CHANGE IN ACCOUNTING PRINCIPLE

During the second quarter of 2016, the Company voluntarily changed its method of accounting for oil and gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration expenditures such as exploratory dry holes, exploratory geological and geophysical costs, delay rentals, unproved impairments, and exploration overhead are charged against earnings as incurred, versus being capitalized under the full cost method of accounting. Successful efforts also provides for the assessment of potential property impairments under ASC 360 by comparing the net carrying value of oil and gas properties with associated projected undiscounted pre-tax future net cash flows. If the expected undiscounted pre-tax future net cash flows are lower than the unamortized capitalized costs, the capitalized cost is reduced to fair value. Under the full cost method of accounting, a write-down would be required if the net carrying value of oil and gas properties exceeds a full cost “ceiling,” using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are generally recognized on the dispositions of oil and gas property and equipment under the successful efforts method, as opposed to an adjustment to the net carrying value of the remaining assets under the full cost method. Apache’s consolidated financial statements have been recast to reflect these differences. The adjustments for the 2014 consolidated balance sheet also include assets classified as held-for-sale under the successful efforts method of accounting.

The following tables present the effects of the change to the successful efforts method in the statement of consolidated operations:



	Changes to the Statement of Consolidated Operations and Statement of Consolidated Comprehensive Income (Loss)
For the Year Ended December 31, 2015	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions, except per share data)
Oil revenues	$	4,999		$	108		$	5,107
Natural gas revenues	1,157			19			1,176
NGL revenues	227			—			227
Oil and gas production revenues	6,383			127			6,510
Other	(76		)	174			98
Gain (loss) on divestiture	59			222			281
Exploration	—			2,771			2,771
General and administrative	377			3			380
Depreciation, depletion, and amortization:
Oil and gas property and equipment
Recurring	3,531			(555		)	2,976
Additional	25,517			(25,517		)	—
Impairments	1,920			7,552			9,472
Financing costs, net	299			212			511
Current income tax provision	309			126			435
Deferred income tax provision (benefit)	(5,778		)	4,333			(1,445		)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST	(22,757		)	11,598			(11,159		)
Net loss attributable to noncontrolling interest	(409		)	94			(315		)
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(22,348		)	11,504			(10,844		)
Net income (loss) from discontinued operations, net of tax	(771		)	1,263			492
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(23,119		)	12,767			(10,352		)

Per Common Share
Basic net loss from continuing operations per share	$	(59.16	)	$	30.46		$	(28.70	)
Basic net income (loss) from discontinued operations per share	(2.04		)	3.34			1.30
Basic net loss per share	$	(61.20	)	$	33.80		$	(27.40	)

Diluted net loss from continuing operations per share	$	(59.16	)	$	30.46		$	(28.70	)
Diluted net income (loss) from discontinued operations per share	(2.04		)	3.34			1.30
Diluted net loss per share	$	(61.20	)	$	33.80		$	(27.40	)

Other Comprehensive Income
Pension and postretirement benefit plan, net of tax	$	—		$	(3	)	$	(3	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	(23,119		)	12,764			(10,355		)



	Changes to the Statement of Consolidated Operations and Statement of Consolidated Comprehensive Income (Loss)
For the Year Ended December 31, 2014	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions, except per share data)
Oil revenues	$	10,040		$	70		$	10,110
Natural gas revenues	1,983			34			2,017
NGL revenues	668			—			668
Oil and gas production revenues	12,691			104			12,795
Other	290			(5		)	285
Gain (loss) on divestiture	(180		)	(1,428		)	(1,608		)
Exploration	—			2,499			2,499
General and administrative	451			2			453
Depreciation, depletion, and amortization:
Oil and gas property and equipment
Recurring	4,388			(193		)	4,195
Additional	5,001			(5,001		)	—
Impairments	1,919			5,183			7,102
Financing costs, net	211			202			413
Current income tax provision	1,177			104			1,281
Deferred income tax provision (benefit)	(514		)	(1,285		)	(1,799		)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST	(3,472		)	(2,840		)	(6,312		)
Net income attributable to noncontrolling interest	343			(2		)	341
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(3,815		)	(2,838		)	(6,653		)
Net loss from discontinued operations, net of tax	(1,588		)	(119		)	(1,707		)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(5,403		)	(2,957		)	(8,360		)

