APA CORPORATION The following discussion relates toApache Corporation (Apache or the Company) and its consolidated subsidiaries and should be read in conjunction with the Company's consolidated financial statements and accompanying notes included under Part I, Item 1, "Financial Statements" of this Quarterly Report on Form 10-Q, as well as the Company's consolidated financial statements, accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . OverviewApache Corporation , aDelaware corporation formed in 1954, 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 United States (U.S. ),Egypt , and offshore theUnited Kingdom (U.K. ) in theNorth Sea (North Sea ). Apache also has exploration interests in Suriname and other international locations that may, over time, result in reportable discoveries and development opportunities. Apache's midstream business is operated by Altus Midstream Company through its subsidiaryAltus Midstream LP (collectively, Altus). Altus owns, develops, and operates a midstream energy asset network in thePermian Basin ofWest Texas . Additionally, Altus owns equity interests in a total of fourPermian Basin pipelines that will access various points along theTexas Gulf Coast , providing it with fully integrated, wellhead-to-water connectivity. Apache's mission is to grow in an innovative, safe, environmentally responsible, and profitable manner for the long-term benefit of its stakeholders. Apache is focused on rigorous portfolio management, disciplined financial structure, and optimization of returns. The global economy and the energy industry have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions in the first quarter of 2020. The impacts to oil supply and demand resulted in historic oil price declines. As with previous changes in a volatile price environment, Apache responded quickly and decisively, taking the following actions: • Established primary initiatives to prioritize the health and safety of the
Company's employees and communities in which Apache operates, including
closing offices, implementing work-from-home processes and stringent
operational protocols, and initiating contingency plans to ensure
continuity in the event of a more sustained impact.
• Announced a reduction of
the Company's 2020 upstream capital budget. This reduction included
eliminating all
activity in Egypt and the North Sea .
• Decreased its dividend by 90 percent, preserving approximately $340 million of cash flow on an annualized basis and strengthening liquidity.
• Further protected cash flows from further downside price dislocation by
entering into a substantial hedge position, primarily surrounding second
and third quarter production, as the Company believes these time periods
will have higher volatility risk.
• Implemented deeper cost cutting measures, increasing annual targeted cost
reductions from
previously announced corporate redesign and organizational initiatives.
• Conducted and continues to conduct thorough price sensitivity analysis and
operational evaluation of producing wells across its portfolio that allows
for a methodical and integrated approach to production shut-ins and
curtailments with a focus on preserving cash flows in a distressed price
environment and protecting the Company's assets.
The above actions were difficult but necessary to preserve liquidity and provide
sufficient capacity to bridge to a more sustainable and profitable price
environment. The Company is committed to its longer-term objectives, which still
hold true despite the current environment, to maintain a balanced asset
portfolio, invest for long-term returns over production growth, and budget
conservatively to generate free cash flow that can be directed on a priority
basis to debt reduction.
Apache closely monitors hydrocarbon pricing fundamentals and will reallocate
capital as part of its ongoing planning process. For additional detail on the
Company's forward capital investment outlook, refer to "Capital and Operational
Outlook" below.
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Given the recent economic downturn and current forecasts, Apache reported a
first quarter loss of $4.5 billion , or $11.86 per common share, compared to a
loss of $47 million , or $0.12 per common share, in the first quarter of 2019.
The decrease in net income compared to the prior-year quarter is primarily the
result of lower commodity price realizations driving 25 percent lower production
revenues and the recognition of asset impairments of $4.5 billion primarily
related to proved properties in the Company's U.S. Permian Basin .
Daily production in the first quarter of 2020 averaged 468 thousand barrels of
oil equivalent per day (Mboe/d), a decrease of seven percent from the
comparative prior-year quarter driven primarily by the Company's divestiture of
non-core, gas-weighted assets in the Oklahoma and Texas panhandle areas and
natural decline in Egypt . The Company generated $502 million of cash from
operating activities during the quarter, a decrease of 16 percent from the first
quarter of 2019 driven by lower revenues. Apache ended the quarter with $428
million of cash.
