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		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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 July 31, 2011            383,927,712

 

 

PART I — FINANCIAL INFORMATION

ITEM 1		— FINANCIAL STATEMENTS

APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Unaudited)

		For the Quarter								For the Six Months
		Ended June 30,								Ended June 30,
		2011				2010				2011				2010
		(In millions, except per common share data)
REVENUES AND OTHER:
Oil and gas production revenues		$	4,355			$	2,969			$	8,233			$	5,662
Other			(17	)			3				30				(17	)
			4,338				2,972				8,263				5,645
OPERATING EXPENSES:
Depreciation, depletion and amortization			1,029				729				1,965				1,368
Asset retirement obligation accretion			38				25				75				49
Lease operating expenses			662				446				1,285				886
Gathering and transportation			73				43				149				83
Taxes other than income			255				187				419				364
General and administrative			103				84				215				171
Merger, acquisitions & transition			6				8				11				8
Financing costs, net			41				56				86				115
			2,207				1,578				4,205				3,044
INCOME BEFORE INCOME TAXES			2,131				1,394				4,058				2,601
Current income tax provision			576				339				1,219				682
Deferred income tax provision			296				195				446				354
NET INCOME			1,259				860				2,393				1,565
Preferred stock dividends			19				—				38				—
INCOME ATTRIBUTABLE TO COMMON STOCK		$	1,240			$	860			$	2,355			$	1,565
NET INCOME PER COMMON SHARE:
Basic		$	3.23			$	2.55			$	6.14			$	4.64
Diluted		$	3.17			$	2.53			$	6.03			$	4.61
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic			384				338				383				337
Diluted			397				339				397				339
DIVIDENDS DECLARED PER COMMON SHARE		$	0.15			$	0.15			$	0.30			$	0.30

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

APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)

		For the Six Months Ended
		June 30,
		2011				2010
		(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	2,393			$	1,565
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization			1,965				1,368
Asset retirement obligation accretion			75				49
Provision for deferred income taxes			446				354
Other			3				67
Changes in operating assets and liabilities:
Receivables			(355	)			(104	)
Inventories			(97	)			(7	)
Drilling advances			4				22
Deferred charges and other			(14	)			1
Accounts payable			206				49
Accrued expenses			78				(292	)
Deferred credits and noncurrent liabilities			20				13
NET CASH PROVIDED BY OPERATING ACTIVITIES			4,724				3,085
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas property			(3,170	)			(1,921	)
Additions to gas gathering, transmission and processing facilities			(269	)			(257	)
Acquisition of Devon properties			—				(1,017	)
Acquisitions, other			(78	)			(16	)
Proceeds from sale of oil and gas properties			192				—
Other, net			(52	)			(7	)
NET CASH USED IN INVESTING ACTIVITIES			(3,377	)			(3,218	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Commercial paper, credit facility and bank notes, net			(289	)			(55	)
Dividends paid			(153	)			(101	)
Common stock activity			38				21
Treasury stock activity, net			4				3
Other			26				22
NET CASH USED IN FINANCING ACTIVITIES			(374	)			(110	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			973				(243	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR			134				2,048
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	1,107			$	1,805
SUPPLEMENTARY CASH FLOW DATA:
Interest paid, net of capitalized interest		$	72			$	113
Income taxes paid, net of refunds			894				595

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

APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)

