	0.75		$	0.60

The accompanying notes to consolidated financial statements

are an integral part of this statement.

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)


	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
	2014			2013			2014			2013
	(In millions)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST	$	(1,241	)	$	306		$	(294	)	$	2,058
OTHER COMPREHENSIVE INCOME (LOSS):
Commodity cash flow hedge activity, net of tax:
Reclassification of loss on settled derivative instruments		—			(1	)		—			13
Change in fair value of derivative instruments		—			(5	)		(1	)		(6	)
Derivative hedge ineffectiveness reclassified into earnings		—			1			—			1

		—			(5	)		(1	)		8

COMPREHENSIVE INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		(1,241	)		301			(295	)		2,066
Preferred stock dividends		—			6			—			44
Comprehensive income attributable to noncontrolling interest		89			—			295			—

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	(1,330	)	$	295		$	(590	)	$	2,022

The accompanying notes to consolidated financial statements

are an integral part of this statement.

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
	2014			2013
	(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) including noncontrolling interest	$	(294	)	$	2,058
Adjustments to reconcile net income to net cash provided by operating activities:
Loss from discontinued operations		517			192
Depreciation, depletion, and amortization		5,498			4,657
Asset retirement obligation accretion		135			192
Provision for deferred income taxes		930			229
Other		(263	)		190
Changes in operating assets and liabilities:
Receivables		572			(49	)
Inventories		78			(41	)
Drilling advances		(84	)		123
Deferred charges and other		(244	)		(205	)
Accounts payable		(303	)		183
Accrued expenses		(117	)		(369	)
Deferred credits and noncurrent liabilities		21			40

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES		6,446			7,200
NET CASH PROVIDED BY DISCONTINUED OPERATIONS		82			158

NET CASH PROVIDED BY OPERATING ACTIVITIES		6,528			7,358
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(7,131	)		(7,186	)
Additions to gas gathering, transmission, and processing facilities		(1,035	)		(852	)
Proceeds from divestiture of Gulf of Mexico Shelf properties		—			3,594
Proceeds from sale of Deepwater Gulf of Mexico assets		1,367			—
Restricted cash related to divestitures		(545	)		—
Proceeds from Kitimat LNG transaction, net		—			396
Proceeds from sale of other oil and gas properties		390			199
Leasehold and property acquisitions		(655	)		(313	)
Other, net		(80	)		(12	)

NET CASH USED IN CONTINUING INVESTING ACTIVITIES		(7,689	)		(4,174	)
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS		748			(160	)

NET CASH USED IN INVESTING ACTIVITIES		(6,941	)		(4,334	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and bank credit facilities, net		1,246			(539	)
Payments on fixed rate debt		—			(900	)
Distributions to noncontrolling interest		(124	)		—
Dividends paid		(271	)		(280	)
Treasury stock activity, net		(1,830	)		(249	)
Other		38			38

NET CASH USED IN CONTINUING FINANCING ACTIVITIES		(941	)		(1,930	)
NET CASH USED IN DISCONTINUED OPERATIONS		(42	)		(3	)

NET CASH USED IN FINANCING ACTIVITIES		(983	)		(1,933	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(1,396	)		1,091
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		1,906			160

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	510		$	1,251

SUPPLEMENTARY CASH FLOW DATA:
Interest paid, net of capitalized interest	$	143		$	185
Income taxes paid, net of refunds		1,134			1,344

The accompanying notes to consolidated financial statements

are an integral part of this statement.

APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)


	September 30,			December 31,
	2014			2013
	(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	510		$	1,906
Short-term restricted cash		74			—
Receivables, net of allowance		2,287			2,952
Inventories		713			891
Drilling advances		434			371
Prepaid assets and other		408			246

		4,426			6,366

PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full-cost accounting:
Proved properties		86,963			83,390
Unproved properties and properties under development, not being amortized		7,928			8,363
Gathering, transmission and processing facilities		7,874			6,995
Other		1,107			1,071

		103,872			99,819
Less: Accumulated depreciation, depletion, and amortization		(50,837	)		(47,398	)

		53,035			52,421

OTHER ASSETS:
Long-term restricted cash		471			—
Goodwill		1,369			1,369
Deferred charges and other		1,689			1,481

	$	60,990		$	61,637

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,316		$	1,616
Current debt		20			53
Current asset retirement obligation		177			121
Derivative instruments		—			299
Other current liabilities		2,794			2,611

		4,307			4,700

LONG-TERM DEBT		10,902			9,672

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes		9,298			8,364
Asset retirement obligation		3,096			3,101
Other		401			407

		12,795			11,872

COMMITMENTS AND CONTINGENCIES (Note 8)
EQUITY:
Common stock, $0.625 par, 860,000,000 shares authorized, 409,671,364 and 408,041,088 shares issued, respectively		256			255
Paid-in capital		12,379			12,251
Retained earnings		21,156			22,032
Treasury stock, at cost, 32,853,183 and 12,268,180 shares, respectively		(2,857	)		(1,027	)
Accumulated other comprehensive loss		(116	)		(115	)

APACHE SHAREHOLDERS’ EQUITY		30,818			33,396
Noncontrolling interest		2,168			1,997

TOTAL EQUITY		32,986			35,393

	$	60,990		$	61,637

The accompanying notes to consolidated financial statements

are an integral part of this statement.

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CHANGES IN EQUITY

(Unaudited)


	Series D Preferred Stock			Common Stock		Paid-In Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			APACHE SHAREHOLDERS’ EQUITY			Non Controlling Interest			TOTAL EQUITY
	(In millions)
BALANCE AT DECEMBER 31, 2012	$	1,227		$	245	$	9,859		$	20,161		$	(30	)	$	(131	)	$	31,331		$	—		$	31,331
Net income		—			—		—			2,058			—			—			2,058			—			2,058
Commodity hedges, net of tax		—			—		—			—			—			8			8			—			8
Dividends:
Preferred		—			—		—			(44	)		—			—			(44	)		—			(44	)
Common ($0.60 per share)		—			—		—			(237	)		—			—			(237	)		—			(237	)
Common shares issued		—			9		1,218			—			—			—			1,227			—			1,227
Common stock activity, net		—			1		(12	)		—			—			—			(11	)		—			(11	)
Treasury stock activity, net		—			—		(1	)		—			(250	)		—			(251	)		—			(251	)
Conversion of Series D preferred stock		(1,227	)		—		—			—			—			—			(1,227	)		—			(1,227	)
Compensation expense		—			—		135			—			—			—			135			—			135
Other		—			—		(8	)		—			—			—			(8	)		—			(8	)

BALANCE AT SEPTEMBER 30, 2013	$	—		$	255	$	11,191		$	21,938		$	(280	)	$	(123	)	$	32,981		$	—		$	32,981

BALANCE AT DECEMBER 31, 2013	$	—		$	255	$	12,251		$	22,032		$	(1,027	)	$	(115	)	$	33,396		$	1,997		$	35,393
Net income (loss)		—			—		—			(589	)		—			—			(589	)		295			(294	)
Distributions to noncontrolling interest		—			—		—			—			—			—			—			(124	)		(124	)
Commodity hedges, net of tax		—			—		—			—			—			(1	)		(1	)		—			(1	)
Dividends:
Common ($0.75 per share)		—			—		—			(287	)		—			—			(287	)		—			(287	)
Common stock activity, net		—			1		(12	)		—			—			—			(11	)		—			(11	)
Treasury stock activity, net		—			—		(1	)		—			(1,830	)		—			(1,831	)		—			(1,831	)
Compensation expense		—			—		145			—			—			—			145			—			145
Other		—			—		(4	)		—			—			—			(4	)		—			(4	)

BALANCE AT SEPTEMBER 30, 2014	$	—		$	256	$	12,379		$	21,156		$	(2,857	)	$	(116	)	$	30,818		$	2,168		$	32,986

The accompanying notes to consolidated financial statements

are an integral part of this statement.

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013, which contains a summary of the Company’s significant accounting policies and other disclosures.

The Company’s financial statements for prior periods include reclassifications that were made to conform to the current-period presentation. In March 2014, Apache completed the sale of all of its operations in Argentina. Results of operations and cash flows for Argentina operations are reflected as discontinued operations in the Company’s financial statements for all periods presented. For more information regarding this divestiture, please refer to Note 2–Acquisitions and Divestitures.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of September 30, 2014, 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 July 17, 2014 for the fiscal year ended December 31, 2013, other than the change in income taxes noted below and in Note 7—Income Taxes.

Use of Estimates

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

Restricted Cash

The Company classifies cash balances as restricted cash when cash is restricted as to withdrawal or usage. As of September 30, 2014, the Company had $545 million of proceeds from the sale of deepwater Gulf of Mexico properties held by a qualified intermediary and available for use in a like-kind exchange under Section 1031 of the U.S. Internal Revenue Code. As of the date of this filing, the Company has utilized or plans to utilize $471 million of the cash held by the qualified intermediary in the acquisition of like-kind property, and as such, this amount is classified as long-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. The remaining $74 million of restricted cash was returned to Apache in October and, as such, is classified as short-term restricted cash on Apache’s consolidated balance sheet as of September 30, 2014. For more information regarding the sale of the deepwater Gulf of Mexico properties, please refer to Note 2—Acquisitions and Divestitures.

