UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

FORM 10-Q 

(Mark One)  

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

For the quarterly period ended September 30, 2023

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 No.)

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

(Address of principal executive offices) (Zip Code)

(713) 296-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Note: The registrant is a voluntary filer of reports required to be filed by certain companies under Sections 13 or 15(d) of the Securities Exchange Act of 1934.

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

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Number of shares of registrant’s common stock outstanding as of October 31, 2023 (100% owned by APA Corporation) 1,000 

OMISSION OF CERTAIN INFORMATION

The registrant meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this Quarterly Report on Form 10-Q with the reduced disclosure format.

TABLE OF CONTENTS

Item		Page
	PART I - FINANCIAL INFORMATION
1.	FINANCIAL STATEMENTS	1
	STATEMENT OF CONSOLIDATED OPERATIONS	1
	STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME	2
	STATEMENT OF CONSOLIDATED CASH FLOWS	3
	CONSOLIDATED BALANCE SHEET	4
	STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (DEFICIT) AND NONCONTROLLING INTERESTS	5
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7
2.	MANAGEMENT'S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS	26
3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35
4.	CONTROLS AND PROCEDURES	36
	PART II - OTHER INFORMATION
1.	LEGAL PROCEEDINGS	37
1A.	RISK FACTORS	37
6.	EXHIBITS	38

FORWARD-LOOKING STATEMENTS AND RISKS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts included or incorporated by reference in this report, including, without limitation, statements regarding the Company’s 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 the Company’s examination of historical operating trends, the information that was used to prepare its estimate of proved reserves as of December 31, 2022, and other data in the Company’s 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,” “continue,” “seek,” “guidance,” “goal,” “might,” “outlook,” “possibly,” “potential,” “prospect,” “should,” “would,” or similar terminology, but the absence of these words does not mean that a statement is not forward looking. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable under the circumstances, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from the Company’s expectations include, but are not limited to, its assumptions about:

•changes in local, regional, national, and international economic conditions, including as a result of any epidemics or pandemics, such as the coronavirus disease (COVID-19) pandemic and any related variants;

•the market prices of oil, natural gas, natural gas liquids (NGLs), and other products or services, including the prices received for natural gas purchased from third parties to sell and deliver to a U.S. LNG export facility;

•the Company’s commodity hedging arrangements;

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

•production and reserve levels;

•drilling risks;

•economic and competitive conditions, including market and macro-economic disruptions resulting from the Russian war in Ukraine, the armed conflict in Israel and Gaza, and actions taken by foreign oil and gas producing nations, including the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members that participate in OPEC initiatives (OPEC+);

•the availability of capital resources;

•capital expenditures and other contractual obligations;

•currency exchange rates;

•weather conditions;

•inflation rates;

•the impact of changes in tax legislation;

•the availability of goods and services;

•the impact of political pressure and the influence of environmental groups and other stakeholders on decisions and policies related to the industries in which the Company and its affiliates operate;

•legislative, regulatory, or policy changes, including initiatives addressing the impact of global climate change or further regulating hydraulic fracturing, methane emissions, flaring, or water disposal;

•the Company’s performance on environmental, social, and governance measures;

•terrorism or cyberattacks;

•the occurrence of property acquisitions or divestitures;

•the integration of acquisitions;

•the Company’s ability to access the capital markets;

•market-related risks, such as general credit, liquidity, and interest-rate risks;

•the benefits derived from the operating structure implemented pursuant to the Holding Company Reorganization (as defined in the Notes to the Company’s Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022);

•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 Narrative Analysis of Results of Operations, Item 7A—Quantitative and Qualitative Disclosures About Market Risk and elsewhere in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022;

•other risks and uncertainties disclosed in APA Corporation’s third-quarter 2023 earnings release;

•other factors disclosed under Part II, Item 1A—Risk Factors of this Quarterly Report on Form 10-Q; and

•other factors disclosed in the other filings that the Company makes with the Securities and Exchange Commission.

Other factors or events that could cause the Company’s actual results to differ materially from the Company’s expectations may emerge from time to time, and it is not possible for the Company to predict all such factors or events. 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 these cautionary statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by law, the Company disclaims any obligation to update or revise these statements, whether based on changes in internal estimates or expectations, new information, future developments, or otherwise.

DEFINITIONS

All defined terms under Rule 4-10(a) of Regulation S-X shall have their statutorily prescribed meanings when used in this Quarterly Report on Form 10-Q. As used herein:

“3-D” means three-dimensional.

“4-D” means four-dimensional.

“b/d” means barrels of oil or NGLs per day.

“bbl” or “bbls” means barrel or barrels of oil or NGLs.

“bcf” means billion cubic feet of natural gas.

“bcf/d” means one bcf per day.

“boe” means barrel of oil equivalent, determined by using the ratio of one barrel of oil or NGLs to six Mcf of gas.

“boe/d” means boe per day.

“Btu” means a British thermal unit, a measure of heating value.

“Liquids” means oil and NGLs.

“LNG” means liquefied natural gas.

“Mb/d” means Mbbls per day.

“Mbbls” means thousand barrels of oil or NGLs.

“Mboe” means thousand boe.

“Mboe/d” means Mboe per day.

“Mcf” means thousand cubic feet of natural gas.

“Mcf/d” means Mcf per day.

“MMbbls” means million barrels of oil or NGLs.

“MMboe” means million boe.

“MMBtu” means million Btu.

“MMBtu/d” means MMBtu per day.

“MMcf” means million cubic feet of natural gas.

“MMcf/d” means MMcf per day.

“NGL” or “NGLs” means natural gas liquids, which are expressed in barrels.

“NYMEX” means New York Mercantile Exchange.

“oil” includes crude oil and condensate.

“PUD” means proved undeveloped.

“SEC” means the United States Securities and Exchange Commission.

“Tcf” means trillion cubic feet of natural gas.

“U.K.” means United Kingdom.

“U.S.” means United States.

With respect to information relating to the Company’s working interest in wells or acreage, “net” oil and gas wells or acreage is determined by multiplying gross wells or acreage by the Company’s working interest therein. Unless otherwise specified, all references to wells and acres are gross.

References to “Apache,” the “Company,” “we,” “us,” and “our” refer to Apache Corporation and its consolidated subsidiaries, unless otherwise specifically stated. References to “APA” refer to APA Corporation, the Company’s parent holding company, and its consolidated subsidiaries, including the Company, unless otherwise specifically stated.

PART I – FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

(Unaudited)

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
REVENUES AND OTHER:
Oil, natural gas, and natural gas liquids production revenues(1)	$	1,983	$	2,208	$	5,289	$	7,053
Purchased oil and gas sales(1)	229		585		612		1,456
Total revenues	2,212		2,793		5,901		8,509
Derivative instrument losses, net	—		(44)		—		(138)
Gain on divestitures, net	1		31		7		1,180
Other, net	7		(10)		84		99
	2,220		2,770		5,992		9,650
OPERATING EXPENSES:
Lease operating expenses	381		363		1,047		1,066
Gathering, processing, and transmission(1)	83		94		231		269
Purchased oil and gas costs(1)	211		573		558		1,452
Taxes other than income	56		74		153		222
Exploration	39		46		120		86
General and administrative	132		64		256		298
Transaction, reorganization, and separation	5		4		11		21
Depreciation, depletion, and amortization	377		288		1,024		857
Asset retirement obligation accretion	29		29		86		87
Impairments	—		—		46		—
Financing costs, net	40		55		131		257
	1,353		1,590		3,663		4,615
NET INCOME BEFORE INCOME TAXES	867		1,180		2,329		5,035
Current income tax provision	422		357		1,022		1,164
Deferred income tax provision (benefit)	(134)		293		(29)		231
NET INCOME INCLUDING NONCONTROLLING INTERESTS	579		530		1,336		3,640
Net income attributable to noncontrolling interest – Sinopec	96		108		261		368
Net income attributable to noncontrolling interest – Altus	—		—		—		14
Net income attributable to noncontrolling interest – APA Corporation	96		65		261		221
Net loss attributable to Altus Preferred Unit limited partners	—		—		—		(70)
NET INCOME ATTRIBUTABLE TO APACHE CORPORATION	$	387	$	357	$	814	$	3,107

(1)    For transactions associated with Kinetik, refer to Note 7—Equity Method Interests for further detail.

The accompanying notes to consolidated financial statements are an integral part of this statement.

1

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED COMPREHENSIVE INCOME

(Unaudited)

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
NET INCOME INCLUDING NONCONTROLLING INTERESTS	$	579	$	530	$	1,336	$	3,640
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Pension and postretirement benefit plan	—		—		3		(1)
COMPREHENSIVE INCOME INCLUDING NONCONTROLLING INTERESTS	579		530		1,339		3,639
Comprehensive income attributable to noncontrolling interest – Sinopec	96		108		261		368
Comprehensive income attributable to noncontrolling interest – Altus	—		—		—		14
Comprehensive income attributable to noncontrolling interest – APA Corporation	96		65		261		221
Comprehensive loss attributable to Altus Preferred Unit limited partners	—		—		—		(70)
COMPREHENSIVE INCOME ATTRIBUTABLE TO APACHE CORPORATION	$	387	$	357	$	817	$	3,106

The accompanying notes to consolidated financial statements are an integral part of this statement.

2

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS

(Unaudited)

	For the Nine Months Ended September 30,
	2023		2022
	(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income including noncontrolling interests	$	1,336	$	3,640
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized derivative instrument losses, net	—		119
Gain on divestitures, net	(7)		(1,180)
Exploratory dry hole expense and unproved leasehold impairments	86		52
Depreciation, depletion, and amortization	1,024		857
Asset retirement obligation accretion	86		87
Impairments	46		—
Provision for (benefit from) deferred income taxes	(29)		231
(Gain) loss on extinguishment of debt	(9)		67
Other, net	(119)		(137)
Changes in operating assets and liabilities:
Receivables	(278)		(442)
Inventories	19		(81)
Drilling advances and other current assets	78		19
Deferred charges and other long-term assets	226		(3)
Accounts payable	(5)		171
Accounts receivable from/payable to APA Corporation	(46)		(417)
Accrued expenses	—		237
Deferred credits and noncurrent liabilities	(436)		(41)
NET CASH PROVIDED BY OPERATING ACTIVITIES	1,972		3,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to upstream oil and gas property	(1,480)		(1,003)
Leasehold and property acquisitions	(10)		(30)
Notes receivable from APA Corporation	(207)		—
Proceeds from sale of oil and gas properties	29		778
Proceeds from sale of Kinetik shares	—		224
Deconsolidation of Altus cash and cash equivalents	—		(143)
Other, net	(29)		36
NET CASH USED IN INVESTING ACTIVITIES	(1,697)		(138)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Apache credit facility, net	—		138
Payments on note payable to APA Corporation, net	—		(835)
Payments on fixed-rate debt	(65)		(1,370)
Distributions to noncontrolling interest – Sinopec	(154)		(237)
Distributions to APA Corporation	(154)		(819)
Other, net	5		(14)
NET CASH USED IN FINANCING ACTIVITIES	(368)		(3,137)
NET DECREASE IN CASH AND CASH EQUIVALENTS	(93)		(96)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	185		279
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	92	$	183
SUPPLEMENTARY CASH FLOW DATA:
Interest paid, net of capitalized interest	$	250	$	277
Income taxes paid, net of refunds	867		1,029
Non-cash financing adjustment: APA’s assumption of Apache’s borrowings on its syndicated credit facility	—		680

The accompanying notes to consolidated financial statements are an integral part of this statement.

3

APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

(Unaudited)

	September 30, 2023		December 31, 2022
	(In millions, except share data)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	92	$	185
Receivables, net of allowance of $103 and $117	1,700		1,424
Other current assets (Note 6)	880		993
Accounts receivable from APA Corporation (Note 2)	46		—
	2,718		2,602
PROPERTY AND EQUIPMENT:
Oil and gas properties	42,537		41,245
Gathering, processing, and transmission facilities	447		449
Other	613		613
Less: Accumulated depreciation, depletion, and amortization	(35,319)		(34,350)
	8,278		7,957
OTHER ASSETS:
Equity method interests (Note 7)	681		624
Decommissioning security for sold Gulf of Mexico properties (Note 12)	38		217
Deferred charges and other	519		571
Noncurrent receivable from APA Corporation (Note 2)	—		869
Notes receivable from APA Corporation (Note 2)	2,565		1,415
	$	14,799	$	14,255
LIABILITIES, NONCONTROLLING INTERESTS, AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	640	$	646
Current debt	2		2
Other current liabilities (Note 8)	1,843		2,049
	2,485		2,697
LONG-TERM DEBT (Note 10)	4,814		4,885
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes	299		314
Asset retirement obligation (Note 9)	2,000		1,936
Decommissioning contingency for sold Gulf of Mexico properties (Note 12)	470		738
Other	439		443
	3,208		3,431
EQUITY:
Common stock, $0.625 par, 1,000 and 1,000 shares authorized, respectively, 1,000 and 1,000 shares issued, respectively	—		—
Paid-in capital	8,044		8,025
Accumulated deficit	(4,967)		(5,781)
Accumulated other comprehensive income	17		14
EQUITY ATTRIBUTABLE TO APACHE CORPORATION	3,094		2,258
Noncontrolling interest – Sinopec	1,029		922
Noncontrolling interest – APA Corporation	169		62
TOTAL EQUITY	4,292		3,242
	$	14,799	$	14,255

The accompanying notes to consolidated financial statements are an integral part of this statement.

