Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 ________________________________________________________________
FORM 10-Q 
  ________________________________________________________________
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 1-4300
  apachelogoa02.jpg
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  ý    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  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
Accelerated filer
 
¨
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  ý
Number of shares of registrant’s common stock outstanding as of October 31, 2016
379,429,334




 
TABLE OF CONTENTS
 
DESCRIPTION
Item
 
 
Page
 
PART I - FINANCIAL INFORMATION
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
PART II - OTHER INFORMATION
 
 
1.
 
1A.
 
2.
 
3.
 
4.
 
5.
 
6.
 


Forward-Looking Statements and Risk
This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs, and plans and objectives of management for future operations, are forward-looking statements. Such forward-looking statements are based on our examination of historical operating trends, the information that was used to prepare our estimate of proved reserves as of December 31, 2015, and other data in our possession or available from third parties. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “could,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “plan,” “believe,” or “continue” or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, our assumptions about:
 
•
the market prices of oil, natural gas, NGLs, and other products or services;

•
our commodity hedging arrangements;

•
the integration of acquisitions;

•
the supply and demand for oil, natural gas, NGLs, and other products or services;

•
production and reserve levels;

•
drilling risks;

•
economic and competitive conditions;

•
the availability of capital resources;

•
capital expenditure and other contractual obligations;

•
currency exchange rates;

•
weather conditions;

•
inflation rates;

•
the availability of goods and services;

•
legislative, regulatory, or policy changes;

•
terrorism or cyber attacks;

•
occurrence of property acquisitions or divestitures;

•
the securities or capital markets and related risks such as general credit, liquidity, market, and interest-rate risks; and

•
other factors disclosed under Items 1 and 2—Business and Properties—Estimated Proved Reserves and Future Net Cash Flows, Item 1A—Risk Factors and elsewhere in our most recently filed Annual Report on Form 10-K, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in our Current Report on Form 8-K dated August 4, 2016, other risks and uncertainties in our third-quarter 2016 earnings release, other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q, and other filings that we make with the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements attributable to the Company, or persons acting on its behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.



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,
 
 
2016
 
2015*
 
2016
 
2015 *
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
 
 
 
 
 
 
 
Oil revenues
 
$
1,117

 
$
1,238

 
$
3,057

 
$
4,149

Gas revenues
 
263

 
318

 
695

 
941

Natural gas liquids revenues
 
59

 
50

 
160

 
166

 
 
1,439

 
1,606

 
3,912

 
5,256

Other
 
(6
)
 
(75
)
 
(30
)
 
(53
)
Gain (loss) on divestitures
 
5

 
(5
)
 
21

 
204

 
 
1,438

 
1,526

 
3,903

 
5,407

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Lease operating expenses
 
382

 
450

 
1,119

 
1,398

Gathering and transportation
 
51

 
58

 
155

 
163

Taxes other than income
 
9

 
104

 
85

 
232

Exploration
 
161

 
223

 
347

 
706

General and administrative
 
102

 
89

 
298

 
284

Depreciation, depletion, and amortization:
 
 
 
 
 
 
 
 
Oil and gas property and equipment
 
610

 
793

 
1,875

 
2,247

Other assets
 
38

 
79

 
120

 
245

Asset retirement obligation accretion
 
40

 
37

 
116

 
109

Impairments
 
836

 
3,903

 
1,009

 
6,327

Transaction, reorganization, and separation
 
12

 
—

 
36

 
120

Financing costs, net
 
102

 
160

 
311

 
401

 
 
2,343

 
5,896

 
5,471

 
12,232

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(905
)
 
(4,370
)
 
(1,568
)
 
(6,825
)
Current income tax provision (benefit)
 
150

 
(270
)
 
284

 
578

Deferred income tax provision (benefit)
 
(529
)
 
19

 
(755
)
 
(1,299
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(526
)
 
(4,119
)
 
(1,097
)
 
(6,104
)
Net loss from discontinued operations, net of tax
 
(33
)
 
(17
)
 
(33
)
 
(135
)
NET LOSS INCLUDING NONCONTROLLING INTEREST
 
(559
)
 
(4,136
)
 
(1,130
)
 
(6,239
)
Net income attributable to noncontrolling interest
 
48

 
7

 
93

 
98

NET LOSS ATTRIBUTABLE TO COMMON STOCK
 
$
(607
)
 
$
(4,143
)
 
$
(1,223
)
 
$
(6,337
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
 
 
 
 
 
 
 
 
Net loss from continuing operations attributable to common shareholders
 
$
(574
)
 
$
(4,126
)
 
$
(1,190
)
 
$
(6,202
)
Net loss from discontinued operations
 
(33
)
 
(17
)
 
(33
)
 
(135
)
Net loss attributable to common shareholders
 
$
(607
)
 
$
(4,143
)
 
$
(1,223
)
 
$
(6,337
)
NET LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic net loss from continuing operations per share
 
$
(1.51
)
 
$
(10.91
)
 
$
(3.14
)
 
$
(16.42
)
Basic net loss from discontinued operations per share
 
(0.09
)
 
(0.04
)
 
(0.08
)
 
(0.36
)
Basic net loss per share
 
$
(1.60
)
 
$
(10.95
)
 
$
(3.22
)
 
$
(16.78
)
DILUTED NET LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
 
Diluted net loss from continuing operations per share
 
$
(1.51
)
 
$
(10.91
)
 
$
(3.14
)
 
$
(16.42
)
Diluted net loss from discontinued operations per share
 
(0.09
)
 
(0.04
)
 
(0.08
)
 
(0.36
)
Diluted net loss per share
 
$
(1.60
)
 
$
(10.95
)
 
$
(3.22
)
 
$
(16.78
)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
380

 
378

 
379

 
378

Diluted
 
380

 
378

 
379

 
378

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.25

 
$
0.25

 
$
0.75

 
$
0.75

*Financial information for 2015 has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

