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. As a holding company, APA Corporation’s primary assets are its ownership interests in its subsidiaries.

Overview

APA is an independent energy company that owns consolidated subsidiaries that explore for, develop, and produce 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.

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, including the impact of inflation and rising interest rates, 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 third quarter of 2022, the Company reported net income attributable to common stock of $422 million, or $1.28 per diluted share, compared to a net loss of $113 million, or $0.30 per diluted share, in the third quarter of 2021. Net income for the third quarter of 2022 benefited from higher revenues attributable to a new merged concession agreement in Egypt and higher commodity prices. The increase in realized prices was primarily driven by the effects of global inflation, the conflict in Ukraine on global commodity prices, and uncertainties around spare capacity and energy security globally.

The Company generated $3.5 billion of cash from operating activities during the first nine months of 2022, a 46 percent increase from the first nine months of 2021, driven by higher oil and gas revenues. Since year-end 2021, the Company has reduced its total outstanding debt and redeemable preferred interests by $2.0 billion and $712 million, respectively, through the deconsolidation of ALTM and the retirement of outstanding notes and debentures. The Company also repurchased 24.0 million shares of its common stock for $884 million during the first nine months of 2022. The Company had $268 million of cash on hand at September 30, 2022.

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 fourth quarter of 2021 from $0.0625 per share to $0.125 per share. The dividend was further increased in the third quarter of 2022 to $0.25 per share, representing a return to pre-COVID-19 dividend levels.

• Beginning in the fourth quarter of 2021 and through the end of the third quarter of 2022, the Company has repurchased 55.2 million shares of the Company’s common stock. As of September 30, 2022, the Company had remaining authorization to repurchase up to 64.8 million shares under the Company’s share repurchase programs.

The Company does not anticipate any significant changes to the activity levels set forth earlier this year 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

• During the quarter, the Company closed a transaction to acquire properties in the Texas Delaware Basin near existing operations, primarily in Loving and Reeves counties, with net proved reserves of approximately 37 MMboe. The acquired properties have a combination of producing wells, wells in the process of drilling and completion, and an inventory of undrilled locations. The transaction closed on July 29, 2022 for approximately $593 million, subject to further post-closing adjustments. Final cash settlement is anticipated to be completed during the fourth quarter of 2022.

• Daily boe production from the Company’s U.S. assets accounted for 57 percent of its total production during the third quarter of 2022. The Company’s core Midland Basin development program and newly acquired properties in the Texas Delaware Basin are expected to represent key growth areas for the U.S. assets.

International

• In Egypt, the Company averaged 15 drilling rigs and drilled 25 new productive wells during the third quarter of 2022. Third quarter 2022 gross equivalent production in the Company’s Egypt assets decreased 5 percent from the third quarter of 2021, while net production increased 21 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 continues to increase drilling and workover activity as a result of the merged concession agreement. Egypt production growth is anticipated in the fourth quarter on improvements in new well connections and recompletion activity.

• On the environmental, social and governance (ESG) front, the Company has delivered on its upstream flaring reduction goal in Egypt, flaring at least 40 percent less gas than would otherwise be flared without these initiatives, instead now compressing this gas into sales lines.

• The Company averaged two rigs in the North Sea during the third quarter of 2022. Production was negatively impacted by considerable planned and unplanned downtime at Beryl and Forties during the third quarter of 2022. North Sea production in the fourth quarter of 2022 is expected to improve following completion of these maintenance activities.

• The Company announced an oil discovery offshore Suriname at Baja-1 in Block 53 during the third quarter of 2022. Baja-1 was drilled to a depth of 5,290 meters and encountered 34 meters of net oil pay in a single interval within the Campanian. Preliminary fluid and log analysis indicates light oil with a gas-oil ratio of 1,600 to 2,200 standard cubic feet per barrel. Evaluation of open-hole well logs, cores, and reservoir fluids is ongoing. The Company also received regulatory approval regarding an amendment to the Block 53 Production Sharing Contract (PSC), which provides options to extend the exploration period of the PSC by up to four years. APA is the operator and holds a 45 percent interest in Block 53.