		June 30,				December
		2011				31, 2010
		(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,107			$	134
Receivables, net of allowance			2,495				2,134
Inventories			633				564
Drilling advances			250				259
Prepaid assets and other			415				389
			4,900				3,480
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full-cost accounting:
Proved properties			61,028				57,904
Unproved properties and properties under development, not being amortized			5,252				5,048
Gathering, transmission and processing facilities			4,481				4,212
Other			637				582
			71,398				67,746
Less: Accumulated depreciation, depletion and amortization			(31,560	)			(29,595	)
			39,838				38,151
OTHER ASSETS:
Goodwill			1,032				1,032
Deferred charges and other			759				762
		$	46,529			$	43,425
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	1,029			$	779
Accrued operating expense			168				163
Accrued exploration and development			1,375				1,367
Accrued compensation and benefits			135				231
Current debt			448				46
Current asset retirement obligation			360				407
Derivative instruments			229				194
Accrued income taxes			266				2
Other			474				335
			4,484				3,524
LONG-TERM DEBT			7,404				8,095
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes			4,698				4,249
Asset retirement obligation			2,535				2,465
Other			741				715
			7,974				7,429
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value, 10,000,000 shares authorized, 6% Cumulative Mandatory Convertible, Series D, $1,000 per share liquidation preference, 1,265,000 shares issued and outstanding			1,227				1,227
Common stock, $0.625 par, 860,000,000 shares authorized, 384,983,055 and 383,668,297 shares issued, respectively			241				240
Paid-in capital			8,969				8,864
Retained earnings			16,463				14,223
Treasury stock, at cost, 1,147,641 and 1,276,555 shares, respectively			(33	)			(36	)
Accumulated other comprehensive loss			(200	)			(141	)
			26,667				24,377
		$	46,529			$	43,425

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

APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS’ EQUITY
(Unaudited)

																											Accumulated
							Series D																				Other				Total
		Comprehensive					Preferred				Common				Paid-In				Retained				Treasury				Comprehensive				Shareholders’
		Income					Stock				Stock				Capital				Earnings				Stock				Income (Loss)				Equity
															(In millions)
BALANCE AT DECEMBER 31, 2009							$	—			$	215			$	4,634			$	11,437			$	(217	)		$	(290	)		$	15,779
Comprehensive income:
Net income		$	1,565					—				—				—				1,565				—				—				1,565
Commodity hedges, net of income tax expense of $150			313					—				—				—				—				—				313				313
Comprehensive income		$	1,878
Common stock dividends ($0.30 per share)								—				—				—				(101	)			—				—				(101	)
Common shares issued								—				1				12				—				—				—				13
Treasury shares issued, net								—				—				(1	)			—				5				—				4
Compensation expense								—				—				102				—				—				—				102
Other								—				—				1				—				—				—				1
BALANCE AT JUNE 30, 2010							$	—			$	216			$	4,748			$	12,901			$	(212	)		$	23			$	17,676
BALANCE AT DECEMBER 31, 2010							$	1,227			$	240			$	8,864			$	14,223			$	(36	)		$	(141	)		$	24,377
Comprehensive income:
Net income		$	2,393					—				—				—				2,393				—				—				2,393
Commodity hedges, net of income tax benefit of $14			(59	)				—				—				—				—				—				(59	)			(59	)
Comprehensive income		$	2,334
Dividends:
Preferred								—				—				—				(38	)			—				—				(38	)
Common ($0.30 per share)								—				—				—				(115	)			—				—				(115	)
Common shares issued								—				1				19				—				—				—				20
Treasury shares issued, net								—				—				2				—				3				—				5
Compensation expense								—				—				84				—				—				—				84
Other								—				—				—				—				—				—				—
BALANCE AT JUNE 30, 2011							$	1,227			$	241			$	8,969			$	16,463			$	(33	)		$	(200	)		$	26,667

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

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

     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 Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010, 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 June 30, 2011, Apache’s significant accounting policies are consistent with those discussed in Note 1 of its consolidated financial statements contained in the Amended Annual Report on Form 10-K/A for the fiscal year ended December 31, 2010.

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 fair value of acquired assets and liabilities, 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.

New Pronouncements Issued But Not Yet Adopted

     In May 2011 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, which amends FASB Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” The amended guidance clarifies many requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements. Additionally, the amendments clarify the FASB’s intent about the application of existing fair value measurement requirements. The guidance provided in ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The Company does not expect the adoption of this amendment to have a material impact on its consolidated financial statements.

     In June 2011 the FASB issued ASU No. 2011-05, which amends ASC Topic 220, “Comprehensive Income.” This ASU requires companies to present items of net income, items of other comprehensive income (OCI) and total comprehensive income in either one continuous statement or two separate but consecutive statements. Companies will no longer be allowed to present OCI in the statement of stockholders’ equity, and reclassification adjustments between OCI and net income must be presented separately on the face of the financial statements. The guidance in ASU No. 2011-05 is effective for interim and annual periods beginning after December 15, 2011. The amendment provides only for a change in presentation of financial statements; therefore, adoption will have no impact on the Company’s financial position or results of operations.