1


APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
 
2016
 
2015*
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss including noncontrolling interest
 
$
(1,130
)
 
$
(6,239
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Loss from discontinued operations
 
33

 
135

Gain on divestitures
 
(21
)
 
(204
)
Exploratory dry hole expense and unproved leasehold impairments
 
260

 
584

Depreciation, depletion, and amortization
 
1,995

 
2,492

Asset retirement obligation accretion
 
116

 
109

Impairments
 
1,009

 
6,327

Deferred income tax benefit
 
(755
)
 
(1,299
)
Other
 
126

 
80

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
192

 
585

Inventories
 
(2
)
 
54

Drilling advances
 
(36
)
 
125

Deferred charges and other
 
40

 
(117
)
Accounts payable
 
(93
)
 
(463
)
Accrued expenses
 
(67
)
 
109

Deferred credits and noncurrent liabilities
 
(33
)
 
102

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
 
1,634

 
2,380

NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 
—

 
113

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
1,634

 
2,493

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(1,281
)
 
(3,562
)
Leasehold and property acquisitions
 
(169
)
 
(254
)
Additions to gas gathering, transmission, and processing facilities
 
(33
)
 
(113
)
Proceeds from sale of Kitimat LNG project
 
—

 
854

Proceeds from sale of other oil and gas properties
 
74

 
148

Other, net
 
47

 
(99
)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
 
(1,362
)
 
(3,026
)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 
—

 
4,372

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(1,362
)
 
1,346

 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Commercial paper and bank credit facilities, net
 
—

 
(1,570
)
Payment of fixed-rate debt
 
(1
)
 
(939
)
Distributions to noncontrolling interest
 
(215
)
 
(97
)
Dividends paid
 
(284
)
 
(283
)
Other
 
(9
)
 
26

NET CASH USED IN FINANCING ACTIVITIES
 
(509
)
 
(2,863
)
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
(237
)
 
976

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
1,467

 
679

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,230

 
$
1,655

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
345

 
$
385

Income taxes paid, net of refunds
 
256

 
270

*Financial information for 2015 has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

2


APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
 
 
September 30, 2016
 
December 31, 2015*
 
 
(In millions)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,230

 
$
1,467

Receivables, net of allowance
 
1,064

 
1,253

Inventories
 
513

 
570

Drilling advances
 
209

 
172

Prepaid assets and other
 
256

 
290

 
 
3,272

 
3,752

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
42,591

 
41,728

Unproved properties and properties under development, not being amortized
 
2,061

 
2,277

Gathering, transmission and processing facilities
 
886

 
1,052

Other
 
1,102

 
1,093

 
 
46,640

 
46,150

Less: Accumulated depreciation, depletion, and amortization
 
(27,178
)
 
(25,312
)
 
 
19,462

 
20,838

OTHER ASSETS:
 
 
 
 
Deferred charges and other
 
415

 
910

 
 
$
23,149

 
$
25,500

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
557

 
$
618

Other current liabilities (Note 5)
 
1,071

 
1,223

 
 
1,628

 
1,841

LONG-TERM DEBT
 
8,721

 
8,716

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
1,783

 
2,529

Asset retirement obligation
 
2,742

 
2,562

Other
 
326

 
362

 
 
4,851

 
5,453

COMMITMENTS AND CONTINGENCIES (Note 9)
 

 

EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 412,602,756 and 411,218,105 shares issued, respectively
 
258

 
257

Paid-in capital
 
12,421

 
12,619

Accumulated deficit
 
(3,203
)
 
(1,980
)
Treasury stock, at cost, 33,173,422 and 33,183,930 shares, respectively
 
(2,888
)
 
(2,889
)
Accumulated other comprehensive loss
 
(119
)
 
(119
)
APACHE SHAREHOLDERS’ EQUITY
 
6,469

 
7,888

Noncontrolling interest
 
1,480

 
1,602

TOTAL EQUITY
 
7,949

 
9,490

 
 
$
23,149

 
$
25,500

*Financial information for 2015 has been recast to reflect retrospective application of the successful efforts method of accounting. See Note 1.
The accompanying notes to consolidated financial statements
are an integral part of this statement.

3


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

 
$
12,438

 
$
16,249

 
$
(2,890
)
 
$
(116
)
 
$
25,937

 
$
2,200

 
$
28,137

Effect of change in accounting principle
 
—

 
152

 
(7,594
)
 
—

 
—

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

 
$
12,590

 
$
8,655

 
$
(2,890
)
 
$
(116
)
 
$
18,495

 
$
2,046

 
$
20,541

Net income (loss)
 
—

 
—

 
(6,337
)
 
—

 
—

 
(6,337
)
 
98

 
(6,239
)
Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(97
)
 
(97
)
Common dividends ($0.75 per share)
 
—

 
—

 
(283
)
 
—

 
—

 
(283
)
 
—

 
(283
)
Other
 
1

 
59

 
—

 
1

 
—

 
61

 
—

 
61

BALANCE AT SEPTEMBER 30, 2015
 
$
257

 
$
12,649

 
$
2,035

 
$
(2,889
)
 
$
(116
)
 
$
11,936

 
$
2,047

 
$
13,983

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT DECEMBER 31, 2015 previously reported
 
$
257

 
$
12,467

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

 
$
1,662

 
$
4,228

Effect of change in accounting principle
 
—

 
152

 
5,173

 
—

 
(3
)
 
5,322

 
(60
)
 
5,262

BALANCE AT DECEMBER 31, 2015 as recast
 
$
257

 
$
12,619

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

 
$
1,602

 
$
9,490

Net income (loss)
 
—

 
—

 
(1,223
)
 
—

 
—

 
(1,223
)
 
93

 
(1,130
)
Distributions to noncontrolling interest
 
—

 
—

 
—

 
—

 
—

 
—

 
(215
)
 
(215
)
Common dividends ($0.75 per share)
 
—

 
(284
)
 
—

 
—

 
—

 
(284
)
 