Results of Operations

Oil, Natural Gas, and Natural Gas Liquids Production Revenues

Revenue

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

						For the Quarter Ended September 30,																								For the Nine Months Ended September 30,
						2022												2021												2022												2021
						$ Value						% Contribution						$ Value						% Contribution						$ Value						% Contribution						$ Value						% Contribution
						($ in millions)
Oil Revenues:
United States						$	630					38		%				$	484					41		%				$	1,883					36		%				$	1,325					40		%
Egypt(1)						739						44		%				465						39		%				2,431						46		%				1,299						39		%
North Sea						303						18		%				233						20		%				938						18		%				690						21		%
Total(1)						$	1,672					100		%				$	1,182					100		%				$	5,252					100		%				$	3,314					100		%
Natural Gas Revenues:
United States						$	300					70		%				$	188					64		%				$	764					62		%				$	533					64		%
Egypt(1)						84						20		%				63						22		%				270						22		%				198						24		%
North Sea						44						10		%				42						14		%				207						16		%				100						12		%
Total(1)						$	428					100		%				$	293					100		%				$	1,241					100		%				$	831					100		%
NGL Revenues:
United States						$	197					98		%				$	202					96		%				$	615					94		%				$	463					95		%
Egypt(1)						—						—		%				2						1		%				6						1		%				6						1		%
North Sea						5						2		%				6						3		%				33						5		%				16						4		%
Total(1)						$	202					100		%				$	210					100		%				$	654					100		%				$	485					100		%
Oil and Gas Revenues:
United States						$	1,127					49		%				$	874					52		%				$	3,262					46		%				$	2,321					50		%
Egypt(1)						823						36		%				530						31		%				2,707						38		%				1,503						33		%
North Sea						352						15		%				281						17		%				1,178						16		%				806						17		%
Total(1)						$	2,302					100		%				$	1,685					100		%				$	7,147					100		%				$	4,630					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 September 30,																		For the Nine Months Ended September 30,
						2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Oil Volume (b/d)
United States						72,351						(4)%						75,526						68,926						(9)%						75,384
Egypt(1)(2)						81,095						16%						69,830						83,857						18%						71,052
North Sea						25,160						(26)%						33,783						30,928						(15)%						36,398
Total						178,606						—%						179,139						183,711						—%						182,834
Natural Gas Volume (Mcf/d)
United States						489,107						(10)%						546,058						474,777						(11)%						531,695
Egypt(1)(2)						318,945						31%						243,294						350,400						35%						259,108
North Sea						18,822						(44)%						33,752						33,291						(17)%						40,061
Total						826,874						—%						823,104						858,468						3%						830,864
NGL Volume (b/d)
United States						64,958						(8)%						70,962						61,990						(6)%						65,805
Egypt(1)(2)						—						NM						496						261						(52)%						544
North Sea						558						(54)%						1,200						1,080						(11)%						1,220
Total						65,516						(10)%						72,658						63,331						(6)%						67,569
BOE per day(3)
United States						218,826						(8)%						237,498						210,045						(9)%						229,805
Egypt(1)(2)						134,253						21%						110,875						142,518						24%						114,780
North Sea(4)						28,855						(29)%						40,608						37,557						(15)%						44,295
Total						381,934						(2)%						388,981						390,120						—%						388,880

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

						For the Quarter Ended September 30,																		For the Nine Months Ended September 30,
						2022												2021						2022												2021
Oil (b/d)						133,607												134,128						136,476												134,976
Natural Gas (Mcf/d)						510,260												564,354						554,268												581,859
NGL (b/d)						—												776						397												846

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

						For the Quarter Ended September 30,																		For the Nine Months Ended September 30,
						2022												2021						2022												2021
Oil (b/d)						27,082												23,309						27,971												23,716
Natural Gas (Mcf/d)						106,553												81,309						116,869												86,564
NGL (b/d)						—												165						87												181

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

(4) Average sales volumes from the North Sea for the third quarters of 2022 and 2021 were 36,467 boe/d and 40,581 boe/d, respectively, and 39,362 boe/d and 45,637 boe/d for the first nine months of 2022 and 2021, respectively. Sales volumes may vary from production volumes as a result of the timing of liftings.

