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 June 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
  
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 July 31, 2016
379,423,069





 
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 or regulatory changes;

the impact on our operations from changes in the Egyptian government;

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, 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 most recently filed Annual Report on Form 10-K, other risks and uncertainties in our second-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 June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015*
 
2016
 
2015 *
 
 
(In millions, except per common share data)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
 
 
 
 
 
 
 
Oil revenues
 
$
1,118

 
$
1,618

 
$
1,940

 
$
2,911

Gas revenues
 
209

 
315

 
432

 
623

Natural gas liquids revenues
 
59

 
58

 
101

 
116

 
 
1,386

 
1,991

 
2,473

 
3,650

Other
 
(21
)
 
28

 
(24
)
 
22

Gain on divestitures
 
17

 
227

 
16

 
209

 
 
1,382

 
2,246

 
2,465

 
3,881

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
Lease operating expenses
 
359

 
467

 
737

 
948

Gathering and transportation
 
52

 
49

 
104

 
105

Taxes other than income
 
65

 
55

 
76

 
128

Exploration
 
91

 
225

 
186

 
483

General and administrative
 
103

 
111

 
196

 
195

Depreciation, depletion, and amortization:
 
 
 
 
 
 
 
 
Oil and gas property and equipment
 
629

 
711

 
1,265

 
1,454

Other assets
 
40

 
83

 
82

 
166

Asset retirement obligation accretion
 
38

 
36

 
76

 
72

Impairments
 
173

 
512

 
173

 
2,424

Transaction, reorganization, and separation
 
9

 
66

 
24

 
120

Financing costs, net
 
104

 
117

 
209

 
241

 
 
1,663

 
2,432

 
3,128

 
6,336

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(281
)
 
(186
)
 
(663
)
 
(2,455
)
Current income tax provision
 
144

 
900

 
134

 
848

Deferred income tax benefit
 
(225
)
 
(169
)
 
(226
)
 
(1,318
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(200
)
 
(917
)
 
(571
)
 
(1,985
)
Net income (loss) from discontinued operations, net of tax
 

 
120

 

 
(118
)
NET LOSS INCLUDING NONCONTROLLING INTEREST
 
(200
)
 
(797
)
 
(571
)
 
(2,103
)
Net income attributable to noncontrolling interest
 
44

 
63

 
45

 
91

NET LOSS ATTRIBUTABLE TO COMMON STOCK
 
$
(244
)
 
$
(860
)
 
$
(616
)
 
$
(2,194
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS:
 
 
 
 
 
 
 
 
Net loss from continuing operations attributable to common shareholders
 
$
(244
)
 
$
(980
)
 
$
(616
)
 
$
(2,076
)
Net income (loss) from discontinued operations
 

 
120

 

 
(118
)
Net loss attributable to common shareholders
 
$
(244
)
 
$
(860
)
 
$
(616
)
 
$
(2,194
)
NET LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
 
Basic net loss from continuing operations per share
 
$
(0.65
)
 
$
(2.60
)
 
$
(1.63
)
 
$
(5.50
)
Basic net income (loss) from discontinued operations per share
 

 
0.32

 

 
(0.31
)
Basic net loss per share
 
$
(0.65
)
 
$
(2.28
)
 
$
(1.63
)
 
$
(5.81
)
DILUTED NET LOSS PER COMMON SHARE:
 
 
 
 
 
 
 
 
Diluted net loss from continuing operations per share
 
$
(0.65
)
 
$
(2.60
)
 
$
(1.63
)
 
$
(5.50
)
Diluted net income (loss) from discontinued operations per share
 

 
0.32

 

 
(0.31
)
Diluted net loss per share
 
$
(0.65
)
 
$
(2.28
)
 
$
(1.63
)
 
$
(5.81
)
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
 
 
 
 
 
 
 
 
Basic
 
379

 
378

 
379

 
377

Diluted
 
379

 
378

 
379

 
377

DIVIDENDS DECLARED PER COMMON SHARE
 
$
0.25

 
$
0.25

 
$
0.50

 
$
0.50

*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 Six Months Ended June 30,
 
 
2016
 
2015*
 
 
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net loss including noncontrolling interest
 
$
(571
)
 
$
(2,103
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
Loss from discontinued operations
 

 
118

Gain on divestitures
 
(16
)
 
(209
)
Exploratory dry hole expense and unproved leasehold impairments
 
139

 
385

Depreciation, depletion, and amortization
 
1,347

 
1,620

Asset retirement obligation accretion
 
76

 
72

Impairments
 
173

 
2,424

Provision (benefit) from deferred income taxes
 
(226
)
 
(1,318
)
Other
 
91

 
26

Changes in operating assets and liabilities:
 
 
 
 
Receivables
 
237

 
333

Inventories
 
1

 
74

Drilling advances
 
(30
)
 
118

Deferred charges and other
 
(65
)
 
(81
)
Accounts payable
 
(118
)
 
(410
)
Accrued expenses
 
(57
)
 
505

Deferred credits and noncurrent liabilities
 
2

 
69

NET CASH PROVIDED BY CONTINUING OPERATING ACTIVITIES
 
983

 
1,623

NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 

 
159

NET CASH PROVIDED BY OPERATING ACTIVITIES
 
983

 
1,782

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Additions to oil and gas property
 
(925
)
 
(2,783
)
Leasehold and property acquisitions
 
(118
)
 
(128
)
Additions to gas gathering, transmission, and processing facilities
 

 
(94
)
Proceeds from sale of Kitimat LNG
 

 
854

Proceeds from sale of other oil and gas properties
 
48

 
119

Other, net
 
29

 
(67
)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
 
(966
)
 
(2,099
)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 

 
4,372

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(966
)
 
2,273

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

 
(1,570
)
Distributions to noncontrolling interest
 
(93
)
 
(40
)
Dividends paid
 
(189
)
 
(189
)
Other
 
(1
)
 
15

NET CASH USED IN FINANCING ACTIVITIES
 
(283
)
 
(1,784
)
 
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
(266
)
 
2,271

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
1,467

 
679

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,201

 
$
2,950

 
 
 
 
 
SUPPLEMENTARY CASH FLOW DATA:
 
 
 
 
Interest paid, net of capitalized interest
 
$
206

 
$
218

Income taxes paid, net of refunds
 
201

 
278

*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)
 
 
June 30, 2016
 
December 31, 2015*
 
 
(In millions)
ASSETS
 
 
 
 
CURRENT ASSETS:
 
 
 
 
Cash and cash equivalents
 
$
1,201

 
$
1,467

Receivables, net of allowance
 
1,016

 
1,253

Inventories
 
530

 
570

Drilling advances
 
202

 
172

Prepaid assets and other
 
343

 
290

 
 
3,292

 
3,752

PROPERTY AND EQUIPMENT:
 
 
 
 
Oil and gas, on the basis of successful efforts accounting:
 
 
 
 
Proved properties
 
42,469

 
41,728

Unproved properties and properties under development, not being amortized
 
2,285

 
2,277

Gathering, transmission and processing facilities
 
862

 
1,052

Other
 
1,098

 
1,093

 
 
46,714

 
46,150

Less: Accumulated depreciation, depletion, and amortization
 
(26,571
)
 
(25,312
)
 
 
20,143

 
20,838

OTHER ASSETS:
 
 
 
 
Deferred charges and other
 
911

 
910

 
 
$
24,346

 
$
25,500

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
Accounts payable
 
$
544

 
$
618

Other current liabilities (Note 5)
 
1,026

 
1,223

 
 
1,570

 
1,841

LONG-TERM DEBT
 
8,719

 
8,716

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
Income taxes
 
2,308

 
2,529

Asset retirement obligation
 
2,706

 
2,562

Other
 
347

 
362

 
 
5,361

 
5,453

COMMITMENTS AND CONTINGENCIES (Note 9)
 
 
 
 
EQUITY:
 
 
 
 
Common stock, $0.625 par, 860,000,000 shares authorized, 412,532,393 and 411,218,105 shares issued, respectively
 
258

 
257

Paid-in capital
 
12,487

 
12,619

Accumulated deficit
 
(2,596
)
 
(1,980
)
Treasury stock, at cost, 33,174,414 and 33,183,930 shares, respectively
 
(2,888
)
 
(2,889
)
Accumulated other comprehensive loss
 
(119
)
 
(119
)
APACHE SHAREHOLDERS’ EQUITY
 
7,142

 
7,888

Noncontrolling interest
 
1,554

 
1,602

TOTAL EQUITY
 
8,696

 
9,490

 
 
$
24,346

 
$
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)
 

 

 
(2,194
)
 

 

 
(2,194
)
 
91

 
(2,103
)
Distributions to noncontrolling interest
 

 

 

 

 

 

 
(40
)
 
(40
)
Common dividends ($0.50 per share)
 

 

 
(189
)
 

 

 
(189
)
 

 
(189
)
Other
 
1

 
45

 

 
1

 

 
47

 

 
47

BALANCE AT JUNE 30, 2015
 
$
257

 
$
12,635

 
$
6,272

 
$
(2,889
)
 
$
(116
)
 
$
16,159

 
$
2,097

 
$
18,256

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)
 

 

 
(616
)
 

 

 
(616
)
 
45

 
(571
)
Distributions to noncontrolling interest
 

 

 

 

 

 

 
(93
)
 
(93
)
Common dividends ($0.50 per share)
 

 
(189
)
 

 

 

 
(189
)
 

 
(189
)
Other
 
1

 
57

 

 
1

 

 
59

 

 
59

BALANCE AT JUNE 30, 2016
 
$
258

 
$
12,487

 
$
(2,596
)
 
$
(2,888
)
 
$
(119
)
 
$
7,142

 
$
1,554

 
$
8,696

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 statement 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 June 30, 2016, should be read along with Apache’s Annual Report on Form 10-K 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. The financial information for prior periods has been recast to reflect retrospective application of the successful efforts method, as prescribed by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 932 “Extractive Activities—Oil and Gas.” Although the full cost method of accounting for oil and gas exploration and development activities continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the U.S. Securities and Exchange Commission (SEC) and is more widely used in the industry such that the change will improve comparability of the Company's financial statements to its peers. The Company believes the successful efforts method provides a more representational depiction of assets and operating results. The successful efforts method also provides for the Company's investments in oil and gas properties to be assessed for impairment in accordance with ASC 360 "Property, Plant, and Equipment" rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. For more detailed information regarding the effects of the change to the successful efforts method, please refer to Note 2—Change in Accounting Principle. The Company has recast certain historical information for all periods presented, including the Statement of Consolidated Operations, Statement of Consolidated Cash Flows, Consolidated Balance Sheet, Statement of Consolidated Changes in Equity, and related information in Notes 1, 2, 3, 4, 5, 7, 8, 10, 11, and 12.
In 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 June 30, 2016, Apache’s significant accounting policies, other than those discussed above, are consistent with those discussed in Note 1—Summary of Significant Accounting Policies to the consolidated financial statements contained in Apache’s Annual Report on Form 10-K 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 six-month period ended June 30, 2016, the Company recorded asset impairments totaling $281 million in connection with fair value assessments in the current low commodity price environment. Impairments totaling $176 million were recorded for oil and gas properties in the U.S. and Canada and $105 million was recorded for GTP assets, which were written down to their fair values. The oil and gas property impairments are discussed in further detail below in “Oil and Gas Property.”
For the six-month period ended June 30, 2015, the Company recorded asset impairments totaling $2.7 billion in connection with fair value assessments in the current low commodity price environment. Impairments totaling $2.6 billion were recorded for oil and gas properties, which were written down to their fair values. Also, for the six-month period ended June 30, 2015, the Company recorded $163 million for the impairment of goodwill. As of June 30, 2016 and December 31, 2015, remaining goodwill in the consolidated balance sheet totaled $87 million for our Egypt reporting unit.
Oil and Gas Property
The Company follows the successful efforts method of accounting for its oil and gas property. Under this method of accounting, exploration costs such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are expensed as incurred. All costs related to production, general corporate overhead, and similar activities are expensed as incurred. If an exploratory well provides evidence to justify potential development of reserves, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas depending on, among other things, the amount of hydrocarbons discovered, the outcome of planned geological and engineering studies, the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan, and government sanctioning of development activities in certain international locations. At the end of each quarter, management reviews the status of all suspended exploratory well costs in light of ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.
Acquisition costs of unproved properties are assessed for impairment at least annually and are transferred to proved oil and gas properties to the extent the costs are associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on the Company’s current exploration plans. Unproved oil and gas properties with individually insignificant lease acquisition costs are amortized on a group basis over the average lease term at rates that provide for full amortization of unsuccessful leases upon lease expiration or abandonment. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and gas properties. Costs of maintaining and retaining unproved properties, as well as amortization of individually insignificant leases and impairment of unsuccessful leases, are included in exploration costs in the statement of consolidated operations.

