Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion relates to APA Corporation (APA 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 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 ended December 31, 2021.

On March 1, 2021, Apache Corporation consummated a holding company reorganization (the Holding Company Reorganization), pursuant to which Apache Corporation became a direct, wholly owned subsidiary of APA Corporation, and all of Apache Corporation’s outstanding shares automatically converted into equivalent corresponding shares of APA Corporation. Pursuant to the Holding Company Reorganization, APA Corporation became the successor issuer to Apache Corporation pursuant to Rule 12g-3(a) under the Exchange Act and replaced Apache Corporation 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 to more closely align with its growing international presence, making it more consistent with other companies that have subsidiaries operating around the globe.

Overview

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). APA also has active exploration and appraisal operations ongoing in Suriname, as well as interests in other international locations that may, over time, result in reportable discoveries and development opportunities. Prior to the BCP Business Combination defined below, the Company’s midstream business was operated by Altus Midstream Company (ALTM) through its subsidiary Altus Midstream LP (collectively, Altus). Altus owned, developed, and operated a midstream energy asset network in the Permian Basin of West Texas.

APA believes energy underpins global progress, and the Company aims to be a part of the conversation and solution as society works to meet growing global demand for reliable and affordable energy. Today, the world faces a dual challenge: To meet growing demand for energy and to do so in a cleaner, more sustainable way. APA believes society can accomplish both and strives to meet those challenges while creating value for all its stakeholders.

The global economy and the energy industry have been deeply impacted by the effects of the conflict in Ukraine and coronavirus disease 2019 (COVID-19) pandemic and related governmental actions. Uncertainties in the global supply chain, commodity prices, and financial markets 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, including advancement of ongoing exploration and appraisal activities offshore Suriname; (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 stakeholders. 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. For additional detail on the Company’s forward capital investment outlook, refer to “Capital Resources and Liquidity” below.

In the first quarter of 2022, the Company reported net income attributable to common stock of $1.9 billion, or $5.43 per diluted share, compared to net income of $388 million, or $1.02 per diluted share, in the first quarter of 2021. Net income for the first quarter of 2022 benefited from higher revenue attributable to a new merged concession agreement in Egypt, significantly improved commodity prices, and a gain of $1.2 billion associated with asset divestitures. The increase in realized prices was primarily driven by effects of the conflict in Ukraine on global commodity prices, uncertainties around spare capacity and energy security globally, and increased economic activity compared to the first quarter of 2021.

The Company generated $891 million of cash from operating activities during the first three months of 2022, a 33 percent increase from the first three months of 2021, driven by higher revenue attributable to the new merged concession agreement in Egypt and higher commodity prices. Since year-end 2021, the Company has reduced its total outstanding debt and redeemable preferred interests by $1.6 billion and $712 million, respectively, through the deconsolidation of ALTM and the retirement of outstanding notes and debentures. The Company also repurchased 7.2 million shares of its common stock for $261 million during the quarter. The Company had $234 million of cash on hand at March 31, 2022.

Following this progress and considering the ongoing constructive price environment, the Company remains committed to its capital return framework established in the prior year for equity holders to participate more directly and materially in cash returns.

• The Company believes returning 60 percent of cash flow over capital investment creates a good balance for providing near-term cash returns to shareholders while still recognizing the importance of longer-term balance sheet strengthening.

• The Company’s quarterly dividend was increased in the third quarter of 2021 from $0.025 per share to $0.0625 per share and, in the fourth quarter of 2021 further increased to $0.125 per share.

• Beginning in the fourth quarter of 2021 and through the end of the first quarter of 2022, the Company has repurchased 38.4 million shares of the Company’s common stock. As of March 31, 2022, the Company had remaining authorization to repurchase up to 41.6 million shares under the Company’s share repurchase programs.

The Company does not anticipate any significant changes to the activity levels set forth in its three-year capital investment program or capital return framework in the context of higher strip oil and gas prices, remaining committed to safe, steady, and efficient operations across all assets and returning free cash flow to shareholders through dividends and share repurchases.