4

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (DEFICIT) AND NONCONTROLLING INTERESTS

(Unaudited)

	Redeemable Noncontrolling Interest - Altus Preferred Unit Limited Partners(1)		Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		EQUITY ATTRIBUTABLE TO APACHE CORPORATION		Noncontrolling Interests(1)		TOTAL EQUITY
	(In millions)
For the Quarter Ended September 30, 2022
Balance at June 30, 2022	$	—	$	8,054	$	(6,567)	$	21	$	1,508	$	982	$	2,490
Net income attributable to Apache Corporation	—		—		357		—		357		—		357
Net income attributable to noncontrolling interest – APA	—		—		—		—		—		65		65
Net income attributable to noncontrolling interest – Sinopec	—		—		—		—		—		108		108
Distributions to noncontrolling interest – Sinopec	—		—		—		—		—		(78)		(78)
Distributions to APA Corporation	—		(41)		—		—		(41)		(45)		(86)
Other	—		7		—		—		7		—		7
Balance at September 30, 2022	$	—	$	8,020	$	(6,210)	$	21	$	1,831	$	1,032	$	2,863
For the Quarter Ended September 30, 2023
Balance at June 30, 2023	$	—	$	8,037	$	(5,354)	$	17	$	2,700	$	1,114	$	3,814
Net income attributable to Apache Corporation	—		—		387		—		387		—		387
Net income attributable to noncontrolling interest – APA	—		—		—		—		—		96		96
Net income attributable to noncontrolling interest – Sinopec	—		—		—		—		—		96		96
Distributions to noncontrolling interest – Sinopec	—		—		—		—		—		(54)		(54)
Distributions to APA Corporation	—		—		—		—		—		(54)		(54)
Other	—		7		—		—		7		—		7
Balance at September 30, 2023	$	—	$	8,044	$	(4,967)	$	17	$	3,094	$	1,198	$	4,292

(1)    As a result of the BCP Business Combination (as defined herein), the Company deconsolidated Altus (as defined herein) on February 22, 2022. Refer to Note 1—Summary of Significant Accounting Policies and Note 3—Acquisitions and Divestitures for further detail.

The accompanying notes to consolidated financial statements are an integral part of this statement.

5

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CHANGES IN EQUITY (DEFICIT) AND NONCONTROLLING INTERESTS - Continued

(Unaudited)

	Redeemable Noncontrolling Interest - Altus Preferred Unit Limited Partners(1)		Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		EQUITY (DEFICIT) ATTRIBUTABLE TO APACHE CORPORATION		Noncontrolling Interests(1)		TOTAL EQUITY
	(In millions)
For the Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	712	$	8,677	$	(9,317)	$	22	$	(618)	$	878	$	260
Net income attributable to Apache Corporation	—				3,107		—		3,107		—		3,107
Net income attributable to noncontrolling interest – APA	—		—		—		—		—		221		221
Net income attributable to noncontrolling interest – Sinopec	—		—		—		—		—		368		368
Net income attributable to noncontrolling interest – Altus	—		—		—		—		—		14		14
Net loss attributable to Altus Preferred Unit limited partners	(70)		—		—		—		—		—		—
Distributions to noncontrolling interest – Sinopec	—		—		—		—		—		(237)		(237)
Distributions to APA Corporation	—		(679)		—		—		(679)		(140)		(819)
Deconsolidation of Altus	(642)		—		—		—		—		(72)		(72)
Other	—		22		—		(1)		21		—		21
Balance at September 30, 2022	$	—	$	8,020	$	(6,210)	$	21	$	1,831	$	1,032	$	2,863
For the Nine Months Ended September 30, 2023
Balance at December 31, 2022	$	—	$	8,025	$	(5,781)	$	14	$	2,258	$	984	$	3,242
Net income attributable to Apache Corporation	—		—		814		—		814		—		814
Net income attributable to noncontrolling interest – APA	—		—		—		—		—		261		261
Net income attributable to noncontrolling interest – Sinopec	—		—		—		—		—		261		261
Distributions to noncontrolling interest – Sinopec	—		—		—		—		—		(154)		(154)
Distributions to APA Corporation	—		—		—		—		—		(154)		(154)
Other	—		19		—		3		22		—		22
Balance at September 30, 2023	$	—	$	8,044	$	(4,967)	$	17	$	3,094	$	1,198	$	4,292

(1)    As a result of the BCP Business Combination (as defined herein), the Company deconsolidated Altus (as defined herein) on February 22, 2022. Refer to Note 1—Summary of Significant Accounting Policies and Note 3—Acquisitions and Divestitures for further detail.

The accompanying notes to consolidated financial statements are an integral part of this statement.

6

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). The Company files these consolidated financial statements with the SEC as a voluntary filer to comply with the terms of certain of the Company’s outstanding debt instruments. They reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods, on a basis consistent with the annual audited financial statements, with the exception of any recently adopted accounting pronouncements. All such adjustments are of a normal recurring nature. Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which contains a summary of the Company’s significant accounting policies and other disclosures.

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

As of September 30, 2023, the Company's significant accounting policies are consistent with those discussed in Note 1—Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The Company’s financial statements for prior periods may include reclassifications that were made to conform to the current-year presentation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Apache and its subsidiaries after elimination of intercompany balances and transactions.

The Company’s undivided interests in oil and gas exploration and production ventures and partnerships are proportionately consolidated. The Company consolidates all other investments in which, either through direct or indirect ownership, it has more than a 50 percent voting interest or controls the financial and operating decisions. Noncontrolling interests represent third-party ownership in the net assets of a consolidated subsidiary of Apache and are reflected separately in the Company’s financial statements.

Apache has determined that one of its limited partnership subsidiaries, which has control over Apache’s Egyptian operations, qualified as a variable interest entity (VIE) under GAAP. Apache continues to consolidate this limited partnership subsidiary because the Company has concluded that it has a controlling financial interest in the Egyptian operations and was determined to be the primary beneficiary of the VIE. Sinopec International Petroleum Exploration and Production Corporation (Sinopec) owns a one-third minority participation in the Company’s consolidated Egypt oil and gas business as a noncontrolling interest. APA Corporation (APA) also owns a noncontrolling interest in Apache’s consolidated Egypt oil and gas business. Refer to Note 2—Transactions with Parent Affiliate for detail regarding APA’s noncontrolling interest. All noncontrolling interests are reflected as a separate component of equity in the Company’s consolidated balance sheet.

Additionally, prior to the BCP Business Combination defined below, third-party investors owned a minority interest of approximately 21 percent of Altus Midstream Company (ALTM or Altus), which was reflected as a separate noncontrolling interest component of equity in the Company’s consolidated balance sheet. ALTM qualified as a VIE under GAAP, which Apache consolidated because a wholly owned subsidiary of Apache had a controlling financial interest and was determined to be the primary beneficiary.

On February 22, 2022, ALTM closed a previously announced transaction to combine with privately owned BCP Raptor Holdco LP (BCP and, together with BCP Raptor Holdco GP, LLC, the Contributed Entities) in an all-stock transaction, pursuant to the Contribution Agreement entered into by and among ALTM, Altus Midstream LP, New BCP Raptor Holdco, LLC (the Contributor), and BCP (the BCP Contribution Agreement). Pursuant to the BCP Contribution Agreement, the Contributor contributed all of the equity interests of the Contributed Entities (the Contributed Interests) to Altus Midstream LP, with each Contributed Entity becoming a wholly owned subsidiary of Altus Midstream LP (the BCP Business Combination). Upon closing the transaction, the combined entity was renamed Kinetik Holdings Inc. (Kinetik), and the Company determined that it was no longer the primary beneficiary of Kinetik. The Company further determined that Kinetik no longer qualified as a VIE under GAAP. As a result, the Company deconsolidated ALTM on February 22, 2022. Refer to Note 3—Acquisitions and Divestitures for further detail.

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The stockholders agreement entered into by and among the Company, ALTM, BCP, and other related and affiliated entities provides that the Company, through one of its wholly owned subsidiaries, retains the ability to designate a director to the board of directors of Kinetik for so long as the Company and its affiliates beneficially own 10 percent or more of Kinetik’s outstanding common stock. Based on this board representation, combined with the Company’s stock ownership, management determined it has significant influence over Kinetik, which is considered a related party of the Company. Investments in which the Company has significant influence, but not control, are accounted for under the equity method of accounting. These investments are recorded separately as “Equity method interests” in the Company’s consolidated balance sheet. The Company elected the fair value option to account for its equity method interest in Kinetik. Refer to Note 7—Equity Method Interests for further detail.

Use of Estimates

Preparation of financial statements in conformity with GAAP and disclosure of contingent assets and liabilities 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. The Company bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on a regular basis. Actual results may differ from these estimates and assumptions used in preparation of the Company’s financial statements, and changes in these estimates are recorded when known.

Significant estimates with regard to these financial statements include the estimates of fair value for long-lived assets (refer to “Fair Value Measurements” and “Property and Equipment” sections in this Note 1 below), the fair value determination of acquired assets and liabilities (refer to Note 3—Acquisitions and Divestitures), the fair value of equity method interests (refer to “Equity Method Interests” within this Note 1 below and Note 7—Equity Method Interests), the assessment of asset retirement obligations (refer to Note 9—Asset Retirement Obligation), the estimate of income taxes (refer to Note 11—Income Taxes), the estimation of the contingent liability representing Apache’s potential decommissioning obligations on sold properties in the Gulf of Mexico (refer to Note 12—Commitments and Contingencies), and the estimate of proved oil and gas reserves and related present value estimates of future net cash flows therefrom.

Fair Value Measurements

Certain assets and liabilities are reported at fair value on a recurring basis in the Company’s consolidated balance sheet. Accounting Standards Codification (ASC) 820-10-35, “Fair Value Measurement” (ASC 820), 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).

Refer to Note 5—Derivative Instruments and Hedging Activities, Note 7—Equity Method Interests, and Note 10—Debt and Financing Costs for further detail regarding the Company’s fair value measurements recorded on a recurring basis.

During the three and nine months ended September 30, 2023 and 2022, the Company recorded no asset impairments in connection with fair value assessments.

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Accounts Receivable from / Accounts Payable to APA

Accounts receivable from or payable to APA represents the net result of Apache’s administrative and support services provided to APA and other miscellaneous cash management transactions to be settled between the two affiliated entities. Generally, cash in this amount will be transferred to Apache or paid to APA in subsequent periods, after current period transactions are processed and net results of operations are determined. However, from time to time, Apache may estimate and transfer the cash settlement amount in the month the transactions are processed in order to minimize affiliate working capital balances or retain affiliate balances for cash management purposes. Refer to Note 2—Transactions with Parent Affiliate for more detail.

Revenue Recognition

There have been no significant changes to the Company’s contracts with customers during the nine months ended September 30, 2023 and 2022.

Receivables from contracts with customers, including receivables for purchased oil and gas sales, in each case, net of allowance for credit losses, were $1.5 billion and $1.3 billion as of September 30, 2023 and December 31, 2022, respectively. Payments under contracts with customers are typically due within a short-term period of 60 days after physical delivery of the product or service has been rendered. Over the past year, the Company experienced a gradual decline in the timeliness of receipts from the Egyptian General Petroleum Corporation (EGPC) for the Company’s Egyptian oil and gas sales. Although the Company continues to receive periodic payments from EGPC, deteriorating economic conditions in Egypt have lessened the availability of U.S. dollars in Egypt, resulting in a longer-than-usual delay in receipts from EGPC. Continuation of the currency shortage in Egypt could lead to further delays, deferrals of payment, or non-payment in the future; however, the Company currently anticipates that it will ultimately be able to collect its receivable from EGPC.

Oil and gas production revenues include income taxes that will be paid to the Arab Republic of Egypt by EGPC on behalf of the Company. Revenue and associated expenses related to such tax volumes are recorded as “Oil, natural gas, and natural gas liquids production revenues” and “Current income tax provision,” respectively, in the Company’s statement of consolidated operations.

