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 June 30, 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)
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 June 30,
2001.....124,979,556
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues $ 796,045 $ 488,206 $ 1,597,643 $ 934,323
Equity in income of affiliates -- 310 -- 1,530
Other revenues (losses) 4,398 (2,103) (2,057) (1,249)
----------- ----------- ----------- -----------
800,443 486,413 1,595,586 934,604
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Depreciation, depletion and amortization 208,652 136,338 381,182 268,487
International impairments 65,000 -- 65,000 --
Lease operating costs 101,420 58,492 191,527 119,953
Severance and other taxes 20,248 11,117 41,541 20,083
Administrative, selling and other 23,193 16,593 43,569 31,242
Financing costs:
Interest expense 49,254 41,615 93,966 83,183
Amortization of deferred loan costs 532 453 1,034 1,732
Capitalized interest (13,783) (14,824) (28,868) (28,841)
Interest income (1,375) (564) (2,252) (1,104)
----------- ----------- ----------- -----------
453,141 249,220 786,699 494,735
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 347,302 237,193 808,887 439,869
Provision for income taxes 141,557 92,961 320,941 178,641
----------- ----------- ----------- -----------
INCOME BEFORE CHANGE IN ACCOUNTING
PRINCIPLE 205,745 144,232 487,946 261,228
Cumulative effect of change in accounting
principle, net of income tax -- -- -- (7,539)
----------- ----------- ----------- -----------
NET INCOME 205,745 144,232 487,946 253,689
Preferred stock dividends 4,877 4,908 9,785 10,172
----------- ----------- ----------- -----------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 200,868 $ 139,324 $ 478,161 $ 243,517
=========== =========== =========== ===========
BASIC NET INCOME PER COMMON SHARE:
Before change in accounting principle $ 1.60 $ 1.22 $ 3.84 $ 2.20
Cumulative effect of change in accounting
principle -- -- -- (.06)
----------- ----------- ----------- -----------
$ 1.60 $ 1.22 $ 3.84 $ 2.14
=========== =========== =========== ===========
DILUTED NET INCOME PER COMMON SHARE:
Before change in accounting principle $ 1.55 $ 1.18 $ 3.69 $ 2.15
Cumulative effect of change in accounting
principle -- -- -- (.07)
----------- ----------- ----------- -----------
$ 1.55 $ 1.18 $ 3.69 $ 2.08
=========== =========== =========== ===========
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 SIX MONTHS ENDED
JUNE 30,
--------------------------
2001 2000
----------- ----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 487,946 $ 253,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 381,182 268,487
Provision for deferred income taxes 192,158 112,968
International impairments 65,000 --
Cumulative effect of change in accounting principle -- 7,539
Other (20,745) 3,844
Other non-cash items 3,315 (1,378)
Changes in operating assets and liabilities:
(Increase) decrease in receivables 30,530 (98,416)
(Increase) decrease in advances to oil and gas ventures and (14,011) (4,093)
other
(Increase) decrease in deferred charges and other (3,025) (3,848)
(Increase) decrease in product inventory 869 (13,829)
Increase (decrease) in payables (25,658) 42,658
Increase (decrease) in accrued expenses 22,394 (15,056)
Increase (decrease) in advances from gas purchasers (6,558) (13,785)
Increase (decrease) in deferred credits and noncurrent (23,318) 8,467
liabilities
----------- ----------
Net cash provided by operating activities 1,090,079 547,247
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (776,450) (425,738)
Non-cash portion of net oil and gas property additions 98,381 (5,799)
Acquisition of Fletcher subsidiaries (465,018) --
Acquisition of Repsol YPF properties (446,933) (117,322)
Acquisition of Collins & Ware properties -- (316,906)
Proceeds from sales of oil and gas properties 238,715 21,224
Other, net (46,452) (7,291)
----------- ----------
Net cash used in investing activities (1,397,757) (851,832)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 1,531,281 537,438
Payments on long-term debt (1,111,613) (198,581)
Dividends paid (9,778) (25,795)
Payments to repurchase Series C Preferred Stock -- (2,613)
Common stock activity, net 7,125 17,692
Treasury stock activity, net (16,006) (17,727)
Cost of debt and equity transactions (1,181) (3)
----------- ----------
Net cash provided by financing activities 399,828 310,411
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 92,150 5,826
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 37,173 13,171
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 129,323 $ 18,997
=========== ==========
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)
JUNE 30, DECEMBER 31,
2001 2000
----------- ------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 129,323 $ 37,173
Receivables 569,821 506,723
Inventories 77,452 54,764
Advances to oil and gas ventures and other 50,133 31,360
Oil and gas derivative instruments 11,279 --
----------- -----------
838,008 630,020
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 10,615,417 9,423,922