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 first quarter of 2022. The Company averaged three rigs in the U.S. during the quarter and has recently added a fourth rig in the Delaware Basin. The Company anticipates that the current level of activity will enable it to return U.S. oil production to a modest rate of growth by the second half of 2022.

• 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). Upon closing the transaction, the combined entity was renamed Kinetik Holdings Inc. (Kinetik). 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.

ALTM’s stockholders continued to hold their existing 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 ALTM Common Stock after the transaction closed. The Company deconsolidated ALTM upon closing the transaction and recognized a gain of approximately $609 million that reflects the difference of the Company’s share of ALTM’s deconsolidated balance sheet and the fair value of its 20 percent retained ownership in the combined entity.

Subsequent to the close of the transaction, in March 2022, the Company sold four million of its shares in Kinetik for $224 million, reducing the Company’s retained ownership percentage in Kinetik to approximately 13 percent.

• In March 2022, the Company completed the previously announced transaction to sell certain non-core mineral rights in the Delaware Basin for total cash proceeds of approximately $759 million after certain post-closing adjustments. The Company recognized a gain of approximately $590 million from the transaction.

International

• In Egypt, the Company averaged 11 drilling rigs and drilled 15 productive wells during the first quarter of 2022. First quarter 2022 gross equivalent production in the Company’s Egypt assets decreased 1 percent from the first quarter of 2021, while net production increased 26 percent, primarily a function of improved cost recovery under the new merged concession agreement ratified at the end of 2021. The Company continues to build and enhance its drilling inventory in Egypt, supplemented with recent seismic acquisitions and new play concept evaluations on both new and existing acreage. The Company plans to increase drilling and workover activity as a result of the merged concession agreement.

• The Company averaged one rig in the North Sea during the first quarter of 2022. Production was impacted by unplanned inspection downtime at the Forties Echo platform during the first quarter of 2022.

• In February 2022, the Company and TotalEnergies announced an oil discovery at the Krabdagu-1 (KBD-1) exploration well offshore Suriname in Block 58. KBD-1 is located approximately 18 kilometers southeast of the Sapakara South-1 well. The well was designed to test multiple stacked targets in Maastrichtian and Campanian intervals and encountered approximately 90 meters (295 feet) of net oil pay.

• In late March 2022, the Company spud an exploration well on the Rasper prospect offshore Suriname in Block 53, and drilling operations are ongoing.

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 March 31,
						2022												2021
						$ Value						% Contribution						$ Value						% Contribution
						($ in millions)
Oil Revenues:
United States						$	599					35		%				$	348					35		%
Egypt(1)						790						46		%				402						41		%
North Sea						328						19		%				241						24		%
Total(1)						$	1,717					100		%				$	991					100		%
Natural Gas Revenues:
United States						$	183					48		%				$	211					68		%
Egypt(1)						98						26		%				70						22		%
North Sea						99						26		%				31						10		%
Total(1)						$	380					100		%				$	312					100		%
NGL Revenues:
United States						$	204					91		%				$	120					94		%
Egypt(1)						3						2		%				2						1		%
North Sea						16						7		%				6						5		%
Total(1)						$	223					100		%				$	128					100		%
Oil and Gas Revenues:
United States						$	986					43		%				$	679					47		%
Egypt(1)						891						38		%				474						33		%
North Sea						443						19		%				278						20		%
Total(1)						$	2,320					100		%				$	1,431					100		%

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

Production

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

						For the Quarter Ended March 31,
						2022						Increase (Decrease)						2021
Oil Volume (b/d)
United States						69,636						3%						67,690
Egypt(1)(2)						85,018						18%						72,170
North Sea						35,242						(19)%						43,524
Total						189,896						4%						183,384
Natural Gas Volume (Mcf/d)
United States						477,637						(6)%						507,517
Egypt(1)(2)						386,577						39%						278,149
North Sea						38,466						(23)%						49,840
Total						902,680						8%						835,506
NGL Volume (b/d)
United States						61,711						7%						57,815
Egypt(1)(2)						491						(16)%						583
North Sea						1,498						10%						1,368
Total						63,700						7%						59,766
BOE per day(3)
United States						210,953						—%						210,091
Egypt(1)(2)						149,938						26%						119,111
North Sea(4)						43,151						(19)%						53,199
Total						404,042						6%						382,401