NM — Not Meaningful

Pricing

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

						For the Quarter Ended September 30,																		For the Nine Months Ended September 30,
						2022						Increase (Decrease)						2021						2022						Increase (Decrease)						2021
Average Oil Price - Per barrel
United States						$	94.62					36%						$	69.69					$	100.06					55%						$	64.38
Egypt						99.04						37%						72.37						106.19						59%						66.97
North Sea						101.85						36%						74.94						105.59						58%						66.93
Total						97.81						36%						71.72						103.81						58%						65.90
Average Natural Gas Price - Per Mcf
United States						$	6.67					78%						$	3.75					$	5.89					60%						$	3.67
Egypt						2.87						2%						2.82						2.82						1%						2.80
North Sea						24.12						80%						13.40						24.59						169%						9.13
Total						5.62						45%						3.87						5.31						45%						3.66
Average NGL Price - Per barrel
United States						$	32.97					7%						$	30.85					$	36.36					41%						$	25.75
Egypt						—						NM						52.02						76.80						72%						44.73
North Sea						70.42						24%						56.64						72.86						51%						48.32
Total						33.39						6%						31.42						37.47						42%						26.32

NM — Not Meaningful

Third-Quarter 2022 compared to Third-Quarter 2021

Crude Oil Crude oil revenues for the third quarter of 2022 totaled $1.7 billion, a $490 million increase from the comparative 2021 quarter. A 36 percent increase in average realized prices primarily drove the increase in oil revenues compared to the prior-year quarter. Crude oil revenues accounted for 72 percent of total oil and gas production revenues and 47 percent of worldwide production in the third quarter of 2022. The Company’s worldwide oil production decreased 0.5 Mb/d to 178.6 Mb/d during the third quarter of 2022 from the comparative prior-year period, primarily a result of lower production in the North Sea due to longer operational downtime as compared to the third quarter of 2021 and natural production decline across all assets. These decreases were mostly offset by increased net production in Egypt resulting from improved cost recovery under the merged concession agreement ratified at the end of 2021.

Natural Gas Gas revenues for the third quarter of 2022 totaled $428 million, a $135 million increase from the comparative 2021 quarter. A 45 percent increase in average realized prices primarily drove the increase in natural gas revenues compared to the prior-year quarter. Natural gas revenues accounted for 19 percent of total oil and gas production revenues and 36 percent of worldwide production during the third quarter of 2022. The Company’s worldwide natural gas production increased 3.8 MMcf/d to 827 MMcf/d during the third quarter of 2022 from the comparative prior-year period, primarily a result of increased net production in Egypt resulting from improved cost recovery under the merged concession agreement ratified at the end of 2021. This increase was mostly offset by lower production in the North Sea due to longer operational downtime as compared to the third quarter of 2021, natural production decline across all assets, and the Company’s divestiture of non-core assets in the Permian Basin during the first quarter of 2022.

NGL NGL revenues for the third quarter of 2022 totaled $202 million, an $8 million decrease from the comparative 2021 quarter. A 6 percent increase in average realized prices increased third-quarter 2022 NGL revenues by $13 million compared to the prior-year quarter, while 10 percent lower average daily production decreased revenues by $21 million. NGL revenues accounted for 9 percent of total oil and gas production revenues and 17 percent of worldwide production during the third quarter of 2022. The Company’s worldwide NGL production decreased 7.1 Mb/d to 65.5 Mb/d during the third quarter of 2022 from the comparative prior-year period, primarily a result of natural production decline across all assets and the Company’s divestiture of non-core assets in the Permian Basin during the first quarter of 2022.

Year-to-Date 2022 compared to Year-to-Date 2021

Crude Oil Crude oil revenues for the first nine months of 2022 totaled $5.3 billion, a $1.9 billion increase from the comparative 2021 period. A 58 percent increase in average realized prices increased oil revenues for the 2022 period by $1.9 billion compared to the prior-year period, while average daily production remained relatively flat compared to the prior-year period. Crude oil revenues accounted for 74 percent of total oil and gas production revenues and 47 percent of worldwide production for the first nine months of 2022. Crude oil prices realized during the first nine months of 2022 averaged $103.81 per barrel, compared to $65.90 per barrel in the comparative prior-year period. The Company’s worldwide oil production increased 0.9 Mb/d to 183.7 Mb/d in the first nine months of 2022 compared to the prior-year period, primarily a function of improved cost recovery under the merged concession agreement in Egypt ratified at the end of 2021, offset by operational downtime in the North Sea and natural production decline across all assets.