—

 
(284
)
Other
 
1

 
86

 
—

 
1

 
—

 
88

 
—

 
88

BALANCE AT SEPTEMBER 30, 2016
 
$
258

 
$
12,421

 
$
(3,203
)
 
$
(2,888
)
 
$
(119
)
 
$
6,469

 
$
1,480

 
$
7,949

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


4


APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
These consolidated financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. All such adjustments are of a normal recurring nature and are on a basis consistent with the annual audited consolidated financial statements, except as described in Note 1 below. 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 for the quarter ended September 30, 2016, should be read along with Apache’s Current Report on Form 8-K dated August 4, 2016, for the fiscal year ended December 31, 2015, which contains a summary of the Company’s significant accounting policies and other disclosures.
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company’s financial statements for prior periods include reclassifications that were made to conform to the current-period presentation. During the second quarter of 2015, Apache completed the sale of its Australian LNG business and oil and gas assets. Results of operations and consolidated cash flows for the divested Australia assets are reflected as discontinued operations in the Company’s financial statements for all periods presented. For more information regarding these divestitures, please refer to Note 3—Acquisitions and Divestitures.
Recast Financial Information for Change in Accounting Principle
In the second quarter of 2016, Apache voluntarily changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method of accounting. As prescribed by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 250 “Accounting Changes and Error Corrections,” the financial information for prior periods has been recast to reflect retrospective application of the successful efforts method of accounting in accordance with ASC 932 “Extractive Activities—Oil and Gas.” Although the full cost method of accounting for oil and gas exploration and development activities continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the U.S. Securities and Exchange Commission (SEC) and is more widely used in the industry such that the change improves comparability of the Company’s financial statements to its peers. The Company believes the successful efforts method provides a more representational depiction of assets and operating results. The successful efforts method also provides for the Company’s investments in oil and gas properties to be assessed for impairment in accordance with ASC 360 “Property, Plant, and Equipment” rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. For more detailed information regarding the effects of the change to the successful efforts method, please refer to Note 2—Change in Accounting Principle. The Company has recast certain historical information for all periods presented, including the Statement of Consolidated Operations, Statement of Consolidated Cash Flows, Consolidated Balance Sheet, Statement of Consolidated Changes in Equity, and related information in Notes 1, 2, 3, 4, 5, 7, 8, 10, 11, and 12.
In the first quarter of 2016, the Company retrospectively adopted a new accounting standard update ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability, consistent with debt discounts. For more information regarding this update, please refer to Note 7—Debt and Financing Costs.
As of September 30, 2016, Apache’s significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies to the consolidated financial statements contained in Apache’s Current Report on Form 8-K dated August 4, 2016, for the fiscal year ended December 31, 2015.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates with regard to these financial statements include the fair value determination of acquired assets and liabilities, the estimate of proved oil and gas reserves and related present value estimates of future net cash flows therefrom, the assessment of asset retirement obligations, the estimates of fair value for long-lived assets and goodwill, and the estimate of income taxes. Actual results could differ from those estimates.

5


Fair Value Measurements
Certain assets and liabilities are reported at fair value on a recurring basis in Apache’s consolidated balance sheet. ASC 820-10-35 provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.
The valuation techniques that may be used to measure fair value include a market approach, an income approach, and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models, and the excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).
Apache also uses fair value measurements on a nonrecurring basis when certain qualitative assessments of its assets indicate a potential impairment. For the third quarter and nine-month period ended September 30, 2016, the Company recorded asset impairments totaling $951 million and $1.2 billion, respectively, in connection with fair value assessments. For the third quarter and nine-month period ended September 30, 2016, impairments totaling $470 million and $645 million, respectively, were recorded for oil and gas properties in the U.S. and Canada, as discussed in further detail below in “Oil and Gas Property.”
During the second quarter of 2016, the Company also recorded an impairment of $105 million for gas gathering, transmission, and processing (GTP) assets. The fair values of the impaired assets were determined using an income approach, which considered internal estimates of future throughput volumes, processing rates, and costs. These assumptions were applied to develop future cash flow projections that were then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. Apache has classified these non-recurring fair value measurements as Level 3 in the fair value hierarchy. The resulting fair value of $175 million was reflected in GTP assets.
On September 15, 2016, U.K. Finance Act 2016 received Royal Assent, providing tax relief to exploration and production companies operating in the U.K. North Sea. Under the enacted legislation, the U.K. Petroleum Revenue Tax (PRT) rate was reduced to zero from the previously enacted 35 percent rate in effect from January 1, 2016. PRT expense ceased prospectively from that date. As a further result of this change, the Company reduced the recoverable PRT benefits that would have been realized from future abandonment activities by $481 million ($289 million net of tax). This recoverable PRT benefit had an aggregate remaining value of $13 million as of September 30, 2016, which is recorded in “Deferred charges and other” on the consolidated balance sheet. The recoverable value of the PRT benefit was estimated using the income approach. The expected future cash flows used in the determination were based on anticipated spending and timing of planned future abandonment activities for applicable fields, considering all available information at the date of review. Apache has classified this fair value measurement as Level 3 in the fair value hierarchy.
For the nine-month period ended September 30, 2015, the Company recorded asset impairments totaling $6.8 billion in connection with fair value assessments in the current low commodity price environment. Impairments totaling $6.3 billion were recorded for oil and gas properties, which were written down to their fair values. Also, for the nine-month period ended September 30, 2015, the Company recorded $210 million for the impairment of certain GTP assets, which were written down to their fair values, $163 million for the impairment of goodwill, $148 million for the impairment of an equity method investment, and $9 million for the impairment of inventory.