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

						For the Quarter Ended March 31,
						2022												2021
Oil (b/d)						134,397												135,320
Natural Gas (Mcf/d)						597,812												603,269
NGL (b/d)						735												897

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

						For the Quarter Ended March 31,
						2022												2021
Oil (b/d)						28,328												24,088
Natural Gas (Mcf/d)						128,764												92,936
NGL (b/d)						164												194

(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 first quarter of 2022 and 2021 were 43,668 boe/d and 54,544 boe/d, respectively. Sales volumes may vary from production volumes as a result of the timing of liftings.

Pricing

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

						For the Quarter Ended March 31,
						2022						Increase (Decrease)						2021
Average Oil Price - Per barrel
United States						$	95.58					67%						$	57.16
Egypt						103.22						67%						61.89
North Sea						102.20						71%						59.67
Total						100.23						68%						59.62
Average Natural Gas Price - Per Mcf
United States						$	4.25					(8)%						$	4.61
Egypt						2.83						1%						2.79
North Sea						32.35						367%						6.93
Total						4.70						14%						4.14
Average NGL Price - Per barrel
United States						$	36.67					60%						$	22.99
Egypt						77.81						74%						44.74
North Sea						74.64						54%						48.59
Total						38.33						61%						23.79

First-Quarter 2022 compared to First-Quarter 2021

Crude Oil Crude oil revenues for the first quarter of 2022 totaled $1.7 billion, a $726 million increase from the comparative 2021 quarter. A 68 percent increase in average realized prices increased first-quarter 2022 oil revenues by $675 million compared to the prior-year quarter, while 4 percent higher average daily production increased revenues by $51 million. Crude oil revenues accounted for 74 percent of total oil and gas production revenues and 47 percent of worldwide production in the first quarter of 2022. The Company’s worldwide oil production increased 6.5 Mb/d to 189.9 Mb/d during the first quarter of 2022 from the comparative prior-year period, primarily a function of improved cost recovery under the merged concession agreement in Egypt ratified at the end of 2021 and increased drilling and recompletion activity in the U.S. These increases were partially offset by operational downtime in the North Sea and natural production decline across all assets.

Natural Gas Gas revenues for the first quarter of 2022 totaled $380 million, a $68 million increase from the comparative 2021 quarter. A 14 percent increase in average realized prices increased first-quarter 2022 natural gas revenues by $42 million compared to the prior-year quarter, while 8 percent higher average daily production increased revenues by $26 million. Natural gas revenues accounted for 16 percent of total oil and gas production revenues and 37 percent of worldwide production during the first quarter of 2022. The Company’s worldwide natural gas production increased 67.2 MMcf/d to 903 MMcf/d during the first quarter of 2022 from the comparative prior-year period, primarily a result of increased drilling and recompletion activity in the U.S. and increased net production in Egypt resulting from improved cost recovery under the merged concession agreement ratified at the end of 2021. These increases were partially offset by operational downtime in the North Sea and natural production decline across all assets.

NGL NGL revenues for the first quarter of 2022 totaled $223 million, a $95 million increase from the comparative 2021 quarter. A 61 percent increase in average realized prices increased first-quarter 2022 NGL revenues by $78 million compared to the prior-year quarter, while 7 percent higher average daily production increased revenues by $17 million. NGL revenues accounted for 10 percent of total oil and gas production revenues and 16 percent of worldwide production during the first quarter of 2022. The Company’s worldwide NGL production increased 3.9 Mb/d to 63.7 Mb/d during the first quarter of 2022 from the comparative prior-year period, primarily a result of increased drilling and recompletion activity in the U.S.