Oil and Gas Property

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

Any excess of the net book value of proved oil and gas properties, less related deferred income taxes, over the ceiling is charged to expense and reflected as “Additional depreciation, depletion, and amortization” (DD&A) in the accompanying statement of consolidated operations. Such limitations are imposed separately on a country-by-country basis and are tested quarterly. For a discussion of the calculation of estimated future net cash flows, please refer to Note 14—Supplemental Oil and Gas Disclosures to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013.

In the third quarter of 2014, the Company recorded $1.5 billion ($996 million net of tax) and $17 million ($7 million net of tax) in non-cash write-downs of the carrying value of the Company’s U.S. and North Sea proved oil and gas properties, respectively. In the second quarter of 2014, the Company recorded a $203 million ($77 million net of tax) non-cash write-down of the carrying value of the Company’s North Sea proved oil and gas properties.

Income Taxes

Apache records deferred tax assets and liabilities to account for the expected future tax consequences of events that have been recognized in the financial statements and tax returns. The Company routinely assesses the realizability of its deferred tax assets. If the Company concludes that it is more likely than not that some or all of the deferred tax assets will not be realized, the tax asset is reduced by a valuation allowance. Numerous judgments and assumptions are inherent in the determination of future taxable income, including factors such as future operating conditions (particularly as related to prevailing oil and gas prices) and changing tax laws.

Apache is required to assess whether the undistributed earnings of its foreign subsidiaries will be permanently reinvested. In the third quarter of 2014, Apache evaluated its permanent reinvestment position and determined that undistributed earnings from certain subsidiaries located in Apache’s Australia, Egypt, and North Sea regions will no longer be permanently reinvested. As a result of this change in position, Apache recorded a U.S. deferred income tax liability of $814 million on the undistributed earnings of subsidiaries located in these regions. Undistributed earnings of Apache’s Canadian subsidiaries remain permanently reinvested. Apache does not record U.S. deferred income taxes on foreign subsidiaries that are deemed to be permanently reinvested. When such earnings are no longer deemed permanently reinvested, Apache will recognize the appropriate U.S. current or deferred income tax liabilities. In addition, the Company recorded $249 million of U.S. deferred income tax expense on foreign earnings that were distributed to the U.S. in the third quarter of 2014.

New Pronouncements Issued But Not Yet Adopted

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-08—Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 modifies the criteria for disposals to qualify as discontinued operations and expands related disclosures. The guidance is effective for annual and interim reporting periods beginning after December 15, 2014. Adoption of this amendment will not have a material effect on our financial position or results of operations.

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. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2016. 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.

In August 2014, the FASB issued ASU No. 2014-15, which requires management of public and private companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and, if so, to disclose that fact. Management will be required to make this evaluation for both annual and interim reporting periods, if applicable. ASU No. 2014-15 is effective for annual periods ending after December 15, 2016 and interim periods within annual periods beginning after December 15, 2016. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

2. ACQUISITIONS AND DIVESTITURES

2014 Activity

Gulf of Mexico Deepwater Divestiture

On June 30, 2014, Apache completed the sale of non-operated interests in the Lucius and Heidelberg development projects and 11 primary term deepwater exploration blocks in the Gulf of Mexico for $1.4 billion. The effective date of the transaction was May 1, 2014. Apache’s net book value of oil and gas properties was reduced by $850 million of proved property costs and $518 million of unproved property costs as a result of the transaction.

Canada Divestiture

On April 30, 2014, Apache completed the sale of primarily dry gas producing hydrocarbon assets in the Deep Basin area of western Alberta and British Columbia, Canada, for $374 million. The assets comprise 328,400 net acres in the Ojay, Noel, and Wapiti areas. Apache retained 100 percent of its working interest in horizons below the Cretaceous in the Wapiti area, including rights to the liquids-rich Montney and other deeper horizons. The effective date of the transaction was January 1, 2014.

Argentina Divestiture

On March 12, 2014, Apache’s subsidiaries completed the sale of all of the Company’s operations in Argentina to YPF Sociedad Anónima for cash consideration of $800 million (subject to customary closing adjustments) plus the assumption of $52 million of bank debt as of June 30, 2013. The results of operations related to Argentina have been classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q. The carrying amounts of the major classes of assets and liabilities associated with the disposition were as follows:


	December 31,
	2013
	(In millions)
ASSETS
Current assets	$	150
Net property and equipment		1,416
Other assets		12

Total assets	$	1,578

LIABILITIES
Current debt	$	51
Other current liabilities		95
Asset retirement obligations		91
Other long-term liabilities		21

Total liabilities	$	258

Sales and other operating revenues and loss from discontinued operations related to the Argentina disposition were as follows:


	For the Quarter Ended September 30,					For the Nine Months Ended September 30,
	2014		2013			2014			2013
	(In millions)
Revenues and other from discontinued operations	$	—	$	118		$	87		$	364

Loss from Argentina divestiture		—		—			(539	)		—
Loss from operations in Argentina		—		(129	)		(1	)		(192	)
Income tax benefit		—		—			23			—

Loss from discontinued operations, net of tax	$	—	$	(129	)	$	(517	)	$	(192	)

2013 Activity

Egypt Partnership

On November 14, 2013, Apache completed the sale of a one-third minority participation in its Egypt oil and gas business to a subsidiary of Sinopec International Petroleum Exploration and Production Corporation (Sinopec). Apache received cash consideration of $2.95 billion after customary closing adjustments. Apache continues to operate its Egypt upstream oil and gas business. Apache recorded

$1.9 billion of the proceeds as a noncontrolling interest, which is reflected as a separate component of equity in the Company’s consolidated balance sheet. This represents one-third of Apache’s net book value of its Egypt holdings at the time of the transaction. The remaining proceeds were recorded as additional paid-in capital. Included in “Net income including noncontrolling interest” for the quarter ended September 30, 2014, is net income attributable to Sinopec’s interest totaling $89 million. For the first nine months of 2014, net income attributable to Sinopec’s interest totaled $295 million, of which the Company has distributed $124 million to Sinopec.

Gulf of Mexico Shelf Divestiture

On September 30, 2013, Apache completed the sale of its Gulf of Mexico Shelf operations and properties to Fieldwood Energy LLC (Fieldwood), an affiliate of Riverstone Holdings. Under the terms of the agreement, Apache received cash consideration of $3.7 billion, and Fieldwood assumed $1.5 billion of discounted asset abandonment liabilities. Additionally, Apache retained 50 percent of its ownership interest in all exploration blocks and in horizons below production in developed blocks.

Canada LNG Project

In February 2013, Apache completed a transaction with Chevron Canada Limited (Chevron Canada) under which each company became a 50-percent owner of the Kitimat LNG plant, the Pacific Trail Pipelines Limited Partnership (PTP), and 644,000 gross undeveloped acres in the Horn River and Liard basins. Chevron Canada will operate the LNG plant and pipeline while Apache Canada will continue to operate the upstream assets. Apache’s net proceeds from the transaction were $396 million after post-closing adjustments, and no gain or loss was recorded.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

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

Counterparty Risk

The use of derivative instruments exposes the Company to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of September 30, 2014, Apache had derivative positions with 14 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from lower commodity prices.

The Company executes commodity derivative transactions under master agreements that have netting provisions that provide for offsetting payables against receivables. In general, if a party to a derivative transaction incurs a material deterioration in its credit ratings, as defined in the applicable agreement, the other party has the right to demand the posting of collateral, demand a transfer, or terminate the arrangement. The Company’s net derivative asset position at September 30, 2014, represents the aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net asset position. The Company has not provided any collateral to any of its counterparties as of September 30, 2014.

Derivative Instruments

As of September 30, 2014, Apache had the following commodity derivative positions:


			Fixed-Price Swaps
Production					MMBtu		Weighted Average
Period	Commodity	Settlement Index	Mbbls		(in 000’s)		Fixed Price
2014	Crude Oil	NYMEX WTI		5,750		—	$	90.83
2014	Crude Oil	Dated Brent		5,750		—		100.05
2014	Natural Gas	Various⁽¹⁾		—		16,235		4.37

⁽¹⁾	The natural gas price represents a weighted-average of several contracts entered into on a per-million British thermal units (MMBtu) basis. These contracts are settled against NYMEX Henry Hub and various Inside FERC indices.

Apache has currently elected not to designate any of its qualifying natural gas and oil derivatives as cash flow hedges. Changes in the fair value of these derivatives for the current period are recorded in the Company’s statement of consolidated operations.