Natural Gas Gas revenues for the first nine months of 2022 totaled $1.2 billion, a $410 million increase from the comparative 2021 period. A 45 percent increase in average realized prices increased natural gas revenues for the 2022 period by $373 million compared to the prior-year period, while 3 percent higher average daily production increased revenues by $37 million compared to the prior-year period. Natural gas revenues accounted for 17 percent of total oil and gas production revenues and 37 percent of worldwide production for the first nine months of 2022. Natural gas prices realized during the first nine months of 2022 averaged $5.31 per Mcf, compared to $3.66 per Mcf in the comparative prior-year period. The Company’s worldwide natural gas production increased 28 MMcf/d to 858 MMcf/d in the first nine months of 2022 compared to the prior-year period, primarily a result of increased net production in Egypt resulting from improved cost recovery under the merged concession agreement ratified at the end of 2021, offset by operational downtime in the North Sea and natural production decline across all assets.

NGL NGL revenues for the first nine months of 2022 totaled $654 million, a $169 million increase from the comparative 2021 period. A 42 percent increase in average realized prices increased NGL revenues for the 2022 period by $206 million compared to the prior-year period, while 6 percent lower average daily production decreased revenues by $37 million compared to the prior-year period. NGL revenues accounted for 9 percent of total oil and gas production revenues and 16 percent of worldwide production for the first nine months of 2022. NGL prices realized during the first nine months of 2022 averaged $37.47 per barrel, compared to $26.32 per barrel in the comparative prior-year period. The Company’s worldwide NGL production decreased 4.2 Mb/d to 63.3 Mb/d in the first nine months of 2022 compared to the prior-year period, primarily a result of natural production decline across all countries.

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 $35 million during the third quarter of 2021 and $16 million and $99 million during the first nine months 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 $585 million and $374 million during the third quarters of 2022 and 2021, respectively, and $1.5 billion and $1.1 billion during the first nine months of 2022 and 2021, respectively. Purchased oil and gas sales were offset by associated purchase costs of $573 million and $396 million during the third quarters of 2022 and 2021, respectively, and $1.5 billion and $1.2 billion during the first nine months of 2022 and 2021, respectively. Gross purchased oil and gas sales values were higher in the third quarter and first nine months of 2022 primarily due to higher average natural gas prices during the 2022 periods.

Operating Expenses

The Company’s operating expenses were as follows:

						For the Quarter Ended September 30,												For the Nine Months Ended September 30,
						2022						2021						2022						2021
						(In millions)
Lease operating expenses						$	364					$	316					$	1,067					$	891
Gathering, processing, and transmission						99						68						274						187
Purchased oil and gas costs						573						396						1,452						1,152
Taxes other than income						82						54						230						149
Exploration						95						34						193						109
General and administrative						69						70						314						239
Transaction, reorganization, and separation						4						4						21						8
Depreciation, depletion, and amortization:
Oil and gas property and equipment						300						306						847						940
Gathering, processing, and transmission assets						4						18						10						56
Other assets						6						11						22						32
Asset retirement obligation accretion						29						29						87						85
Impairments						—						18						—						18
Financing costs, net						75						205						303						422
Total Operating Expenses						$	1,700					$	1,529					$	4,820					$	4,288

Lease Operating Expenses (LOE)

LOE increased $48 million and $176 million in the third quarter and the first nine months of 2022, respectively, from the comparative prior-year periods. On a per-unit basis, LOE increased 15 percent and 19 percent in the third quarter and the first nine months of 2022, respectively, from the comparative prior-year periods. The increase was driven by overall higher labor costs and operating costs trending with higher oil and gas prices and global inflation. These increases were coupled with overall higher workover activity in the U.S. and in the North Sea during the first nine months of 2022.

Gathering, Processing, and Transmission (GPT)

The Company’s GPT expenses were as follows:

						For the Quarter Ended September 30,												For the Nine Months Ended September 30,
						2022						2021						2022						2021
						(In millions)
Third-party processing and transmission costs						$	71					$	59					$	205					$	163
Midstream service costs - ALTM						—						35						18						98
Midstream service costs - Kinetik						28						—						64						—
Upstream processing and transmission costs						99						94						287						261
Midstream operating expenses						—						9						5						24
Intersegment eliminations						—						(35)						(18)						(98)
Total Gathering, processing, and transmission						$	99					$	68					$	274					$	187

