1
UNITED STATES
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, 2001
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)
77056-4400
Suite 100, One Post Oak Central ----------
2000 Post Oak Boulevard, Houston, TX (Zip Code)
----------------------------------------
(Address of Principal Executive Offices)
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, 2001.....................................125,406,871
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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,
---------------------------------
2001 2000
---------- ----------
(In thousands, except per common
share data)
REVENUES:
Oil and gas production revenues $ 801,598 $ 446,117
Equity in income of affiliates -- 1,220
Other revenues (losses) (6,455) 854
---------- ----------
795,143 448,191
---------- ----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 172,530 132,149
Lease operating costs 90,107 61,461
Severance and other taxes 21,293 8,966
Administrative, selling and other 20,376 14,649
Financing costs:
Interest expense 44,712 41,568
Amortization of deferred loan costs 502 1,279
Capitalized interest (15,085) (14,017)
Interest income (877) (540)
---------- ----------
333,558 245,515
---------- ----------
INCOME BEFORE INCOME TAXES 461,585 202,676
Provision for income taxes 179,384 85,680
---------- ----------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE 282,201 116,996
Cumulative effect of change in accounting principle, net of
income tax -- (7,539)
---------- ----------
NET INCOME 282,201 109,457
Preferred stock dividends 4,908 5,264
---------- ----------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 277,293 $ 104,193
========== ==========
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle $ 2.24 $ .98
Cumulative effect of change in accounting principle -- (.06)
---------- ----------
$ 2.24 $ .92
========== ==========
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle $ 2.15 $ .96
Cumulative effect of change in accounting principle -- (.06)
---------- ----------
$ 2.15 $ .90
========== ==========
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,
-------------------------------
2001 2000
------------ ------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 282,201 $ 109,457
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 172,530 132,149
Provision for deferred income taxes 98,920 52,075
Cumulative effect of change in accounting principle -- 7,539
Other 3,376 (432)
Other non-cash items 2,367 (748)
Changes in operating assets and liabilities:
(Increase) decrease in receivables 44,477 (18,552)
(Increase) decrease in advances to oil and gas ventures and other (20,672) (3,089)
(Increase) decrease in product inventory (107) (11,780)
(Increase) decrease in deferred charges and other (3,677) (1,305)
Increase (decrease) in payables 58,364 (5,269)
Increase (decrease) in accrued expenses 15,095 (13,528)
Increase (decrease) in advances from gas purchasers (3,547) (7,157)
Increase (decrease) in deferred credits and noncurrent liabilities (6,782) 2,882
------------ ------------
Net cash provided by operating activities 642,545 242,242
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (344,982) (173,305)
Non-cash portion of net oil and gas property additions 65,274 3,974
Acquisition of Fletcher subsidiaries (465,018) --
Acquisition of Repsol YPF properties (446,933) (119,525)
Proceeds from sales of oil and gas properties 128,663 16,752
Other, net (39,333) (1,730)
------------ ------------
Net cash used in investing activities (1,102,329) (273,834)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 1,176,159 173,677
Payments on long-term debt (645,800) (103,548)
Dividends paid (4,870) (12,926)
Payments to repurchase Series C Preferred Stock -- (2,613)
Common stock activity, net 4,153 6,072
Treasury stock activity, net 98 (17,727)
Cost of debt and equity transactions (294) (3)
------------ ------------
Net cash provided by financing activities 529,446 42,932
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 69,662 11,340
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,173 13,171
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 106,835 $ 24,511
============ ============
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,
2001 2000
------------ ------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 106,835 $ 37,173
Receivables 553,666 506,723
Inventories 72,580 54,764
Advances to oil and gas ventures and other 56,697 31,360
Oil and gas derivative instruments 26,809 --
------------ ------------
816,587 630,020
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 10,224,352 9,423,922
Unproved properties and properties under
development, not being amortized 1,062,326 977,491
Gas gathering, transmission and processing facilities 698,687 573,621
Other 152,636 119,590
