Derivative Instruments and Hedging Activities

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Objectives and Strategies

The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production. Apache manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production. The Company utilizes various types of derivative financial instruments to manage fluctuations in cash flows resulting from changes in commodity prices.

During the first quarter of 2017, the Company entered into put option derivative contracts not designated as cash flow hedges for 2017 crude oil production of 175,000 barrels per day. These contracts will be settled against either NYMEX WTI or Dated Brent between July 1, 2017 and December 31, 2017, with a weighted average strike price of $50.47 per barrel. Apache paid a total premium of $100 million for these contracts, averaging $3.09 per barrel.

Counterparty Risk

The use of derivative instruments exposes the Company to credit loss in the event of nonperformance by the counterparty. To reduce the concentration of exposure to any individual counterparty, Apache utilizes a diversified group of investment-grade rated counterparties, primarily financial institutions, for its derivative transactions. As of March 31, 2017, Apache had derivative positions with 12 counterparties. The Company monitors counterparty creditworthiness on an ongoing basis; however, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, Apache may not realize the benefit of some of its derivative instruments resulting from lower commodity prices.

Derivative Instruments

As of March 31, 2017, Apache had the following commodity derivative positions:

			Put Options
Production Period	Commodity	Settlement Index	Mbbls	Weighted Average Strike Price
July 2017 - December 2017	Crude Oil	NYMEX WTI	16,928	$50.00
July 2017 - December 2017	Crude Oil	Dated Brent	15,272	$51.00

Apache elected not to designate any of these oil derivatives as cash flow hedges. Changes in the fair value of these derivatives are recorded in “Other” under “Revenues and Other” in the Company’s statement of consolidated operations, but were nominal in the first quarter of 2017.

Fair Value Measurements

Apache’s commodity derivative instruments consist of put options. The fair values of the Company’s derivatives are not actively quoted in the open market. The Company uses a market approach to estimate the fair values of its derivative instruments on a recurring basis, utilizing commodity futures pricing for the underlying commodities provided by a reputable third party, a Level 2 fair value measurement. The fair value of the Company’s derivative assets at March 31, 2017, was $100 million and is reflected in “Prepaid assets and other” in the Company’s consolidated balance sheet.