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 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
For the Quarter Ended March 31, 2016	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions, except per share data)
Oil revenues	$	795		$	27		$	822
Natural gas revenues	223			—			223
NGL revenues	42			—			42
Oil and gas production revenues	1,060			27			1,087
Other	(5		)	2			(3		)
Loss on divestitures	(2		)	1			(1		)
Exploration	—			95			95
Depreciation, depletion, and amortization:
Oil and Gas Property and Equipment
Recurring	552			84			636
Additional	488			(488		)	—
Financing costs, net	90			15			105
Current income tax provision	35			(45		)	(10		)
Deferred income tax provision (benefit)	(181		)	180			(1		)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST	(561		)	190			(371		)
Net income (loss) attributable to noncontrolling interest	(72		)	73			1
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(489		)	117			(372		)
Net loss from discontinued operations	—			—			—
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(489		)	117			(372		)

Per common share
Basic net loss from continuing operations per share	$	(1.29	)	$	0.31		$	(0.98	)
Basic net loss from discontinued operations per share	—			—			—
Basic net loss per share	$	(1.29	)	$	0.31		$	(0.98	)

Diluted net loss from continuing operations per share	$	(1.29	)	$	0.31		$	(0.98	)
Diluted net loss from discontinued operations per share	—			—			—
Diluted net loss per share	$	(1.29	)	$	0.31		$	(0.98	)



	Changes to the Statement of Consolidated Operations
For the Quarter Ended March 31, 2015	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions, except per share data)
Oil revenues	$	1,280		$	13		$	1,293
Natural gas revenues	300			8			308
NGL revenues	58			—			58
Oil and gas production revenues	1,638			21			1,659
Other	(8		)	2			(6		)
Loss on divestitures	—			(18		)	(18		)
Exploration	—			258			258
General and administrative	82			2			84
Depreciation, depletion, and amortization:
Oil and Gas Property and Equipment
Recurring	999			(256		)	743
Additional	7,220			(7,220		)	—
Impairments	—			1,912			1,912
Financing costs, net	69			55			124
Current income tax provision (benefit)	(85		)	33			(52		)
Deferred income tax provision (benefit)	(2,935		)	1,786			(1,149		)
NET LOSS FROM CONTINUING OPERATIONS INCLUDING NONCONTROLLING INTEREST	(4,504		)	3,436			(1,068		)
Net income attributable to noncontrolling interest	15			13			28
NET LOSS FROM CONTINUING OPERATIONS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(4,519		)	3,423			(1,096		)
Net loss from discontinued operations	(132		)	(106		)	(238		)
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS	(4,651		)	3,317			(1,334		)

Per common share
Basic net loss from continuing operations per share	$	(11.99	)	$	9.08		$	(2.91	)
Basic net loss from discontinued operations per share	(0.35		)	(0.28		)	(0.63		)
Basic net loss per share	$	(12.34	)	$	8.80		$	(3.54	)

Diluted net loss from continuing operations per share	$	(11.99	)	$	9.08		$	(2.91	)
Diluted net loss from discontinued operations per share	(0.35		)	(0.28		)	(0.63		)
Diluted net loss per share	$	(12.34	)	$	8.80		$	(3.54	)

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 Quarter Ended March 31, 2016	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Net loss including noncontrolling interest	$	(561	)	$	190		$	(371	)
Loss on divestitures, net	2			(1		)	1
Exploratory dry hole expense and unproved leasehold impairments	—			71			71
Depreciation, depletion, and amortization	1,082			(404		)	678
Provision for (benefit from) deferred income taxes	(181		)	180			(1		)
Changes in operating assets and liabilities	(159		)	(73		)	(232		)
Net cash provided by operating activities - continuing operations	276			(37		)	239
Additions to oil and gas property	(583		)	37			(546		)
Net cash used in investing activities - continuing operations	(592		)	37			(555		)
NET INCREASE (DECREASE) IN CASH	(463		)	—			(463		)
BEGINNING CASH BALANCE	1,467			—			1,467
ENDING CASH BALANCE	1,004			—			1,004



	Changes to the Statement of Consolidated Cash Flows
For the Quarter Ended March 31, 2015	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Net loss including noncontrolling interest	$	(4,636	)	$	3,330		$	(1,306	)
Loss from discontinued operations	132			106			238
Loss on divestitures, net	—			18			18
Exploratory dry hole expense and unproved leasehold impairments	—			203			203
Depreciation, depletion, and amortization	8,302			(7,476		)	826
Impairments	—			1,912			1,912
Provision for (benefit from) deferred income taxes	(2,935		)	1,786			(1,149		)
Changes in operating assets and liabilities	(319		)	53			(266		)
Net cash provided by operating activities - continuing operations	577			(68		)	509
Net cash provided by operating activities - discontinued operations	73			(13		)	60
Additions to oil and gas property	(1,627		)	110			(1,517		)
Net cash used in investing activities - continuing operations	(1,853		)	110			(1,743		)
Net cash used in investing activities - discontinued operations	(265		)	13			(252		)
NET INCREASE (DECREASE) IN CASH	(540		)	42			(498		)
BEGINNING CASH BALANCE	769			(90		)	679
ENDING CASH BALANCE	229			(48		)	181

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
March 31, 2016	Under Full Cost			Changes*			As Reported Under Successful Efforts
	(In millions)
Prepaid assets and other	$	361		$	38		$	399
PROPERTY AND EQUIPMENT:
Property and equipment - cost	94,326			(47,782		)	46,544
Less: Accumulated depreciation, depletion, and amortization	(80,784		)	54,799			(25,985		)
PROPERTY AND EQUIPMENT, NET	13,542			7,017			20,559
TOTAL ASSETS	17,679			7,055			24,734
Other current liabilities	1,027			(33		)	994
Income taxes	891			1,642			2,533
Paid-in capital	12,407			146			12,553
Accumulated deficit	(7,642		)	5,290			(2,352		)
Accumulated other comprehensive loss	(116		)	(3		)	(119		)
Noncontrolling interest	1,536			13			1,549
TOTAL EQUITY	3,554			5,446			9,000



	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

*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, 2015 was a decrease of $7.6 billion.