------------ ------------
12,138,001 11,094,624
Less: Accumulated depreciation, depletion and amortization (4,437,492) (4,282,162)
------------ ------------
7,700,509 6,812,462
------------ ------------
OTHER ASSETS:
Goodwill 197,200 --
Oil and gas derivative instruments 100,930 --
Deferred charges and other 41,068 39,468
------------ ------------
$ 8,856,294 $ 7,481,950
============ ============
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,
2001 2000
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 30,276 $ 25,000
Oil and gas derivative instruments 147,340 --
Accounts payable 377,518 259,120
Accrued operating expense 25,718 23,893
Accrued exploration and development 207,397 143,916
Accrued compensation and benefits 13,640 34,695
Accrued interest 31,629 25,947
Accrued income taxes 56,281 9,123
Other accrued expenses 14,637 31,653
------------ ------------
904,436 553,347
------------ ------------
LONG-TERM DEBT 2,718,341 2,193,258
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes 760,369 699,833
Advances from gas purchasers 149,559 153,106
Oil and gas derivative instruments 165,634 --
Other 125,190 127,766
------------ ------------
1,200,752 980,705
------------ ------------
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 shares
issued and outstanding 208,207 208,207
Common stock, $1.25 par, 215,000,000 shares authorized,
128,245,610 and 126,500,776 shares issued, respectively 160,307 158,126
Paid-in capital 2,276,993 2,173,183
Retained earnings 1,503,824 1,226,531
Treasury stock, at cost, 2,838,739 and 2,866,028 common shares,
respectively (68,899) (69,562)
Accumulated other comprehensive loss (146,054) (40,232)
------------ ------------
4,032,765 3,754,640
------------ ------------
$ 8,856,294 $ 7,481,950
============ ============
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 PAID-IN RETAINED
(In thousands) INCOME STOCK STOCK STOCK CAPITAL EARNINGS
------------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $ 98,387 $ 210,490 $ 145,504 $ 1,717,027 $ 558,721
Comprehensive income:
Net income $ 109,457 -- -- -- -- 109,457
Currency translation adjustments (5,600) -- -- -- -- --
Unrealized gain on marketable
securities, net of applicable
income taxes of $449 732 -- -- -- -- --
-------------
Comprehensive income $ 104,589
=============
Dividends:
Preferred -- -- -- -- (4,934)
Common ($.07 per share) -- -- -- -- (7,961)
Common shares issued -- -- 230 5,844 --
Series C Preferred Stock purchased -- (2,283) -- -- (330)
Treasury shares purchased, net -- -- -- 213 --
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 $ 98,387 $ 208,207 $ 145,734 $ 1,723,084 $ 654,953
=========== =========== =========== =========== ===========
BALANCE AT DECEMBER 31, 2000 $ 98,387 $ 208,207 $ 158,126 $ 2,173,183 $ 1,226,531
Comprehensive income:
Net income $ 282,201 -- -- -- -- 282,201
Currency translation adjustments (56,515) -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $163 (316) -- -- -- -- --
Unrealized loss on derivatives, net
of income tax benefit of $31,427 (48,991) -- -- -- -- --
-------------
Comprehensive income $ 176,379
=============
Preferred dividends -- -- -- -- (4,908)
Common shares issued -- -- 2,181 102,836 --
Treasury shares issued, net -- -- -- 974 --
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2001 $ 98,387 $ 208,207 $ 160,307 $ 2,276,993 $ 1,503,824
=========== =========== =========== =========== ===========
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) STOCK INCOME (LOSS) EQUITY
----------- ------------- -------------
BALANCE AT DECEMBER 31, 1999 $ (52,256) $ (8,446) $ 2,669,427
Comprehensive income:
Net income -- -- 109,457
Currency translation adjustments -- (5,600) (5,600)
Unrealized gain on marketable
securities, net of applicable
income taxes of $449 -- 732 732
Comprehensive income
Dividends:
Preferred -- -- (4,934)
Common ($.07 per share) -- -- (7,961)
Common shares issued -- -- 6,074
Series C Preferred Stock purchased -- -- (2,613)
Treasury shares purchased, net (17,428) -- (17,215)
----------- ------------- -------------
BALANCE AT MARCH 31, 2000 $ (69,684) $ (13,314) $ 2,747,367
=========== ============= =============
BALANCE AT DECEMBER 31, 2000 $ (69,562) $ (40,232) $ 3,754,640
Comprehensive income:
Net income -- -- 282,201
Currency translation adjustments -- (56,515) (56,515)
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $163 -- (316) (316)
Unrealized loss on derivatives, net
of income tax benefit of $31,427 -- (48,991) (48,991)
Comprehensive income
Preferred dividends -- -- (4,908)
Common shares issued -- -- 105,017
Treasury shares issued, net 663 -- 1,637
----------- ------------- -------------
BALANCE AT MARCH 31, 2001 $ (68,899) $ (146,054) $ 4,032,765
=========== ============= =============
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.
