8. 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 $8 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, results of operations, or liquidity after consideration of recorded accruals. For material matters that Apache believes an unfavorable outcome is reasonably possible, the Company has disclosed the nature of the matter and a range of potential exposure, unless an estimate cannot be made at this time. 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, results of operations, or liquidity.

Argentine Claims

On March 12, 2014, the Company and its subsidiaries completed the sale of all of the Company’s subsidiaries’ operations and properties in Argentina to YPF Sociedad Anonima (YPF). As part of that sale, YPF assumed responsibility for all of the past, present, and future litigation in Argentina involving Company subsidiaries, except that Company subsidiaries have agreed to indemnify YPF for certain environmental, tax, and royalty obligations capped at an aggregate of $100 million. The indemnity is subject to specific agreed conditions precedent, thresholds, contingencies, limitations, claim deadlines, loss sharing, and other terms and conditions. On April 11, 2014, YPF provided its first notice of claims pursuant to the indemnity. Company subsidiaries have not paid any amounts under the indemnity but will continue to review and consider claims presented by YPF. Further, Company subsidiaries retain the right to enforce certain Argentina-related indemnification obligations against Pioneer Natural Resources Company (Pioneer) in an amount up to $67.5 million pursuant to the terms and conditions of stock purchase agreements entered in 2006 between Company subsidiaries and subsidiaries of Pioneer.

Louisiana Restoration

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 damages measured by the cost of restoration of leased premises to their original condition as well as damages from contamination and cleanup, regardless of the value of the underlying property. From time-to-time restoration lawsuits and claims are resolved by the Company for amounts that are not material to the Company, while new lawsuits and claims are asserted against the Company. With respect to each of the pending lawsuits and claims, the amount claimed is not currently determinable or is not material. The overall exposure related to these lawsuits and claims is not currently determinable. While an adverse judgment against Apache is possible, Apache intends to actively defend the cases.

On July 24, 2013, a lawsuit captioned Board of Commissioners of the Southeast Louisiana Flood Protection Authority — East v. Tennessee Gas Pipeline Company et al., Case No. 2013-6911 was filed in the Civil District Court for the Parish of Orleans, State of Louisiana, in which plaintiff on behalf of itself and as the board governing the levee districts of Orleans, Lake Borgne Basin, and East Jefferson alleges that Louisiana coastal lands have been damaged as a result of oil and gas industry activity, including a network of canals for access and pipelines. Plaintiff seeks damages and injunctive relief in the form of abatement and restoration based on claims of negligence, strict liability, natural servitude of drain, public nuisance, private nuisance, and breach of contract — third party beneficiary. Apache has been indiscriminately named as one of approximately 100 defendants in the lawsuit. Defendant Chevron U.S.A., Inc. filed a notice to remove the case to the United States District Court for the Eastern District of Louisiana, civil action No. 13-5410. The federal court has retained jurisdiction over the matter after denying plaintiff’s motion to remand on June 27, 2014. Further, in 2014 the Louisiana state government passed a law (SB 469) clarifying that only entities authorized under the Coastal Zone Management Act may bring litigation to assert claims arising out of the permitted activities. Plaintiff is not one of those authorized entities. On February 13, 2015, the federal court entered judgment in favor of defendants dismissing all of plaintiff’s claims with prejudice on various grounds, subject to appeal. The overall exposure related to this lawsuit is not currently determinable. While an adverse judgment against Apache might be possible, Apache intends to continue to vigorously oppose the claims, including by defending against any appeal of the trial court’s judgment.

On November 8, 2013, the Parish of Plaquemines in Louisiana filed three lawsuits against the Company and other oil and gas producers alleging that certain of defendants’ oil and gas exploration, production, and transportation operations in specified fields were conducted in violation of the State and Local Coastal Resources Management Act of 1978, as amended, and applicable regulations, rules, orders, and ordinances promulgated or adopted thereunder by the State of Louisiana or the Parish of Plaquemines. Plaintiff alleges that defendants caused substantial damage to land and water bodies located in the coastal zone of Louisiana. Plaintiff seeks, among other things, unspecified damages for alleged violations of applicable state law within the coastal zone, the payment of costs necessary to clear, re-vegetate, detoxify, and otherwise restore the subject coastal zone as near as practicable to its original condition, and actual restoration of the coastal zone to its original condition. The lawsuits were all filed in Division A of the 25^th Judicial District Court for the Parish of Plaquemines, State of Louisiana, and are captioned as follows: Parish of Plaquemines v. Rozel Operating Company et al., Docket No. 60-996; Parish of Plaquemines v. Apache Oil Corporation et al., Docket No. 61-000; and Parish of Plaquemines v. HHE Energy Company et al., Docket No. 60-983. Defendants filed notices to remove the cases to the United States District Court for the Eastern District of Louisiana, civil action Nos. 13-6722, 13-6711, and 13-6735. However, plaintiff’s motions to remand were granted in civil action Nos. 13-6722 and 13-6711. Many similar lawsuits have been filed against other oil and gas producers in the Parish of Plaquemines and in other Parishes across south Louisiana. The overall exposure related to these lawsuits is not currently determinable. While an adverse judgment against Apache might be possible, Apache intends to vigorously oppose the claims.

