Analysis of Debt
Total Debt (Carrying Amount)
Apache Corp., balance sheet: debt
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
Total debt levels exhibited significant volatility between 2011 and 2015, characterized by a sharp increase in 2012 followed by a period of fluctuation and eventual reduction. The overall debt profile is heavily weighted toward long-term obligations, with short-term current debt becoming nearly nonexistent by the end of the period.
- Total Debt Trajectory
- The total carrying amount of debt rose from 7,216 million US$ in 2011 to a peak of 12,345 million US$ in 2012. This represents a substantial increase of approximately 71% within a single year. Following this peak, debt levels fluctuated, decreasing to 9,725 million US$ in 2013, rising again to 11,245 million US$ in 2014, and finally declining to 8,778 million US$ by December 31, 2015.
- Composition of Debt
- Long-term debt, excluding current maturities, served as the primary driver of the company's leverage throughout the five-year period. In 2012, long-term debt reached 11,355 million US$, accounting for the vast majority of the total debt load. By 2015, long-term debt stood at 8,777 million US$, continuing to represent nearly the entirety of the total debt carrying amount.
- Current Debt Analysis
- A marked reduction in short-term liquidity obligations is observed. Current debt increased from 431 million US$ in 2011 to 990 million US$ in 2012, but subsequently plummeted to 53 million US$ in 2013. By December 31, 2015, current debt was reduced to a nominal 1 million US$, indicating a strategic shift away from short-term borrowing or the full settlement of current liabilities.
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Total Debt (Fair Value)
| Dec 31, 2015 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Total debt (fair value) | 8,330) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 0.95 |
Based on: 10-K (reporting date: 2015-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on debt: 5.06%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 6.90% | 400) | 28) | |
| 7.00% | 150) | 11) | |
| 7.63% | 150) | 11) | |
| 3.62% | 500) | 18) | |
| 3.25% | 919) | 30) | |
| 2.63% | 531) | 14) | |
| 7.70% | 100) | 8) | |
| 7.95% | 180) | 14) | |
| 6.00% | 1,000) | 60) | |
| 5.10% | 1,500) | 77) | |
| 5.25% | 500) | 26) | |
| 4.75% | 1,500) | 71) | |
| 4.25% | 800) | 34) | |
| 7.38% | 150) | 11) | |
| 7.63% | 150) | 11) | |
| 7.75% | 300) | 23) | |
| Total | 8,830) | 447) | |
| 5.06% | |||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 447 ÷ 8,830 = 5.06%
Interest Costs Incurred
Apache Corp., interest costs incurred
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
Total interest costs incurred exhibited an upward trajectory between 2011 and 2013, peaking at 579 million US dollars, followed by a contraction and stabilization through 2015. While the aggregate cost remained relatively high compared to 2011 levels, the internal allocation between capitalized interest and expensed interest shifted markedly in the final two years of the period.
- Aggregate Interest Cost Trends
- Total interest costs increased by approximately 32% from 438 million US dollars in 2011 to a peak of 579 million US dollars in 2013. Following this peak, a downward correction occurred in 2014, with costs decreasing to 505 million US dollars, and remaining nearly flat at 497 million US dollars in 2015.
- Interest Capitalization Patterns
- A strong correlation exists between total costs and capitalized interest from 2011 to 2013, as capitalized amounts rose from 263 million US dollars to a peak of 374 million US dollars. However, a significant divergence occurred in 2015, where capitalized interest dropped sharply to 227 million US dollars, representing a decrease of approximately 37% from the 2014 level.
- Net Interest Expense and Amortization
- Interest expense, net of capitalized interest, remained relatively stable between 2011 and 2013, followed by a dip to 136 million US dollars in 2014. A substantial increase is observed in 2015, where net interest expense spiked to 259 million US dollars. This suggests a shift in accounting treatment or a reduction in qualifying assets for capitalization, moving more of the interest burden directly to the income statement. Amortization of deferred loan costs remained a minor component of total costs, though it reached a period high of 11 million US dollars in 2015.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
2015 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, net of capitalized interest
= -27,967 ÷ 259 = -107.98
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= -27,967 ÷ 497 = -56.27
A severe and continuous decline in debt coverage capacity is evident from 2011 through 2015. The transition from high positive coverage ratios to deep negative values indicates a critical shift in the ability to meet interest obligations from operating earnings.
- Interest coverage ratio (without capitalized interest)
- This metric experienced a precipitous decline, starting at 48.61 in 2011 and decreasing to 22.40 by 2013. A sharp reversal occurred in 2014, where the ratio fell to -20.37, culminating in a severe deficit of -107.98 by the end of 2015.
- Adjusted interest coverage ratio (with capitalized interest)
- The adjusted ratio followed a similar downward trajectory but remained consistently lower than the non-adjusted figure. From a peak of 18.87 in 2011, the ratio diminished to 7.62 in 2013 before turning negative in 2014 (-5.49) and collapsing further to -56.27 in 2015.
- Impact of Interest Capitalization
- The persistent gap between the two ratios highlights the substantial impact of capitalized interest on the overall financial burden. Because the adjusted ratio is consistently lower, it is evident that the inclusion of capitalized interest significantly reduces the margin of safety for debt servicing, intensifying the perceived financial distress observed in 2014 and 2015.
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