Operational Highlights
Key operational highlights for the quarter include:
United States
• First quarter equivalent production from the Permian region, which
accounts for 97 percent of Apache's total U.S. production, increased 10
percent from the first quarter of 2019 driven by the success of theweakness, Apache reduced activity in the region, averaging 7 rigs and
completing 24 gross operated wells during the first quarter of 2020
compared to 14 average rigs and 39 gross operated wells in the prior-year
quarter. The Company is eliminating all
activity in the
International
• The
net production decreased 20 percent from the first quarter of 2019,
primarily a result of natural decline and fewer wells brought on-line
during the period. The region continues to build and enhance its robust
drilling inventory, supplemented with recent seismic acquisitions and new
play concept evaluations, on both new and existing acreage.
• The
during the first quarter of 2020. The region's daily production increased
four percent from the first quarter 2019, primarily the result of its
second well at the Garten field, which came on-line in the first quarter
of 2020.
• In April 2020 , Apache announced a significant oil discovery at theSapakara West-1 well drilled offshore Suriname on Block 58. This follows
the
for which appraisal plans are ongoing. Sapakara West-1 was drilled to a
depth of approximately 6,300 meters (20,700 feet) and successfully tested
for the presence of hydrocarbons in multiple stacked targets in the upper
Cretaceous-aged Campanian and Santonian intervals. The Company is
currently drilling a third well at the Kwaskwasi prospect and expects to
drill a fourth exploration well in the block. Apache holds a 50 percent
working interest in Block 58.
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Results of Operations
Oil and Gas Revenues
Apache's oil and gas revenues by region and each region's percent contribution
to revenues are as follows:
For the Quarter Ended March 31,
2020 2019
$ Value % Contribution $ Value % Contribution
($ in millions)
Oil Revenues:
United States $ 428 41 % $ 496 38 %
Egypt(1) 333 33 % 514 39 %
North Sea 271 26 % 300 23 %
Total(1) $ 1,032 100 % $ 1,310 100 %
Natural Gas Revenues:
United States $ 39 32 % $ 123 52 %
Egypt(1) 65 53 % 81 34 %
North Sea 19 15 % 32 14 %
Total(1) $ 123 100 % $ 236 100 %
Natural Gas Liquids (NGL) Revenues:
United States $ 71 88 % $ 98 91 %
Egypt(1) 3 4 % 4 4 %
North Sea 7 8 % 6 5 %
Total(1) $ 81 100 % $ 108 100 %
Oil and Gas Revenues:
United States $ 538 44 % $ 717 43 %
Egypt(1) 401 32 % 599 36 %
North Sea 297 24 % 338 21 %
Total(1) $ 1,236 100 % $ 1,654 100 %
(1) Includes revenues attributable to a noncontrolling interest in
26
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The following table presents production volumes by region:
For the Quarter Ended March 31,
Increase
2020 (Decrease) 2019
Oil Volume - b/d
United States 101,614 (7 )% 108,778
Egypt(1)(2) 73,178 (20 )% 91,616
North Sea 55,262 1 % 54,528
Total 230,054 (10 )% 254,922
Natural Gas Volume - Mcf/d
United States 597,842 (20 )% 744,307
Egypt(1)(2) 254,579 (19 )% 315,508
North Sea 67,278 18 % 56,892
Total 919,699 (18 )% 1,116,707
NGL Volume - b/d
United States 81,381 38 % 58,864
Egypt(1)(2) 918 (20 )% 1,150
North Sea 2,135 17 % 1,823
Total 84,434 37 % 61,837
BOE per day(3)
United States 282,636 (3 )% 291,693
Egypt(1)(2) 116,525 (20 )% 145,351
North Sea(4) 68,610 4 % 65,833
Total 467,771 (7 )% 502,877
(1) Gross oil, natural gas, and NGL production in
For the Quarter Ended March 31,
2020 2019
Oil (b/d) 183,627 203,985
Natural Gas (Mcf/d) 655,410 755,715
NGL (b/d) 1,782 2,065
(2) Includes net production volumes per day attributable to a noncontrolling
interest in Egypt of:
For the Quarter Ended March 31,
2020 2019
Oil (b/d) 24,598 30,554
Natural Gas (Mcf/d) 85,672 105,412
NGL (b/d) 306 383
(3) The table shows production on a barrel of oil equivalent basis (boe) in which
natural gas is converted to an equivalent barrel of oil based on a 6:1 energy
equivalent ratio. This ratio is not reflective of the price ratio between the
two products.
