10. CAPITAL STOCK

Common Stock Outstanding


	2012		2011		2010
Balance, beginning of year		384,117,643		382,391,742		336,436,972
Shares issued for stock-based compensation plans:
Treasury shares issued		60,767		144,313		363,263
Common shares issued		1,189,693		1,581,588		1,864,498
Cordillera consideration		6,272,667		—		—
Equity offering (BP acquisitions)		—		—		26,450,000
Mariner consideration		—		—		17,277,009

Balance, end of year		391,640,770		384,117,643		382,391,742

Net Income per Common Share

A reconciliation of the components of basic and diluted net income per common share for the years ended December 31, 2012, 2011, and 2010 is presented in the table below.


	2012						2011						2010
	Income		Shares		Per Share		Income		Shares		Per Share		Income		Shares		Per Share
	(In millions, except per share amounts)
Basic:
Income attributable to common stock	$	1,925		389	$	4.95	$	4,508		384	$	11.75	$	3,000		352	$	8.53

Effect of Dilutive Securities:
Mandatory Convertible Preferred Stock	$	—		—			$	76		14			$	32		5
Stock options and other		—		2				—		2				—		2

Diluted:
Income attributable to common stock, including assumed conversions	$	1,925		391	$	4.92	$	4,584		400	$	11.47	$	3,032		359	$	8.46

The diluted EPS calculation excludes options and restricted shares that were anti-dilutive totaling 4.4 million, 2.5 million, and 2.3 million for the years ended December 31, 2012, 2011, and 2010, respectively. For the year ended December 31, 2012, 14.3 million shares related to the assumed conversion of the Mandatory Convertible Preferred Stock were also anti-dilutive.

Issuance of Common Stock

On July 28, 2010, in conjunction with Apache’s acquisition of properties from BP, the Company issued 26.45 million shares of common stock at a public offering price of $88 per share. Proceeds, after underwriting discounts and before expenses, from the common stock offering totaled approximately $2.3 billion.

On November 10, 2010, in connection with the Mariner merger, Apache issued 17.28 million shares of common stock in exchange for Mariner common and restricted stock. The total value of stock consideration, based on the November 10, 2010, closing value on the NYSE of $110.25 per share, was approximately $1.9 billion.

On April 30, 2012, in conjunction with Apache’s acquisition of Cordillera, the Company issued 6,272,667 shares of common stock to the sellers.

For further discussion of the BP acquisitions, Mariner merger, and Cordillera acquisition, please see Note 2 — Acquisitions and Divestitures.

Common Stock Dividend

The Company paid common stock dividends of $0.66 per share in 2012, and $0.60 per share in 2011 and 2010.

Stock Compensation Plans

The Company has several stock-based compensation plans, which include stock options, stock appreciation rights, restricted stock, and performance-based share appreciation plans. On May 5, 2011, the Company’s shareholders approved the 2011 Omnibus Equity Compensation Plan (the 2011 Plan), which is intended to provide eligible employees with equity-based incentives. The 2011 Plan provides for the granting of Incentive Stock Options, Non-Qualified Stock Options, Performance Awards, Restricted Stock, Restricted Stock Units, Stock Appreciation Rights, or any combination of the foregoing. Previously-approved plans remain in effect solely for the purpose of governing grants still outstanding that were issued prior to approval of the 2011 Plan. All new grants are issued from the 2011 Plan.

For 2012, 2011, and 2010, stock-based compensation expensed was $167 million, $113 million, and $164 million ($119 million, $73 million, and $106 million after tax), respectively. Costs related to the plans are capitalized or expensed based on the nature of each employee’s activities. A description of the Company’s stock-based compensation plans and related costs follows:


	2012		2011		2010
	(In millions)
Stock-based compensation expensed:
General and administrative	$	104	$	69	$	98
Lease operating expenses		63		44		66
Stock-based compensation capitalized		67		42		71

