DEBT AND FINANCING COSTS

Overview

All of the Company’s debt is senior unsecured debt and has equal priority with respect to the payment of both principal and interest. All indentures for the notes and debentures described below place certain restrictions on the Company, including limits on Apache’s ability to incur debt secured by certain liens. Certain of these indentures also restrict the Company’s ability to enter into certain sale and leaseback transactions and give holders the option to require the Company to repurchase outstanding notes and debentures upon certain changes in control. None of the indentures contain prepayment obligations in the event of a decline in credit ratings.

In November 2016, the Company initiated a program to purchase in the open market up to $250 million in aggregate principal amount of senior notes issued under its indentures. In the fourth quarter of 2016, Apache purchased and canceled $181 million aggregate principal amount of its senior notes through open market repurchases for $182 million in cash, including accrued interest and $0.5 million of premium. These repurchases resulted in a $1 million net loss on extinguishment of debt, which is included in “Financing costs, net” in Apache’s consolidated statement of operations. The net loss includes an acceleration of related discount and deferred financing costs.

In January 2017, the Company purchased and canceled an additional $69 million aggregate principal amount of senior notes for $71 million in cash, including accrued interest and $1 million of premium, which completed the open market repurchase program. These repurchases resulted in a $1 million net loss on extinguishment of debt, which is included in “Financing costs, net” in the Company’s consolidated statement of operations. The net loss includes an acceleration of related discount and deferred financing costs.

In August 2017, Apache Corporation assumed the obligations of Apache Finance Canada Corporation (AFCC) in respect of $300 million 7.75% notes due in 2029, which AFCC issued and the Company guaranteed pursuant to the governing indenture. The assumption was permitted by the indenture and effected pursuant to a supplemental indenture thereto. As a result of the assumption, the Company is the obligor under the notes and indenture, and AFCC is released from its obligations thereunder. The $300 million 7.75% notes historically have been included in the Company’s long-term debt; accordingly, the assumption did not change the Company’s long-term debt or total debt.

In August 2018, Apache closed an offering of $1.0 billion in aggregate principal amount of senior unsecured 4.375% notes due October 15, 2028. The notes are redeemable at any time, in whole or in part, at Apache’s option, subject to a make-whole premium. The net proceeds from the sale of the notes were used to purchase certain outstanding notes in cash tender offers, repay notes that matured in September 2018, and for general corporate purposes.

Also in August 2018, Apache closed cash tender offers for certain outstanding notes. Apache accepted for purchase $731 million aggregate principal amount of certain notes covered by the tender offers. Apache paid holders an aggregate of approximately $828 million reflecting principal, the discount to par, early tender premium, and accrued and unpaid interest. The Company recorded a net loss of $94 million on extinguishment of debt, including $5 million of unamortized debt issuance costs and discount, in connection with the note purchases.

The following table presents the carrying value of the Company’s debt at December 31, 2018 and 2017:



	December 31,
	2018			2017
	(In millions)
Commercial paper	$	—		$	—
6.9% notes due 2018⁽¹⁾	—			400
7.0% notes due 2018⁽²⁾	—			150
7.625% notes due 2019	150			150
3.625% notes due 2021⁽³⁾	393			493
3.25% notes due 2022⁽³⁾	687			814
2.625% notes due 2023⁽³⁾	403			528
7.7% notes due 2026	79			100
7.95% notes due 2026	133			180
4.375% notes due 2028⁽³⁾	1,000			—
7.75% notes due 2029⁽⁴⁾	300			300
6.0% notes due 2037⁽³⁾	800			1,000
5.1% notes due 2040⁽³⁾	1,499			1,499
5.25% notes due 2042⁽³⁾	500			500
4.75% notes due 2043⁽³⁾	1,413			1,413
4.25% notes due 2044⁽³⁾	753			753
7.375% debentures due 2047	150			150
7.625% debentures due 2096	39			150
Debt before unamortized discount and debt issuance costs	8,299			8,580
Unamortized discount	(44		)	(47		)
Debt issuance costs	(51		)	(49		)
Total debt	8,204			8,484
Current maturities	(150		)	(550		)
Long-term debt	$	8,054		$	7,934


(1)	On September 15, 2018, Apache’s 6.9% notes due 2018 in original principal amount of $400 million matured and were repaid.