(4) Average sales volumes from the
2019 were 73,270 boe/d and 63,176 boe/d, respectively. Sales volumes may vary
from production volumes as a result of the timing of liftings in the Beryl
field.
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Pricing
The following table presents pricing information by region:
For the Quarter Ended March 31,
Increase
2020 (Decrease) 2019
Average Oil Price - Per barrel
United States $ 46.32 (9 )% $ 50.70
Egypt 49.97 (20 )% 62.35
North Sea 49.66 (23 )% 64.15
Total 48.31 (16 )% 57.70
Average Natural Gas Price - Per Mcf
United States $ 0.70 (62 )% $ 1.83
Egypt 2.83 (1 )% 2.85
North Sea 3.17 (49 )% 6.24
Total 1.47 (37 )% 2.34
Average NGL Price - Per barrel
United States $ 9.59 (48 )% $ 18.47
Egypt 31.70 (16 )% 37.66
North Sea 36.53 (10 )% 40.60
Total 10.51 (46 )% 19.49
First-Quarter 2020 compared to First-Quarter 2019
Crude Oil Revenues Crude oil revenues for the first quarter of 2020 totaled $1.0
billion , a $278 million decrease from the comparative 2019 quarter. A 16 percent
decrease in average realized prices reduced first-quarter 2020 revenues by $213
million compared to the prior-year quarter, while 10 percent lower average daily
production decreased revenues by $65 million . Crude oil accounted for 84 percent
of oil and gas production revenues and 49 percent of worldwide production in the
first quarter of 2020. Crude oil prices realized in the first quarter of 2020
averaged $48.31 per barrel, compared with $57.70 per barrel in the comparative
prior-year quarter.
Worldwide oil production decreased 24.9 Mb/d to 230.1 Mb/d in the first quarter
of 2020 from the comparative prior-year period, primarily a result of lower
gross production due to natural decline, particularly in Egypt , and the sale of
the Company's Woodford-SCOOP and STACK plays and western Anadarko Basin assets
in the U.S.
Crude oil prices in March 2020 were negatively impacted by the combined shocks
in oil supply and demand caused by the COVID-19 pandemic and the associated
uncertainty in commodity markets. Market prices for West Texas Intermediate
(WTI) crude oil and Brent crude oil collapsed to $20.48 and $22.74 ,
respectively, as of March 31, 2020 . Significantly lower oil prices realized at
the end of the quarter are expected to extend into future quarters and will
substantially decrease associated crude oil revenues. Additionally, the Company
is eliminating drilling and completion activities in the U.S. and is performing
a methodical and targeted approach to production shut-ins and curtailments with
a focus on preserving cash flows. Such ongoing production interruptions will
negatively affect future period production volumes in the near term.
Natural Gas Revenues Gas revenues for the first quarter of 2020 totaled $123
million , a $113 million decrease from the comparative 2019 quarter. A 37 percent
decrease in average realized prices reduced first-quarter 2020 revenues by $88
million compared to the prior-year quarter, while 18 percent lower average daily
production decreased revenues by $25 million . Natural gas accounted for 10
percent of Apache's oil and gas production revenues and 33 percent of its
equivalent production during the first quarter of 2020.
Worldwide natural gas production decreased 197 MMcf/d to 920 MMcf/d in the first
quarter of 2020 from the comparative prior-year period, primarily a result of
lower gross production due to general decline in Egypt and the sale of the
Company's Woodford-SCOOP and STACK plays and western Anadarko Basin assets in
the U.S. Future period associated natural gas production is expected to be
negatively impacted in the near term with well shut-ins and curtailments in
drilling activity in the Company's Permian region.
NGL Revenues NGL revenues for the first quarter of 2020 totaled $81 million , a
$27 million decrease from the comparative 2019 quarter. A 46 percent decrease in
average realized prices reduced first-quarter 2020 revenues by $50 million
compared to
28
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the prior-year quarter, while 37 percent higher average daily production
increased revenues by $23 million . NGLs accounted for 6 percent of Apache's oil
and gas production revenues and 18 percent of its equivalent production during
the first quarter of 2020.