Altus Midstream Revenues

Prior to the deconsolidation of Altus on February 22, 2022, Altus Midstream services revenues generated through its fee-based contractual arrangements with the Company totaled $16 million and $32 million during the first quarters of 2022 and 2021, respectively. These revenues were eliminated upon consolidation.

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 $349 million and $440 million during the first quarters of 2022 and 2021, respectively. Purchased oil and gas sales were offset by associated purchase costs of $351 million and $494 million during the first quarters of 2022 and 2021, respectively. Gross purchased oil and gas sales values and the associated net losses were higher in the first quarter of 2021 due to extreme price volatility during the month of February due to Winter Storm Uri in Texas.

Operating Expenses

The Company’s operating expenses were as follows:

						For the Quarter Ended March 31,
						2022						2021
						(In millions)
Lease operating expenses						$	344					$	264
Gathering, processing, and transmission						81						58
Purchased oil and gas costs						351						494
Taxes other than income						70						44
Exploration						42						49
General and administrative						156						83
Transaction, reorganization, and separation						14						—
Depreciation, depletion, and amortization:
Oil and gas property and equipment						278						312
Gathering, processing, and transmission assets						5						19
Other assets						8						11
Asset retirement obligation accretion						29						28
Financing costs, net						152						110
Total Operating Expenses						$	1,530					$	1,472

Lease Operating Expenses (LOE)

LOE increased $80 million in the first quarter of 2022 from the comparative prior-year period. On a per-unit basis, LOE increased 24 percent in the first quarter of 2022 from the comparative prior-year period. The increase was driven by overall higher labor costs and operating costs trending with higher oil and gas prices and global inflation. LOE costs for the first quarter of 2022 were also impacted by mark-to-market adjustments for cash-based stock compensation expense resulting from an increase in the Company’s stock price and anticipated achievement of performance and financial objectives as defined in the stock award plans. These increases were coupled with increased workover activity in the U.S. in the first quarter of 2022.

Gathering, Processing, and Transmission (GPT)

The Company’s GPT expenses were as follows:

						For the Quarter Ended March 31,
						2022						2021
						(In millions)
Third-party processing and transmission costs						$	66					$	51
Midstream service costs - ALTM						18						31
Midstream service costs - Kinetik						10						—
Upstream processing and transmission costs						94						82
Midstream operating expenses						5						7
Intersegment eliminations						(18)						(31)
Total Gathering, processing, and transmission						$	81					$	58

GPT costs increased $23 million in the first quarter of 2022 from the comparative prior-year period. Third-party processing and transmission costs increased $15 million in the first quarter of 2022 from the comparative prior-year period. The increase in third-party costs for the first quarter of 2022 was primarily driven by an increase in average transportation rates during the quarter. Total midstream service costs, which reflect midstream services provided to the Company by ALTM and its successor, Kinetik, were relatively flat in the first quarter of 2022 compared to the same prior-year period. Costs for services provided by ALTM in the first quarter of 2022 and 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 but are no longer eliminated. Midstream services provided by Kinetik totaled $10 million in the first quarter of 2022 and will continue to result in higher GPT costs in future periods as compared to periods preceding the ALTM deconsolidation.

Purchased Oil and Gas Costs

Purchased oil and gas costs totaled $351 million during the first quarter of 2022 compared to $494 million during the first quarter of 2021. Purchased oil and gas costs were offset by associated purchase sales of $349 million during the first quarter of 2022 compared to $440 million during the first quarter of 2021, as further discussed above.

Taxes Other Than Income

Taxes other than income increased $26 million from the first quarter of 2021, primarily from higher severance taxes driven by higher commodity prices as compared to the same prior-year period.

Exploration Expenses

The Company’s exploration expenses were as follows:

						For the Quarter Ended March 31,
						2022						2021
						(In millions)
Unproved leasehold impairments						$	4					$	18
Dry hole expense						5						19
Geological and geophysical expense						15						4
Exploration overhead and other						18						8
Total Exploration						$	42					$	49

Exploration expenses decreased $7 million from the first quarter of 2021 primarily the result of lower unproved leasehold impairments and lower dry hole expenses as compared to the same prior-year period. These decreases were offset by higher overhead and geological and geophysical expenses resulting from a slight increase in exploration activities and related labor costs compared to the prior year.