(2)	On February 1, 2018, Apache’s 7.0% notes due 2018 in original principal amount of $150 million matured and were repaid.


(3)	These notes are redeemable, as a whole or in part, at Apache’s option, subject to a make-whole premium. The remaining notes and debentures are not redeemable.


(4)	Assumed in August 2017 as permitted by terms of these notes originally issued by a subsidiary and guaranteed by Apache. Since these notes historically have been included in Apache’s long-term debt, the assumption did not change Apache’s long-term debt or total debt.

Debt maturities as of December 31, 2018, excluding discounts and debt issuance costs, are as follows:



	(In millions)
2019	$	150
2020	—
2021	393
2022	687
2023	403
Thereafter	6,666
Total Debt, excluding discounts and debt issuance costs	$	8,299

Fair Value

Apache’s debt is recorded at the carrying amount, net of unamortized discount and debt issuance costs, on the Company’s consolidated balance sheet. The carrying amount, if any, of the Company’s commercial paper and uncommitted credit facilities and overdraft lines approximate fair value because the interest rates are variable and reflective of market rates. Apache uses a market approach to determine the fair value of its fixed-rate debt using estimates provided by an independent investment financial data services firm (a Level 2 fair value measurement).



	December 31, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
Commercial paper	$	—	$	—	$	—	$	—
Notes and debentures	8,204		7,805		8,484		9,244
Total Debt	$	8,204	$	7,805	$	8,484	$	9,244

Money Market and Overdraft Lines of Credit

The Company has certain uncommitted money market and overdraft lines of credit that are used from time to time for working capital purposes. As of December 31, 2018 and 2017, there were no outstanding balances on Apache’s lines of credit.

Unsecured Committed Bank Credit Facilities

In March 2018, Apache entered into a revolving credit facility that matures in March 2023 (subject to Apache’s two, one-year extension options) with commitments totaling $4.0 billion. Apache can increase commitments up to $5.0 billion by adding new lenders or obtaining the consent of any increasing existing lenders. The facility includes a letter of credit subfacility of up to $3.0 billion, of which $2.08 billion was committed as of December 31, 2018. The facility is for general corporate purposes and committed borrowing capacity fully supports Apache’s commercial paper program. Letters of credit are available for security needs, including in respect of abandonment obligations assumed in various North Sea acquisitions. As of December 31, 2018, letters of credit aggregating approximately £112.5 million and no borrowings were outstanding under this facility. In February 2019, £109.4 million of these outstanding letters of credit no longer were required and were terminated. In connection with entry into this facility, Apache terminated $3.5 billion and £900 million in commitments under two former credit facilities and wrote off $4 million of associated debt issuance costs, which is included in “Financing costs, net” in the Company’s consolidated statement of operations.

At Apache’s option, the interest rate per annum for borrowings under the 2018 facility is either a base rate, as defined, plus a margin or the London Inter-bank Offered Rate (LIBOR), plus a margin. Apache also pays quarterly a facility fee at a per annum rate on total commitments. The margins and the facility fee vary based upon the Company’s senior long-term debt rating. At December 31, 2018, the base rate margin was 0.075 percent, the LIBOR margin was 1.075 percent, and the facility fee was 0.175 percent. A commission is payable quarterly to lenders on the face amount of each outstanding letter of credit at a per annum rate equal to the LIBOR margin then in effect. Customary letter of credit fronting fees and other charges are payable to issuing banks.

The financial covenants of the 2018 credit facility require Apache to maintain an adjusted debt-to-capital ratio of not greater than 60 percent at the end of any fiscal quarter. For purposes of this calculation, capital excludes the effects of non-cash write-downs, impairments, and related charges occurring after June 30, 2015.

