UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number 1-4300

APACHE CORPORATION

(exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		41-0747868 (I.R.S. Employer Identification Number)

One Post Oak Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400
(Address of principal executive offices)

Registrant’s Telephone Number, Including Area Code: (713) 296-6000

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

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

Number of shares of registrant’s common stock outstanding as of April 30, 2010                                                 337,268,303

 

 

PART I — FINANCIAL INFORMATION

ITEM 1		— FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES

		For the Quarter Ended March 31,
		2010				2009
		(In thousands, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues		$	2,693,625			$	1,603,614
Other			(20,374	)			30,211
			2,673,251				1,633,825
OPERATING EXPENSES:
Depreciation, depletion and amortization
Recurring			638,498				580,617
Additional			—				2,818,161
Asset retirement obligation accretion			24,002				26,738
Lease operating expenses			440,246				397,489
Gathering and transportation			40,365				33,339
Taxes other than income			176,938				87,339
General and administrative			87,150				85,046
Financing costs, net			59,267				58,587
			1,466,466				4,087,316
INCOME (LOSS) BEFORE INCOME TAXES			1,206,785				(2,453,491	)
Current income tax provision			342,974				2,494
Deferred income tax provision (benefit)			158,830				(699,045	)
NET INCOME (LOSS)			704,981				(1,756,940	)
Preferred stock dividends			—				1,420
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK		$	704,981			$	(1,758,360	)
NET INCOME (LOSS) PER COMMON SHARE:
Basic		$	2.09			$	(5.25	)
Diluted		$	2.08			$	(5.25	)

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

APACHE CORPORATION AND SUBSIDIARIES

		For the Quarter Ended
		March 31,
		2010				2009
		(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	704,981			$	(1,756,940	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization			638,498				3,398,778
Asset retirement obligation accretion			24,002				26,738
Provision for (benefit from) deferred income taxes			158,830				(699,045	)
Other			41,569				13,528
Changes in operating assets and liabilities:
Receivables			(268,852	)			69,138
Inventories			(7,884	)			6,522
Drilling advances			4,376				(16,095	)
Deferred charges and other			3,392				44,394
Accounts payable			116,378				(161,200	)
Accrued expenses			(274,086	)			(341,717	)
Deferred credits and noncurrent liabilities			12,225				(40,885	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			1,153,429				543,216
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property			(958,759	)			(946,352	)
Additions to gas gathering, transmission and processing facilities			(115,302	)			(112,839	)
Restricted cash			—				13,880
Other			26,311				(36,480	)
NET CASH USED IN INVESTING ACTIVITIES			(1,047,750	)			(1,081,791	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper, credit facility and bank notes, net			(3,327	)			92,563
Payments on fixed-rate notes			—				(100,000	)
Dividends paid			(50,481	)			(51,633	)
Common stock activity			11,170				245
Treasury stock activity, net			1,222				1,755
Cost of debt and equity transactions			(228	)			(72	)
Other			13,482				3,960
NET CASH USED IN FINANCING ACTIVITIES			(28,162	)			(53,182	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			77,517				(591,757	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			2,048,117				1,181,450
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	2,125,634			$	589,693
SUPPLEMENTARY CASH FLOW DATA:
Interest paid, net of capitalized interest		$	74,186			$	77,468
Income taxes paid, net of refunds			292,926				(19,615	)

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

APACHE CORPORATION AND SUBSIDIARIES

		March 31,				December 31,
		2010				2009
		(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	2,125,634			$	2,048,117
Receivables, net of allowance			1,818,139				1,545,699
Inventories			497,749				533,251
Drilling advances			224,492				230,733
Prepaid taxes			130,119				146,653
Prepaid assets and other			242,122				81,396
			5,038,255				4,585,849
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full-cost accounting:
Proved properties			45,106,536				44,267,037
Unproved properties and properties under development, not being amortized			1,654,341				1,479,008
Gas gathering, transmission and processing facilities			3,304,479				3,189,177
Other			504,480				492,511
			50,569,836				49,427,733
Less: Accumulated depreciation, depletion and amortization			(27,164,979	)			(26,527,118	)
			23,404,857				22,900,615
OTHER ASSETS:
Goodwill, net			189,252				189,252
Deferred charges and other			595,797				510,027
		$	29,228,161			$	28,185,743

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

APACHE CORPORATION AND SUBSIDIARIES

		March 31,				December 31,
		2010				2009
		(In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	536,613			$	396,564
Accrued operating expense			86,990				90,151
Accrued exploration and development			929,233				923,084
Accrued compensation and benefits			92,062				151,408
Current debt			113,634				117,326
Asset retirement obligation			138,879				146,654
Other			343,315				567,371
			2,240,726				2,392,558
LONG-TERM DEBT			4,950,755				4,950,390
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes			3,015,580				2,764,901
Asset retirement obligation			1,652,137				1,637,357
Other			610,427				661,916
			5,278,144				5,064,174
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS’ EQUITY:
Common stock, $0.625 par, 430,000,000 shares authorized, 344,722,767 and 344,076,790 shares issued, respectively			215,452				215,048
Paid-in capital			4,708,010				4,634,326
Retained earnings			12,091,022				11,436,580
Treasury stock, at cost, 7,595,503 and 7,639,818 shares, respectively			(215,574	)			(216,831	)
Accumulated other comprehensive income (loss)			(40,374	)			(290,502	)
			16,758,536				15,778,621
		$	29,228,161			$	28,185,743