Per Common Share
Basic net loss from continuing operations per share	$	(9.93	)	$	(7.39	)	$	(17.32	)
Basic net loss from discontinued operations per share	(4.13		)	(0.31		)	(4.44		)
Basic net loss per share	$	(14.06	)	$	(7.70	)	$	(21.76	)

Diluted net loss from continuing operations per share	$	(9.93	)	$	(7.39	)	$	(17.32	)
Diluted net loss from discontinued operations per share	(4.13		)	(0.31		)	(4.44		)
Diluted net loss per share	$	(14.06	)	$	(7.70	)	$	(21.76	)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	(5,404	)	$	(2,957	)	$	(8,361	)



	Changes to the Statement of Consolidated Operations and Statement of Consolidated Comprehensive Income (Loss)
For the Year Ended December 31, 2013	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions, except per share data)
Oil revenues	$	11,853		$	17		$	11,870
Natural gas revenues	2,266			37			2,303
NGL revenues	652			—			652
Oil and gas production revenues	14,771			54			14,825
Other	(333		)	18			(315		)
Gain (loss) on divestiture	—			(1,231		)	(1,231		)
Exploration	—			942			942
General and administrative	481			10			491
Depreciation, depletion, and amortization:
Oil and gas property and equipment
Recurring	4,534			171			4,705
Additional	995			(995		)	—
Other assets	337			15			352
Impairments	—			1,443			1,443
Financing costs, net	229			216			445
Current income tax provision	1,619			54			1,673
Deferred income tax provision (benefit)	309			(1,041		)	(732		)
NET INCOME FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST	1,980			(1,974		)	6
NET INCOME (LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS	1,880			(1,974		)	(94		)
Net income from discontinued operations, net of tax	308			130			438
NET INCOME ATTRIBUTABLE TO COMMON SHAREHOLDERS	2,188			(1,844		)	344

Per Common Share
Basic net income (loss) from continuing operations per share	$	4.75		$	(4.99	)	$	(0.24	)
Basic net income from discontinued operations per share	0.78			0.33			1.11
Basic net loss per share	$	5.53		$	(4.66	)	$	0.87

Diluted net income (loss) from continuing operations per share	$	4.74		$	(4.98	)	$	(0.24	)
Diluted net income from discontinued operations per share	0.76			0.35			1.11
Diluted net income per share	$	5.50		$	(4.63	)	$	0.87

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK	$	2,204		$	(1,844	)	$	360

The following tables present the effects of the change to the successful efforts method in the statement of consolidated cash flows:



	Changes to the Statement of Consolidated Cash Flows
For the Year Ended December 31, 2015	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Net income (loss) including noncontrolling interest	$	(23,528	)	$	12,861		$	(10,667	)
Loss (income) from discontinued operations	771			(1,263		)	(492		)
Loss (gain) on divestitures, net	(59		)	(222		)	(281		)
Exploratory dry hole expense and unproved leasehold impairments	—			2,595			2,595
Depreciation, depletion, and amortization	29,372			(26,072		)	3,300
Impairments	1,920			7,552			9,472
Other noncash items, net	161			(154		)	7
Provision for (benefit from) deferred income taxes	(5,778		)	4,333			(1,445		)
Changes in operating assets and liabilities	(170		)	90			(80		)
Net cash provided by operating activities - continuing operations	2,834			(280		)	2,554
Net cash provided by operating activities - discontinued operations	150			(37		)	113
Additions to oil and gas property	(4,578		)	370			(4,208		)
Net cash used in investing activities - continuing operations	(3,659		)	370			(3,289		)
Net cash provided by investing activities - discontinued operations	4,335			37			4,372
NET INCREASE (DECREASE) IN CASH	698			90			788
BEGINNING CASH BALANCE	769			(90		)	679
ENDING CASH BALANCE	1,467			—			1,467