6



Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized. Depreciation of the cost of proved oil and gas properties is calculated using the unit-of-production (UOP) method. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the cost of those reserves. The reserve base used to calculate depreciation for leasehold acquisition costs and the cost to acquire proved properties is the sum of proved developed reserves and proved undeveloped reserves. With respect to lease and well equipment costs, which include development costs and successful exploration drilling costs, the reserve base includes only proved developed reserves. Estimated future dismantlement, restoration and abandonment costs, net of salvage values, are included in the depreciable cost.
Oil and gas properties are grouped for depreciation in accordance with ASC 932 “Extractive Activities - Oil and Gas.” The basis for grouping is a reasonable aggregation of properties with a common geological structural feature or stratigraphic condition, such as a reservoir or field.
When circumstances indicate that proved oil and gas properties may be impaired, the Company compares unamortized capitalized costs to the expected undiscounted pre-tax future cash flows for the associated assets grouped at the lowest level for which identifiable cash flows are independent of cash flows of other assets. If the expected undiscounted pre-tax future cash flows, based on Apache’s estimate of future crude oil and natural gas prices, operating costs, anticipated production from proved reserves and other relevant data, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is generally estimated using the income approach described in the ASC 820 “Fair Value Measurement.” If applicable, the Company utilizes accepted bids as the basis for determining fair value. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments of future production volumes, commodity prices, operating costs, and capital investment plans, considering all available information at the date of review. These assumptions are applied to develop future cash flow projections that are then discounted to estimated fair value, using a discount rate believed to be consistent with those applied by market participants. Apache has classified these fair value measurements as Level 3 in the fair value hierarchy.
The following table represents non-cash impairments of the carrying value of the Company’s proved and unproved property and equipment for the second quarters and first six months of 2016 and 2015:
 
 
Quarter Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Oil and Gas Property:
 
 
 
 
 
 
 
 
Proved
 
$
68

 
$
349

 
$
68

 
$
2,261

Unproved
 
66

 
148

 
108

 
316

Proved properties impaired during the quarter ended June 30, 2016 had an aggregate fair value of $143 million. Proved properties impaired during the quarter ended March 31, 2015 had an aggregate fair value of $1.2 billion, and properties impaired during the quarter ended June 30, 2015 had an aggregate fair value of $516 million.
On the statement of consolidated operations, unproved impairments are recorded in exploration expense, and proved impairments are recorded in impairments. Gains and losses on significant divestitures are recognized in the statement of consolidated operations. See Note 3—Acquisitions and Divestitures for more detail.
New Pronouncements Issued But Not Yet Adopted
In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-09, which seeks to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard requires the Company to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted and if an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact of adopting this standard on its consolidated financial statements.

7



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. In general, under successful efforts, exploration expenditures such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are charged against earnings as incurred, versus being capitalized under the full cost method of accounting. Successful efforts also provides for the assessment of potential property impairments under ASC 360 by comparing the net carrying value of oil and gas properties with associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized cost is reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and gas properties exceeds a full cost “ceiling,” using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the dispositions of oil and gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the remaining assets under the full cost method. Apache’s consolidated financial statements have been recast to reflect these differences.
The following tables present the effects of the change to the successful efforts method in the statement of consolidated operations:
 
Changes to the Statement of Consolidated Operations
For the Quarter Ended June 30, 2016
Under Full Cost
 
Changes
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,062

 
$
56

 
$
1,118

Natural gas revenues
218

 
(9
)
 
209

NGL revenues
59

 

 
59

Oil and gas production revenues
1,339

 
47

 
1,386

Other
(22
)
 
1

 
(21
)
Gain on divestiture
5

 
12

 
17

Exploration

 
91

 
91

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
507

 
122

 
629

Additional
671

 
(671
)
 

Impairments
105

 
68

 
173

Financing costs, net
90

 
14

 
104

Current income tax provision
25

 
119

 
144

Deferred income tax provision (benefit)
(120
)
 
(105
)
 
(225
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(622
)
 
422

 
(200
)
   Net income (loss) attributable to noncontrolling interest
(21
)
 
65

 
44

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(601
)
 
357

 
(244
)
   Net income (loss) from discontinued operations

 

 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(601
)
 
357

 
(244
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(1.58
)
 
$
0.93

 
$
(0.65
)
Basic net loss from discontinued operations per share

 

 

Basic net loss per share
$
(1.58
)
 
$
0.93

 
$
(0.65
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(1.58
)
 
$
0.93

 
$
(0.65
)
Diluted net loss from discontinued operations per share

 

 

Diluted net loss per share
$
(1.58
)
 
$
0.93

 
$
(0.65
)

8



 
Changes to the Statement of Consolidated Operations
For the Quarter Ended June 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,599

 
$
19

 
$
1,618

Natural gas revenues
295

 
20

 
315

NGL revenues
58

 

 
58

Oil and gas production revenues
1,952

 
39

 
1,991

Other
25

 
3

 
28

Gain on divestiture

 
227

 
227

Exploration

 
225

 
225

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
923

 
(212
)
 
711

Additional
5,816

 
(5,816
)
 

Impairments

 
512

 
512

Financing costs, net
63

 
54

 
117

Current income tax provision (benefit)
665

 
235

 
900

Deferred income tax provision (benefit)
(1,525
)
 
1,356

 
(169
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(4,832
)
 
3,915

 
(917
)
   Net income attributable to noncontrolling interest
36

 
27

 
63

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(4,868
)
 
3,888

 
(980
)
   Net loss from discontinued operations
(732
)
 
852

 
120

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(5,600
)
 
4,740

 
(860
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(12.89
)
 
$
10.29

 
$
(2.60
)
Basic net loss from discontinued operations per share
(1.94
)
 
2.26

 
0.32

Basic net loss per share
$
(14.83
)
 
$
12.55

 
$
(2.28
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(12.89
)
 
$
10.29

 
$
(2.60
)
Diluted net loss from discontinued operations per share
(1.94
)
 
2.26

 
0.32

Diluted net loss per share
$
(14.83
)
 
$
12.55

 
$
(2.28
)
 
Changes to the Statement of Consolidated Operations
For the Six Months Ended June 30, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
1,857

 
$
83

 
$
1,940

Natural gas revenues
441

 
(9
)
 
432

NGL revenues
101

 

 
101

Oil and gas production revenues
2,399

 
74

 
2,473

Other
(27
)
 
3

 
(24
)
Gain on divestiture
3

 
13

 
16

Exploration

 
186

 
186

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
1,059

 
206

 
1,265

Additional
1,159

 
(1,159
)
 

Impairments
105

 
68

 
173

Financing costs, net
180

 
29

 
209

Current income tax provision
61

 
73

 
134

Deferred income tax provision (benefit)
(301
)
 
75

 
(226
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(1,183
)
 
612

 
(571
)
   Net income (loss) attributable to noncontrolling interest
(93
)
 
138

 
45

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(1,090
)
 
474

 
(616
)
   Net income (loss) from discontinued operations

 

 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(1,090
)
 
474

 
(616
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(2.88
)
 
$
1.25

 
$
(1.63
)
Basic net loss from discontinued operations per share

 

 

Basic net loss per share
$
(2.88
)
 
$
1.25

 
$
(1.63
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(2.88
)
 
$
1.25

 
$
(1.63
)
Diluted net loss from discontinued operations per share

 

 

Diluted net loss per share
$
(2.88
)
 
$
1.25

 
$
(1.63
)

9



 
Changes to the Statement of Consolidated Operations
For the Six Months Ended June 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions, except per share data)
Oil revenues
$
2,879

 
$
32

 
$
2,911

Natural gas revenues
595

 
28

 
623

NGL revenues
116

 

 
116

Oil and gas production revenues
3,590

 
60

 
3,650

Other
17

 
5

 
22

Gain on divestiture

 
209

 
209

Exploration

 
483

 
483

General and administrative
193

 
2

 
195

Depreciation, depletion, and amortization:
 
 
 
 
 
Oil and Gas Property and Equipment
 
 
 
 
 
Recurring
1,922

 
(468
)
 
1,454

Additional
13,036

 
(13,036
)
 

Impairments

 
2,424

 
2,424

Financing costs, net
133

 
108

 
241

Current income tax provision (benefit)
580

 
268

 
848

Deferred income tax provision (benefit)
(4,460
)
 
3,142

 
(1,318
)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(9,336
)
 
7,351

 
(1,985
)
   Net income attributable to noncontrolling interest
51

 
40

 
91

NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(9,387
)
 
7,311

 
(2,076
)
   Net loss from discontinued operations
(864
)
 
746

 
(118
)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
(10,251
)
 
8,057

 
(2,194
)
 
 
 
 
 
 
Per common share
 
 
 
 
 
Basic net loss from continuing operations per share
$
(24.88
)
 
$
19.38

 
$
(5.50
)
Basic net loss from discontinued operations per share
(2.29
)
 
1.98

 
(0.31
)
Basic net loss per share
$
(27.17
)
 
$
21.36

 
$
(5.81
)
 
 
 
 
 
 
Diluted net loss from continuing operations per share
$
(24.88
)
 
$
19.38

 
$
(5.50
)
Diluted net loss from discontinued operations per share
(2.29
)
 
1.98

 
(0.31
)
Diluted net loss per share
$
(27.17
)
 
$
21.36

 
$
(5.81
)


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 Six Months Ended June 30, 2016
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(1,183
)
 
$
612

 
$
(571
)
Gain on divestitures, net
(3
)
 
(13
)
 
(16
)
Exploratory dry hole expense and unproved leasehold impairments

 
139

 
139

Depreciation, depletion, and amortization
2,300

 
(953
)
 
1,347

Impairments
105

 
68

 
173

Provision for (benefit from) deferred income taxes
(301
)
 
75

 
(226
)
Changes in operating assets and liabilities
(28
)
 
(2
)
 
(30
)
Net cash provided by operating activities
1,057

 
(74
)
 
983

Additions to oil and gas property
(999
)
 
74

 
(925
)
Net cash used in investing activities
(1,040
)
 
74

 
(966
)
NET INCREASE (DECREASE) IN CASH
(266
)
 

 
(266
)
BEGINNING CASH BALANCE
1,467

 

 
1,467

ENDING CASH BALANCE
1,201

 

 
1,201


10



 
Changes to the Statement of Consolidated Cash Flows
For the Six Months Ended June 30, 2015
Under Full Cost
 
Changes*
 
As Reported Under Successful Efforts
 
(In millions)
Net loss including noncontrolling interest
$
(10,200
)
 
$
8,097

 
$
(2,103
)
Loss from discontinued operations
864

 
(746
)
 
118

Gain on divestitures, net

 
(209
)
 
(209
)
Exploratory dry hole expense and unproved leasehold impairments

 
385

 
385

Depreciation, depletion, and amortization
15,124

 
(13,504
)
 
1,620

Impairments

 
2,424

 
2,424

Provision for (benefit from) deferred income taxes
(4,460
)
 
3,142

 
(1,318
)
Changes in operating assets and liabilities
311

 
297

 
608

Net cash provided by operating activities - continuing operations
1,737

 
(114
)
 
1,623

Net cash provided by operating activities - discontinued operations
196

 
(37
)
 
159

Additions to oil and gas property
(2,987
)
 
204

 
(2,783
)
Net cash used in investing activities - continuing operations
(2,303
)
 
204

 
(2,099
)
Net cash provided by investing activities - discontinued operations
4,335

 
37

 
4,372

NET INCREASE (DECREASE) IN CASH
2,181

 
90

 
2,271

BEGINNING CASH BALANCE
769

 
(90
)
 
679

ENDING CASH BALANCE
2,950

 

 
2,950

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
June 30, 2016
Under Full Cost
 
Changes
 
As Reported Under Successful Efforts
 
(In millions)
PROPERTY AND EQUIPMENT:
 
 
 
 
 
Property and equipment - cost
$
94,657

 
$
(47,943
)
 
$
46,714

Less: Accumulated depreciation, depletion, and amortization
(81,920
)
 
55,349

 
(26,571
)
PROPERTY AND EQUIPMENT, NET
12,737

 
7,406

 
20,143

Deferred charges and other
937

 
(26
)
 
911

TOTAL ASSETS
16,966

 
7,380

 
24,346

Deferred income taxes
796

 
1,512

 
2,308

Paid-in capital
12,342

 
145

 
12,487

Accumulated deficit
(8,243
)
 
5,647

 
(2,596
)
Accumulated other comprehensive loss
(116
)
 
(3
)
 
(119
)
Noncontrolling interest
1,475

 
79

 
1,554

TOTAL EQUITY
2,828

 
5,868

 
8,696

 
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.