6


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

7


The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the third quarters and first nine months of 2016 and 2015:
 
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
 
 
 
 
Proved
 
$
355

 
$
3,536

 
$
423

 
$
5,797

Unproved
 
114

 
199

 
222

 
515

Proved properties impaired during the second and third quarters of 2016 had aggregate fair values of $143 million and $163 million, respectively. Proved properties impaired during the first, second, and third quarters of 2015 had aggregate fair values of $1.2 billion, $516 million, and $1.9 billion, respectively.
On the statement of consolidated operations, unproved impairments are recorded in exploration expense, and proved impairments are recorded in impairments.
Gains and losses on significant divestitures are recognized in the statement of consolidated operations.
New Pronouncements Issued But Not Yet Adopted
In August 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230).  ASU 2016-15 seeks to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the provisions of ASU 2016-15 and assessing the impact, if any, it may have on its statement of consolidated cash flows.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses.”  The standard changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year.  The Company does not expect to adopt the guidance early. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is evaluating the new guidance and does not believe this standard will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, which seeks to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard requires the Company to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted and if an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is evaluating the new guidance and does not believe this standard will have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

8


In May 2014, the FASB and the International Accounting Standards Board (IASB) issued a joint revenue recognition standard, ASU 2014-09. The new standard removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers, and increases disclosure requirements. The guidance requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued ASU 2016-08, which provides further clarification on the principal versus agent evaluation. The guidance is effective for annual and interim periods beginning after December 15, 2017. The standard is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company is currently evaluating the level of effort needed to implement the standard, the impact of adopting this standard on its consolidated financial statements, and whether to use the full retrospective approach or the modified retrospective approach.
2.
CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter of 2016, the Company voluntarily changed its method of accounting for oil and gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. Under successful efforts, exploration expenditures such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are charged against earnings, versus being capitalized under the full cost method of accounting. Successful efforts also provides for the assessment of potential property impairments under ASC 360 by comparing the net carrying value of oil and gas properties with associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized cost is reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and gas properties exceeds a full cost “ceiling,” using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the dispositions of oil and gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the remaining assets under the full cost method. Apache’s consolidated financial statements have been recast to reflect these differences.
The following tables present the effects of the change to the successful efforts method in the statement of consolidated operations:
 
Changes to the Statement of Consolidated Operations
For the Quarter Ended September 30, 2016
Under Full Cost
 
Changes
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,058

 
$
59

 
$
1,117

Natural gas revenues
273

 
(10
)
 
263

NGL revenues
59

 
—

 
59

Oil and gas production revenues
1,390

 
49

 
1,439

Other
(5
)
 
(1
)
 
(6
)
Gain on divestiture
2

 
3

 
5

Exploration
—

 
161

 
161

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
473

 
137

 
610

Additional
328

 
(328
)
 
—

Impairments
481

 
355

 
836

Financing costs, net
92

 
10

 
102

Current income tax provision
101

 
49

 
150

Deferred income tax provision (benefit)
(407
)
 
(122
)
 
(529
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(315
)
 
(211
)
 
(526
)
   Net income (loss) attributable to noncontrolling interest
37

 
11

 
48

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(352
)
 
(222
)
 
(574
)
   Net income (loss) from discontinued operations
(33
)
 
—

 
(33
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(385
)
 
(222
)
 
(607
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(0.96
)
 
$
(0.55
)
 
$
(1.51
)
Basic net loss from discontinued operations per share
(0.06
)
 
—

 
(0.09
)
Basic net loss per share
$
(1.02
)
 
$
(0.55
)
 
$
(1.60
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(0.96
)
 
$
(0.55
)
 
$
(1.51
)
Diluted net loss from discontinued operations per share
(0.06
)
 
—

 
(0.09
)
Diluted net loss per share
$
(1.02
)
 
$
(0.55
)
 
$
(1.60
)

9


 
Changes to the Statement of Consolidated Operations
For the Quarter Ended September 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,213

 
$
25

 
$
1,238

Natural gas revenues
309

 
9

 
318

NGL revenues
50

 
—

 
50

Oil and gas production revenues
1,572

 
34

 
1,606

Other
(76
)
 
1

 
(75
)
Loss on divestiture
—

 
(5
)
 
(5
)
Exploration
—

 
223

 
223

General and administrative
86

 
3

 
89

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
829

 
(36
)
 
793

Additional
5,721

 
(5,721
)
 
—

Impairments
367

 
3,536

 
3,903

Financing costs, net
107

 
53

 
160

Current income tax benefit
(84
)
 
(186
)
 
(270
)
Deferred income tax provision (benefit)
(707
)
 
726

 
19

NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(5,551
)
 
1,432

 
(4,119
)
   Net income attributable to noncontrolling interest
9

 
(2
)
 
7

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(5,560
)
 
1,434

 
(4,126
)
   Net loss from discontinued operations
(95
)
 
78

 
(17
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(5,655
)
 
1,512

 
(4,143
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(14.70
)
 
$
3.79

 
$
(10.91
)
Basic net loss from discontinued operations per share
(0.25
)
 
0.21

 
(0.04
)
Basic net loss per share
$
(14.95
)
 
$
4.00

 
$
(10.95
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(14.70
)
 
$
3.79

 
$
(10.91
)
Diluted net loss from discontinued operations per share
(0.25
)
 
0.21

 
(0.04
)
Diluted net loss per share
$
(14.95
)
 
$
4.00

 
$
(10.95
)
 
Changes to the Statement of Consolidated Operations
For the Nine Months Ended September 30, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
2,915

 
$
142

 
$
3,057

Natural gas revenues
715

 
(20
)
 
695

NGL revenues
160

 
—

 
160

Oil and gas production revenues
3,790

 
122

 
3,912

Other
(33
)
 
3

 
(30
)
Gain on divestiture
5

 
16

 
21

Exploration
—

 
347

 
347

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
1,532

 
343

 
1,875

Additional
1,486

 
(1,486
)
 
—

Impairments
587

 
422

 
1,009

Financing costs, net
272

 
39

 
311

Current income tax provision
162

 
122

 
284

Deferred income tax provision (benefit)
(708
)
 
(47
)
 
(755
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(1,498
)
 
