The Company is exposed to fluctuations in crude oil and natural gas prices on the majority of its worldwide production, as well as transactions denominated in foreign currencies. The Company manages the variability in its cash flows by occasionally entering into derivative transactions on a portion of its crude oil and natural gas production and foreign currency transactions. The Company also utilizes various types of derivative financial instruments to manage fluctuations in cash flows resulting from changes in commodity prices or foreign currency values.

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 September 30, 2020, 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 changes in commodity prices, currency exchange rates, or interest rates.



		Collars
Production Period	Settlement Index	Mbbls	Weighted Average Floor Sold Price	Weighted Average Floor Purchased Price	Weighted Average Ceiling Price
October—December 2020	NYMEX WTI	1,748	$15.00	$20.00	$45.55
October—December 2020	Dated Brent	1,518	$15.00	$20.00	$51.63



		Basis Swap Purchased		Basis Swap Sold
Production Period	Settlement Index	Mbbls	Weighted Average Price Differential	Mbbls	Weighted Average Price Differential
October—December 2020	Midland-WTI/Cushing-WTI	—	—	6,716	$(2.15)
October—December 2020	Midland-WTI/Cushing-WTI	828	$0.20	—	—



		Basis Swap Purchased		Basis Swap Sold
Production Period	Settlement Index	MMBtu (in 000’s)	Weighted Average Price Differential	MMBtu (in 000’s)	Weighted Average Price Differential
April—December 2021	Nymex Henry Hub/IF Waha	37,580	$(0.43)	—	—
April—December 2021	Nymex Henry Hub/IF HSC	—	—	37,580	$(0.07)
January—December 2022	Nymex Henry Hub/IF Waha	43,800	$(0.45)	—	—
January—December 2022	Nymex Henry Hub/IF HSC	—	—	43,800	$(0.08)

Apache has open foreign currency costless collar contracts in GBP/USD for £13.5 million per month for the calendar year 2020 with a weighted average floor and ceiling price of $1.26 and $1.38, respectively.

During the second quarter of 2019, Altus Midstream LP issued and sold Preferred Units. Certain redemption features embedded within the Preferred Units require bifurcation and measurement at fair value. For further discussion of this derivative, see “Fair Value Measurements” below and Note 12—Redeemable Noncontrolling Interest - Altus.

During the fourth quarter of 2019 and first quarter of 2020, Apache entered into separate agreements to assign a portion of its contracted capacity under an existing transportation agreement to third parties. Embedded in these agreements are arrangements under which Apache has the potential to receive payments calculated based on pricing differentials between Houston Ship Channel and Waha during calendar years 2020 and 2021. These features require bifurcation and measurement of the change in market values for each period. Unrealized gains or losses in the fair value of these features are recorded as “Derivative instrument losses, net” under “Revenues and Other” in the statement of consolidated operations. Any proceeds received will be deferred and reflected in income over the original tenure of the transportation agreement.



	Fair Value Measurements Using
	Quoted Price in Active Markets (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value		Netting⁽¹⁾			Carrying Amount
	(In millions)
September 30, 2020
Assets:
Commodity Derivative Instruments	$	—	$	12	$	—	$	12	$	(2	)	$	10
Liabilities:
Commodity Derivative Instruments	$	—	$	15	$	—	$	15	$	(2	)	$	13
Pipeline Capacity Embedded Derivatives	—		54		—		54		—			54
Foreign Currency Derivative Instruments	—		1		—		1		—			1
Preferred Units Embedded Derivative	—		—		179		179		—			179
December 31, 2019
Assets:
Pipeline Capacity Embedded Derivative	$	—	$	8	$	—	$	8	$	—		$	8
Foreign Currency Derivative Instruments	—		1		—		1		—			1
Liabilities:
Preferred Units Embedded Derivative	—		—		103		103		—			103

The fair values of the Company’s derivative instruments and pipeline capacity embedded derivatives are not actively quoted in the open market. The Company primarily uses a market approach to estimate the fair values of these derivatives on a recurring basis, utilizing futures pricing for the underlying positions provided by a reputable third party, a Level 2 fair value measurement.

The fair value of the Preferred Units embedded derivative, a Level 3 fair value measurement, was based on numerous factors, including expected future interest rates using the Black-Karasinski model, Altus’ imputed interest rate, the timing of periodic cash distributions, and dividend yields of the Preferred Units. Increases or decreases in interest rates would result in a higher/lower fair value measurement. As of the September 30, 2020 valuation date, the Company used the forward B-rated Energy Bond Yield curve to develop the following key unobservable inputs used to value this embedded derivative:



	Quantitative Information About Level 3 Fair Value Measurements
	Fair Value at September 30, 2020		Valuation Technique	Significant Unobservable Inputs	Range/Value
	(In millions)
Preferred Units Embedded Derivative	$	179	Option Model	Altus’ Imputed Interest Rate	14.54-16.18%
				Interest Rate Volatility	35.32%

Altus’ comparative imputed interest rate at December 31, 2019 ranged from 9.60 percent to 12.68 percent, with an interest rate volatility assumption of 21.89 percent. A one percent increase in the imputed interest rate assumption would significantly increase the value of the embedded derivative as of September 30, 2020, while a one percent decrease would have the directionally inverse affect as of September 30, 2020.

All derivative instruments are reflected as either assets or liabilities at fair value in the consolidated balance sheet. These fair values are recorded by netting asset and liability positions where counterparty master netting arrangements contain provisions for net settlement. The carrying value of the Company’s derivative assets and liabilities and their locations on the consolidated balance sheet are as follows:



	September 30, 2020		December 31, 2019
	(In millions)
Current Assets: Other current assets	$	1	$	2
Other Assets: Deferred charges and other	9		7
Total Assets	$	10	$	9

Current Liabilities: Other current liabilities	$	14	$	—
Deferred Credits and Other Noncurrent Liabilities: Other	233		103
Total Liabilities	$	247	$	103



	For the Quarter Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
	(In millions)
Realized:
Commodity derivative instruments	$	(83	)	$	(16	)	$	(119	)	$	30
Foreign currency derivative instruments	—			—			(1		)	—
Treasury-lock	—			—			—			(18		)
Realized gain (loss), net	(83		)	(16		)	(120		)	12
Unrealized:
Commodity derivative instruments	91			(3		)	(3		)	(69		)
Pipeline capacity embedded derivatives	8			—			(62		)	—
Foreign currency derivative instruments	3			21			(1		)	21
Preferred units embedded derivative	(3		)	(4		)	(76		)	(4		)
Unrealized gain (loss), net	99			14			(142		)	(52		)
Derivative instrument gains (losses), net	$	16		$	(2	)	$	(262	)	$	(40	)

Derivative instrument gains and losses are recorded in “Derivative instrument gains (losses), net” under “Revenues and Other” in the Company’s statement of consolidated operations. Unrealized gains (losses) for derivative activity recorded in the statement of consolidated operations are reflected in the statement of consolidated cash flows separately as “Unrealized derivative instrument losses, net” in “Adjustments to reconcile net loss to net cash provided by operating activities.”