EXHIBIT 99.4
REPORT OF INDEPENDENT AUDITORS
To the Shareholders of Apache Corporation:
We have audited the accompanying statement of combined revenues and
direct operating expenses of the oil and gas properties purchased by Apache
Corporation from BP p.l.c. for the year ended December 31, 2002. This financial
statement is the responsibility of Apache Corporation's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards, generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statement
is free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying statement was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission for
inclusion in Apache Corporation's Form 8-K/A and is not intended to be a
complete financial presentation of the properties described above.
In our opinion, the financial statement referred to above presents
fairly, in all material respects, the combined revenues and direct operating
expenses of the oil and gas properties purchased by Apache Corporation from BP
p.l.c. for the year ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Houston, Texas
June 13, 2003
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STATEMENT OF COMBINED REVENUES AND DIRECT OPERATING EXPENSES
OF THE OIL AND GAS PROPERTIES PURCHASED BY APACHE CORPORATION
FROM BP p.l.c.
(IN THOUSANDS)
<Table>
<Caption>
FOR THE THREE MONTHS ENDED
FOR THE YEAR MARCH 31,
ENDED ---------------------------------
DECEMBER 31, 2002 2002 2003
----------------- --------------- ---------------
(UNAUDITED)
Revenues ............................................... $ 930,616 $ 203,724 $ 193,144
Direct operating expenses .............................. 397,174 101,895 93,825
--------------- --------------- ---------------
Excess of revenues over direct operating expenses ...... $ 533,442 $ 101,829 $ 99,319
=============== =============== ===============
</Table>
The accompanying notes are an integral part of this financial statement.
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NOTES TO STATEMENT OF COMBINED REVENUES AND
DIRECT OPERATING EXPENSES OF THE OIL AND GAS PROPERTIES
PURCHASED BY APACHE CORPORATION FROM BP p.l.c.
(1) THE PROPERTIES
On January 13, 2003, Apache Corporation (Apache) entered into an
agreement to purchase producing properties in the U.K. North Sea and the Gulf of
Mexico, with estimated proved reserves of 233.2 MMboe, from BP p.l.c. (BP), for
$1.3 billion, subject to normal closing adjustments, with an effective date of
January 1, 2003. The Gulf of Mexico segment of the transaction closed March 13,
2003 and the North Sea segment closed April 2, 2003.
(2) BASIS FOR PRESENTATION
During the periods presented, the BP properties were not accounted for
or operated as a separate division by BP. Certain costs, such as depreciation,
depletion and amortization, interest, accretion, general and administrative
expenses, and corporate income taxes were not allocated to the individual
properties. Accordingly, full separate financial statements prepared in
accordance with generally accepted accounting principles do not exist and are
not practicable to obtain in these circumstances.
Revenues and direct operating expenses included in the accompanying
statement represent Apache's net working interest in the properties acquired for
the periods prior to the respective closing dates and are presented on the
accrual basis of accounting. Depreciation, depletion and amortization, interest,
accretion, general and administrative expenses and corporate income taxes have
been excluded. The financial statements presented are not indicative of the
results of operations of the acquired properties going forward due to changes in
the business and inclusion of the above mentioned expenses.
(3) COMMITMENTS AND CONTINGENCIES
Pursuant to the terms of the Asset Purchase Agreement between BP and
Apache, any claims, litigation or disputes pending as of the effective date
(January 1, 2003) or any matters arising in connection with ownership of the
properties prior to the effective date are retained by BP. Notwithstanding this
indemnification, Apache is not aware of any legal, environmental or other
commitments or contingencies that would have a material effect on the statement
of combined revenues and direct operating expenses.
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SUPPLEMENTAL OIL AND GAS INFORMATION
(UNAUDITED)
OIL AND GAS RESERVE INFORMATION
Proved oil and gas reserve quantities are based on estimates prepared
by the Company's engineers and from information provided by BP p.l.c., in
accordance with guidelines established by the Securities and Exchange Commission
(SEC).
There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
<Table>
<Caption>
GAS OIL
--------------- ---------------
(MMcf) (Mbbl)
Total proved reserves:
Balance, December 31, 2001 ........................ 337,810 211,507
Production ........................................ (89,205) (26,392)
Extensions, discoveries and improved recovery ..... -- --
Revisions of previous estimates ................... -- --
--------------- ---------------
Balance, December 31, 2002 ........................ 248,605 185,115
=============== ===============
Proved developed reserves:
Balance, December 31, 2001 ........................ 337,810 211,507
=============== ===============
Balance, December 31, 2002 ........................ 248,605 185,115
=============== ===============
</Table>
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SUPPLEMENTAL OIL AND GAS INFORMATION - CONTINUED
(UNAUDITED)
FUTURE NET CASH FLOWS
Future cash inflows are based on year-end oil and gas prices except in
those instances where future natural gas or oil sales are covered by physical
contract terms providing for higher or lower amounts. Operating costs,
production and ad valorem taxes and future development costs are based on
current costs with no escalation.
The following table sets forth unaudited information concerning future
net cash flows for oil and gas reserves, net of income tax expense. Future
income tax expense on the BP properties is based on Apache's purchase price
allocation. This information does not purport to present the fair market value
of the Company's oil and gas assets, but does present a standardized disclosure
concerning possible future net cash flows that would result under the
assumptions used.
<Table>
<Caption>
DECEMBER 31, 2002
-----------------
(IN THOUSANDS)
Cash inflows ................................................... $ 6,670,231
Production costs ............................................... (2,833,283)
Development costs .............................................. (1,143,920)
Income tax expense ............................................. (615,304)
---------------
Net cash flows ................................................. 2,077,724
10 percent discount rate ....................................... (436,705)
---------------
Discounted future net cash flows ........................ $ 1,641,019
===============
</Table>
The following table sets forth the principal sources of change in
discounted future net cash flows.
<Table>
<Caption>
FOR THE YEAR
ENDED
DECEMBER 31, 2002
-----------------
(IN THOUSANDS)
Beginning of year .................................................... $ 883,251
Sales, net of production costs ....................................... (533,442)
Net change in prices and production costs ............................ 1,658,306
Extensions, discoveries and improved recovery, net of related costs .. --
Change in future development costs ................................... --
Accretion of discount ................................................ 91,168
Change in income taxes ............................................... (458,264)
Revision of quantity estimates ....................................... --
Change in production rates and other ................................. --
---------------
End of year .......................................................... $ 1,641,019
===============
</Table>
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