Fair Value Measurements

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

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


	Fair Value Measurements Using
	Quoted
	Price in		Significant		Significant
	Active		Other		Unobservable		Total
	Markets		Inputs		Inputs		Fair					Carrying
	(Level 1)		(Level 2)		(Level 3)		Value		Netting⁽¹⁾			Amount
	(In millions)
September 30, 2014
Assets:
Commodity Derivative Instruments	$	—	$	41	$	—	$	41	$	—		$	41
Liabilities:
Commodity Derivative Instruments		—		—		—		—		—			—
December 31, 2013
Assets:
Commodity Derivative Instruments	$	—	$	3	$	—	$	3	$	(2	)	$	1
Liabilities:
Commodity Derivative Instruments		—		301		—		301		(2	)		299

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

Derivative Assets and Liabilities Recorded in the Consolidated Balance Sheet

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


	September 30,		December 31,
	2014		2013
	(In millions)
Current Assets: Prepaid assets and other	$	41	$	1
Current Liabilities: Derivative instruments	$	—	$	299

Derivative Activity Recorded in the Statement of Consolidated Operations

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


		For the Quarter Ended						For the Nine Months Ended
	Gain (Loss) on Derivatives	September 30,						September 30,
	Recognized in Income	2014			2013			2014			2013
		(In millions)
Gain (loss) on cash flow hedges reclassified from accumulated other comprehensive loss	Oil and Gas Production Revenues	$	—		$	2		$	—		$	(18	)
Loss for ineffectiveness on cash flow hedges	Revenues and other: Other	$	—		$	(1	)	$	—		$	(1	)
Derivatives not designated as cash flow hedges:
Realized loss		$	(41	)	$	(91	)	$	(262	)	$	(138	)
Unrealized gain (loss)			314			(331	)		341			(137	)

Gain (loss) on derivatives not designated as cash flow hedges	Derivative instrument gains (losses), net	$	273		$	(422	)	$	79		$	(275	)

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

Derivative Activity in Accumulated Other Comprehensive Loss

A reconciliation of the components of accumulated other comprehensive loss in the statement of consolidated changes in equity related to Apache’s cash flow hedges is presented in the table below. The Company has no derivatives designated as cash flow hedges as of September 30, 2014.


	For the Nine Months Ended September 30,
	2014						2013
	Before			After			Before			After
	tax			tax			tax			tax
	(In millions)
Unrealized gain (loss) on derivatives at beginning of period	$	1		$	1		$	(10	)	$	(6	)
Realized amounts reclassified into earnings		—			—			18			13
Net change in derivative fair value		(1	)		(1	)		(7	)		(6	)
Ineffectiveness reclassified into earnings		—			—			1			1

Unrealized gain on derivatives at end of period	$	—		$	—		$	2		$	2

4. OTHER CURRENT LIABILITIES

The following table provides detail of our other current liabilities:


	September 30,		December 31,
	2014		2013
	(In millions)
Accrued operating expenses	$	127	$	190
Accrued exploration and development		1,723		1,582
Accrued compensation and benefits		217		242
Accrued interest		119		161
Accrued income taxes		297		248
Accrued U.K. Petroleum Revenue Tax		47		9
Other		264		179

Total Other current liabilities	$	2,794	$	2,611

5. ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the nine-month period ended September 30, 2014:


	(In millions)
Asset retirement obligation at December 31, 2013	$	3,222
Liabilities incurred		86
Liabilities divested		(91	)
Liabilities settled		(79	)
Accretion expense		135

Asset retirement obligation at September 30, 2014		3,273
Less current portion		(177	)

Asset retirement obligation, long-term	$	3,096

6. DEBT AND FINANCING COSTS

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


	September 30, 2014				December 31, 2013
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
	(In millions)
Uncommitted credit lines	$	20	$	20	$	53	$	53
Commercial paper		1,228		1,228		—		—
Notes and debentures		9,674		10,463		9,672		10,247

Total Debt	$	10,922	$	11,711	$	9,725	$	10,300

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

As of September 30, 2014, the Company had unsecured committed revolving credit facilities totaling $3.3 billion, of which $1.0 billion matures in August 2016 and $2.3 billion matures in June 2018 pursuant to a one-year extension approved in May 2014 under the terms of the $2.3 billion facilities. The facilities consist of a $1.7 billion facility and $1.0 billion facility for the U.S., a $300 million facility for Australia, and a $300 million facility for Canada. As of September 30, 2014, available borrowing capacity under the Company’s credit facilities was $2.1 billion. The Company’s committed credit facilities are used to support Apache’s commercial paper program.

The Company has available a $3.0 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under our committed credit facilities. As of September 30, 2014, the Company had $1.2 billion outstanding in commercial paper. There was no outstanding commercial paper as of December 31, 2013.

As of September 30, 2014, the Company had $20 million of current debt outstanding borrowed on uncommitted credit facilities and overdraft lines, compared with $53 million as of December 31, 2013.

Financing Costs, Net

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


	For the Quarter Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(In millions)
Interest expense	$	126		$	142		$	374		$	429
Amortization of deferred loan costs		2			2			5			6
Capitalized interest		(85	)		(91	)		(270	)		(268	)
Interest income		(2	)		(3	)		(6	)		(10	)

Financing costs, net	$	41		$	50		$	103		$	157

7. INCOME TAXES

In the third quarter of 2014, Apache evaluated its permanent reinvestment position and determined that undistributed earnings from certain foreign subsidiaries located in Apache’s Australia, Egypt, and North Sea regions will no longer be permanently reinvested. As a result of this change in position, the Company recorded $814 million of U.S. deferred income tax expense on undistributed earnings that were previously considered permanently reinvested. In addition, the Company recorded $249 million of U.S. deferred income tax expense on foreign earnings that were distributed to the U.S. in the third quarter of 2014.

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. Accordingly, in the third quarter of 2014, the Company recorded $814 million of U.S. deferred income tax expense on foreign earnings no longer deemed to be permanently reinvested as well as the income tax effect of the $1.5 billion and $17 million non-cash write-downs of its U.S. and North Sea proved oil and gas properties, respectively, as discrete items in the third quarter of 2014. In the second quarter of 2014, the Company recorded the income tax impact of a $203 million non-cash write-down of its North Sea proved oil and gas properties as a discrete item. In the third quarter of 2013, the Company recorded the income tax impact of a $552 million non-cash write-down and a $75 million non-cash impairment on its U.S. and Kenyan oil and gas properties, respectively, as discrete items.

Apache and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. In October 2014, the Internal Revenue Service concluded its audit of the 2011 and 2012 tax years. The Company is under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

8. COMMITMENTS AND CONTINGENCIES

Legal Matters

Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of September 30, 2014, the Company has an accrued liability of approximately $21 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. Apache’s estimates are based on information known about the matters and its experience in contesting, litigating, and settling similar matters. Although actual amounts could differ from management’s estimate, none of the actions are believed by management to involve future amounts that would be material to Apache’s financial position, results of operations, or liquidity after consideration of recorded accruals. For material matters that Apache believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and a range of potential exposure, unless an estimate cannot be made at this time. It is management’s opinion that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.

For additional information on each of the Legal Matters described below, please see Note 8—Commitments and Contingencies to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated July 17, 2014 for the fiscal year ended December 31, 2013.

Argentine Environmental Claims and Argentina Tariff

The Asociación de Superficiarios de la Patagonia (ASSUPA) filed lawsuits against Company subsidiaries in Argentina courts relating to various environmental and remediation claims concerning certain geographic areas of Argentina, including in 2003 the Neuquén basin and in 2012 the Austral basin. In addition, effective December 1, 2011, Enargas, an autonomous entity that functions under the Argentine Ministry of Economy, created a tariff charge on all fuel gas used by oil and gas producers in field operations, which is likewise the subject of legal proceedings in Argentina.

On March 12, 2014, the Company and its subsidiaries completed the sale of all of the Company’s subsidiaries’ operations and properties in Argentina to YPF Sociedad Anonima (YPF). As part of that sale, YPF assumed responsibility for all of the past, present, and future litigation in Argentina involving Company subsidiaries, including the ASSUPA and Enargas matters, except that Company subsidiaries have agreed to indemnify YPF for certain environmental, tax, and royalty obligations capped at an aggregate of $100 million. The indemnity is subject to specific agreed conditions precedent, thresholds, contingencies, limitations, claim deadlines, loss sharing, and other terms and conditions. On April 11, 2014, YPF provided its first notice of claims pursuant to the indemnity. Company subsidiaries have not paid any amounts under the indemnity, but will continue to review and consider claims presented by YPF. Further, Company subsidiaries retain the right to enforce certain Argentina-related indemnification obligations against Pioneer Natural Resources Company (Pioneer) in an amount up to $67.5 million pursuant to the terms and conditions of stock purchase agreements entered in 2006 between Company subsidiaries and certain subsidiaries of Pioneer. No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Louisiana Restoration

Numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either expressed or implied lease terms or Louisiana law, they are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup.

In a case captioned Heloise, LLC, et al. v. BP America Production Company, et al., Case No. 120113 in the District Court for the Parish of Lafourche, plaintiff landowners allege that defendants’ oil and gas operations contaminated their property primarily with chlorides. Apache, a defendant in the case, acquired its interest in the oil and gas operations on plaintiffs’ property from the former operator, Amoco Production Company, when the Company purchased the stock of Amoco’s subsidiary, MW Petroleum Corporation, in 1991. BP America Production Company (BP America), as Amoco’s successor in interest, and Apache dispute whether and to what extent they might owe each other indemnity in the case. Plaintiffs’ expert opined that the cost of remediating plaintiffs’ 825 acres exceeds $200 million. Prior to trial, Apache and BP America each settled with plaintiff. The amount paid by Apache in settlement is not material and does not have a material effect on the Company’s financial position, results of operations, or liquidity. Further, as part of the overall settlement, each of Apache and BP America released and waived its indemnity claim against the other arising out of this litigation. The lawsuit is concluded.