	Changes to the Statement of Consolidated Cash Flows
For the Year Ended December 31, 2014	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Net income (loss) including noncontrolling interest	$	(5,060	)	$	(2,959	)	$	(8,019	)
Loss (income) from discontinued operations	1,588			119			1,707
Loss (gain) on divestitures, net	180			1,428			1,608
Exploratory dry hole expense and unproved leasehold impairments	—			2,294			2,294
Depreciation, depletion, and amortization	9,720			(5,194		)	4,526
Impairments	1,919			5,183			7,102
Provision for (benefit from) deferred income taxes	(514		)	(1,285		)	(1,799		)
Changes in operating assets and liabilities	(239		)	(90		)	(329		)
Net cash provided by operating activities - continuing operations	7,517			(504		)	7,013
Net cash provided by operating activities - discontinued operations	944			—			944
Additions to oil and gas property	(9,022		)	414			(8,608		)
Net cash used in investing activities - continuing operations	(8,585		)	414			(8,171		)
Net cash used in investing activities - discontinued operations	(219		)	—			(219		)
NET INCREASE (DECREASE) IN CASH	(1,137		)	(90		)	(1,227		)
BEGINNING CASH BALANCE	1,906			—			1,906
ENDING CASH BALANCE	769			(90		)	679



	Changes to the Statement of Consolidated Cash Flows
For the Year Ended December 31, 2013	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Net income (loss) including noncontrolling interest	$	2,288		$	(1,844	)	$	444
Loss (income) from discontinued operations	(308		)	(130		)	(438		)
Loss (gain) on divestitures, net	—			1,231			1,231
Exploratory dry hole expense and unproved leasehold impairments	—			729			729
Depreciation, depletion, and amortization	5,866			(809		)	5,057
Impairments	—			1,443			1,443
Provision for (benefit from) deferred income taxes	309			(1,041		)	(732		)
Net cash provided by operating activities - continuing operations	8,685			(421		)	8,264
Net cash provided by operating activities - discontinued operations	1,150			14			1,164
Additions to oil and gas property	(8,663		)	421			(8,242		)
Net cash used in investing activities - continuing operations	(5,256		)	421			(4,835		)
Net cash used in investing activities - discontinued operations	(1,860		)	(14		)	(1,874		)
NET INCREASE (DECREASE) IN CASH	1,746			—			1,746
BEGINNING CASH BALANCE	160			—			160
ENDING CASH BALANCE	1,906			—			1,906

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheet:



	Changes to the Consolidated Balance Sheet
December 31, 2015	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
PROPERTY AND EQUIPMENT:
Property and equipment - cost	$	93,825		$	(47,675	)	$	46,150
Less: Accumulated depreciation, depletion, and amortization	(79,706		)	54,394			(25,312		)
PROPERTY AND EQUIPMENT, NET	14,119			6,719			20,838
TOTAL ASSETS	18,781			6,719			25,500
Income taxes	1,072			1,457			2,529
Paid-in capital	12,467			152			12,619
Accumulated deficit ⁽¹⁾	(7,153		)	5,173			(1,980		)
Accumulated other comprehensive loss	(116		)	(3		)	(119		)
Noncontrolling interest	1,662			(60		)	1,602
TOTAL EQUITY	4,228			5,262			9,490



	Changes to the Consolidated Balance Sheet
December 31, 2014	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Cash and cash equivalents	$	769		$	(90	)	$	679
Receivables, net of allowance	2,024			(5		)	2,019
Inventories	708			(27		)	681
Drilling advances	388			(105		)	283
Current assets held for sale	1,628			1,753			3,381
Deferred tax asset	769			121			890
PROPERTY AND EQUIPMENT:
Property and equipment - cost	103,458			(42,000		)	61,458
Less: Accumulated depreciation, depletion, and amortization	(55,382		)	28,569			(26,813		)
PROPERTY AND EQUIPMENT, NET	48,076			(13,431		)	34,645
Deferred charges and other	1,394			163			1,557
TOTAL ASSETS	55,885			(11,621		)	44,264
Accounts payable	1,210			(100		)	1,110
Current liabilities held for sale	19			409			428
Other current liabilities	2,435			(195		)	2,240
Income taxes	9,499			(4,006		)	5,493
Noncurrent asset retirement obligations	3,048			(133		)	2,915
Paid-in capital	12,438			152			12,590
Retained earnings ⁽¹⁾	16,249			(7,594		)	8,655
Noncontrolling interest	2,200			(154		)	2,046
TOTAL EQUITY	28,137			(7,596		)	20,541

*In conjunction with recasting the financial information for the adoption of the successful efforts method of accounting, we corrected certain immaterial errors

in the North Sea pertaining to the improper calculation of deferred tax liabilities associated with capitalized interest under the full cost method.

⁽¹⁾ The cumulative effect of the change to the successful efforts method on retained earnings (accumulated deficit) as of January 1, 2013 was a decrease of $2.8 billion.