11



3.
ACQUISITIONS AND DIVESTITURES
2016 Activity
Leasehold and Property Acquisitions
During the second quarter and first six months of 2016, Apache completed $99 million and $118 million, respectively, of leasehold and property acquisitions primarily in our North America onshore regions and Egypt.
Transaction, Reorganization, and Separation
During the second quarter and first six months of 2016, Apache recorded $9 million and $24 million, respectively, in expense related to various asset transactions, company reorganization, and employee separation.
2015 Activity
Canada Divestiture
In April 2015, Apache's subsidiaries completed the sale of its 50 percent interest in the Kitimat LNG project and upstream acreage in the Horn River and Liard natural gas basins to Woodside Petroleum Limited (Woodside). Proceeds at closing were $854 million, of which approximately $344 million were associated with LNG assets and $510 million were associated with upstream assets. The proceeds are subject to post-closing adjustments. For additional details related to post-closing adjustments, please see Note 9—Commitments and Contingencies.
The Kitimat LNG assets classified as held for sale as of December 31, 2014 were impaired $655 million in the fourth quarter of 2014. Apache recognized a $146 million gain on the sale of the upstream assets upon completion of the sale.
Australia Divestitures
Woodside Sale In April 2015, Apache's subsidiaries completed the sale of its interest in the Wheatstone LNG project and associated upstream oil and gas assets to Woodside. Proceeds at closing were $2.8 billion, of which approximately $1.4 billion were associated with LNG assets and $1.4 billion were associated with the upstream assets. The proceeds are subject to post-closing adjustments. For additional details related to post-closing adjustments, please see Note 9—Commitments and Contingencies.
The Wheatstone LNG assets and associated upstream assets were impaired $833 million in the fourth quarter of 2014 and classified as held for sale 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. No additional gain or loss was recognized on the ultimate disposal of the LNG project and upstream assets.
Consortium Sale In June 2015, Apache's subsidiaries completed the sale of the Company's Australian subsidiary Apache Energy Limited (AEL) to a consortium of private equity funds managed by Macquarie Capital Group Limited and Brookfield Asset Management Inc. Total proceeds of $1.9 billion included customary, post-closing adjustments for the period between the effective date, October 1, 2014, and closing. A loss of approximately $139 million was recognized for the sale of AEL.

Upon closing of the sale of substantially all Australian operations, the associated results of operations for the divested Australian assets and the losses on disposal were classified as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q. Sales and other operating revenues and loss from discontinued operations related to the Australia dispositions were as follows:

12



 
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Revenues and other from discontinued operations
 
$

 
$
101

 
$

 
$
288

Impairment on Woodside sale
 
$

 
$

 
$

 
$
(49
)
Loss on Consortium sale
 

 
(139
)
 

 
(139
)
Income from divested Australian operations
 

 
18

 

 
28

Income tax benefit
 

 
241

 

 
42

Income (loss) from Australian discontinued operations, net of tax
 
$

 
$
120

 
$

 
$
(118
)
Leasehold and Property Acquisitions
During the second quarter and first six months of 2015, Apache completed $36 million and $128 million, respectively, of leasehold and property acquisitions primarily in our North America onshore regions.
Transaction, Reorganization, and Separation
During the second quarter and first six months of 2015, Apache recorded $66 million and $120 million, respectively, 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 $262 million and $245 million at June 30, 2016 and December 31, 2015, respectively. The increase is primarily attributable to drilling activities, partially offset by successful transfers and dry hole write-offs. Exploratory well costs that have been capitalized for a period greater than one year since the completion of drilling were $93 million and $61 million at June 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 are associated with the Aviat discovery in the North Sea and comprise exploration and appraisal activities. The amount of exploratory well costs capitalized for a period greater than one year increased by $32 million during the six months ended June 30, 2016 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 six months ended June 30, 2016. Projects with suspended exploratory well costs capitalized for a period greater than one year since the completion of drilling are those identified by management as exhibiting sufficient quantities of hydrocarbons to justify potential development. Management is actively pursuing efforts to assess whether reserves can be attributed to these projects.
5.
OTHER CURRENT LIABILITIES
The following table provides detail of our other current liabilities as of June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
December 31, 2015
 
 
(In millions)
Accrued operating expenses
 
$
120

 
$
139

Accrued exploration and development
 
475

 
637

Accrued compensation and benefits
 
99

 
166

Accrued interest
 
146

 
144

Accrued income taxes
 
54

 
47

Current debt
 
1

 
1

Current asset retirement obligation
 
36

 
36

Other
 
95

 
53

Total Other current liabilities
 
$
1,026

 
$
1,223


13



6.
ASSET RETIREMENT OBLIGATION
The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the six-month period ended June 30, 2016:
 
 
(In millions)
Asset retirement obligation at December 31, 2015
 
$
2,598

Liabilities incurred
 
6

Liabilities acquired
 
34

Liabilities settled
 
(31
)
Accretion expense
 
76

Revisions in estimated liabilities
 
59

Asset retirement obligation at June 30, 2016
 
2,742

Less current portion
 
36

Asset retirement obligation, long-term
 
$
2,706

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

 
$

 
$

 
$

Notes and debentures
 
8,720

 
9,393

 
8,717

 
8,330

Total Debt
 
$
8,720

 
$
9,393

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

As of June 30, 2016, the Company had a £900 million three-year letter of credit facility which matures in February 2019. The facility is available for letters of credit and loans to cash collateralize letter of credit obligations to the extent letters of credit are unavailable under the facility. As of June 30, 2016, no letters of credit or loans were outstanding under this facility. Subsequently, as of the date of this filing, 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 June 30, 2016, long-term debt is presented net of debt issuance costs of $58 million.

14



Financing Costs, Net
The following table presents the components of Apache’s financing costs, net:
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Interest expense
 
$
116

 
$
123

 
$
232

 
$
251

Amortization of deferred loan costs
 
2

 
2

 
3

 
4

Capitalized interest
 
(12
)
 
(5
)
 
(23
)
 
(9
)
Interest income
 
(2
)
 
(3
)
 
(3
)
 
(5
)
Financing costs, net
 
$
104

 
$
117

 
$
209

 
$
241

8.
INCOME TAXES
The Company estimates its annual effective income tax rate for continuing operations in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash write-downs of the carrying value of the Company’s proved oil and gas properties, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.
During the second quarter of 2016, Apache’s effective income tax rate was primarily impacted by an increase in the valuation allowance on Canadian deferred tax assets. During the second quarter of 2015, Apache’s effective tax rate was primarily impacted by non-cash impairments of the carrying value of the Company's proved oil and gas properties and an increase in the amount of valuation allowances on Canadian deferred tax assets and U.S. foreign tax credits.
Apache's 2016 year-to-date effective tax rate is primarily impacted by an increase in the valuation allowance on 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 proved oil and gas properties and an increase in the amount of valuation allowances on Canadian deferred tax assets and U.S. foreign tax credits, 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 June 30, 2016, the Company has an accrued liability of approximately $30 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.

15



Louisiana Restoration 
As more fully described in Apache’s Annual Report on Form 10-K for its 2015 fiscal year, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either express or implied lease terms or Louisiana law, the companies are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup.
On or about July 28, 2016, in a case 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, plaintiff asserts coastal zone claims similar to the claims filed previously by Plaquemines Parish and Cameron Parish against Apache and various other oil and gas producers. In respect of three lawsuits filed by the Parish of Plaquemines against the Company and other oil and gas producers in the 25th Judicial District Court for the Parish of Plaquemines, State of Louisiana (captioned Parish of Plaquemines v. Rozel Operating Company et al., Docket No. 60-996; Parish of Plaquemines v. Apache Oil Corporation et al., Docket No. 61-000; and Parish of Plaquemines v. HHE Energy Company et al., Docket No. 60-983), in April 2016 the Plaquemines Parish Council reversed course and decided not to dismiss the lawsuits. The Louisiana Attorney General has announced his intention to intervene in the three Plaquemines Parish proceedings and in the Cameron Parish proceedings in the Parish’s 38th Judicial District Court, captioned Parish of Cameron v. BEPCO, L.P., et al., Docket No. 10-19572; Parish of Cameron v. BP America Production Company et al., Docket No. 10-19576; Parish of Cameron v. Apache Corporation (of Delaware) et al., Docket No. 10-19579; Parish of Cameron v. Atlantic Richfield Company et al., Docket No. 10-19577; Parish of Cameron v. Alpine Exploration Companies, Inc., et al., Docket No. 10-19580; and Parish of Cameron v. Auster Oil and Gas, Inc., et al, Docket No. 10-19582. The Cameron Parish proceedings have been removed to the United States District Court for the Western District of Louisiana, subject to any effort by plaintiff to remand the proceedings to state court.
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 other material change with respect to the review of the books and records of the Company and its subsidiaries and related entities by the State of Delaware, Department of Finance (Unclaimed Property), to determine compliance with the Delaware Escheat Laws, since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Burrup-Related Gas Supply Lawsuits
In the cases captioned Radhika Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2011 4653 and Pankaj Oswal v. Australia and New Zealand Banking Group Limited (ANZ) et al., No. SCI 2012 01995, in the Supreme Court of Victoria, trial commenced on May 30, 2016, and is ongoing. Apache Corporation, Apache Energy Limited (now known as Quadrant Energy Australia Limited), and Apache Northwest Pty Ltd (now known as Quadrant Northwest Pty Ltd) have, subject to certain conditions precedent, reached a settlement on confidential terms with each of the plaintiffs and related entities. No other material change in the status of this matter has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

16



Environmental Matters
As of June 30, 2016, the Company had an undiscounted reserve for environmental remediation of approximately $57 million. The Company is not aware of any environmental claims existing as of June 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. The cause of the release remains under investigation. With respect to this release, the summons and information containing charges relating to a leak of produced water in the Zama area that occurred on or between October 3 and October 25, 2013, and the summons and information containing charges relating to a leak of produced water in the Belloy Field operating area that occurred on or about January 20, 2014, the Company does not expect the economic impact of these incidents to have a material effect on the Company’s financial position, results of operations, or liquidity. No other material change in the status of these matters has occurred since the filing of Apache’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
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

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

17



10.
CAPITAL STOCK
Net Loss per Common Share
A reconciliation of the components of basic and diluted net loss per common share for the quarters ended June 30, 2016 and 2015 is presented in the table below.
 
