ASSET RETIREMENT OBLIGATION

12 Months Ended

Dec. 31, 2012

ASSET RETIREMENT OBLIGATION

5.    ASSET RETIREMENT OBLIGATION

The following table describes changes to the Company’s asset retirement obligation (ARO) liability for the years ended December 31, 2012 and 2011:

	2012			2011
	(In millions)
Asset retirement obligation at beginning of year	$	3,887		$	2,872
Liabilities incurred		592			419
Liabilities acquired		72			592
Liabilities settled		(550	)		(549	)
Accretion expense		232			154
Revisions in estimated liabilities		345			399
Asset retirement obligation at end of year		4,578			3,887
Less current portion		(478	)		(447	)
Asset retirement obligation, long-term	$	4,100		$	3,440

The ARO liability 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. The Company estimates the ultimate productive life of the properties, a risk-adjusted discount rate, and an inflation factor in order to determine the current present value of this obligation. 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.

During 2012, the company recorded $592 million in abandonment liabilities resulting from Apache’s active exploration and development capital program. An additional $72 million of abandonment obligations were recognized on properties acquired during the year. An additional $345 million of abandonment costs were recognized for upward revisions to prior-year estimates of timing and costs, particularly in Australia and Canada.

Liabilities settled primarily relate to individual properties, platforms, and facilities plugged and abandoned during the period. Apache continues to have an active abandonment program that is focused in the U.S. Gulf of Mexico and Canada. The Company’s level of abandonment activity is expected to continue, and $478 million has been recorded as a current liability to reflect our estimated expenditures over the next 12 months.