APA CORPORATION 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 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, 2020 . OnJanuary 4, 2021 , the Company announced plans to implement a holding company reorganization (the Holding Company Reorganization), which was thereafter completed onMarch 1, 2021 . In connection with the Holding Company Reorganization, the Company became a direct, wholly-owned subsidiary ofAPA Corporation (APA), and all of the Company's outstanding shares were automatically converted into equivalent corresponding shares of APA. Pursuant to the Holding Company Reorganization, APA became the successor issuer to the Company pursuant to Rule 12g-3(a) under the Exchange Act and replaced the Company as the public company trading on the Nasdaq Global Select Market under the ticker symbol "APA." The Holding Company Reorganization modernized the Company's operating and legal structure making it more consistent with other companies that have affiliates operating around the globe. Refer to Note 2-Transactions with Parent Affiliate for more detail. Overview Apache, a direct, wholly-owned subsidiary of 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: theU.S. ,Egypt , and offshore theU.K. in theNorth Sea (North Sea ). The Company's midstream business is operated byAltus Midstream Company (Nasdaq: ALTM) through its subsidiaryAltus Midstream LP (collectively, Altus). Altus owns, develops, and operates a midstream energy asset network in thePermian Basin ofWest Texas . 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 have been deeply impacted by the effects of the coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. Uncertainty in the commodity and financial markets during 2020 and 2021 continue to impact oil supply and demand. 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 capital program that can be directed on a priority basis to debt reduction. 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 second quarter of 2021, the Company reported net income of$339 million compared to a loss of$386 million in the second quarter of 2020. The increase in net income compared to the prior-year period is primarily the result of significantly improved commodity prices that had collapsed in the prior year when the COVID-19 pandemic began to negatively affect economic activity and the oil markets. In response to lower commodity prices, the Company materially reduced its upstream capital investment budget and drilling activity during the first half of 2020. Daily production decreased 9 percent from an average of 435 Mboe/d in the second quarter of 2020 to an average of 395 Mboe/d in the second quarter of 2021. The Company generated$1.6 billion of cash from operating activities during the first six months of 2021, a 179 percent increase from the first six months of 2020 driven by higher commodity prices and associated revenues. The Company ended the quarter with$1.0 billion of cash. 30 -------------------------------------------------------------------------------- Operational Highlights Key operational highlights for the quarter include:United States •Equivalent production from the Company'sU.S. assets accounted for 61 percent of its total production during the second quarter of 2021. After halting all drilling and completion activity for most of 2020, in early 2021 the Company re-activated one rig in thePermian Basin and one rig in the Austin Chalk. A second rig was added in thePermian Basin in lateJune 2021 . The Company was also active in completing its backlog of Permian wells previously drilled but not completed. For the second quarter, the Company placed 27 wells online in thePermian Basin , including five atAlpine High . Three wells were drilled in the Austin Chalk where the results are continuing to be evaluated. The Company is assessing the addition of a third rig in theU.S. , which would provide a path to sustained oil production. International •InMay 2021 , the Company reached an agreement in principle with theEgyptian Ministry of Petroleum and theEgyptian General Petroleum Corporation (EGPC) to modernize the terms of the majority of our production-sharing contracts. The changes simplify the contractual relationship with EGPC and include provisions to create a single cost recovery pool, adjust cost oil and gas and profit oil and gas participation, facilitate recovery of prior investment, update day-to-day operational governance, and refresh the term length of both exploration and development leases. The Apache entity that will become the sole contractor is owned two-thirds