Worldwide production of NGLs increased 22.6 Mb/d to 84.4 Mb/d in the first
quarter of 2020 from the comparative prior-year period, primarily a result of
the Alpine High development and cryogenic processing capacity commencing during
the second half of 2019, partially offset by a decrease from the sale of the
Company's Woodford-SCOOP and STACK plays and western Anadarko Basin assets in
the U.S.
Altus Revenues
During the first quarters of 2020 and 2019, midstream services revenues totaling
$41 million and $34 million , respectively, were generated through fee-based
contractual arrangements with Apache. These affiliated revenues are eliminated
upon consolidation. The increase compared to the prior-year quarter was
primarily driven by higher throughput of rich natural gas volumes at Alpine High
due to increased capacity as a result of three cryogenic processing trains
coming on-line during 2019.
Purchased Oil and Gas Sales
Purchased oil and gas sales for the first quarter of 2020 totaled $108 million ,
an $84 million increase from the prior-year period, and were primarily offset by
associated costs totaling $86 million in the quarter.
Operating Expenses
The table below presents a comparison of the Company's operating expenses. All
operating expenses include costs attributable to a noncontrolling interest in
Egypt and Altus.
For the Quarter Ended March 31,
2020 2019
(In millions)
Lease operating expenses $ 335 $ 365
Gathering, processing, and transmission 71 88
Purchased oil and gas costs 86 22
Taxes other than income 33 51
Exploration 57 69
General and administrative 68 123
Transaction, reorganization, and separation 27 4
Depreciation, depletion, and amortization:
Oil and gas property and equipment 531 607
GPT assets 20 23
Other assets 15 16
Asset retirement obligation accretion 27 27
Impairments 4,472 -
Financing costs, net 103 97
Lease Operating Expenses (LOE) LOE decreased $30 million , or 8 percent, for the
first quarter of 2020 on an absolute dollar basis relative to the comparable
period of 2019. On a per-unit basis, LOE decreased 4 percent from $8.12 to $7.79
per boe for the first quarter of 2020 compared to the prior-year period. The
decrease in absolute dollar costs is the result of reduced labor costs, fuel
costs, and the sale of the Company's Woodford-SCOOP and STACK plays and western
Anadarko Basin assets in the U.S.
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Gathering, Processing, and Transmission (GPT) GPT expenses include processing
and transmission costs paid to third-party carriers and to Altus for Apache's
upstream natural gas production associated with its Alpine High play. GPT
expenses also include midstream operating costs incurred by Altus. The following
table presents a summary of these expenses:
For the Quarter Ended March 31,
2020 2019
(In millions)
Third-party processing and transmission costs $ 60 $ 72
Midstream service affiliate costs 40
33
Upstream processing and transmission costs 100 105 Midstream operating expenses 11 16 Intersegment eliminations (40 ) (33 ) Total Gathering, processing, and transmission $ 71 $
88
GPT costs decreased$17 million from the first quarter of 2019. Third-party processing and transmission costs decreased$12 million from the first quarter of 2019, primarily driven by a decrease in contracted pricing and the Company's sale of non-core assets inOklahoma andTexas . Midstream operating expenses decreased$5 million from the first quarter of 2019, primarily driven by increased operational efficiency as a result of transitioning from mechanical refrigeration units to Altus' centralized Diamond cryogenic complex starting in the second quarter of 2019. The transition resulted in decreases in employee-related costs, contract labor, lower supplies expenses, and lower equipment rentals. Midstream service affiliate costs increased$7 million from the first quarter of 2019, primarily driven by higher throughput of rich natural gas volumes atAlpine High . Purchased Oil and Gas Costs Purchased oil and gas costs for the first quarter of 2020 totaled$86 million , an increase of$64 million from the prior-year period, and were more than offset by associated sales totaling$108 million in the quarter. Taxes other than Income Taxes other than income decreased$18 million from the first quarter of 2019, primarily the result of a decrease in severance taxes on lower commodity prices and the divestiture of the Company's non-core assets inOklahoma andTexas . Exploration Expenses Exploration expenses include unproved leasehold impairments, exploration dry hole expense, geological and geophysical expenses, and the costs of maintaining and retaining unproved leasehold properties. The following table presents a summary of exploration expenses: For the Quarter Ended March 31, 2020 2019 (In millions) Unproved leasehold impairments $ 19$ 23 Dry hole expense 24
10
Geological and geophysical expense 3
19