	$	234	$	155	$	235

Stock Options

As of December 31, 2012, officers and employees held options to purchase shares of the Company’s common stock under one or more of the employee stock option plans adopted in 1998, 2000, and 2005 (collectively, the Stock Option Plans), as well as the 2007 Omnibus Equity Compensation Plan (the 2007 Plan), and the 2011 Plan discussed above (together, the Omnibus Plans). New shares of Company stock will be issued for employee stock option exercises; however, under the 2000 Stock Option Plan, shares of treasury stock are used for employee stock option exercises to the extent treasury stock is held. Under the Stock Option Plans and the Omnibus Plans, the exercise price of each option equals the closing price of Apache’s common stock on the date of grant. Options generally become exercisable ratably over a four-year period and expire 10 years after granted. The Omnibus Plans and all of the Stock Option Plans, except for the 2000 Stock Option Plan, were submitted to and approved by the Company’s shareholders.

A summary of stock options issued and outstanding under the Stock Option Plans and the Omnibus Plans is presented in the table and narrative below:


	2012
	Shares Under Option			Weighted Average Exercise Price
	(In thousands)
Outstanding, beginning of year		6,092		$	91.96
Granted		2,072			82.65
Exercised		(311	)		56.15
Forfeited or expired		(280	)		102.90

Outstanding, end of year(1)		7,573			90.47

Expected to vest(1)		2,900			96.23

Exercisable, end of year(1)		3,922			85.55

Available for grant, end of year		15,498

Weighted average fair value of options granted during the year	$	26.41

(1)

As of December 31, 2012, the weighted average remaining contractual life for options outstanding, expected to vest, and exercisable is 6.7 years, 8.6 years, and 5.0 years, respectively. The aggregate intrinsic value of options outstanding, expected to vest, and exercisable at year-end was $19 million, $0, and $19 million, respectively. The weighted-average grant-date fair value of options granted during the years 2012, 2011, and 2010 was $26.41, $42.20, and $34.12, respectively.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. Assumptions used in the valuation are disclosed in the following table. Expected volatilities are based on historical volatility of the Company’s common stock and other factors. The expected dividend yield is based on historical yields on the date of grant. The expected term of stock options granted represents the period of time that the stock options are expected to be outstanding and is derived from historical exercise behavior, current trends, and values derived from lattice-based models. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant.


	2012			2011			2010
Expected volatility		34.94	%		34.47	%		35.02	%
Expected dividend yields		0.82	%		0.47	%		0.60	%
Expected term (in years)		5.5			5.5			5.5
Risk-free rate		0.78	%		1.95	%		2.31	%

The intrinsic value of options exercised during 2012, 2011, and 2010 was approximately $12 million, $50 million and $62 million, respectively. The cash received from exercise of options during 2012 was approximately $17 million. The Company realized an additional tax benefit of approximately $2 million for the amount of intrinsic value in excess of compensation cost recognized in 2012. As of December 31, 2012, the total compensation cost related to non-vested options not yet recognized was $90 million, which will be recognized over the remaining vesting period of the options.

Stock Appreciation Rights

For some non-executive employees, the Company issued stock appreciation rights (SARs) in lieu of stock options. The SARs vest ratably over four years and are settled in cash upon exercise throughout their ten-year life. In 2012, the Company issued 180,555 SARs with a weighted-average exercise price of $82.63 under the 2011 Omnibus Plan. Additionally, in 2003 and 2004 the Company issued 1,809,060 SARs with a weighted-average exercise price of $42.68 and 1,334,300 SARs with a weighted-average exercise price of $28.78, respectively, under the 2003 Stock Appreciation Rights Plan. As of December 31, 2012, a total of 583,688 SARs were outstanding, of which 413,582 were exercisable. Since SARs are cash-settled, the Company records compensation expense based on the fair value of the SARs at the end of each period. As of year-end, the weighted-average fair value of SARs outstanding was $36.20 based on the Black-Scholes valuation methodology using assumptions comparable to those discussed above. During 2012, 60,523 SARs were exercised. The aggregate of cash payments made to settle SARs was $3 million.