Unproved properties and properties under
development, not being amortized 1,064,371 977,491
Gas gathering, transmission and processing facilities 708,570 573,621
Other 159,860 119,590
----------- -----------
12,548,218 11,094,624
Less: Accumulated depreciation, depletion and amortization (4,722,439) (4,282,162)
----------- -----------
7,825,779 6,812,462
----------- -----------
OTHER ASSETS:
Goodwill, net 198,893 --
Oil and gas derivative instruments 62,799 --
Deferred charges and other 39,914 39,468
----------- -----------
$ 8,965,393 $ 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)
JUNE 30, DECEMBER 31,
2001 2000
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 63,000 $ 25,000
Oil and gas derivative instruments 50,989 --
Accounts payable 307,543 259,120
Accrued operating expense 32,020 23,893
Accrued exploration and development 242,291 143,916
Accrued compensation and benefits 19,560 34,695
Accrued interest 34,323 25,947
Accrued income taxes 48,478 9,123
Other accrued expenses 15,286 31,653
----------- -----------
813,490 553,347
----------- -----------
LONG-TERM DEBT 2,574,926 2,193,258
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes 905,632 699,833
Advances from gas purchasers 146,548 153,106
Oil and gas derivative instruments 74,640 --
Other 109,817 127,766
----------- -----------
1,236,637 980,705
----------- -----------
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,
128,315,528 and 126,500,776 shares issued, respectively 160,394 158,126
Paid-in capital 2,280,150 2,173,183
Retained earnings 1,704,692 1,226,531
Treasury stock, at cost, 3,335,972 and 2,866,028 shares,
respectively (94,679) (69,562)
Accumulated other comprehensive loss (16,811) (40,232)
----------- -----------
4,340,340 3,754,640
----------- -----------
$ 8,965,393 $ 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 $ 253,689 -- -- -- -- 253,689
Currency translation adjustments (19,700) -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $84 (129) -- -- -- -- --
-----------
Comprehensive income $ 233,860
===========
Dividends:
Preferred -- -- -- -- (9,842)
Common ($.07 per share) -- -- -- -- (7,961)
Common shares issued -- -- 751 21,990 --
Series C Preferred Stock purchased -- (2,283) -- -- (330)
Treasury shares purchased, net -- -- -- 225 --
--------- -------- --------- ---------- ----------
BALANCE AT JUNE 30, 2000 $ 98,387 $208,207 $ 146,255 $1,739,242 $ 794,277
========= ======== ========= ========== ===========
BALANCE AT DECEMBER 31, 2000 $ 98,387 $208,207 $ 158,126 $2,173,183 $1,226,531
Comprehensive income:
Net income $ 487,946 -- -- -- -- 487,946
Currency translation adjustments 8,284 -- -- -- -- --
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $228 (443) -- -- -- -- --
Unrealized gain on derivatives,
net of applicable income tax
provision of $13,961 15,580 -- -- -- -- --
-----------
Comprehensive income $ 511,367
===========
Preferred dividends -- -- -- -- (9,785)
Common shares issued -- -- 2,268 106,967 --
Treasury shares purchased, net -- -- -- -- --
--------- -------- --------- ---------- ----------
BALANCE AT JUNE 30, 2001 $ 98,387 $208,207 $ 160,394 $2,280,150 $1,704,692
========= ======== ========= ========== ==========
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 -- -- 253,689
Currency translation adjustments -- (19,700) (19,700)
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $84 -- (129) (129)
Comprehensive income
Dividends:
Preferred -- -- (9,842)
Common ($.07 per share) -- -- (7,961)
Common shares issued -- -- 22,741
Series C Preferred Stock purchased -- -- (2,613)
Treasury shares purchased, net (17,437) -- (17,212)
-------- ----------- -----------
BALANCE AT JUNE 30, 2000 $(69,693) $ (28,275) $ 2,888,400
======== =========== ===========
BALANCE AT DECEMBER 31, 2000 $(69,562) $ (40,232) $ 3,754,640
Comprehensive income:
Net income -- -- 487,946
Currency translation adjustments -- 8,284 8,284
Unrealized loss on marketable
securities, net of applicable
income tax benefit of $228 -- (443) (443)
Unrealized gain on derivatives,
net of applicable income tax
provision of $13,961 -- 15,580 15,580
Comprehensive income
Preferred dividends -- -- (9,785)
Common shares issued -- -- 109,235
Treasury shares purchased, net (25,117) -- (25,117)
-------- ----------- -----------
BALANCE AT JUNE 30, 2001 $(94,679) $ (16,811) $ 4,340,340
======== =========== ===========
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 (SEC), 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 generally accepted accounting
principles 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 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 $320.7 million. The acquisition included estimated
proved reserves of 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 $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 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 $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 66 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 120.8 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.