401

 
(1,097
)
   Net income (loss) attributable to noncontrolling interest
(56
)
 
149

 
93

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(1,442
)
 
252

 
(1,190
)
   Net income (loss) from discontinued operations
(33
)
 
—

 
(33
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(1,475
)
 
252

 
(1,223
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(3.83
)
 
$
0.69

 
$
(3.14
)
Basic net loss from discontinued operations per share
(0.06
)
 
—

 
(0.08
)
Basic net loss per share
$
(3.89
)
 
$
0.69

 
$
(3.22
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(3.83
)
 
$
0.69

 
$
(3.14
)
Diluted net loss from discontinued operations per share
(0.06
)
 
—

 
(0.08
)
Diluted net loss per share
$
(3.89
)
 
$
0.69

 
$
(3.22
)

10


 
Changes to the Statement of Consolidated Operations
For the Nine Months Ended September 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
4,092

 
$
57

 
$
4,149

Natural gas revenues
904

 
37

 
941

NGL revenues
166

 
—

 
166

Oil and gas production revenues
5,162

 
94

 
5,256

Other
(59
)
 
6

 
(53
)
Gain on divestiture
—

 
204

 
204

Exploration
—

 
706

 
706

General and administrative
279

 
5

 
284

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
2,751

 
(504
)
 
2,247

Additional
18,757

 
(18,757
)
 
—

Impairments
367

 
5,960

 
6,327

Financing costs, net
240

 
161

 
401

Current income tax provision
496

 
82

 
578

Deferred income tax provision (benefit)
(5,167
)
 
3,868

 
(1,299
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(14,887
)
 
8,783

 
(6,104
)
   Net income attributable to noncontrolling interest
60

 
38

 
98

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(14,947
)
 
8,745

 
(6,202
)
   Net loss from discontinued operations
(959
)
 
824

 
(135
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(15,906
)
 
9,569

 
(6,337
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(39.58
)
 
$
23.16

 
$
(16.42
)
Basic net loss from discontinued operations per share
(2.54
)
 
2.18

 
(0.36
)
Basic net loss per share
$
(42.12
)
 
$
25.34

 
$
(16.78
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(39.58
)
 
$
23.16

 
$
(16.42
)
Diluted net loss from discontinued operations per share
(2.54
)
 
2.18

 
(0.36
)
Diluted net loss per share
$
(42.12
)
 
$
25.34

 
$
(16.78
)


The following tables present the effects of the change to the successful efforts method in the statement of consolidated cash flows:
 
Changes to the Statement of Consolidated Cash Flows
For the Nine Months Ended September 30, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(1,531
)
 
$
401

 
$
(1,130
)
Gain on divestitures, net
(5
)
 
(16
)
 
(21
)
Exploratory dry hole expense and unproved leasehold impairments
—

 
260

 
260

Depreciation, depletion, and amortization
3,138

 
(1,143
)
 
1,995

Impairments
587

 
422

 
1,009

Provision for (benefit from) deferred income taxes
(708
)
 
(47
)
 
(755
)
Changes in operating assets and liabilities
3

 
(2
)
 
1

Net cash provided by operating activities
1,759

 
(125
)
 
1,634

Additions to oil and gas property
(1,406
)
 
125

 
(1,281
)
Net cash used in investing activities
(1,487
)
 
125

 
(1,362
)
NET INCREASE (DECREASE) IN CASH
(237
)
 
—

 
(237
)
BEGINNING CASH BALANCE
1,467

 
—

 
1,467

ENDING CASH BALANCE
1,230

 
—

 
1,230


11


 
Changes to the Statement of Consolidated Cash Flows
For the Nine Months Ended September 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(15,846
)
 
$
9,607

 
$
(6,239
)
Loss from discontinued operations
959

 
(824
)
 
135

Gain on divestitures, net
—

 
(204
)
 
(204
)
Exploratory dry hole expense and unproved leasehold impairments
—

 
584

 
584

Depreciation, depletion, and amortization
21,753

 
(19,261
)
 
2,492

Impairments
367

 
5,960

 
6,327

Provision for (benefit from) deferred income taxes
(5,167
)
 
3,868

 
(1,299
)
Changes in operating assets and liabilities
317

 
78

 
395

Net cash provided by operating activities - continuing operations
2,572

 
(192
)
 
2,380

Net cash provided by operating activities - discontinued operations
150

 
(37
)
 
113

Additions to oil and gas property
(3,844
)
 
282

 
(3,562
)
Net cash used in investing activities - continuing operations
(3,308
)
 
282

 
(3,026
)
Net cash provided by investing activities - discontinued operations
4,335

 
37

 
4,372

NET INCREASE (DECREASE) IN CASH
886

 
90

 
976

BEGINNING CASH BALANCE
769

 
(90
)
 
679

ENDING CASH BALANCE
1,655

 
—

 
1,655

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheet:
 
Changes to the Consolidated Balance Sheet
September 30, 2016
Under Full Cost
 
Changes
 
As Reported Under Successful Efforts
 
(In millions)
PROPERTY AND EQUIPMENT:
 
 
 
 
 
Property and equipment - cost
$
95,107

 
$
(48,467
)
 
$
46,640

Less: Accumulated depreciation, depletion, and amortization
(82,717
)
 
55,539

 
(27,178
)
PROPERTY AND EQUIPMENT, NET
12,390

 
7,072

 
19,462

TOTAL ASSETS
16,077

 
7,072

 
23,149

Deferred income taxes
364

 
1,419

 
1,783

Paid-in capital
12,279

 
142

 
12,421

Accumulated deficit
(8,628
)
 
5,425

 
(3,203
)
Accumulated other comprehensive loss
(116
)
 
(3
)
 
(119
)
Noncontrolling interest
1,391

 
89

 
1,480

TOTAL EQUITY
2,296

 
5,653

 
7,949

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

 
$
(47,675
)
 