Australia Gas Pipeline Force Majeure

In June 2008, Company subsidiaries reported a pipeline explosion in Western Australia that interrupted deliveries of natural gas to customers under various long-term contracts. Company subsidiaries believe that the event was a force majeure, and as a result, the subsidiaries and their joint venture participants declared force majeure under those contracts.

On March 24, 2011, natural gas customer Alcoa of Australia Limited (Alcoa) filed 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. Exclusive of interest and costs, Alcoa seeks approximately $158 million AUD for alleged economic losses in tort or, alternatively, contractual liquidated damages in the amount of approximately $5.7 million AUD.

A lawsuit filed by natural gas customer Burrup Fertilisers Pty Ltd (Burrup Fertilisers) in Texas in December 2009 was dismissed in March 2013 on the ground of forum non conveniens. On May 29, 2014, Yara Pilbara Fertilisers Pty Ltd (YPFPL, formerly Burrup Fertilisers) re-filed the lawsuit in Western Australia, captioned Yara Pilbara Fertilisers Pty Ltd vs. Apache Energy Limited & Ors, Civ. 1742 of 2014, in the Supreme Court of Western Australia. Exclusive of interest and costs, YPFPL seeks nearly $166 million USD for alleged economic losses in tort or, alternatively, contractual liquidated damages in the amount of approximately $13 million USD.

Six additional lawsuits concerning the pipeline explosion were filed in the Supreme Court of Western Australia prior to expiration of the applicable six-year limitations period on June 3, 2014. Plaintiffs are Iluka Resources Limited (Civ. 1748 of 2014), Barrick (Plutonic) Limited (Civ. 2656 of 2013), Newmont Mining Services Pty Ltd and certain of its affiliates (Civ. 1727 of 2014), EDL LNG (WA) Pty Ltd and an affiliate (Civ. 1751 of 2014), Wesfarmers LPG Pty Ltd and certain of its affiliates (Civ. 1740 of 2014), and Harvey Industries Group Pty Ltd (Civ. 1749 of 2014). The Iluka, Newmont, Wesfarmers, and Harvey plaintiffs have filed a short form of pleading that has not been served on the Apache defendants. Each plaintiff seeks to recover alleged economic losses in tort, including for lost production at their own facilities and/or replacement energy costs, and in the alternative contractual liquidated damages from Company subsidiaries (in the case of the EDL LNG plaintiffs) or Santos (BOL) Pty Ltd (in the case of the EDL LNG and Newmont plaintiffs). The amount of economic losses claimed in tort totals approximately $100 million AUD exclusive of interest and costs, and the amount of liquidated damages sought is not material.

The civil lawsuits are being pressed by plaintiffs’ subrogated insurers seeking relief primarily in tort, in circumvention of plaintiffs’ own positive arrangements regarding risk allocation and in contravention of the High Court’s October 8, 2014, decision in Brookfield Multiplex Ltd v. Owners Corporation Strata Plan 61288 & Anor, [2014] HCA 36 and the Victoria Supreme Court’s decision in Johnson Tiles Pty Ltd v. Esso Australia Pty Ltd [2003] VSC 27.

Contract prices under customer contracts were significantly below prices for natural gas in Australia during the force majeure period. In the event it is determined that the pipeline explosion was not a force majeure, Company subsidiaries believe that liquidated damages should be the extent of the damages under those long-term contracts with such provisions. Approximately 90 percent of the natural gas volumes sold by Company subsidiaries under long-term contracts have liquidated damages provisions. In respect of plaintiffs that filed claims prior to expiration of the six-year limitations period, contractual liquidated damages under the long-term contracts with such provisions would not be expected to exceed $20 million USD exclusive of interest. While an adverse judgment is possible against Company subsidiaries on the plaintiffs’ breach of contract and duty of care claims (and against the Company to the extent of liquidated damages, in the case of YPFPL), the Company and Company subsidiaries do not believe any of the claims have merit and will vigorously pursue their defenses against such claims. Further, Company subsidiaries have received confirmation of liability insurance coverage from their primary and excess insurers.