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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 SIX MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, 2001 JUNE 30, 2000
-------------------------- --------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------ ------------- ------------ -------------
(In thousands, except per share data)
Revenues $1,595,586 $1,702,541 $ 934,604 $1,389,117
Net income 487,946 513,523 253,689 365,238
Preferred stock dividends 9,785 9,785 10,172 10,172
Income attributable to common stock 478,161 503,738 243,517 355,066
Net income per common share:
Basic $ 3.84 $ 4.02 $ 2.14 $ 2.85
Diluted 3.69 3.86 2.08 2.76
Average common shares outstanding 124,666 125,438 113,892 124,735
Divestitures -- During the six months ended June 30, 2001, Apache sold 66.2
MMboe of proved reserves from largely marginal United States and Canadian
properties, collecting cash of $238.7 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 accounting treatment. Upon adoption, Apache
formally documented and designated all hedging relationships and
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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
as part of the Fletcher acquisition. The carrying values at transition and June
30, 2001 are summarized below:
TRANSITION
JANUARY 1, 2001 JUNE 30, 2001
--------------- -------------
(In thousands)
Advances from Gas Purchasers:
Derivatives -- asset $ 121,453 $ 74,078
Embedded derivatives -- liability (121,453) (74,078)
Apache Hedging Activity:
Fixed-price swaps $ (30,872) $ (21,420)
Zero-cost collars -- time value (35,083) 8,758
Zero-cost collars -- intrinsic value (50,274) 2,224
--------- ---------
$(116,229) $ (10,438)
========= =========
ACQUISITION
CLOSING DATE
MARCH 27,
2001 JUNE 30, 2001
------------ -------------
(In thousands)
Fletcher Acquisition:
Derivatives $ (89,401) $ (32,540)
Fixed-price physical contracts (14,085) (8,573)
--------- ---------
$(103,486) $ (41,113)
========= =========
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 $1.1 million
during the first half of 2001. The time value of zero-cost collars at June 30,
2001 of $8.8 million will not trigger any cash receipts and will reduce to zero
as the options expire over the course of the next 24 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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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 46,937 28,834
Net change in derivative fair value 97,708 57,330
Ineffectiveness recognized in earnings 1,125 703
--------- ---------
Accumulated other comprehensive income related
to derivatives at June 30, 2001 $ 29,541 $ 15,580
========= =========
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 JUNE 30,
------------------------------------------------------------
2001 2000
----------------------------- ----------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
-------- ------- -------- -------- ------- -------
(In thousands, except per share amounts)
BASIC:
Income attributable to common
stock $200,868 125,444 $ 1.60 $139,324 113,946 $ 1.22
======== =======
EFFECT OF DILUTIVE SECURITIES:
Stock options and other -- 1,011 -- 1,069
Series C Preferred Stock 3,488 5,676 3,488 5,676
-------- ------- ------- -------
DILUTED:
Income attributable to common
stock, including assumed
conversions $204,356 132,131 $ 1.55 $142,812 120,691 $ 1.18
======== ======= ======== ======== ======= =======
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------------------------
2001 2000
----------------------------- ----------------------------
PER PER
INCOME SHARES SHARE INCOME SHARES SHARE
-------- ------- -------- -------- ------- -------
(In thousands, except per share amounts)
BASIC:
Income attributable to common
stock $478,161 124,666 $ 3.84 $243,517 113,892 $ 2.14
======== =======
EFFECT OF DILUTIVE SECURITIES:
Stock options and other -- 1,116 -- 802
Series C Preferred Stock 6,976 5,676 7,332 5,676
-------- ------- ------- -------
DILUTED:
Income attributable to common
stock, including assumed
conversions $485,137 131,458 $ 3.69 $250,849 120,370 $ 2.08
======== ======= ======== ======== ======= =======
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4. DEBT
The Company's 9.25 percent notes due June 2002 were classified as long-term
debt in the accompanying consolidated balance sheet as the Company has the
ability and intent to refinance such amount on a long-term basis through
either the issuance of commercial paper or borrowing under the U.S. portion of
the global credit facility and the 364-day revolving credit facility.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
Apache's goodwill represents the excess of the purchase price over the
estimated fair value of the assets acquired and liabilities assumed in the
Fletcher and Repsol acquisitions (see Note 1). The goodwill is being amortized
on a straight-line basis over 20 years. In June 2001, the Financial Accounting
Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 142 establishes accounting and reporting standards requiring that
goodwill not be amortized, but rather tested at least annually for impairment.
Apache will continue to record amortization of approximately $2.5 million
per quarter through December 31, 2001. The Company will adopt SFAS No. 142 on
January 1, 2002. No impairment of goodwill is currently anticipated; however,
the Company will continue to assess recoverability of goodwill on an ongoing
basis.