2. ACQUISITIONS AND DIVESTITURES

2011 Activity

   Kitimat LNG Project

     In 2010 Apache Canada Ltd. (Apache Canada) and EOG Resources Canada, Inc. (EOG Canada), through their subsidiaries, purchased 51-percent and 49-percent interests, respectively, in a planned liquefied natural gas (LNG) export terminal (Kitimat LNG facility) and 25.5-percent and 24.5-percent interests, respectively, in Pacific Trail Pipelines Limited Partnership (PTP), a partnership that owns a related proposed pipeline. In February 2011, in order to align ownership and interests on the planned facility and pipeline development, Apache Canada and EOG Canada agreed to purchase Pacific Northern Gas Ltd.’s (PNG) remaining interest in PTP for $50 million. Following the close of the acquisition, Apache and EOG owned 51-percent and 49-percent interests, respectively, in PTP and secured full ownership in the proposed pipeline to transport natural gas from production areas to the Kitimat LNG facility. Under the terms of the agreement, PNG will operate and maintain the pipeline under a seven-year agreement with provisions for five-year renewals.

     In March 2011, Apache Canada and EOG Canada announced that Encana Corporation agreed to purchase a 30-percent working interest ownership in both the Kitimat LNG facility and PTP. Under the new ownership agreement, Apache retained a 40-percent interest in both the facility and the related pipeline while EOG retained a 30-percent interest.

2010 Activity

     During 2010 Apache completed the following material transactions:

   Gulf of Mexico Shelf Acquisition

     In June 2010 Apache completed an acquisition of oil and gas assets on the Gulf of Mexico shelf from Devon Energy Corporation (Devon) for $1.05 billion, subject to normal post-closing adjustments. The acquisition was effective January 1, 2010, and was funded primarily from existing cash balances.

   BP Acquisitions

     In July 2010 Apache entered into three definitive purchase and sale agreements to acquire properties from subsidiaries of BP plc (collectively referred to as “BP”) for aggregate consideration of $7.0 billion. The effective date of the transactions was July 1, 2010. The acquisition of BP’s oil and gas operations, related infrastructure and acreage in the Permian Basin of west Texas and New Mexico was completed on August 10, 2010, for an agreed-upon purchase price of $3.1 billion. Apache completed the acquisition of substantially all of BP’s western Canadian upstream natural gas assets on October 8, 2010, for $3.25 billion. On November 4, 2010, the Company completed the acquisition of BP’s interests in four development licenses and one exploration concession in the Western Desert of Egypt for $650 million. Preferential purchase rights for $658 million of the value of the Permian Basin properties were exercised, and accordingly, the aggregate purchase price for all three transactions was reduced to approximately $6.4 billion, subject to normal post-closing adjustments.

     The acquisitions were funded by issuing a combination of common stock and mandatory convertible preferred shares, issuing new term debt and commercial paper, and using existing cash balances.

    Mariner Energy, Inc. Merger

     In November 2010 Apache acquired Mariner Energy, Inc. (Mariner), an independent exploration and production company, in a stock and cash transaction totaling $2.7 billion and assumed approximately $1.7 billion of Mariner’s debt. 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 region. The transaction was accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. Certain assets and liabilities may be adjusted as additional information is obtained, but no later than one year from the acquisition date.

   Pro Forma Impact of Acquisitions (Unaudited)

     The Devon acquisition was completed during the second quarter of 2010. The BP acquisitions and Mariner merger were completed subsequent to the second quarter of 2010. The following table presents pro forma information for Apache as if the acquisitions and merger occurred prior to January 1, 2010:

		For the Quarter				For the Six Months
		Ended June 30,				Ended June 30,
		2010				2010
		(In millions)
Revenues and Other		$	3,534			$	6,795
Net Income		$	937			$	1,730
Preferred Stock Dividends			19				38
Income Attributable to Common Stock			918				1,692
Net Income per Common Share — Basic		$	2.41			$	4.44
Net Income per Common Share — Diluted		$	2.36			$	4.36

     Apache’s historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the acquisitions and merger and were factually supportable. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had the acquisitions and merger been completed prior to January 1, 2010. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company. Adjustments and assumptions made for this pro forma calculation are consistent with those used in the Company’s annual pro forma information as more fully described in Note 2 of the financial statements in Apache’s Amended Annual Report on Form 10-K/A for its 2010 fiscal year.

3. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

     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 by entering into derivative instruments 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. Derivatives entered into are typically designated as cash flow hedges.

Counterparty Risk

     The use of derivative instruments 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 investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of June 30, 2011, Apache had derivative positions with 19 counterparties. 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 has the right to demand the posting of collateral, demand a transfer or terminate the arrangement.

Derivative Instruments

     As of June 30, 2011, 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				(in 000’s)				(in 000’s)				Floor Price(1)				Ceiling Price (1)
										Price(1)
2011			35,884				—			$	5.96				4,600				—			$	5.00			$	8.85
2011			—				25,760			C$	6.26				—				1,840			C$	6.50			C$	7.10
2012			41,554				—			$	6.30				21,960				—			$	5.54			$	7.30
2012			—				43,920			C$	6.61				—				7,320			C$	6.50			C$	7.27
2013			7,665				—			$	6.83				6,825				—			$	5.35			$	6.67
2014			755				—			$	7.23				—				—			$	—			$	—

     As of June 30, 2011, 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)
2011			2,641			$	74.17				14,996			$	69.18			$	96.79
2012			3,786				72.26				9,142				69.30				98.11
2013			1,860				74.38				2,416				78.02				103.06
2014			76				74.50				—				—				—

     Apache North Sea Ltd. has entered into a physical sales contract to deliver 20,000 barrels of oil per day in 2011, settled against Dated Brent with a floor price of $70 per barrel and an average ceiling price of $98.56 per barrel. This contract is not reflected in the above table because the associated sales are in the normal course of business and are recognized in oil and gas revenues on an accrual basis.

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 and their locations on the consolidated balance sheet are as follows:

		June 30,				December 31,
		2011				2010
		(In millions)
Current Assets: Prepaid assets and other		$	171			$	167
Other Assets: Deferred charges and other			87				139
Total Assets		$	258			$	306
Current Liabilities: Derivative instruments		$	229			$	194
Noncurrent Liabilities: Other			125				124
Total Liabilities		$	354			$	318

     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 9 — Fair Value Measurements of this Form 10-Q.

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								For the Six Months
						Ended June 30,								Ended June 30,
		Gain (Loss) on Derivatives				2011				2010				2011				2010
		Recognized In Income								(In millions)
Gain (loss) reclassified from accumulated other comprehensive income (loss) into operations (effective portion)		Oil and Gas Production Revenues				$	(53	)		$	52			$	(47	)		$	51
Gain (loss) on derivatives recognized in operations (ineffective portion and basis)		Revenues and Other: Other				$	4			$	—			$	1			$	—

Derivative Activity in Accumulated Other Comprehensive Income (Loss)

     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 Six Months Ended June 30,
		2011								2010
		Before tax				After tax				Before tax				After tax
		(In millions)
Unrealized loss on derivatives at beginning of period		$	(54	)		$	(19	)		$	(267	)		$	(170	)
Realized amounts reclassified into earnings			47				36				(51	)			(33	)
Net change in derivative fair value			(119	)			(94	)			514				346
Ineffectiveness and basis swaps reclassified into earnings			(1	)			(1	)			—				—
Unrealized gain (loss) on derivatives at end of period		$	(127	)		$	(78	)		$	196			$	143

     Gains and losses on existing hedges will be realized in future earnings through mid-2014, in the same period as the related sales of natural gas and crude oil production occur. Included in accumulated other comprehensive loss as of June 30, 2011, is a net loss of approximately $77 million ($52 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.

