1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________________ to _____________________
Commission File Number 1-4300
APACHE CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO
--- ---
Number of shares of Registrant's common stock, outstanding as of March 31, 2000.........................113,715,890
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2000 1999
---------- ----------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues $ 446,117 $ 162,604
Equity in income of affiliates 1,220 --
Other revenues (195) 818
--------- ---------
447,142 163,422
--------- ---------
OPERATING EXPENSES:
Depreciation, depletion and amortization 132,149 88,423
Operating costs 70,427 46,690
Administrative, selling and other 14,649 10,330
Financing costs:
Interest expense 41,568 31,448
Amortization of deferred loan costs 1,279 1,114
Capitalized interest (14,017) (12,916)
Interest income (540) (421)
--------- ---------
245,515 164,668
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 201,627 (1,246)
Provision for income taxes 85,323 922
--------- ---------
NET INCOME (LOSS) 116,304 (2,168)
Preferred stock dividends 5,264 1,420
--------- ---------
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK $ 111,040 $ (3,588)
========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ .98 $ (.04)
========= =========
Diluted $ .96 $ (.04)
========= =========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
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APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
FOR THE QUARTER ENDED MARCH 31,
-------------------------------
2000 1999
---------- ----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 116,304 $ (2,168)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization 132,149 88,423
Amortization of deferred loan costs 1,279 1,114
Provision (benefit) for deferred income taxes 51,718 (2,926)
Cash distributions less than earnings of affiliates (369) --
Gain on sale of stock held for investment (379) --
Changes in operating assets and liabilities:
(Increase) decrease in receivables (27,400) 3,150
Increase in advances to oil and gas ventures and other (3,089) (10,350)
(Increase) in product inventory (1,883) (282)
(Increase) decrease in deferred charges and other (1,305) 201
Decrease in payables (5,269) (20,829)
Decrease in accrued expenses (13,528) (1,852)
Decrease in advances from gas purchasers (7,157) (6,296)
Increase (decrease) in deferred credits and noncurrent liabilities 1,171 (2,577)
--------- ---------
Net cash provided by operating activities 242,242 45,608
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (173,305) (166,499)
Non-cash portion of net oil and gas property additions 3,974 (54,428)
Acquisition of Repsol YPF properties (119,525) --
Acquisition of Novus, net of cash acquired -- (5,758)
Proceeds from sales of oil and gas properties 16,752 4,344
Proceeds from sale of stock held for investment 985 --
Purchase of stock held for investment (638) --
Other, net (2,077) 572
--------- ---------
Net cash used in investing activities (273,834) (221,769)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 173,677 335,451
Payments on long-term debt (103,548) (147,127)
Dividends paid (12,926) (8,264)
Payments to repurchase Series C Preferred Stock (2,613) --
Common stock activity, net 6,072 645
Payments to acquire treasury stock (17,727) --
Cost of debt and equity transactions (3) --
--------- ---------
Net cash provided by financing activities 42,932 180,705
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 11,340 4,544
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,171 14,537
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,511 $ 19,081
========= =========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
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APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 24,511 $ 13,171
Receivables 286,747 259,530
Inventories 47,666 45,113
Advances to oil and gas ventures and other 28,843 25,254
----------- -----------
387,767 343,068
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 7,664,017 7,409,787
Unproved properties and properties under
development, not being amortized 903,698 869,108
Gas gathering, transmission and processing facilities 451,479 442,437
Other 106,403 105,635
----------- -----------
9,125,597 8,826,967
Less: Accumulated depreciation, depletion and amortization (3,841,471) (3,711,109)