6. 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 restricted 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.
In June 2001, the Company repurchased 500,000 shares of its common stock at
an average price of $51.70, of which $9.4 million was settled and paid in July
2001.
CASH PAID FOR INTEREST AND TAXES
The following table provides supplemental disclosure of cash flow
information:
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------
2001 2000
----------- -----------
(In thousands)
Cash paid during the period for:
Interest (net of amounts capitalized) $56,722 $54,876
Income taxes (net of refunds) 89,428 64,053
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7. 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 SIX MONTHS ENDED
JUNE 30, 2001
Oil and Gas Production Revenues.. $ 918,732 $ 333,679 $ 225,558 $ 119,674 $ -- $ 1,597,643
========== ========== ========== ========= ======== ===========
Operating Income (Loss)(1)(2).... $ 568,523 $ 199,951 $ 148,092 $ 66,851 $(65,024) $ 918,393
========== ========== ========== ========= ========
Other Income (Expense):
Other revenues (losses)........ (2,057)
Administrative, selling and
other....................... (43,569)
Financing costs, net........... (63,880)
-----------
Income Before Income Taxes....... $ 808,887
===========
Total Assets..................... $4,279,718 $2,178,399 $1,519,549 $ 861,657 $126,070 $ 8,965,393
========== ========== ========== ========= ======== ===========
FOR THE SIX MONTHS ENDED
JUNE 30, 2000
Oil and Gas Production Revenues.. $ 514,474 $ 130,566 $ 186,673 $ 102,610 $ -- $ 934,323
========== ========== ========== ========= ======== ===========
Operating Income (Loss)(1)....... $ 263,663 $ 73,437 $ 131,037 $ 57,687 $ (24) $ 525,800
========== ========== ========== ========= ========
Other Income (Expense):
Equity in income of
affiliates.................. 1,530
Other revenues (losses)........ (1,249)
Administrative, selling and
other....................... (31,242)
Financing costs, net........... (54,970)
-----------
Income Before Income Taxes....... $ 439,869
===========
Total Assets..................... $3,404,705 $ 918,520 $ 923,421 $ 789,751 $166,126 $ 6,202,523
========== ========== ========== ========= ======== ===========
(1) Operating income consists of oil and gas production revenues less
depreciation, depletion and amortization (DD&A) expense, international
impairments, lease operating costs, and severance and other taxes.
(2) During the second quarter of 2001, the Company recorded a nonrecurring
$65 million impairment ($41 million after-tax) of unproved property
costs in Poland and China.
11
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Driven by record oil and natural gas production, both second quarter and
first half results surged over their respective year-ago periods. Following are
the 2001 second quarter and first six months highlights:
- - Record quarterly production of 154,718 barrels of oil per day (bbls/d) and
1.2 billion cubic feet per day (Bcf/d) was 38 percent and 53 percent above
comparable prior-year production rates. On an equivalent barrel basis, the
46 percent growth from the second quarter of 2000 was the largest increase
in nearly a decade. For the six-month period, production of 1.1 Bcf/d and
138,198 bbls/d was 43 percent and 22 percent ahead of a year ago,
respectively.
- - Second quarter oil and natural gas production revenues of $796 million,
climbed 63 percent from last year's comparable quarter, with second quarter
oil production revenues climbing to a record $355.3 million, 34 percent
above 2000, while gas revenues nearly doubled the year-ago period. Higher
natural gas prices (up 31 percent) and production (up 53 percent) accounted
for 69 percent of the increase in revenues relative to the comparable
prior-year period. For the six-month period, oil and natural gas revenues
surged 71 percent with natural gas contributing 82 percent to the increase.
- - Income attributable to common stock of $478.2 million was $234.6 million (96
percent) higher than the first half of 2000 and surpassed the results from
Apache's second best full year.
- - Basic net income per common share of $3.84 for the six-month period was
$1.70, or 79 percent higher than last year's comparable period.
- - Cash provided by operating activities of $1.1 billion increased 99 percent
from the first half of 2000.
The outlook for the second half of 2001 remains favorable despite declining
U.S. natural gas prices, recently trading around $3.00 per Mcf, and a leveling
off of crude oil prices.
Commodity Prices -- Apache's average realized price for natural gas
increased $1.96 per thousand cubic feet (Mcf) from $2.80 per Mcf in the first
half of 2000 to $4.76 per Mcf in 2001, positively impacting revenues by $268.8
million. The average realized oil price decreased $.20 per barrel from $25.69
per barrel in the first half of 2000 to $25.49 per barrel in the comparable 2001
period, decreasing revenues by $4.3 million.