GPT costs increased $31 million and $87 million in the third quarter and the first nine months of 2022, respectively, from the comparative prior-year periods. Third-party processing and transmission costs increased $12 million and $42 million in the third quarter and the first nine months of 2022, respectively, from the comparative prior-year periods. The increase in third-party costs for the third quarter and the first nine months of 2022 was primarily driven by an increase in average transportation rates during the year. Costs for services provided by ALTM in the first quarter of 2022 and prior to the BCP Business Combination (as defined in the Notes to the Company’s Consolidated Financial Statements set forth in Part I, Item 1—Financial Statements of this Quarterly Report on Form 10-Q) totaling $18 million were eliminated in the Company’s consolidated financial statements and reflected as “Intersegment eliminations” in the table above. Subsequent to the BCP Business Combination and the Company’s deconsolidation of Altus on February 22, 2022, these midstream services continue to be provided by Kinetik Holdings Inc. (Kinetik) but are no longer eliminated. Midstream services provided by Kinetik totaled $28 million and $64 million in the third quarter and the first nine months of 2022, respectively.

Purchased Oil and Gas Costs

Purchased oil and gas costs totaled $573 million and $1.5 billion during the third quarter and the first nine months of 2022, respectively, compared to $396 million and $1.2 billion during the third quarter and the first nine months of 2021, respectively. Purchased oil and gas costs were offset by associated purchase sales of $585 million and $1.5 billion during the third quarter and the first nine months of 2022, respectively, compared to $374 million and $1.1 billion during the third quarter and the first nine months of 2021, respectively, as further discussed above.

Taxes Other Than Income

Taxes other than income increased $28 million and $81 million from the third quarter and the first nine months of 2021, respectively, primarily from higher severance taxes driven by higher commodity prices as compared to the same prior-year periods.

Exploration Expenses

The Company’s exploration expenses were as follows:

						For the Quarter Ended September 30,												For the Nine Months Ended September 30,
						2022						2021						2022						2021
						(In millions)
Unproved leasehold impairments						$	16					$	5					$	22					$	26
Dry hole expense						66						16						107						41
Geological and geophysical expense						1						4						19						14
Exploration overhead and other						12						9						45						28
Total Exploration						$	95					$	34					$	193					$	109

Exploration expenses increased $61 million and $84 million from the third quarter and the first nine months of 2021, respectively, primarily the result of higher dry hole expenses in Suriname and Egypt and exploration overhead, a function of increased exploration activities.

General and Administrative (G&A) Expenses

G&A expenses remained essentially flat compared to the third quarter of 2021 and increased $75 million compared to the first nine months of 2021. The increase in expenses for the first nine months of 2022 compared to the same prior-year period was 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 wages across the Company and inflationary pressures also impacted G&A expenses compared to the prior-year period.

Transaction, Reorganization, and Separation (TRS) Costs

TRS costs remained flat compared to the third quarter of 2021 and increased $13 million from the first nine months of 2021. The increase in costs during the first nine months of 2022 compared to the same prior-year period was primarily 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 $6 million and $93 million from the third quarter and the first nine months of 2021, respectively. The Company’s DD&A rate on its oil and gas properties decreased $0.19 per boe and $0.91 per boe from the third quarter and the first nine months of 2021, respectively. 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 September 30,												For the Nine Months Ended September 30,
						2022						2021						2022						2021
						(In millions)
Interest expense						$	80					$	102					$	249					$	324
Amortization of debt issuance costs						1						1						8						6
Capitalized interest						(5)						(2)						(13)						(6)
Loss on extinguishment of debt						—						105						67						104
Interest income						(1)						(1)						(8)						(6)
Total Financing costs, net						$	75					$	205					$	303					$	422

Net financing costs decreased $130 million and $119 million from the third quarter and the first nine months of 2021, respectively. The lower overall interest expense was a result of the reduction of fixed-rate debt during 2021 and the first quarter of 2022. Additionally, losses incurred on the extinguishment of debt was lower during the first nine months of 2022 compared to the prior year period.