4. ASSET RETIREMENT OBLIGATION

     The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the quarter ended June 30, 2011:

		(In millions)
Asset retirement obligation at December 31, 2010		$	2,872
Liabilities incurred			186
Liabilities settled			(238	)
Accretion expense			75
Asset retirement obligation at June 30, 2011			2,895
Less current portion			(360	)
Asset retirement obligation, long-term		$	2,535

5. DEBT AND FINANCING COSTS

     The following table presents the carrying amounts and estimated fair values of the Company’s outstanding debt at June 30, 2011 and December 31, 2010:

		June 30, 2011								December 31, 2010
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
						(In millions)
Money market lines of credit		$	48			$	48			$	46			$	46
Commercial paper			620				620				913				913
Notes and debentures			7,184				7,818				7,182				7,870
Total Debt		$	7,852			$	8,486			$	8,141			$	8,829

     The Company’s debt is recorded at the carrying amount on its consolidated balance sheet, net of unamortized discount. The carrying amount of the Company’s money market lines of credit and commercial paper approximates fair value because the interest rates are reflective of market rates. Apache uses a market approach to determine the fair value of its notes and debentures using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).

     As of June 30, 2011, the Company had unsecured committed revolving syndicated bank credit facilities totaling $3.3 billion, of which $1.0 billion matures in August 2011 and $2.3 billion matures in May 2013. The facilities consist of a $1.0 billion 364-day facility, 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. As of June 30, 2011, available borrowing capacity under the Company’s credit facilities was $2.7 billion. The U.S. credit facilities are used to support Apache’s commercial paper program.

     The Company is currently in negotiations to replace its $1.0 billion 364-day facility with a $1.0 billion five-year facility. This five-year facility will have terms similar to those of the Company’s other five-year facilities. It is anticipated that the facility will become effective in August 2011.

     The Company has available a $2.95 billion commercial paper program, which generally enables Apache to borrow funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under U.S. committed credit facilities, which expire in 2011 and 2013. As of June 30, 2011, the Company had $620 million in commercial paper outstanding, compared with $913 million outstanding as of December 31, 2010.

     As of June 30, 2011, current debt includes $400 million 6.25-percent notes due within the next 12 months and $48 million borrowed under uncommitted overdraft lines in Argentina and Canada. As of December 31, 2010, current debt included $46 million drawn on uncommitted overdraft lines in the U.S. and Argentina.

Financing Costs

     Financing costs incurred during the periods comprised the following:

		For the Quarter Ended								For the Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
						(In millions)
Interest expense		$	109			$	75			$	217			$	151
Amortization of deferred loan costs			1				1				3				3
Capitalized interest			(63	)			(18	)			(124	)			(35	)
Interest income			(6	)			(2	)			(10	)			(4	)
Financing costs, net		$	41			$	56			$	86			$	115

6. 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 half of 2011 and 2010.

     In March 2011 the U.K. government proposed an increase in the corporate income tax rate on North Sea oil and gas profits from 50 percent to 62 percent. The legislation received Royal Assent and was enacted on July 19, 2011. As a result of the enacted legislation, the Company will record a non-recurring tax charge estimated at $290 million in the third quarter of 2011. Of this amount, an estimated $230 million is related to periods prior to 2011, and approximately $60 million is related to operating results through the second quarter of 2011.

     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.

7. 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 $11 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 effect 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 Amended Annual Report on Form 10-K/A for the 2010 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 Amended Annual Report on Form 10-K/A.

    Louisiana Restoration

     As more fully described in Note 8 of the financial statements in our Amended Annual Report on Form 10-K/A for the 2010 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 Amended Annual Report on Form 10-K/A.

   Hurricane-Related Litigation

     On May 27, 2011, a lawsuit captioned Comer et al. v. Murphy Oil USA, Inc. et al., Case No. 1:11-cv-220 HS0-JMR, in the United States District Court for the Southern District of Mississippi, was filed in which certain named residents of Mississippi, as plaintiffs, allege that the oil, coal, and chemical industries are responsible for global warming, which they claim caused or increased the effect of Hurricane Katrina, allegedly resulting among other things in economic losses and increased insurance premiums. Plaintiffs seek class certification, damages for losses sustained, a declaration that state law tort claims are not preempted by federal law, and punitive and exemplary damages. Apache Corporation is one of numerous defendants. A similar action filed by Comer et al. was previously dismissed as explained in detail in Note 8 of the financial statements in our Amended Annual Report on Form 10-K/A for the 2010 fiscal year.