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

APACHE CORPORATION AND SUBSIDIARIES

																											Accumulated
							Series B																				Other				Total
		Comprehensive					Preferred				Common				Paid-In				Retained				Treasury				Comprehensive				Shareholders’
		Income (Loss)					Stock				Stock				Capital				Earnings				Stock				Income (Loss)				Equity
		(In thousands)
BALANCE AT DECEMBER 31, 2008							$	98,387			$	214,221			$	4,472,826			$	11,929,827			$	(228,304	)		$	21,764			$	16,508,721
Comprehensive income (loss):
Net income (loss)		$	(1,756,940	)				—				—				—				(1,756,940	)			—				—				(1,756,940	)
Commodity hedges, net of income tax expense of $5,073			15,251					—				—				—				—				—				15,251				15,251
Comprehensive income (loss)		$	(1,741,689	)
Dividends:
Preferred								—				—				—				(1,420	)			—				—				(1,420	)
Common ($.15 per share)								—				—				—				(50,221	)			—				—				(50,221	)
Common shares issued								—				245				(836	)			—				—				—				(591	)
Treasury shares issued, net								—				—				(1,574	)			—				2,374				—				800
Compensation expense								—				—				26,486				—				—				—				26,486
Other								—				—				(936	)			—				—				—				(936	)
BALANCE AT MARCH 31, 2009							$	98,387			$	214,466			$	4,495,966			$	10,121,246			$	(225,930	)		$	37,015			$	14,741,150
BALANCE AT DECEMBER 31, 2009							$	—			$	215,048			$	4,634,326			$	11,436,580			$	(216,831	)		$	(290,502	)		$	15,778,621
Comprehensive income (loss):
Net income (loss)		$	704,981					—				—				—				704,981				—				—				704,981
Commodity hedges, net of income tax expense of $110,536			250,128					—				—				—				—				—				250,128				250,128
Comprehensive income (loss)		$	955,109
Common stock dividends ($.15 per share)								—				—				—				(50,539	)			—				—				(50,539	)
Common shares issued								—				404				11,519				—				—				—				11,923
Treasury shares issued, net								—				—				888				—				1,257				—				2,145
Compensation expense								—				—				61,127				—				—				—				61,127
Other								—				—				150				—				—				—				150
BALANCE AT MARCH 31, 2010							$	—			$	215,452			$	4,708,010			$	12,091,022			$	(215,574	)		$	(40,374	)		$	16,758,536

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

APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

0. General Accounting Description

     These financial statements have been prepared by Apache Corporation (Apache or the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). They reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods, on a basis consistent with the annual audited financial statements. All such adjustments are of a normal recurring nature. Certain information, accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. This Quarterly Report on Form 10-Q should be read along with the Annual Report on Form 10-K for the fiscal year ended December 31, 2009, which contains a summary of the Company’s significant accounting policies and other disclosures. Additionally, the Company’s financial statements for prior periods include reclassifications that were made to conform to the current-period presentation.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     As of March 31, 2010, Apache’s significant accounting policies are consistent with those discussed in Note 1 of its consolidated financial statements contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

Use of Estimates

     The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates with regard to these financial statements include the estimate of proved oil and gas reserves and related present value estimates of future net cash flow therefrom, asset retirement obligations and income taxes. Actual results could differ from those estimates.

2. ACQUISITIONS

     In the first quarter of 2010, Apache acquired a 51-percent interest in Kitimat LNG Inc’s. proposed LNG export terminal (Kitimat) in British Columbia. The Company also reserved 51 percent of throughput capacity in the terminal. Planned plant gross capacity will be approximately 700 million cubic feet of natural gas per day (MMcf/d), or five million metric tons of LNG per day. This project has the potential to access new markets in the Asia-Pacific region and allow Apache to monetize gas from its Canadian region, including its interest in the Horn River Basin in northeast British Columbia. A final investment decision is expected in 2011, with the first LNG shipments projected as early as 2014. Apache became the operator of the Kitimat LNG export project in the first quarter of 2010. Preliminary gross construction cost estimates, which will be refined upon completion of a front-end engineering and design (FEED) study, total C$3 billion. Kitimat is designed to be linked to the pipeline system servicing Western Canada’s natural gas producing regions via the proposed Pacific Trail Pipelines, a project with a current estimated gross cost of C$1.1 billion. In association with the Company’s acquisition of interest in the Kitimat project, Apache also acquired a 25.5-percent interest in the proposed pipeline and 350 MMcf/d of net capacity rights.

3. SUBSEQUENT EVENTS

Gulf of Mexico Shelf Acquisition

     On April 12, 2010, Apache announced the acquisition of oil and gas assets on the Gulf of Mexico shelf from Devon Energy Corporation (Devon) for $1.05 billion, effective January 1, 2010. Completion of the transaction is subject to preferential rights to purchase held by the other working interest owners in the properties (preferential rights) as well as customary closing conditions, purchase price adjustments and the expiration of the waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the HSR Act). On April 23, 2010, we received noticed from the Federal Trade Commission that the early termination of the waiting period under the HSR Act has been granted effective immediately. Approximately half of the value of this transaction is subject to preferential rights.