Refer to Note 13—Business Segment Information for a disaggregation of oil, gas, and natural gas production revenue by product and reporting segment.

In accordance with the provisions of ASC 606, “Revenue from Contracts with Customers,” variable market prices for each short-term commodity sale are allocated entirely to each performance obligation as the terms of payment relate specifically to the Company’s efforts to satisfy its obligations. As such, the Company has elected the practical expedients available under the standard to not disclose the aggregate transaction price allocated to unsatisfied, or partially unsatisfied, performance obligations as of the end of the reporting period.

Inventories

Inventories consist principally of tubular goods and equipment and are stated at the lower of weighted-average cost or net realizable value. Oil produced but not sold, primarily in the North Sea, is also recorded to inventory and is stated at the lower of the cost to produce or net realizable value.

During the second quarter of 2023, the Company recorded $46 million of impairments in connection with valuations of drilling and operations equipment inventory upon the Company’s decision to suspend drilling operations in the North Sea.

Property and Equipment

The carrying value of the Company’s property and equipment represents the cost incurred to acquire the property and equipment, including capitalized interest, net of any impairments. For business combinations and acquisitions, property and equipment cost is based on the fair values at the acquisition date.

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Oil and Gas Property

The Company follows the successful efforts method of accounting for its oil and gas property. Under this method of accounting, exploration costs, such as exploratory geological and geophysical costs, delay rentals, and exploration overhead, are expensed as incurred. All costs related to production, general corporate overhead, and similar activities are expensed as incurred. If an exploratory well provides evidence to justify potential development of reserves, drilling costs associated with the well are initially capitalized, or suspended, pending a determination as to whether a commercially sufficient quantity of proved reserves can be attributed to the area as a result of drilling. This determination may take longer than one year in certain areas depending on, among other things, the amount of hydrocarbons discovered, the outcome of planned geological and engineering studies, the need for additional appraisal drilling activities to determine whether the discovery is sufficient to support an economic development plan, and government sanctioning of development activities in certain international locations. At the end of each quarter, management reviews the status of all suspended exploratory well costs in light of ongoing exploration activities; in particular, whether the Company is making sufficient progress in its ongoing exploration and appraisal efforts or, in the case of discoveries requiring government sanctioning, whether development negotiations are underway and proceeding as planned. If management determines that future appraisal drilling or development activities are unlikely to occur, associated suspended exploratory well costs are expensed.

Acquisition costs of unproved properties are assessed for impairment at least annually and are transferred to proved oil and gas properties to the extent the costs are associated with successful exploration activities. Significant undeveloped leases are assessed individually for impairment based on the Company’s current exploration plans. Unproved oil and gas properties with individually insignificant lease acquisition costs are amortized on a group basis over the average lease term at rates that provide for full amortization of unsuccessful leases upon lease expiration or abandonment. Costs of expired or abandoned leases are charged to exploration expense, while costs of productive leases are transferred to proved oil and gas properties. Costs of maintaining and retaining unproved properties, as well as amortization of individually insignificant leases and impairment of unsuccessful leases, are included in exploration costs in the statement of consolidated operations.

Costs to develop proved reserves, including the costs of all development wells and related equipment used in the production of crude oil and natural gas, are capitalized. Depreciation of the cost of proved oil and gas properties is calculated using the unit-of-production (UOP) method. The UOP calculation multiplies the percentage of estimated proved reserves produced each quarter by the carrying value of associated proved oil and gas properties. 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. The reserve base used to calculate the depreciation for capitalized well costs is the sum of proved developed reserves only. 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 the carrying value of proved oil and gas properties may not be recoverable, 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 the Company’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 ASC 820. The expected future cash flows used for impairment reviews and related fair value calculations are typically based on judgmental assessments, a Level 3 fair value measurement.

Unproved leasehold impairments are typically recorded as a component of “Exploration” expense in the Company’s statement of consolidated operations. Gains and losses on divestitures of the Company’s oil and gas properties are recognized in the statement of consolidated operations upon closing of the transaction. Refer to Note 3—Acquisitions and Divestitures for more detail.

Gathering, Processing, and Transmission (GPT) Facilities

GPT facilities are depreciated on a straight-line basis over the estimated useful lives of the assets. The estimation of useful life takes into consideration anticipated production lives from the fields serviced by the GPT assets, whether Apache-operated or third party-operated, as well as potential development plans by the Company for undeveloped acreage within, or close to, those fields.

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The Company assesses the carrying amount of its GPT facilities whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the carrying amount of these facilities is more than the sum of the undiscounted cash flows, an impairment loss is recognized for the excess of the carrying value over its fair value.

2.    TRANSACTIONS WITH PARENT AFFILIATE

Apache is a direct, wholly owned subsidiary of APA. Apache holds assets in the U.S., Egypt, and the U.K. and provides administrative and support operations for certain APA subsidiaries with interests in the U.S., Suriname, and the Dominican Republic. The Company incurred $6 million and $5 million in the third quarters of 2023 and 2022, respectively, and $17 million and $14 million in the first nine months of 2023 and 2022, respectively, in reimbursable corporate overhead charges in connection with these administration and support operations.

Notes Receivable from APA Corporation

On March 1, 2021, Apache sold to APA all of the equity in the three Apache subsidiaries through which Apache’s interests in Suriname and the Dominican Republic were held. The purchase price is payable pursuant to a senior promissory note made by APA payable to Apache, dated March 1, 2021. The note has a seven-year term, maturing on February 29, 2028, and bears interest at a rate of 4.5 percent per annum, payable semi-annually, subject to APA’s option to allow accrued interest to convert to principal (PIK) during the first 5.5 years of the note’s term (to August 31, 2026). The note is guaranteed by each of the three subsidiaries sold by Apache to APA. APA allowed interest accrued from March 1, 2021 through August 31, 2023, totaling $158 million, to PIK pursuant to the note. As of September 30, 2023 and December 31, 2022, there were $1.5 billion and $1.4 billion, respectively, in principal outstanding under this note.

APA also made a senior promissory note payable to Apache, dated March 31, 2023, pursuant to which Apache may loan and APA may borrow, repay, and reborrow up to $1.5 billion in aggregate principal amount outstanding at any time. The note has a five-year term, maturing March 31, 2028. The note bears interest at a rate per annum of 6.0 percent, payable semi-annually; however, APA may allow accrued interest to convert to principal, subject to the aggregate maximum principal amount of the note. APA allowed interest accrued from March 31, 2023 through May 15, 2023, totaling approximately $6 million, to PIK pursuant to the note. As of September 30, 2023, there were $1.1 billion in borrowings outstanding under this note. The note is intended to facilitate cash management of APA and Apache.

These notes are both reflected in “Notes receivable from APA Corporation” on the Company’s consolidated balance sheet. The Company recognized interest income on these notes totaling $30 million and $16 million during the third quarters of 2023 and 2022, respectively, and $75 million and $47 million during the first nine months of 2023 and 2022, respectively. The interest income related to these notes is reflected in “Financing costs, net” on the Company’s statement of consolidated operations.

Noncontrolling Interest – APA Corporation

In the fourth quarter of 2021, in conjunction with the ratification of a new merged concession agreement (MCA) with the EGPC, Apache entered into an agreement with APA under which the historical value of existing concessions prior to ratifying the MCA was retained by Apache, with any excess value from the MCA terms being allocated to APA. Sinopec owns a one-third minority participation in the Company’s consolidated Egypt oil and gas business, and approximately 50 percent of the remaining net income and distributable cash flow for the Company’s Egyptian operations is being allocated to APA in 2023. Apache consolidates its Egyptian operations, with APA’s noncontrolling interest reflected as a separate component in the Company’s consolidated balance sheet. The Company recorded net income attributable to APA’s noncontrolling interest of $96 million and $65 million in the third quarters of 2023 and 2022, respectively, and $261 million and $221 million in the first nine months of 2023 and 2022, respectively. The Company also distributed $154 million and $140 million in the first nine months of 2023 and 2022, respectively, of cash to APA in association with its noncontrolling interest.

Accounts Receivable from / Accounts Payable to APA

In connection with the Company’s role as service provider to APA, Apache is reimbursed by APA for employee costs, certain internal costs, and third-party costs paid by the Company on behalf of APA. All reimbursements are based on actual costs incurred, and no market premium is applied by the Company to APA. The Company also collects third-party receivables on behalf of APA. As of September 30, 2023, the Company had accounts receivable from APA in connection with these services totaling $46 million, which is reflected in “Accounts receivable from APA Corporation” on the Company’s consolidated balance sheet. As of December 31, 2022, the Company had a receivable from APA totaling $869 million, which is reflected in “Noncurrent receivable from APA Corporation.” This balance was incorporated into the senior promissory note dated March 31, 2023, discussed above during the first nine months of 2023.

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Other Transactions with APA Corporation

From time to time, the Company may, at its discretion, make distributions of capital to APA. No capital distributions were made during the first nine months of 2023. During the first nine months of 2022, the Company made capital distributions totaling $679 million primarily in support of dividend payments and capital transactions completed by APA during the period.

3.    ACQUISITIONS AND DIVESTITURES

2023 Activity

During the first nine months of 2023, the Company completed leasehold and property acquisitions, primarily in the Permian Basin, for total cash consideration of approximately $10 million.

During the third quarter and first nine months of 2023, the Company completed the sale of non-core assets and leasehold in multiple transactions for total cash proceeds of $1 million and $29 million, respectively, recognizing a gain of approximately $1 million and $7 million, respectively, upon closing of these transactions.

2022 Activity

During the third quarter and first nine months of 2022, the Company completed leasehold and property acquisitions, primarily in the Permian Basin, for total cash consideration of approximately $3 million and $30 million, respectively.

During the third quarter and first nine months of 2022, the Company completed the sale of non-core assets and leasehold in multiple transactions for total cash proceeds of $37 million and $52 million, respectively, recognizing a gain of approximately $34 million and $36 million, respectively, upon closing of these transactions.

During the first nine months of 2022, the Company completed a transaction to sell certain non-core mineral rights in the Delaware Basin. The Company received total cash proceeds of approximately $726 million after certain post-closing adjustments and recognized an associated gain of approximately $560 million.

The BCP Business Combination was completed on February 22, 2022. As consideration for the contribution of the Contributed Interests, ALTM issued 50 million shares of Class C Common Stock (and Altus Midstream LP issued a corresponding number of common units) to BCP’s unitholders, which are principally funds affiliated with Blackstone and I Squared Capital. ALTM’s stockholders continued to hold their existing shares of common stock. As a result of the transaction, the Contributor, or its designees, collectively owned approximately 75 percent of the issued and outstanding shares of ALTM common stock. Apache Midstream LLC, a wholly owned subsidiary of APA, which owned approximately 79 percent of the issued and outstanding shares of ALTM common stock prior to the BCP Business Combination, owned approximately 20 percent of the issued and outstanding shares of Kinetik common stock after the transaction closed.

As a result of the BCP Business Combination, the Company deconsolidated ALTM on February 22, 2022 and recognized a gain of approximately $609 million that reflects the difference between the Company’s share of ALTM’s deconsolidated balance sheet of $193 million and the fair value of $802 million of its approximate 20 percent retained ownership in the combined entity.

During the first quarter of 2022, the Company sold four million of its shares of Kinetik Class A Common Stock for cash proceeds of $224 million and recognized a loss of $25 million, including transaction fees. Refer to Note 7—Equity Method Interests for further detail.

4.    CAPITALIZED EXPLORATORY WELL COSTS

The Company’s capitalized exploratory well costs were $50 million and $50 million as of September 30, 2023 and December 31, 2022, respectively. The balance is primarily attributable to additional drilling activity in Egypt, partially offset by the transfer of successful well costs during the third quarter of 2023. Approximately $5 million of suspended well costs previously capitalized for greater than one year at December 31, 2022 were charged to dry hole expense during the third quarter of 2023.

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 proved reserves can be attributed to these projects.

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5.    DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production, as well as fluctuations in exchange rates in connection with transactions denominated in foreign currencies. The Company manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production and foreign currency transactions. The Company may utilize various types of derivative financial instruments, including forward contracts, futures contracts, swaps, and options, to manage fluctuations in cash flows resulting from changes in commodity prices or foreign currency values.

In December 2022, counterparty agreements for Apache’s commodity derivative instruments were transferred from Apache to APA Corporation. Apache had no outstanding derivative positions as of September 30, 2023 or December 31, 2022.