Change in Accounting Principle - In December 2000, the staff of the
Securities and Exchange Commission (SEC) announced that commodity inventories
should be carried at cost, not market value, despite longstanding industry
practice. As a result, Apache changed its accounting for crude oil inventories
in the fourth quarter of 2000, retroactive to the beginning of the year, and
recognized a non-cash cumulative-effect charge to earnings effective January 1,
2000. Quarterly results for 2000 have been restated to reflect this change in
accounting.
1. ACQUISITIONS AND DIVESTITURES
Acquisitions - In June 2000, Apache completed the acquisition of long-lived
producing properties in the Permian Basin and South Texas from Collins & Ware,
Inc. (Collins & Ware) for approximately $320.7 million. The acquisition included
estimated proved reserves of approximately 83.7 million barrels of oil
equivalent (MMboe) as of the acquisition date. One-third of the reserves are
liquid hydrocarbons.
In August 2000, Apache completed the acquisition of a Delaware limited
liability company (LLC) owned by subsidiaries of Occidental Petroleum
Corporation (Occidental) and the related natural gas production for
approximately $321.2 million, plus future payments of approximately $44.0
million over four years. The Occidental properties are located in 32 fields on
93 blocks on the Outer Continental Shelf of the Gulf of Mexico. The acquisition
included estimated proved reserves of approximately 53.1 MMboe as of the
acquisition date.
In December 2000, Apache completed the acquisition of Canadian properties
from Canadian affiliates of Phillips Petroleum Company (Phillips) for
approximately $490.3 million. The acquisition included estimated proved reserves
of approximately 70.0 MMboe as of the acquisition date. The properties comprise
approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786
square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama
area of Northwest Alberta. The assets also include three sour gas plants with a
total capacity of 150 million cubic feet (MMcf) per day, 13 compressor stations
and 150 miles of owned and operated gas gathering lines.
On March 22, 2001, Apache completed the acquisition of substantially all of
Repsol YPF's (Repsol) oil and gas concession interests in Egypt for
approximately $446.9 million in cash, subject to normal post closing
adjustments. The properties include interests in seven Western Desert
concessions and have estimated proved reserves of 68 MMboe as of the acquisition
date. The Company already holds interests in five of the seven concessions.
On March 27, 2001, Apache completed the acquisition of subsidiaries of
Fletcher Challenge Energy (Fletcher) for approximately $465.0 million in cash
and 1.64 million restricted shares of Apache common stock issued to Shell
Overseas Holdings (valued at $61.04 per share), subject to normal post closing
adjustments. The transaction included properties located in Canada's Western
Sedimentary Basin and in Argentina and estimated proved reserves of 118.8 MMboe
as of the acquisition date. Apache assumed a liability of $103.5 million
representing the fair value of derivative instruments and fixed-price commodity
contracts entered into by Fletcher.
6
8
The Fletcher and Repsol purchase prices were allocated to the assets
acquired and liabilities assumed based upon their fair values on the date of
acquisition, as follows:
FLETCHER REPSOL
----------- ---------
(In thousands)
Value of properties acquired, including gathering and
transportation facilities $ 571,718 $ 299,933
Goodwill 107,200 90,000
Derivative instruments and fixed-price contracts (103,486) --
Common stock issued (100,325) --
Working capital acquired, net (8,202) 57,000
Deferred income tax liability (1,887) --
----------- ---------
Cash paid, net of cash acquired $ 465,018 $ 446,933
=========== =========
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Fletcher, Repsol, Collins
& Ware, Occidental and Phillips acquisitions occurred on January 1, 2000. The
pro forma information is based on numerous assumptions and is not necessarily
indicative of future results of operations.
FOR THE QUARTER ENDED FOR THE QUARTER ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------------------- --------------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
--------------- -------------- --------------- ---------------
(In thousands, except per share data)
Revenues $ 795,143 $ 902,098 $ 448,191 $ 676,845
Net income 282,201 304,683 109,457 162,821
Preferred stock dividends 4,908 4,908 5,264 5,264
Income attributable to common stock 277,293 299,775 104,193 157,557
Net income per common share:
Basic $ 2.24 $ 2.39 $ .92 $ 1.26
Diluted 2.15 2.29 .90 1.23
Average common shares outstanding 123,880 125,432 113,837 124,681
Divestitures - During the three months ended March 31, 2001, Apache sold
32.9 MMboe of proved reserves from largely marginal United States and Canadian
properties, collecting cash of $128.7 million.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Apache periodically enters into commodity derivatives contracts to manage
its exposure to oil and gas price volatility. Commodity derivatives contracts,
which are usually placed with major financial institutions that the Company
believes are minimal credit risks, may take the form of futures contracts, swaps
or options. The oil and gas reference prices upon which these commodity
derivatives contracts are based reflect various market indices that have a high
degree of historical correlation with actual prices received by the Company.