by Apache and one-third by Sinopec. The final draft of this agreement has been completed and is scheduled to move to the Egyptian Parliament and President in the fall for approvals to complete the process. •The Company averaged six drilling rigs inEgypt and completed 15 wells during the first half of 2021. Second-quarter gross equivalent production in the Company'sEgypt assets decreased 17 percent from the second quarter of 2020, given reduced drilling activity over the preceding year. The Company continues to build and enhance its drilling inventory inEgypt , supplemented with recent seismic acquisitions and new play concept evaluations on both new and existing acreage. Upon ratification of the new PSC agreement, the Company expects to further increase drilling and workover activity. •The Company averaged two rigs in theNorth Sea during the second quarter of 2021. Production from the Forties field was significantly impacted by compressor downtime, extended platform turnaround work, and third-party pipeline outages during the first half of the year. Further impacts are expected in the third quarter of 2021 from continued operational downtime and planned platform maintenance turnarounds on the Beryl platforms. 31 -------------------------------------------------------------------------------- Results of Operations Oil and Gas Production Revenues The Company's oil and gas production revenues and respective contribution to total revenues by country were as follows: For the Quarter Ended For the Six Months Ended June 30, June 30, 2021 2020 2021 2020 % % $ % $ % $ Value Contribution $ Value Contribution Value Contribution Value Contribution ($ in millions) Oil Revenues:United States $ 493 43 %$ 198 39 %$ 841 39 %$ 626 41 %Egypt (1) 432 38 % 187 36 % 834 39 % 520 33 %North Sea 216 19 % 128 25 % 457 22 % 399 26 % Total(1)$ 1,141 100 %$ 513 100 %$ 2,132 100 %$ 1,545 100 % Natural Gas Revenues:United States $ 134 59 %$ 53 41 %$ 345 64 %$ 92 36 %Egypt (1) 65 29 % 70 54 % 135 25 % 135 54 %North Sea 27 12 % 7 5 % 58 11 % 26 10 % Total(1)$ 226 100 %$ 130 100 %$ 538 100 %$ 253 100 % NGL Revenues:United States $ 141 96 %$ 50 93 %$ 261 95 %$ 121 90 %Egypt (1) 2 1 % 1 2 % 4 1 % 4 3 %North Sea 4 3 % 3 5 % 10 4 % 10 7 % Total(1)$ 147 100 %$ 54 100 %$ 275 100 %$ 135 100 % Oil and Gas Revenues:United States $ 768 51 %$ 301 43 %$ 1,447 49 %$ 839 43 %Egypt (1) 499 33 % 258 37 % 973 33 % 659 34 %North Sea 247 16 % 138 20 % 525 18 % 435 23 % Total(1)$ 1,514 100 %$ 697 100 %$ 2,945 100 %$ 1,933 100 %
(1) Includes revenues attributable to a noncontrolling interest in
32
--------------------------------------------------------------------------------Production
The Company's production volumes by country were as follows:
For the Quarter Ended For the Six Months Ended,
June 30, June 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Oil Volume (b/d)
United States 82,852 (12)% 94,471 75,313 (23)% 98,042
Egypt(1)(2) 71,182 (11)% 79,839 71,673 (6)% 76,509
North Sea 31,992 (32)% 47,016 37,726 (26)% 51,139
Total 186,026 (16)% 221,326 184,712 (18)% 225,690
Natural Gas Volume (Mcf/d)
United States 541,088 4% 518,156 524,396 (6)% 557,999
Egypt(1)(2) 256,262 (8)% 279,561 267,145 -% 267,070
North Sea 36,769 (30)% 52,612 43,268 (28)% 59,945
Total 834,119 (2)% 850,329 834,809 (6)% 885,014
NGL Volume (b/d)
United States 68,492 (2)% 69,759 63,183 (16)% 75,570
Egypt(1)(2) 553 (39)% 909 568 (38)% 914
North Sea 1,095 (37)% 1,733 1,231 (36)% 1,934
Total 70,140 (3)% 72,401 64,982 (17)% 78,418
BOE per day(3)
United States 241,525 (4)% 250,589 225,895 (15)% 266,612
Egypt(1)(2) 114,445 (10)% 127,342 116,765 (4)% 121,934
North Sea(4) 39,216 (32)% 57,517 46,169 (27)% 63,064
Total 395,186 (9)% 435,448 388,829 (14)% 451,610
(1) Gross oil, natural gas, and NGL production in
For the Quarter Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
Oil (b/d) 135,494 171,897 135,408 177,762
Natural Gas (Mcf/d) 578,380 642,003 590,756 648,706
NGL (b/d) 866 1,649 881 1,715
(2) Includes net production volumes per day attributable to a noncontrolling
interest in Egypt of:
For the Quarter Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
Oil (b/d) 23,759 26,609 23,923 25,604
Natural Gas (Mcf/d) 85,574 92,625 89,235 89,148
NGL (b/d) 184 303 189 304
(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 second quarter of 2021 and
2020 were 41,941 boe/d and 54,996 boe/d, respectively, and 48,208 boe/d and
64,133 boe/d for the first six months of 2021 and 2020, respectively. Sales
volumes may vary from production volumes as a result of the timing of liftings
in the Beryl field.