Exploration overhead and other 11 17 Total Exploration $ 57$ 69 Exploration expenses in the first quarter of 2020 decreased$12 million compared to the prior-year period. Geological and geophysical expense decreased$16 million , and exploration overhead decreased$6 million from the prior-year period, primarily a result of a decrease in exploration activity.Apache drilled 6 and 11 gross exploration wells in the first quarters of 2020 and 2019, respectively. Dry hole expense increased$14 million in the first quarter from the prior-year quarter primarily related to onshore exploration wells in theU.S. andEgypt . General and Administrative (G&A) Expenses G&A expense for the first quarter decreased$55 million from the first three months of 2019, primarily related to lower cash-based stock compensation expense resulting from a decrease in the Company's stock price in the first quarter of 2020. Transaction, Reorganization, and Separation (TRS) Costs TRS costs for the first quarter totaled$27 million , an increase of$23 million from the prior-year period, primarily the result of severance costs associated with the Company's reorganization announced during the fourth quarter of 2019. 30 -------------------------------------------------------------------------------- In recent years, the Company has streamlined its portfolio through strategic divestitures and began centralizing certain operational activities in an effort to capture greater efficiencies and cost savings through shared services. During the second half of 2019, management initiated a comprehensive redesign ofApache's organizational structure and operations that it believes will better position the Company to be competitive for the long-term and further reduce recurring costs. OnApril 1, 2020 , the Company announced annual cost reduction targets for this initiative were increased from$150 million to$300 million in response to oil demand implications stemming from the COVID-19 global pandemic and related governmental action. Initial reorganization efforts were substantially completed for the technical functions by the end of the first quarter of 2020. Changes for the corporate support functions will be ongoing through most of 2020. The Company expects to incur an estimated$10 million to$20 million of additional expenses associated with this reorganization throughout the remainder of 2020 for anticipated severance, relocation, and similar costs. Depreciation, Depletion, and Amortization (DD&A) Oil and gas property DD&A expense decreased$76 million compared to the first quarter of 2019. The Company's oil and gas property DD&A rate decreased$1.13 per boe in the first quarter of 2020 from the prior-year period. The decrease is primarily the result of lower production volumes and lower asset property balances associated with proved property impairments recorded in the fourth quarter of 2019. GPT depreciation decreased$3 million from the first quarter of 2019, primarily the result of impairments recorded to the carrying value of the Altus GPT facilities in the fourth quarter of 2019. ImpairmentsThe Company recorded asset impairments in connection with fair value assessments in the first quarter of 2020 totaling$4.5 billion , including$4.3 billion for oil and gas proved properties in theU.S. ,Egypt , andNorth Sea ,$68 million impairment of GPT facilities inEgypt ,$87 million impairment of goodwill inEgypt , and$18 million of inventory and other miscellaneous assets, including charges for the early termination of a rig rental lease. The Company recorded no asset impairments during the first quarter of 2019. For more information regarding asset impairments, please refer to "Fair Value Measurements," "Oil and Gas Property," and "Gathering, Processing, and Transmission Facilities" within Note 1-Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Financing Costs, Net Financing costs incurred during the periods comprised the following: For the Quarter Ended March 31, 2020 2019 (In millions) Interest expense $ 107 $ 107 Amortization of debt issuance costs 2 2 Capitalized interest (4 ) (8 ) Interest income (2 ) (4 ) Financing costs, net $ 103 $ 97 Net financing costs increased$6 million compared with the first quarter of 2019, primarily a result of a$4 million decrease in capitalized interest from lower drilling activity and construction activities atAlpine High . Provision for Income TaxesThe 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 of 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 first quarter of 2020,Apache's effective income tax rate was primarily impacted by oil and gas asset impairments and a goodwill impairment recognized during the period. Both the 2020 and 2019 effective income tax rates were also impacted by an increase in the amount of valuation allowance against itsU.S. deferred tax assets.Apache recorded a full valuation allowance against itsU.S. net deferred tax assets.Apache will continue to maintain a full valuation allowance on itsU.S. net deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of this allowance.Apache and its subsidiaries are subject toU.S. federal income tax as well as income or capital taxes in various state and foreign jurisdictions. The Company's tax reserves are related to tax years that may be subject to examination by the relevant taxing authority. The Company is currently under Internal Revenue Service audit for the 2014-2017 tax years and is also under audit in various states and foreign jurisdictions as part of its normal course of business. 31 -------------------------------------------------------------------------------- Capital and Operational Outlook As the Company evaluates the remainder of 2020 under depressed oil markets and prolonged effects of the COVID-19 pandemic, there are a number of fundamental uncertainties. Key among these concerns is the timing and magnitude of worldwide demand recovery and worldwide supply response. ForApache , the immediate course of action is to actively reduce its cost structure, protect its balance sheet, and prudently manage operations to preserve cash flow. Under a reduced capital budget for 2020, these actions include: • eliminatingPermian Basin drilling and completion activity;
• allocating a portion of the reduced capital spending to
provide better returns than onshore
• continuing to advance exploratory and appraisal programs in Suriname.