 
 
For the Quarter Ended June 30,
 
 
2016
 
2015
 
 
Loss
 
Shares
 
Per Share
 
Income (Loss)
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(244
)
 
379

 
$
(0.65
)
 
$
(980
)
 
378

 
$
(2.60
)
Income (loss) from discontinued operations
 

 
379

 

 
120

 
378

 
0.32

Loss attributable to common stock
 
$
(244
)
 
379

 
$
(0.65
)
 
$
(860
)
 
378

 
$
(2.28
)
Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 
$

 

 
$

 
$

 

 
$

Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(244
)
 
379

 
$
(0.65
)
 
$
(980
)
 
378

 
$
(2.60
)
Income (loss) from discontinued operations
 

 
379

 

 
120

 
378

 
0.32

Loss attributable to common stock
 
$
(244
)
 
379

 
$
(0.65
)
 
$
(860
)
 
378

 
$
(2.28
)
 
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
 
Loss
 
Shares
 
Per Share
 
Loss
 
Shares
 
Per Share
 
 
(In millions, except per share amounts)
Basic:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(616
)
 
379

 
$
(1.63
)
 
$
(2,076
)
 
377

 
$
(5.50
)
Loss from discontinued operations
 

 
379

 

 
(118
)
 
377

 
(0.31
)
Loss attributable to common stock
 
$
(616
)
 
379

 
$
(1.63
)
 
$
(2,194
)
 
377

 
$
(5.81
)
Effect of Dilutive Securities:
 
 
 
 
 
 
 
 
 
 
 
 
Stock options and other
 

 

 
 
 

 

 
 
Diluted:
 
 
 
 
 
 
 
 
 
 
 
 
Loss from continuing operations
 
$
(616
)
 
379

 
$
(1.63
)
 
$
(2,076
)
 
377

 
$
(5.50
)
Loss from discontinued operations
 

 
379

 

 
(118
)
 
377

 
(0.31
)
Loss attributable to common stock
 
$
(616
)
 
379

 
$
(1.63
)
 
$
(2,194
)
 
377

 
$
(5.81
)

The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 6.3 million and 8.3 million for the quarters ended June 30, 2016 and 2015, respectively, and 7.4 million and 8.3 million for the six months ended June 30, 2016 and 2015, respectively.
Common Stock Dividends
For the quarters ended June 30, 2016, and 2015, Apache paid $95 million and $95 million, respectively, in dividends on its common stock. For the six months ended June 30, 2016 and 2015, the Company paid $189 million and $189 million, respectively.
Stock Repurchase Program
Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through December 31, 2015, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company is not obligated to acquire any specific number of shares and has not purchased any shares during 2016.

18



11.
BUSINESS SEGMENT INFORMATION
Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil, and natural gas liquids. At June 30, 2016, the Company had production in four reporting segments: the United States, Canada, Egypt, and offshore the United Kingdom in the North Sea (North Sea). Apache also pursues exploration interests in other areas that may, over time, result in reportable discoveries and development opportunities. Financial information for each country is presented below:
 
 
 
United
States
 
Canada
 
Egypt(1)
 
North Sea
 
Other
International
 
Total(3)
 
 
(In millions)
For the Quarter Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
520

 
$
73

 
$
542

 
$
251

 
$

 
$
1,386

Operating Income (Loss)(2)
 
$
(109
)
 
$
(57
)
 
$
220

 
$
(115
)
 
$

 
$
(61
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
17

Other
 
 
 
 
 
 
 
 
 
 
 
(21
)
General and administrative
 
 
 
 
 
 
 
 
 
 
 
(103
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(9
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(104
)
Loss Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(281
)
For the Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
929

 
$
156

 
$
934

 
$
454

 
$

 
$
2,473

Operating Income (Loss)(2)
 
$
(267
)
 
$
(118
)
 
$
261

 
$
(101
)
 
$
(1
)
 
$
(226
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
16

Other
 
 
 
 
 
 
 
 
 
 
 
(24
)
General and administrative
 
 
 
 
 
 
 
 
 
 
 
(196
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(24
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(209
)
Loss Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(663
)
Total Assets
 
$
12,383

 
$
2,070

 
$
5,520

 
$
4,326

 
$
47

 
$
24,346


19



 
 
United
States
 
Canada
 
Egypt(1)
 
North Sea
 
Other
International
 
Total(3)
 
 
(In millions)
For the Quarter Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
767

 
$
138

 
$
703

 
$
383

 
$

 
$
1,991

Operating Income (Loss)(2)
 
$
(363
)
 
$
(78
)
 
$
335

 
$
(40
)
 
$
(1
)
 
$
(147
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
227

Other
 
 
 
 
 
 
 
 
 
 
 
28

General and administrative
 
 
 
 
 
 
 
 
 
 
 
(111
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(66
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(117
)
Loss From Continuing Operations Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(186
)
For the Six Months Ended June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Oil and Gas Production Revenues
 
$
1,427

 
$
271

 
$
1,256

 
$
696

 
$

 
$
3,650

Operating Income (Loss)(2)
 
$
(2,382
)
 
$
(174
)
 
$
499

 
$
(72
)
 
$
(1
)
 
$
(2,130
)
Other Income (Expense):
 
 
 
 
 
 
 
 
 
 
 
 
Gain (loss) on divestitures, net
 
 
 
 
 
 
 
 
 
 
 
209

Other
 
 
 
 
 
 
 
 
 
 
 
22

General and administrative
 
 
 
 
 
 
 
 
 
 
 
(195
)
Transaction, reorganization, and separation
 
 
 
 
 
 
 
 
 
 
 
(120
)
Financing costs, net
 
 
 
 
 
 
 
 
 
 
 
(241
)
Loss From Continuing Operations Before Income Taxes
 
 
 
 
 
 
 
 
 
 
 
$
(2,455
)
Total Assets
 
$
20,367

 
$
3,932

 
$
7,435

 
$
4,488

 
$
580

 
$
36,802

(1)
Includes a noncontrolling interest in Egypt.
(2)
Operating Income (Loss) consists of oil and gas production revenues less lease operating expenses, gathering and transportation costs, taxes other than income, exploration costs, depreciation, depletion, and amortization, asset retirement obligation accretion, and impairments. The operating income (loss) of U.S., Canada, and North Sea includes asset impairments totaling $125 million, $9 million, and $105 million, respectively, for the second quarter of 2016. The operating income (loss) of U.S., Canada, and North Sea includes asset impairments totaling $166 million, $10 million, and $105 million, respectively, for the first six months of 2016. The operating income (loss) of U.S., Canada, Egypt, and North Sea includes asset impairments totaling $465 million, $27 million, $5 million, and $163 million, respectively, for the second quarter of 2015. The operating income (loss) of U.S., Canada, Egypt, and North Sea include asset impairments totaling $2.4 billion, $54 million, $267 million, and $13 million, respectively, for the first six months of 2015.
(3)
Amounts for 2015 have been restated to exclude Australia discontinued operations.

20



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

21



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 30, 2016
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
$
270

 
$

 
$
1,116

 
$

 
$
1,386

Equity in net income of affiliates
 
(76
)
 
6

 

 
70

 

Other
 
(22
)
 
9

 
(8
)
 

 
(21
)
Gain (loss) on divestiture
 
(1
)
 

 
18

 

 
17

 
 
171

 
15

 
1,126

 
70

 
1,382

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
66

 

 
293

 

 
359

Gathering and transportation
 
10

 

 
42

 

 
52

Taxes other than income
 
22

 

 
43

 

 
65

Exploration
 
76

 

 
15

 

 
91

General and administrative
 
86

 

 
17

 

 
103

Depreciation, depletion, and amortization
 
159

 

 
510

 

 
669

Asset retirement obligation accretion
 
5

 

 
33

 

 
38

Impairments
 
61

 

 
112

 

 
173

Transaction, reorganization, and separation
 
9

 

 

 

 
9

Financing costs, net
 
64

 
7

 
33

 

 
104

 
 
558

 
7

 
1,098

 

 
1,663

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(387
)
 
8

 
28

 
70

 
(281
)
Provision (benefit) for income taxes
 
(143
)
 
2

 
60

 

 
(81
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(244
)
 
6

 
(32
)
 
70

 
(200
)
Net income (loss) from discontinued operations, net of tax
 

 

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
(244
)
 
6

 
(32
)
 
70

 
(200
)
Net income attributable to noncontrolling interest
 

 

 
44

 

 
44

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(244
)
 
$
6

 
$
(76
)
 
$
70

 
$
(244
)


22



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended June 30, 2015
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
 
$
434

 
$

 
$
1,557

 
$

 
$
1,991

Equity in net income (loss) of affiliates
 
(172
)
 
35

 
(1
)
 
138

 

Other
 
(7
)
 
12

 
4

 
19

 
28

Gain (loss) on divestiture
 
(16
)
 

 
243

 

 
227

 
 
239

 
47

 
1,803

 
157

 
2,246

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
 
Lease operating expenses
 
108

 

 
359

 

 
467

Gathering and transportation
 
7

 

 
42

 

 
49

Taxes other than income
 
33

 

 
22

 

 
55

Exploration
 
166

 

 
59

 

 
225

General and administrative
 
74

 

 
18

 
19

 
111

Depreciation, depletion, and amortization
 
232

 

 
562

 

 
794

Asset retirement obligation accretion
 
3

 

 
33

 

 
36

Impairments
 
201

 

 
311

 

 
512

Transaction, reorganization, and separation
 
66

 

 

 

 
66

Financing costs, net
 
116

 
11

 
(10
)
 

 
117

 
 
1,006

 
11

 
1,396

 
19

 
2,432

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(767
)
 
36

 
407

 
138

 
(186
)
Provision (benefit) for income taxes
 
(79
)
 
2

 
808

 

 
731

NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
 
(688
)
 
34

 
(401
)
 
138

 
(917
)
Net loss from discontinued operations, net of tax
 
(172
)
 

 
292

 

 
120

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
 
(860
)
 
34

 
(109
)
 
138

 
(797
)
Net income attributable to noncontrolling interest
 

 

 
63

 

 
63

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
 
$
(860
)
 
$
34

 
$
(172
)
 
$
138

 
$
(860
)


23



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2016
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
$
487

 
$

 
$
1,986

 
$

 
$
2,473

Equity in net income (loss) of affiliates
(184
)
 
(20
)
 

 
204

 

Other
6

 
21

 
(51
)
 

 
(24
)
Gain (loss) on divestiture
(2
)
 

 
18

 

 
16

 
307

 
1

 
1,953

 
204

 
2,465

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
Lease operating expenses
144

 

 
593

 

 
737

Gathering and transportation
19

 

 
85

 

 
104

Taxes other than income
43

 

 
33

 

 
76

Exploration
126

 

 
60

 

 
186

General and administrative
163

 

 
33

 

 
196

Depreciation, depletion, and amortization
315

 

 
1,032

 

 
1,347

Asset retirement obligation accretion
9

 

 
67

 

 
76

Impairments
61

 

 
112

 

 
173

Transaction, reorganization, and separation
24

 

 

 

 
24

Financing costs, net
125

 
17

 
67

 

 
209

 
1,029

 
17

 
2,082

 

 
3,128

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(722
)
 
(16
)
 
(129
)
 
204

 
(663
)
Provision (benefit) for income taxes
(106
)
 
4

 
10

 

 
(92
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(616
)
 
(20
)
 
(139
)
 
204

 
(571
)
Net loss from discontinued operations, net of tax

 

 

 

 

NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
(616
)
 
(20
)
 
(139
)
 
204

 
(571
)
Net income attributable to noncontrolling interest

 

 
45

 

 
45

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
$
(616
)
 
$
(20
)
 
$
(184
)
 
$
204

 
$
(616
)


24



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2015
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
(In millions)
REVENUES AND OTHER:
 
 
 
 
 
 
 
 
 
Oil and gas production revenues
$
799

 
$

 
$
2,851

 
$

 
$
3,650

Equity in net income (loss) of affiliates
(1,419
)
 
(18
)
 

 
1,437

 

Other
(45
)
 
26

 
22

 
19

 
22

Gain (loss) on divestiture
(29
)
 

 
238

 

 
209

 
(694
)
 
8

 
3,111

 
1,456

 
3,881

OPERATING EXPENSES:
 