33
--------------------------------------------------------------------------------Pricing
The Company's average selling prices by country were as follows:
For the Quarter Ended For the Six Months Ended,
June 30, June 30,
Increase Increase
2021 (Decrease) 2020 2021 (Decrease) 2020
Average Oil Price - Per barrel
United States $ 65.32 184% $ 23.02 $ 61.68 76% $ 35.09
Egypt 66.70 159% 25.80 64.30 72% 37.36
North Sea 68.34 117% 31.55 63.48 51% 41.94
Total 66.40 158% 25.77 63.06 68% 37.44
Average Natural Gas Price -
Per Mcf
United States $ 2.73 142% $ 1.13 $ 3.63 303% $ 0.90
Egypt 2.80 3% 2.73 2.80 1% 2.78
North Sea 8.10 466% 1.43 7.43 208% 2.41
Total 2.99 78% 1.68 3.56 127% 1.57
Average NGL Price - Per barrel
United States $ 22.72 191% $ 7.81 $ 22.84 160% $ 8.77
Egypt 38.10 82% 20.97 41.49 57% 26.36
North Sea 38.79 91% 20.35 44.21 51% 29.29
Total 23.10 179% 8.28 23.41 147% 9.48
Second-Quarter 2021 compared to Second-Quarter 2020
Crude Oil Crude oil revenues for the second quarter of 2021 totaled $1.1
billion , a $628 million increase from the comparative 2020 quarter. A 158
percent increase in average realized prices increased second-quarter 2021 oil
revenues by $810 million compared to the prior-year quarter, while 16 percent
lower average daily production decreased revenues by $182 million . Crude oil
revenues accounted for 75 percent of total oil and gas production revenues and
47 percent of worldwide production in the second quarter of 2021. The Company's
worldwide oil production decreased 35.3 Mb/d to 186.0 Mb/d during the second
quarter of 2021 from the comparative prior-year period, primarily a result of
natural production decline across all countries and extended operational
downtime and extended platform turnaround work in the North Sea . Crude oil
prices realized in the second quarter of 2021 averaged $66.40 per barrel,
compared to $25.77 per barrel in the comparative prior-year quarter.
Natural Gas Gas revenues for the second quarter of 2021 totaled $226 million , a
$96 million increase from the comparative 2020 quarter. A 78 percent increase in
average realized prices increased second-quarter 2021 natural gas revenues by
$100 million compared to the prior-year quarter, while 2 percent lower average
daily production decreased revenues by $4 million . Natural gas revenues
accounted for 15 percent of total oil and gas production revenues and 35 percent
of worldwide production during the second quarter of 2021. The Company's
worldwide natural gas production decreased 16 MMcf/d to 834 MMcf/d during the
second quarter of 2021 from the comparative prior-year period, primarily a
result of production decline across all countries and extended operational
downtime in the North Sea , offset by increased completion activity in the U.S.
NGL NGL revenues for the second quarter of 2021 totaled $147 million , a $93
million increase from the comparative 2020 quarter. A 179 percent increase in
average realized prices increased second-quarter 2021 NGL revenues by $98
million compared to the prior-year quarter, while 3 percent lower average daily
production decreased revenues by $5 million . NGL revenues accounted for 10
percent of total oil and gas production revenues and 18 percent of worldwide
production during the second quarter of 2021. The Company's worldwide NGL
production decreased 2.3 Mb/d to 70.1 Mb/d during the second quarter of 2021
from the comparative prior-year period, primarily a result of production decline
across all countries.