     The acquired assets comprise 477,000 net acres across 158 blocks. The fields have 80 platforms and 211 production caissons in waters to 450 feet deep. Approximately half of the estimated proved reserves of 41 million barrels of oil equivalent (MMboe) are oil and natural gas liquids. The property interests are projected to produce 9,500 barrels of oil per day (b/d) and 55 MMcf/d (net) after closing, which is expected in June 2010. Devon operates 75 percent of the production. Apache will fund the acquisition primarily from existing cash balances supplemented with commercial paper.

Mariner Energy, Inc. Merger Agreement

     On April 15, 2010, Apache Corporation, a Delaware corporation (Apache), and Mariner Energy, Inc., a Delaware corporation (Mariner), announced that they have entered into a definitive agreement pursuant to which Apache will acquire Mariner in a stock and cash transaction. The Agreement and Plan of Merger dated April 14, 2010 (the Merger Agreement), by and among Apache, Mariner and ZMZ Acquisitions LLC, a Delaware limited liability company and wholly owned subsidiary of Apache (Merger Sub), contemplates a merger (the Merger) whereby Mariner will be merged with and into Merger Sub, with Merger Sub surviving the Merger as a wholly owned subsidiary of Apache.

     The total amount of cash and shares of Apache common stock that will be paid and issued, respectively, pursuant to the Merger Agreement is fixed, and Mariner stockholders will be entitled to receive (on an aggregate basis) 0.17043 of a share of Apache common stock, par value $0.625 per share, and $7.80 in cash for each share of Mariner common stock (the Mixed Consideration). Mariner stockholders have the right to elect to receive all cash ($26.00 per share), all Apache common stock (0.24347 of a share of Apache common stock) or the Mixed Consideration, subject to proration procedures as provided in the Merger Agreement.

     Upon completion of the Merger, each outstanding option to purchase Mariner common stock will be converted into a fully vested option to purchase 0.24347 shares of Apache common stock.

     In connection with the Merger, Apache expects to issue approximately 17.5 million shares of common stock (an increase of approximately five percent in our outstanding common shares) and pay cash of approximately $800 million to Mariner stockholders. Apache intends to fund the cash portion of the consideration with existing cash balances and commercial paper. Upon consummation of the Merger, Apache will assume Mariner’s debt, which was approximately $1.2 billion at the time of the Merger Agreement.

     The Merger Agreement has been approved by the boards of directors of Apache, Mariner, and Merger Sub. The completion of the Merger is subject to certain conditions, including: (i) the adoption of the Merger Agreement by the stockholders of Mariner; (ii) subject to certain materiality exceptions, the accuracy of the representations and warranties made by Apache and Mariner; (iii) the effectiveness of a registration statement on Form S-4 that will be filed by Apache for the issuance of its common stock in the Merger, and the approval of the listing of these shares on the New York Stock Exchange; (iv) the termination or expiration of the applicable waiting period under the HSR Act; (v) the delivery of customary opinions from counsel to Apache and Mariner that the Merger will be treated as a tax-free reorganization for U.S. federal income tax purposes; (vi) compliance by Apache and Mariner with their respective obligations under the Merger Agreement; and (vii) the absence of legal impediments prohibiting the Merger. On May 3, 2010, the U.S. Department of Justice and the Federal Trade Commission granted early termination of the waiting period under the HSR Act. Additional regulatory approvals are pending. Completion of the transaction is projected for the third quarter of 2010.

     The Merger Agreement contains customary representations and warranties that the parties have made to each other as of specific dates. Apache and Mariner have each agreed to certain covenants in the Merger Agreement. Among other covenants, Mariner has agreed, subject to certain exceptions, not to initiate, solicit, negotiate, provide information in furtherance of, approve, recommend or enter into an Acquisition Proposal (as defined in the Merger Agreement).

     The Merger Agreement also contains certain termination rights for both Apache and Mariner, including if the Merger is not completed by January 31, 2011. In the event of a termination of the Merger Agreement under certain circumstances, Mariner may be required to pay to Apache a termination fee of $67 million. In certain circumstances involving termination of the Merger Agreement, one of Apache or Mariner will be obligated to reimburse the other’s expenses incurred in connection with the transactions contemplated by the Merger Agreement in an aggregate amount not to exceed $7.5 million. Any reimbursement of expenses by Mariner to Apache will reduce the amount of any termination fee paid by Mariner to Apache.

     At year-end 2009, Mariner had estimated proved reserves of 181 MMboe. Mariner’s oil and gas properties are primarily located in the Gulf of Mexico deepwater and shelf, the Permian Basin and onshore in the Gulf Coast, encompassing 541,000 net developed and 623,000 net undeveloped acres at December 31, 2009. Mariner’s current deepwater Gulf of Mexico portfolio includes 99 blocks, seven discoveries in development and more than 50 drilling prospects. The Permian Basin assets are long-lived and fit well with Apache’s existing Permian Basin properties.

     Assuming the Merger is approved by Mariner stockholders and is cleared by regulatory authorities, the transaction will be accounted for as a purchase, with Mariner’s assets and liabilities reflected in Apache’s books at fair value.

4. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies for Using Derivative Instruments

     The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production. Management believes it is prudent to manage the variability in cash flows on a portion of its crude oil and natural gas production. The Company utilizes various types of derivative financial instruments, including swaps and options, to manage fluctuations in cash flows resulting from changes in commodity prices. Derivative instruments typically entered into are designated as cash flow hedges.

Counterparty Risk

     The use of derivative transactions exposes the Company to counterparty credit risk, or the risk that a counterparty will be unable to meet its commitments. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of counterparties, primarily financial institutions, for its derivative transactions. As of March 31, 2010, Apache had positions with 15 counterparties, all of which were rated A or higher by Standard & Poor’s and A2 or higher by Moody’s. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from lower commodity prices.

     The Company executes commodity derivative transactions under master agreements that have netting provisions that provide for offsetting payables against receivables. In general, if a party to a derivative transaction incurs a material deterioration in its credit ratings, as defined in the applicable agreement, the other party will have the right to demand the posting of collateral, demand a transfer or terminate the arrangement.

Commodity Derivative Instruments

     As of March 31, 2010, Apache had the following open crude oil derivative positions:

		Fixed-Price Swaps								Collars
						Weighted								Weighted				Weighted
Production						Average								Average				Average
Period		Mbbls				Fixed Price(1)				Mbbls				Floor Price(1)				Ceiling Price(1)
2010(2)			2,113			$	69.31				7,884			$	66.14			$	82.44
2011(2)			3,650				70.12				7,297				67.55				88.19
2012(2)			3,292				70.99				3,469				68.42				91.02
2013(2)			1,451				72.01				546				75.00				98.20
2014			76				74.50				—				—				—

     As of March 31, 2010, Apache had the following open natural gas derivative positions:

		Fixed-Price Swaps												Collars
										Weighted												Weighted				Weighted
Production		MMBtu				GJ				Average				MMBtu				GJ				Average				Average
Period		(in 000’s)				(in 000’s)				Fixed Price(1)				(in 000’s)				(in 000’s)				Floor Price(1)				Ceiling Price(1)
2010(2)			65,095				—			$	5.75				22,000				—			$	5.41			$	6.91
2010			—				41,250			C$	5.37				—				—				—				—
2011(2)			42,888				—			$	6.19				9,125				—				5.00				8.85
2011			—				51,100			C$	6.26				—				3,650			C$	6.50			C$	7.10
2012(2)			19,215				—			$	6.51				18,300				—			$	5.55			$	7.49
2012			—				43,920			C$	6.61				—				7,320			C$	6.50			C$	7.27
2013(2)			1,825				—			$	7.05				4,095				—			$	5.25			$	6.60
2014			755				—				7.23				—				—				—				—

     As of March 31, 2010, Apache had the following open natural gas financial basis swap contracts:

						Weighted
		MMBtu				Average
Production Period		(in 000’s)				Price Differential(1)
2010			31,625			$	(0.54	)
2011			18,250			$	(0.30	)
2012			10,980			$	(0.36	)

Fair Values of Derivative Instruments Recorded in the Consolidated Balance Sheet

     The Company accounts for derivative instruments and hedging activity in accordance with ASC Topic 815, “Derivatives and Hedging,” and all derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The fair market value of the Company’s derivative assets and liabilities are as follows:

		March 31,				December 31,
		2010				2009
		(In millions)
Current Assets: Prepaid assets and other		$	168			$	13
Other Assets: Deferred charges and other			144				51
Total Assets		$	312			$	64
Current Liabilities: Other		$	80			$	128
Noncurrent Liabilities: Other			136				202
Total Liabilities		$	216			$	330

     The methods and assumptions used to estimate the fair values of the Company’s commodity derivative instruments and gross amounts of commodity derivative assets and liabilities are more fully discussed in Note 10 — Fair Value Measurements.

Commodity Derivative Activity Recorded in Statement of Consolidated Operations

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

				For the Quarter Ended
		Gain (Loss) on Derivatives		March 31,
		Recognized In Income		2010				2009
				(In millions)
Gain (loss) reclassified from accumulated other comprehensive income (loss) into operations (effective portion)		Oil and Gas Production Revenues		$	(3	)		$	56
Gain (loss) on derivatives recognized in operations (ineffective portion and basis)		Revenues and Other: Other		$	1			$	(3	)

Commodity Derivative Activity in Accumulated Other Comprehensive Income (Loss)

     As of March 31, 2010, substantially all of the Company’s derivative instruments were designated as cash flow hedges in accordance with ASC Topic 815. A reconciliation of the components of accumulated other comprehensive income (loss) in the statement of consolidated shareholders’ equity related to Apache’s cash flow hedges is presented in the table below:

		For the Quarter Ended March 31,
		2010								2009
		Before tax				After tax				Before tax				After tax
		(In millions)
Unrealized gain (loss) on derivatives at beginning of period		$	(267	)		$	(170	)		$	212			$	138
Realized amounts reclassified into earnings			3				2				(56	)			(37	)
Net change in derivative fair value			359				249				73				51
Ineffectiveness and basis swaps reclassified into earnings			(1	)			(1	)			3				1
Unrealized gain (loss) on derivatives at end of period		$	94			$	80			$	232			$	153

     Based on market prices as of March 31, 2010, the Company’s net unrealized earnings in accumulated other comprehensive income (loss) for commodity derivatives designated as cash flow hedges totaled a gain of $94 million ($80 million after tax). Gains and losses on hedges will be realized in future earnings through mid-2014, contemporaneously with the related sales of natural gas and crude oil production applicable to specific hedges. Included in accumulated other comprehensive income (loss) as of March 31, 2010 is a net gain of approximately $87 million ($64 million after tax) that applies to the next 12 months; however, estimated and actual amounts are likely to vary materially as a result of changes in market conditions.