Realized gains and losses from the Company's price risk management activities
are recognized in oil and gas production revenues when the associated production
occurs and the resulting cash flows are reported as cash flows from operating
activities.
Effective January 1, 2001, Apache adopted Statement of Financial Accounting
Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards
requiring that all derivative instruments (including derivative instruments
embedded in other contracts), as defined, be recorded in the balance sheet as
either an asset or liability measured at fair value and requires that changes in
fair value be recognized currently in earnings unless specific hedge accounting
criteria are met. Hedge accounting treatment allows unrealized gains and losses
to be deferred in other comprehensive income (for the effective portion of the
hedge) until such time as the forecasted transaction occurs, and requires that a
company formally document, designate, and assess the effectiveness of derivative
instruments that receive hedge
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accounting treatment. Upon adoption, Apache formally documented and designated
all hedging relationships and verified that its hedging instruments are
effective in offsetting changes in actual prices received by the Company. Such
effectiveness is monitored at least quarterly and any ineffectiveness is
reported in other revenues (losses) in the statement of consolidated operations.
Apache's derivative positions break down into three general categories:
advances from gas purchasers, Apache hedging activity and derivatives inherited
from Fletcher. The fair values at transition and March 31, 2001 are summarized
below:
TRANSITION
JANUARY 1, 2001 MARCH 31, 2001
--------------- --------------
(In thousands)
Advances from Gas Purchasers:
Derivatives - asset $ 121,453 $ 127,739
Embedded derivatives - liability (121,453) (127,739)
Apache Hedging Activity:
Fixed-price swaps $ (30,872) $ (27,914)
Zero-cost collars - time value (35,083) (44,593)
Zero-cost collars - intrinsic value (50,274) (12,694)
--------------- --------------
$ (116,229) $ (85,201)
=============== ==============
ACQUISITION
CLOSING DATE
MARCH 27, 2001
--------------
Fletcher Acquisition:
Derivatives $ (89,401) $ (85,949)
Fixed-price physical contracts (14,085) (14,085)
-------------- --------------
$ (103,486) $ (100,034)
============== ==============
On the transition date, January 1, 2001, Apache recognized a derivative
asset of $121.5 million reflecting the fair value of gas price swaps entered
into in connection with certain advance payments received from gas purchasers in
1998 and 1997. Apache also recognized a derivative liability of $121.5 million
as an embedded derivative in the contracts under which the advance payments were
received. The liability reflects the obligation to deliver gas at market prices
in excess of the contractual prices determined at the inception of these
transactions.
The balance of Apache's derivative instruments relate to cash flow hedges
on forecasted oil and gas sales, primarily entered into as the result of
Apache's acquisition hedging strategy. On the transition date, the fair value of
these derivative instruments represented a net liability of $116.2 million. The
Company incurred a charge to earnings for minor ineffectiveness of $1.3 million
during the first quarter of 2001. The time value of zero-cost collars at March
31, 2001 ($44.6 million) will not trigger any cash payments and will erode to
zero as the options expire over the course of the next 27 months.
In connection with the Fletcher acquisition, Apache assumed liabilities for
derivative instruments (fixed-price swaps and put options) and fixed-price
physical contracts entered into by Fletcher. The $103.5 million fair value on
the closing date was recorded as a cost of the Fletcher acquisition (see Note
1).