----------- -----------
5,284,126 5,115,858
----------- -----------
OTHER ASSETS:
Deferred charges and other 45,219 43,617
----------- -----------
$ 5,717,112 $ 5,502,543
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
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APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,900 $ 6,158
Accounts payable 142,968 148,309
Accrued operating expense 17,550 18,226
Accrued exploration and development 105,373 101,490
Accrued compensation and benefits 9,404 22,631
Accrued interest 32,573 28,118
Other accrued expenses 7,729 11,846
----------- -----------
324,497 336,778
----------- -----------
LONG-TERM DEBT 1,947,037 1,879,650
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes 411,184 360,324
Advances from gas purchasers 173,799 180,956
Other 106,381 75,408
----------- -----------
691,364 616,688
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized -
Series B, 5.68% Cumulative Preferred Stock,
100,000 shares issued and outstanding 98,387 98,387
Series C, 6.5% Conversion Preferred Stock, 138,482 and
140,000 shares issued and outstanding, respectively 208,207 210,490
Common stock, $1.25 par, 215,000,000 shares authorized,
116,586,806 and 116,403,013 shares issued, respectively 145,734 145,504
Paid-in capital 1,723,084 1,717,027
Retained earnings 661,800 558,721
Treasury stock, at cost, 2,870,916 and 2,406,549 common shares,
respectively (69,684) (52,256)
Accumulated other comprehensive income (13,314) (8,446)
----------- -----------
2,754,214 2,669,427
----------- -----------
$ 5,717,112 $ 5,502,543
=========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
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APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON
(In thousands) INCOME STOCK STOCK STOCK
------------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 $ 98,387 $ -- $ 124,738
Comprehensive income:
Net loss $ (2,168) -- -- --
Currency translation adjustments 3,354 -- -- --
-----------
Comprehensive income $ 1,186
===========
Dividends:
Preferred -- -- --
Common ($.07 per share) -- -- --
Common shares issued -- -- 55
Treasury shares issued, net -- -- --
----------- ----------- -----------
BALANCE AT MARCH 31, 1999 $ 98,387 $ -- $ 124,793
=========== =========== ===========
BALANCE AT DECEMBER 31, 1999 $ 98,387 $ 210,490 $ 145,504
Comprehensive income:
Net income $ 116,304 -- -- --
Currency translation adjustments (5,600) -- -- --
Unrealized gain on marketable
securities, net of applicable
income taxes of $449 732 -- -- --
-----------
Comprehensive income $ 111,436
===========
Dividends:
Preferred -- -- --
Common ($.07 per share) -- -- --
Common shares issued -- -- 230
Series C Preferred Stock purchased -- (2,283) --
Treasury shares purchased, net -- -- --
----------- ----------- -----------
BALANCE AT MARCH 31, 2000 $ 98,387 $ 208,207 $ 145,734
=========== =========== ===========
ACCUMULATED
OTHER TOTAL
PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) CAPITAL EARNINGS STOCK INCOME EQUITY
----------- ----------- ----------- ------------- -------------
BALANCE AT DECEMBER 31, 1998 $ 1,245,738 $ 403,098 $ (36,924) $ (33,204) $ 1,801,833
Comprehensive income:
Net loss -- (2,168) -- -- (2,168)
Currency translation adjustments -- -- -- 3,354 3,354
Comprehensive income
Dividends:
Preferred -- (1,420) -- -- (1,420)
Common ($.07 per share) -- (6,848) -- -- (6,848)
Common shares issued 641 -- -- -- 696
Treasury shares issued, net -- -- 134 -- 134
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 1999 $ 1,246,379 $ 392,662 $ (36,790) $ (29,850) $ 1,795,581
=========== =========== =========== =========== ===========
BALANCE AT DECEMBER 31, 1999 $ 1,717,027 $ 558,721 $ (52,256) $ (8,446) $ 2,669,427
Comprehensive income:
Net income -- 116,304 -- -- 116,304
Currency translation adjustments -- -- -- (5,600) (5,600)
Unrealized gain on marketable
securities, net of applicable
income taxes of $449 -- -- -- 732 732
Comprehensive income
Dividends:
Preferred -- (4,934) -- -- (4,934)
Common ($.07 per share) -- (7,961) -- -- (7,961)
Common shares issued 5,844 -- -- -- 6,074
Series C Preferred Stock purchased -- (330) -- -- (2,613)
Treasury shares purchased, net 213 -- (17,428) -- (17,215)
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 $ 1,723,084 $ 661,800 $ (69,684) $ (13,314) $ 2,754,214
=========== =========== =========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of this statement.