5. ASSET RETIREMENT OBLIGATION

     The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the quarter ended March 31, 2010:

		(In thousands)
Asset retirement obligation at December 31, 2009		$	1,784,011
Liabilities incurred			22,234
Liabilities settled			(39,231	)
Accretion expense			24,002
Asset retirement obligation at March 31, 2010			1,791,016
Less current portion			(138,879	)
Asset retirement obligation, long-term		$	1,652,137

     The ARO reflects the estimated present value of the amount of dismantlement, removal, site reclamation and similar activities associated with Apache’s oil and gas properties. The Company utilizes current retirement costs to estimate the expected cash outflows for retirement obligations. To determine the current present value of this obligation, some key assumptions the Company must estimate include the ultimate productive life of the properties, a risk adjusted discount rate and an inflation factor. To the extent future revisions to these assumptions impact the present value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance.

6. DEBT

     As of March 31, 2010, the Company had unsecured committed revolving syndicated bank credit facilities totaling $2.3 billion, which mature in May 2013. These consist of a $1.5 billion facility and a $450 million facility in the U.S., a $200 million facility in Australia and a $150 million facility in Canada. Since there are no outstanding borrowings or commercial paper at quarter-end, the full $2.3 billion of unsecured credit facilities are available to the Company.

     The Company has available a $1.95 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. Apache had no outstanding commercial paper at March 31, 2010. The commercial paper program is fully supported by available borrowing capacity under U.S. committed credit facilities, which expire in 2013.

     One of the Company’s Australian subsidiaries has a secured revolving syndicated credit facility for its Van Gogh and Pyrenees oil developments offshore Western Australia. The facility provides for total commitments of up to $350 million, with availability determined by a borrowing base formula. The borrowing base was initially set at $350 million and will be redetermined upon project completion, as defined in the facility, which is expected to occur in the fourth quarter of 2010, and semi-annually thereafter. The Company has agreed to guarantee the credit facility until project completion. In the event project completion does not occur by December 31, 2010, pursuant to the terms of the facility, the lenders may require repayment of outstanding amounts in the first quarter of 2011.

     The outstanding balance under the facility as of March 31, 2010 and December 31, 2009 was $350 million. Under the terms of the agreement, the facility amount begins reducing on June 30, 2010 and semi-annually thereafter until maturity on March 31, 2014. The outstanding amount under this facility must not exceed $300 million on June 30, 2010 and $240 million on December 31, 2010. As $50 million and $60 million of the current balance will be repaid by June 30, 2010 and December 31, 2010, respectively, $110 million has been classified as current debt at March 31, 2010.

     At March 31, 2010 and December 31, 2009, there was $3.6 million and $7.3 million, respectively, borrowed on uncommitted overdraft lines in Argentina.

Financing Costs, Net

     Financing costs incurred during the periods noted are composed of the following:

		For the Quarter Ended
		March 31,
		2010				2009
		(In thousands)
Interest expense		$	76,460			$	78,914
Amortization of deferred loan costs			1,388				1,408
Capitalized interest			(17,055	)			(16,009	)
Interest income			(1,526	)			(5,726	)
Financing costs, net		$	59,267			$	58,587

7. 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. Statutory tax rate changes and other significant or unusual items are recognized as discrete items in the quarter in which they occur. There were no significant discrete tax events that occurred during the first quarter of 2010.

     Apache and its subsidiaries are 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 in Administrative Appeals with the United States Internal Revenue Service (IRS) regarding the 2004 through 2007 tax years and under audit for the 2008 tax year. The Company is also under audit in various states and in most of the Company’s foreign jurisdictions as part of its normal course of business.

8. CAPITAL STOCK

Net Income (Loss) per Common Share

     A reconciliation of the components of basic and diluted net income (loss) per common share for the quarters ended March 31, 2010 and 2009 is presented in the table below. The loss for first-quarter 2009 reflects a $1.98 billion after-tax write-down of the carrying value of the Company’s March 31, 2009, proved property balances in the U.S. and Canada.

		For the Quarter Ended March 31,
		2010												2009
		Income				Shares				Per Share				Loss				Shares				Per Share
		(In thousands, except per share amounts)
Basic:
Income (loss) attributable to common stock		$	704,981				336,924			$	2.09			$	(1,758,360	)			335,104			$	(5.25	)
Effect of Dilutive Securities:
Stock options and other			—				2,211								—				—
Diluted:
Income (loss) attributable to common stock, including assumed conversions		$	704,981				339,135			$	2.08			$	(1,758,360	)			335,104			$	(5.25	)

     The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 1.6 million and 5.4 million for the quarters ending March 31, 2010 and 2009, respectively. The provisions of ASC Topic 260, “Earnings Per Share,” state that unvested share-based payment awards that contain rights to receive nonforfeitable dividends or dividend equivalents are participating securities prior to vesting and are required to be included in the earnings allocations in computing basic EPS under the two-class method. These participating securities had a negligible impact on earnings per share.