Apache's diversified global portfolio provides the ability to quickly optimize capital allocation as market conditions change. The current crisis, however, is still evolving and may become more severe and complex. The COVID-19 pandemic may also materially adversely affectApache's results in a manner that is either not currently known or that the Company does not currently consider to be a significant risk to its business. For additional information about the business risks relating to the COVID-19 pandemic and related governmental action, please refer to Part II, Item 1A-Risk Factors of this Current Report on Form 10-Q. Capital Resources and Liquidity Operating cash flows are the Company's primary source of liquidity.Apache's operating cash flows, both in the short-term and the long-term, are impacted by highly volatile oil and natural gas prices, as well as costs and sales volumes. Significant changes in commodity prices impactApache's revenues, earnings, and cash flows. These changes potentially impactApache's liquidity if costs do not trend with changes in commodity prices. Historically, costs have trended with commodity prices, albeit on a lag. Sales volumes also impact cash flows; however, they have a less volatile impact in the short term.Apache's long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success ofApache's drilling program and its ability to add reserves economically. Changes in commodity prices also impact estimated quantities of proved reserves. In the first three months of 2020,Apache recognized negative reserve revisions of approximately 6 percent of its year-end 2019 estimated proved reserves as a result of lower prices. If prices for the remainder of 2020 were to approximate commodity future prices as ofMarch 31, 2020 ,Apache would likely report significant additional negative revisions when calculated on a basis consistent with previous reserve disclosures. However, as a result of the substantial uncertainty surrounding economic conditions, such as worldwide supply and demand, future service costs, and other prolonged effects of the COVID-19 pandemic, the Company is unable to estimate any future revisions at this time. At times, the Company may also elect to utilize available cash on hand, committed borrowing capacity, access to both debt and equity capital markets, or proceeds from the sale of nonstrategic assets for all other liquidity and capital resource needs. Combined with proactive measures to adjust its capital budget, decrease its dividend, protect further downside price risk through entering into new hedge positions, and reduce its operating cost structure in the current volatile commodity price environment,Apache believes the liquidity and capital resource alternatives available to the Company will be adequate to fund its operations and provide flexibility until commodity prices and industry conditions improve. This includes supportingApache's capital development program, repayment of debt maturities, payment of dividends, and any amount that may ultimately be paid in connection with commitments and contingencies. For additional information, please see Part I, Items 1 and 2, "Business and Properties," and Item 1A, "Risk Factors," in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2019 . 32 -------------------------------------------------------------------------------- Sources and Uses of Cash The following table presents the sources and uses of the Company's cash and cash equivalents for the periods presented. For the Three Months Ended March 31, 2020 2019 (In millions) Sources of Cash and Cash Equivalents: Net cash provided by operating activities $ 502$ 598 Proceeds from commercial paper and credit facility 250 159 Proceeds from Altus credit facility 72 - Proceeds from sale of oil and gas properties 126 9 Other - 29 950 795 Uses of Cash and Cash Equivalents: Additions to oil and gas property(1) $ 511$ 729 Additions to Altus gathering, processing, and transmission facilities(1) 19 119 Leasehold and property acquisitions 1 15 Altus equity method interests 83 118 Dividends paid 94 94 Distributions to noncontrolling interest - Egypt 32 107 Other 29 - 769 1,182 Increase (decrease) in cash and cash equivalents $ 181
(1) The table presents capital expenditures on a cash basis; therefore, the
amounts may differ from those discussed elsewhere in this document, which
include accruals.