Escheat Audits

The State of Delaware, Department of Finance, Division of Revenue (Unclaimed Property), has notified numerous companies, including Apache Corporation, that the State will examine its books and records and those of its subsidiaries and related entities to determine compliance with the Delaware Escheat Laws. The review is being 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 audits could extend to all 50 states. The exposure related to the audits is not currently determinable.

Burrup-Related Gas Supply Lawsuits

On May 19, 2011, a lawsuit captioned Pankaj Oswal et al. v. Apache Corporation, Cause No. 2011-30302, in the District Court of Harris County, Texas, was filed in which plaintiffs asserted claims against the Company under the Australian Trade Practices Act. On April 5, 2013, the court granted Apache Corporation’s motion to dismiss on the ground of forum non conveniens and entered an order dismissing the Texas lawsuit. On or about October 11, 2013, a statement of claim captioned Pankaj Oswal v. Apache Corporation, No. WAD 389/2013, in the Federal Court of Australia, District of Western Australia, General Division, was filed in which plaintiff re-asserted claims against the Company under the Australian Trade Practices Act. Plaintiff alleged, among other things, that the Company induced him to make investments covering construction cost overruns on the Burrup Fertilisers ammonia plant in Western Australia (the Burrup plant), which was completed in 2006. Plaintiff sought damages in the amount of $491 million USD. On the eve of a trial that was to commence February 9, 2015, plaintiff decided to discontinue his lawsuit. Once the Court enters a final form of order, the lawsuit will be concluded in the Company’s favor.

The Western Australia lawsuit is one of a number of legal actions involving the Burrup plant. Oswal’s shares, and those of his wife Radhika Oswal, together representing 65 percent of Burrup Holdings Limited (BHL, as it was then known, which owns Burrup Fertilisers), were offered for sale by externally-appointed administrators in Australia as a result of events of default on loans made to the Oswals and associated entities by the Australia and New Zealand Banking Group Ltd (ANZ). As part of the sale process, on January 31, 2012, a Company affiliate acquired a 49 percent interest in BHL (now known as Yara Pilbara Holdings Pty Ltd, YPHPL), while Yara Australia Pty Ltd (Yara) increased its interest in YPHPL from 35 percent to 51 percent. Yara operates the ammonia plant and is proceeding with development of a technical ammonium nitrate (TAN) plant in the Burrup Peninsula region of Western Australia to be developed by a consortium including YPHPL. The old gas sale agreement to supply natural gas to the ammonia plant, and to which a Company subsidiary was a party, has been modified with, among other things, new pricing, delivery quantities, and term.

YPHPL share ownership and the modified gas sale agreement continue to be the subject of ongoing litigation in Australia with third parties, including Pankaj and Radhika Oswal. In Radhika Oswal v. Australia and New Zealand Banking Group Limited & Ors, No. SCI 2011 4653, and Pankaj Oswal v. Australia and New Zealand Banking Group Limited & Ors, No. SCI 2012 01995, in the Supreme Court of Victoria, named defendants include the Company and certain of its subsidiaries. In these Victoria proceedings, the Oswal plaintiffs seek to set aside the YPHPL share sale, void the modified gas sale agreement, and recover unspecified damages. The cases are presently set for trial commencing August 2015.

The new gas sale agreement resolved counterclaims by Burrup Fertilisers against Apache and certain of its subsidiaries in Tap (Harriet) Pty Ltd (Tap) v. Burrup Fertilisers Pty Ltd & Ors, Civ. 2329 of 2009, in the Supreme Court of Western Australia (the Tap Action), which concerned the parties’ contractual rights and obligations under the old gas sale agreement between Burrup Fertilisers and the Harriet Joint Venture (the HJV, comprised of a Company subsidiary and two joint venture partners, Tap and Kufpec Australia Pty Ltd). A Company subsidiary purchased Tap, which then modified its agreement to supply gas to the ammonia plant and resolved both Tap’s claims against Burrup Fertilisers and Burrup Fertilisers’ counterclaims against Tap in the Tap Action. In 2014 Kufpec settled the remaining claims in the Tap Action, which has now been dismissed and is concluded.