 
 
 
 
 
 
 
 
Lease operating expenses
232

 

 
716

 

 
948

Gathering and transportation
16

 

 
89

 

 
105

Taxes other than income
67

 

 
61

 

 
128

Exploration
261

 

 
222

 

 
483

General and administrative
136

 

 
40

 
19

 
195

Depreciation, depletion, and amortization
494

 

 
1,126

 

 
1,620

Asset retirement obligation accretion
7

 

 
65

 

 
72

Impairments
1,365

 

 
1,059

 

 
2,424

Transaction, reorganization, and separation
120

 

 

 

 
120

Financing costs, net
215

 
21

 
5

 

 
241

 
2,913

 
21

 
3,383

 
19

 
6,336

NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(3,607
)
 
(13
)
 
(272
)
 
1,437

 
(2,455
)
Provision for income taxes
(1,585
)
 
5

 
1,110

 

 
(470
)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST
(2,022
)
 
(18
)
 
(1,382
)
 
1,437

 
(1,985
)
Net loss from discontinued operations, net of tax
(172
)
 

 
54

 

 
(118
)
NET INCOME (LOSS) INCLUDING NONCONTROLLING INTEREST
(2,194
)
 
(18
)
 
(1,328
)
 
1,437

 
(2,103
)
Net income attributable to noncontrolling interest

 

 
91

 

 
91

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK
$
(2,194
)
 
$
(18
)
 
$
(1,419
)
 
$
1,437

 
$
(2,194
)



25



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2016
 
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
$
110

 
$

 
$
873

 
$

 
$
983

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Additions to oil and gas property
 
(53
)
 

 
(872
)
 

 
(925
)
Leasehold and property acquisitions
 
(53
)
 

 
(65
)
 

 
(118
)
Investment in subsidiaries, net
 
(39
)
 

 

 
39

 

Other
 
(3
)
 

 
80

 

 
77

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(148
)
 

 
(857
)
 
39

 
(966
)
 
 
 
 
 
 
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Intercompany borrowings
 

 
1

 
38

 
(39
)
 

Distributions to noncontrolling interest
 

 

 
(93
)
 

 
(93
)
Dividends paid
 
(189
)
 

 

 

 
(189
)
Other
 
1

 
(1
)
 
(1
)
 

 
(1
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
(188
)
 

 
(56
)
 
(39
)
 
(283
)
 
 
 
 
 
 
 
 
 
 
 
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
(226
)
 

 
(40
)
 

 
(266
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
378

 

 
1,089

 

 
1,467

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
152

 
$

 
$
1,049

 
$

 
$
1,201


26



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2015
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
CASH PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES
 
$
54

 
$
(21
)
 
$
1,590

 
$

 
$
1,623

CASH PROVIDED BY DISCONTINUED OPERATIONS
 

 

 
159

 

 
159

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
54

 
(21
)
 
1,749

 

 
1,782

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Additions to oil and gas property
 
(1,095
)
 

 
(1,688
)
 

 
(2,783
)
Leasehold and property acquisitions
 
(124
)
 

 
(4
)
 

 
(128
)
Additions to gas gathering, transmission, and processing facilities
 
(24
)
 

 
(70
)
 

 
(94
)
Proceeds from sale Kitimat LNG
 

 

 
854

 

 
854

Proceeds from sale of other oil and gas properties
 
4

 

 
115

 

 
119

Investment in subsidiaries, net
 
82

 

 

 
(82
)
 

Other
 
(16
)
 

 
(51
)
 

 
(67
)
NET CASH USED IN CONTINUING INVESTING ACTIVITIES
 
(1,173
)
 

 
(844
)
 
(82
)
 
(2,099
)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS
 

 

 
4,372

 

 
4,372

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
(1,173
)
 

 
3,528

 
(82
)
 
2,273

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
Commercial paper and bank credit facilities, net
 
(1,570
)
 

 

 

 
(1,570
)
Intercompany borrowings
 
4,562

 
(10
)
 
(4,634
)
 
82

 

Distributions to noncontrolling interest
 

 

 
(40
)
 

 
(40
)
Dividends paid
 
(189
)
 

 

 

 
(189
)
Other
 
2

 
31

 
(18
)
 

 
15

NET CASH PROVIDED BY (USED IN) CONTINUING FINANCING ACTIVITIES
 
2,805

 
21

 
(4,692
)
 
82

 
(1,784
)
NET CASH USED IN DISCONTINUED OPERATIONS
 

 

 

 

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
2,805

 
21

 
(4,692
)
 
82

 
(1,784
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
 
1,686

 

 
585

 

 
2,271

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
 
267

 

 
412

 

 
679

CASH AND CASH EQUIVALENTS AT END OF PERIOD
 
$
1,953

 
$

 
$
997

 
$

 
$
2,950


27



APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
June 30, 2016
 
 
Apache
Corporation
 
Apache
Finance
Canada
 
All Other
Subsidiaries
of Apache
Corporation
 
Reclassifications
& Eliminations
 
Consolidated
 
 
(In millions)
ASSETS
 
 
CURRENT ASSETS:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
152

 
$

 
$
1,049

 
$

 
$
1,201

Receivables, net of allowance
 
330

 

 
686

 

 
1,016

Inventories
 
32

 

 
498

 

 
530

Drilling advances
 
6

 

 
196

 

 
202

Deferred tax asset
 
(28
)
 

 
28

 

 

Prepaid assets and other
 
193

 

 
150

 

 
343

Intercompany receivable
 
5,371

 

 

 
(5,371
)
 

 
 
6,056

 

 
2,607

 
(5,371
)
 
3,292

PROPERTY AND EQUIPMENT, NET
 
6,304

 

 
13,839

 

 
20,143

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Intercompany receivable
 

 

 
11,083

 
(11,083
)
 

Equity in affiliates
 
15,908

 
(1,080
)
 
699

 
(15,527
)
 

Deferred charges and other
 
93

 
1,000

 
818

 
(1,000
)
 
911

 
 
$
28,361

 
$
(80
)
 
$
29,046

 
$
(32,981
)
 
$
24,346

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Accounts payable
 
$
324

 
$
(2
)
 
$
222

 
$

 
$
544

Other current liabilities
 
403

 
2

 
621

 

 
1,026

Intercompany payable
 

 

 
5,371

 
(5,371
)
 

 
 
727

 

 
6,214

 
(5,371
)
 
1,570

LONG-TERM DEBT
 
8,431

 
297

 
(9
)
 

 
8,719

DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
 
 
 
 
 
 
 
 
 
 
Intercompany payable
 
10,976

 

 
107

 
(11,083
)
 

Income taxes
 
(114
)
 
5

 
2,417

 

 
2,308

Asset retirement obligation
 
277

 

 
2,429

 

 
2,706

Other
 
922

 
(1
)
 
426

 
(1,000
)
 
347

 
 
12,061

 
4

 
5,379

 
(12,083
)
 
5,361

COMMITMENTS AND CONTINGENCIES
 

 

 

 

 

APACHE SHAREHOLDERS’ EQUITY
 
7,142

 
(381
)
 
15,908

 
(15,527
)
 
7,142

Noncontrolling interest
 

 

 
1,554

 

 
1,554

TOTAL EQUITY
 
7,142

 
(381
)
 
17,462

 
(15,527
)
 
8,696

 
 
$
28,361

 
$
(80
)
 
$
29,046

 
$
(32,981
)
 
$
24,346



28



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

 
$

 
$
1,089

 
$

 
$
1,467

Receivables, net of allowance
 
314

 

 
939

 

 
1,253

Inventories
 
34

 

 
536

 

 
570

Drilling advances
 
16

 

 
156

 

 
172

Prepaid assets and other
 
102

 

 
188

 

 
290

Intercompany receivable
 
5,212

 

 

 
(5,212
)
 

 
 
6,056

 

 
2,908

 
(5,212
)
 
3,752

PROPERTY AND EQUIPMENT, NET
 
6,546

 

 
14,292

 

 
20,838

OTHER ASSETS:
 
 
 
 
 
 
 
 
 
 
Intercompany receivable
 

 

 
10,744

 
(10,744
)
 

Equity in affiliates
 
16,092

 
(807
)
 
446

 
(15,731
)
 

Deferred charges and other
 
96

 
1,001

 
813

 
(1,000
)
 
910

 
 
$
28,790

 
$
194

 
$
29,203

 
$
(32,687
)
 
$
25,500

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

 
$

 
$
209

 
$

 
$
618

Other current liabilities
 
539

 
3

 
681

 

 
1,223

Intercompany payable
 

 

 
5,212

 
(5,212
)
 

 
 
948

 
3

 
6,102

 
(5,212
)
 
1,841

LONG-TERM DEBT
 
8,418

 
298

 

 

 
8,716

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

 

 

 
(10,744
)
 

Income taxes
 
(412
)
 
4

 
2,937

 

 
2,529

Asset retirement obligation
 
271

 

 
2,291

 

 
2,562

Other
 
933

 
250

 
179

 
(1,000
)
 
362

 
 
11,536

 
254

 
5,407

 
(11,744
)
 
5,453

COMMITMENTS AND CONTINGENCIES
 

 

 

 

 

APACHE SHAREHOLDERS’ EQUITY
 
7,888

 
(361
)
 
16,092

 
(15,731
)
 
7,888

Noncontrolling interest
 

 

 
1,602

 

 
1,602

TOTAL EQUITY
 
7,888

 
(361
)
 
17,694

 
(15,731
)
 
9,490

 
 
$
28,790

 
$
194

 
$
29,203

 
$
(32,687
)
 
$
25,500


29



ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion relates to Apache Corporation and its consolidated subsidiaries and should be read in conjunction with our consolidated financial statements and accompanying notes included under Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q, as well as our consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015. Financial information for all periods has been recast to reflect the retrospective application of the successful efforts method of accounting, as discussed under Note 1 in Part I, Item 1, of this Quarterly Report on Form 10-Q. Results of operations and consolidated cash flows for our divested Australia assets are reflected as discontinued operations in all periods presented in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2016.
Overview
Apache Corporation, a Delaware corporation formed in 1954, is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids. The Company has exploration and production interests in four geographic areas: the United States (U.S.), Canada, Egypt, and offshore the United Kingdom (U.K.) in the North Sea (North Sea). Apache also pursues exploration interests in other areas that may over time result in reportable discoveries and development opportunities.
Apache reported a second quarter loss of $244 million, or $0.65 per common share. These results include after-tax asset impairments of $139 million, or $0.37 per common share. During the second quarter of 2016, Apache generated cash from operating activities of $744 million, a substantial increase from last quarter but significantly lower than the $1.2 billion in second quarter of last year.
While Apache continues to be negatively impacted by low commodity prices, we have seen positive results from our aggressive efforts to reduce costs. Lease operating expenses in the second quarter were $108 million lower, or 23 percent, from the same quarter in 2015. These reductions were driven by efforts to align staffing levels, renegotiate contracts, and reduce third-party contractor costs. In addition, we diligently focused on improving our well costs, realizing substantial drilling efficiencies and cost reductions compared to the prior year, and we have been able to maintain these savings for the past two quarters.
We now project 2016 full-year capital spending to be at the high end of our $1.4 billion to $1.8 billion guidance range. Our capital allocation process will remain methodical and rigorous, with a primary focus on returns. We remain committed to achieving "cash flow neutrality" in 2016, and we believe we remain on track to exit the year with no significant change in net debt (debt less cash) related to year-end 2015. We exited the second quarter with $1.2 billion in cash, an increase of $200 million from the end of the first quarter of this year, and $3.5 billion in available committed borrowing capacity.
Operating Highlights
Significant operating activities for the quarter include the following:
Overall
Equivalent production decline from second quarter of 2015 levels was only 8 percent, despite a significant reduction in capital investments in 2015 and the first quarter of 2016 when compared to prior-year levels.
Liquids production for the second quarter of 2016 averaged 348 thousand barrels of oil equivalent per day (Mboe/d), with crude oil representing 82 percent of total liquids production. Liquids production decreased 6 percent from the second quarter of 2015.
North America
Onshore equivalent production was down 11 percent for the quarter relative to the 2015 period. This production performance is notable given a significant reduction in North American onshore exploration and development capital spending during 2015 and the first half of 2016.
Second quarter equivalent production from the Permian Basin region, which accounts for more than half of our total onshore North American production, decreased 4 percent from the second quarter of 2015 despite significantly fewer wells placed on production during the second quarter of 2016.