General and Administrative (G&A) Expenses

G&A expenses increased $73 million in the first quarter of 2022 from the comparative prior-year period, primarily driven by higher cash-based stock compensation expense resulting from an increase in the Company’s stock price and anticipated achievement of performance and financial objectives as defined in the stock award plans. Higher overall wage increases across the Company also impacted G&A expenses during the first quarter of 2022 compared to the prior year period.

Transaction, Reorganization, and Separation (TRS) Costs

TRS costs increased $14 million from the first quarter of 2021 primarily as a result of transaction costs from the BCP Business Combination.

Depreciation, Depletion, and Amortization (DD&A)

DD&A expenses on the Company’s oil and gas properties decreased $34 million from the first quarter of 2021. The Company’s DD&A rate on its oil and gas properties decreased $1.40 per boe from the first quarter of 2021. The decrease on an absolute basis was driven by lower depletion rates in Egypt, partially offset by higher production volumes.

Financing Costs, Net

The Company’s Financing costs were as follows:

						For the Quarter Ended March 31,
						2022						2021
						(In millions)
Interest expense						$	90					$	112
Amortization of debt issuance costs						2						2
Capitalized interest						(3)						(2)
Loss on extinguishment of debt						67						—
Interest income						(4)						(2)
Total Financing costs, net						$	152					$	110

Net financing costs increased $42 million from the first quarter of 2021 primarily driven by a $67 million loss on extinguishment of debt recognized in the first quarter of 2022, offset by lower overall interest expense related to the reduction of fixed-rate debt during 2021 and the first quarter of 2022.

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 first quarter of 2022, the Company’s effective income tax rate was primarily impacted by the gain associated with the deconsolidation of Altus, the gain on sale of certain non-core mineral rights in the Delaware Basin, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. During the first quarter 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.

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.

Capital Resources and Liquidity

Operating cash flows are the Company’s primary source of liquidity. The Company’s short-term and long-term operating cash flows are impacted by highly volatile commodity prices, as well as production costs and sales volumes. Significant changes in commodity prices impact the Company’s revenues, earnings, and cash flows. Significant commodity price decreases potentially impact the Company’s liquidity if costs do not trend with related 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.

The Company’s long-term operating cash flows are dependent on reserve replacement and the level of costs required for ongoing operations. Cash investments are required to fund activity necessary to offset the inherent declines in production and proved crude oil and natural gas reserves. Future success in maintaining and growing reserves and production is highly dependent on the success of the Company’s drilling program and its ability to add reserves economically. Changes in commodity prices also impact estimated quantities of proved reserves.

The Company’s capital investment for the first quarter of 2022 was slightly below its planned budget announced earlier in the year as some activity shifted to later in the year, and the Company expects its full-year estimated upstream capital to be approximately $1.7 billion. This is nearly 8 percent higher than previous guidance, primarily on increased Suriname drilling activity.

The Company believes its available liquidity and capital resource alternatives, combined with proactive measures to adjust its capital budget to reflect volatile commodity prices and anticipated operating cash flows, will be adequate to fund short-term and long-term operations, including the Company’s capital development program, repayment of debt maturities, payment of dividends, share buy-back activity, and amounts that may ultimately be paid in connection with commitments and contingencies.

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. As such, the Company believes it has sufficient resources to satisfy cash requirements over the next twelve months and beyond.

For additional information, refer to 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 fiscal year ended December 31, 2021.