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APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation (Apache
or the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the summary of
significant accounting policies and notes thereto included in the Company's most
recent annual report on Form 10-K.
Beginning in the first quarter 2000, gathering, processing and marketing
(GTM) margin has been reported as a net addition to oil and gas production
revenues and gathering fee income has been reported as a reduction to operating
costs in the accompanying statement of consolidated operations.
Reclassifications have been made to reflect this change in the prior year
statement of consolidated operations.
1. ACQUISITIONS AND DIVESTITURES
Acquisitions - On January 24, 2000, Apache completed the acquisition of
producing properties in Western Oklahoma and the Texas Panhandle, formerly owned
by a subsidiary of Repsol YPF, for approximately $119.5 million, plus assumed
liabilities of approximately $29.8 million. The acquisition included estimated
proved reserves of 206 billion cubic feet of natural gas equivalent (Bcfe) as of
the acquisition date.
On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated
Shell entities (Shell Offshore) its interest in 22 producing fields and 16
undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition
also included certain production-related assets and proprietary 2-D and 3-D
seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The
purchase price was $687.7 million in cash and one million shares of Apache
common stock (valued at $28.125 per share). The Shell Offshore acquisition
included approximately 123.2 million barrels of oil equivalent (MMboe) of proved
reserves as of the acquisition date.
On November 30, 1999, Apache acquired from Shell Canada Limited (Shell
Canada) producing properties and other assets for C$761 million (US$517.8
million). The producing properties consisted of 150,400 net acres and comprised
20 fields with an average working interest of 55 percent and proved reserves of
87.2 MMboe as of the acquisition date. Apache also acquired 294,294 net acres of
undeveloped leaseholdings, a 100 percent interest in a gas processing plant with
a potential throughput capacity of 160 million cubic feet (MMcf) per day, and
52,700 square miles of 2-D seismic and 884 square miles of 3-D seismic.
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The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Shell Offshore and Shell
Canada acquisitions occurred on January 1, 1999. The pro forma information is
based on numerous assumptions and is not necessarily indicative of future
results of operations.
FOR THE QUARTER ENDED
MARCH 31, 1999
------------------------------
AS REPORTED PRO FORMA
----------- ---------
(In thousands, except per share data)
Revenues $ 163,422 $ 228,787
Net income (loss) (2,168) 2,309
Preferred stock dividends 1,420 4,946
Income (loss) attributable to common stock (3,588) (2,637)
Net income (loss) per common share:
Basic $ (.04) $ (.02)
Diluted (.04) (.02)
Average common shares outstanding 97,788 113,738
Divestitures - On March 14, 2000, Apache sold proprietary rights to its
Canadian seismic data to Request Seismic Surveys Ltd., retaining license rights,
for $16.5 million.
2. NET INCOME (LOSS) PER COMMON SHARE
A reconciliation of the components of basic and diluted net income (loss)
per common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31,
------------------------------------------------------------------------
2000 1999
---------------------------------- -----------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- ------- --------- -------- ------ ---------
(In thousands, except per share amounts)
BASIC:
Income (loss) attributable to common
stock $111,040 113,837 $ .98 $ (3,588) 97,788 $ (.04)
======= =======
EFFECT OF DILUTIVE SECURITIES:
Stock options -- 536 -- --
Series C Preferred Stock 3,844 5,738 -- --
-------- -------- -------- --------
DILUTED:
Income (loss) attributable to common
stock including assumed conversions $114,884 120,111 $ .96 $ (3,588) 97,788 $ (.04)
======== ======== ======= ======== ======== =======
The effect of stock options was not included in the computation of diluted
net loss per common share during 1999 because to do so would have been
antidilutive.
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3. NON-CASH INVESTING AND FINANCING ACTIVITIES
In January 2000, the Company acquired producing properties from Repsol YPF
for cash and the assumption of certain liabilities. The accompanying financial
statements include the amounts detailed in Note 1.