The 2018 facility’s negative covenants restrict the ability of Apache and its subsidiaries to create liens securing debt on its hydrocarbon-related assets, with exceptions for liens typically arising in the oil and gas industry; liens securing debt incurred to finance the acquisition, construction, improvement, or capital lease of assets, provided that such debt, when incurred, does not exceed the subject purchase price and costs, as applicable, and related expenses; liens on subsidiary assets located outside of the United States and Canada; and liens arising as a matter of law, such as tax and mechanics’ liens. Apache also may incur liens on assets if debt secured thereby does not exceed 15 percent of Apache’s consolidated net tangible assets, or approximately $2.9 billion as of December 31, 2018. Negative covenants also restrict Apache’s ability to merge with another entity unless it is the surviving entity, dispose of substantially all of its assets, and guarantee debt of non-consolidated entities in excess of the stated threshold.

In November 2018, Altus Midstream LP, an indirectly controlled subsidiary of Apache, entered into a revolving credit facility for general corporate purposes that matures in November 2023 (subject to Altus Midstream LP’s two, one-year extension options). The agreement for this facility provides aggregate commitments from a syndicate of banks of $450 million until (i) the consolidated net income of Altus Midstream LP and its restricted subsidiaries, as adjusted pursuant to the agreement, for three consecutive calendar months equals or exceeds $175 million on an annualized basis and (ii) Altus Midstream LP has raised at least $250 million of additional capital (such period, the “Initial Period”). Following the Initial Period, the aggregate commitments equal $800 million. All aggregate commitments include a letter of credit subfacility of up to $100 million and a swingline loan subfacility of up to $100 million. After the Initial Period, Altus Midstream LP may increase commitments up to an aggregate $1.5 billion by adding new lenders or obtaining the consent of any increasing existing lenders. As of December 31, 2018, no borrowings or letters of credit were outstanding under this facility.

The Altus Midstream LP credit facility is unsecured and is not guaranteed by Apache or any of Apache’s other subsidiaries.

There are no clauses in either the agreement for Apache’s 2018 credit facility or for Altus Midstream LP’s 2018 credit facility that permit the lenders to accelerate payments or refuse to lend based on unspecified material adverse changes. These agreements do not have drawdown restrictions or prepayment obligations in the event of a decline in credit ratings. However, each agreement allows the lenders to accelerate payment maturity and terminate lending and issuance commitments for nonpayment and other breaches, and if a borrower or any of its subsidiaries defaults on other indebtedness in excess of the stated threshold, is insolvent, or has any unpaid, non-appealable judgment against it for payment of money in excess of the stated threshold. Lenders may also accelerate payment maturity and terminate lending and issuance commitments under the applicable agreement if Apache or Altus Midstream LP, as applicable, undergoes a specified change in control or any borrower has specified pension plan liabilities in excess of the stated threshold. Each of Apache and Altus Midstream LP was in compliance with the terms of its 2018 credit facility as of December 31, 2018.

Commercial Paper Program

Apache has available a $3.5 billion commercial paper program which, subject to market availability, facilitates Apache borrowing funds for up to 270 days at competitive interest rates. The commercial paper program is fully supported by available borrowing capacity under Apache’s 2018 committed credit facility. At December 31, 2018 and 2017, Apache had no commercial paper outstanding.

Financing Costs, Net

The following table presents the components of Apache’s financing costs, net:



	For the Year Ended December 31,
	2018			2017			2016
	(In millions)
Interest expense	$	441		$	457		$	464
Amortization of debt issuance costs	9			9			8
Capitalized interest	(44		)	(51		)	(48		)
Loss on extinguishment of debt	94			1			1
Interest income	(22		)	(19		)	(8		)
Financing costs, net	$	478		$	397		$	417

As of December 31, 2018, the Company has $44 million of debt discounts, which will be charged to interest expense over the life of the related debt issuances. Discount amortization of $3 million was recorded as interest expense in each of 2018, 2017, and 2016.