Derivative Activity Recorded in the Statement of Consolidated Operations

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

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Realized:
Commodity derivative instruments	$	—	$	(2)	$	—	$	(11)
Foreign currency derivative instruments	—		(6)		—		(8)
Realized losses, net	—		(8)		—		(19)
Unrealized:
Commodity derivative instruments	—		(35)		—		(79)
Foreign currency derivative instruments	—		(1)		—		(9)
Preferred Units embedded derivative	—		—		—		(31)
Unrealized losses, net	—		(36)		—		(119)
Derivative instrument losses, net	$	—	$	(44)	$	—	$	(138)

Derivative instrument gains and losses were recorded in “Derivative instrument losses, net” under “Revenues and Other” in the Company’s statement of consolidated operations. Unrealized losses for derivative activity recorded in the statement of consolidated operations are reflected in the statement of consolidated cash flows separately as “Unrealized derivative instrument losses, net” under “Adjustments to reconcile net income to net cash provided by operating activities.”

6.    OTHER CURRENT ASSETS

The following table provides detail of the Company’s other current assets:

	September 30, 2023		December 31, 2022
	(In millions)
Inventories	$	429	$	425
Drilling advances	46		64
Prepaid assets and other	32		54
Current decommissioning security for sold Gulf of Mexico assets	373		450
Total Other current assets	$	880	$	993

7.    EQUITY METHOD INTERESTS

The Kinetik Class A Common Stock held by the Company is treated as an interest in equity securities measured at fair value. The Company elected the fair value option for measuring its equity method interest in Kinetik based on practical expedience, variances in reporting timelines, and cost-benefit considerations. The fair value of the Company’s interest in Kinetik is determined using observable share prices on a major exchange, a Level 1 fair value measurement. Fair value adjustments are recorded as a component of “Other, net” under “Revenues and other” in the Company’s statement of consolidated operations.

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The Company’s initial interest in Kinetik was measured at fair value based on the Company’s ownership of approximately 12.9 million shares of Kinetik Class A Common stock as of February 22, 2022. In March 2022, the Company sold four million of its shares of Kinetik Class A Common Stock for a loss, including underwriters fees, of $25 million, which was recorded as a component of “Gain on divestitures, net” under “Revenues and other” in the Company’s statement of consolidated operations. Refer to Note 3—Acquisitions and Divestitures for further detail. During the second quarter of 2022, Kinetik issued a two-for-one split of its common stock, resulting in the Company owning approximately 17.7 million shares.

The Company has received approximately 2.5 million shares of Kinetik’s Class A Common Stock as paid-in-kind dividends through September 30, 2023. As of September 30, 2023, the Company’s ownership of 20.2 million shares represented approximately 14 percent of Kinetik’s outstanding Class A Common Stock.

The Company recorded changes in the fair value of its equity method interest in Kinetik totaling losses of $14 million and $17 million in the third quarters of 2023 and 2022, respectively, and gains of $57 million and $49 million in the first nine months of 2023 and 2022, respectively. These gains and losses were recorded as a component of “Revenues and other” in the Company’s statement of consolidated operations.

The following table represents sales and costs associated with Kinetik:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Natural gas and NGLs sales	$	27	$	—	$	56	$	—
Purchased oil and gas sales	11		—		18		—
	$	38	$	—	$	74	$	—
Gathering, processing, and transmission costs	$	24	$	28	$	74	$	64
Purchased oil and gas costs	37		—		65		—
	$	61	$	28	$	139	$	64

As of September 30, 2023, the Company has recorded accrued costs payable to Kinetik of approximately $42 million and receivables from Kinetik of approximately $25 million.

8.    OTHER CURRENT LIABILITIES

The following table provides detail of the Company’s other current liabilities:

	September 30, 2023		December 31, 2022
	(In millions)
Accrued operating expenses	$	156	$	139
Accrued exploration and development	289		300
Accrued compensation and benefits	379		514
Accrued interest	65		96
Accrued income taxes	228		90
Current asset retirement obligation	55		55
Current operating lease liability	108		167
Current decommissioning contingency for sold Gulf of Mexico properties	225		450
Other	338		238
Total Other current liabilities	$	1,843	$	2,049

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9.    ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability:

	September 30, 2023
	(In millions)
Asset retirement obligation, December 31, 2022	$	1,991
Liabilities incurred	12
Liabilities settled	(34)
Accretion expense	86
Asset retirement obligation, September 30, 2023	2,055
Less current portion	(55)
Asset retirement obligation, long-term	$	2,000

10.    DEBT AND FINANCING COSTS

The following table presents the carrying values of the Company’s debt:

	September 30, 2023		December 31, 2022
	(In millions)
Notes and debentures before unamortized discount and debt issuance costs(1)	$	4,835	$	4,908
Finance lease obligations	33		34
Unamortized discount	(26)		(27)
Debt issuance costs	(26)		(28)
Total debt	4,816		4,887
Current maturities	(2)		(2)
Long-term debt	$	4,814	$	4,885

(1)    The fair values of the Company’s notes and debentures were $4.1 billion and $4.2 billion as of September 30, 2023 and December 31, 2022, respectively.

Apache uses a market approach to determine the fair values of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).

At each of September 30, 2023 and December 31, 2022, current debt included $2 million of finance lease obligations.

During the nine months ended September 30, 2023, Apache purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $74 million for an aggregate purchase price of $65 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $10 million. The Company recognized a $9 million gain on these repurchases. The repurchases were partially financed by Apache’s borrowing under the US dollar-denominated revolving credit facility of APA Corporation described below.

During the nine months ended September 30, 2022, Apache closed cash tender offers for certain outstanding notes issued under its indentures, accepting for purchase $1.1 billion aggregate principal amount of notes. Apache paid holders an aggregate $1.2 billion in cash, reflecting principal, premium to par, and accrued and unpaid interest. The Company recognized a $66 million loss on extinguishment of debt, including $11 million of unamortized debt discount and issuance costs in connection with the note purchases. The repurchases were partially financed by borrowing under Apache’s former revolving credit facility.

During the nine months ended September 30, 2022, Apache purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $15 million for an aggregate purchase price of $16 million in cash, including accrued interest and broker fees, reflecting a premium to par of $1 million. The Company recognized a $1 million loss on these repurchases. The repurchases were partially financed by borrowing under Apache’s former revolving credit facility.

On January 18, 2022, Apache redeemed the outstanding $213 million principal amount of 3.25% senior notes due April 15, 2022, at a redemption price equal to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date. The redemption was financed by borrowing under Apache’s former revolving credit facility.

Apache intends to reduce debt outstanding under its indentures from time to time.

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On April 29, 2022, Apache entered into two unsecured guaranties of obligations under two unsecured syndicated credit agreements then entered into by APA, of which Apache is a wholly owned subsidiary. APA’s new credit agreements are for general corporate purposes and replaced and refinanced Apache’s 2018 unsecured syndicated credit agreement (the Former Facility).

•One credit agreement is denominated in US dollars (the USD Agreement) and provides for an unsecured five-year revolving credit facility, with aggregate commitments of US$1.8 billion (including a letter of credit subfacility of up to US$750 million, of which US$150 million currently is committed). APA may increase commitments up to an aggregate US$2.3 billion by adding new lenders or obtaining the consent of any increasing existing lenders. This facility matures in April 2027, subject to APA’s two, one-year extension options.

•The second credit agreement is denominated in pounds sterling (the GBP Agreement) and provides for an unsecured five-year revolving credit facility, with aggregate commitments of £1.5 billion for loans and letters of credit. This facility matures in April 2027, subject to APA’s two, one-year extension options.

In connection with APA’s entry into the USD Agreement and the GBP Agreement (each, a New Agreement), Apache terminated US$4.0 billion of commitments under the Former Facility, borrowings then outstanding under the Former Facility were deemed outstanding under APA’s USD Agreement, and letters of credit then outstanding under the Former Facility were deemed outstanding under a New Agreement, depending upon whether denominated in US dollars or pounds sterling. Apache has guaranteed obligations under each New Agreement effective until the aggregate principal amount of indebtedness under senior notes and debentures outstanding under Apache’s existing indentures is less than US$1.0 billion.

Apache may borrow under APA’s USD Agreement up to an aggregate principal amount of US$300 million outstanding at any given time. As of September 30, 2023 and December 31, 2022, there were no borrowings by Apache outstanding under the USD Agreement.

Apache, from time to time, has and uses uncommitted credit and letter of credit facilities for working capital and credit support purposes. As of September 30, 2023 and December 31, 2022, there were no outstanding borrowings under these facilities. As of September 30, 2023, there were £185 million and $3 million in letters of credit outstanding under these facilities. As of December 31, 2022, there were £199 million and $17 million in letters of credit outstanding under these facilities.

Financing Costs, Net

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

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Interest expense	$	71	$	74	$	220	$	239
Amortization of debt issuance costs	1		1		2		7
Capitalized interest	—		—		—		(1)
(Gain) loss on extinguishment of debt	—		—		(9)		67
Interest income	(2)		(4)		(7)		(9)
Interest income from APA Corporation, net (Note 2)	(30)		(16)		(75)		(46)
Financing costs, net	$	40	$	55	$	131	$	257

11.    INCOME TAXES

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash impairments on the carrying value of the Company’s oil and gas properties, gains and losses on the sale of assets, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

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During the third quarter of 2023, the Company’s effective income tax rate was primarily impacted by a decrease in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2023 year-to-date effective income tax rate was primarily impacted by a deferred tax expense related to the remeasurement of taxes in the U.K. as a result of the enactment of Finance Act 2023 on January 10, 2023, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. During the third quarter of 2022, the Company’s effective income tax rate was primarily impacted by a deferred tax expense related to the remeasurement of taxes in the U.K. as a result of the enactment of the Energy (Oil and Gas) Profits Levy Act of 2022 on July 14, 2022, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2022 year-to-date effective income tax rate was primarily impacted by the gain associated with deconsolidation of Altus, the gain on sale of certain non-core mineral rights in the Delaware Basin, a deferred tax expense related to the remeasurement of taxes in the U.K., and a decrease in the amount of valuation allowance against its U.S. deferred tax assets.

On January 10, 2023, Finance Act 2023 was enacted, receiving Royal Assent, and included amendments to the Energy (Oil and Gas) Profits Levy Act of 2022, increasing the levy from a 25 percent rate to a 35 percent rate, effective for the period of January 1, 2023 through March 31, 2028. Under U.S. GAAP, the financial statement impact of new legislation is recorded in the period of enactment. Therefore, in the first quarter of 2023, the Company recorded a deferred tax expense of $174 million related to the remeasurement of the December 31, 2022 U.K. deferred tax liability.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA). The IRA includes a new 15 percent corporate alternative minimum tax (Corporate AMT) on applicable corporations with an average annual financial statement income that exceeds $1 billion for any three consecutive years preceding the tax year at issue. The Corporate AMT is effective for tax years beginning after December 31, 2022. The Company is continuing to evaluate the provisions of the IRA and awaits further guidance from the U.S. Treasury Department to properly assess the impact of these provisions on the Company. Under the existing guidance, the Company does not believe the IRA will have a material impact for 2023.

The Company has a full valuation allowance against its U.S. net deferred tax assets. The Company will continue to maintain a full valuation allowance on its U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given the Company’s current and anticipated future domestic earnings, the Company believes that there is a reasonable possibility that in the next 12 months sufficient positive evidence may become available to allow the Company to reach a conclusion that a significant portion of the U.S. valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense, which could be material, for the period the release is recorded.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various states and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority.

12.    COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls, which also may include controls related to the potential impacts of climate change. As of September 30, 2023, the Company has an accrued liability of approximately $49 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. The Company’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 the Company’s financial position, results of operations, or liquidity after consideration of recorded accruals. With respect to material matters for which the Company 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 Legal Matters described below, refer to Note 12—Commitments and Contingencies to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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Argentine Environmental Claims

On March 12, 2014, the Company and its subsidiaries completed the sale of all of the Company’s subsidiaries’ operations and properties in Argentina to YPF Sociedad Anonima (YPF). As part of that sale, YPF assumed responsibility for all of the past, present, and future litigation in Argentina involving Company subsidiaries, except that Company subsidiaries have agreed to indemnify YPF for certain environmental, tax, and royalty obligations capped at an aggregate of $100 million. The indemnity is subject to specific agreed conditions precedent, thresholds, contingencies, limitations, claim deadlines, loss sharing, and other terms and conditions. On April 11, 2014, YPF provided its first notice of claims pursuant to the indemnity. Company subsidiaries have not paid any amounts under the indemnity but will continue to review and consider claims presented by YPF. Further, Company subsidiaries retain the right to enforce certain Argentina-related indemnification obligations against Pioneer Natural Resources Company (Pioneer) in an amount up to $45 million pursuant to the terms and conditions of stock purchase agreements entered in 2006 between Company subsidiaries and subsidiaries of Pioneer.