The following table provides supplemental disclosure of cash flow
information:
FOR THE QUARTER ENDED MARCH 31,
-----------------------------------------
2000 1999
---------------- ---------------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized) $ 23,096 $ 14,795
Income taxes (net of refunds) 33,605 3,813
4. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The Company evaluates
performance based on profit or loss from oil and gas operations before income
and expense items incidental to oil and gas operations and income taxes.
Apache's reportable segments are managed separately because of their geographic
locations. Financial information by operating segment is presented below:
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
----------- ----------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
FOR THE QUARTER ENDED MARCH 31, 2000
Oil and Gas Production Revenues .......... $ 240,604 $ 60,771 $ 97,674 $ 47,068 $ -- $ 446,117
=========== =========== =========== =========== =========== ===========
Operating Income (Loss) (1) ............. $ 115,639 $ 32,766 $ 69,949 $ 25,199 $ (12) $ 243,541
=========== =========== =========== =========== ===========
Other Income (Expense):
Equity in income of affiliates ........ 1,220
Other revenues ........................ (195)
Administrative, selling and other ..... (14,649)
Financing costs, net .................. (28,290)
-----------
Income Before Income Taxes ............... $ 201,627
===========
Total Assets ............................. $ 2,949,874 $ 901,702 $ 917,133 $ 787,737 $ 160,666 $ 5,717,112
=========== =========== =========== =========== =========== ===========
FOR THE QUARTER ENDED MARCH 31, 1999
Oil and Gas Production Revenues .......... $ 98,386 $ 16,517 $ 28,630 $ 18,864 $ 207 $ 162,604
=========== =========== =========== =========== =========== ===========
Operating Income (1) ..................... $ 10,327 $ 4,006 $ 6,873 $ 6,192 $ 93 $ 27,491
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues ........................ 818
Administrative, selling and other ..... (10,330)
Financing costs, net .................. (19,225)
-----------
Loss Before Income Taxes ................. $ (1,246)
===========
Total Assets ............................. $ 2,081,025 $ 310,382 $ 878,274 $ 648,392 $ 173,447 $ 4,091,520
=========== =========== =========== =========== =========== ===========
(1) Operating income consists of oil and gas production revenues less
depreciation, depletion and amortization (DD&A) expense and operating
costs.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On a foundation of strong production combined with high pricing, Apache
enjoyed record results of operations during the first quarter 2000:
o Record income attributable to common stock of $111.0 million ($.98 per
share) was generated. These results represent over half the full 1999's
record earnings of $186.4 million ($1.73 per share). Last year's first
quarter reflected a loss attributable to common stock of $3.6 million ($.04
per share).
o In conjunction with substantially improved prices over last year, oil and
gas production were up 60 percent and 30 percent, respectively. The
improved production added a combined $.53 to earnings per share.
o Net cash provided by operating activities increased $196.6 million, or 431
percent, to $242.2 million from $45.6 million.
o Reflecting production from property acquisitions in 1999 and subsequent
exploration, quarterly production on a barrel of oil equivalent (boe) basis
increased 44 percent from 169,629 boe/day in 1999 to 244,574 boe/day in
2000.
Commodity Prices - Apache's average realized oil price increased $14.07 per
barrel from $11.44 per barrel in the first quarter of 1999 to $25.51 per barrel
in the comparable 2000 period, increasing revenues by $90.4 million. The average
realized price for natural gas increased $.82 per thousand cubic feet (Mcf) from
$1.70 per Mcf in the first quarter of 1999 to $2.52 per Mcf in 2000, positively
impacting revenues by $42.6 million.
Production - Oil production increased 60 percent during the first quarter
of 2000 when compared to the same period last year. The increase was primarily
due to the Shell Offshore acquisition in the United States and the Shell Canada
acquisition. The increase in oil production positively impacted revenues by
$102.0 million. Gas production increased 30 percent during the first quarter of
2000 when compared to the same period last year. The increase was primarily due
to the Shell Offshore acquisition in the U.S., the Shell Canada acquisition in
Canada and completion of the northern portion of the Western Desert Gas Pipeline
on the Khalda concession in Egypt, with first sales commencing in August 1999.