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,
						2022						2021
						(In millions)
Sources of Cash and Cash Equivalents:
Net cash provided by operating activities						$	891					$	671
Proceeds from Apache credit facility, net						338						—
Proceeds from Altus credit facility, net						—						33
Proceeds from asset divestitures						767						3
Proceeds from sale of Kinetik shares						224						—
Total Sources of Cash and Cash Equivalents						2,220						707
Uses of Cash and Cash Equivalents:
Additions to upstream oil and gas property						$	358					$	253
Additions to Altus gathering, processing, and transmission facilities						1						1
Leasehold and property acquisitions						20						2
Contributions to Altus equity method interests						2						21
Payments on Apache credit facility, net						—						85
Payments on fixed-rate debt						1,370						6
Dividends paid to APA common stockholders						43						9
Distributions to noncontrolling interest - Egypt						69						40
Distributions to Altus Preferred Unit limited partners						11						11
Treasury stock activity, net						261						—
Deconsolidation of Altus cash and cash equivalents						143						—
Other						10						3
Total Uses of Cash and Cash Equivalents						2,288						431
Increase (decrease) in cash and cash equivalents						$	(68)					$	276

Sources of Cash and Cash Equivalents

Net Cash Provided by Operating Activities Operating cash flows are the Company’s primary source of capital and liquidity and are impacted, both in the short term and the long term, by volatile commodity 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 increased $220 million from the first three months of 2021, primarily due to higher commodity prices and associated revenues, partially offset by changes in working capital.

For a detailed discussion of commodity prices, production, and operating expenses, refer to “Results of Operations” in 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, refer to the statement of consolidated cash flows in the Consolidated Financial Statements set forth in Part I, Item 1, Financial Statements of this Quarterly Report on Form 10-Q.

Proceeds from Apache Credit Facility, Net During the first three months of 2022, Apache increased its outstanding borrowings under its credit facility, which is classified as long-term debt, by $338 million to $880 million. The increased borrowings were incurred primarily to redeem the outstanding $213 million principal amount of 3.25% senior notes due April 15, 2022, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the redemption date.

Proceeds from Altus Credit Facility, Net The construction of Altus’ gathering and processing assets and the associated equity method pipelines in early 2021 required capital expenditures in excess of Altus’ cash on hand and operational cash flows. During the first three months of 2021, Altus Midstream LP borrowed $33 million under its revolving credit facility to meet this shortfall. Prior to the deconsolidation of Altus on February 22, 2022, there were no additional borrowings under this facility in 2022.

Proceeds from Asset Divestitures The Company received $767 million and $3 million of proceeds from the divestiture of certain non-core assets during the first three months of 2022 and 2021, respectively. The Company also received $224 million of cash proceeds from the sale of four million of its shares in Kinetik during the first three months of 2022. For more information regarding the Company’s acquisitions and divestitures, refer to 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.

Uses of Cash and Cash Equivalents

Additions to Upstream Oil & Gas Property Exploration and development cash expenditures were $358 million and $253 million during the first three months of 2022 and 2021, respectively. The increase in capital investment is reflective of the increase in the Company’s capital program. The Company operated an average of 17 drilling rigs during the first quarter of 2022, compared to an average of nine drilling rigs during the first quarter of 2021.

Leasehold and Property Acquisitions During the first three months of 2022 and 2021, the Company completed leasehold and property acquisitions, primarily in the Permian Basin, for total cash consideration of $20 million and $2 million, respectively.

Contributions to Altus Equity Method Interests Prior to the deconsolidation of Altus on February 22, 2022, Altus contributed $2 million and $21 million in cash during the first three months of 2022 and 2021, respectively, to its equity method interest pipelines. For more information regarding the Company’s equity method interests, refer to Note 6—Equity Method Interests in the Notes to Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Payments on Fixed-Rate Debt 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% of their principal amount, plus accrued and unpaid interest to the redemption date. The redemption was financed by borrowing under Apache’s revolving credit facility.

During the quarter ended March 31, 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.

During the quarter ended March 31, 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 an aggregate $1 million. The Company recognized a $1 million loss on these repurchases.

During the quarter ended March 2021, Apache purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $7 million for an aggregate purchase price of $6 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $1 million. No gain or loss was recognized on these repurchases.