With respect to Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East v. Tennessee Gas Pipeline Company et al., Civil Action no. 13-5410, in the United States District Court for the Eastern District of Louisiana, the federal court has retained jurisdiction over the matter after denying plaintiff’s motion to remand on June 27, 2014. Further, the Louisiana state government has passed a new law (SB 469) clarifying that only entities authorized under the Coastal Zone Management Act may bring litigation to assert claims arising out of the permitted activities. Plaintiff is not one of those authorized entities. The Company and other defendants seek dismissal of the case, including pursuant to SB 469.

No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Australia Gas Pipeline Force Majeure

In 2008, Company subsidiaries reported a pipeline explosion that interrupted deliveries of natural gas in Australia to customers under various long-term contracts.

In the case captioned Alcoa of Australia Limited v. Apache Energy Limited, Apache Northwest Pty Ltd, Tap (Harriet) Pty Ltd, and Kufpec Australia Pty Ltd, Civ. 1481 of 2011, in the Supreme Court of Western Australia, on June 20, 2012, the Supreme Court struck out Alcoa’s claim that the liquidated damages provisions under two long-term contracts are unenforceable as a penalty and also struck out Alcoa’s claim for damages for breach of statutory duty. On September 17, 2013, the Western Australia Court of Appeal dismissed the Company subsidiaries’ appeal concerning Alcoa’s remaining tort claim for economic loss. On October 15, 2013, the Company subsidiaries applied to the High Court of Australia for special leave to appeal. On April 11, 2014, the High Court refused special leave to appeal. However, on October 8, 2014, the High Court decided a separate case on point captioned Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor, [2014] HCA 36. The High Court’s holding in the Brookfield case strongly favors the Company subsidiaries’ defenses to Alcoa’s remaining tort claim for economic loss. All of the Company subsidiaries’ defenses remain intact for further proceedings at the trial court level, including the defenses that were the subject of the special leave application and that have now been considered separately by the High Court in the Brookfield case. Further, in January 2014, an Alcoa affiliate pleaded guilty in United States of America v. Alcoa World Alumina LLC, Criminal No. 14-7, in the United States District Court for the Western District of Pennsylvania, to a charge under the Foreign Corrupt Practices Act (FCPA) anti-bribery provisions, 15 U.S.C. Section 78dd-2 and 18 U.S.C. Section 2. This matter overlaps with Alcoa’s claims against Company subsidiaries in that both cases concern alumina produced from Alcoa’s alumina refineries in Western Australia during the period of the gas supply disruption in 2008-2009. In the circumstances of the admitted, agreed, and stipulated facts set forth in the Alcoa affiliate’s Plea Agreement, which is a public document, Company subsidiaries will defend against Alcoa’s claims on the basis that Alcoa is barred by law from recovering economic losses.

In the week prior to expiration of the applicable six-year limitations period on June 3, 2014, the following civil lawsuits were filed in connection with the Varanus Island pipeline explosion (the Incident), and the amounts specified do not include plaintiffs’ alleged interest and costs:

•

As previously reported, a lawsuit filed by Burrup Fertilisers Pty Ltd (Burrup Fertilisers) in Texas in December 2009 was dismissed in March 2013 on the ground of forum non conveniens. On May 29, 2014, Burrup Fertilisers (now known as Yara Pilbara Fertilisers Pty Ltd, YPFPL) re-filed the lawsuit in Western Australia, captioned Yara Pilbara Fertilisers Pty Ltd vs. Apache Energy Limited et al., Civ. 1742 of 2014, in the Supreme Court of Western Australia. In the lawsuit, which is being pressed by YPFPL’s insurers, YPFPL alleges that a joint venture whose members include an Apache subsidiary supplied YPFPL with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred damages in the amount of nearly $166 million USD for economic losses and, alternatively, contractual liquidated damages and “abnormal costs” in the amount of approximately $13 million USD. In addition to all of their other defenses, the Company and its subsidiaries will defend against YPFPL’s claims on the basis that during the gas supply disruption there was no enforceable gas supply contract between YPFPL and Company subsidiaries.

•

In Wesfarmers LPG Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1740 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that Alinta Sales Pty Ltd (Alinta) supplied them (and associated entities) with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred an unspecified amount of damages for alleged lost profits, alternative gas, and associated expenses. Plaintiffs’ Indorsement of Claim (a short form of pleading) has been filed with the court but not yet served on the Apache defendants.

•

In Iluka Resources Limited vs. Apache Energy Limited et al., Civ. 1748 of 2014, in the Supreme Court of Western Australia, plaintiff alleges that Alinta supplied it with natural gas and power and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred damages of approximately $23 million (no currency is specified) for alleged lost profits, alternative energy, and associated expenses. Plaintiff’s lawyers have since clarified that the amount sought by plaintiff is $32 million. Plaintiff’s Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

•

In Harvey Industries Group Pty Ltd vs. Apache Energy Limited et al., Civ. 1749 of 2014, in the Supreme Court of Western Australia, plaintiff alleges that Alinta supplied it with natural gas and power and that, as a consequence of a disruption in gas supply following the Incident, plaintiff incurred an unspecified amount of damages for alleged lost profits, the cost of alternative gas and power, and associated expenses. Plaintiff’s Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

•

In EDL LNG (WA) Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1751 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that an Apache subsidiary and Santos (BOL) Pty Ltd supplied one such plaintiff with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred damages of approximately $17.5 million (no currency is specified) for alleged alternative gas and diesel, and, alternatively, plaintiffs seek an unspecified amount of liquidated damages from their gas sellers.

•

In Newmont Mining Services Pty Ltd et al. vs. Apache Energy Limited et al., Civ. 1727 of 2014, in the Supreme Court of Western Australia, plaintiffs allege that Santos (BOL) Pty Ltd supplied one such plaintiff with natural gas and that, as a consequence of a disruption in gas supply following the Incident, plaintiffs incurred an unspecified amount of damages for alleged alternative energy and associated expenses, except that as an alternative measure of damage plaintiffs seek to recover $6.4 million (no currency is specified) in liquidated damages from Santos (BOL) Pty Ltd. Plaintiffs’ Indorsement of Claim has been filed with the court but not yet served on the Apache defendants.

With respect to the claims in which the plaintiffs have not specified an amount of alleged damages in their court filings, the exposure related to such claims is not material or, in the case of Wesfarmers, not currently determinable but not expected to be material. Insurance statistics maintained by the Insurance Council of Australia show that the total insured loss resulting from the gas supply disruption was $230 million AUD.

The applicable six-year limitations period has expired. In six years none of the above-referenced plaintiffs presented a claim to Apache or its subsidiaries prior to filing suit and instead, each allowed the same plaintiff law firm to file suit in Western Australia at the latest possible moment. The Apache defendants do not believe that any of the claims have merit and will vigorously pursue their defenses against such claims. The plaintiffs seek relief primarily in tort, in circumvention of their own positive arrangements regarding risk allocation and in contravention of the High Court’s decision in the Brookfield case. In respect of the pending claims filed prior to expiration of the limitations period, contractual liquidated damages under the long-term contracts with such provisions, and under which an Apache subsidiary is a gas supplier, would not be expected to exceed $20 million AUD exclusive of interest. This is a reduction from previous estimates. In addition, Company subsidiaries have received confirmation of liability insurance coverage from both the primary insurer and the excess insurers.

No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Breton Lawsuit

On October 29, 2012, plaintiffs filed an amended complaint in Breton Energy, L.L.C. et al. v. Mariner Energy Resources, Inc., et al., Case 4:11-cv-03561, in the United States District Court for the Southern District of Texas, Houston Division, seeking compensation from defendants for allegedly depriving plaintiffs of rights to hydrocarbons in a reservoir described by plaintiffs as a common reservoir in West Cameron Blocks 171 and 172 offshore Louisiana in the Gulf of Mexico. Plaintiffs assert claims for waste and drainage. On May 28, 2013, the United States District Court for the Southern District of Texas dismissed the plaintiffs’ claims and entered judgment in favor of the defendants. Plaintiffs appealed. On August 12, 2014, the United States Court of Appeals for the Fifth Circuit affirmed the District Court as to the claims for waste against all defendants except International Paper and also affirmed the District Court as to the claims for drainage against all defendants. The Company’s subsidiary, Mariner Energy Resources, Inc. (now known as Apache Shelf, Inc.), was dismissed from the case but is obligated to indemnify the remaining defendant, International Paper, against the sole remaining claim. Prior to trial, which was to commence on November 3, 2014, plaintiffs settled their remaining claim in an amount that is not material and does not have a material effect on the Company’s financial position, results of operations, or liquidity. The lawsuit is concluded.