Restricted Stock and Restricted Stock Units

The Company has restricted stock and restricted stock unit plans for eligible employees including officers. The programs created under the Omnibus Plans have been approved by Apache’s Board of Directors. In 2012, the Company awarded 1,219,886 restricted stock units at a weighted-average per-share market price of $85.67. In 2011 and 2010, the Company awarded 887,851 and 1,143,989 restricted stock units at a weighted-average per-share market price of $124.16 and $103.88, respectively. The value of the stock issued was established by the market price on the date of grant and is being recorded as compensation expense ratably over the vesting terms. During 2012, 2011, and 2010, $74 million ($48 million after tax), $76 million ($49 million after tax), and $73 million ($47 million after tax), respectively, was charged to expense. In 2012, 2011, and 2010, $25 million, $28 million, and $28 million was capitalized, respectively. As of December 31, 2012, there was $151 million of total unrecognized compensation cost related to 2,163,564 unvested restricted stock units. The weighted-average remaining life of unvested restricted stock units is approximately 1.4 years.

The fair value of the awards vested during 2012, 2011 and 2010 was approximately $114 million, $85 million, and $69 million, respectively. A summary of restricted stock activity for the year ended December 31, 2012, is presented below.


	Shares			Weighted- Average Grant- Date Fair Value
	(In thousands)
Non-vested at January 1, 2012		2,115		$	109.63
Granted		1,220			85.67
Vested		(1,053	)		107.76
Forfeited		(118	)		102.82

Non-vested at December 31, 2012		2,164			97.34

Conditional Restricted Stock Units

To provide long-term incentives for Apache employees to deliver competitive returns to the Company’s stockholders, in January 2012, 2011, and 2010 the Company granted conditional restricted stock units to eligible employees. The ultimate number of shares awarded from these conditional restricted stock units is 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. Three conditional restricted stock unit programs have been approved, as described below:

•

In November 2009 the Company’s Board of Directors approved the 2010 Performance Program, pursuant to the 2007 Plan. In January 2010 eligible employees received initial conditional restricted stock unit awards totaling 541,440 units. Based on measurement of total shareholder return relative to the designated peer group at December 31, 2012, zero shares were awarded and all unvested conditional restricted stock units were cancelled.

•

In November 2010 the Company’s Board of Directors approved the 2011 Performance Program, pursuant to the 2007 Plan. In January 2011 eligible employees received initial conditional restricted stock unit awards totaling 585,811 units. A total of 503,884 units were outstanding at December 31, 2012, from which a minimum of zero and a maximum of 1,259,710 units could be awarded.

•

In January 2012 the Company’s Board of Directors approved the 2012 Performance Program, pursuant to the 2011 Plan. In January 2012 eligible employees received initial conditional restricted stock unit awards totaling 851,985 units. A total of 802,390 units were outstanding at December 31, 2012, from which a minimum of zero and a maximum of 2,005,975 units could be awarded.

The fair value cost of the awards was estimated on the date of grant and is being recorded as compensation expense ratably over the vesting terms. During 2012, 2011, and 2010, $47 million ($31 million after tax), $12 million ($8 million after tax), and $7 million ($4 million after tax), respectively, was charged to expense. During 2012, 2011, and 2010, $21 million, $5 million, and $3 million was capitalized, respectively. As of December 31, 2012, there was $72 million of total unrecognized compensation cost related to 1,306,274 unvested conditional restricted stock units. The weighted-average remaining life of the unvested conditional restricted stock units is approximately 2.4 years.


	Shares			Weighted- Average Grant- Date Fair Value(1)
	(In thousands)
Non-vested at January 1, 2012		1,019		$	115.10
Granted		852			70.30
Vested		(1	)		100.81
Forfeited		(564	)		132.45

Non-vested at December 31, 2012		1,306			78.40

(1)

The fair value of each conditional restricted stock unit award is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a three-year continuous risk-free interest rate; (ii) a constant volatility assumption based on the historical realized stock price volatility of the Company and the designated peer group; and (iii) the historical stock prices and expected dividends of the common stock of the Company and its designated peer group.