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10
A reconciliation of the components of accumulated other comprehensive
income (loss) in the statement of consolidated shareholders' equity related to
Apache's derivative activities is presented in the table below (in thousands):
GROSS AFTER-TAX
----------- -----------
Cumulative effect of change in accounting principle $ (116,229) $ (71,287)
Reclassification of net realized losses into earnings 35,305 21,715
Net change in derivative fair value (825) (250)
Ineffectiveness recognized in earnings 1,331 831
----------- -----------
Accumulated other comprehensive income (loss)
related to derivatives at March 31, 2001 $ (80,418) $ (48,991)
=========== ===========
3. NET INCOME PER COMMON SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------
2001 2000
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ----------- ---------- ----------
(In thousands, except per share amounts)
BASIC:
Income attributable to common stock $ 277,293 123,880 $ 2.24 $ 104,193 113,837 $ .92
=========== ==========
EFFECT OF DILUTIVE SECURITIES:
Stock options and other -- 1,216 -- 536
Series C Preferred Stock 3,488 5,676 3,844 5,738
---------- ---------- ----------- ----------
DILUTED:
Income attributable to common stock,
including assumed conversions $ 280,781 130,772 $ 2.15 $ 108,037 120,111 $ .90
========== ========== =========== =========== ========== ==========
4. SUPPLEMENTAL CASH FLOW INFORMATION
NON-CASH INVESTING AND FINANCING ACTIVITIES
In January 2000, the Company acquired producing properties formerly owned
by a subsidiary of Repsol for cash, plus assumed liabilities of $29.8 million.
In March 2001, the Company acquired substantially all of Repsol's oil and
gas concession interests in Egypt for cash and the assumption of certain
non-cash liabilities. The accompanying financial statements include the non-cash
amounts detailed in Note 1.
In March 2001, the Company acquired subsidiaries of Fletcher for cash, 1.64
million shares of common stock and the assumption of certain non-cash
liabilities. The accompanying financial statements include the non-cash amounts
detailed in Note 1.
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CASH PAID FOR INTEREST AND TAXES
The following table provides supplemental disclosure of cash flow
information:
FOR THE QUARTER ENDED MARCH 31,
---------------------------------
2001 2000
---------- ----------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized) $ 23,945 $ 23,096
Income taxes (net of refunds) 33,306 33,605
5. 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:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ---------- ----------- ----------- ------------- -----------
(IN THOUSANDS)
FOR THE QUARTER ENDED MARCH 31, 2001
Oil and Gas Production Revenues........... $ 532,563 $ 142,970 $ 76,729 $ 49,336 $ -- $ 801,598
============= ========== =========== =========== ============= ===========
Operating Income (Loss)(1)................ $ 353,465 $ 91,025 $ 45,744 $ 27,445 $ (11) $ 517,668
============= ========== =========== =========== =============
Other Income (Expense):
Other revenues (losses)................ (6,455)
Administrative, selling and other...... (20,376)
Financing costs, net................... (29,252)
-----------
Income Before Income Taxes................ $ 461,585
===========
Total Assets.............................. $ 4,209,502 $2,155,500 $ 1,443,559 $ 862,151 $ 185,582 $ 8,856,294
============= ========== =========== =========== ============= ===========
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......................... 854
Administrative, selling and other...... (14,649)
Financing costs, net................... (28,290)
-----------
Income Before Income Taxes................ $ 202,676
===========
Total Assets.............................. $ 2,945,541 $ 901,702 $ 917,133 $ 781,468 $ 160,666 $ 5,706,510
============= ========== =========== =========== ============= ===========
(1) Operating income (loss) consists of oil and gas production revenues less
depreciation, depletion and amortization (DD&A), lease operating costs and
severance and other taxes.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Strong product prices combined with record oil and natural gas production
both contributed to our seventh consecutive quarterly increase in earnings and
oil and gas revenues. Following are highlights for the first three months of
2001:
o Record oil and natural gas production revenues of $801.6 million, climbed
80 percent from last year's comparable quarter and nine percent from the
record fourth quarter of 2000. Higher natural gas prices (up 124 percent)
and production (up 33 percent) accounted for 93 percent of the increase in
revenues relative to the comparable prior-year period.
o Income attributable to common stock of $277.3 million was $173.1 million
(166 percent) higher than the first quarter of 2000.
o Record basic net income per common share of $2.24 was $1.32, or 143 percent
higher than last year's comparable quarter and $.20 higher than the fourth
quarter of 2000.
o Cash provided by operating activities of $642.5 million surpassed the
half-billion dollar threshold for the second consecutive quarter and
increased 165 percent from the first quarter of 2000.
o Record production of 987.7 million cubic feet of gas per day (MMcf/d) and
121,496 barrels of oil per day (bbls/d) was 33 percent and six percent
ahead of a year ago, respectively, and topped fourth quarter 2000 averages
of 934.5 MMcf/d and 115,235 bbls/d.
o On the regulatory front, following Apache's involvement, the FASB reversed
its initial position concerning changes in the time value component of
derivative instruments, in line with Apache's recommendation that such
changes be recorded in the equity section of the balance sheet rather than
through the income statement.