Production -- Oil production increased 22 percent during the first half of
2001 when compared to the same period last year, which positively impacted
revenues by $111 million. The improvement was primarily the result of production
from acquisitions closed over the last 12 months, completion of the Gipsy/North
Gipsy development and first production from the Legendre field in Australia. Gas
production increased 43 percent during the first half of 2001 compared to the
same period last year, positively impacting revenues by $275.5 million. The
increase was primarily attributable to production from the acquisitions
discussed above and strong results from the Ladyfern area in Canada.
RESULTS OF OPERATIONS
Apache reported 2001 second quarter income attributable to common stock of
$200.9 million compared to income of $139.3 million in the prior year. Basic net
income per common share of $1.60 for the second quarter of 2001, increased 31
percent over the $1.22 reported in 2000. A significant increase in oil and gas
production revenues was partially offset by higher DD&A expense, lease operating
costs, severance and other taxes and impairments of unproved property costs in
Poland and China.
For the first half of 2001, income attributable to common stock of $478.2
million, or $3.84 per basic common share, compared to $243.5 million, or $2.14
per share, in the comparable year-earlier period. The increase resulted
primarily from increased oil and gas production revenues partially offset by
higher DD&A expense, lease operating costs, severance and other taxes and
impairments of unproved property costs in Poland and China.
12
14
For the second quarter of 2001, total revenues increased 65 percent to $800.4
million compared to $486.4 million in 2000. The increase was the result of a 53
percent increase in natural gas production, a 38 percent increase in oil
production and a 31 percent increase in the average realized price for natural
gas. Crude oil, including natural gas liquids, contributed 46 percent and
natural gas contributed 54 percent of oil and gas production revenues during the
second quarter of 2001.
For the first six months of 2001, total revenues increased 71 percent to
$1.6 billion compared to $934.6 million for the same period in 2000. Revenues
from oil and gas production increased 71 percent over the same period in 2000,
with crude oil, including natural gas liquids, contributing 42 percent and
natural gas contributing 58 percent of oil and gas production revenues. The
increase in oil and gas production revenues was the result of a 70 percent
increase in the average realized gas price, a 43 percent increase in gas
production and a 22 percent increase in oil production.
Volume and price information for the Company's oil and gas production is
summarized in the following table:
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------- ---------------------------------------
INCREASE INCREASE
2001 2000 (DECREASE) 2001 2000 (DECREASE)
--------- --------- ---------- --------- --------- ----------
Natural Gas Volume -- Mcf per
day:
United States 604,582 476,171 27% 620,475 480,530 29%
Canada 328,299 131,641 149% 255,550 128,775 98%
Australia 121,266 108,754 12% 118,010 98,860 19%
Egypt 113,616 47,995 137% 84,179 46,007 83%
--------- --------- --------- ---------
Total 1,167,763 764,561 53% 1,078,214 754,172 43%
========= ========= ========= =========
Average Natural Gas price -
Per Mcf:
United States $ 4.46 $ 3.38 32% $ 5.56 $ 3.00 85%
Canada 4.23 2.87 47% 4.72 2.50 89%
Australia 1.19 1.38 (14%) 1.22 1.42 (14%)
Egypt 3.99 4.30 (7%) 3.89 4.51 (14%)
Total 4.01 3.07 31% 4.76 2.80 70%
Oil Volume -- Barrels per day:
United States 58,197 54,085 8% 58,962 53,991 9%
Canada 31,069 14,020 122% 25,615 13,836 85%
Australia 22,073 15,760 40% 18,899 15,069 25%
Egypt 43,379 28,656 51% 34,722 30,611 13%
--------- --------- --------- ---------
Total 154,718 112,521 38% 138,198 113,507 22%
========= ========= ========= =========
Average Oil price -- Per barrel:
United States $ 25.49 $ 25.65 (1%) $ 26.44 $ 25.57 3%
Canada 19.64 20.88 (6%) 20.58 21.28 (3%)
Australia 28.50 29.22 (2%) 27.36 28.09 (3%)
Egypt 27.24 26.93 1% 26.47 26.73 (1%)
Total 25.24 25.88 (2%) 25.49 25.69 (1%)
Natural Gas Liquids (NGL)
Volume -- Barrels per day:
United States 7,871 5,089 55% 7,734 4,836 60%
Canada 860 1,019 (16%) 1,052 1,277 (18%)
--------- --------- --------- ---------
Total 8,731 6,108 43% 8,786 6,113 44%
========= ========= ========= =========
Average NGL Price -- Per barrel:
United States $ 18.66 $ 18.18 3% $ 19.33 $ 17.86 8%
Canada 18.06 14.83 22% 23.49 15.38 53%
Total 18.60 17.62 6% 19.83 17.34 14%
13
15
SECOND QUARTER 2001 REVENUES COMPARED TO 2000
Natural gas sales for the second quarter of 2001 totaled $426 million,
nearly double the second quarter of 2000. Average realized natural gas prices
increased 31 percent, positively impacting revenues by $65.5 million. The net
result of derivative instruments increased the Company's realized gas price by
$.07 per Mcf during the second quarter of 2001 and $.05 per Mcf for the same
period in 2000.