   Australia Gas Pipeline Force Majeure

     As more fully described in Note 8 of the financial statements in our Amended Annual Report on Form 10-K/A for the 2010 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 Amended Annual Report on Form 10-K/A, except as follows:

     Apache Northwest Pty Ltd and Apache Energy Limited were served with a lawsuit captioned Alcoa of Australia Limited vs. Apache Energy Limited, Apache Northwest Pty Ltd, Tap (Harriet) Pty Ltd, and Kufpec Australia Pty Ltd, Civ. 1481 of 2011, in the Supreme Court of Western Australia. The lawsuit concerns the pipeline explosion at Varanus Island in Western Australia on June 3, 2008, that interrupted deliveries of natural gas to Alcoa under two long-term contracts. Alcoa challenges the declaration of force majeure and the validity of the liquidated damages provisions in the contracts. Alcoa asserts claims based on breach of contract, statutory duties, and duty of care. Alcoa seeks approximately $158 million AUD in general damages or, alternatively, approximately $5.7 million AUD in liquidated damages. Apache Northwest and Apache Energy do not believe that Alcoa’s claims have merit and will vigorously pursue their defenses against such claims.

     In reference to the pipeline license described in Note 8 of the financial statements in our Amended Annual Report on Form 10-K/A for the 2010 fiscal year, the application by Apache Northwest Pty Ltd, Kufpec Australia Pty Ltd, and Tap (Harriet) Pty Ltd for renewal and variation of the pipeline license covering the area of the Varanus Island facility was granted on April 19, 2011 by the Government of Western Australia, Department of Mines and Petroleum. The period of the license is 21 years commencing April 20, 2011.

   Escheat Audits

     The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), has notified numerous companies, including Apache Corporation, that the State intends to examine its books and records and those of its subsidiaries and related entities to determine compliance with the Delaware Escheat Laws. The review will be conducted by Kelmar Associates on behalf of the State of Delaware. At least 30 other states have retained their own consultants and have sent similar notifications. The scope of each state’s audit varies. The State of Delaware advises, for example, that the scope of its examination will be for the period 1981 through the present. It is possible that one or more of the state audits could extend to all 50 states.

    Burrup-Related Gas Supply Lawsuits

     On May 19, 2011, a lawsuit captioned Oswal v. Apache Corporation, Cause No. 2011-30302, in the District Court of Harris County, Texas, was filed in which plaintiff Pankaj Oswal, in his personal capacity and as trustee for the Burrup Trust, asserts claims against the Company under the Australian Trade Practices Act. This lawsuit is one of a number of legal actions involving the Burrup Fertilisers Pty Ltd (Burrup Fertilisers) ammonia plant in Western Australia (the Burrup plant) founded by Oswal. Oswal’s shares, and those of his wife, together representing 65 percent of Burrup Holdings Limited (which owns Burrup Fertilisers), are being offered for sale by externally appointed administrators in Australia as a result of for alleged events of default on loans made to the Oswals by the Australia and New Zealand Banking Group Ltd (ANZ). In the Texas lawsuit, plaintiff Oswal alleges, among other things, that the Company induced him to make certain investments relating to the Burrup plant. Plaintiff Oswal seeks damages in the amount of $491 million USD. The Company believes that the claims are without merit and intends to vigorously defend against them. The Texas lawsuit relates to a pending action filed by Tap (Harriet) Pty Ltd against Burrup Fertilisers Pty Ltd et al., Civ 2329 of 2009, in the Supreme Court of Western Australia, seeking a declaratory judgment regarding its contractual rights and obligations under a gas sales agreement between Burrup Fertilisers and the Harriet Joint Venture (comprised of a Company subsidiary and two joint venture partners, Tap (Harriet) Pty Ltd and Kufpec Australia Pty Ltd). The Company and the Company’s subsidiary, each of which has been added as a defendant by counterclaim, are diligently pursuing their claims and defenses.

Environmental Matters

     As of June 30, 2011, the Company had an undiscounted reserve for environmental remediation of approximately $135 million. The Company is not aware of any environmental claims existing as of June 30, 2011, that 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.