Escheat Audits

The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), has notified numerous companies, including Apache Corporation, that the State intends to examine its books and records and those of its subsidiaries and related entities to determine compliance with the Delaware Escheat Laws. The review is ongoing, and no material change in the status of this matter has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Burrup-Related Gas Supply Lawsuits

On October 11, 2013, a lawsuit captioned Pankaj Oswal v. Apache Corporation, No. WAD 389/2013, in the Federal Court of Australia, District of Western Australia, General Division, was filed in which plaintiff asserts claims against the Company under the Australian Trade Practices Act. The case has been set for a preliminary hearing commencing December 8, 2014. The Company does not believe the lawsuit has merit and will vigorously defend against it. No other material change in the status of this matter has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

In the case captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653, in the Supreme Court of Victoria, plaintiff filed an application seeking to amend her statement of claim in order to add parties as defendants to the proceedings, including the Company and certain of its subsidiaries. Similarly, in a companion case captioned Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2012 01995, in the Supreme Court of Victoria, plaintiff also filed an application seeking to amend his statement of claim in order to add parties as defendants to the proceedings, including the Company and certain of its subsidiaries. This was the second attempt by the plaintiffs to amend their pleadings, with their first attempt having been unsuccessful. While reserving all rights, including all defenses to the plaintiffs’ proposed amended pleadings, the Company and its subsidiaries did not object to the plaintiffs’ revised applications to amend their pleadings, which is a procedural matter. The court granted plaintiffs’ applications and entered a scheduling order with respect to the filing of all amended pleadings. On July 23, 2014, the Apache defendants filed their responsive pleadings, which include substantial counterclaims against the Oswals by a Company subsidiary. The Company and its subsidiaries do not believe the plaintiffs’ claims have merit and will vigorously defend against them. Trial is set to commence August 3, 2015. No other material change in the status of these matters has occurred since the filing of Apache’s Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

Concerning the action filed by Tap (Harriet) Pty Ltd (Tap) against Burrup Fertilisers Pty Ltd et al., Civ. 2329 of 2009, in the Supreme Court of Western Australia, the remaining parties have settled and the lawsuit has been discontinued by consent. The lawsuit is concluded.

Environmental Matters

As of September 30, 2014, the Company had an undiscounted reserve for environmental remediation of approximately $86 million. The Company is not aware of any environmental claims existing as of September 30, 2014, 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.

On May 25, 2011, a panel of the Bureau of Ocean Energy Management (BOEMRE, as it was then known) published a report dated May 23, 2011, and titled “OCS G-2580, Vermilion Block 380 Platform A, Incidents of Noncompliance.” The report concerned the BOEMRE’s investigation of a fire on the Vermilion 380 A platform located in the Gulf of Mexico. At the time of the incident, Mariner operated the platform. On December 27, 2011, the Bureau of Safety and Environmental Enforcement (BSEE, successor to BOEMRE) issued several Incidents of Non-Compliance, which may provide the basis for the assessment of civil penalties against Mariner. The Company’s subsidiary, Apache Deepwater LLC, which is the successor by merger to Mariner effective November 10, 2010, has been presented with a BSEE notice of proposed civil penalty assessment in an amount that is not material and that will not 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 Current Report on Form 8-K dated July 17, 2014 for its 2013 fiscal year.

9. CAPITAL STOCK

Net Income (Loss) per Common Share

A reconciliation of the components of basic and diluted net income (loss) per common share for the quarters and nine-month periods ended September 30, 2014 and 2013 is presented in the table below.


	For the Quarter Ended September 30,
	2014								2013
	Loss			Shares		Per Share			Income (Loss)			Shares		Per Share
	(In millions, except per share amounts)
Basic:
Income (loss) from continuing operations	$	(1,330	)		381	$	(3.50	)	$	429			399	$	1.08
Loss from discontinued operations		—			381		—			(129	)		399		(0.33	)

Income (loss) attributable to common stock	$	(1,330	)		381	$	(3.50	)	$	300			399	$	0.75

Effect of Dilutive Securities:
Stock options and other		—			—					—			2
Diluted:
Income (loss) from continuing operations	$	(1,330	)		381	$	(3.50	)	$	429			401	$	1.07
Loss from discontinued operations		—			381		—			(129	)		401		(0.32	)

Income (loss) attributable to common stock	$	(1,330	)		381	$	(3.50	)	$	300			401	$	0.75


	For the Nine Months Ended September 30,
	2014								2013
	Loss			Shares		Per Share			Income (Loss)			Shares		Per Share
	(In millions, except per share amounts)
Basic:
Income (loss) from continuing operations	$	(72	)		387	$	(0.19	)	$	2,206			394	$	5.59
Loss from discontinued operations		(517	)		387		(1.33	)		(192	)		394		(0.48	)

Income (loss) attributable to common stock	$	(589	)		387	$	(1.52	)	$	2,014			394	$	5.11

Effect of Dilutive Securities:
Mandatory Convertible Preferred Stock		—			—					44			11
Stock options and other		—			—					—			2
Diluted:
Income (loss) from continuing operations	$	(72	)		387	$	(0.19	)	$	2,250			407	$	5.53
Loss from discontinued operations		(517	)		387		(1.33	)		(192	)		407		(0.47	)

Income (loss) attributable to common stock	$	(589	)		387	$	(1.52	)	$	2,058			407	$	5.06

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 4.7 million and 5.4 million for the quarters ending September 30, 2014 and 2013, respectively, and 5.5 million and 6.0 million for the nine months ended September 30, 2014 and 2013, respectively. For the quarter ended September 30, 2013, 4.8 million shares related to the assumed conversion of the Mandatory Convertible Preferred Stock were also anti-dilutive.

Common and Preferred Stock Dividends

For the quarters ended September 30, 2014 and 2013, Apache paid $95 million and $78 million, respectively, in dividends on its common stock. For the nine months ended September 30, 2014 and 2013, Apache paid $271 million and $223 million, respectively.

In the first nine months of 2013, the Company also paid $57 million in dividends on its Series D Preferred Stock, which was converted to common stock in August 2013.

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 held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through September 30, 2014 has repurchased a total of 31.8 million shares at an average price of $88.90 per share. For the nine-month period ended September 30, 2014, the Company repurchased a total of 20.6 million shares at an average price of $88.92 per share. The Company is not obligated to acquire any specific number of shares.

10. BUSINESS SEGMENT INFORMATION

Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil and natural gas liquids. At September 30, 2014, the Company had production in five countries: the United States, Canada, Egypt, Australia, and the United Kingdom (U.K.) North Sea. Apache also pursues exploration interests in other countries that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:


	United											Other
	States			Canada		Egypt⁽²⁾		Australia		North Sea		International			Total
	(In millions)
For the Quarter Ended September 30, 2014
Oil and Gas Production Revenues	$	1,481		$	268	$	910	$	287	$	522	$	—		$	3,468

Operating Income (Loss) ⁽¹⁾	$	(988	)	$	11	$	481	$	70	$	124	$	—		$	(302	)

Other Income (Expense):
Derivative instrument gains (losses), net																273
Other																(1	)
General and administrative																(112	)
Acquisition, divestiture, and separation costs																(34	)
Financing costs, net																(41	)

Loss Before Income Taxes															$	(217	)

For the Nine Months Ended September 30, 2014
Oil and Gas Production Revenues	$	4,515		$	879	$	2,849	$	780	$	1,800	$	—		$	10,823

Operating Income⁽¹⁾	$	354		$	131	$	1,601	$	239	$	268	$	—		$	2,593

Other Income (Expense):
Derivative instrument gains (losses), net																79
Other																(3	)
General and administrative																(309	)
Acquisition, divestiture, and separation costs																(66	)
Financing costs, net																(103	)

Income Before Income Taxes															$	2,191

Total Assets	$	30,613		$	7,100	$	7,246	$	9,148	$	6,824	$	59		$	60,990

For the Quarter Ended September 30, 2013
Oil and Gas Production Revenues⁽³⁾	$	2,029		$	325	$	1,022	$	279	$	633	$	—		$	4,288

Operating Income (Loss)⁽¹⁾⁽³⁾	$	310		$	4	$	658	$	117	$	186	$	(76	)	$	1,199

Other Income (Expense):
Derivative instrument gains (losses), net																(422	)
Other																34
General and administrative																(120	)
Financing costs, net																(50	)

Income Before Income Taxes⁽³⁾															$	641

For the Nine Months Ended September 30, 2013
Oil and Gas Production Revenues⁽³⁾	$	5,543		$	952	$	2,924	$	867	$	2,025	$	—		$	12,311

Operating Income (Loss) ⁽¹⁾⁽³⁾	$	1,607		$	17	$	1,827	$	373	$	634	$	(76	)	$	4,382

Other Income (Expense):
Derivative instrument gains (losses), net																(275	)
Other																78
General and administrative																(359	)
Financing costs, net																(157	)

Income Before Income Taxes⁽³⁾															$	3,669

Total Assets⁽³⁾	$	29,503		$	7,083	$	7,142	$	7,567	$	7,292	$	54		$	58,641

⁽¹⁾

Operating Income (Loss) consists of oil and gas production revenues less depreciation, depletion, and amortization, asset retirement obligation accretion, lease operating expenses, gathering and transportation costs, and taxes other than income. U.S.’s operating income (loss) for the third quarter and the first nine months of 2014 includes a $1.5 billion non-cash write-down of its carrying value of oil and gas properties. North Sea’s operating income (loss) for the third quarter and first nine months of 2014 include non-cash write-downs of the carrying value of oil and gas properties totaling $17 million and $220 million, respectively.