In January 2013 the Company’s Board of Directors approved the 2013 Performance Program, pursuant to the 2011 Plan, with terms similar to the 2012 Performance Program. Eligible employees received initial conditional restricted stock unit awards totaling 1,232,176 units, with the ultimate number of restricted stock units to be awarded ranging from zero to a maximum of 2,464,352 units.

Share Appreciation Plans

The Company previously utilized share appreciation plans to provide incentives for substantially all full-time employees and officers 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. Shares of Apache common stock contingently issuable under the plans are excluded from the computation of income per common share until the stated goals are met as described below.

Since 2005, two share appreciation plans have been approved. A summary of these plans is as follows:

•

On May 7, 2008, the Stock Option Plan Committee of the Company’s Board of Directors, pursuant to the 2007 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. The interim target of $162 was not met by the end of 2010, and the related awards were cancelled. The $216 share price target was not met by the end of 2012, and all remaining awards under the 2008 Share Appreciation Program were cancelled.

•

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. Apache’s share price exceeded the interim $81 threshold for the 10-day requirement as of June 14, 2007. Apache’s share price exceeded the $108 threshold for the 10-day requirement as of February 29, 2008. Awards under the plan were payable in four equal annual installments to eligible employees remaining with the Company.

A summary of the number of shares contingently issuable as of December 31, 2012, 2011, and 2010 for each plan is presented in the table below:


	Shares subject to Conditional Grants
	2012			2011			2010
	(In thousands)
2008 Share Appreciation Program
Outstanding, beginning of year		1,372			1,485			2,592
Granted		—			—			25
Forfeited or cancelled		(1,372	)		(113	)		(1,132	)

Outstanding, end of year(1)		—			1,372			1,485

Weighted-average value of grants outstanding(2)	$	—		$	71.28		$	71.16

2005 Share Appreciation Plan
Outstanding, beginning of year		—			400			1,103
Issued(3)		—			(398	)		(678	)
Forfeited or cancelled		—			(2	)		(25	)

Outstanding, end of year		—			—			400

Weighted-average value of grants outstanding(4)	$	—		$	—		$	21.64

(1)	Represents shares issuable upon target achievement and vesting of awards related to the $216 and $162 per share price goals of zero shares at December 31, 2012; 1,372,190 and zero shares, respectively, at December 31, 2011; and 1,485,210 and zero shares, respectively, at December 31, 2010.

(2)

The fair value of each Share Price Goal conditional grant is estimated as of the date of grant using a Monte Carlo simulation with the following weighted-average assumptions used for all grants made under the plan: (i) risk-free interest rate of 2.98 percent; (ii) expected volatility of 28.31 percent; and (iii) expected dividend yield of .54 percent.

(3)	The total fair value of these awards vested during 2011 and 2010 was approximately $9 million and $18 million, respectively.

(4)

The fair value of each Share Price Goal conditional grant is estimated as of the date of grant using a Monte Carlo simulation with the following weighted-average assumptions used for all grants made under the plan: (i) risk-free interest rate of 3.95 percent; (ii) expected volatility of 28.02 percent; and (iii) expected dividend yield of .57 percent.

The Company recognizes over the requisite service period the fair value cost determined at the grant date based on numerous assumptions, including an estimate of the likelihood that Apache’s stock price will achieve these thresholds and the expected forfeiture rate. If a price target is not met before the end of the stated achievement period, any unamortized expense must be immediately recognized. Since the $162 and $216 price targets of the 2008 Share Appreciation Program were not met prior to the end of the stated achievement periods, Apache recognized $27 million of unamortized expense and $14 million of unamortized capital costs on December 31, 2010, and $16 million of unamortized expense and $8 million of unamortized capital costs on December 31, 2012, respectively. The Company recognized total expense and capitalized costs for the 2008 Share Appreciation Program of $181 million and as of year-end 2012 had no unamortized cost remaining. As of March 2011, the Company had recognized $79 million of total expense and capitalized costs for the 2005 Share Appreciation Plan and had no unamortized costs remaining. A summary of the amounts recognized as expense and capitalized costs for each plan are detailed in the table below:


	For the Year Ended December 31,
	2012		2011		2010
	(In millions)
2008 Share Appreciation Program
Compensation expense	$	22	$	8	$	49
Compensation expense, net of tax		14		5		31
Capitalized costs		12		5		27
2005 Share Appreciation Plan
Compensation expense		—	$	1	$	6
Compensation expense, net of tax		—		1		4
Capitalized costs		—		1		3

Preferred Stock

The Company has 10,000,000 shares of no par preferred stock authorized, of which 25,000 shares have been designated as Series A Junior Participating Preferred Stock (the Series A Preferred Stock) and 1.265 million shares as 6.00-percent Mandatory Convertible Preferred Stock, Series D (the Series D Preferred Stock).