Provision for Income Taxes

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

During the third quarter of 2022, the Company’s effective income tax rate was primarily impacted by a deferred tax expense related to the remeasurement of taxes in the U.K. as a result of the enactment of the Energy (Oil and Gas) Profits Levy Act 2022 on July 14, 2022, and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. During the third quarter of 2021, the Company’s effective income tax rate was primarily impacted by a loss contingency in connection with decommissioning of previously sold Gulf of Mexico properties and an increase in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2022 year-to-date effective income tax rate was primarily impacted by the gain associated with deconsolidation of Altus, the gain on sale of certain non-core mineral rights in the Delaware Basin, a deferred tax expense related to the remeasurement of taxes in the U.K., and a decrease in the amount of valuation allowance against its U.S. deferred tax assets. The Company’s 2021 year-to-date effective income tax rate was primarily impacted by a loss on offshore decommissioning contingency and a decrease in the amount of valuation allowance against its U.S. deferred tax assets.

On May 26, 2022, the U.K. Chancellor announced a new tax on the profits of oil and gas companies operating in the U.K. and the U.K. Continental Shelf. On June 21, 2022, the U.K. Government published draft legislation concerning this new tax and on July 14, 2022, the Energy (Oil and Gas) Profits Levy Act 2022 was enacted, receiving Royal Assent. Under the new law, an additional levy is assessed at a 25 percent rate and is effective for the period of May 26, 2022, through December 31, 2025. Under U.S. GAAP, the financial statement impact of new legislation is recorded in the period of enactment. Therefore, in the third quarter of 2022, the Company has recorded a deferred tax expense of $230 million related to the remeasurement of the June 30, 2022 U.K. deferred tax liability.

On August 16, 2022, the U.S. enacted the Inflation Reduction Act of 2022 (IRA). The IRA includes a new 15 percent corporate alternative minimum tax (Corporate AMT) on applicable corporations with an average annual adjusted financial statement income that exceeds $1 billion for any three consecutive years preceding the tax year at issue. The Corporate AMT is effective for tax years beginning after December 31, 2022. The Company is continuing to evaluate the provisions of the IRA and awaits further guidance from the U.S. Treasury Department to properly assess the impact of these provisions on the Company.

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

The Company 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 upstream capital investment for the third quarter of 2022 was slightly below its guidance for the period, and the Company expects its full-year estimated upstream capital investment to be approximately $1.725 billion. This is nearly 8 percent higher than initial guidance at the beginning of the year, primarily a result of increased drilling activity in Suriname.

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 Nine Months Ended September 30,
						2022						2021
						(In millions)
Sources of Cash and Cash Equivalents:
Net cash provided by operating activities						$	3,530					$	2,411
Proceeds from Apache credit facility, net						—						290
Proceeds from Altus credit facility, net						—						33
Proceeds from asset divestitures						778						239
Proceeds from sale of Kinetik shares						224						—
Total Sources of Cash and Cash Equivalents						4,532						2,973
Uses of Cash and Cash Equivalents:
Additions to upstream oil and gas property						$	1,168					$	790
Acquisition of Delaware Basin properties						563						—
Leasehold and property acquisitions						30						6
Payments on revolving credit facilities, net						22						—
Payments on fixed-rate debt						1,370						1,795
Dividends paid to APA common stockholders						127						28
Distributions to noncontrolling interest - Egypt						237						203
Distributions to Altus Preferred Unit limited partners						11						34
Treasury stock activity, net						884						—
Deconsolidation of Altus cash and cash equivalents						143						—
Other						11						2
Total Uses of Cash and Cash Equivalents						4,566						2,858
Increase (decrease) in cash and cash equivalents						$	(34)					$	115

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 $1.1 billion from the first nine 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 nine months of 2021, Apache borrowed $290 million under its former revolving credit facility.

Proceeds from Asset Divestitures The Company received $778 million and $239 million of proceeds from the divestiture of certain non-core assets during the first nine 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 nine 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 $1.2 billion and $790 million during the first nine months of 2022 and 2021, respectively. The increase in capital investment is reflective of the increase in the Company’s capital program in the current year associated with higher cash flow from operations. The Company operated an average of 24 drilling rigs during the third quarter of 2022, compared to an average of 14 drilling rigs during the third quarter of 2021.

Acquisition of Delaware Basin Properties During the third quarter of 2022, the Company completed the acquisition of oil and gas assets in the Delaware Basin for approximately $593 million, subject to further post-closing adjustments. Cash consideration paid during the third quarter totaled $563 million, with final cash settlement anticipated to be completed during the fourth quarter of 2022.

