REDEMABLE NONCONTROLLING INTEREST - ALTUS

9 Months Ended

Sep. 30, 2020

REDEMABLE NONCONTROLLING INTEREST - ALTUS

REDEEMABLE NONCONTROLLING INTEREST - ALTUS

Preferred Units Issuance

On June 12, 2019, Altus Midstream LP issued and sold Preferred Units for an aggregate issue price of $625 million in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Closing). Altus Midstream LP received approximately $611 million in cash proceeds from the sale after deducting transaction costs and discounts to certain purchasers.

Classification

The Preferred Units are accounted for on the Company’s consolidated balance sheets as a redeemable noncontrolling interest classified as temporary equity based on the terms of the Preferred Units, including the redemption rights with respect thereto.

Initial Measurement

Altus recorded the net transaction price of $611 million, calculated as the negotiated transaction price of $625 million, less issue discounts of $4 million and transaction costs totaling $10 million.

Certain redemption features embedded within the terms of the Preferred Units require bifurcation and measurement at fair value. Altus bifurcated and recognized at fair value an embedded derivative related to the Preferred Units at inception of $94 million for a redemption option of the Preferred Unit holders. The derivative is reflected in “Other” within “Deferred Credits and Other Noncurrent Liabilities” on the Company’s consolidated balance sheet at its current fair value of $179 million. The fair value of the 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. See Note 4—Derivative Instruments and Hedging Activities for more detail.

The net transaction price was allocated to the preferred redeemable noncontrolling interest and the embedded features according to the associated initial fair value measurements as follows:



	June 12, 2019
	(In millions)
Redeemable noncontrolling interest - Altus Preferred Unit limited partners	$	517
Preferred Units embedded derivative	94
	$	611

Subsequent Measurement

Altus applies a two-step approach to subsequent measurement of the redeemable noncontrolling interest related to the Preferred Units by first allocating a portion of the net income of Altus Midstream LP in accordance with the terms of the partnership agreement. An additional adjustment to the carrying value of the Preferred Unit redeemable noncontrolling interest at each period end may be recorded, if applicable. The amount of such adjustment is determined based upon the accreted value method to reflect the passage of time until the Preferred Units are exchangeable at the option of the holder. Pursuant to this method, the net transaction price is accreted using the effective interest method to the Redemption Price calculated at the seventh anniversary of the Closing. The total adjustment is limited to an amount such that the carrying amount of the Preferred Unit redeemable noncontrolling interest at each period end is equal to the greater of (a) the sum of (i) the carrying amount of the Preferred Units, plus (ii) the fair value of the embedded derivative liability and (b) the accreted value of the net transaction price.

Activity related to the Preferred Units during the nine months ended September 30, 2020 is as follows:



	Units Outstanding	Financial Position⁽¹⁾
	(In millions, except unit data)
Redeemable noncontrolling interest - Altus Preferred Unit limited partners: at December 31, 2019	638,163	$	555
Distribution of in-kind additional Preferred Units	22,531	—
Cash distributions to Altus Preferred Unit limited partners	—	(11		)
Allocation of Altus Midstream LP net income	N/A	56
Redeemable noncontrolling interest - Altus Preferred Unit limited partners: at September 30, 2020	660,694	600
Preferred Units embedded derivative		179
		$	779

(1)

The Preferred Units are redeemable at Altus Midstream LP’s option at September 30, 2020 at a price (the Redemption Price) equal to (a) the greater of (i) an 11.5 percent internal rate of return and (ii) a 1.3 times multiple of invested capital. As of September 30, 2020, the greater of these two amounts was a 1.3 times multiple of invested capital which equaled $813 million. As of September 30, 2020, the aggregate Redemption Price using an 11.5 percent internal rate of return was $709 million.

N/A - not applicable.

CAPITAL STOCK

Net Loss per Common Share

A reconciliation of the components of basic and diluted net loss per common share for the periods presented in the consolidated financial statements is shown in the tables below.



	For the Quarter Ended September 30,
	2020							2019
	Loss			Shares	Per Share			Loss			Shares	Per Share
	(In millions, except per share amounts)
Basic:
Loss attributable to common stock	$	(4	)	378	$	(0.01	)	$	(170	)	377	$	(0.45	)
Effect of Dilutive Securities:
Stock options and other	$	—		—	$	—		$	—		—	$	—
Redeemable noncontrolling interest - Altus Preferred Unit limited partners	$	(4	)	—	$	(0.01	)	$	—		—	$	—
Diluted:
Loss attributable to common stock	$	(8	)	378	$	(0.02	)	$	(170	)	377	$	(0.45	)



	For the Nine Months Ended September 30,
	2020							2019
	Loss			Shares	Per Share			Loss			Shares	Per Share
	(In millions, except per share amounts)
Basic:
Loss attributable to common stock	$	(4,870	)	378	$	(12.89	)	$	(577	)	377	$	(1.53	)
Effect of Dilutive Securities:
Stock options and other	$	—		—	$	—		$	—		—	$	—
Diluted:
Loss attributable to common stock	$	(4,870	)	378	$	(12.89	)	$	(577	)	377	$	(1.53	)

The Company uses the “if-converted method” to determine the potential dilutive effect of an assumed exchange of the outstanding Preferred Units of Altus Midstream for shares of Altus’ common stock. The impact to net loss attributable to common stock on an assumed conversion of the Preferred Units was anti-dilutive for the quarter ended September 30, 2019 and for each of the nine months ended September 30, 2020 and 2019. The diluted earnings per share calculation excludes options and restricted stock units that were anti-dilutive totaling 4.2 million and 5.2 million for the quarters ended September 30, 2020 and 2019, respectively, and 5.1 million for each of the nine months ended September 30, 2020 and 2019.

Common Stock Dividends

For the quarters ended September 30, 2020 and 2019, Apache paid $9 million and $94 million, respectively, in dividends on its common stock. For the nine months ended September 30, 2020 and 2019, Apache paid $113 million and $282 million, respectively. In the first quarter of 2020, Apache’s Board of Directors approved a reduction in the Company’s quarterly dividend per share from $0.25 to $0.025, effective for all dividends payable after March 12, 2020.

Stock Repurchase Program

In 2013 and 2014, Apache’s Board of Directors 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 September 30, 2020, had repurchased a total of 40 million shares at an average price of $79.18 per share. During the fourth quarter of 2018, the Company’s Board of Directors authorized the purchase of up to 40 million additional shares of the Company’s common stock. The Company is not obligated to acquire any specific number of shares and did not purchase any shares during the nine months ended September 30, 2020.