30



International and Offshore
In Egypt, we averaged 4 rigs and placed 14 wells on production during the quarter. Gross equivalent production remained flat compared with the second quarter of 2015, driven by an increase of 4 percent in higher margin oil production, which was offset by a decline in lower margin natural gas production. On a net basis, equivalent production declined 5 percent from the second quarter of 2015, the impact of cost recovery volumes under our production-sharing contracts.
North Sea average daily production increased 2 percent for the second quarter of 2016 from the second quarter of last year as a result of three new wells brought onto production late in the first quarter of 2016.

31



Results of Operations
Oil and Gas Revenues
The table below presents revenues by geographic region and each region’s percent contribution to revenues for 2016 and 2015.
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
$
Value
 
%
Contribution
 
$
Value
 
%
Contribution
 
$
Value
 
%
Contribution
 
$
Value
 
%
Contribution
 
 
($ in millions)
Total Oil Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
409

 
37
%
 
$
627

 
39
%
 
$
722

 
37
%
 
$
1,137

 
39
%
Canada
 
46

 
4
%
 
75

 
4
%
 
85

 
5
%
 
135

 
5
%
North America
 
455

 
41
%
 
702

 
43
%
 
807

 
42
%
 
1,272

 
44
%
Egypt (1)
 
437

 
39
%
 
572

 
36
%
 
733

 
38
%
 
1,018

 
35
%
North Sea
 
226

 
20
%
 
344

 
21
%
 
400

 
20
%
 
621

 
21
%
International (1)
 
663

 
59
%
 
916

 
57
%
 
1,133

 
58
%
 
1,639

 
56
%
Total (1)
 
$
1,118

 
100
%
 
$
1,618

 
100
%
 
$
1,940

 
100
%
 
$
2,911

 
100
%
Total Natural Gas Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
62

 
30
%
 
$
90

 
29
%
 
$
124

 
29
%
 
$
193

 
31
%
Canada
 
23

 
11
%
 
61

 
19
%
 
64

 
15
%
 
128

 
21
%
North America
 
85

 
41
%
 
151

 
48
%
 
188

 
44
%
 
321

 
52
%
Egypt (1)
 
102

 
49
%
 
127

 
40
%
 
195

 
45
%
 
231

 
37
%
North Sea
 
22

 
10
%
 
37

 
12
%
 
49

 
11
%
 
71

 
11
%
International (1)
 
124

 
59
%
 
164

 
52
%
 
244

 
56
%
 
302

 
48
%
Total (1)
 
$
209

 
100
%
 
$
315

 
100
%
 
$
432

 
100
%
 
$
623

 
100
%
Total Natural Gas Liquids (NGL)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
49

 
83
%
 
$
50

 
86
%
 
$
83

 
82
%
 
$
97

 
84
%
Canada
 
4

 
7
%
 
2

 
4
%
 
7

 
7
%
 
8

 
7
%
North America
 
53

 
90
%
 
52

 
90
%
 
90

 
89
%
 
105

 
91
%
Egypt (1)
 
3

 
5
%
 
4

 
7
%
 
6

 
6
%
 
7

 
6
%
North Sea
 
3

 
5
%
 
2

 
3
%
 
5

 
5
%
 
4

 
3
%
International (1)
 
6

 
10
%
 
6

 
10
%
 
11

 
11
%
 
11

 
9
%
Total (1)
 
$
59

 
100
%
 
$
58

 
100
%
 
$
101

 
100
%
 
$
116

 
100
%
Total Oil and Gas Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
520

 
38
%
 
$
767

 
38
%
 
$
929

 
38
%
 
$
1,427

 
39
%
Canada
 
73

 
5
%
 
138

 
7
%
 
156

 
6
%
 
271

 
8
%
North America
 
593

 
43
%
 
905

 
45
%
 
1,085

 
44
%
 
1,698

 
47
%
Egypt (1)
 
542

 
39
%
 
703

 
36
%
 
934

 
38
%
 
1,256

 
34
%
North Sea
 
251

 
18
%
 
383

 
19
%
 
454

 
18
%
 
696

 
19
%
International (1)
 
793

 
57
%
 
1,086

 
55
%
 
1,388

 
56
%
 
1,952

 
53
%
Total (1)
 
$
1,386

 
100
%
 
$
1,991

 
100
%
 
$
2,473

 
100
%
 
$
3,650

 
100
%
Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil Revenues
 
$

 
 
 
$
57

 
 
 

 
 
 
138

 
 
Natural Gas Revenues
 

 
 
 
53

 
 
 

 
 
 
140

 
 
NGL Revenues
 

 
 
 

 
 
 

 
 
 

 
 
Total
 
$

 
 
 
$
110

 
 
 

 
 
 
278

 
 

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




32



Production
The table below presents the second-quarter and year-to-date 2016 and 2015 production and the relative increase or decrease from the prior period.
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
Increase
(Decrease)
 
2015
 
2016
 
Increase
(Decrease)
 
2015
Oil Volume – b/d
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
106,741

 
(16
)%
 
127,698

 
111,300

 
(12
)%
 
127,171

Canada
 
12,917

 
(18
)%
 
15,791

 
13,690

 
(16
)%
 
16,330

North America
 
119,658

 
(17
)%
 
143,489

 
124,990

 
(13
)%
 
143,501

Egypt(1)(2)
 
106,223

 
2
 %
 
103,865

 
102,241

 
3
 %
 
99,494

North Sea
 
59,124

 

 
58,873

 
58,043

 
(4
)%
 
60,279

International
 
165,347

 
2
 %
 
162,738

 
160,284

 

 
159,773

Total
 
285,005

 
(7
)%
 
306,227

 
285,274

 
(6
)%
 
303,274

Natural Gas Volume – Mcf/d
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
408,126

 
(9
)%
 
446,788

 
408,943

 
(7
)%
 
441,333

Canada
 
246,830

 
(13
)%
 
282,971

 
256,635

 
(10
)%
 
285,251

North America
 
654,956

 
(10
)%
 
729,759

 
665,578

 
(8
)%
 
726,584

Egypt(1)(2)
 
408,013

 
(15
)%
 
478,170

 
402,806

 
(8
)%
 
437,611

North Sea
 
60,318

 
7
 %
 
56,367

 
65,556

 
23
 %
 
53,423

International
 
468,331

 
(12
)%
 
534,537

 
468,362

 
(5
)%
 
491,034

Total
 
1,123,287

 
(11
)%
 
1,264,296

 
1,133,940

 
(7
)%
 
1,217,618

NGL Volume – b/d
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
55,632

 
1
 %
 
54,944

 
55,666

 
9
 %
 
51,104

Canada
 
5,092

 
(13
)%
 
5,825

 
5,797

 
(1
)%
 
5,839

North America
 
60,724

 

 
60,769

 
61,463

 
8
 %
 
56,943

Egypt(1)(2)
 
950

 
(26
)%
 
1,289

 
1,119

 
(7
)%
 
1,204

North Sea
 
1,563

 
89
 %
 
826

 
1,486

 
74
 %
 
856

International
 
2,513

 
19
 %
 
2,115

 
2,605

 
26
 %
 
2,060

Total
 
63,237

 
1
 %
 
62,884

 
64,068

 
9
 %
 
59,003

BOE per day(3)
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
230,393

 
(10
)%
 
257,107

 
235,123

 
(7
)%
 
251,831

Canada
 
59,148

 
(14
)%
 
68,778

 
62,260

 
(11
)%
 
69,711

North America
 
289,541

 
(11
)%
 
325,885

 
297,383

 
(8
)%
 
321,542

Egypt(2)
 
175,175

 
(5
)%
 
184,848

 
170,494

 
(2
)%
 
173,634

North Sea
 
70,740

 
2
 %
 
69,094

 
70,455

 
1
 %
 
70,038

International
 
245,915

 
(3
)%
 
253,942

 
240,949

 
(1
)%
 
243,672

Total
 
535,456

 
(8
)%
 
579,827

 
538,332

 
(5
)%
 
565,214

Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
Oil (b/d)
 

 
 
 
9,849

 

 
 
 
15,346

Natural Gas (Mcf/d)
 

 
 
 
149,336

 

 
 
 
189,789

NGL (b/d)
 

 
 
 

 

 
 
 

BOE/d
 

 
 
 
34,738

 

 
 
 
46,978

 
(1)
Gross oil, natural gas, and NGL production in Egypt for the second quarter and six-month period of 2016 and 2015 were as follows:
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Oil (b/d)
 
212,218

 
203,319

 
211,032

 
200,568

Natural Gas (Mcf/d)
 
814,283

 
861,181

 
830,165

 
861,555

NGL (b/d)
 
1,757

 
2,549

 
1,951

 
2,436

 
(2)
Includes production volumes per day attributable to a noncontrolling interest in Egypt for the second quarter and six-months period of 2016 and 2015 of:
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Oil (b/d)
 
35,357

 
34,580

 
34,017

 
33,144

Natural Gas (Mcf/d)
 
136,029

 
158,848

 
134,266

 
145,598

NGL (b/d)
 
317

 
430

 
373

 
402

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


33



Pricing

The table below presents second-quarter and year-to-date 2016 and 2015 pricing and the relative increase or decrease from the prior periods.
 
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
Increase
(Decrease)
 
2015
 
2016
 
Increase
(Decrease)
 
2015
Average Oil Price - Per barrel
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
41.95

 
(22
)%
 
$
53.94

 
$
35.61

 
(28
)%
 
$
49.38

Canada
 
39.39

 
(25
)%
 
52.22

 
34.11

 
(26
)%
 
45.81

North America
 
41.45

 
(23
)%
 
53.75

 
35.34

 
(28
)%
 
48.97

Egypt
 
45.42

 
(25
)%
 
60.83

 
39.47

 
(30
)%
 
56.56

North Sea
 
45.56

 
(29
)%
 
64.03

 
39.64

 
(30
)%
 
56.86

International
 
45.47

 
(26
)%
 
61.86

 
39.53

 
(30
)%
 
56.67

Total
 
43.14

 
(26
)%
 
58.06

 
37.37

 
(30
)%
 
53.03

Average Natural Gas Price - Per Mcf
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
1.70

 
(23
)%
 
$
2.21

 
$
1.67

 
(31
)%
 
$
2.42

Canada
 
1.01

 
(57
)%
 
2.34

 
1.36

 
(45
)%
 
2.46

North America
 
1.44

 
(36
)%
 
2.26

 
1.55

 
(36
)%
 
2.44

Egypt
 
2.72

 
(7
)%
 
2.91

 
2.65

 
(9
)%
 
2.92

North Sea
 
3.95

 
(46
)%
 
7.35

 
4.11

 
(44
)%
 
7.37

International
 
2.88

 
(15
)%
 
3.38

 
2.86

 
(16
)%
 
3.40

Total
 
2.04

 
(26
)%
 
2.74

 
2.09

 
(26
)%
 
2.83

Average NGL Price - Per barrel
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
9.74

 
(4
)%
 
$
10.11

 
$
8.17

 
(22
)%
 
$
10.52

Canada
 
8.54

 
94
 %
 
4.41

 
6.88

 
(11
)%
 
7.74

North America
 
9.64

 
1
 %
 
9.56

 
8.05

 
(21
)%
 
10.23

Egypt
 
27.68

 
(4
)%
 
28.95

 
27.24

 
(15
)%
 
32.14

North Sea
 
22.25

 
(28
)%
 
30.94

 
20.29

 
(27
)%
 
27.75

International
 
24.30

 
(18
)%
 
29.73

 
23.28

 
(23
)%
 
30.32

Total
 
10.22

 

 
10.24

 
8.67

 
(21
)%
 
10.93

Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
 
 
Oil price ($/Bbl)
 
$

 
 
 
$
63.60

 
$

 
 
 
$
49.76

Natural Gas price ($/Mcf)
 

 
 
 
3.88

 

 
 
 
4.07

NGL price ($/Bbl)
 

 
 
 

 

 
 
 


Second-Quarter 2016 compared to Second-Quarter 2015
Crude Oil Revenues Crude oil revenues for the second quarter of 2016 totaled $1.1 billion, a $500 million decrease from the comparative 2015 quarter. A 7 percent decrease in average daily production reduced second-quarter 2016 revenues by $84 million compared to the prior-year quarter, while 26 percent lower average realized prices decreased revenues by $416 million. Crude oil accounted for 81 percent of oil and gas production revenues and 53 percent of worldwide production in the second quarter of 2016. Crude oil prices realized in the second quarter of 2016 averaged $43.14 per barrel, compared with $58.06 per barrel in the comparative prior-year quarter.
Worldwide oil production decreased 21.2 Mb/d to 285.0 Mb/d, primarily a result of reduced drilling activity in response to low commodity prices. Decreases from natural decline were partially offset by new production in the North Sea’s Beryl field and in Egypt.