The increase in gas production positively impacted revenues by $41.0 million.
RESULTS OF OPERATIONS
Apache reported income attributable to common stock of $111.0 million in
the first quarter of 2000 versus a loss attributable to common stock of $3.6
million in the prior year. Basic net income per common share of $.98 for the
first quarter of 2000 was significantly higher than the basic net loss per
common share of $.04 in 1999. A significant increase in oil and gas production
revenues was partially offset by higher DD&A expense, operating costs, net
financing costs, administrative, selling and other (G&A) costs and preferred
stock dividends.
For the first quarter of 2000, revenues increased 174 percent to $447.1
million compared to $163.4 million in 1999, driven by a 174 percent increase in
oil and gas production revenues. The increase in oil and gas production revenues
was the result of a 123 percent increase in the average realized oil price, a 48
percent increase in the average realized price for natural gas, a 60 percent
increase in oil production and a 30 percent increase in natural gas production.
Crude oil, including natural gas liquids, contributed 62 percent and natural gas
contributed 38 percent of oil and gas production revenues.
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Volume and price information for the Company's oil and gas production is
summarized in the following table:
FOR THE QUARTER
ENDED MARCH 31,
------------------------ INCREASE
2000 1999 (DECREASE)
------- ------- ----------
Natural Gas Volume - Mcf per day:
United States 484,891 397,685 22%
Canada 125,908 109,099 15%
Australia 88,966 60,062 48%
Egypt 44,018 3,445 1,178%
Ivory Coast - 1,214 -
------- -------
Total 743,783 571,505 30%
======= =======
Average Natural Gas price - Per Mcf:
United States $ 2.62 $ 1.80 46%
Canada 2.11 1.43 48%
Australia 1.48 1.48 -
Egypt 4.73 1.93 145%
Ivory Coast - 1.77 -
------- -------
Total 2.52 1.70 48%
======= =======
Oil Volume - Barrels per day:
United States 53,897 32,202 67%
Canada 13,651 2,180 526%
Australia 14,377 10,255 40%
Egypt 32,568 26,707 22%
Ivory Coast - 12 -
------- -------
Total 114,493 71,356 60%
Average Oil price - Per barrel:
United States $ 25.49 $ 11.19 128%
Canada 21.69 10.90 99%
Australia 26.84 11.75 128%
Egypt 26.56 11.66 128%
Ivory Coast - 14.00 -
Total 25.51 11.44 123%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States 4,583 2,390 92%
Canada 1,534 632 143%
------- -------
Total 6,117 3,022 102%
======= =======
Average NGL Price - Per barrel:
United States $ 17.50 $ 7.42 136%
Canada 15.74 5.36 194%
Total 17.06 6.99 144%
FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999
Natural gas sales for the first quarter of 2000 totaled $170.9 million, 96
percent higher than the first quarter of 1999. Average realized natural gas
prices increased 48 percent, positively affecting revenue by $42.6 million.
Apache realized average natural gas price increases in the United States of 46
percent from $1.80 per Mcf in the first quarter 1999, to $2.62 per Mcf in the
same period in 2000. The United States represented 65 percent of total natural
gas production for the first quarter of 2000. The Company periodically engages
in hedging activities, including fixed price
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physical contracts and financial contracts. The net result of these activities
increased the Company's realized gas price by $.02 per Mcf during the first
quarter of 2000 and $.07 per Mcf during the first quarter of 1999.
Natural gas production increased 172.3 million cubic feet per day (MMcf/d),
or 30 percent, on a worldwide basis, favorably impacting revenue by $41.0
million. Natural gas production in the United States increased 22 percent due to
the Shell Offshore acquisition in mid-May 1999. The completion of the northern
portion of the Western Desert Gas Pipeline on the Khalda concession with first
sales commencing in August 1999, contributed to the 40.6 MMcf/d increase in
Egypt over 1999.