Common and Preferred Stock Dividends

     During the first quarter of 2010 and 2009, Apache paid $50.5 million and $50.2 million, respectively, in dividends on its common stock. In the first quarter of 2009, Apache paid a total of $1.4 million in dividends on its Series B Preferred Stock issued in August 1998. The Company redeemed all outstanding shares of its Series B Preferred Stock on December 30, 2009.

Stock-Based Compensation

Share Appreciation Plans

     The Company utilizes share appreciation plans from time to time to provide incentives for substantially all full-time employees to increase Apache’s share price within a stated measurement period. To achieve the payout, the Company’s stock price must close at or above a stated threshold for 10 out of any 30 consecutive trading days before the end of the stated period. Since 2005, two separate share appreciation plans have been approved. A summary of these plans follows:

	•		On May 7, 2008, the Stock Option Plan Committee of the Company’s Board of Directors, pursuant to the Company’s 2007 Omnibus Equity Compensation Plan, approved the 2008 Share Appreciation Program, with a target to increase Apache’s share price to $216 by the end of 2012 and an interim goal of $162 to be achieved by the end of 2010. Any awards under the plan would be payable in five equal annual installments. As of March 31, 2010, neither share price threshold had been met.
	•		On May 5, 2005, the Company’s stockholders approved the 2005 Share Appreciation Plan, with a target to increase Apache’s share price to $108 by the end of 2008 and an interim goal of $81 to be achieved by the end of 2007. Awards under the plan are payable in four equal annual installments to eligible employees remaining with the Company. Apache’s share price exceeded the interim $81 threshold for the 10-day requirement as of June 14, 2007. The final installment will be awarded in June 2010. Apache’s share price exceeded the $108 threshold for the 10-day requirement as of February 29, 2008. The third installment was awarded in March 2010.

2010 Performance Program & Restricted Stock Awards

     To provide long-term incentives for Apache employees to deliver competitive returns to our stockholders, in January 2010 the Company’s Board of Directors approved the 2010 Performance Program, pursuant to the 2007 Omnibus Equity Compensation Plan. Eligible employees were granted initial conditional restricted stock unit awards totaling 541,440 units, with the ultimate number of restricted stock units to be awarded, if any, based upon measurement of total shareholder return of Apache common stock as compared to a designated peer group during a three-year performance period. Should any restricted stock units be awarded at the end of the three-year performance period, 50 percent of restricted stock units awarded will immediately vest, and an additional 25 percent will vest on succeeding anniversaries of the end of the performance period. The Company’s Board of Directors also approved one-time restricted stock unit awards totaling 502,470 shares to eligible Apache employees, with one-third of the units granted immediately vesting and an additional one-third vesting on each of the first and second anniversaries of the grant date.

9. COMMITMENTS AND CONTINGENCIES

Legal Matters

     Apache is party to various legal actions arising in the ordinary course of business, including litigation and governmental and regulatory controls. The Company has an accrued liability of approximately $22 million for all legal contingencies that are deemed to be probable of occurring and can be reasonably estimated. Apache’s estimates are based on information known about the matters and its experience in contesting, litigating and settling similar matters. Although actual amounts could differ from management’s estimate, none of the actions are believed by management to involve future amounts that would be material to Apache’s financial position or results of operations after consideration of recorded accruals. It is management’s opinion that the loss for any other litigation matters and claims that are reasonably possible to occur will not have a material adverse affect on the Company’s financial position or results of operations.

Argentine Environmental Claims

     As more fully described in Note 8 of the financial statements in our annual report on Form 10-K for our 2009 fiscal year, in connection with the Pioneer acquisition in 2006, the Company acquired a subsidiary of Pioneer in Argentina (PNRA) that is involved in various administrative proceedings with environmental authorities in the Neuquén Province relating to permits for and discharges from operations in that province. In addition, PNRA was named in a suit initiated against oil companies operating in the Neuquén basin entitled Asociación de Superficiarios de la Patagonia v. YPF S.A., et. al., originally filed on August 21, 2003, in the Argentine National Supreme Court of Justice relating to various environmental and remediation claims. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

Louisiana Restoration

     As more fully described in Note 8 of the financial statements in our annual report on Form 10-K for our 2009 fiscal year, numerous surface owners have filed claims or sent demand letters to various oil and gas companies, including Apache, claiming that, under either expressed or implied lease terms or Louisiana law, they are liable for damage measured by the cost of restoration of leased premises to their original condition as well as damages for contamination and cleanup. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

Hurricane Related Litigation

     As more fully described in Note 8 of the financial statements in our annual report on Form 10-K for our 2009 fiscal year, Mississippi property owners allege that hurricanes’ meteorological effects increased in frequency and intensity due to global warming, and there will be continued future damage from increasing intensity of storms and sea level rises. Plaintiffs allege, among other things, that the defendants’ (oil and gas companies, electric and coal companies, and chemical manufacturers) emissions of “greenhouse gases” cause global warming, which they claim caused their damages. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