Apache's outlook for the remainder of 2001 is favorable given the current
indications for continuing strong product prices and rising production from the
Fletcher and Repsol acquisitions which contributed to first quarter results for
only four and nine days, respectively. Also, augmenting future oil and gas
production will be completion of the Legendre and Simpson developments in
Australia, scheduled for the second quarter, as well as the full impact of gas
production from the Ladyfern area in Canada.
Commodity Prices - Apache's average realized oil price increased $.30 per
barrel from $25.51 per barrel in the first quarter of 2000 to $25.81 per barrel
in the comparable 2001 period, increasing revenues by $3.2 million. The average
realized price for natural gas increased $3.13 per thousand cubic feet (Mcf)
from $2.52 per Mcf in the first quarter of 2000 to $5.65 per Mcf in 2001,
positively impacting revenues by $211.8 million.
Production - Gas production increased 33 percent during the first quarter
of 2001 when compared to the same period last year. The increase in gas
production positively impacted revenues by $119.9 million. Oil production
increased six percent during the first quarter of 2001 when compared to the same
period last year. The increase in oil production positively impacted revenues by
$13.3 million. The increase in both oil and gas production was driven by the
Collins & Ware and Occidental acquisitions in the U.S. and the Phillips
acquisition in Canada during 2000. Successful drilling results in the Ladyfern
area in Canada and completion of the Gipsy/North Gipsy development in Australia
also contributed to the increase in gas production.
RESULTS OF OPERATIONS
Apache reported income attributable to common stock of $277.3 million in
the first quarter of 2001 versus $104.2 million in the prior year. Basic net
income per common share of $2.24 for the first quarter of 2001 was 143 percent
higher than the basic net income per common share of $.92 in 2000. The
significant increase in oil and gas production revenues was partially offset by
higher operating expenses.
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For the first quarter of 2001, revenues increased 77 percent to $795.1
million compared to $448.2 million in 2000, driven by a 194 percent increase in
gas production revenues and a six percent increase in oil production revenues.
The increase in oil and gas production revenues was primarily the result of a
124 percent increase in the average realized price for natural gas, a 33 percent
increase in natural gas production and a six percent increase in oil production.
Crude oil, including natural gas liquids, contributed 37 percent and natural gas
contributed 63 percent of oil and gas production revenues in the first quarter
of 2001.
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
2001 2000 (DECREASE)
---------- ---------- ----------
Natural Gas Volume - Mcf per day:
United States 636,547 484,891 31%
Canada 181,992 125,908 45%
Australia 114,718 88,966 29%
Egypt 54,415 44,018 24%
---------- ----------
Total 987,672 743,783 33%
========== ==========
Average Natural Gas price - Per Mcf:
United States $ 6.63 $ 2.62 153%
Canada 5.62 2.11 166%
Australia 1.26 1.48 (15)%
Egypt 3.66 4.73 (23)%
Total 5.65 2.52 124%
Oil Volume - Barrels per day:
United States 59,736 53,897 11%
Canada 20,100 13,651 47%
Australia 15,690 14,377 9%
Egypt 25,970 32,568 (20)%
---------- ----------
Total 121,496 114,493 6%
========== ==========
Average Oil price - Per barrel:
United States $ 27.38 $ 25.49 7%
Canada 22.04 21.69 2%
Australia 25.75 26.84 (4)%
Egypt 25.17 26.56 (5)%
Total 25.81 25.51 1%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States 7,595 4,583 66%
Canada 1,247 1,534 (19)%
---------- ----------
Total 8,842 6,117 45%
========== ==========
Average NGL Price - Per barrel:
United States $ 20.03 $ 17.50 14%
Canada 27.28 15.74 73%
Total 21.06 17.06 23%
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FIRST QUARTER 2001 COMPARED TO FIRST QUARTER 2000
Natural gas sales for the first quarter of 2001 totaled $502.6 million, 194
percent higher than the first quarter of 2000. Average realized natural gas
prices increased 124 percent, positively affecting revenue by $211.8 million.
Apache realized average natural gas price increases in the U.S. of 153 percent,
from $2.62 per Mcf in the first quarter 2000 to $6.63 per Mcf in the same period
in 2001. The United States represented 64 percent of total natural gas
production for the first quarter of 2001. The net result of derivative
instruments decreased the Company's realized gas price by less than three
percent, or $.16 per Mcf, during the first quarter of 2001 and increased the
Company's realized gas price by $.02 per Mcf during the first quarter of 2000.