$
46,150

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

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

 
6,719

 
20,838

TOTAL ASSETS
18,781

 
6,719

 
25,500

Deferred income taxes
1,072

 
1,457

 
2,529

Paid-in capital
12,467

 
152

 
12,619

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

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

 
(60
)
 
1,602

TOTAL EQUITY
4,228

 
5,262

 
9,490

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


12


3.
ACQUISITIONS AND DIVESTITURES
2016 Activity
 
Leasehold and Property Acquisitions
During the third quarter and first nine months of 2016, Apache completed $51 million and $169 million, respectively, of leasehold and property acquisitions primarily in our North America onshore and Egypt regions.
Transaction, Reorganization, and Separation
During the third quarter and first nine months of 2016, Apache recorded $12 million and $36 million, respectively, in expense related to various asset transactions, company reorganization, and employee separation.
2015 Activity
Yara Pilbara Holdings Pty Limited Sale
In October 2015, Apache completed the sale of its 49 percent interest in Yara Pilbara Holdings Pty Limited (YPHPL) for total cash proceeds of $391 million. The investment in YPHPL was accounted for under the equity method of accounting, with the balance recorded as a component of “Deferred charges and other” in Apache’s consolidated balance sheet, and the results of operations recorded as a component of “Other” under “Revenue and other” in the Company’s statement of consolidated operations. As of September 30, 2015, Apache recognized an impairment of $148 million on the YPHPL equity investment based on negotiated sale proceeds. No additional gain or loss was recorded upon completion of the sale.
Canada Divestiture
In April 2015, Apache's subsidiaries completed the sale of its 50 percent interest in the Kitimat LNG project and upstream acreage in the Horn River and Liard natural gas basins to Woodside Petroleum Limited (Woodside). Proceeds at closing were $854 million, of which approximately $344 million were associated with LNG assets and $510 million were associated with upstream assets.
The Kitimat LNG assets classified as held for sale as of December 31, 2014 were impaired $655 million in the fourth quarter of 2014. Apache recognized a $146 million gain on the sale of the upstream assets upon completion of the sale.
Australia Divestitures
Woodside Sale In April 2015, Apache’s subsidiaries completed the sale of its interest in the Wheatstone LNG project and associated upstream oil and gas assets to Woodside. Proceeds at closing were $2.8 billion, of which approximately $1.4 billion were associated with LNG assets and $1.4 billion were associated with the upstream assets.
The Wheatstone LNG assets and associated upstream assets were impaired $833 million in the fourth quarter of 2014 and classified as held for sale on the consolidated balance sheet as of December 31, 2014. An additional impairment of approximately $49 million was recognized in the first quarter of 2015. During the third quarter of 2016, Apache recognized an additional $23 million loss on the sale related to post-closing adjustments.
Consortium Sale In June 2015, Apache’s subsidiaries completed the sale of the Company’s Australian subsidiary Apache Energy Limited (AEL) to a consortium of private equity funds managed by Macquarie Capital Group Limited and Brookfield Asset Management Inc. Total proceeds of $1.9 billion included customary, post-closing adjustments for the period between the effective date, October 1, 2014, and closing. A loss of approximately $139 million was recognized for the sale of AEL.


13


Upon closing of the sale of substantially all Australian operations, the associated results of operations for the divested Australian assets and the losses on disposal were classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q. Sales and other operating revenues and loss from discontinued operations related to the Australia dispositions were as follows:
 
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Revenues and other from discontinued operations
 
$
—

 
$
—

 
$
—

 
$
288

Impairment on Woodside sale
 
$
—

 
$
—

 
$
—

 
$
(49
)
Loss on Woodside sale
 
(23
)
 
—

 
(23
)
 
—

Loss on Consortium sale
 
—

 
—

 
—

 
(139
)
Income from divested Australian operations
 
—

 
—

 
—

 
28

Income tax benefit (expense)
 
—

 
(17
)
 
—

 
25

Loss from Australian discontinued operations, net of tax
 
$
(23
)
 
$
(17
)
 
$
(23
)
 
$
(135
)
Leasehold and Property Acquisitions
During the third quarter and first nine months of 2015, Apache completed $126 million and $254 million, respectively, of leasehold and property acquisitions primarily in our North America onshore regions.
Transaction, Reorganization, and Separation
During the first nine months of 2015, Apache recorded $120 million in expense related to various asset transactions, company reorganization, and employee separation.

4.   CAPITALIZED EXPLORATORY WELL COSTS
The Company’s capitalized exploratory well costs were $283 million and $245 million at September 30, 2016 and December 31, 2015, respectively. Exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling were $32 million and $61 million at September 30, 2016 and December 31, 2015, respectively. The exploratory well costs that had been capitalized for a period greater than one year at December 31, 2015 were associated with the Aviat discovery in the North Sea and comprised exploration and appraisal activities. The wells associated with the Aviat discovery were reclassified as proved properties during the nine months ended September 30, 2016. The amount of exploratory well costs capitalized for a period greater than one year increased by $32 million during the second quarter as a result of exploration drilling in Suriname. No suspended exploratory well costs previously capitalized for greater than one year at December 31, 2015 were charged to dry hole expense during the nine months ended September 30, 2016.