     Apache Canada Ltd. has asserted a claim against BP Canada arising out of the acquisition of certain Canadian properties under the parties’ Partnership Interest and Share Purchase and Sale Agreement dated July 20, 2010. The dispute centers on Apache Canada Ltd.’s identification of Alleged Adverse Conditions, as that term is defined in the parties’ agreement, and more specifically the contention that liabilities associated with such conditions were retained by BP Canada as seller. Apache Canada Ltd. is diligently pursuing this claim.

     On May 25, 2011, a panel of the Bureau of Ocean Energy Management, Regulation and Enforcement (the “BOEMRE”) published a report dated May 23, 2011, and titled “Vermilion Block, Production Platform A: An Investigation of the September 2, 2010 Incident in the Gulf of Mexico.” The report concerned the BOEMRE’s investigation of a fire on the Vermilion 380 A platform located in the Gulf of Mexico. At the time of the incident, Mariner Energy, Inc. (“MEI”) operated the platform. A small amount of hydrocarbons spilled from the platform into the surrounding water as a result of the incident, and 13 workers evacuated to safety by jumping into the water where they were later rescued. The BOEMRE concluded in its investigation that the fire was caused by MEI’s failure to adequately maintain or operate the platform’s heater-treater in a safe condition. The BOEMRE also identified other safety deficiencies on the platform. The BOEMRE has recommended that several Incidents of Non-Compliance be issued to MEI, which may provide the basis for the assessment of civil penalties against MEI. Effective November 10, 2010, MEI was acquired by Apache Corporation.

8. CAPITAL STOCK

Net Income per Common Share

     A reconciliation of the components of basic and diluted net income per common share for the quarters and six-month periods ended June 30, 2011 and 2010 is presented in the table below.

		For the Quarter Ended June 30,
		2011												2010
		Income				Shares				Per Share				Income				Shares				Per Share
						(In millions, except per share amounts)
Basic:
Income attributable to common stock		$	1,240				384			$	3.23			$	860				338			$	2.55
Effect of Dilutive Securities:
Mandatory Convertible Preferred Stock			19				12								—				—
Stock options and other			—				1								—				1
Diluted:
Income attributable to common stock, including assumed conversions		$	1,259				397			$	3.17			$	860				339			$	2.53

		For the Six Months Ended June 30,
		2011												2010
		Income				Shares				Per Share				Income				Shares				Per Share
						(In millions, except per share amounts)
Basic:
Income attributable to common stock		$	2,355				383			$	6.14			$	1,565				337			$	4.64
Effect of Dilutive Securities:
Mandatory Convertible Preferred Stock			38				12
Stock options and other			—				2								—				2
Diluted:
Income attributable to common stock, including assumed conversions		$	2,393				397			$	6.03			$	1,565				339			$	4.61

     The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 1.5 million and 3.3 million for the quarters ending June 30, 2011 and 2010, and 1.1 million and 2.9 million for the six months ended June 30, 2011 and 2010, respectively.

Issuance of Common and Preferred Shares

     In July 2010, in conjunction with Apache’s acquisition of properties from BP, the Company issued 26.45 million shares of common stock, as well as 25.3 million depositary shares, each representing a 1/20^th interest in a share of Apache’s 6.00% Mandatory Convertible Preferred Stock, Series D, or 1.265 million Preferred Shares. Each outstanding Preferred Share will, on August 1, 2013, automatically convert into a minimum of 9.164 or a maximum of 11.364 shares of Apache common stock depending on an average underlying price of the common stock immediately preceding the conversion.

     In November 2010, in connection with the Mariner merger, Apache issued 17.3 million shares of common stock in exchange for Mariner common and restricted stock. For further discussion of the BP acquisitions and Mariner merger, please see Note 2 — Acquisitions and Divestitures of this Form 10-Q.

     On May 5, 2011, Apache stockholders approved amendments to the Certificate of Incorporation increasing the number of common shares authorized for issuance from 430 million to 860 million and increasing the number of preferred shares authorized for issuance from five million to 10 million.