34



Natural Gas Revenues Gas revenues for the second quarter of 2016 totaled $209 million, an $106 million decrease from the comparative 2015 quarter. An 11 percent decrease in average daily production reduced second-quarter revenues by $26 million compared to the prior-year quarter, while 26 percent lower average realized prices decreased revenues by $80 million. Natural gas accounted for 15 percent of our oil and gas production revenues and 35 percent of our equivalent production during the second quarter of 2016.
NGL Revenues NGL revenues for the second quarter of 2016 totaled $59 million, a $1 million increase from the comparative 2015 quarter. A 1 percent increase in average daily production increased second-quarter 2016 revenues by approximately $1 million, while average realized prices remained essentially flat for the second quarter of 2016 compared to the prior-year quarter. NGLs accounted for 4 percent of our oil and gas production revenues and 12 percent of our equivalent production during the second quarter of 2016.
Worldwide production of NGLs increased 353 b/d to 63.2 Mb/d in the second quarter of 2016, primarily the result of new production from completion activity in our North American onshore areas, gas processing plant downtime in the prior year period, and changes to existing gas processing arrangements.

Year-to-Date 2016 compared to Year-to-Date 2015
Crude Oil Revenues Crude oil revenues for the first six months of 2016 totaled $1.9 billion, a $971 million decrease from the comparative 2015 period. A 6 percent decrease in average daily production reduced 2016 oil revenues by $111 million compared to the prior-year period, while 30 percent lower average realized prices decreased revenues by $860 million. Crude oil accounted for 79 percent of oil and gas production revenues and 53 percent of worldwide production for the first six months of 2016, compared to 80 percent and 54 percent, respectively, for the 2015 period. Crude oil prices realized in the first six months of 2016 averaged $37.37 per barrel, compared with $53.03 per barrel in the comparative prior-year period.
Worldwide production decreased 18.0 Mb/d to 285.3 Mb/d in the first six months of 2016 from the comparative prior-year period, primarily a result of reduced drilling activity in response to lower commodity prices.
Natural Gas Revenues Gas revenues for the first six months of 2016 totaled $432 million, a $191 million decrease from the comparative 2015 period. A 7 percent decrease in average daily production reduced 2016 natural gas revenues by $29 million compared to the prior-year period, while 26 percent lower average realized prices decreased revenues by $162 million. Natural gas accounted for 17 percent of our oil and gas production revenues and 35 percent of our equivalent production for the first six months of 2016, compared to 17 percent and 36 percent, respectively, for the 2015 period.
Our worldwide natural gas production decreased 83.7 MMcf/d to 1,134 MMcf/d in the first six months of 2016 from the comparative prior-year period, primarily the result of reduced drilling activity in response to lower commodity prices.
NGL Revenues NGL revenues for the first six months of 2016 totaled $101 million, a $15 million decrease from the comparative 2015 period. A 9 percent increase in average production increased 2016 NGL revenues by $9 million compared to the prior-year period, while 21 percent lower average realized prices decreased revenues by $24 million. NGLs accounted for nearly 4 percent of oil and gas production revenues and 12 percent of our equivalent production for the first six months of 2016, compared to 3 percent and 10 percent, respectively, for the 2015 period.
Worldwide production of NGLs increased 5.1 Mb/d to 64.1 Mb/d in the first six months of 2016 from the comparative prior-year period, primarily as a result of North American onshore production growth from drilling and recompletion activity and also new production in North Sea's Beryl field.

35



Operating Expenses
The table below presents a comparison of our expenses on an absolute dollar basis and a boe basis. Our discussion may reference expenses on a boe basis, on an absolute dollar basis or both, depending on their relevance. Operating expenses include costs attributable to a noncontrolling interest in Egypt but, for the quarter and six months ended June 30, 2015, exclude discontinued operations in Australia.
 
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
 
(Per boe)
 
(In millions)
 
(Per boe)
Lease operating expense
 
$
359

 
$
467

 
$
7.38

 
$
8.85

 
$
737

 
$
948

 
$
7.52

 
$
9.26

Gathering and transportation
 
52

 
49

 
1.06

 
0.92

 
104

 
105

 
1.07

 
1.04

Taxes other than income
 
65

 
55

 
1.33

 
1.04

 
76

 
128

 
0.78

 
1.25

Exploration
 
91

 
225

 
1.87

 
4.26

 
186

 
483

 
1.90

 
4.72

General and administrative
 
103

 
111

 
2.10

 
2.10

 
196

 
195

 
2.00

 
1.90

Depreciation, depletion, and amortization:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Oil and gas property and equipment
 
629

 
711

 
12.92

 
13.47

 
1,265

 
1,454

 
12.91

 
14.22

Other assets
 
40

 
83

 
0.83

 
1.57

 
82

 
166

 
0.84

 
1.62

Asset retirement obligation accretion
 
38

 
36

 
0.78

 
0.68

 
76

 
72

 
0.77

 
0.71

Impairments
 
173

 
512

 
3.56

 
9.72

 
173

 
2,424

 
1.77

 
23.70

Transaction, reorganization, and separation
 
9

 
66

 
0.17

 
1.25

 
24

 
120

 
0.24

 
1.17

Financing costs, net
 
104

 
117

 
2.15

 
2.23

 
209

 
241

 
2.13

 
2.35

Total
 
$
1,663

 
$
2,432

 
$
34.15

 
$
46.09

 
$
3,128

 
$
6,336

 
$
31.93

 
$
61.94

Lease Operating Expenses (LOE) LOE decreased $108 million, or 23 percent, for the quarter, and $211 million, or 22 percent, for the six-month period, on an absolute dollar basis relative to the comparable periods of 2015. On a per-unit basis, LOE decreased 17 percent to $7.38 per boe for the second quarter of 2016, and 19 percent to $7.52 per boe for the first six months of 2016, as compared to the prior-year periods. These reductions reflect the impact of our continued focus on cost reductions consistent with the current price environment.
Gathering and Transportation Gathering and transportation costs totaled $52 million and $104 million in the second quarter and first six months of 2016, respectively, an increase of $3 million from the second quarter of 2015, while staying flat when compared to the first six months of 2015. The second quarter increase from the prior year period was driven primarily by rate changes in our North American onshore properties.
Taxes other than Income Taxes other than income totaled $65 million and $76 million for the second quarter and first six months of 2016, respectively, an increase of $10 million from the second quarter of 2015 and a decrease of $52 million from the first six months of 2015. The North Sea Petroleum Revenue Tax (PRT) is assessed on qualifying fields in the U.K. North Sea. U.K. PRT was $34 million higher than the second quarter of 2015 and $7 million lower than the first six months of 2015, respectively, as a result of lower revenues, a lower PRT rate, and additional qualifying costs reducing prior-year PRT. Severance tax expense and ad valorem tax expense decreased $9 million and $4 million, respectively, on lower oil production and commodity prices during the second quarter compared to the prior year quarter. For the first six months of 2016, severance tax expense and ad valorem tax expense decreased $21 million and $12 million, respectively, compared to the first six months of 2015.
On March 24, 2016, the U.K. government released Finance Bill 2016, which provides tax relief to exploration and production (E&P) companies operating in the North Sea. The bill is expected to receive Royal Assent later this year. Under the bill, the U.K. PRT rate will be reduced to zero from the current 35 percent rate and will be effective January 1, 2016. Upon enactment, PRT expense ceases prospectively. As a further result of this change, the Company expects to record a charge of approximately $290 million (after-tax) for PRT benefits that are no longer expected to be realizable from future abandonment activities.

36



Exploration Expense Exploration expense includes unproved leasehold impairments, exploration dry hole expense, geological and geophysical expenses, and the costs of maintaining and retaining unproved leasehold properties. Exploration expenses in the second quarter and first six months of 2016 decreased $134 million and $297 million, respectively, from the comparative prior-year periods as a result of a reduction in unproved leasehold impairments and reduced drilling activity in response to lower commodity prices.
The following table presents a summary of exploration expense:
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Unproved leasehold impairments
 
$
66

 
$
148

 
$
108

 
$
316

Dry hole expense
 
3

 
35

 
31

 
69

Geological and geophysical expense
 
4

 
17

 
9

 
47

Exploration overhead and other
 
18

 
25

 
38

 
51

 
 
$
91

 
$
225

 
$
186

 
$
483

General and Administrative (G&A) Expenses In line with our continued focus on cost reduction efforts, G&A expense for the second quarter of 2016 was $8 million lower than the second quarter of 2015. For the first six months of 2016, G&A expense remained flat as the result of $18 million in reductions from lower than expected incentive compensation payouts and lower stock based compensation expense during the first half of 2015. Absent these benefits to the first half of 2015 G&A, G&A expense for the first six months of 2016 would have been $17 million lower.
Depreciation, Depletion, and Amortization (DD&A) Oil and gas property DD&A expense of $629 million in the second quarter of 2016 decreased $82 million compared to the second quarter of 2015. For the first six months of 2016, oil and gas property DD&A expense decreased $189 million compared to prior-year period. The Company's oil and gas property DD&A rate decreased $0.55 per boe and $1.31 per boe in the second quarter and first six months of 2016, respectively, compared to the comparable prior-year periods. The primary factor driving both lower absolute dollar expense and lower DD&A per boe rates was the reduction in the Company's oil and gas properties as a result of impairments to proved properties in 2015.
Impairments During each of the second quarter and first six months of 2016, the Company recorded asset impairments totaling $173 million related to certain property and equipment, compared to $512 million and $2.4 billion of impairments in the second quarter and first six months of 2015, respectively.
Transaction, Reorganization, and Separation The Company incurred $9 million and $24 million for the second quarter and first six months of 2016, respectively, related to company reorganization costs. The costs incurred for the year includes approximately $19 million for employee separation and $5 million for consolidation of office space and other reorganization efforts.

Financing Costs, Net Financing costs incurred during the period comprised the following:
 
 
 
For the Quarter Ended June 30,
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
2016
 
2015
 
 
(In millions)
Interest expense
 
$
116

 
$
123

 
$
232

 
$
251

Amortization of deferred loan costs
 
2

 
2

 
3

 
4

Capitalized interest
 
(12
)
 
(5
)
 
(23
)
 
(9
)
Interest income
 
(2
)
 
(3
)
 
(3
)
 
(5
)
Financing costs, net
 
$
104

 
$
117

 
$
209

 
$
241

Net financing costs decreased $13 million and $32 million in the second quarter and first six months of 2016, respectively compared to the same prior-year period on lower interest expense.

