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North America Marketing In general, most of our North American gas is sold at either monthly or daily market prices. Also, from time to time, the Company will enter into fixed physical sales contracts for durations of up to one-year. These physical sales volumes are typically sold at fixed prices over the term of the contract. Our natural gas is sold primarily to local distribution companies (LDCs), utilities, end-users, marketers, and integrated major oil companies. We strive to maintain a diverse client portfolio, which is intended to reduce the concentration of credit risk. We transport some of our Canadian natural gas under firm transportation contracts to delivery points into the U.S. in order to diversify our market exposure. Apache primarily markets its North American crude oil to integrated major oil companies, marketing and transportation companies, and refiners based on a West Texas Intermediate (WTI) price, adjusted for quality, transportation, and a market-reflective differential. In the U.S., our objective is to maximize the value of crude oil sold by identifying the best markets and most economical transportation routes available to move the product. Sales contracts are generally 30-day evergreen contracts that renew automatically until canceled by either party. These contracts provide for sales that are priced daily at prevailing market prices. Also, from time to time, the Company will enter into physical term sales contracts for durations up to five years. These term contracts typically have a firm transport commitment and often provide for the higher of prevailing market prices from multiple market hubs. In Canada, the crude is transported by pipeline or truck within Western Canada to market hubs in Alberta and Manitoba where it is sold, allowing for a more diversified group of purchasers and a higher netback price. A portion of our trucked barrels are delivered and sold at rail terminals. We evaluate our transport options monthly to maximize our netback prices. Apache’s NGL production is sold under contracts with prices based on local supply and demand conditions, less the costs for transportation and fractionation, or on a weighted-average sales price received by the purchaser. International Apache’s international assets are located in Egypt and offshore U.K. in the North Sea. In 2015, international assets contributed 40 percent of our production and 51 percent of our oil and gas revenues. Approximately 28 percent of our estimated proved reserves at year-end were located outside North America. Egypt Overview Our operations in Egypt are conducted pursuant to production sharing contracts (PSCs). Under the terms of the PSCs, the contractor partners bear the risk and cost of exploration, development, and production activities. In return, if exploration is successful, the contractor partners receive entitlement to variable physical volumes of hydrocarbons, representing recovery of the costs incurred and a stipulated share of production after cost recovery. Additionally, the contractor income taxes, which remain the liability of the contractor under domestic law, are paid by Egyptian General Petroleum Corporation (EGPC) on behalf of the contractor out of EGPC’s production entitlement. Income taxes paid to the Arab Republic of Egypt on behalf of the contractor are recognized as oil and gas sales revenue and income tax expense and reflected as production and estimated reserves. Because our cost recovery entitlement and income taxes paid on our behalf are determined as a monetary amount, the quantities of production entitlement and estimated reserves attributable to these monetary amounts will fluctuate with commodity prices. In addition, because the contractors’ income taxes are paid by EGPC, the amount of the income tax has no economic impact on the contractors despite impacting our production and reserves. Our activity in Egypt began in 1994 with our first Qarun discovery well, and today we are one of the largest acreage holders in Egypt’s Western Desert. At year-end 2015, we held 6.7 million gross acres in 24 separate concessions. Approximately 73 percent of our acreage in Egypt is undeveloped, providing us with considerable 5

Apache 2015 Summary Annual Report  

Adapting to a changing environment

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