Natural gas production increased 403.2 million cubic feet per day (MMcf/d),
or 53 percent, on a worldwide basis, favorably impacting revenues by $147.1
million. Production from properties acquired from Phillips in December 2000 and
Fletcher on March 27, 2001, and strong results from the Ladyfern area were the
primary contributors to the 196.7 MMcf/d gas production increase in Canada. The
U.S. increased 128.4 MMcf/d primarily the result of production from properties
acquired from Collins & Ware in June 2000 and Occidental in August 2000. Egypt
increased 65.6 MMcf/d due to production from properties acquired from Repsol in
March 2001.
The Company's crude oil sales for the second quarter of 2001 totaled $355.3
million, a 34 percent increase from the second quarter of 2000, due to increased
production volumes. Average realized oil prices decreased $.64 per barrel,
negatively impacting revenues by $6.6 million. Realized losses from hedging
positions negatively impacted the Company's realized oil price by $.53 per
barrel during the second quarter of 2001 and $1.81 per barrel in the second
quarter of 2000.
Oil production increased 38 percent compared to the prior year, favorably
impacting revenues by $96.9 million. Canada increased 17,049 bbls/d, Egypt
increased 14,723 bbls/d and the U.S. increased 4,112 bbls/d, primarily due to
production from properties acquired from Phillips, Fletcher, Repsol, Collins &
Ware and Occidental as mentioned above. Completion of the Gipsy/North Gipsy
development and first production from the Legendre field in Australia were the
primary contributors to the 6,313 bbls/d increase in Australia.
Revenue from the sale of natural gas liquids totaled $14.8 million for the
second quarter of 2001, compared to $9.8 million for the second quarter of 2000
in response to a six percent improvement in realized prices and a 43 percent
increase in natural gas liquids production.
YEAR-TO-DATE 2001 REVENUES COMPARED TO 2000
Natural gas sales for the first half of 2001 of $928.5 million increased
$544.3 million, or 142 percent, from the same period of 2000. Average realized
natural gas prices increased 70 percent, positively affecting revenues by $268.8
million. U.S. natural gas production, which comprised 58 percent of the
Company's worldwide gas production, sold at an average price of $5.56 per Mcf,
85 percent higher than in 2000, positively impacting natural gas revenues by
$224.3 million. The net result of derivative instruments impacted the Company's
realized gas price by a negative $.04 per Mcf during the first half of 2001 and
a positive $.03 per Mcf during the same period of 2000.
Production from properties acquired from Phillips and Fletcher and strong
results from the Ladyfern area were the primary contributors to the 126.8 MMcf/d
gas production increase in Canada. The U.S. increased 139.9 MMcf/d due to the
production from properties acquired from Collins & Ware and Occidental, and
Egypt increased 38.2 MMcf/d due to producing properties acquired from Repsol.
For the first half of 2001, oil revenues of $637.6 million increased $106.8
million, or 20 percent, from the same period in 2000 due to improved production.
On a worldwide basis, average oil prices decreased $.20 per barrel, or one
percent, to $25.49 per barrel negatively impacting oil revenues by $4.3 million.
Realized losses from hedging positions negatively impacted the Company's
realized oil price by $.62 per barrel during the first half of 2001 and $1.80
per barrel during the first half of 2000.
Oil production increased 11,779 bbls/d in Canada, 4,971 bbls/d in the U.S.
and 4,111 bbls/d in Egypt, primarily driven by production from properties
acquired from Phillips, Fletcher, Repsol, Collins & Ware and Occidental as
mentioned above. Completion of the Gipsy/North Gipsy development and first
production from the Legendre field in Australia were the primary contributors to
the 3,830 bbls/d increase in Australia.
Natural gas liquids revenues for the first six months of 2001 of $31.5
million increased $12.2 million, or 63 percent, from the same period in 2000.
Natural gas liquids prices increased by $2.49 per barrel, or 14 percent and
natural gas liquids production increased 2,673 barrels per day, or 44 percent.