37



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

38



Capital Resources and Liquidity
Operating cash flows are the Company’s primary source of liquidity. We may also elect to utilize available committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs.
Apache’s operating cash flows, both in the short-term and the long-term, are impacted by highly volatile oil and natural gas prices, as well as costs and sales volumes. Significant changes in commodity prices impact our revenues, earnings, and cash flows. These changes potentially impact our liquidity if costs do not trend with changes in commodity prices. Historically, costs have trended with commodity prices, albeit with a lag. Sales volumes also impact cash flows; however, they have a less volatile impact in the short-term.
Apache’s long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of our drilling program and our ability to add reserves economically. Deterioration in commodity prices also impacts estimated quantities of proved reserves. In the second quarter of 2016, we recognized negative reserve revisions of approximately 10 percent of our year-end 2015 estimated proved reserves as a result of lower prices. If realized prices for the remainder of 2016 approximate commodity future prices as of June 30, 2016, the Company does not expect additional negative revisions for the remainder of the year.
We believe the liquidity and capital resource alternatives available to Apache, combined with proactive measures to adjust our capital budget to reflect lower commodity prices and anticipated operating cash flows, will be adequate to fund short-term and long-term operations, including our capital spending program, repayment of debt maturities, payment of dividends, and any amount that may ultimately be paid in connection with commitments and contingencies.
For additional information, please see Part II, Item 1A, “Risk Factors” of the Previously Filed Quarterly Report and Part I, Items 1 and 2, “Business and Properties,” and Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for our 2015 fiscal year.
Sources and Uses of Cash
The following table presents the sources and uses of our cash and cash equivalents for the periods presented.
 
 
 
For the Six Months Ended June 30,
 
 
2016
 
2015
 
 
(In millions)
Sources of Cash and Cash Equivalents:
 
 
 
 
Net cash provided by continuing operating activities
 
$
983

 
$
1,623

Proceeds from asset divestitures
 
48

 
5,666

Other
 
28

 

 
 
1,059

 
7,289

Uses of Cash and Cash Equivalents:
 
 
 
 
Capital expenditures(1)
 
$
925

 
$
2,877

Leasehold and property acquisitions
 
118

 
128

Net cash used by Australia discontinued operations
 

 
162

Net commercial paper and bank loan repayments
 

 
1,570

Dividends paid
 
189

 
189

Distributions to noncontrolling interest
 
93

 
40

Other
 

 
52

 
 
1,325

 
5,018

Increase (decrease) in cash and cash equivalents
 
$
(266
)
 
$
2,271

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

39



Net Cash Provided by Continuing Operating Activities Operating cash flows are our primary source of capital and liquidity and are impacted, both in the short-term and the long-term, by volatile oil and natural gas prices. The factors that determine operating cash flow are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, exploratory dry hole expense, asset impairments, asset retirement obligation (ARO) accretion, and deferred income tax expense, which affect earnings but do not affect cash flows.
Net cash provided by continuing operating activities for the first six months of 2016 totaled $983 million, a decrease of $640 million from the first six months of 2015. The decrease primarily reflects lower commodity prices.
For a detailed discussion of commodity prices, production, and expenses, refer to the “Results of Operations” of this Item 2. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, please see the statement of consolidated cash flows in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.
Asset Divestitures The Company had asset divestitures totaling $48 million and $5.7 billion in the first six months of 2016 and 2015, respectively. For information regarding our acquisitions and divestitures, please see Note 3—Acquisitions and Divestitures.
Capital Expenditures Worldwide exploration and development (E&D) expenditures for the first six months of 2016 totaled $925 million, compared to $2.8 billion for the first six months of 2015. This reduction is a direct result of our proactive measures to adjust our capital budget to reflect lower commodity prices and operating cash flows. Apache operated an average of 12 drilling rigs during the second quarter of 2016.
Apache also completed leasehold and property acquisitions totaling $118 million and $128 million during the first six months of 2016 and 2015, respectively. Our 2016 acquisition investments continue to focus on adding new leasehold positions to our North American onshore portfolio.
Apache’s investment in gas gathering, transmission, and processing facilities totaled $94 million in the first six months of 2015. No meaningful expenses were incurred during 2016.
Dividends For the six-month periods ended June 30, 2016 and 2015, the Company paid $189 million and $189 million, respectively, in dividends on its common stock.

40



Liquidity
The following table presents a summary of our key financial indicators at the dates presented:
 
 
 
June 30, 2016
 
December 31, 2015
 
 
(In millions)
Cash and cash equivalents
 
$
1,201

 
$
1,467

Total debt
 
8,720

 
8,717

Equity
 
8,696

 
9,490

Available committed borrowing capacity
 
3,500

 
3,500

Cash and cash equivalents The Company had $1.2 billion in cash and cash equivalents as of June 30, 2016, compared to $1.5 billion at December 31, 2015. At June 30, 2016, approximately $1.0 billion of the cash was held by foreign subsidiaries. The cash held by foreign subsidiaries should not be subject to additional U.S. income taxes if repatriated. The majority of the cash is invested in highly liquid, investment grade securities with maturities of three months or less at the time of purchase.
Debt As of June 30, 2016, outstanding debt, which consisted of notes and debentures, totaled $8.7 billion. As of June 30, 2016, Apache had $483,000 of notes due March 2017 classified as short-term debt on the consolidated balance sheet.
Available committed borrowing capacity In June 2015, the Company entered into a five-year revolving credit facility with $3.5 billion in commitments and rights to increase commitments to $4.5 billion. Proceeds from borrowings may be used for general corporate purposes. Apache’s available borrowing capacity under this facility supports its commercial paper program of currently $3.5 billion. 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 June 30, 2016, the Company had no debt outstanding under commercial paper, committed bank facilities, and uncommitted bank lines.
In February 2016, the Company entered into a three-year letter of credit facility providing £900 million in commitments, with options to increase commitments to £1.075 billion and extend the term by one year. The facility is available for letters of credit and loans to cash collateralize letter of credit obligations to the extent letters of credit are unavailable under the facility. The facility’s representations and warranties, covenants, and events of default are substantially similar to those in the Company’s $3.5 billion revolving credit facility. Commissions are payable on outstanding letters of credit and borrowings bear interest (at a base rate or LIBOR), plus a margin. Letter of credit commissions, the interest margin, and the facility fee vary depending on the Company’s senior unsecured long-term debt rating. This facility is available for the Company’s letter of credit needs, particularly those which may arise in respect of abandonment obligations assumed in various North Sea acquisitions. As of June 30, 2016, no letters of credit or loans were outstanding under this facility. Subsequently, as of the date of this filing, a letter of credit for approximately £96 million was outstanding under this facility.
The Company was in compliance with the terms of all credit facilities as of June 30, 2016.


41



ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Risk
The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices we receive for our crude oil, natural gas, and NGLs, which have historically been very volatile because of unpredictable events such as economic growth or retraction, weather, political climate, and global supply and demand. Our average crude oil realizations have decreased 26 percent to $43.14 per barrel in the second quarter of 2016 from $58.06 per barrel in the comparable period of 2015. Our average natural gas price realizations have decreased 26 percent to $2.04 per Mcf in the second quarter of 2016 from $2.74 per Mcf in the comparable period of 2015.
We periodically enter into derivative positions on a portion of our projected oil and natural gas production through a variety of financial and physical arrangements intended to manage fluctuations in cash flows resulting from changes in commodity prices. Apache periodically uses futures contracts, swaps, and options to mitigate commodity price risk. Apache does not hold or issue derivative instruments for trading purposes. As of June 30, 2016, Apache had no open commodity derivative positions.
Foreign Currency Risk
The Company’s cash flow stream relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. In Canada, oil and gas prices and costs, such as equipment rentals and services, are generally denominated in Canadian dollars but heavily influenced by U.S. markets. Our North Sea production is sold under U.S. dollar contracts, and the majority of costs incurred are paid in British pounds. In Egypt, all oil and gas production is sold under U.S. dollar contracts, and the majority of the costs incurred are denominated in U.S. dollars. Revenue and disbursement transactions denominated in Canadian dollars and British pounds are converted to U.S. dollar equivalents based on average exchange rates during the period.
Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Currency gains and losses are included as either a component of “Other” under “Revenues and Other” or, as is the case when we re-measure our foreign tax liabilities, as a component of the Company’s provision for income tax expense on the statement of consolidated operations. A foreign currency net gain or loss of $137 million would result from a 10 percent weakening or strengthening, respectively, in the Canadian dollar and British pound as of June 30, 2016.
ITEM 4 – CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
John J. Christmann IV, the Company’s Chief Executive Officer and President, in his capacity as principal executive officer, and Stephen J. Riney, the Company’s Executive Vice President and Chief Financial Officer, in his capacity as principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2016, the end of the period covered by this report. Based on that evaluation and as of the date of that evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective, providing effective means to ensure that information we are required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
We periodically review the design and effectiveness of our disclosure controls, including compliance with various laws and regulations that apply to our operations both inside and outside the United States. We make modifications to improve the design and effectiveness of our disclosure controls, and may take other corrective action, if our reviews identify deficiencies or weaknesses in our controls.
Changes in Internal Control over Financial Reporting
In the quarter ended June 30, 2016, Apache modified certain policies, procedures, and related internal controls that were impacted by the change in accounting principle from the full cost method to the successful efforts method of accounting. There was no other change in our internal controls over financial reporting during the period covered by this Quarterly Report on Form 10-Q that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.


42



PART II - OTHER INFORMATION

ITEM 1.
LEGAL PROCEEDINGS
Please refer to both Part I, Item 3 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (filed with the SEC on February 26, 2016) and Note 9—Commitments and Contingencies in the notes to the consolidated financial statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q, for a description of material legal proceedings.

ITEM 1A.
RISK FACTORS
Please refer to Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, and Part I, Item 3—Quantitative and Qualitative Disclosures About Market Risk of this Quarterly Report on Form 10-Q.

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through December 31, 2015, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company is not obligated to acquire any specific number of shares and has not purchased any additional shares during 2016.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None

ITEM 4.
MINE SAFETY DISCLOSURES
None

ITEM 5.
OTHER INFORMATION
None


43



ITEM 6.
EXHIBITS
3.1
Restated Certificate of Incorporation of Registrant, dated September 19, 2013, as filed with the Secretary of State of Delaware on September 19, 2013 (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed September 20, 2013, SEC File No. 001-4300).
3.2
Certificate of Amendment of Restated Certificate of Incorporation of Registrant, dated May 14, 2015, as filed with the Secretary of State of Delaware on May 14, 2015 (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed May 20, 2015, SEC File No. 001-4300).
3.3
Bylaws of Registrant, as amended February 3, 2016 (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed February 9, 2016, SEC File No. 001-4300).
*10.1
Apache Corporation 2011 Omnibus Equity Compensation Plan, as amended and restated May 12, 2016.
10.2
Apache Corporation 2016 Omnibus Compensation Plan, dated February 3, 2016, effective May 12, 2016 (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed May 16, 2016, SEC File No. 001-4300.)
*10.3
Apache Corporation Deferred Delivery Plan, as amended and restated May 12, 2016.
*10.4
Apache Corporation Non-Employee Directors’ Restricted Stock Units Program, effective May 12, 2016.
*10.5
Apache Corporation Outside Directors’ Deferral Program, effective May 12, 2016.
*31.1
Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Executive Officer.
*31.2
Certification (pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act) by Principal Financial Officer.
*32.1
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Executive Officer and Principal Financial Officer.
*101.INS
XBRL Instance Document.
*101.SCH
XBRL Taxonomy Schema Document.
*101.CAL
XBRL Calculation Linkbase Document.
*101.DEF
XBRL Definition Linkbase Document.
*101.LAB
XBRL Label Linkbase Document.
*101.PRE
XBRL Presentation Linkbase Document.
*
Filed herewith


44



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
APACHE CORPORATION
 
 
 
Dated:
August 4, 2016
 
/s/ STEPHEN J. RINEY
 
 
 
Stephen J. Riney
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial Officer)
 
 
 
Dated:
August 4, 2016
 
/s/ REBECCA A. HOYT
 
 
 
Rebecca A. Hoyt
 
 
 
Senior Vice President, Chief Accounting Officer, and Controller
 
 
 
(Principal Accounting Officer)


45