The Company expects that Apache intends to reduce debt outstanding under its indentures from time to time.

Dividends The Company paid $43 million and $9 million during the first three months of 2022 and 2021, respectively, for dividends on its common stock. During the third quarter of 2021, the Company’s Board of Directors approved an increase in its quarterly dividend per share from $0.025 to $0.0625 and, in the fourth quarter of 2021, a further increase to $0.125 per share.

Distributions to Noncontrolling Interest - Egypt Sinopec International Petroleum Exploration and Production Corporation (Sinopec) holds a one-third minority participation interest in the Company’s oil and gas operations in Egypt. The Company paid $69 million and $40 million during the first three months of 2022 and 2021, respectively, in cash distributions to Sinopec.

Distributions to Altus Preferred Units limited partners Prior to the deconsolidation of Altus on February 22, 2022, Altus Midstream LP paid $11 million in cash distributions to its limited partners holding Preferred Units during the first three months of 2022 and 2021. For more information regarding the Preferred Units, refer to Note 12—Redeemable Noncontrolling Interest - Altus in the Notes to Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Treasury Stock Activity, net In the first quarter of 2022, the Company repurchased 7.2 million shares at an average price of $36.08 per share totaling $261 million, and as of March 31, 2022, the Company had remaining authorization to repurchase 41.6 million shares. No shares were repurchased during the quarter ended March 31, 2021.

Liquidity

The following table presents a summary of the Company’s key financial indicators:

						March 31, 2022						December 31, 2021
						(In millions)
Cash and cash equivalents						$	234					$	302
Total debt - Apache						5,889						6,853
Total debt - Altus						—						657
Total equity (deficit)						852						(717)
Available committed borrowing capacity - Apache						2,118						2,426
Available committed borrowing capacity - Altus						—						141

Cash and Cash Equivalents As of March 31, 2022, the Company had $234 million in cash and cash equivalents. The majority of the Company’s cash is invested in highly liquid, investment-grade instruments with maturities of three months or less at the time of purchase.

Debt As of March 31, 2022, the Company had $5.9 billion in total debt outstanding, which consisted of notes, debentures, credit facility borrowings, and finance lease obligations. As of March 31, 2022, current debt included $123 million, carrying value, of 2.63% senior notes due January 15, 2023 and $2 million of finance lease obligations.

Committed Credit Facilities In March 2018, Apache entered into a syndicated revolving credit facility with commitments totaling $4.0 billion (the Former Facility) that Apache terminated in April 2022 when the Company entered into two new syndicated credit facilities described below. As of March 31, 2022, there were $880 million of borrowings and an aggregate £748 million and $20 million in letters of credit outstanding under the Former Facility. As of December 31, 2021, there were $542 million of borrowings and an aggregate £748 million and $20 million in letters of credit outstanding under the Former Facility. The outstanding letters of credit denominated in pounds were issued to support North Sea decommissioning obligations, the terms of which required such support after Standard & Poor’s reduced Apache’s credit rating from BBB to BB+ on March 26, 2020. Apache was in compliance with the terms of the Former Facility as of March 31, 2022.

On April 29, 2022, the Company entered into two syndicated credit agreements for general corporate purposes that replaced and refinanced the Former Facility.

One new 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). The Company 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 the Company’s two, one-year extension options.

The second new 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 the Company’s two, one-year extension options.

In connection with the Company’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. 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.

Borrowers under each New Agreement may include the Company and certain subsidiaries organized under the laws of, resident of, or domiciled in, the United States, Canada, England and Wales, the United Kingdom, or the Cayman Islands. Apache may borrow under the USD Agreement up to an aggregate principal amount of US$300 million outstanding at any given time.

Letters of credit are available under each New Agreement for credit support needs of the Company and its subsidiaries, including in respect of North Sea decommissioning obligations. Letters of credit under each New Agreement may be denominated in US dollars, pounds sterling, Canadian dollars, and any other foreign currency consented to by an issuing bank.

