TRANSACTIONS WITH PARENT AFFILIATE

3 Months Ended

Mar. 31, 2023

Related Party Transactions [Abstract]

TRANSACTIONS WITH PARENT AFFILIATE

TRANSACTIONS WITH PARENT AFFILIATE

Apache is a direct, wholly owned subsidiary of APA. Apache holds assets in the U.S., Egypt, and the U.K. and provides administrative and support operations for certain APA subsidiaries with interests in the U.S., Suriname, and the Dominican Republic.

On March 1, 2021, Apache sold to APA all of the equity in the three Apache subsidiaries through which Apache’s interests in Suriname and the Dominican Republic were held. The purchase price is payable pursuant to a senior promissory note made by APA payable to Apache, dated March 1, 2021. The note has a seven-year term, maturing on February 29, 2028, and bears interest at a rate of 4.5 percent per annum, payable semi-annually, subject to APA’s option to allow accrued interest to convert to principal (PIK) during the first 5.5 years of the note’s term (to August 31, 2026). The note is guaranteed by each of the three subsidiaries sold by Apache to APA. The Company recognized interest income on this note of $16 million and $15 million during the first quarters of 2023 and 2022, respectively. The interest income related to this note is reflected in “Financing costs, net” on the Company’s statement of consolidated operations. APA allowed interest accrued from March 1, 2021 through February 28, 2023, totaling $125 million, to PIK pursuant to the note. As of March 31, 2023 and December 31, 2022, there was $1.4 billion in principal outstanding under this note.

APA also made a senior promissory note payable to Apache, dated March 31, 2023, pursuant to which Apache may loan and APA may borrow, repay, and reborrow up to $1.5 billion in aggregate principal amount outstanding at any time. The note has a five-year term, maturing March 31, 2028. The note bears interest at a rate per annum of 6.0 percent, payable semi-annually; however, APA may allow accrued interest to convert to principal, subject to the aggregate maximum principal amount of the note. The note is intended to facilitate cash management of APA and Apache. As of March 31, 2023, there were $749 million in borrowings outstanding under this note.

These notes are both reflected in “Notes receivable from APA Corporation” on the Company’s consolidated balance sheet.

In the fourth quarter of 2021, in conjunction with the ratification of a new merged concession agreement (MCA) with the Egyptian General Petroleum Corporation, Apache entered into an agreement with APA under which the historical value of existing concessions prior to ratifying the MCA was retained by Apache, with any excess value from the MCA terms being allocated to APA. Sinopec owns a one-third minority participation in the Company’s consolidated Egypt oil and gas business, and approximately 50 percent of the remaining net income and distributable cash flow for the Company’s Egyptian operations is being allocated to APA in 2023. Apache consolidates its Egyptian operations, with APA’s noncontrolling interest reflected as a separate component in the Company’s consolidated balance sheet. In the first quarters of 2023 and 2022, the Company recorded net income attributable to APA’s noncontrolling interest of $84 million and $71 million, respectively, and distributed $17 million and $41 million, respectively, of cash to APA in association with its noncontrolling interest.

In connection with the Company’s role as service provider, Apache is reimbursed by APA for employee costs, certain internal costs, and third-party costs paid by the Company. All reimbursements are based on actual costs incurred, and no market premium is applied by the Company to APA. The Company incurred $6 million and $5 million in reimbursable corporate overhead charges in the first quarters of 2023 and 2022, respectively. The Company also collects third-party receivables on behalf of APA. As of March 31, 2023, the Company had accounts payable to APA in connection with these services totaling $16 million, which is reflected in “Accounts payable to APA Corporation” on the Company’s consolidated balance sheet. As of December 31, 2022, the Company had a receivable from APA totaling $869 million, which is reflected in “Noncurrent receivable from APA Corporation.” This balance was incorporated into the March 31, 2023 promissory note discussed above during the first quarter of 2023.

From time to time, the Company may, at its discretion, make distributions of capital to APA. No capital distributions were made during the first quarter of 2023. During the first quarter of 2022, the Company made capital distributions totaling $305 million primarily in support of dividend payments and capital transactions completed by APA during the period.