Australia Gas Pipeline Force Majeure

     As more fully described in Note 8 of the financial statements in our annual report on Form 10-K for our 2009 fiscal year, Company subsidiaries reported a pipeline explosion that interrupted deliveries of natural gas in Australia to customers under various long-term contracts. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

Seismic License

     As more fully described in Note 8 of the financial statements in our annual report on Form 10-K for our 2009 fiscal year, the Company and Fairfield Industries Incorporated entered into a Master Licensing Agreement for the licensing of seismic data relating to certain blocks in the Gulf of Mexico (and also certain supplemental agreements). The Company has filed an action in Texas state court seeking a declaration of the parties’ contractual obligations and asserted a claim to recover damages for certain overpayments to Fairfield under the agreements. Fairfield and a related entity, Fairfield Royalty Corporation, have attempted to counterclaim to recover unspecified damages for alleged underpayments. No material change in the status of these matters has occurred since the filing of our most recent annual report on Form 10-K.

Mariner Stockholder Lawsuits

     In connection with the Merger, two shareholder lawsuits styled as class actions have been filed against Mariner and its board of directors. The lawsuits are entitled City of Livonia Employees’ Retirement System, Individually and on Behalf of All Others Similarly Situated vs. Mariner Energy, Inc, et al., (filed April 16, 2010 in the District Court of Harris County, Texas), and Southeastern Pennsylvania Transportation Authority, individually, and on behalf of all those similarly situated, vs. Scott D. Josey, et.al., (filed April 21, 2010 in the Court of Chancery in the State of Delaware). The Southeastern Pennsylvania Transportation Authority lawsuit also names Apache and its wholly owned subsidiary, ZMZ Acquisitions LLC (the Merger Sub) as defendants. The complaints generally allege that (1) Mariner’s directors breached their fiduciary duties in negotiating and approving the Merger and by administering a sale process that failed to maximize shareholder value and (2) Mariner, and in the case of the Southeastern Pennsylvania Transportation Authority complaint, Apache and the Merger Sub, aided and abetted Mariner’s directors in breaching their fiduciary duties. The City of Livonia Employees’ Retirement System complaint also alleges that Mariner’s directors and executives stand to receive substantial financial benefits if the transaction is consummated on its current terms. The plaintiffs in these lawsuits seek, among other things, to enjoin the Merger and to rescind the Merger Agreement. We believe that these lawsuits are without merit and intend to vigorously defend these lawsuits.

Environmental Matters

     As of March 31, 2010, the Company had an undiscounted reserve for environmental remediation of approximately $25 million. The Company is not aware of any environmental claims existing as of March 31, 2010, which have not been provided for or would otherwise have a material impact on its financial position or results of operations. There can be no assurance, however, that current regulatory requirements will not change or past non-compliance with environmental laws will not be discovered on the Company’s properties.

10. FAIR VALUE MEASUREMENTS

     ASC 820, “Fair Value Measurements and Disclosures,” provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 valuations are derived from inputs that are significant and unobservable, and these valuations have the lowest priority.

     The valuation techniques that may be used to measure fair value include a market approach, an income approach, and a cost approach. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. An income approach uses valuation techniques to convert future amounts to a single present amount based on current market expectations, including present value techniques, option-pricing models and excess earnings method. The cost approach is based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).

Assets and Liabilities Measured at Fair Value on a Recurring Basis

     Certain assets and liabilities are reported at fair value on a recurring basis in Apache’s consolidated balance sheet. The following methods and assumptions were used to estimate the fair values:

Cash, Cash Equivalents, Short-Term Investments, Accounts Receivable and Accounts Payable

     The carrying amounts approximate fair value because of the short-term nature or maturity of these instruments.

Commodity Derivative Instruments

     Apache’s commodity derivative instruments consist of variable-to-fixed price commodity swaps and options. The Company uses a market approach to estimate the fair values of derivative instruments, utilizing published commodity futures price strips for the underlying commodities as of the date of the estimate. The fair values of the Company’s derivative instruments are not actively quoted in the open market and are valued using forward commodity price curves provided by a reputable third party. These valuations are Level 2 inputs. See Note 4 — Derivative Instruments and Hedging Activities of this Form 10-Q for further information.

     The following table presents the Company’s material assets and liabilities measured at fair value on a recurring basis for each hierarchy level:

		Fair Value Measurements Using
		Quoted
		Price in				Significant				Significant
		Active				Other				Unobservable				Total
		Markets				Inputs				Inputs				Fair								Carrying
		(Level 1)				(Level 2)				(Level 3)				Value				Netting(1)				Amount
		(In millions)
March 31, 2010
Assets:
Commodity Derivative Instruments		$	—			$	402			$	—			$	402			$	(90	)		$	312
Liabilities:
Commodity Derivative Instruments			—				306				—				306				(90	)			216
December 31, 2009
Assets:
Commodity Derivative Instruments		$	—			$	75			$	—			$	75			$	(11	)		$	64
Liabilities:
Commodity Derivative Instruments			—				341				—				341				(11	)			330

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

     Certain assets and liabilities are reported at fair value on a nonrecurring basis in Apache’s consolidated balance sheet. The following methods and assumptions were used to estimate the fair values:

Asset Retirement Obligations Incurred in Current Period

     Apache uses an income approach to estimate the fair value of AROs based on discounted cash flow projections using numerous estimates, assumptions and judgments regarding such factors as the existence of a legal obligation for an ARO; estimated probabilities, amounts and timing of settlements; the credit-adjusted risk-free rate to be used; and inflation rates. AROs incurred in the current period were Level 3 fair value measurements. Note 5 — Asset Retirement Obligation of this Form 10-Q provides a summary of changes in the ARO liability.