Sources of Cash and Cash Equivalents Net Cash Provided by Operating Activities Operating cash flows areApache's primary source of capital and liquidity and are impacted, both in the short term and the long term, by volatile oil and natural gas prices. The factors that determine operating cash flows are largely the same as those that affect net earnings, with the exception of non-cash expenses such as DD&A, exploratory dry hole expense, asset impairments, asset retirement obligation (ARO) accretion, and deferred income tax expense. Net cash provided by operating activities for the first three months of 2020 totaled$502 million , a decrease of$96 million from the first three months of 2019. The decrease primarily reflects lower commodity prices compared to the prior-year period. For a detailed discussion of commodity prices, production, and expenses, refer to the " Results of Operations " of this Item 2. For additional detail on the changes in operating assets and liabilities and the non-cash expenses that do not impact net cash provided by operating activities, please see the Statement of Consolidated Cash Flows in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q. Proceeds from Commercial Paper and Credit Facility During the first quarter of 2020,Apache borrowed$250 million from its credit facility, which is classified as short-term debt as ofMarch 31, 2020 . The Company borrowed$159 million in commercial paper during the first quarter of 2019. Proceeds from Altus Credit Facility The construction of Altus' gathering and processing assets and the exercise of its options for equity interests in fourPermian Basin long-haul pipeline entities required capital expenditures in excess of Altus' cash on hand and operational cash flows. During the first quarter of 2020,Altus Midstream LP borrowed$72 million under its revolving credit facility. The Company anticipates thatAltus Midstream LP will continue to utilize revolving credit facility borrowing capacity in addition to Altus' cash flow from operating activities to fund its future capital needs associated with its equity method interests. Asset DivestituresThe Company recorded proceeds from non-core asset divestitures totaling$126 million and$9 million in the first three months of 2020 and 2019, respectively. For more information regarding the Company's acquisitions and divestitures, please see Note 2-Acquisitions and Divestitures in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. 33 -------------------------------------------------------------------------------- Uses of Cash and Cash Equivalents Additions to Oil & Gas Property During the first three months of 2020, exploration and development (E&D) cash expenditures totaled$511 million , compared to$729 million for the first three months of 2019, a reflection of the Company's efforts to reduce capital spending. Expenditures were allocated across the Company's portfolio at levels commensurate with cash from operating activities, with a majority of the expenditures being allocated toApache's Permian region.Apache operated an average of 21 drilling rigs during the first quarter of 2020 compared to 29 drilling rigs in the prior-year quarter. Additions to Altus GPT Facilities Apache's cash expenditures in GPT facilities totaled$19 million and$119 million in the first three months of 2020 and 2019, respectively, nearly all comprising midstream infrastructure expenditures incurred by Altus, which were substantially completed as ofDecember 31, 2019 . Altus management believes its existing gathering, processing, and transmission infrastructure capacity is capable of fulfilling its midstream contracts to serviceApache's production fromAlpine High and any potential third-party customers. As such, Altus expects capital requirements for its existing infrastructure assets during 2020 to be primarily related to maintenance of these assets. Leasehold and Property Acquisitions Apache completed leasehold and property acquisitions for cash totaling$1 million and$15 million during the first three months of 2020 and 2019, respectively. Altus Equity Method Interests Altus made acquisitions and contributions of$83 million and$118 million in the first three months of 2020 and 2019, respectively, for equity interests in fourPermian Basin long-haul pipeline entities and received distributions of$21 million in the first three months of 2020 that are included in net cash provided by operating activities. The Company received no distributions from its equity method interests in the first three months of 2019. For more information regarding the Company's equity method interests, please see Note 6-Equity Method Interests in the Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Dividends For each of the three-month periods endedMarch 31, 2020 and 2019, the Company paid$94 million in dividends on its common stock. In the first quarter of 2020,Apache's Board