Common and Preferred Stock Dividends

     For the quarters ending June 30, 2011 and 2010, Apache paid $58 million and $51 million, respectively, in dividends on its common stock. For the six-month periods ended June 30, 2011 and 2010, the Company paid $115 million and $101 million, respectively. In the three- and six-month periods ended June 30, 2011, Apache paid a total of $19 million and $38 million, respectively, in dividends on its Series D Preferred Stock issued in July 2010.

9. FAIR VALUE MEASUREMENTS

     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 the 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 its derivative instruments. A market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The Company’s derivatives are not actively quoted in the open market but are valued utilizing commodity futures price strips for the underlying commodities, which are provided by a reputable third party. For further information regarding Apache’s derivative instruments and hedging activities, please see Note 3 — Derivative Instruments and Hedging Activities of this Form 10-Q.

     The following table presents the Company’s derivative 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)
June 30, 2011
Assets:
Commodity Derivative Instruments		$	—			$	369			$	—			$	369			$	(111	)		$	258
Liabilities:
Commodity Derivative Instruments			—				465				—				465				(111	)			354
December 31, 2010
Assets:
Commodity Derivative Instruments		$	—			$	454			$	—			$	454			$	(148	)		$	306
Liabilities:
Commodity Derivative Instruments			—				466				—				466				(148	)			318

10. COMPREHENSIVE INCOME

     The following table presents the components of Apache’s comprehensive income for the quarter and six-month periods ended June 30, 2011 and 2010.

		For the Quarter Ended								For the Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
						(In millions)
Net income		$	1,259			$	860			$	2,393			$	1,565
Other comprehensive income (loss):
Commodity hedges			362				102				(73	)			463
Income tax related to commodity hedges			(117	)			(39	)			14				(150	)
Total comprehensive income		$	1,504			$	923			$	2,334			$	1,878

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. At June 30, 2011, the Company had operations in the United States, Canada, Egypt, the United Kingdom North Sea, Australia and Argentina. Financial information for each country is presented below:

		United																								Other
		States				Canada				Egypt				Australia				North Sea				Argentina				International				Total
		(In millions)
For the Quarter Ended June 30, 2011
Oil and Gas Production Revenues		$	1,560			$	433			$	1,201			$	470			$	572			$	119			$	—			$	4,355
Operating Income (Loss) (1)		$	738			$	104			$	893			$	311			$	257			$	21			$	(26	)		$	2,298
Other Income (Expense):
Other																															(17	)
General and administrative																															(103	)
Merger, acquisitions & transition																															(6	)
Financing costs, net																															(41	)
Income Before Income Taxes																														$	2,131
For the Six Months Ended June 30, 2011
Oil and Gas Production Revenues		$	2,937			$	835			$	2,401			$	842			$	1,002			$	216			$	—			$	8,233
Operating Income (Loss) (1)		$	1,368			$	182			$	1,787			$	536			$	462			$	31			$	(26	)		$	4,340
Other Income (Expense):
Other																															30
General and administrative																															(215	)
Merger, acquisitions & transition																															(11	)
Financing costs, net																															(86	)
Income Before Income Taxes																														$	4,058
Total Assets		$	22,142			$	8,680			$	6,677			$	4,272			$	2,999			$	1,686			$	73			$	46,529
For the Quarter Ended June 30, 2010
Oil and Gas Production Revenues		$	962			$	240			$	806			$	452			$	421			$	88			$	—			$	2,969
Operating Income (1)		$	452			$	71			$	548			$	285			$	165			$	18			$	—			$	1,539
Other Income (Expense):
Other																															3
General and administrative																															(84	)
Merger, acquisitions & transition																															(8	)
Financing costs, net																															(56	)
Income Before Income Taxes																														$	1,394
For the Six Months Ended June 30, 2010
Oil and Gas Production Revenues		$	1,954			$	493			$	1,547			$	676			$	812			$	180			$	—			$	5,662
Operating Income (1)		$	963			$	166			$	1,041			$	386			$	313			$	43			$	—			$	2,912
Other Income (Expense):
Other																															(17	)
General and administrative																															(171	)
Merger, acquisitions & transition																															(8	)
Financing costs, net																															(115	)
Income Before Income Taxes																														$	2,601
Total Assets		$	12,473			$	4,243			$	5,910			$	3,737			$	2,526			$	1,488			$	55			$	30,432