The Company's crude oil sales for the first quarter of 2000 totaled $265.8
million, a 262 percent increase from the first quarter of 1999, due to higher
average realized prices and production. The Company's realized price for sales
of crude oil in the first quarter of 2000 increased $14.07 per barrel, or 123
percent, resulting in an increase in revenue of $90.4 million compared to the
same period in 1999. Realized losses from open hedging positions negatively
impacted the Company's realized oil price by $1.75 per barrel during the first
quarter of 2000 and had no impact on the first quarter of 1999.
First quarter 2000 oil production increased 60 percent compared to the
prior year primarily as a result of a 67 percent increase in oil production in
the U.S. and a 526 percent increase in Canada, resulting in a $102 million
increase in revenue compared to the same period in 1999. The U.S. oil production
increase in the first quarter of 2000 was primarily due to the Shell Offshore
acquisition. The Canada oil production increase in the first quarter of 2000 was
primarily due to the Shell Canada acquisition.
Revenue from the sale of natural gas liquids totaled $9.5 million for the
first quarter of 2000, compared to $1.9 million for the first quarter of 1999.
Natural gas liquids production increased 3,095 barrels per day, or 102 percent,
and natural gas liquids prices increased $10.07 per barrel, or 144 percent.
OPERATING EXPENSES
The Company's DD&A expense for the first quarter of 2000 totaled $132.1
million, compared to $88.4 million for the same period in 1999. On an equivalent
barrel basis, full cost DD&A expense increased $.16 per boe, from $5.40 per boe
in the first quarter of 1999 to $5.56 per boe in 2000. The increase is primarily
due to oil production, with a higher cost basis, having an increased percentage
of the oil and gas product mix in Canada as a result of the Shell Canada
acquisition. Canadian DD&A increased from $4.30 per boe in the first quarter of
1999 to $5.48 per boe in 2000 reflecting the Shell Canada acquisition costs.
Operating costs, including lease operating expense (LOE) and severance
taxes, increased 51 percent from $46.7 million in the first quarter of 1999 to
$70.4 million for the same period in 2000. For the first quarter of 2000, LOE
totaled $61.5 million, compared to $41.0 million for the comparable period in
1999 due to the addition of producing properties in North America. On an
equivalent barrel basis, LOE increased from $2.69 per boe in the first quarter
of 1999 to $2.76 per boe in the first quarter of 2000. Costs were higher in the
United States reflecting increased activity in the Midcontinent and Offshore
regions. The boe rate in Canada increased due to the Shell Canada acquisition,
which increased oil as a percentage of total production. The boe rate in
Australia increased primarily due to a tariff in the first quarter of 2000
related to the new Varanus pipeline. The boe rate in Egypt decreased due to the
Western Desert Gas Pipeline coming on line and increased volumes at Khalda due
to development programs. Severance tax increased from $5.7 million in the first
quarter of 1999 to $8.9 million in the first quarter of 2000 due to higher oil
and gas production revenues.
G&A expense in the first quarter of 2000 increased $4.3 million, or 42
percent, from a year ago. The Company's overall infrastructure was enlarged to
properly handle increased responsibilities associated with 1999 North American
producing property acquisitions. On an equivalent barrel basis, G&A expense for
the first three months of 2000 decreased to $.66 per boe compared to $.68 per
boe for the same period in 1999.
Net financing costs for the first quarter of 2000 increased $9.1 million,
or 47 percent, from the prior year primarily due to higher interest expense.
Gross interest expense increased $10.1 million due to a higher average
outstanding debt balance from 1999 acquisitions.
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MARKET RISK
The Company's major market risk exposure continues to be the pricing
applicable to its oil and gas production. Realized pricing is primarily driven
by the prevailing worldwide price for crude oil and spot prices applicable to
its United States and Canadian natural gas production. Historically, prices
received for oil and gas production have been volatile and unpredictable. Price
volatility is expected to continue. See "Results of Operations" above.