Natural gas production increased 244 MMcf/d, or 33 percent, on a worldwide
basis, favorably impacting revenue by $119.9 million. Natural gas production in
the U.S. increased 31 percent primarily due to production from the Collins &
Ware and Occidental property acquisitions in 2000. Initial production from the
Ladyfern area and the Phillips' properties acquired in late December 2000, were
the primary sources of the 56.1 MMcf/d increase in Canada.
The Company's crude oil sales for the first quarter of 2001 totaled $282.3
million, a six percent increase from the first quarter of 2000, due primarily to
higher production. The Company's realized price for sales of crude oil in the
first quarter of 2001 increased $.30 per barrel, resulting in an increase in
revenue of $3.2 million compared to the same period in 2000. Realized hedging
losses negatively impacted the Company's realized oil price by less than three
percent, or $.74 per barrel, during the first quarter of 2001 and $1.79 during
the first quarter of 2000.
First quarter 2001 oil production increased six percent compared to the
prior year primarily from an 11 percent increase in oil production in the U.S.
and a 47 percent increase in Canada, resulting in a $13.3 million increase in
revenue compared to the same period in 2000. The U.S. oil production increase in
the first quarter of 2001 was primarily due to production from the Collins &
Ware and Occidental property acquisitions in 2000. Production from properties
acquired from Phillips in late December 2000 was the primary source of the
increased production in Canada.
Revenue from the sale of natural gas liquids totaled $16.8 million for the
first quarter of 2001, compared to $9.5 million for the first quarter of 2000.
Natural gas liquids production increased 2,725 barrels per day, or 45 percent,
and natural gas liquids prices increased $4 per barrel, or 23 percent.
OPERATING EXPENSES
The Company's DD&A expense for the first quarter of 2001 totaled $172.5
million, compared to $132.1 million for the same period in 2000. On an
equivalent barrel basis, full cost DD&A expense increased $.51 per barrel of oil
equivalent (boe), from $5.56 per boe in the first quarter of 2000 to $6.07 per
boe in 2001. The DD&A rate for the U.S. increased $.36 per boe from $6.04 per
boe to $6.40 per boe, primarily the result of the acquisition of the Occidental
properties in August 2000 and rising U.S. drilling rig costs. The acquisition of
the Phillips' properties in December 2000, which carry higher DD&A costs, helped
push the DD&A rate in Canada from $5.48 per boe to $6.08 per boe. The DD&A rate
in Egypt increased by $1.26 per boe, from $4.89 per boe to $6.15 per boe
primarily because of higher projected future development costs.
Lease operating expense (LOE) increased 47 percent from $61.5 million in
the first quarter of 2000 to $90.1 million for the same period in 2001. On an
equivalent barrel basis, LOE increased from $2.76 per boe in the first quarter
of 2000 to $3.39 per boe in the first quarter of 2001. Higher costs were
partially attributable to the acquisition of Canadian and offshore oil
properties, which carried a higher LOE per boe rate than our base production.
Also adding to the rise were increased workover activities in the U.S. and
Canada and rising fuel costs for electric power. The workovers accelerated
production, allowing Apache to maximize the benefits of high oil and gas prices.
Severance and other taxes increased from $9.0 million in the first quarter of
2000 to $21.3 million in the first quarter of 2001 due to the impact of higher
oil and gas prices on severance taxes, which generally are based on a percentage
of oil and gas production revenues.
G&A expense in the first quarter of 2001 increased $5.7 million, or 39
percent, from a year ago primarily due to our enlarged overall infrastructure to
properly handle increased responsibilities associated with recent producing
property acquisitions. On an equivalent barrel basis, G&A expense for the first
three months of 2001 increased $.11 per boe, to $.77 per boe compared to $.66
per boe for the same period in 2000.
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Net financing costs for the first quarter of 2001 increased $1.0 million,
or three percent, from the prior year primarily due to higher gross interest
expense. Gross interest expense increased $3.1 million due to a higher average
outstanding debt balance attributable to acquisitions during 2000.
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 "Commodity Risk" in Item 7A of the
Company's annual report on Form 10-K for the year ended December 31, 2000, 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 2001 and 2000 is presented below:
FOR THE QUARTER ENDED
MARCH 31,
------------------------
2001 2000
---------- ----------
(In thousands)
Exploration and development:
United States $ 176,989 $ 85,115
Canada 105,752 34,403
Egypt 17,719 22,224
Australia 24,817 2,022
Other International* (1,308) 5,669
---------- ----------
323,969 149,433
Capitalized Interest 15,085 14,017
---------- ----------
Total $ 339,054 $ 163,450
========== ==========
Acquisitions of oil and gas properties $ 752,511 $ 149,679
========== ==========
* Includes reimbursement from the Chinese government in 2001 for
previously paid costs.