14


5.
OTHER CURRENT LIABILITIES
The following table provides detail of our other current liabilities as of September 30, 2016 and December 31, 2015:
 
 
September 30, 2016
 
December 31, 2015
 
 
(In millions)
Accrued operating expenses
 
$
117

 
$
139

Accrued exploration and development
 
495

 
637

Accrued compensation and benefits
 
147

 
166

Accrued interest
 
109

 
144

Accrued income taxes
 
66

 
47

Current debt
 
1

 
1

Current asset retirement obligation
 
36

 
36

Other
 
100

 
53

Total other current liabilities
 
$
1,071

 
$
1,223

6.
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, 2016:
 
 
(In millions)
Asset retirement obligation at December 31, 2015
 
$
2,598

Liabilities incurred
 
7

Liabilities acquired
 
34

Liabilities divested
 
(1
)
Liabilities settled
 
(35
)
Accretion expense
 
116

Revisions in estimated liabilities
 
59

Asset retirement obligation at September 30, 2016
 
2,778

Less current portion
 
36

Asset retirement obligation, long-term
 
$
2,742


15


7.
DEBT AND FINANCING COSTS
The following table presents the carrying amounts and estimated fair values of the Company’s outstanding debt as of September 30, 2016 and December 31, 2015:
 
 
 
September 30, 2016
 
December 31, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
 
 
(In millions)
Commercial paper and committed bank facilities
 
$
—

 
$
—

 
$
—

 
$
—

Notes and debentures
 
8,722

 
9,429

 
8,717

 
8,330

Total Debt
 
$
8,722

 
$
9,429

 
$
8,717

 
$
8,330

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

As of September 30, 2016, the Company had a $3.5 billion five-year revolving credit facility that matures in June 2020. Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its $3.5 billion commercial paper program. The commercial paper program, which is subject to market availability, facilitates Apache borrowing funds for up to 270 days at competitive interest rates. As of September 30, 2016, the Company had no debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines.

As of September 30, 2016, the Company had a £900 million letter of credit facility that matures in February 2019. The facility is available for letters of credit and loans to cash collateralize letter of credit obligations to the extent letters of credit are unavailable under the facility. As of September 30, 2016, a letter of credit for approximately £96 million was outstanding under this facility.

In April 2015, the FASB issued ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented as a direct deduction from the carrying value of the associated debt liability. The Company adopted this update in the first quarter of 2016 and applied the changes retrospectively for all periods presented. At December 31, 2015, the Company had debt issuance costs of $61 million classified as a long-term asset as a component of “deferred charges and other” on the balance sheet that have been netted against “long-term debt” in these unaudited interim financial statements. As of September 30, 2016, long-term debt is presented net of debt issuance costs of $58 million.
Financing Costs, Net
The following table presents the components of Apache’s financing costs, net:
 
 
For the Quarter Ended September 30,
 
For the Nine Months Ended September 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Interest expense
 
$
116

 
$
120

 
$
348

 
$
371

Amortization of deferred loan costs
 
2

 
6

 
5

 
10

Capitalized interest
 
(13
)
 
(3
)
 
(36
)
 
(12
)
Loss on extinguishment of debt
 
—

 
39

 
—

 
39

Interest income
 
(3
)
 
(2
)
 
(6
)
 
(7
)
Financing costs, net
 
$
102

 
$
160

 
$
311

 
$
401


16


8.
INCOME TAXES
The Company estimates its annual effective income tax rate for continuing operations in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash impairments of the carrying value of the Company’s oil and gas properties, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
During the third quarter of 2016, Apache’s effective income tax rate was primarily impacted by non-cash impairments of the carrying value of the Company’s oil and gas properties, non-cash impairments of the Company’s PRT decommissioning asset, the impact of the change in U.K. statutory income tax rate, and an increase in the amount of valuation allowances on U.S. and Canadian deferred tax assets.
On September 15, 2016, U.K. Finance Act 2016 received Royal Assent. Under the enacted legislation, the corporate income tax rate on North Sea oil and gas profits was reduced from 50 percent to 40 percent effective January 1, 2016. As a result of the enacted legislation in the third quarter of 2016, the Company recorded a deferred tax benefit of $235 million related to the remeasurement of the Company’s December 31, 2015 U.K. deferred income tax liability.
During the third quarter of 2015, Apache’s effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company’s oil and gas properties and an increase in the amount of valuation allowances on Canadian deferred tax assets, U.S. foreign tax credits, and U.S. net operating loss carryforwards.
Apache’s 2016 year-to-date effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company’s oil and gas properties, non-cash impairments of the Company’s PRT decommissioning asset, the impact of the change in U.K. statutory income tax rate, and an increase in the amount of valuation allowances on U.S. and Canadian deferred tax assets. Apache's 2015 year-to-date effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company’s oil and gas properties and an increase in the amount of valuation allowances on Canadian deferred tax assets, U.S. foreign tax credits, and U.S. net operating loss carryforwards, offset by a $414 million deferred tax benefit associated with a reduction in the U.K. statutory income tax rate from 62 percent to 50 percent.
9.
COMMITMENTS AND CONTINGENCIES
Legal Matters
Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. As of September 30, 2016, the Company has an accrued liability of approximately $38 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. Apache’s estimates are based on information known about the matters and its experience in contesting, litigating, and settling similar matters. Although actual amounts could differ from management’s estimate, none of the actions are believed by management to involve future amounts that would be material to Apache’s financial position, results of operations, or liquidity after consideration of recorded accruals. For material matters that Apache believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and a range of potential exposure, unless an estimate cannot be made at this time. It is management’s opinion that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse effect on the Company’s financial position, results of operations, or liquidity.
For additional information on each of the Legal Matters described below, please see Note 9—Commitments and Contingencies to the consolidated financial statements contained in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Argentine Environmental Claims and Argentina Tariff
No material change in the status of the YPF Sociedad Anónima and Pioneer Natural Resources Company indemnities matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Louisiana Restoration 
As more fully described in Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either express or implied lease terms or Louisiana law, the companies are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup.