As of April 29, 2022, an aggregate US$680 million in borrowings under the Former Facility were deemed borrowings by the Company outstanding under the USD Agreement. As of April 29, 2022, (i) a letter of credit for US$20 million originally issued under the Former Facility is deemed issued and outstanding under the USD Agreement and (ii) letters of credit aggregating £748 million originally issued under the Former Facility are deemed issued and outstanding under the GBP Agreement.

Borrowers under each New Agreement may borrow, prepay, and reborrow loans and obtain letters of credit, and the Company may obtain letters of credit for the account of its subsidiaries, in each case subject to representations and warranties, covenants, and events of default substantially similar to those in the Former Facility. The New Agreements do not permit lenders to accelerate maturity or refuse to lend based on unspecified material adverse changes and do not have borrowing restrictions or prepayment obligations in the event of a decline in credit ratings.

Uncommitted Credit Facilities Apache, from time to time, has and uses uncommitted credit and letter of credit facilities for working capital and credit support purposes. As of March 31, 2022, there were no borrowings and £117 million and $17 million in letters of credit outstanding under these facilities, respectively. As of December 31, 2021, there were no borrowings and £117 million and $17 million in letters of credit outstanding under these facilities, respectively.

Off-Balance Sheet Arrangements The Company 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 APA’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no material changes to the contractual obligations described therein.

Potential Decommissioning Obligations on Sold Properties

The Company’s subsidiaries have potential exposure to future obligations related to divested properties. The Company has divested various leases, wells, and facilities located in the Gulf of Mexico (GOM) where the purchasers typically assume all obligations to plug, abandon, and decommission the associated wells, structures, and facilities acquired. One or more of the counterparties in these transactions could, either as a result of the severe decline in oil and natural gas prices or other factors related to the historical or future operations of their respective businesses, face financial problems that may have a significant impact on their solvency and ability to continue as a going concern. If a purchaser of such GOM assets becomes the subject of a case or proceeding under relevant insolvency laws or otherwise fails to perform required abandonment obligations, APA’s subsidiaries could be required to perform such actions under applicable federal laws and regulations. In such event, such subsidiaries may be forced to use available cash to cover the costs of such liabilities and obligations should they arise.

In 2013, Apache sold its 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. Currently, Apache holds two bonds (Bonds) and five Letters of Credit backed by investment-grade counterparties to secure 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 decommissioning of Legacy GOM Assets.

By letter dated April 5, 2022, replacing two prior letters dated September 8, 2021 and February 22, 2022, respectively, GOM Shelf notified the Bureau of Safety and Environmental Enforcement (BSEE) that it was unable to fund the decommissioning obligations that it is currently required 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 notification to BSEE. Apache expects to receive such orders on the other Legacy GOM Assets included in GOM Shelf’s notification letter. 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.

If Apache incurs costs to decommission any Legacy GOM Asset and GOM Shelf does not reimburse Apache for such costs, then Apache will obtain reimbursement from Trust A, the Bonds, and the Letters of Credit until 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 ordered by BSEE to perform, 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 March 31, 2022, Apache estimates that its potential liability to fund decommissioning of Legacy GOM Assets it may be ordered to perform ranges from $1.2 billion to $1.4 billion 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 $1.2 billion as of March 31, 2022, representing the estimated costs of decommissioning it may be required to perform on Legacy GOM Assets. Of the total liability recorded, $1.1 billion is reflected under the caption “Decommissioning contingency for sold Gulf of Mexico properties,” and $100 million is reflected under “Other current liabilities” in the Company’s consolidated balance sheet. The Company has also recorded a $740 million asset, which represents the 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, $640 million is reflected under the caption “Decommissioning security for sold Gulf of Mexico properties,” and $100 million is reflected under “Other current assets.” 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. In addition, significant changes in the market price of oil, gas, and NGLs could further impact Apache’s estimate of its contingent liability to decommission Legacy GOM Assets.

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, 2021. Some of the more significant estimates include reserve estimates, oil and gas exploration costs, offshore decommissioning contingency, impairment of equity method interests, 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, 2021.