Louisiana Restoration 

As more fully described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, Louisiana surface owners often file lawsuits or assert claims against oil and gas companies, including the Company, claiming that operators and working interest owners in the chain of title are liable for environmental damages on the leased premises, including damages measured by the cost of restoration of the leased premises to its original condition, regardless of the value of the underlying property. From time to time, restoration lawsuits and claims are resolved by the Company for amounts that are not material to the Company, while new lawsuits and claims are asserted against the Company. With respect to each of the pending lawsuits and claims, the amount claimed is not currently determinable or is not material. Further, the overall exposure related to these lawsuits and claims is not currently determinable. While adverse judgments against the Company are possible, the Company intends to actively defend these lawsuits and claims.

Starting in November of 2013 and continuing into 2023, several parishes in Louisiana have pending lawsuits against many oil and gas producers, including the Company. In these cases, the Parishes, as plaintiffs, allege that defendants’ oil and gas exploration, production, and transportation operations in specified fields were conducted in violation of the State and Local Coastal Resources Management Act of 1978, as amended, and applicable regulations, rules, orders, and ordinances promulgated or adopted thereunder by the Parish or the State of Louisiana. Plaintiffs allege that defendants caused substantial damage to land and water bodies located in the coastal zone of Louisiana. Plaintiffs seek, among other things, unspecified damages for alleged violations of applicable law within the coastal zone, the payment of costs necessary to clear, re-vegetate, detoxify, and otherwise restore the subject coastal zone as near as practicable to its original condition, and actual restoration of the coastal zone to its original condition. While adverse judgments against the Company might be possible, the Company intends to vigorously oppose these claims.

Apollo Exploration Lawsuit

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 alleged damages in excess of $200 million (having previously claimed in excess of $1.1 billion) relating to purchase and sale agreements, mineral leases, and area of mutual interest agreements concerning properties located in Hartley, Moore, Potter, and Oldham Counties, Texas. The trial court entered final judgment in favor of the Company, ruling that the plaintiffs take nothing by their claims and awarding the Company its attorneys’ fees and costs incurred in defending the lawsuit. The court of appeals affirmed in part and reversed in part the trial court’s judgment thereby reinstating some of plaintiffs’ claims. The Texas Supreme Court granted the Company’s petition for review and heard oral argument in October 2022. On April 28, 2023, the Texas Supreme Court reversed the court of appeals’ decision and remanded the case back to the court of appeals for further proceedings. After plaintiffs’ request for rehearing, on July 21, 2023, the Texas Supreme Court reaffirmed its reversal of the court of appeals’ decision and remand of the case back to the court of appeals for further proceedings.

Australian Operations Divestiture Dispute

Pursuant to a Sale and Purchase Agreement dated April 9, 2015 (Quadrant SPA), the Company and its subsidiaries divested Australian operations to Quadrant Energy Pty Ltd (Quadrant). Closing occurred on June 5, 2015. In April 2017, the Company filed suit against Quadrant for breach of the Quadrant SPA. In its suit, the Company seeks approximately AUD $80 million. In December 2017, Quadrant filed a defense of equitable set-off to the Company’s claim and a counterclaim seeking approximately AUD $200 million in the aggregate. The Company will vigorously prosecute its claim while vigorously defending against Quadrant’s counter claims.

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Canadian Operations Divestiture Dispute

Pursuant to a Sale and Purchase Agreement dated July 6, 2017 (Paramount SPA), the Company and its subsidiaries divested their remaining Canadian operations to Paramount Resources LTD (Paramount). Closing occurred on August 16, 2017. On September 11, 2019, four ex-employees of Apache Canada LTD on behalf of themselves and individuals employed by Apache Canada LTD on July 6, 2017, filed an Amended Statement of Claim in a matter styled Stephen Flesch et. al. v Apache Corporation et. al., No. 1901-09160 Court of Queen’s Bench of Alberta against the Company and others seeking class certification and a finding that the Paramount SPA amounted to a Change of Control of the Company, entitling them to accelerated vesting under the Company’s equity plans. In the suit, the class seeks approximately $60 million USD and punitive damages. Without acknowledging or admitting any liability and solely to avoid the expense and uncertainty of future litigation, Apache has agreed to a settlement in the Flesch class action matter under which Apache will pay $7 million USD to resolve all claims against the Company asserted by the class. The settlement is subject to court approval and is expected to be finalized by the end of 2023.

California and Delaware Litigation

On July 17, 2017, in three separate actions, San Mateo and Marin Counties, and the City of Imperial Beach, California, all filed suit individually and on behalf of the people of the state of California against over 30 oil and gas companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories. On December 20, 2017, in two separate actions, the City of Santa Cruz and Santa Cruz County filed similar lawsuits against many of the same defendants. On January 22, 2018, the City of Richmond filed a similar lawsuit. On November 14, 2018, the Pacific Coast Federation of Fishermen’s Associations, Inc. also filed a similar lawsuit against many of the same defendants.

On September 10, 2020, the State of Delaware filed suit, individually and on behalf of the people of the State of Delaware, against over 25 oil and gas companies alleging damages as a result of global warming. Plaintiffs seek unspecified damages and abatement under various tort theories.

The Company intends to challenge personal jurisdiction in California and to vigorously defend the Delaware lawsuit.

Kulp Minerals Lawsuit

On or about April 7, 2023, Apache was sued in a purported class action in New Mexico styled Kulp Minerals LLC v. Apache Corporation, Case No. D-506-CV-2023-00352 in the Fifth Judicial District. The Kulp Minerals case has not been certified and seeks to represent a group of owners allegedly owed statutory interest under New Mexico law as a result of purported late oil and gas payments. The amount of this claim is not yet reasonably determinable. The Company intends to vigorously defend against the claims asserted in this lawsuit.

Shareholder and Derivative Lawsuits

On February 23, 2021, a case captioned Plymouth County Retirement System v. Apache Corporation, et al. was filed in the United States District Court for the Southern District of Texas (Houston Division) against the Company and certain current and former officers. The complaint, which is a shareholder lawsuit styled as a class action, alleges that (1) the Company intentionally used unrealistic assumptions regarding the amount and composition of available oil and gas in Alpine High; (2) the Company did not have the proper infrastructure in place to safely and/or economically drill and/or transport those resources even if they existed in the amounts purported; (3) certain statements and omissions artificially inflated the value of the Company’s operations in the Permian Basin; and (4) as a result, the Company’s public statements were materially false and misleading. The Company intends to vigorously defend this lawsuit.

On January 18, 2023, a case captioned Jerry Hight, Derivatively and on behalf of APA Corporation v. John J. Christmann IV et al. was filed in the 61st District Court of Harris County, Texas. Then, on February 21, 2023, a case captioned Steve Silverman, Derivatively and on behalf of Nominal Defendant APA Corp. v. John J. Christmann IV, et al. was filed in federal district court for the Southern District of Texas. Then, on April 20, 2023, a case captioned William Wessels, Derivatively and on behalf of APA Corporation v. John J. Christmann IV et al. was filed in the 151st District Court of Harris County, Texas. Then, on July 21, 2023, a case captioned Yang-Li-Yu, Derivatively and on behalf of Nominal Defendant APA Corp. v. John J. Christmann IV, et al. was filed in federal district court for the Southern District of Texas. These cases purport to be derivative actions brought against senior management and Company directors over many of the same allegations included in the Plymouth County Retirement System matter and asserts claims of (1) breach of fiduciary duty; (2) waste of corporate assets; and (3) unjust enrichment. The defendants intend to vigorously defend these lawsuits.

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Environmental Matters

As of September 30, 2023, the Company had an undiscounted reserve for environmental remediation of approximately $5 million.

On September 11, 2020, the Company received a Notice of Violation and Finding of Violation, and accompanying Clean Air Act Information Request, from the U.S. Environmental Protection Agency (EPA) following site inspections in April 2019 at several of the Company’s oil and natural gas production facilities in Lea and Eddy Counties, New Mexico. The notice and information request involve alleged emissions control and reporting violations. The Company is cooperating with the EPA and has responded to the information request. The EPA has referred the notice for civil enforcement proceedings.

On December 29, 2020, the Company received a Notice of Violation and Opportunity to Confer, and accompanying Clean Air Act Information Request, from the EPA following helicopter flyovers in September 2019 of several of the Company’s oil and natural gas production facilities in Reeves County, Texas. The notice and information request involve alleged emissions control and reporting violations. The Company is cooperating with the EPA and has responded to the information request. The EPA has referred the notice for civil enforcement proceedings.

The Company is not aware of any environmental claims existing as of September 30, 2023, 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.

Potential Decommissioning Obligations on Sold Properties

In 2013, Apache sold its Gulf of Mexico (GOM) Shelf operations and properties and its GOM operating subsidiary, GOM Shelf LLC (GOM Shelf) to Fieldwood Energy LLC (Fieldwood). Under the terms of the purchase agreement, Apache received cash consideration of $3.75 billion and Fieldwood assumed the obligation to decommission the properties held by GOM Shelf and the properties acquired from Apache and its other subsidiaries (collectively, the Legacy GOM Assets). In respect of such abandonment obligations, Fieldwood posted letters of credit in favor of Apache (Letters of Credit) and established trust accounts (Trust A and Trust B) of which Apache was a beneficiary and which were funded by two net profits interests (NPIs) depending on future oil prices. On February 14, 2018, Fieldwood filed for protection under Chapter 11 of the U.S. Bankruptcy Code. In connection with the 2018 bankruptcy, Fieldwood confirmed a plan under which Apache agreed, inter alia, to (i) accept bonds in exchange for certain of the Letters of Credit and (ii) amend the Trust A trust agreement and one of the NPIs to consolidate the trusts into a single Trust (Trust A) funded by both remaining NPIs. Following the 2018 reorganization of Fieldwood, Apache held two bonds (Bonds) and five Letters of Credit securing Fieldwood’s asset retirement obligations on the Legacy GOM Assets as and when Apache is required to perform or pay for decommissioning any Legacy GOM Asset over the remaining life of the Legacy GOM Assets.

On August 3, 2020, Fieldwood again filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On June 25, 2021, the United States Bankruptcy Court for the Southern District of Texas (Houston Division) entered an order confirming Fieldwood’s bankruptcy plan. On August 27, 2021, Fieldwood’s bankruptcy plan became effective. Pursuant to the plan, the Legacy GOM Assets were separated into a standalone company, which was subsequently merged into GOM Shelf. Under GOM Shelf’s limited liability company agreement, the proceeds of production of the Legacy GOM Assets will be used to fund the operation of GOM Shelf and the decommissioning of Legacy GOM Assets.

By letter dated April 5, 2022, replacing two prior letters dated September 8, 2021 and February 22, 2022, and by subsequent letter dated March 1, 2023, GOM Shelf notified the Bureau of Safety and Environmental Enforcement (BSEE) that it was unable to fund the decommissioning obligations that it is currently obligated to perform on certain of the Legacy GOM Assets. As a result, Apache and other current and former owners in these assets have received orders from BSEE to decommission certain of the Legacy GOM Assets included in GOM Shelf’s notifications to BSEE. Apache expects to receive similar orders on the other Legacy GOM Assets included in GOM Shelf’s notification letters. Apache has also received orders to decommission other Legacy GOM Assets that were not included in GOM Shelf’s notification letters. Further, Apache anticipates that GOM Shelf may send additional such notices to BSEE in the future and that it may receive additional orders from BSEE requiring it to decommission other Legacy GOM Assets.

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As of September 30, 2023, Apache has incurred $692 million in decommissioning costs related to several Legacy GOM Assets. GOM Shelf did not, and has confirmed that it will not, reimburse Apache for these decommissioning costs. As a result, Apache has sought and will continue to seek reimbursement from its security for these costs, of which $288 million had been reimbursed from Trust A and $87 million has been reimbursed from the Letters of Credit as of September 30, 2023. If GOM Shelf does not reimburse Apache for further decommissioning costs incurred with respect to Legacy GOM Assets, then Apache will continue to seek reimbursement from Trust A, to the extent of available funds, and thereafter, will seek further reimbursement from the Bonds and the Letters of Credit until all such funds and securities are fully utilized. In addition, after such sources have been exhausted, Apache has agreed to provide a standby loan to GOM Shelf of up to $400 million to perform decommissioning (Standby Loan Agreement), with such standby loan secured by a first and prior lien on the Legacy GOM Assets.

