CAPITAL STOCK

Common Stock Outstanding



	2016	2015	2014
Balance, beginning of year	378,034,175	376,504,892	395,772,908
Shares issued for stock-based compensation plans:
Treasury shares issued	11,504	17,525	17,454
Common shares issued	1,393,997	1,511,758	1,665,259
Treasury shares acquired	—	—	(20,950,729	)
Balance, end of year	379,439,676	378,034,175	376,504,892

Net Income (Loss) per Common Share

A reconciliation of the components of basic and diluted net income (loss) per common share for the years ended December 31, 2016, 2015, and 2014 is presented in the table below.



	2016							2015							2014
	Loss			Shares	Per Share			Income (Loss)			Shares	Per Share			Loss			Shares	Per Share
	(In millions, except per share amounts)
Basic and Diluted:
Loss from continuing operations	$	(1,372	)	379	$	(3.62	)	$	(10,844	)	378	$	(28.70	)	$	(6,653	)	384	$	(17.32	)
Income (loss) from discontinued operations	(33		)	379	(0.09		)	492			378	1.30			(1,707		)	384	(4.44		)
Loss attributable to common stock	$	(1,405	)	379	$	(3.71	)	$	(10,352	)	378	$	(27.40	)	$	(8,360	)	384	$	(21.76	)

The diluted EPS calculation excludes options and restricted shares that were anti-dilutive totaling 4.7 million, 7.0 million, and 4.5 million for the years ended December 31, 2016, 2015, and 2014, respectively.

Stock Repurchase Program

Apache’s Board of Directors has authorized the purchase of up to 40 million shares of the Company’s common stock. Shares may be purchased either in the open market or through privately held negotiated transactions. The Company initiated the buyback program on June 10, 2013, and through December 31, 2014, had repurchased a total of 32.2 million shares at an average price of $88.96 per share. The Company has not purchased any additional shares during 2016 or 2015, and is not obligated to acquire any specific number of shares.

Common Stock Dividend

The Company paid common stock dividends of $1.00 per share in 2016, $1.00 per share in 2015, and $0.95 per share in 2014.

Stock Compensation Plans

The Company has several stock-based compensation plans, which include stock options, restricted stock, and conditional restricted stock unit plans. On May 12, 2016, the Company's shareholders approved the 2016 Omnibus Compensation Plan (the 2016 Plan), which is intended to provide eligible employees with equity-based incentives. The 2016 Plan provides for the granting of Incentive Stock Options, Non-Qualified Stock Options, Performance Awards, Restricted Stock Awards, Restricted Stock Units, Stock Appreciation Rights, Cash Awards, or any combination of the foregoing. A total of 22.9 million shares were authorized and available for grant under the 2016 Plan as of December 31, 2016. Previously approved plans remain in effect solely for the purpose of governing grants still outstanding that were issued prior to approval of the 2016 Plan. All new grants are issued from the 2016 Plan.

For 2016, 2015, and 2014, stock-based compensation expensed was $131 million, $100 million, and $148 million ($93 million, $65 million, and $95 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:



	2016		2015		2014
	(In millions)
Stock-based compensation expensed	$	131	$	100	$	148
Stock-based compensation capitalized	40		53		62
Total stock-based compensation costs	$	171	$	153	$	210

Stock Options

As of December 31, 2016, the Company had issued options to purchase shares of the Company’s common stock under the employee stock option plan adopted in 2005 (the Stock Option Plan), as well as the 2007 Omnibus Equity Compensation Plan (the 2007 Plan), the 2011 Plan, and the 2016 Plan (together, the Omnibus Plans). New shares of Company stock will be issued for employee stock option exercises. Under the Stock Option Plan 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 issued prior to 2016 generally become exercisable ratably over a four-year period and expire 10 years after granted. Options granted in or after 2016 become exercisable ratably over a three-year period and expire 10 years after granted. The Omnibus Plans and the 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 Plan and the Omnibus Plans is presented in the table and narrative below:



	2016
	Shares Under Option		Weighted Average Exercise Price
	(In thousands)
Outstanding, beginning of year	4,931		$	91.52
Granted	873		41.24
Exercised	—		—
Forfeited or expired	(691	)	76.99
Outstanding, end of year⁽¹⁾	5,113		84.89
Expected to vest⁽²⁾	887		46.88
Exercisable, end of year⁽³⁾	4,177		93.40


(1)	As of December 31, 2016, options outstanding had a weighted average remaining contractual life of 4.6 years and aggregate intrinsic value of $18 million.


(2)	As of December 31, 2016, options expected to vest had a weighted average remaining contractual life of 8.7 years and aggregate intrinsic value of $17 million.


(3)	As of December 31, 2016, options exercisable had a weighted average remaining contractual life of 3.7 years and aggregate intrinsic value of nil.

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.



	2016			2015	2014
Expected volatility	32.72		%	N/A	N/A
Expected dividend yields	2.42		%	N/A	N/A
Expected term (in years)	6			N/A	N/A
Risk-free rate	1.44		%	N/A	N/A
Weighted-average grant-date fair value	$	10.38		N/A	N/A

There were no options exercised during 2016. The intrinsic value of options exercised during 2015 and 2014 was approximately $3 million and $13 million, respectively. As of December 31, 2016, the total compensation cost related to non-vested options not yet recognized was $6 million, which will be recognized over the remaining vesting period of the options.

In January 2017, the Company issued 489,773 options to purchase shares of the Company’s common stock to eligible employees under the 2016 Plan. The total compensation cost of $9 million is estimated to be recognized over a three-year vesting period of these options.