On March 22, 2001, Apache completed the acquisition of substantially all of
Repsol's oil and gas concession interests in Egypt for approximately $446.9
million in cash, subject to normal post-closing adjustments. The properties
include interests in seven Western Desert concessions and have estimated proved
reserves of 68 MMboe as of the acquisition date. The Company already holds
interests in five of the seven concessions. The transaction was funded through
the issuance of commercial paper.
On March 27, 2001, Apache completed the acquisition of subsidiaries of
Fletcher for approximately $465.0 million in cash and 1.64 million shares of
Apache stock (valued at $61.04 per share), subject to normal post-closing
adjustments. The transaction included properties located in Canada's Western
Sedimentary Basin and in Argentina and have estimated proved reserves of 118.8
MMboe as of the acquisition date. Apache assumed a liability of $103.5 million
representing the fair value of derivative instruments and fixed-price commodity
contracts entered
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into by Fletcher. The cash portion of the acquisition was funded through the
issuance of commercial paper, as well as advances under the Canadian portion of
the global credit facility.
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided by
operating activities during the first three months of 2001 totaled $642.5
million, an increase of 165 percent from $242.2 million in the first three
months of 2000. This increase was primarily due to higher oil and gas revenues
generated from properties acquired throughout 2000 and higher realized oil and
gas prices as compared to last year.
Liquidity - The Company had $106.8 million in cash and cash equivalents on
hand at March 31, 2001, up from $37.2 million at December 31, 2000. Apache's
ratio of current assets to current liabilities at March 31, 2001 was .9:1
compared to 1.14:1 at December 31, 2000.
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 the foreseeable future. As of March 31, 2001, Apache's available
borrowing capacity under its global credit facility and 364-day credit facility
was $356.4 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 through workovers and development wells
to increase productive capacity.
o Drilling exploration wells to add new reserves.
o Acquiring properties to which we can add incremental value.
EXPLOITING OUR EXISTING ASSET BASE THROUGH WORKOVERS AND DEVELOPMENT WELLS TO
INCREASE PRODUCTIVE CAPACITY
Apache seeks to maximize the value of our existing asset base by conducting
workovers and development drilling within known limits of previously recognized
reservoirs to increase productive capacity and/or the efficiency or rate of
existing fields.
DRILLING EXPLORATION WELLS TO ADD NEW RESERVES
Apache seeks to add new reserves through drilling exploratory wells in all
our regions. Higher risk, higher reward exploration is conducted in Canada and
select international core areas. 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.
ACQUIRING PROPERTIES TO WHICH WE CAN ADD VALUE
Apache seeks to purchase reserves at reasonable 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.
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.
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
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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, 2000 (filed with the SEC on March 23,
2001) 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 3, 2001.
10.1 - Apache Corporation Income Continuance Plan, as
Amended and Restated Effective May 3, 2001
12.1 - Statement of computation of ratio of earnings to
fixed charges and combined fixed charges and
preferred stock dividends.
(b) Reports filed on Form 8-K
The following current report on Form 8-K was filed by Apache
during the fiscal quarter ended March 31, 2001:
Item 5 - Other Events - dated February 26, 2001, filed March
8, 2001.
In connection with the reorganization of Apache's Australian
assets, Apache Finance Pty Limited ("Apache Finance"), Apache
(as guarantor) and The Chase Manhattan Bank (as trustee)
signed the First Supplemental Indenture, dated February 26,
2001. The First Supplemental Indenture relates to the
Indenture, dated as of December 9, 1997, pursuant to which
Apache Finance issued its 6.5% Notes due 2007 and its 7% Notes
due 2009.
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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 14, 2001 /s/ Roger B. Plank
------------------------------------------
Roger B. Plank
Executive Vice President and Chief
Financial Officer
Dated: May 14, 2001 /s/ Thomas L. Mitchell
------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 - Bylaws of Registrant, as amended May 3, 2001.
10.1 - Apache Corporation Income Continuance Plan, as Amended and Restated
Effective May 3, 2001.
12.1 - Statement of computation of ratio of earnings to fixed charges and
combined fixed charges and preferred stock dividends.