⁽²⁾	Includes a noncontrolling interest in Egypt for the quarter and nine months ended September 30, 2014.

⁽³⁾	Amounts for 2013 have been recast to exclude discontinued operations.

11. 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.

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended September 30, 2014


	Apache Corporation			Apache Finance Canada		All Other Subsidiaries of Apache Corporation			Reclassifications & Eliminations			Consolidated
	(In millions)
REVENUES AND OTHER:
Oil and gas production revenues	$	882		$	—	$	2,586		$	—		$	3,468
Equity in net income (loss) of affiliates		491			5		1			(497	)		—
Derivative instrument gains (losses), net		320			—		(47	)		—			273
Other		(34	)		14		17			2			(1	)

		1,659			19		2,557			(495	)		3,740

OPERATING EXPENSES:
Depreciation, depletion, and amortization		1,914			—		921			—			2,835
Asset retirement obligation accretion		8			—		38			—			46
Lease operating expenses		137			—		515			—			652
Gathering and transportation		15			—		52			—			67
Taxes other than income		67			—		103			—			170
General and administrative		89			—		21			2			112
Acquisition, divestiture, and separation costs		34			—		—			—			34
Financing costs, net		45			11		(15	)		—			41

		2,309			11		1,635			2			3,957

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(650	)		8		922			(497	)		(217	)
Provision (benefit) for income taxes		678			2		344			—			1,024

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST		(1,328	)		6		578			(497	)		(1,241	)
Net loss from discontinued operations, net of tax		—			—		—			—			—

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		(1,328	)		6		578			(497	)		(1,241	)
Net income attributable to noncontrolling interest		—			—		89			—			89

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	(1,328	)	$	6	$	489		$	(497	)	$	(1,330	)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK ⁽¹⁾	$	(1,328	)	$	6	$	489		$	(497	)	$	(1,330	)

⁽¹⁾	Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Quarter Ended September 30, 2013


	Apache Corporation			Apache Finance Canada			All Other Subsidiaries of Apache Corporation			Reclassifications & Eliminations			Consolidated
	(In millions)
REVENUES AND OTHER:
Oil and gas production revenues	$	1,374		$	—		$	2,914		$	—		$	4,288
Equity in net income (loss) of affiliates		619			(4	)		3			(618	)		—
Derivative instrument gains (losses), net		(422	)		—			—			—			(422	)
Other		2			16			17			(1	)		34

		1,573			12			2,934			(619	)		3,900

OPERATING EXPENSES:
Depreciation, depletion, and amortization		1,041			—			954			—			1,995
Asset retirement obligation accretion		20			—			45			—			65
Lease operating expenses		254			—			518			—			772
Gathering and transportation		18			—			63			—			81
Taxes other than income		62			—			114			—			176
General and administrative		103			—			18			(1	)		120
Financing costs, net		36			14			—			—			50

		1,534			14			1,712			(1	)		3,259

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		39			(2	)		1,222			(618	)		641
Provision (benefit) for income taxes		(267	)		(1	)		474			—			206

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST		306			(1	)		748			(618	)		435
Net loss from discontinued operations, net of tax		—			—			(129	)		—			(129	)

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		306			(1	)		619			(618	)		306
Preferred stock dividends		6			—			—			—			6

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	300		$	(1	)	$	619		$	(618	)	$	300

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK ⁽¹⁾	$	295		$	(1	)	$	619		$	(618	)	$	295

⁽¹⁾	Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2014


	Apache Corporation			Apache Finance Canada		All Other Subsidiaries of Apache Corporation			Reclassifications & Eliminations			Consolidated
	(In millions)
REVENUES AND OTHER:
Oil and gas production revenues	$	2,669		$	—	$	8,154		$	—		$	10,823
Equity in net income (loss) of affiliates		1,233			58		6			(1,297	)		—
Derivative instrument gains (losses), net		175			—		(96	)		—			79
Other		(106	)		41		57			5			(3	)

		3,971			99		8,121			(1,292	)		10,899

OPERATING EXPENSES:
Depreciation, depletion, and amortization		2,598			—		2,900			—			5,498
Asset retirement obligation accretion		23			—		112			—			135
Lease operating expenses		386			—		1,476			—			1,862
Gathering and transportation		43			—		160			—			203
Taxes other than income		193			—		339			—			532
General and administrative		276			—		28			5			309
Acquisition, divestiture, and separation costs		66			—		—			—			66
Financing costs, net		118			31		(46	)		—			103

		3,703			31		4,969			5			8,708

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		268			68		3,152			(1,297	)		2,191
Provision for income taxes		730			4		1,234			—			1,968

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST		(462	)		64		1,918			(1,297	)		223
Net loss from discontinued operations, net of tax		(127	)		—		(390	)		—			(517	)

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		(589	)		64		1,528			(1,297	)		(294	)
Net income attributable to noncontrolling interest		—			—		295			—			295

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	(589	)	$	64	$	1,233		$	(1,297	)	$	(589	)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK⁽¹⁾	$	(590	)	$	64	$	1,233		$	(1,297	)	$	(590	)

⁽¹⁾	Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Nine Months Ended September 30, 2013


	Apache Corporation			Apache Finance Canada			All Other Subsidiaries of Apache Corporation			Reclassifications & Eliminations			Consolidated
	(In millions)
REVENUES AND OTHER:
Oil and gas production revenues	$	3,775		$	—		$	8,536		$	—		$	12,311
Equity in net income (loss) of affiliates		1,947			(21	)		8			(1,934	)		—
Derivative instrument gains (losses), net		(275	)		—			—			—			(275	)
Other		3			46			33			(4	)		78

		5,450			25			8,577			(1,938	)		12,114

OPERATING EXPENSES:
Depreciation, depletion, and amortization		1,912			—			2,745			—			4,657
Asset retirement obligation accretion		60			—			132			—			192
Lease operating expenses		802			—			1,473			—			2,275
Gathering and transportation		49			—			182			—			231
Taxes other than income		163			—			411			—			574
General and administrative		305			—			58			(4	)		359
Financing costs, net		104			42			11			—			157

		3,395			42			5,012			(4	)		8,445

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		2,055			(17	)		3,565			(1,934	)		3,669
Provision (benefit) for income taxes		(3	)		(4	)		1,426			—			1,419

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST		2,058			(13	)		2,139			(1,934	)		2,250
Net loss from discontinued operations, net of tax		—			—			(192	)		—			(192	)

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST		2,058			(13	)		1,947			(1,934	)		2,058
Preferred stock dividends		44			—			—			—			44

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	2,014		$	(13	)	$	1,947		$	(1,934	)	$	2,014

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK ⁽¹⁾	$	2,022		$	(13	)	$	1,947		$	(1,934	)	$	2,022

⁽¹⁾	Comprehensive income (loss) activity is recorded on the Apache Corporation entity and consists of derivative instrument reclassifications and changes in fair value as reflected on our Statement of Consolidated Comprehensive Income.

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2014


							All Other
	Apache Corporation			Apache Finance Canada			Subsidiaries of Apache Corporation			Reclassifications & Eliminations			Consolidated
	(In millions)
CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES	$	3,574		$	(37	)	$	2,909		$	—		$	6,446
CASH PROVIDED BY DISCONTINUED OPERATIONS		—			—			82			—			82

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		3,574			(37	)		2,991			—			6,528
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(5,425	)		—			(1,706	)		—			(7,131	)
Additions to gas gathering, transmission, and processing facilities		(21	)		—			(1,014	)		—			(1,035	)
Proceeds from sale of Deepwater Gulf of Mexico assets		1,367			—			—			—			1,367
Restricted cash related to divestitures		(545	)		—			—			—			(545	)
Proceeds from sale of other oil and gas properties		35			—			355			—			390
Leasehold and property acquisitions		(503	)		—			(152	)		—			(655	)
Investment in subsidiaries, net		2,303			—			—			(2,303	)		—
Other		(67	)		—			(13	)		—			(80	)

NET CASH USED IN CONTINUING INVESTING ACTIVITIES		(2,856	)		—			(2,530	)		(2,303	)		(7,689	)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS		—			—			748			—			748

NET CASH USED IN INVESTING ACTIVITIES		(2,856	)		—			(1,782	)		(2,303	)		(6,941	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and bank credit facilities, net		1,248			—			(2	)		—			1,246
Intercompany borrowings		—			10			(2,322	)		2,312			—
Distributions to noncontrolling interest		—			—			(124	)		—			(124	)
Dividends paid		(271	)		—			—			—			(271	)
Treasury stock activity, net		(1,830	)		—			—			—			(1,830	)
Other		—			24			23			(9	)		38

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES		(853	)		34			(2,425	)		2,303			(941	)
NET CASH USED IN DISCONTINUED OPERATIONS		—			—			(42	)		—			(42	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(853	)		34			(2,467	)		2,303			(983	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(135	)		(3	)		(1,258	)		—			(1,396	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		155			3			1,748			—			1,906