34
--------------------------------------------------------------------------------
Year-to-Date 2021 compared to Year-to-Date 2020
Crude Oil Crude oil revenues for the first six months of 2021 totaled $2.1
billion , a $0.6 billion increase from the comparative 2020 period. A 68 percent
increase in average realized prices increased 2021 oil revenues by $1.1 billion
compared to the prior-year period, while 18 percent lower average daily
production decreased revenues by $471 million . Crude oil revenues accounted for
73 percent of total oil and gas production revenues and 47 percent of worldwide
production for the first six months of 2021. Crude oil prices realized during
the first six months of 2021 averaged $63.06 per barrel, compared to $37.44 per
barrel in the comparative prior-year period. The Company's worldwide oil
production decreased 41.0 Mb/d to 184.7 Mb/d in the first six months of 2021
compared to the prior-year period, primarily a result of production decline
across all countries, extended operational downtime, and extended platform
turnaround work in the North Sea .
Natural Gas Gas revenues for the first six months of 2021 totaled $538 million ,
a $285 million increase from the comparative 2020 period. A 127 percent increase
in average realized prices increased 2021 natural gas revenues by $321 million
compared to the prior-year period, while 6 percent lower average daily
production decreased revenues by $36 million . Natural gas revenues accounted for
18 percent of total oil and gas production revenues and 36 percent of worldwide
production for the first six months of 2021. Natural gas prices realized during
the first six months of 2021 averaged $3.56 per Mcf, compared to $1.57 per Mcf
in the comparative prior-year period. Gas prices for the U.S. during the first
six months of 2021 also reflect the extreme price volatility during the month of
February due to the Texas freeze event. The Company's worldwide natural gas
production decreased 50 MMcf/d to 835 MMcf/d in the first six months of 2021
compared to the prior-year period, primarily a result of production decline
across all countries, impacts of winter storms in the U.S. , and extended
operational downtime and platform turnaround work in the North Sea .
NGL NGL revenues for the first six months of 2021 totaled $275 million , a $140
million increase from the comparative 2020 period. A 147 percent increase in
average realized prices increased 2021 NGL revenues by $199 million compared to
the prior-year period, while 17 percent lower average daily production decreased
revenues by $59 million . NGL revenues accounted for 9 percent of total oil and
gas production revenues and 17 percent of worldwide production for the first six
months of 2021. NGL prices realized during the first six months of 2021 averaged
$23.41 per barrel, compared to $9.48 per barrel in the comparative prior-year
period. The Company's worldwide NGL production decreased 13.4 Mb/d to 65.0 Mb/d
in the first six months of 2021 compared to the prior-year period, primarily a
result of production decline across all countries and the impacts of winter
storms in the U.S.
Altus Midstream Revenues
Altus Midstream services revenues generated through its fee-based contractual
arrangements with the Company totaled $32 million and $31 million during the
second quarters of 2021 and 2020, respectively, and $64 million and $72 million
during the first six months of 2021 and 2020, respectively. These affiliated
revenues are eliminated upon consolidation. Changes in revenue compared to the
prior periods were primarily driven by fluctuations in natural gas throughput
volumes processed by Altus for the Company's Alpine High production.
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 $242 million and $55 million during the second
quarters of 2021 and 2020, respectively, and $682 million and $163 million
during the first six months of 2021 and 2020, respectively. Purchased oil and
gas sales were offset by associated purchase costs of $262 million and
$46 million during the second quarters of 2021 and 2020, respectively, and $756
million and $132 million during the first six months of 2021 and 2020,
respectively. When compared to the prior-year periods, gross purchased oil and
gas sales values and the associated net losses in the second quarter and first
six months of 2021 increased as a result of production shortfalls following
reduced capital investment and drilling activity in 2020. The year-to-date net
loss was exacerbated by extreme price volatility during the month of February
due to Winter Storm Uri in Texas .