Leasehold and Property Acquisitions During the first nine months of 2022 and 2021, the Company completed leasehold and property acquisitions, primarily in the Permian Basin, for total cash consideration of $30 million and $6 million, respectively.

Payments on Revolving Credit Facilities APA and Apache paid down a net of $22 million during the first nine months of 2022 on their respective revolving credit facilities.

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 former 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.

In August 2021, Apache closed cash tender offers for certain outstanding notes and accepted for purchase $1.7 billion aggregate principal amount of certain notes. Apache paid holders an aggregate $1.8 billion, reflecting principal, premium to par, and accrued and unpaid interest. The Company recognized a $105 million loss on extinguishment of debt, including $98 million of unamortized debt discount and issuance costs, in connection with the note purchases.

During the first nine months of 2021, Apache purchased in the open market and canceled senior notes issued under its indentures in an aggregate principal amount of $22 million for an aggregate purchase price of $20 million in cash, including accrued interest and broker fees, reflecting a discount to par of an aggregate $2 million. The Company recognized a $1 million net gain on extinguishment of debt as part of these transactions.

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

Dividends The Company paid $127 million and $28 million during the first nine 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. During the third quarter of 2022, the Company’s Board of Directors approved a further increase to its quarterly dividend to $0.25 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 $237 million and $203 million during the first nine 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 and $34 million in cash distributions to its limited partners holding Preferred Units during the first nine 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 nine months of 2022, the Company repurchased 24.0 million shares at an average price of $36.78 per share totaling $884 million, and as of September 30, 2022, the Company had remaining authorization to repurchase 64.8 million shares. No shares were repurchased during the nine months ended September 30, 2021.

Liquidity

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

						September 30, 2022						December 31, 2021
						(In millions)
Cash and cash equivalents						$	268					$	302
Total debt - Apache						5,529						6,853
Total debt - Altus						—						657
Total equity (deficit)						1,551						(717)
Available committed borrowing capacity under syndicated credit facilities						2,100						2,426
Available committed borrowing capacity - Altus						—						141

Cash and Cash Equivalents As of September 30, 2022, the Company had $268 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 September 30, 2022, the Company had $5.5 billion in total debt outstanding, which consisted of notes and debentures of Apache, credit facility borrowings, and finance lease obligations. As of September 30, 2022, current debt included $123 million, carrying value, of Apache’s 2.625% senior notes due January 15, 2023 and $2 million of finance lease obligations. During the quarter ended September 30, 2022, Apache notified holders of its 2.625% notes due 2023 that Apache elected to redeem the notes on October 17, 2022, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to the redemption date. The redemption, including the $123 million outstanding principal amount of the notes, was financed in part by Apache’s borrowing under the Company’s US dollar-denominated revolving credit facility.

Committed Credit Facilities On April 29, 2022, the Company entered into two syndicated credit agreements for general corporate purposes that replaced and refinanced Apache’s 2018 syndicated credit agreement (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, borrowings then outstanding under the Former Facility were deemed outstanding under the USD Agreement, and letters of credit then outstanding under the Former Facility were deemed outstanding under a New Agreement, depending upon whether denominated in US dollars or pounds sterling. Apache may borrow under the USD Agreement up to an aggregate principal amount of US$300 million outstanding at any given time. 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.

As of September 30, 2022, there were $520 million of borrowings and a $20 million letter of credit outstanding under the USD Agreement, and an aggregate £748 million in letters of credit outstanding under the GBP Agreement. 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 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.

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 September 30, 2022 and December 31, 2021, there were no outstanding borrowings under these facilities. As of September 30, 2022 and December 31, 2021, there were £117 million and $17 million in letters of credit outstanding under these facilities.

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 that may not be recorded on the Company’s consolidated balance sheet. For more information regarding these and other contractual arrangements, please refer to “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 expects to 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 September 30, 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 September 30, 2022, representing the estimated costs of decommissioning it may be required to perform on Legacy GOM Assets. Of the total liability recorded, $801 million is reflected under the caption “Decommissioning contingency for sold Gulf of Mexico properties,” and $350 million is reflected under “Other current liabilities” in the Company’s consolidated balance sheet. The Company has also recorded a $726 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, $376 million is reflected under the caption “Decommissioning security for sold Gulf of Mexico properties,” and $350 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, 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.