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	20		$	—		$	490		$	—		$	510

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2013


							All Other
				Apache			Subsidiaries
	Apache			Finance			of Apache			Reclassifications
	Corporation			Canada			Corporation			& Eliminations			Consolidated
	(In millions)
CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES	$	1,434		$	(89	)	$	5,855		$	—		$	7,200
CASH PROVIDED BY DISCONTINUED OPERATIONS		—			—			158			—			158

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		1,434			(89	)		6,013			—			7,358
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property		(2,798	)		—			(4,388	)		—			(7,186	)
Additions to gas gathering, transmission, and processing facilities		(85	)		—			(767	)		—			(852	)
Proceeds from divestiture of Shelf		3,594			—			—			—			3,594
Proceeds from Kitimat LNG transaction, net		—			—			396			—			396
Proceeds from the sale of other oil and gas properties		—			—			199			—			199
Leasehold and property acquisitions		(158	)		—			(155	)		—			(313	)
Investment in subsidiaries, net		596			—			—			(596	)		—
Other		(41	)		—			29			—			(12	)

NET CASH PROVIDED BY (USED IN) CONTINUING INVESTING ACTIVITIES		1,108			—			(4,686	)		(596	)		(4,174	)
NET CASH USED IN DISCONTINUED OPERATIONS		—			—			(160	)		—			(160	)

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		1,108			—			(4,846	)		(596	)		(4,334	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper and bank credit facilities, net		(502	)		—			(37	)		—			(539	)
Intercompany borrowings		—			1			(585	)		584			—
Payments on fixed rate debt		(900	)		—			—			—			(900	)
Dividends paid		(280	)		—			—			—			(280	)
Treasury stock activity, net		(249	)		—			—			—			(249	)
Other		17			88			(79	)		12			38

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES		(1,914	)		89			(701	)		596			(1,930	)
NET CASH USED IN DISCONTINUED OPERATIONS		—			—			(3	)		—			(3	)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		(1,914	)		89			(704	)		596			(1,933	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		628			—			463			—			1,091
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		—			—			160			—			160

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	628		$	—		$	623		$	—		$	1,251

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

September 30, 2014


					All Other
			Apache		Subsidiaries
	Apache		Finance		of Apache			Reclassifications
	Corporation		Canada		Corporation			& Eliminations			Consolidated
	(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	20	$	—	$	490		$	—		$	510
Short-term restricted cash		74		—		—			—			74
Receivables, net of allowance		836		—		1,451			—			2,287
Inventories		31		—		682			—			713
Drilling advances		25		1		408			—			434
Derivative instruments		41		—		—			—			41
Prepaid assets and other		91		—		276			—			367
Intercompany receivable		6,442		—		—			(6,442	)		—

		7,560		1		3,307			(6,442	)		4,426

PROPERTY AND EQUIPMENT, NET		17,039		—		35,996			—			53,035

OTHER ASSETS:
Intercompany receivable		—		—		740			(740	)		—
Equity in affiliates		25,975		1,205		440			(27,620	)		—
Long-term restricted cash		471		—		—			—			471
Goodwill, net		173		—		1,196			—			1,369
Deferred charges and other		221		1,004		1,464			(1,000	)		1,689

	$	51,439	$	2,210	$	43,143		$	(35,802	)	$	60,990

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	736	$	12	$	568		$	—		$	1,316
Current debt		20		—		—			—			20
Asset retirement obligation		115		—		62			—			177
Other current liabilities		1,300		5		1,489			—			2,794
Intercompany payable		—		—		6,442			(6,442	)		—

		2,171		17		8,561			(6,442	)		4,307

LONG-TERM DEBT		10,604		298		—			—			10,902

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Intercompany payable		740		—		—			(740	)		—
Income taxes		4,258		—		5,040			—			9,298
Asset retirement obligation		466		—		2,630			—			3,096
Other		2,382		250		(1,231	)		(1,000	)		401

		7,846		250		6,439			(1,740	)		12,795

COMMITMENTS AND CONTINGENCIES APACHE SHAREHOLDERS’ EQUITY		30,818		1,645		25,975			(27,620	)		30,818
Noncontrolling interest		—		—		2,168			—			2,168

TOTAL EQUITY		30,818		1,645		28,143			(27,620	)		32,986

	$	51,439	$	2,210	$	43,143		$	(35,802	)	$	60,990

APACHE CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2013


					All Other
			Apache		Subsidiaries
	Apache		Finance		of Apache		Reclassifications
	Corporation		Canada		Corporation		& Eliminations			Consolidated
					(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	155	$	3	$	1,748	$	—		$	1,906
Receivables, net of allowance		1,043		—		1,909		—			2,952
Inventories		48		—		843		—			891
Drilling advances		49		—		322		—			371
Derivative instruments		1		—		—		—			1
Prepaid assets and other		99		—		146		—			245
Intercompany receivable		5,357		—		—		(5,357	)		—

		6,752		3		4,968		(5,357	)		6,366

PROPERTY AND EQUIPMENT, NET		16,092		—		36,329		—			52,421

OTHER ASSETS:
Intercompany receivable		1,572		—		—		(1,572	)		—
Equity in affiliates		24,743		1,155		449		(26,347	)		—
Goodwill, net		173		—		1,196		—			1,369
Deferred charges and other		166		1,006		1,309		(1,000	)		1,481

	$	49,498	$	2,164	$	44,251	$	(34,276	)	$	61,637

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	956	$	2	$	658	$	—		$	1,616
Current debt		—		—		53		—			53
Asset retirement obligation		115		—		6		—			121
Derivative instruments		299		—		—		—			299
Other current liabilities		896		10		1,705		—			2,611
Intercompany payable		—		—		5,357		(5,357	)		—

		2,266		12		7,779		(5,357	)		4,700

LONG-TERM DEBT		9,374		298		—		—			9,672

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Intercompany payable		—		—		1,572		(1,572	)		—
Income taxes		3,586		—		4,778		—			8,364
Asset retirement obligation		430		—		2,671		—			3,101
Other		446		250		711		(1,000	)		407

		4,462		250		9,732		(2,572	)		11,872

COMMITMENTS AND CONTINGENCIES APACHE SHAREHOLDERS’ EQUITY		33,396		1,604		24,743		(26,347	)		33,396
Noncontrolling interest		—		—		1,997		—			1,997

TOTAL EQUITY		33,396		1,604		26,740		(26,347	)		35,393

	$	49,498	$	2,164	$	44,251	$	(34,276	)	$	61,637

ITEM 2 –

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

This discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Current Report on Form 8-K dated July 17, 2014 for our 2013 fiscal year.

Strategic Overview

Over the last five years, Apache has greatly enlarged and enhanced its North American onshore resource base, which we believe is capable of driving our growth and performance for the foreseeable future. During the last 18 months, we have further increased the focus on our North American Onshore business by divesting $10 billion of properties. In North America, we completed the sale of our Gulf of Mexico Shelf region assets, certain non-producing assets in the deepwater Gulf of Mexico, and non-strategic, primarily dry-gas, assets in Canada. Internationally, we sold a one-third noncontrolling interest in our Egypt operations and all of our assets in Argentina. In addition, we intend to completely exit the Wheatstone and Kitimat LNG projects, and, in light of our expanding opportunity set in North American Onshore, we are evaluating our international assets and exploring multiple opportunities, including the potential separation of some or all of them through the capital markets.

In addition, in June 2013 we launched a share repurchase program. Through September 30, 2014, we have repurchased a total of 31.8 million of the 40 million shares authorized by our Board of Directors. Under the program, we are not obligated to acquire any specific number of shares.

Financial Highlights

•

Net cash provided by operating activities (operating cash flows or cash flows) totaled $6.5 billion for the first nine months of 2014, driven by the strength of our North American drilling program.

•

For the third quarter of 2014, Apache reported a loss of $1.3 billion, or $3.50 per diluted common share, compared with earnings of $300 million, or $0.75 per diluted share, for the prior-year quarter. The loss for the 2014 third quarter reflects after-tax write-downs of oil and gas properties in the U.S. and U.K. North Sea totaling $1.0 billion, a deferred tax charge on undistributed foreign earnings totaling $814 million, and a deferred tax charge on distributed foreign earnings of $249 million. These expenses were partially offset by an unrealized after-tax gain on commodity derivative mark-to-market changes of $202 million.

•

Results for the first nine months of 2014 reflected a loss of $589 million, or $1.52 per diluted common share, compared with earnings of $2.0 billion, or $5.06 per diluted share, in the comparable prior-year period. The loss for the 2014 nine-month period reflects after-tax write-downs of oil and gas properties in the U.S. and U.K. North Sea totaling $1.1 billion, third-quarter deferred tax adjustments noted above, and an after-tax loss of $517 million on discontinued operations in Argentina. These expenses were partially offset by an unrealized after-tax gain on commodity derivative mark-to-market changes of $220 million.

Third Quarter Operational Developments

Average daily production in the third quarter of 2014 totaled 637 thousand barrels of oil equivalent (Mboe), a decrease of 105 Mboe from the comparative 2013 quarter. The prior-year quarter includes volumes from properties in the Gulf of Mexico Shelf and Canada that have since been divested.

North America

•

North American onshore liquids averaged 211,402 barrels per day, up 12 percent over the prior-year quarter.