of Directors approved a reduction in the Company's quarterly dividend per share from$0.25 to$0.025 , effective for all dividends payable afterMarch 12, 2020 .Egypt Noncontrolling Interest Sinopec International Petroleum Exploration and Production Corporation (Sinopec) holds a one-third minority participation interest inApache's oil and gas business inEgypt .Apache made cash distributions totaling$32 million and$107 million to Sinopec in the first three months of 2020 and 2019, respectively. Liquidity The following table presents a summary of the Company's key financial indicators at the dates presented: March 31, 2020 December 31, 2019 (In millions) Cash and cash equivalents $ 428 $ 247 Total debt - Apache 8,412 8,170 Total debt - Altus 468 396 Equity (deficit) (228 ) 4,465 Available committed borrowing capacity - Apache 3,750 4,000 Available committed borrowing capacity - Altus 332 404 Cash and Cash EquivalentsThe Company had$428 million in cash and cash equivalents as ofMarch 31, 2020 , of which approximately$19 million was held by Altus. The majority of the cash is invested in highly liquid, investment grade instruments with maturities of three months or less at the time of purchase. Debt As ofMarch 31, 2020 , outstanding debt, which consisted of notes, debentures, credit facility borrowings, and finance lease obligations, totaled$8.9 billion . As ofMarch 31, 2020 , current debt included$292 million , net of discount, of 3.625% senior notes dueFebruary 1, 2021 ,$250 million of borrowings onApache's revolving credit facility, and$2 million of finance lease obligations. InMarch 2018 , the Company entered into a revolving credit facility with commitments totaling$4.0 billion . InMarch 2019 , the term of this facility was extended by one year toMarch 2024 (subject toApache's remaining one-year extension option) pursuant toApache's exercise of an extension option. The Company can increase commitments up to$5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to$3.0 34
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billion, of which$2.08 billion was committed as ofMarch 31, 2020 . The facility is for general corporate purposes, and committed borrowing capacity fully supportsApache's commercial paper program. The facility has no collateral requirements, is not subject to borrowing base redetermination, and has no drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. As ofMarch 31, 2020 , there were$250 million of borrowings and no letters of credit outstanding under this facility. As ofDecember 31, 2019 , there were no borrowings or letters of credit outstanding under this facility. InApril 2020 , an aggregate £641 million in letters of credit were issued under this facility to supportNorth Sea decommissioning obligations, the terms of which required such support afterStandard & Poor's reduced the Company's credit rating from BBB to BB+ onMarch 26, 2020 . Any future credit rating downgrades may trigger additional letter of credit postings of approximately$50 million to$100 million to support existing contractual obligations. InNovember 2018 ,Altus Midstream LP entered into a revolving credit facility for general corporate purposes that matures inNovember 2023 (subject to Altus Midstream LP's two, one-year extension options). The agreement for this facility, as amended, provides aggregate commitments from a syndicate of banks of$800 million . All aggregate commitments include a letter of credit subfacility of up to$100 million and a swingline loan subfacility of up to$100 million .Altus Midstream LP may increase commitments up to an aggregate$1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As ofMarch 31, 2020 andDecember 31, 2019 , there were$468 million and$396 million , respectively, of borrowings outstanding under this facility. As ofMarch 31, 2020 andDecember 31, 2019 , there were no letters of credit outstanding under this facility.The Altus Midstream LP credit facility is unsecured and is not guaranteed byApache or any ofApache's other subsidiaries. The Company was in compliance with the terms of its credit facilities as ofMarch 31, 2020 . The Company's$3.5 billion commercial paper program, which is subject to market availability, facilitatesApache borrowing funds for up to 270 days at competitive interest rates. As ofMarch 31, 2020 andDecember 31, 2019 , the Company had no commercial paper outstanding.Apache intends to reduce debt outstanding under its indentures from time to time. Off-Balance Sheet Arrangements Apache enters into customary agreements in the oil and gas industry for drilling rig commitments, firm transportation agreements, and other obligations as described in "Contractual Obligations" in Part II, Item 7 of the Form 10-K for the year endedDecember 31, 2019 . There have been no material changes to the contractual obligations described therein.
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