Environmental Matters

The Company, as an owner or lessee and operator of oil and gas properties, is subject to various federal, provincial, state, local, and foreign country laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on the lessee under an oil and gas lease for the cost of pollution clean-up resulting from operations and subject the lessee to liability for pollution damages. In some instances, the Company may be directed to suspend or cease operations in the affected area. We maintain insurance coverage, which we believe is customary in the industry, although we are not fully insured against all environmental risks.

Apache manages its exposure to environmental liabilities on properties to be acquired by identifying existing problems and assessing the potential liability. The Company also conducts periodic reviews, on a Company-wide basis, to identify changes in its environmental risk profile. These reviews evaluate whether there is a probable liability, the amount, and the likelihood that the liability will be incurred. The amount of any potential liability is determined by considering, among other matters, incremental direct costs of any likely remediation and the proportionate cost of employees who are expected to devote a significant amount of time directly to any possible remediation effort. As it relates to evaluations of purchased properties, depending on the extent of an identified environmental problem, the Company may exclude a property from the acquisition, require the seller to remediate the property to Apache’s satisfaction, or agree to assume liability for the remediation of the property. The Company’s general policy is to limit any reserve additions to any incidents or sites that are considered probable to result in an expected remediation cost exceeding $300,000. Any environmental costs and liabilities that are not reserved for are treated as an expense when actually incurred. In Apache’s estimation, neither these expenses nor expenses related to training and compliance programs are likely to have a material impact on its financial condition.

As of December 31, 2014, the Company had an undiscounted reserve for environmental remediation of approximately $67 million. Apache is not aware of any environmental claims existing as of December 31, 2014 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.

On June 1, 2013, Apache Canada Ltd. discovered a leak of produced water from a below ground pipeline in the Zama Operations area in northern Alberta. The pipeline was associated with a produced water disposal well. The spill resulted in approximately 97 thousand barrels of produced water being released to the marsh land environment. The applicable government agencies were immediately notified of the event and the line was shut down. Apache Canada Ltd. investigated the leak while conducting clean up and monitoring activities in the affected area and communicating with appropriate parties, including regulatory and First Nation representatives. The investigation revealed a pinhole feature in the outer polyethylene liner of the composite flex line. While the exposure related to this incident is not currently determinable, the Company does not expect the economic impact of this incident to have a material effect on the Company’s financial position, results of operations, or liquidity. It is possible that the June 2013 leak together with additional discharges in the Zama Operations area, including several that have occurred since June 2013, could result in government fines or sanction.

Contractual Obligations

At December 31, 2014, contractual obligations for drilling rigs, purchase obligations, firm transportation agreements, and long-term operating leases are as follows:


Net Minimum Commitments	Total		2015		2016-2017		2018-2019		2020 & Beyond
	(In millions)
Drilling rig commitments(1)	$	999	$	382	$	573	$	44	$	—
Purchase obligations(2)		1,248		527		428		255		38
Firm transportation agreements(3)		431		101		173		85		72
Office and related equipment(4)		343		49		98		80		116
Other operating lease obligations(5)		469		131		221		82		35

Total Net Minimum Commitments	$	3,490	$	1,190	$	1,493	$	546	$	261

(1)	Includes day-rate and other contractual agreements with third party service providers for use of drilling, completion, and workover rigs. Drilling rig commitments will be reduced by $79 million upon the completion of the sale of Apache’s interest in the Kitimat and Wheatstone LNG projects.

(2)

Includes contractual obligations to buy or build oil and gas plants and facilities, LNG facilities, seismic and drilling work program commitments, take-or-pay contracts, and NGL processing agreements. Of the total purchase obligations, $651 million will be relinquished upon completion of the sale of Apache’s interest in Kitimat and Wheatstone LNG projects.

(3)	Relates to contractual obligations for capacity rights on third-party pipelines. Firm transportation commitments will be reduced by $51 million upon completion of the sale of Apache’s interest in the Kitimat and Wheatstone LNG projects.

(4)	Includes office and other building rentals and related equipment leases.

(5)

Includes commitments required to retain acreage and commitments associated with floating production storage and offloading vessels (FPSOs), compressors, helicopters, and boats. Other operating lease commitments will be reduced by $291 million upon completion of the sale of Apache’s interest in the Kitimat and Wheatstone LNG projects.

The table above includes leases for buildings, facilities, and related equipment with varying expiration dates through 2035. Net rental expense, excluding discontinued operations in Argentina, was $58 million, $53 million, and $49 million for 2014, 2013, and 2012, respectively. Costs incurred under take-or-pay and throughput obligations were $96 million, $80 million, and $71 million for 2014, 2013, and 2012, respectively.