Debt

     The Company’s debt is recorded at the carrying amount on its consolidated balance sheet. In accordance with ASC 825, “Financial Instruments,” disclosure of the fair value of total debt is required for interim reporting. Apache uses a market approach to determine the fair value of Apache’s fixed-rate debt using estimates provided by an independent investment banking firm, which is a Level 2 fair value measurement. The carrying amount of floating-rate debt approximates fair value because the interest rates are variable and reflective of market rates. The following table presents the carrying amounts and estimated fair values of the Company’s debt at March 31, 2010 and December 31, 2009:

		March 31, 2010								December 31, 2009
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
		(In millions)
Total Debt, Net of Unamortized Discount		$	5,064			$	5,593			$	5,067			$	5,635

11. BUSINESS SEGMENT INFORMATION

     Apache is engaged in a single line of business. Both domestically and internationally, the Company explores for, develops, and produces natural gas, crude oil and natural gas liquids. The Company has production in six countries: the United States (Gulf Coast, Central and Permian regions), Canada, Egypt, offshore Australia, offshore the United Kingdom (U.K.) in the North Sea and Argentina. Apache also has exploration interests on the Chilean side of the island of Tierra del Fuego. Financial information for each country is presented below:

		United																U.K.								Other
		States				Canada				Egypt				Australia				North Sea				Argentina				International				Total
		(In thousands)
For the Quarter Ended March 31, 2010
Oil and Gas Production Revenues		$	992,323			$	252,729			$	741,092			$	224,139			$	391,256			$	92,086			$	—			$	2,693,625
Operating Income (Loss) (1)		$	511,464			$	95,172			$	492,792			$	100,446			$	148,725			$	24,977			$	—			$	1,373,576
Other Income (Expense):
Other																															(20,374	)
General and administrative																															(87,150	)
Financing costs, net																															(59,267	)
Income (Loss) Before Income Taxes																														$	1,206,785
Total Assets		$	11,942,559			$	4,115,494			$	5,808,799			$	3,515,452			$	2,335,120			$	1,458,878			$	51,859			$	29,228,161
For the Quarter Ended March 31, 2009
Oil and Gas Production Revenues		$	595,858			$	209,919			$	420,228			$	42,835			$	242,772			$	92,002			$	—			$	1,603,614
Operating Income (Loss) (1)		$	(1,099,536	)		$	(1,557,966	)		$	222,760			$	(12,590	)		$	87,654			$	19,609			$	—			$	(2,340,069	)
Other Income (Expense):
Other																															30,211
General and administrative																															(85,046	)
Financing costs, net																															(58,587	)
Income (Loss) Before Income Taxes																														$	(2,453,491	)
Total Assets		$	10,736,063			$	4,371,379			$	4,911,875			$	2,873,315			$	1,891,196			$	1,469,539			$	39,437			$	26,292,804

12. SUPPLEMENTAL GUARANTOR INFORMATION

     Apache Finance Canada Corporation (Apache Finance Canada) is a subsidiary of Apache and has issued approximately $300 million of publicly-traded notes due in 2029 and an additional $350 million of publicly-traded notes due in 2015 that are fully and unconditionally guaranteed by Apache. The following condensed consolidating financial statements are provided as an alternative to filing separate financial statements.

     Apache Finance Canada has been fully consolidated in Apache’s consolidated financial statements. As such, these condensed consolidating financial statements should be read in conjunction with the financial statements of Apache Corporation and subsidiaries and notes thereto, of which this note is an integral part.

APACHE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the Quarter Ended March 31, 2010

										All Other
						Apache				Subsidiaries
		Apache				Finance				of Apache				Reclassifications
		Corporation				Canada				Corporation				& Eliminations				Consolidated
		(In thousands)
REVENUES AND OTHER:
Oil and gas production revenues		$	898,212			$	—			$	1,795,413			$	—			$	2,693,625
Equity in net income (loss) of affiliates			458,414				24,019				(5,680	)			(476,753	)			—
Other			1,008				14,605				(34,951	)			(1,036	)			(20,374	)
			1,357,634				38,624				1,754,782				(477,789	)			2,673,251
OPERATING EXPENSES:
Depreciation, depletion and amortization			216,764				—				421,734				—				638,498
Asset retirement obligation accretion			11,969				—				12,033				—				24,002
Lease operating expenses			168,323				—				271,923				—				440,246
Gathering and transportation			10,408				—				29,957				—				40,365
Taxes other than income			36,314				—				140,624				—				176,938
General and administrative			72,466				—				15,720				(1,036	)			87,150
Financing costs, net			52,555				14,120				(7,408	)			—				59,267
			568,799				14,120				884,583				(1,036	)			1,466,466
INCOME (LOSS) BEFORE INCOME TAXES			788,835				24,504				870,199				(476,753	)			1,206,785
Provision (benefit) for income taxes			83,854				6,165				411,785				—				501,804
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK		$	704,981			$	18,339			$	458,414			$	(476,753	)		$	704,981