If the combination of GOM Shelf’s net cash flow from its producing properties, the Trust A funds, the Bonds, and the remaining Letters of Credit are insufficient to fully fund decommissioning of any Legacy GOM Assets that Apache may be required to perform or fund, or if GOM Shelf’s net cash flow from its remaining producing properties after the Trust A funds, Bonds, and Letters of Credit are exhausted is insufficient to repay any loans made by Apache under the Standby Loan Agreement, then Apache may be forced to effectively use its available cash to fund the deficit.

As of September 30, 2023, Apache estimates that its potential liability to fund the remaining decommissioning of Legacy GOM Assets it may be ordered to perform or fund ranges from $695 million to $895 million on an undiscounted basis. Management does not believe any specific estimate within this range is a better estimate than any other. Accordingly, the Company has recorded a contingent liability of $695 million as of September 30, 2023, representing the estimated costs of decommissioning it may be required to perform or fund on Legacy GOM Assets. Of the total liability recorded, $470 million is reflected under the caption “Decommissioning contingency for sold Gulf of Mexico properties,” and $225 million is reflected under “Other current liabilities” in the Company’s consolidated balance sheet. Changes in significant assumptions impacting Apache’s estimated liability, including expected decommissioning rig spread rates, lift boat rates, and planned abandonment logistics could result in a liability in excess of the amount accrued.

As of September 30, 2023, the Company has also recorded a $411 million asset, which represents the remaining amount the Company expects to be reimbursed from the Trust A funds, the Bonds, and the Letters of Credit for decommissioning it may be required to perform on Legacy GOM Assets. Of the total asset recorded, $38 million is reflected under the caption “Decommissioning security for sold Gulf of Mexico properties,” and $373 million is reflected under “Other current assets.”

On June 21, 2023, the two sureties that issued bonds directly to Apache and two sureties that issued bonds to the issuing bank on the Letters of Credit filed suit against Apache in a case styled Zurich American Insurance Company, HCC International Insurance Company PLC, Philadelphia Indemnity Insurance Company and Everest Reinsurance Company (Insurers) v. Apache Corporation, Cause No. 2023-38238 in the 281st Judicial District Court, Harris County Texas. Insurers are seeking to prevent Apache from drawing on the Bonds and Letters of Credit and further allege that they are discharged from their reimbursement obligations related to decommissioning costs and are entitled to other relief. On July 20, 2023, the 281st Judicial District Court denied the Insurers’ request for a temporary injunction. On July 26, 2023, Apache removed the suit to the United States Bankruptcy Court for the Southern District of Texas (Houston Division). Apache intends to vigorously defend these claims, and will vigorously pursue its counterclaims.

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13.    BUSINESS SEGMENT INFORMATION

As of September 30, 2023, the Company is engaged in exploration and production (Upstream) activities across three operating segments: Egypt, North Sea, and the U.S. The Company’s Upstream business explores for, develops, and produces crude oil, natural gas, and natural gas liquids. Prior to the deconsolidation of Altus on February 22, 2022, the Company’s Midstream business was operated by ALTM, which owned, developed, and operated a midstream energy asset network in the Permian Basin of West Texas. Financial information for each segment is presented below:

	Egypt(1)		North Sea		U.S.		Altus Midstream		Intersegment Eliminations & Other		Total(4)
	Upstream
For the Quarter Ended September 30, 2023	(In millions)
Revenues:
Oil revenues	$	724	$	348	$	557	$	—	$	—	$	1,629
Natural gas revenues	81		66		83		—		—		230
Natural gas liquids revenues	—		5		119		—		—		124
Oil, natural gas, and natural gas liquids production revenues	805		419		759		—		—		1,983
Purchased oil and gas sales	—		—		229		—		—		229
	805		419		988		—		—		2,212
Operating Expenses:
Lease operating expenses	128		102		151		—		—		381
Gathering, processing, and transmission	13		15		55		—		—		83
Purchased oil and gas costs	—		—		211		—		—		211
Taxes other than income	—		—		56		—		—		56
Exploration	25		9		4		—		1		39
Depreciation, depletion, and amortization	129		90		158		—		—		377
Asset retirement obligation accretion	—		20		9		—		—		29
	295		236		644		—		1		1,176
Operating Income(2)	$	510	$	183	$	344	$	—	$	(1)	1,036
Other Income (Expense):
Gain on divestitures, net											1
Other, net											7
General and administrative											(132)
Transaction, reorganization, and separation											(5)
Financing costs, net											(40)
Income Before Income Taxes											$	867

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	Egypt(1)		North Sea		U.S.		Altus Midstream		Intersegment Eliminations & Other		Total(4)
	Upstream
For the Nine Months Ended September 30, 2023	(In millions)
Revenues:
Oil revenues	$	1,971	$	865	$	1,469	$	—	$	—	$	4,305
Natural gas revenues	264		165		214		—		—		643
Natural gas liquids revenues	—		19		322		—		—		341
Oil, natural gas, and natural gas liquids production revenues	2,235		1,049		2,005		—		—		5,289
Purchased oil and gas sales	—		—		612		—		—		612
	2,235		1,049		2,617		—		—		5,901
Operating Expenses:
Lease operating expenses	346		278		423		—		—		1,047
Gathering, processing, and transmission	26		38		167		—		—		231
Purchased oil and gas costs	—		—		558		—		—		558
Taxes other than income	—		—		153		—		—		153
Exploration	91		18		10		—		1		120
Depreciation, depletion, and amortization	378		209		437		—		—		1,024
Asset retirement obligation accretion	—		57		29		—		—		86
Impairments	—		46		—		—		—		46
	841		646		1,777		—		1		3,265
Operating Income(2)	$	1,394	$	403	$	840	$	—	$	(1)	2,636
Other Income (Expense):
Gain on divestitures, net											7
Other, net											84
General and administrative											(256)
Transaction, reorganization, and separation											(11)
Financing costs, net											(131)
Income Before Income Taxes											$	2,329
Total Assets(3)	$	3,518	$	1,665	$	9,616	$	—	$	—	$	14,799

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	Egypt(1)		North Sea		U.S.		Altus Midstream		Intersegment Eliminations & Other		Total(4)
	Upstream
For the Quarter Ended September 30, 2022	(In millions)
Revenues:
Oil revenues	$	739	$	303	$	565	$	—	$	—	$	1,607
Natural gas revenues	84		44		285		—		—		413
Natural gas liquids revenues	—		5		183		—		—		188
Oil, natural gas, and natural gas liquids production revenues	823		352		1,033		—		—		2,208
Purchased oil and gas sales	—		—		585		—		—		585
	823		352		1,618		—		—		2,793
Operating Expenses:
Lease operating expenses	119		107		137		—		—		363
Gathering, processing, and transmission	5		7		82		—		—		94
Purchased oil and gas costs	—		—		573		—		—		573
Taxes other than income	—		—		74		—		—		74
Exploration	29		1		16		—		—		46
Depreciation, depletion, and amortization	97		52		139		—		—		288
Asset retirement obligation accretion	—		21		8		—		—		29
	250		188		1,029		—		—		1,467
Operating Income(2)	$	573	$	164	$	589	$	—	$	—	1,326
Other Income (Expense):
Derivative instrument losses, net											(44)
Gain on divestitures, net											31
Other, net											(10)
General and administrative											(64)
Transaction, reorganization, and separation											(4)
Financing costs, net											(55)
Income Before Income Taxes											$	1,180

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	Egypt(1)		North Sea		U.S.		Altus Midstream		Intersegment Eliminations & Other		Total(4)
	Upstream
For the Nine Months Ended September 30, 2022	(In millions)
Revenues:
Oil revenues	$	2,431	$	938	$	1,818	$	—	$	—	$	5,187
Natural gas revenues	270		207		749		—		—		1,226
Natural gas liquids revenues	6		33		604		—		(3)		640
Oil, natural gas, and natural gas liquids production revenues	2,707		1,178		3,171		—		(3)		7,053
Purchased oil and gas sales	—		—		1,451		5		—		1,456
Midstream service affiliate revenues	—		—		—		16		(16)		—
	2,707		1,178		4,622		21		(19)		8,509
Operating Expenses:
Lease operating expenses	381		321		365		—		(1)		1,066
Gathering, processing, and transmission	15		31		236		5		(18)		269
Purchased oil and gas costs	—		—		1,452		—		—		1,452
Taxes other than income	—		—		219		3		—		222
Exploration	56		8		21		—		1		86
Depreciation, depletion, and amortization	285		168		402		2		—		857
Asset retirement obligation accretion	—		61		25		1		—		87
	737		589		2,720		11		(18)		4,039
Operating Income (Loss)(2)	$	1,970	$	589	$	1,902	$	10	$	(1)	4,470
Other Income (Expense):
Derivative instrument losses, net											(138)
Gain on divestitures, net											1,180
Other, net											99
General and administrative											(298)
Transaction, reorganization, and separation											(21)
Financing costs, net											(257)
Income Before Income Taxes											$	5,035
Total Assets(3)	$	3,242	$	2,185	$	8,765	$	—	$	—	$	14,192

(1)    Includes oil and gas production revenue that will be paid as taxes by EGPC on behalf of the Company for the quarters and nine months ended September 30, 2023 and 2022 of:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Oil	$	202	$	227	$	539	$	779
Natural gas	23		26		73		87
Natural gas liquids	—		—		—		2

(2)Operating income of U.S. and North Sea includes leasehold impairments of $2 million and $6 million, respectively, for the third quarter of 2023.
Operating income of U.S. and Egypt includes leasehold impairments of $15 million and $1 million, respectively, for the third quarter of 2022. Operating income of U.S. and North Sea includes leasehold impairments of $7 million and $12 million, respectively, for the first nine months of 2023. Operating income of U.S. and Egypt includes leasehold impairments of $19 million and $3 million, respectively, for the first nine months of 2022.

(3)Intercompany balances are excluded from total assets.

(4)Includes noncontrolling interests of Sinopec, Altus prior to deconsolidation, and APA.

25

ITEM 2.    MANAGEMENT’S NARRATIVE ANALYSIS OF RESULTS OF OPERATIONS

The following discussion relates to Apache Corporation (Apache or the Company) and its consolidated subsidiaries and should be read together with the Company’s Consolidated Financial Statements and accompanying notes included in Part I, Item 1—Financial Statements of this Quarterly Report on Form 10-Q, as well as related information set forth in the Company’s Consolidated Financial Statements, accompanying Notes to Consolidated Financial Statements, and Management’s Narrative Analysis of Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Overview

Apache, a direct, wholly owned subsidiary of APA Corporation (APA), is an independent energy company that explores for, develops, and produces natural gas, crude oil, and natural gas liquids (NGLs). The Company’s upstream business currently has exploration and production operations in three geographic areas: the U.S., Egypt, and offshore the U.K. in the North Sea (North Sea). Prior to the BCP Business Combination (as defined in the Notes to the Company’s Consolidated Financial Statements set forth in Part I, Item 1—Financial Statements of this Quarterly Report on Form 10-Q), the Company’s midstream business was operated by Altus Midstream Company (ALTM) through its subsidiary Altus Midstream LP (collectively, Altus).

The Company’s mission is to grow in an innovative, safe, environmentally responsible, and profitable manner for the long-term benefit of its stakeholders. The Company is focused on rigorous portfolio management, disciplined financial structure, and optimization of returns.

The global economy and the energy industry continue to be impacted by the effects of ongoing international conflicts and the coronavirus disease 2019 (COVID-19) pandemic. Uncertainties in the global supply chain and financial markets, including the impact of inflation and rising interest rates, and actions taken by foreign oil and gas producing nations, including OPEC+, continue to impact oil supply and demand and contribute to commodity price volatility. Despite these uncertainties, the Company remains committed to its longer-term objectives: (1) to maintain a balanced asset portfolio; (2) to invest for long-term returns over production growth; and (3) to budget conservatively to generate cash flow in excess of its upstream exploration, appraisal, and development capital program that can be directed to debt reduction, share repurchases, and other return of capital to its shareholders. The Company continues to aggressively manage its cost structure regardless of the oil price environment and closely monitors hydrocarbon pricing fundamentals to reallocate capital as part of its ongoing planning process.

In the third quarter of 2023, the Company reported net income of $387 million compared to net income of $357 million in the third quarter of 2022. Results for the third quarter of 2022 were impacted by higher deferred income tax expense related to remeasurement of the Company’s deferred tax liability from increases in the U.K. energy profits levy.

In the first nine months of 2023, the Company reported net income of $814 million compared to net income of $3.1 billion in the first nine months of 2022. Net income for the first nine months of 2023 was impacted by lower revenues attributable to significantly lower realized commodity prices when compared to the first nine months of 2022. Results from the first nine months of 2022 included approximately $1.2 billion of transaction gains recognized for divesting certain non-core mineral rights in the Delaware Basin and completing the BCP Business Combination.