35
--------------------------------------------------------------------------------
Operating Expenses
The Company's operating expenses were as follows:
For the Quarter Ended For the Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(In millions)
Lease operating expenses $ 311
61 72 119 143
Purchased oil and gas costs 262 46 756 132
Taxes other than income 51 23 95 56
Exploration 19 72 65 129
General and administrative 79 94 162 162
Transaction, reorganization, and separation 4 10 4 37
Depreciation, depletion, and amortization:
Oil and gas property and equipment 322 387 634 918
Gathering, processing, and transmission assets 19 19 38 39
Other assets 10 12 21 27
Asset retirement obligation accretion 28 27 56 54
Impairments - 20 - 4,492
Financing costs, net 94 (34) 201 69
Total Operating Expenses $ 1,260 $ 1,012 $ 2,726 $ 6,857
Lease Operating Expenses (LOE)
LOE increased $47 million and decreased $24 million in the second quarter and
the first six months of 2021, respectively, from the comparative prior-year
periods. On a per-unit basis, LOE increased 28 percent and 12 percent in the
second quarter and the first six months of 2021, respectively, from the
comparative prior-year periods. The increase was driven by higher turnaround and
maintenance costs in the North Sea , strengthening foreign exchange rates against
the U.S. dollar, increased workover activity in the U.S. in the second quarter
of 2021, and per-unit operating costs trending with higher oil and gas prices.
Gathering, Processing, and Transmission (GPT)
The Company's GPT expenses were as follows:
For the Quarter Ended For the Six Months Ended,
June 30, June 30,
2021 2020 2021 2020
(In millions)
Third-party processing and transmission
costs $ 53 $ 62 $ 104 $ 123
Midstream service affiliate costs 32 32 63 72
Upstream processing and transmission
costs 85 94 167 195
Midstream operating expenses 8 10 15 20
Intersegment eliminations (32) (32) (63) (72)
Total Gathering, processing, and
transmission $ 61 $
72 $ 119
GPT costs decreased$11 million and$24 million in the second quarter and the first six months 2021, respectively, from the comparative prior-year periods. Third-party processing and transmission costs decreased$9 million and$19 million in the second quarter and the first six months of 2021, respectively, from the comparative prior-year periods, primarily driven by a decrease in contracted pricing and lower processed volumes. Midstream service affiliate costs remained flat in the second quarter of 2021 and decreased$9 million in the first six months of 2021, compared to their respective prior-year periods. The overall decrease in the first six months of 2021 was primarily driven by lower throughput of rich natural gas volumes atAlpine High . Midstream operating expenses, primarily incurred byAltus Midstream , decreased$2 million and$5 million in the second quarter and the first six months of 2021, respectively, from the comparative prior-year periods, driven by increased operational efficiency and continued cost cutting efforts. 36 -------------------------------------------------------------------------------- Purchased Oil and Gas Costs Purchased oil and gas costs totaled$262 million and$756 million during the second quarter and the first six months of 2021, respectively, compared to$46 million and$132 million during the second quarter and the first six months of 2020, respectively. Purchased oil and gas costs were offset by associated purchase sales of$242 million and$682 million during the second quarter and the first six months of 2021, respectively, compared to$55 million and$163 million during the second quarter and the first six months of 2020, respectively, as further discussed above. Taxes Other Than Income Taxes other than income increased$28 million and$39 million from the second quarter and the first six months of 2020, respectively, primarily from higher severance taxes driven by higher commodity prices as compared to the prior-year period. Exploration Expenses The Company's exploration expenses were as follows: For the Quarter Ended For the Six Months Ended, June 30, June 30, 2021 2020 2021 2020 (In millions) Unproved leasehold impairments $ 3$ 31 $ 21$ 50 Dry hole expense 6 23 25 47 Geological and geophysical expense 1 4 3 7 Exploration overhead and other 9 14 16 25 Total Exploration$ 19 $ 72 $ 65$ 129 Exploration expenses decreased$53 million and$64 million from the second quarter and the first six months of 2020, respectively, primarily the result of lower dry hole expense and exploration overhead, a function of decreased exploration activities. The Company also had lower unproved leasehold impairments driven by improved commodity prices. General and Administrative (G&A) Expenses G&A expenses decreased$15 million from the second