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 2016, the Company awarded 4,049,023 restricted stock units at a weighted-average per-share market price of $47.37. In 2015 and 2014, the Company awarded 2,976,562 and 3,046,744 restricted stock units at a weighted-average per-share market price of $61.65 and $86.87, 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 2016, 2015, and 2014, $113 million ($73 million after tax), $90 million ($58 million after tax), and $111 million ($72 million after tax), respectively, was charged to expense. In 2016, 2015, and 2014, $35 million, $48 million, and $47 million was capitalized, respectively. As of December 31, 2016, there was $233 million of total unrecognized compensation cost related to 6,061,803 unvested restricted stock units. The weighted-average remaining life of unvested restricted stock units is approximately 1.3 years.

The fair value of the awards vested during 2016, 2015, and 2014 was approximately $151 million, $149 million, and $138 million, respectively. A summary of restricted stock unit activity for the year ended December 31, 2016, is presented below.



	Shares		Weighted- Average Grant- Date Fair Value
	(In thousands)
Non-vested at January 1, 2016	4,570		$	70.86
Granted	4,049		47.37
Vested	(2,081	)	72.59
Forfeited	(476	)	58.05
Non-vested at December 31, 2016	6,062		55.55

In January 2017, the Company awarded 1,866,606 restricted stock units at a weighted-average per-share market price of $63.25 under the 2016 Plan to eligible employees. The total compensation cost of $118 million, absent any forfeitures, is estimated to be recognized over a three-year vesting period of these restricted stock units.

Total Shareholder Return (TSR) Stock Units

To provide long-term incentives for Apache employees to deliver competitive returns to the Company’s stockholders, the Company has 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. Grants from the total shareholder return programs were outstanding at December 31, 2016, as described below:

•

In January 2013, the Company’s Board of Directors approved the 2013 TSR Program, pursuant to the 2011 Plan. In January 2013, eligible employees received initial conditional restricted stock unit awards totaling 1,232,176 units. In May 2013, the Company’s Board of Directors canceled 918,016 awards under the 2013 Performance Program for nonexecutive employees. Based on measurements of total shareholder return relative to the designated peer group at December 31, 2015, shares were paid out at 70 percent of target. A total of 29,957 awards were outstanding at December 31, 2016.

•

In January 2014, the Company’s Board of Directors approved the 2014 TSR Program, pursuant to the 2011 Plan. In January 2014, eligible employees received initial conditional restricted stock unit awards totaling 157,406 units. Based on measurements of total shareholder return relative to the designated peer group at December 31, 2016, shares were paid out at 100 percent of target. A total of 47,867 awards were outstanding at December 31, 2016.

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 2016, 2015, and 2014, $0.7 million ($0.5 million after tax), $0.6 million ($0.4 million after tax), and $18 million ($11 million after tax), respectively, was charged to expense. During 2016, 2015, and 2014, $0.1 million, $0.3 million, and $7 million was capitalized, respectively. As of December 31, 2016, there was $1.2 million of total unrecognized compensation cost related to 77,824 unvested conditional restricted stock units. The weighted-average remaining life of the unvested conditional restricted stock units is approximately 0.7 years.



	Shares		Weighted- Average Grant- Date Fair Value⁽¹⁾
	(In thousands)
Non-vested at January 1, 2016	172		$	78.22
Granted	—		—
Vested	(34	)	76.07
Forfeited or expired	(60	)	71.20
Non-vested at December 31, 2016	78		77.10

(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.

Business Performance Restricted Stock Units

Apache has a business performance program for certain eligible employees with 50 percent of the shares payout based upon the TSR program payout model as described above, and the remaining 50 percent of the shares based on performance and financial objectives as defined in the plan. The overall results of the objectives will be calculated at the end of the award’s stated performance period and, if a payout is warranted, applied to the target number of restricted stock units awarded. The business performance shares will immediately vest 50 percent at the end of the three-year performance period, with the remaining 50 percent vesting at the end of the following year. Grants from the total shareholder return programs outstanding at December 31, 2016, are as described below:

•

In February 2015, the Company’s Board of Directors approved the 2015 Business Performance Program, pursuant to the 2011 Plan. Eligible employees received initial conditional restricted stock unit awards totaling 602,304 units. The actual amount of shares awarded will be between zero and 150 percent of target. A total of 431,707 units were outstanding as of December 31, 2016, from which a minimum of zero and a maximum of 647,561 shares could be awarded.

•

In January 2016, the Company’s Board of Directors approved the 2016 Business Performance Program, pursuant to the 2011 Plan. Eligible employees received the initial conditional restricted stock unit totaling 871,369. The actual amount of shares awarded will be between zero and 200 percent of target. A total of 793,442 units were outstanding as of December 31, 2016, from which a minimum of zero and a maximum of 1,586,884 shares 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 2016 and 2015, $14 million ($9 million after tax) and $3 million ($2 million after tax), respectively, were charged to expense. During 2016 and 2015, $2 million and $1 million were capitalized, respectively. As of December 31, 2016, there was $37 million of total unrecognized compensation cost related to 1,225,149 unvested conditional restricted stock units. The weighted-average remaining life of the unvested conditional restricted stock units is approximately 2.1 years.



	Shares		Weighted Average Grant- Date Fair Value⁽¹⁾
	(In thousands)
Non-vested at January 1, 2016	501		$	66.53
Granted	871		34.19
Vested	—		—
Forfeited or expired	(147	)	45.65
Non-vested at December 31, 2016	1,225		45.60

(1)

In January 2017, the Company’s Board of Directors approved the 2017 Performance Program, pursuant to the 2016 Plan, with terms similar to the 2016 Performance Program described above. Eligible employees received the initial conditional restricted stock unit totaling 604,147 units, with the ultimate number of restricted stock units to be awarded ranging from zero to a maximum of 1,208,294 units. The grant date fair value per award was $66.97.