17


On or about September 29, 2016, in a case captioned The Parish of St. Bernard v. Atlantic Richfield Company et al, Docket No. 16-1228, in the 34th Judicial District Court for the Parish of St Bernard, State of Louisiana plaintiff asserts coastal zone claims against the Company and various other oil and gas producers. The claims by St. Bernard Parish are similar to the claims filed previously in lawsuits filed by the Parish of Plaquemines against the Company and other oil and gas producers in the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana (captioned Parish of Plaquemines v. Rozel Operating Company et al., Docket No. 60-996; Parish of Plaquemines v. Apache Oil Corporation et al., Docket No. 61-000; and Parish of Plaquemines v. HHE Energy Company et al., Docket No. 60-983). In Cameron Parish in the Parish’s 38th Judicial District Court, (captioned Parish of Cameron v. BEPCO, L.P., et al., Docket No. 10-19572; Parish of Cameron v. BP America Production Company et al., Docket No. 10-19576; Parish of Cameron v. Apache Corporation (of Delaware) et al., Docket No. 10-19579; Parish of Cameron v. Atlantic Richfield Company et al., Docket No. 10-19577; Parish of Cameron v. Alpine Exploration Companies, Inc., et al., Docket No. 10-19580; and Parish of Cameron v. Auster Oil and Gas, Inc., et al, Docket No. 10-19582) and in Vermillion Parish (captioned Keith Stutes, District Attorney for the 15th Judicial District of the State of Louisiana v. Gulfport Energy Corporation et al., Docket No. 102156, in the 15th Judicial District Court, Parish of Vermilion, State of Louisiana). The cases in Vermillion Parish and in Cameron Parish have all been removed to the United States District Court for the Western District of Louisiana, subject to any effort by the plaintiffs to remand the proceedings to state court. The Louisiana Attorney general and Louisiana Department of Natural Resources have intervened in the coastal zone cases.
No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Apollo Exploration Lawsuit
In a fourth amended petition filed on March 21, 2016, in a case captioned Apollo Exploration, LLC, Cogent Exploration, Ltd. Co. & SellmoCo, LLC v. Apache Corporation, Cause No. CV50538 in the 385th Judicial District Court, Midland County, Texas, plaintiffs have reduced their alleged damages to approximately $500 million (having previously claimed in excess of $1.1 billion) relating to certain purchase and sale agreements, mineral leases, and areas of mutual interest agreements concerning properties located in Hartley, Moore, Potter, and Oldham Counties, Texas. Apache believes that plaintiffs’ claims lack merit, and further that plaintiffs’ alleged damages, even as amended, are grossly inflated. Apache will vigorously oppose the claims. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Escheat Audits
There has been no material change with respect to the review of the books and records of the Company and its subsidiaries and related entities by the State of Delaware, Department of Finance (Unclaimed Property), to determine compliance with the Delaware Escheat Laws, since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Burrup-Related Gas Supply Lawsuits
In the cases captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653 and Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2012 01995, in the Supreme Court of Victoria, trial commenced on May 30, 2016. Apache Corporation, Apache Energy Limited (now known as Quadrant Energy Australia Limited), and Apache Northwest Pty Ltd (now known as Quadrant Northwest Pty Ltd) reached a settlement on confidential terms with each of the plaintiffs and related entities. All other remaining defendants then reached a settlement on confidential terms with each of the plaintiffs and related entities.

18


Environmental Matters
As of September 30, 2016, the Company had an undiscounted reserve for environmental remediation of approximately $55 million. The Company is not aware of any environmental claims existing as of September 30, 2016, that have not been provided for or would otherwise have a material impact on its financial position, results of operations, or liquidity. There can be no assurance, however, that current regulatory requirements will not change or past non-compliance with environmental laws will not be discovered on the Company’s properties.
Apache Canada Ltd. (ACL) reported a produced water release from a water injection pipeline in a remote area of the Belloy Field that occurred on or about May 4, 2016 and a hydrogen sulfide and oil emulsion leak in the Zama area on or about September 17, 2016. The causes of these incidents remain under investigation. With respect to previous releases of produced water that occurred  in the Zama area between October 3 and October 25, 2013 and in the Belloy Field on or about January 20, 2014, the Company has resolved all of the charges associated with these releases with the Crown and paid a fine of $350,000. The Company does not expect the economic impact of any of these incidents to have a material effect on the Company’s financial position, results of operations, or liquidity. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Australian Operations Divestiture Dispute
By a Sale and Purchase Agreement dated April 9, 2015 (“SPA”), the Company and its subsidiaries divested their remaining Australian operations to Viraciti Energy Pty Ltd, which has since been renamed Quadrant Energy Pty Ltd (“Quadrant”). Closing occurred on June 5, 2015. By letter dated June 6, 2016, Quadrant provided the Company with a one-year placeholder notice of claim under the SPA concerning tax and other issues totaling approximately $200 million in the aggregate. The Company is in the process of reviewing the issues raised by Quadrant and believes at this time that these matters will not have a material adverse effect on the Company’s financial position, results of operation, or liquidity.
LNG Divestiture Dispute
A number of disputes had arisen between the Company and Woodside Energy Ltd. (and all relevant Australian and Canadian subsidiaries) arising from Woodside’s purchase of the Wheatstone and Kitimat LNG projects and accompanying upstream oil and gas reserves from the Company and its subsidiaries.  These disputes resulted in various lawsuits being filed in both the Supreme Court of Western Australia (Case Nos. 2315 of 2015, 2798 of 2015, 1504 of 2016, 1520 of 2016, and 1521 of 2016) and the Court of Queen’s Bench of Alberta, Calgary (Case No. 1601-12909) concerning or arising out of certain provisions of the Wheatstone and Kitimat sale and purchase agreements. In addition, certain other disputes under the parties’ sale and purchase agreements had been referred to the ICC International Centre for ADR for a third party expert determination. With respect to each of the matters pending in Western Australia, Alberta, and before the ICC, the Company and Woodside have reached a settlement on confidential terms such that the matters will be discontinued and/or dismissed and mutual releases have been provided by the Company and Woodside related to the foregoing matters in dispute. The amount of the settlement has been included in the Company’s accrued liabilities for legal contingencies as of September 30, 2016.

19


10.
CAPITAL STOCK
Net Loss per Common Share
A reconciliation of the components of basic and diluted net loss per common share for the quarters and nine months ended September 30, 2016 and 2015 is presented in the table below.
 
 
 
For the Quarter Ended September 30,
 
 
2016
 
2015
 
 
Loss
 
Shares