quarter of 2020 and remained flat with the first six months of 2020. The reduction in second-quarter 2021 G&A compared to the prior-year quarter was driven by the organizational redesign efforts during 2019 and 2020, as well as a full quarter of reimbursable expenses charged to APA. G&A for the first six months of 2021 remained unchanged from the comparative prior-year period, as higher cash-based stock compensation expense resulting from an increase in APA's stock price was fully offset by lower overhead during the year. Transaction, Reorganization, and Separation (TRS) Costs TRS costs decreased$6 million and$33 million from the second quarter and the first six months of 2020, respectively, driven by costs associated with the Company's reorganization efforts incurred in the prior year. In recent years, the Company has streamlined its portfolio through strategic divestitures and centralized 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 of the Company'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. Reorganization efforts were substantially completed during 2020. Depreciation, Depletion, and Amortization (DD&A) DD&A expenses on the Company's oil and gas properties decreased$65 million and$284 million from the second quarter and the first six months of 2020, respectively. The Company's DD&A rate on its oil and gas properties decreased$0.93 per boe and$2.18 per boe from the second quarter and the first six months of 2020, respectively. The decrease was driven by lower production volumes and lower asset property balances associated with proved property impairments recorded during the first quarter of 2020. DD&A expense on the Company's GPT assets remained essentially flat compared to the second quarter and the first six months of 2020. 37 --------------------------------------------------------------------------------
Impairments
The Company recognized no asset impairments in connection with fair value assessments during the first six months of 2021. The Company recognized$4.5 billion in asset impairments in connection with fair value assessments during the first six months of 2020. During the second quarter of 2020, the Company recognized impairments totaling$20 million related to proved oil and gas properties inEgypt . During the first quarter of 2020, the Company recognized impairments totaling$4.3 billion related to proved oil and gas properties in theU.S. ,Egypt , and theNorth Sea ,$68 million related to GPT facilities inEgypt ,$87 million related to goodwill valuations inEgypt , and$18 million related to inventory and other miscellaneous assets, including charges for the early termination of drilling rig leases. Financing Costs, Net The Company's Financing costs were as follows: For the Quarter Ended For the Six Months Ended, June 30, June 30, 2021 2020 2021 2020 (In millions) Interest expense$ 110
3 2 5 4
Capitalized interest - (2) - (6)
Gain on extinguishment of debt (1) (140) (1) (140)
Interest income (3) (1) (5) (3)
Interest income from APA Corporation, net (15) - (20) -
Total Financing costs, net $ 94 $ (34) $ 201 $ 69
Net financing costs increased $128 million and $132 million from the second
quarters and the first six months of 2020, respectively, driven by the $140
million gain on extinguishment of debt recorded in the second quarter of 2020.
This increase was partially offset by interest income from APA Corporation as a
result of the note receivable from APA related to the Holding Company
Reorganization. Refer to Note 2-Transactions with Parent Affiliate in the
Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly
Report on Form 10-Q for further information.
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 second quarter and the first six months of 2021, 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. During the second
quarter and first six months of 2020, the Company's effective income tax rate
was primarily impacted by an increase in the amount of valuation allowance
against its U.S. deferred tax assets and impairments recorded during the period.
The Company's 2020 year-to-date effective income tax rate was primarily impacted
by oil and gas asset impairments, a goodwill impairment, and an increase in the
amount of valuation allowance against its U.S. deferred tax assets.
The Company recorded 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.
The Company is subject to U.S. federal income tax as well as income or capital
taxes in various state and foreign jurisdictions. The Company's tax reserves are
related to tax years that may be subject to examination by the relevant taxing
authority. The Company is currently under audit by the Internal Revenue Service
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.
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