The information set forth under "Market Risk" in Item 7 of the Company's
annual report on Form 10-K for the year ended December 31, 1999, is incorporated
herein by reference.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary cash needs are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, payment of dividends and capital obligations for affiliated
ventures. Apache budgets capital expenditures based upon projected cash flows
and routinely adjusts its capital expenditures in response to changes in oil and
natural gas prices and corresponding changes in cash flow. The Company cannot
accurately predict future oil and gas prices.
Capital Expenditures - A summary of oil and gas capital expenditures during
the first three months of 2000 and 1999 is presented below:
FOR THE QUARTER ENDED
MARCH 31,
--------------------------------
2000 1999
---------- ----------
(In thousands)
Exploration and development:
United States $ 85,115 $ 24,670
Canada 34,403 10,737
Egypt 22,224 12,432
Australia 2,022 11,722
Other international 5,669 7,435
---------- ----------
149,433 66,996
Capitalized Interest 14,017 12,916
---------- ----------
Total $ 163,450 $ 79,912
========== ==========
Acquisitions of oil and gas properties $ 149,679 $ 75,931
========== ==========
In North America, Apache completed 33 producing wells out of 56 wells
drilled during the first quarter of 2000, while internationally the Company
discovered four new producing wells out of nine wells drilled. Worldwide, the
Company was drilling or completing an additional 92 wells as of March 31, 2000.
In addition, Apache completed 376 production enhancement projects, including 129
recompletions, during the first quarter of 2000.
On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol YPF, for approximately $119.5 million plus assumed
liabilities of approximately $29.8 million. The acquisition included estimated
proved reserves of 206 Bcfe as of the acquisition date.
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided by
operating activities during the first three months of 2000 totaled $242.2
million, an increase of 431 percent from $45.6 million in the first three months
of 1999. This increase was primarily due to higher oil and gas production as a
result of 1999 acquisitions and higher realized oil and gas prices as compared
to last year.
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Stock Transactions - In the first quarter of 2000, the Company bought back
75,900 depository shares, each representing one-fiftieth (1/50) of a share of
Series C Preferred Stock, at an average price of $34.42 per share. The excess of
the purchase price to reacquire the depository shares over the original issuance
price is reflected as a preferred stock dividend in the accompanying statement
of consolidated operations.
In the first quarter of 2000, the Company repurchased 478,100 shares of
common stock to be held in treasury at an average price of $37.08 per share.
Liquidity - The Company had $24.5 million in cash and cash equivalents on
hand at March 31, 2000, up from $13.2 million at December 31, 1999. Apache's
ratio of current assets to current liabilities at March 31, 2000 was 1.19:1
compared to 1.02:1 at December 31, 1999.
Apache believes that cash on hand, net cash generated from operations, and
unused committed borrowing capacity under its global credit facility will be
adequate to satisfy the Company's financial obligations to meet future liquidity
needs for at least the next two fiscal years. As of March 31, 2000, Apache's
available borrowing capacity under its global credit facility was $777.5
million.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production, cash
flow and earnings through a balanced growth program that involves:
o exploiting our existing asset base;
o acquiring properties to which we can add incremental value; and
o investing in high-potential exploration prospects.
EXPLOITING EXISTING ASSET BASE
Apache seeks to maximize the value of our existing asset base by reducing
operating costs per unit and increasing the amount of recoverable reserves. In
order to achieve these objectives, we rigorously pursue operations to cut costs,
identify production enhancement initiatives such as workovers and recompletions,
and divest marginal and non-strategic properties.
ACQUIRING PROPERTIES TO WHICH WE CAN ADD INCREMENTAL VALUE
Apache seeks to purchase reserves at attractive prices by generally
avoiding auction processes where we are competing against other buyers. Our aim
is to follow each acquisition with a cycle of reserve enhancement, property
consolidation and cash flow acceleration, facilitating asset growth and debt
reduction.
INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS
Apache seeks to concentrate our exploratory investments in a select number
of international areas and to become the dominant operator in those regions. We
believe that these investments, although higher-risk, offer the potential for
significant reserve additions. Our international investments and exploration
activities are a significant component of our long-term growth strategy. They
complement our United States operations, which are more development oriented.