14
16
OPERATING EXPENSES
The Company's DD&A expense for the second quarter and first six months of
2001 increased $72.3 million and $112.7 million, respectively, over the
comparable periods of 2000. On an equivalent barrel (Boe) basis, full cost DD&A
expense increased $.23 per Boe, from $5.69 per Boe in the second quarter of 2000
to $5.92 per Boe in 2001. For the six months ended June 30, 2001, the full cost
DD&A rate increased $.37 per Boe, from $5.62 per Boe to $5.99 per Boe. For the
first six months of 2001, the full cost DD&A rate for the U.S. increased $.40
per Boe from $6.09 per Boe to $6.49 per Boe, primarily the result of the
acquisition of the Occidental properties in August 2000 and rising U.S. drilling
costs. The acquisition of the Phillips properties in December 2000 carry higher
DD&A costs, which helped push the full cost DD&A rate in Canada from $5.49 per
Boe to $5.96 per Boe.
During the second quarter of 2001, the Company recorded a nonrecurring $65
million impairment ($41 million after-tax) of unproved property costs in Poland
and China.
Lease operating expense (LOE) for the second quarter and first six months of
2001 increased $42.9 million and $71.6 million, respectively, over the
comparable periods of 2000. On an equivalent barrel basis, LOE increased $.50
per Boe to $3.11 per Boe in the second quarter and $.55 per Boe to $3.24 per Boe
in the first six months of 2001 compared to the same periods in the prior year.
The higher costs were partially attributable to the acquisition of Canadian and
offshore oil properties, which carried a higher LOE per Boe rate than the
Company's base production. Increased workover activities in the U.S. and Canada
and rising fuel cost for electric power also contributed to the increase. The
workovers accelerated production, allowing Apache to maximize the benefits of
high oil and gas prices. Severance and other taxes increased $9.1 million in the
second quarter and $21.5 million in the first six months of 2001 primarily 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. Also contributing
to the increase were higher effective production tax rates due to a loss of
incentives in Oklahoma and an increase in Canadian Large Corporation Tax due to
the added production from the Fletcher acquisition properties.
G&A expense in the second quarter and first six months of 2001 increased
$6.6 million or 40 percent, and $12.3 million or 39 percent, respectively, from
a year ago. The Company's overall infrastructure was enlarged to properly handle
increased responsibilities associated with recent producing property
acquisitions. On an equivalent barrel basis, G&A expenses increased only $.04
per Boe, to $.74 per Boe, for the first half of 2001 as compared to $.70 per Boe
for the same period in 2000.
Net financing costs for the second quarter and first six months of 2001
increased $7.9 million, or 30 percent, and $8.9 million, or 16 percent,
respectively, compared to a year ago. This increase is primarily due to higher
gross interest expense, the result of a higher average outstanding debt balance
related to acquisition activity in the second half of 2000 and the first quarter
of 2001.
MARKET RISK
COMMODITY 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.
INTEREST RATE RISK
The Company considers its interest rate risk exposure to be minimal as a
result of fixing interest rates on approximately 58 percent of the Company's
debt. At June 30, 2001, total debt included $1.1 billion of floating-rate debt.
As a result, Apache's annual interest cost in 2001 will fluctuate based on
short-term interest rate on approximately 42 percent of it total debt
outstanding at June 30, 2001. The Company did not have any open derivative
contracts relating to interest rates at June 30, 2001.
15
17
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 flow 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 six months of 2001 and 2000 is presented below:
FOR THE SIX MONTHS ENDED
JUNE 30,
---------------------------
2001 2000
--------- --------
(In thousands)
Exploration and development:
United States $430,453 $219,550
Canada 194,766 59,778
Egypt 50,621 44,548
Australia 41,023 18,390
Other international 4,072 11,105
-------- --------
720,935 353,371
Capitalized Interest 28,868 28,841
-------- --------
Total $749,803 $382,212
======== ========
Acquisitions of oil and gas properties $762,721 $501,155
======== ========
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 66 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 restricted
shares of Apache common 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 120.8 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. 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 half of 2001 totaled $1.1 billion, an
increase of 99 percent from $547.2 million in the first half of 2000. This
increase was primarily due to higher oil and gas revenues generated from
properties acquired throughout 2000 and the first quarter of 2001 and higher
realized gas prices as compared to last year.
Liquidity -- The Company had $129.3 million in cash and cash equivalents on
hand at June 30, 2001, up from $37.2 million at December 31, 2000. Apache's
ratio of current assets to current liabilities at June 30, 2001 was 1.03
compared to 1.14 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 June 30, 2001, Apache's available
borrowing capacity under its global credit facility and 364-day credit facility
was $463.4 million.
16
18
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:
- - Exploiting our existing asset base through workovers and development wells
to increase productive capacity.
- - Drilling exploration wells to add new reserves.
- - Acquiring properties to which we can add 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 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.
17
19
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
The Company's annual meeting of stockholders was held in Houston, Texas
at 10:00 a.m. local time, on Thursday, May 3, 2001. Proxies for the
meeting were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, as amended. There was no solicitation in
opposition to the nominees for election as directors as listed in the
proxy statement, and all nominees were elected.