Series A Preferred Stock

In December 1995, the Company declared a dividend of one right (a Right) for each 2.31 shares (adjusted for subsequent stock dividends and a two-for-one stock split) of Apache common stock outstanding on January 31, 1996. Each full Right entitles the registered holder to purchase from the Company one ten-thousandth (1/10,000) of a share of Series A Preferred Stock at a price of $100 per one ten-thousandth of a share, subject to adjustment. The Rights are exercisable 10 calendar days following a public announcement that certain persons or groups have acquired 20 percent or more of the outstanding shares of Apache common stock or 10 business days following commencement of an offer for 30 percent or more of the outstanding shares of Apache’s outstanding common stock (flip-in event); each Right will become exercisable for shares of Apache’s common stock at 50 percent of the then-market price of the common stock. If a 20-percent shareholder of Apache acquires Apache, by merger or otherwise, in a transaction where Apache does not survive or in which Apache’s common stock is changed or exchanged (flip-over event), the Rights become exercisable for shares of the common stock of the Company acquiring Apache at 50 percent of the then-market price for Apache common stock. Any Rights that are or were beneficially owned by a person who has acquired 20 percent or more of the outstanding shares of Apache common stock and who engages in certain transactions or realizes the benefits of certain transactions with the Company will become void. If an offer to acquire all of the Company’s outstanding shares of common stock is determined to be fair by Apache’s board of directors, the transaction will not trigger a flip-in event or a flip-over event. The Company may also redeem the Rights at $.01 per Right at any time until 10 business days after public announcement of a flip-in event. These rights were originally scheduled to expire on January 31, 2006. Effective as of that date, the Rights were reset to one right per share of common stock and the expiration was extended to January 31, 2016. Unless the Rights have been previously redeemed, all shares of Apache common stock issued by the Company after January 31, 1996 will include Rights. Unless and until the Rights become exercisable, they will be transferred with and only with the shares of Apache common stock.

Series D Preferred Stock

On July 28, 2010, Apache issued 25.3 million depositary shares, each representing a 1/20th interest in a share of Apache’s 6.00-percent Mandatory Convertible Preferred Stock, Series D (Preferred Share), or 1.265 million Preferred Shares. The Company received proceeds of approximately $1.2 billion, after underwriting discounts and before expenses, from the sale.

Each Preferred Share has an initial liquidation preference of $1,000 per share (equivalent to $50 liquidation preference per depositary share). When and if declared by the Board of Directors, Apache will pay cumulative dividends on each Preferred Share at a rate of 6.00 percent per annum on the initial liquidation preference. Dividends will be paid in cash quarterly on February 1, May 1, August 1, and November 1 of each year, commencing on November 1, 2010, and until and including May 1, 2013. The final dividend payment on August 1, 2013, may be paid or delivered, as the case may be, in cash, shares of Apache common stock, or a combination thereof, at the election of the Company.

The Preferred Shares may be converted, at the option of the holder, into 9.164 shares, subject to adjustment, of Apache common stock at any time prior to July 15, 2013. If not converted prior to that time, each Preferred Share will automatically convert on August 1, 2013, into a minimum of 9.164 or a maximum of 11.364 shares, each subject to adjustment, of Apache common stock depending on the volume-weighted average price per share of Apache’s common stock over the ten trading day period ending on, and including, the third scheduled trading day immediately preceding the mandatory conversion. Upon conversion, a minimum of 11.6 million Apache common shares and a maximum of 14.4 million common shares will be issued.