The Company generated $2.0 billion of cash from operating activities during the first nine months of 2023, 38 percent lower than the first nine months of 2022. The Company’s lower operating cash flows for the first nine months of 2023 were driven by lower commodity prices and associated revenues and the timing of working capital items.

Operational Highlights

Key operational highlights for the quarter include:

United States

•Daily boe production from the Company’s U.S. assets accounted for 52 percent of its total production during the third quarter of 2023. The Company averaged three drilling rigs in the U.S. during the quarter in the Southern Midland Basin and brought online 14 operated wells in the quarter. The Company’s core Midland Basin development program continues to represent a key growth area for the U.S. assets.

26

International

•In Egypt, the Company continued its drilling and workover activity with a heavier focus on oil prospects. The Company averaged 18 drilling rigs and drilled 26 new productive wells during the third quarter of 2023. Third quarter 2023 gross equivalent production in the Company’s Egypt assets increased 2 percent from the third quarter of 2022, and net production decreased 3 percent. The Company averaged 20 workover rigs during the quarter and expects to increase workover activity over the next two quarters.

•The Company suspended all new drilling activity in the North Sea during the second quarter of 2023. The Company’s investment program there is now directed toward safety, base production management, and asset maintenance and integrity.

27

Results of Operations

Oil, Natural Gas, and Natural Gas Liquids Production Revenues

Revenue

The Company’s production revenues and respective contribution to total revenues by country were as follows:

	For the Quarter Ended September 30,								For the Nine Months Ended September 30,
	2023				2022				2023				2022
	$ Value		% Contribution		$ Value		% Contribution		$ Value		% Contribution		$ Value		% Contribution
	($ in millions)
Oil Revenues:
United States	$	557	34	%	$	565	35	%	$	1,469	34	%	$	1,818	35	%
Egypt(1)	724		45	%	739		46	%	1,971		46	%	2,431		47	%
North Sea	348		21	%	303		19	%	865		20	%	938		18	%
Total(1)	$	1,629	100	%	$	1,607	100	%	$	4,305	100	%	$	5,187	100	%
Natural Gas Revenues:
United States	$	83	36	%	$	285	69	%	$	214	33	%	$	749	61	%
Egypt(1)	81		35	%	84		20	%	264		41	%	270		22	%
North Sea	66		29	%	44		11	%	165		26	%	207		17	%
Total(1)	$	230	100	%	$	413	100	%	$	643	100	%	$	1,226	100	%
NGL Revenues:
United States	$	119	96	%	$	183	97	%	$	322	94	%	$	601	94	%
Egypt(1)	—		—	%	—		—	%	—		—	%	6		1	%
North Sea	5		4	%	5		3	%	19		6	%	33		5	%
Total(1)	$	124	100	%	$	188	100	%	$	341	100	%	$	640	100	%
Oil and Gas Revenues:
United States	$	759	38	%	$	1,033	47	%	$	2,005	38	%	$	3,168	45	%
Egypt(1)	805		41	%	823		37	%	2,235		42	%	2,707		38	%
North Sea	419		21	%	352		16	%	1,049		20	%	1,178		17	%
Total(1)	$	1,983	100	%	$	2,208	100	%	$	5,289	100	%	$	7,053	100	%

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

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Production

The Company’s production volumes by country were as follows:

	For the Quarter Ended September 30,			For the Nine Months Ended September 30,
	2023	Increase (Decrease)	2022	2023	Increase (Decrease)	2022
Oil Volume (b/d)
United States	73,562	14%	64,540	69,552	5%	66,293
Egypt(1)(2)	88,521	9%	81,095	88,038	5%	83,857
North Sea	35,680	42%	25,160	36,070	17%	30,928
Total	197,763	16%	170,795	193,660	7%	181,078
Natural Gas Volume (Mcf/d)
United States	418,354	(10)%	463,372	417,597	(10)%	466,105
Egypt(1)(2)	300,326	(6)%	318,945	331,158	(5)%	350,400
North Sea	65,168	246%	18,822	47,665	43%	33,291
Total	783,848	(2)%	801,139	796,420	(6)%	849,796
NGL Volume (b/d)
United States	59,512	(2)%	60,685	55,938	(8)%	60,550
Egypt(1)(2)	—	NM	—	—	NM	261
North Sea	1,497	168%	558	1,209	12%	1,080
Total	61,009	—%	61,243	57,147	(8)%	61,891
BOE per day(3)
United States	202,800	—%	202,454	195,091	(5)%	204,528
Egypt(1)(2)	138,575	3%	134,253	143,231	1%	142,518
North Sea(4)	48,038	66%	28,855	45,222	20%	37,557
Total	389,413	7%	365,562	383,544	—%	384,603

(1)    Gross oil, natural gas, and NGL production in Egypt were as follows:

	For the Quarter Ended September 30,		For the Nine Months Ended September 30,
	2023	2022	2023	2022
Oil (b/d)	144,528	133,607	141,995	136,476
Natural Gas (Mcf/d)	472,744	510,260	511,430	554,268
NGL (b/d)	—	—	—	397

(2)    Includes net production volumes per day attributable to noncontrolling interests in Egypt of:

	For the Quarter Ended September 30,		For the Nine Months Ended September 30,
	2023	2022	2023	2022
Oil (b/d)	59,021	43,301	58,715	44,742
Natural Gas (Mcf/d)	200,231	170,342	220,862	186,949
NGL (b/d)	—	—	—	139

(3)    The table shows production on a boe basis 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.

(4)    Average sales volumes from the North Sea for the third quarters of 2023 and 2022 were 55,283 boe/d and 36,467 boe/d, respectively, and 47,370 boe/d and 39,362 boe/d for the first nine months of 2023 and 2022, respectively. Sales volumes may vary from production volumes as a result of the timing of liftings.

NM — Not Meaningful

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Pricing

The Company’s average selling prices by country were as follows:

	For the Quarter Ended September 30,					For the Nine Months Ended September 30,
	2023		Increase (Decrease)	2022		2023		Increase (Decrease)	2022
Average Oil Price – Per barrel
United States	$	82.38	(13)%	$	94.62	$	77.36	(23)%	$	100.06
Egypt	88.99		(10)%	99.04		82.04		(23)%	106.19
North Sea	87.70		(14)%	101.85		83.25		(21)%	105.59
Total	86.35		(12)%	97.81		80.61		(22)%	103.81
Average Natural Gas Price – Per Mcf
United States	$	2.14	(68)%	$	6.67	$	1.87	(68)%	$	5.89
Egypt	2.91		1%	2.87		2.92		4%	2.82
North Sea	10.98		(54)%	24.12		12.83		(48)%	24.59
Total	3.17		(44)%	5.62		2.96		(44)%	5.31
Average NGL Price – Per barrel
United States	$	21.74	(34)%	$	32.97	$	21.08	(42)%	$	36.36
Egypt	—		NM	—		—		NM	76.80
North Sea	42.78		(39)%	70.42		47.58		(35)%	72.86
Total	22.17		(34)%	33.39		21.76		(42)%	37.47

NM — Not Meaningful

Third-Quarter 2023 compared to Third-Quarter 2022

Crude Oil Crude oil revenues for the third quarter of 2023 totaled $1.6 billion, a $22 million increase from the comparative 2022 quarter. A 16 percent higher average daily production increased revenues by $216 million compared to the prior-year quarter, while 12 percent decrease in average realized prices decreased third-quarter 2023 oil revenues by $194 million. Crude oil revenues accounted for 82 percent of total oil and gas production revenues and 51 percent of worldwide production in the third quarter of 2023. Crude oil prices realized in the third quarter of 2023 averaged $86.35 per barrel, compared with $97.81 per barrel in the comparative prior-year quarter.

The Company’s worldwide oil production increased 27 Mb/d to 197.8 Mb/d during the third quarter of 2023 from the comparative prior-year period, primarily a result of increased drilling activity in the U.S. and Egypt, and prior year downtime for turnaround maintenance in the North Sea, partially offset by natural production decline across all assets.

Natural Gas Gas revenues for the third quarter of 2023 totaled $230 million, a $183 million decrease from the comparative 2022 quarter. A 44 percent decrease in average realized prices decreased third-quarter 2023 natural gas revenues by $178 million compared to the prior-year quarter, while 2 percent lower average daily production decreased revenues by $5 million. Natural gas revenues accounted for 12 percent of total oil and gas production revenues and 34 percent of worldwide production during the third quarter of 2023. The Company’s worldwide natural gas production decreased 17.3 MMcf/d to 783.8 MMcf/d during the third quarter of 2023 from the comparative prior-year period, primarily a result of natural production decline across all assets and the sale of non-core assets in the U.S., offset by increased drilling activity, recompletions, and prior year downtime for turnaround maintenance in the North Sea.

NGL NGL revenues for the third quarter of 2023 totaled $124 million, a $64 million decrease from the comparative 2022 quarter. A 34 percent decrease in average realized prices decreased third-quarter 2023 NGL revenues by $63 million compared to the prior-year quarter, while a slightly lower average daily production decreased revenues by $1 million. NGL revenues accounted for 6 percent of total oil and gas production revenues and 15 percent of worldwide production during the third quarter of 2023. The Company’s worldwide NGL production decreased 0.2 Mb/d to 61.0 Mb/d during the third quarter of 2023 from the comparative prior-year period, primarily a result of natural production decline, partially offset by increased drilling activity, recompletions, and prior year downtime for turnaround maintenance in the North Sea.

30

Year-to-Date 2023 compared to Year-to-Date 2022

Crude Oil Crude oil revenues for the first nine months of 2023 totaled $4.3 billion, a $882 million decrease from the comparative 2022 period. A 22 percent decrease in average realized prices decreased oil revenues for the 2023 period by approximately $1.2 billion compared to the prior-year period, while 7 percent higher average daily production increased revenues by $284 million. Crude oil revenues accounted for 82 percent of total oil and gas production revenues and 50 percent of worldwide production for the first nine months of 2023. Crude oil prices realized during the first nine months of 2023 averaged $80.61 per barrel, compared to $103.81 per barrel in the comparative prior-year period.

The Company’s worldwide oil production increased 12.6 Mb/d to 193.7 Mb/d in the first nine months of 2023 compared to the prior-year period, primarily a result of increased drilling activity in the U.S. and Egypt and less maintenance downtime in the North Sea, partially offset by natural production decline across all assets.

Natural Gas Gas revenues for the first nine months of 2023 totaled $643 million, a $583 million decrease from the comparative 2022 period. A 44 percent decrease in average realized prices decreased natural gas revenues for the 2023 period by $542 million compared to the prior-year period, while 6 percent lower average daily production decreased revenues by $41 million compared to the prior-year period. Natural gas revenues accounted for 12 percent of total oil and gas production revenues and 35 percent of worldwide production for the first nine months of 2023. The Company’s worldwide natural gas production decreased 53.4 MMcf/d to 796.4 MMcf/d in the first nine months of 2023 compared to the prior-year period, primarily a result of natural production decline across all assets and the sale of non-core assets in the U.S., partially offset by increased drilling activity, recompletions, and less maintenance downtime in the North Sea.

NGL NGL revenues for the first nine months of 2023 totaled $341 million, a $299 million decrease from the comparative 2022 period. A 42 percent decrease in average realized prices decreased NGL revenues for the 2023 period by $269 million compared to the prior-year period, while 8 percent lower average daily production decreased revenues by $30 million compared to the prior-year period. NGL revenues accounted for 6 percent of total oil and gas production revenues and 15 percent of worldwide production for the first nine months of 2023. The Company’s worldwide NGL production decreased 4.8 Mb/d to 57.1 Mb/d in the first nine months of 2023 compared to the prior-year period, primarily a result of natural production decline, partially offset by increased drilling activity, recompletions, and less maintenance downtime in the North Sea.

Purchased Oil and Gas Sales

Purchased oil and gas sales represent volumes primarily attributable to transport, fuel, and physical in-basin gas purchases that were sold by the Company to fulfill natural gas takeaway obligations. Sales related to these purchased volumes totaled $229 million and $585 million during the third quarters of 2023 and 2022, respectively, and $612 million and $1.5 billion during the first nine months of 2023 and 2022, respectively. Purchased oil and gas sales were offset by associated purchase costs of $211 million and $573 million during the third quarters of 2023 and 2022, respectively, and $558 million and $1.5 billion during the first nine months of 2023 and 2022, respectively. Gross purchased oil and gas sales values were lower in the third quarter and the first nine months of 2023, primarily due to lower average natural gas prices during the 2023 periods.