Out of a total of 123,755,014 shares of the Company's common stock
outstanding and entitled to vote, 111,088,817 shares were present at
the meeting in person or by proxy, representing 89.8 percent. Matters
voted upon at the meeting were as follows:
Election of five directors to serve on the Company's board of
directors. Mr. Fiedorek, Ms. Lowe, Mr. Merelli and Mr. Plank were
elected to serve until the annual meeting in 2004, and Mr. Pitman
was elected to serve until the annual meeting in 2003. The vote
tabulation with respect to each nominee was as follows:
AUTHORITY
NOMINEE FOR WITHHELD
--------------------- ----------- ----------
Eugene C. Fiedorek 110,061,766 1,027,051
Mary Ralph Lowe 105,375,644 5,713,173
F. H. Merelli 105,343,132 5,745,685
Charles J. Pitman 105,345,865 5,742,952
Raymond Plank 98,373,714 12,715,103
ITEM 5. OTHER INFORMATION
None
18
20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.01 -- Apache Corporation 1990 Stock Incentive Plan, as
amended and restated May 3, 2001, effective May 1, 2001.
10.02 -- Apache Corporation 1995 Stock Option Plan, as amended
and restated May 3, 2001, effective May 1, 2001.
10.03 -- Apache Corporation 1996 Performance Stock Option
Plan, as amended and restated May 3, 2001.
10.04 -- Apache Corporation 1998 Stock Option Plan, as amended
and restated May 3, 2001, effective May 1, 2001.
10.05 -- Apache Corporation 2000 Stock Option Plan, as amended
and restated May 3, 2001, effective May 1, 2001.
10.06 -- Apache Corporation 2000 Share Appreciation Plan, as
amended and restated May 3, 2001.
10.07 -- Apache Corporation Deferred Delivery Plan, as amended
and restated May 3, 2001.
10.08 -- Apache Corporation Outside Directors' Retirement
Plan, as amended and restated May 3, 2001.
10.09 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, as amended and restated May 3,
2001.
10.10 -- Amended and Restated Conditional Stock Grant
Agreement, dated June 6, 2001, between Registrant and G.
Steven Farris.
10.11 -- Amendment to Apache Corporation 401(k) Savings Plan,
dated August 3, 2001, effective as of the various dates
specified therein.
10.12 -- Amendment to Apache Corporation Money Purchase
Retirement Plan, dated August 3, 2001, effective as of
the various dates specified therein.
10.13 -- Amendment to Non-Qualified Retirement/Savings Plan of
Apache Corporation, dated August 3, 2001, effective as
of September 1, 2000 and July 1, 2001.
12.1 -- Statement of Computation of Ratios of Earnings to
Fixed Charges and Combined Fixed Charges and Preferred
Stock Dividends
(b) Reports filed on Form 8-K
The following current reports on Form 8-K were filed by Apache
during the fiscal quarter ended June 30, 2001:
None.
19
21
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: August 13, 2001 /s/ Roger B. Plank
---------------------------------------------
Roger B. Plank
Executive Vice President and Chief Financial
Officer
Dated: August 13, 2001 /s/ Thomas L. Mitchell
---------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
22
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
-------- -----------
*10.01 -- Apache Corporation 1990 Stock Incentive Plan, as amended and
restated May 3, 2001, effective May 1, 2001.
*10.02 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated May 3, 2001, effective May 1, 2001.
*10.03 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated May 3, 2001.
*10.04 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated May 3, 2001, effective May 1, 2001.
*10.05 -- Apache Corporation 2000 Stock Option Plan, as amended and
restated May 3, 2001, effective May 1, 2001.
*10.06 -- Apache Corporation 2000 Share Appreciation Plan, as amended
and restated May 3, 2001.
*10.07 -- Apache Corporation Deferred Delivery Plan, as amended and
restated May 3, 2001.
*10.08 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated May 3, 2001.
*10.09 -- Apache Corporation Equity Compensation Plan for Non-Employee
Directors, as amended and restated May 3, 2001.
*10.10 -- Amended and Restated Conditional Stock Grant Agreement, dated
June 6, 2001, between Registrant and G. Steven Farris.
*10.11 -- Amendment to Apache Corporation 401(k) Savings Plan, dated
August 3, 2001, effective as of the various dates specified
therein.
*10.12 -- Amendment to Apache Corporation Money Purchase Retirement
Plan, dated August 3, 2001, effective as of the various dates
specified therein.
*10.13 -- Amendment to Non-Qualified Retirement/Savings Plan of Apache
Corporation, dated August 3, 2001, effective as of September
1, 2000 and July 1, 2001.
*12.1 -- Statement of Computation of Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Stock
Dividends
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* Filed herewith.