A critical component in implementing our three-pronged growth strategy is
maintenance of significant financial flexibility. We are committed to preserving
a strong balance sheet and credit position that gives us the foundation required
to pursue our growth initiatives.
CHINA
On May 28, 1999, Apache China Corporation LDC (Apache China, an indirect
wholly owned subsidiary of the Company) sent a notice of default to XCL-China,
Ltd. (XCL-China), a participant with Apache China in the Zhao Dong Block
offshore the People's Republic of China, and its parent company, XCL, Ltd., for
the failure to pay approximately $10 million of costs pursuant to the agreements
governing the project. Prior to the expiration of the cure
13
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period, XCL-China and XCL, Ltd. filed petitions initiating arbitration
proceedings against Apache China. The actions seek to disallow approximately $17
million in costs expended by Apache China related to developing the Zhao Dong
Block, including the $10 million in costs billed by Apache China to XCL-China
that have not been paid. In addition, XCL-China has advised Apache China of
XCL-China's intent to seek the removal of Apache China as operator of the Block.
Apache China has denied the allegations made by XCL-China in its petition and is
vigorously contesting them. On November 30, 1999 the arbitration proceedings
were stayed in connection with the bankruptcy proceeding described below.
On June 25, 1999, Apache China filed a petition in U.S. Bankruptcy Court in
Opelousas, Louisiana, to place XCL-China into involuntary bankruptcy under
Chapter 7 of the Bankruptcy Code on account of XCL-China's failure to pay its
share of costs related to development of the Zhao Dong Block. On December 21,
1999, the holders of XCL, Ltd.'s senior secured notes, acting through their
Trustee, exercised their remedial rights under their indenture and removed the
existing Board of Directors of XCL-China, electing a new Board. The new Board of
Directors of XCL-China voted to withdraw XCL-China's opposition to Apache
China's Chapter 7 bankruptcy petition filed against XCL-China and on December
22, 1999 obtained an order of the Court converting the proceeding into a
voluntary Chapter 11 bankruptcy proceeding.
Apache China is continuing negotiations with the Chinese authorities
concerning the terms and conditions of the development of the Zhao Dong Block
including, among other things the portion of XCL-China's future development
costs to be paid by the Chinese. Apache China is prepared to move forward as
soon as these negotiations are satisfactorily concluded.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Although Apache makes
use of futures contracts, swaps, options and fixed-price physical contracts to
mitigate risk, fluctuations in oil and gas prices, or a prolonged continuation
of low prices, may substantially adversely affect the Company's financial
position, results of operations and cash flows.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 10 to the Consolidated Financial
Statements contained in the Company's annual report on Form 10-K for
the year ended December 31, 1999 (filed with the SEC on March 29,
2000) is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 - Bylaws of Registrant, as amended May 4, 2000
(includes audit committee charter as Annex A)
12.1 - Statement of computation of ratios of earnings to
fixed charges and combined fixed charges and
preferred stock dividends
27.1 - Financial Data Table
(b) Reports filed on Form 8-K
The following current reports on Form 8-K were filed by Apache
during the fiscal quarter ended March 31, 2000.
Item 5. Other Events - dated December 17, 1999, filed
February 7, 2000
On December 17, 1999, Apache filed with the Delaware Secretary
of State a restated certificate of incorporation that
integrated into a single document, without further amendment,
all of the provisions of Apache's certificate of
incorporation.
Item 5. Other Events - dated February 3, 2000, filed
February 16, 2000
On February 3, 2000, Apache announced earnings for the fourth
quarter and year 1999.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Dated: May 12, 2000 /s/ ROGER B. PLANK
------------------------------------------
Roger B. Plank
Vice President and Chief Financial Officer
Dated: May 12, 2000 /s/ THOMAS L. MITCHELL
------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
18
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 - Bylaws of Registrant, as amended May 4, 2000 (includes audit committee charter as Annex A)
12.1 - Statement of computation of ratios of earnings to fixed charges and combined fixed charges and
preferred stock dividends
27.1 - Financial Data Table