31

Operating Expenses

The Company’s operating expenses were as follows:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Lease operating expenses	$	381	$	363	$	1,047	$	1,066
Gathering, processing, and transmission	83		94		231		269
Purchased oil and gas costs	211		573		558		1,452
Taxes other than income	56		74		153		222
Exploration	39		46		120		86
General and administrative	132		64		256		298
Transaction, reorganization, and separation	5		4		11		21
Depreciation, depletion, and amortization:
Oil and gas property and equipment	366		278		993		825
Gathering, processing, and transmission assets	2		4		5		10
Other assets	9		6		26		22
Asset retirement obligation accretion	29		29		86		87
Impairments	—		—		46		—
Financing costs, net	40		55		131		257
Total Operating Expenses	$	1,353	$	1,590	$	3,663	$	4,615

Lease Operating Expenses (LOE)

LOE increased $18 million and decreased $19 million compared to the third quarter and the first nine months of 2022, respectively. On a per-unit basis, LOE decreased 1 percent and 2 percent in the third quarter and the first nine months of 2023, respectively, from the comparative prior-year periods. The increase in absolute expenses for the third quarter of 2023 compared to the third quarter of 2022 was primarily driven by higher labor costs and other operating costs trending with global inflation, partially offset by decreased workover activity primarily in the North Sea. The decrease in expenses for the first nine months of 2023 compared to the first nine months of 2022 was primarily driven by decreased workover activity primarily in the North Sea and changes in foreign currency exchange rates against the US dollar, offset by higher labor costs and other operating costs trending with global inflation.

32

Gathering, Processing, and Transmission (GPT)

The Company’s GPT expenses were as follows:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Third-party processing and transmission costs	$	59	$	66	$	157	$	200
Midstream service costs – ALTM	—		—		—		18
Midstream service costs – Kinetik	24		28		74		64
Upstream processing and transmission costs	83		94		231		282
Midstream operating expenses	—		—		—		5
Intersegment eliminations	—		—		—		(18)
Total Gathering, processing, and transmission	$	83	$	94	$	231	$	269

GPT costs decreased $11 million and $38 million in the third quarter and the first nine months of 2023, respectively, from the comparative prior-year period, primarily the result of lower upstream processing and transmission costs, partially offset by impacts of the BCP Business Combination. Upstream processing and transmission costs decreased $11 million and $51 million in the third quarter and the first nine months of 2023, respectively, from the comparative prior-year period, primarily driven by a decrease in natural gas production volumes when compared to the prior-year period. Costs for services provided by ALTM in 2022 prior to the BCP Business Combination totaling $18 million were eliminated in the Company’s consolidated financial statements and reflected as “Intersegment eliminations” in the table above. Subsequent to the BCP Business Combination and the Company’s deconsolidation of Altus on February 22, 2022, these midstream services continue to be provided by Kinetik Holdings Inc. (Kinetik) but are no longer eliminated.

Taxes Other Than Income

Taxes other than income decreased $18 million and $69 million from the third quarter and the first nine months of 2022, respectively, primarily from lower severance taxes driven by lower commodity prices as compared to the prior-year periods.

Exploration Expenses

The Company’s exploration expenses were as follows:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Unproved leasehold impairments	$	8	$	16	$	19	$	22
Dry hole expense	17		21		67		30
Geological and geophysical expense	1		1		2		3
Exploration overhead and other	13		8		32		31
Total Exploration	$	39	$	46	$	120	$	86

Exploration expenses decreased $7 million and increased $34 million from the third quarter and the first nine months of 2022, respectively. The decrease in expenses for the third quarter of 2023 compared to the third quarter of 2022 was primarily driven by lower unproved leasehold impairments and dry hole expenses, partially offset by higher exploration overhead expenses. The increase in expenses for the first nine months of 2023 compared to the first nine months of 2022 was primarily the result of higher dry hole expense from increased Egypt exploration activity during 2023.

General and Administrative (G&A) Expenses

G&A expenses increased $68 million and decreased $42 million compared to the third quarter and the first nine months of 2022, respectively. The increase in expenses for the third quarter of 2023 compared to the third quarter of 2022 was primarily driven by higher cash-based stock compensation expense resulting from changes in the Company’s stock price and anticipated achievement of performance and financial objectives as defined in the stock award plans. G&A expenses for the first nine months of 2022 were higher than the first nine months of 2023, as impacts of anticipated achievement-based objectives and changes in the Company’s stock price on cash-based stock compensation were greater during the first nine months of 2022 than those in the first nine months of 2023.

33

Transaction, Reorganization, and Separation (TRS) Costs

TRS costs remained essentially flat in the third quarter of 2023 when compared to the third quarter of 2022 and decreased $10 million compared to the first nine months of 2022. Higher TRS costs during the first nine months of 2022 were primarily a result of transaction costs from the BCP Business Combination in the first quarter of 2022.

Depreciation, Depletion, and Amortization (DD&A)

Total DD&A expenses increased $89 million and $167 million from the third quarter and the first nine months of 2022, respectively, primarily driven by DD&A on the Company’s oil and gas properties. The Company’s DD&A rate on its oil and gas properties increased $1.76 per boe and $1.30 per boe from the third quarter and the first nine months of 2022, respectively, driven by general cost inflation. The increase on an absolute basis was also impacted by an increase in capital investment activity in Egypt and acquisitions in the U.S. over the past year.

Impairments

During the second quarter of 2023, the Company recorded $46 million of impairments in connection with valuations of drilling and operations equipment inventory upon the Company’s decision to suspend drilling operations in the North Sea.

Financing Costs, Net

The Company’s Financing costs were as follows:

	For the Quarter Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Interest expense	$	71	$	74	$	220	$	239
Amortization of debt issuance costs	1		1		2		7
Capitalized interest	—		—		—		(1)
(Gain) loss on extinguishment of debt	—		—		(9)		67
Interest income	(2)		(4)		(7)		(9)
Interest income from APA Corporation, net	(30)		(16)		(75)		(46)
Total Financing costs, net	$	40	$	55	$	131	$	257

Net financing costs decreased $15 million and $126 million from the third quarter and the first nine months of 2022, respectively. Lower overall interest expense was a result of the reduction of fixed-rate debt during 2023 coupled with losses incurred on the extinguishment of debt during the first nine months of 2022 and gains on extinguishment of debt in the first nine months of 2023.

Provision for Income Taxes

The Company estimates its annual effective income tax rate in recording its quarterly provision for income taxes in the various jurisdictions in which the Company operates. Non-cash impairments on the carrying value of the Company’s oil and gas properties, gains and losses on the sale of assets, statutory tax rate changes, and other significant or unusual items are recognized as discrete items in the quarter in which they occur.

During the third quarter of 2023, the Company’s effective income tax rate was primarily impacted by a decrease in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2023 year-to-date effective income tax rate was primarily impacted by a deferred tax expense related to the remeasurement of taxes in the U.K. as a result of the enactment of Finance Act 2023 on January 10, 2023, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. During the third quarter of 2022, the Company’s effective income tax rate was primarily impacted by a deferred tax expense related to the remeasurement of taxes in the U.K. as a result of the enactment of the Energy (Oil and Gas) Profits Levy Act of 2022 on July 14, 2022, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2022 year-to-date effective income tax rate was primarily impacted by the gain associated with deconsolidation of Altus, the gain on sale of certain non-core mineral rights in the Delaware Basin, a deferred tax expense related to the remeasurement of taxes in the U.K., and a decrease in the amount of valuation allowance against its U.S. deferred tax assets.

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On January 10, 2023, Finance Act 2023 was enacted, receiving Royal Assent, and included amendments to the Energy (Oil and Gas) Profits Levy Act of 2022, increasing the levy from a 25 percent rate to a 35 percent rate, effective for the period of January 1, 2023 through March 31, 2028. Under U.S. GAAP, the financial statement impact of new legislation is recorded in the period of enactment. Therefore, in the first quarter of 2023, the Company recorded a deferred tax expense of $174 million related to the remeasurement of the December 31, 2022 U.K. deferred tax liability.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA). The IRA includes a new 15 percent corporate alternative minimum tax (Corporate AMT) on applicable corporations with an average annual financial statement income that exceeds $1 billion for any three consecutive years preceding the tax year at issue. The Corporate AMT is effective for tax years beginning after December 31, 2022. The Company is continuing to evaluate the provisions of the IRA and awaits further guidance from the U.S. Treasury Department to properly assess the impact of these provisions on the Company. Under the existing guidance, the Company does not believe the IRA will have a material impact for 2023.

The Company has a full valuation allowance against its U.S. net deferred tax assets. The Company will continue to maintain a full valuation allowance on its U.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance. However, given the Company’s current and anticipated future domestic earnings, the Company believes that there is a reasonable possibility that in the next 12 months sufficient positive evidence may become available to allow the Company to reach a conclusion that a significant portion of the U.S. valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense, which could be material, for the period the release is recorded.

The Company and its subsidiaries are subject to U.S. federal income tax as well as income or capital taxes in various states and foreign jurisdictions. The Company’s tax reserves are related to tax years that may be subject to examination by the relevant taxing authority.

Critical Accounting Estimates

The Company prepares its financial statements and accompanying notes in conformity with accounting principles generally accepted in the U.S., which require management to make estimates and assumptions about future events that affect reported amounts in the financial statements and the accompanying notes. The Company identifies certain accounting policies involving estimation as critical accounting estimates based on, among other things, their impact on the portrayal of the Company’s financial condition, results of operations, or liquidity, as well as the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting estimates address accounting matters that are inherently uncertain due to unknown future resolution of such matters. Management routinely discusses the development, selection, and disclosure of each critical accounting estimate. For a discussion of the Company’s most critical accounting estimates, please see the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Some of the more significant estimates include reserve estimates, oil and gas exploration costs, offshore decommissioning contingency, long-lived asset impairments, asset retirement obligations, and income taxes.

New Accounting Pronouncements

There were no material changes in recently issued or adopted accounting standards from those disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Omitted.

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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 the Company’s disclosure controls and procedures as of September 30, 2023, 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 the information the Company is required to disclose under applicable laws and regulations is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

The Company periodically reviews the design and effectiveness of its disclosure controls, including compliance with various laws and regulations that apply to its operations, both inside and outside the United States. The Company makes modifications to improve the design and effectiveness of our disclosure controls, and may take other corrective action, if the Company’s reviews identify deficiencies or weaknesses in its controls.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting that occurred during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

Refer to Part I, Item 3—Legal Proceedings of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Note 12—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 (which is hereby incorporated by reference herein), for a description of material legal proceedings.

ITEM 1A.    RISK FACTORS

There have been no material changes to the risk factors disclosed in Part I, Item 1A—Risk Factors of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Given the nature of its business, APA Corporation may be subject to different or additional risks than those applicable to the Company. For a description of these risks, refer to the disclosures in APA Corporation’s Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023, June 30, 2023, and September 30, 2023 and APA Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

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ITEM 6.    EXHIBITS

3.1	–	Amended and Restated Certificate of Incorporation of Registrant, dated March 1, 2021, as attached as Annex A to the Certificate of Merger of APA Merger Sub, Inc. with and into Registrant, filed with the Secretary of State of the State of Delaware on March 1, 2021 (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed March 1, 2021, SEC File No. 001-4300).
3.2	–	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Registrant, dated June 7, 2021, filed with the Secretary of State of the State of Delaware on June 10, 2021 (incorporated by reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed June 14, 2021, SEC File No. 001-4300).
3.3	–	Amended and Restated Bylaws of Registrant, dated March 1, 2021 (incorporated by reference to Exhibit 3.2 to Registrant’s Current Report on Form 8-K filed March 1, 2021, SEC File No. 001-4300).
*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	–	The following financial statements from the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Statement of Consolidated Operations, (ii) Statement of Consolidated Comprehensive Income, (iii) Statement of Consolidated Cash Flows, (iv) Consolidated Balance Sheet, (v) Statement of Consolidated Changes in Equity (Deficit) and Noncontrolling Interests and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
*101.SCH	–	Inline XBRL Taxonomy Schema Document.
*101.CAL	–	Inline XBRL Calculation Linkbase Document.
*101.DEF	–	Inline XBRL Definition Linkbase Document.
*101.LAB	–	Inline XBRL Label Linkbase Document.
*101.PRE	–	Inline XBRL Presentation Linkbase Document.
*104	–	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*    Filed herewith

**    Furnished herewith

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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:	November 2, 2023	/s/ STEPHEN J. RINEY
		Stephen J. Riney
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)
Dated:	November 2, 2023	/s/ REBECCA A. HOYT
		Rebecca A. Hoyt
		Senior Vice President, Chief Accounting Officer, and Controller
		(Principal Accounting Officer)

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