•

North American onshore liquids production represented nearly 55 percent of our worldwide liquids production and 33 percent of our overall production.

•

The Permian region averaged 42 operated rigs during the quarter, drilling 195 gross wells, 144 net wells. Combined, drilling activity in the region resulted in a production increase of 23 percent relative to the prior-year period.

•

The Central region averaged 31 operated rigs during the quarter, drilling 70 gross wells, 46 net wells, in plays such as the Granite Wash, Marmaton and Cleveland. In the Canyon Lime play, the region averaged 2 rigs in the third quarter, increasing to 5 by October.

•

Gulf Coast region averaged 10 operated rigs during the quarter, drilling 19 gross wells, 14 net wells. In the East Texas Eagle Ford play, the region brought on 6 new wells in the Reveille area of Brazos County with an average 30-day initial production of 687 barrels of oil equivalent per day (boe/d).

•

The Canada region averaged 8 operated rigs, 2 at Kitimat, during the quarter, drilling 25 gross wells, 20 net wells. Apache spud initial wells at the Duvernay seven well pad and drilled the first well at the Montney two well pad.

International

•

The Australia region averaged 2 rigs, drilling 5 gross wells, 2 net wells, during the quarter. Production was up 12 percent over the second quarter of 2014 as a result of the successful commencement of production from the Balnaves Oil Development. In addition, during the quarter, the Company made a significant first oil discovery in Australia’s offshore Canning Basin at the Phoenix South-1 well which encountered oil in 4 discrete columns, the results of which are still being evaluated.

•

The North Sea region averaged 5 rigs, drilling 4 gross wells, 4 net wells. During the quarter, the region successfully completed the regular scheduled annual maintenance turnaround across all operated assets ahead of schedule and without incident.

•

The Egypt region averaged 27 rigs during the quarter, drilling 63 gross wells, 54 net wells.

Results of Operations

Oil and Gas Revenues

Oil and gas production revenues for the third quarter of 2014 totaled $3.5 billion, a $820 million decrease from the comparative 2013 quarter. The table below presents revenues by region and each region’s percent contribution to revenues for 2014 and 2013.


	For the Quarter Ended September 30,										For the Nine Months Ended September 30,
	2014					2013					2014					2013
	$		%			$		%			$		%			$		%
	Value		Contribution			Value		Contribution			Value		Contribution			Value		Contribution
	($ in millions)
Total Oil Revenues:
United States	$	1,121		41	%	$	1,594		46	%	$	3,358		40	%	$	4,253		43	%
Canada		140		5	%		167		5	%		434		5	%		442		5	%

North America		1,261		46	%		1,761		51	%		3,792		45	%		4,695		48	%

Egypt ⁽¹⁾		805		29	%		925		26	%		2,536		30	%		2,633		27	%
Australia		200		7	%		201		6	%		523		6	%		603		6	%
North Sea		487		18	%		581		17	%		1,667		19	%		1,859		19	%

International ⁽¹⁾		1,492		54	%		1,707		49	%		4,726		55	%		5,095		52	%

Total⁽¹⁾⁽²⁾	$	2,753		100	%	$	3,468		100	%	$	8,518		100	%	$	9,790		100	%

Total Gas Revenues:
United States	$	210		39	%	$	286		44	%	$	721		41	%	$	894		44	%
Canada		112		21	%		139		22	%		382		21	%		457		22	%

North America		322		60	%		425		66	%		1,103		62	%		1,351		66	%

Egypt ⁽¹⁾		101		19	%		97		15	%		303		17	%		291		14	%
Australia		87		16	%		78		12	%		257		15	%		264		13	%
North Sea		28		5	%		45		7	%		110		6	%		142		7	%

International ⁽¹⁾		216		40	%		220		34	%		670		38	%		697		34	%

Total⁽¹⁾⁽³⁾	$	538		100	%	$	645		100	%	$	1,773		100	%	$	2,048		100	%

Natural Gas Liquids (NGL)
Revenues:
United States	$	150		85	%	$	149		85	%	$	436		82	%	$	396		84	%
Canada		16		9	%		19		11	%		63		12	%		53		11	%

North America		166		94	%		168		96	%		499		94	%		449		95	%

Egypt ⁽¹⁾		4		2	%		—		0	%		10		2	%		—		0	%
North Sea		7		4	%		7		4	%		23		4	%		24		5	%

International ⁽¹⁾		11		6	%		7		4	%		33		6	%		24		5	%

Total ⁽¹⁾	$	177		100	%	$	175		100	%	$	532		100	%	$	473		100	%

Total Oil and Gas Revenues:
United States	$	1,481		42	%	$	2,029		47	%	$	4,515		42	%	$	5,543		45	%
Canada		268		8	%		325		8	%		879		8	%		952		8	%

North America		1,749		50	%		2,354		55	%		5,394		50	%		6,495		53	%

Egypt ⁽¹⁾		910		27	%		1,022		24	%		2,849		26	%		2,924		24	%
Australia		287		8	%		279		6	%		780		7	%		867		7	%
North Sea		522		15	%		633		15	%		1,800		17	%		2,025		16	%

International ⁽¹⁾		1,719		50	%		1,934		45	%		5,429		50	%		5,816		47	%

Total ⁽¹⁾	$	3,468		100	%	$	4,288		100	%	$	10,823		100	%	$	12,311		100	%

Discontinued Operations - Argentina
Oil Revenues	$	—				$	71				$	45				$	200
Gas Revenues		—					47					39					148
NGL Revenues		—					4					3					16

Total	$	—				$	122				$	87				$	364

⁽¹⁾	Includes revenues attributable to a noncontrolling interest in Egypt for the quarter and nine months ended September 30, 2014.

⁽²⁾	Financial derivative hedging activities decreased oil revenues $2 million for the 2014 nine-month period, and $7 million and $44 million for the 2013 third quarter and nine-month period, respectively.

⁽³⁾	Financial derivative hedging activities increased natural gas revenues $2 million for the 2014 nine-month period, and $9 million and $26 million for the 2013 third quarter and nine-month period, respectively.

Production

The table below presents third-quarter and year-to-date 2014 and 2013 production and the relative increase or decrease from the prior period.


	For the Quarter Ended September 30,							For the Nine Months Ended September 30,
					Increase							Increase
	2014		2013		(Decrease)			2014		2013		(Decrease)
Oil Volume – b/d
United States		133,613		163,690		(18	%)		130,675		156,803		(17	%)
Canada		17,672		18,573		(5	%)		17,748		18,112		(2	%)

North America		151,285		182,263		(17	%)		148,423		174,915		(15	%)

Egypt⁽¹⁾⁽²⁾		87,499		89,294		(2	%)		88,076		89,530		(2	%)
Australia		22,014		18,787		17	%		17,817		20,195		(12	%)
North Sea		55,247		57,861		(5	%)		58,636		63,291		(7	%)

International		164,760		165,942		(1	%)		164,529		173,016		(5	%)

Total		316,045		348,205		(9	%)		312,952		347,931		(10	%)

Natural Gas Volume – Mcf/d
United States		579,188		830,423		(30	%)		589,565		848,173		(30	%)
Canada		300,803		529,402		(43	%)		331,470		523,163		(37	%)

North America		879,991		1,359,825		(35	%)		921,035		1,371,336		(33	%)

Egypt⁽¹⁾⁽²⁾		377,838		350,504		8	%		374,384		357,747		5	%
Australia		201,386		212,141		(5	%)		209,163		212,845		(2	%)
North Sea		50,647		46,971		8	%		50,209		50,108		0	%

International		629,871		609,616		3	%		633,756		620,700		2	%

Total		1,509,862		1,969,441		(23	%)		1,554,791		1,992,036		(22	%)

NGL Volume – b/d
United States		61,712		57,510		7	%		57,163		54,639		5	%
Canada		5,381		7,012		(23	%)		6,349		6,788		(6	%)

North America		67,093		64,522		4	%		63,512		61,427		3	%

Egypt⁽¹⁾⁽²⁾		726		—		NM			616		—		NM
North Sea		1,294		1,097		18	%		1,251		1,263		(1	%)

International		2,020		1,097		84	%		1,867		1,263		48	%

Total		69,113		65,619		5	%		65,379		62,690		4	%

BOE per day⁽³⁾
United States		291,857		359,604		(19	%)		286,099		352,804		(19	%)
Canada		73,187		113,819		(36	%)		79,341		112,095		(29	%)

North America		365,044		473,423		(23	%)		365,440		464,899		(21	%)

Egypt⁽²⁾		151,198		147,711		2	%		151,090		149,154		1	%
Australia		55,578		54,144		3	%		52,677		55,669		(5	%)
North Sea		64,982		66,787		(3	%)		68,255		72,905		(6	%)

International		271,758		268,642		1	%		272,022		277,728		(2	%)

Total		636,802		742,065		(14	%)		637,462		742,627		(14	%)

Discontinued Operations – Argentina
Oil (b/d)		—		9,560		NM			2,269		9,408		NM
Gas (Mcf/d)		—		185,962		NM			46,599		186,241		NM
NGL (b/d)		—		1,713		NM			424		2,254		NM