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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 1-4300
APACHE CORPORATION
A DELAWARE IRS EMPLOYER
CORPORATION NO. 41-0747868
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Aggregate market value of the voting stock held by non-affiliates
of registrant as of February 28, 1995 $1,536,184,325
Number of shares of registrant's common stock outstanding
as of February 28, 1995 61,447,373
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1995
annual meeting of shareholders have been incorporated by reference into Part
III hereof.
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TABLE OF CONTENTS
DESCRIPTION
ITEM PAGE
- ---- ----
PART I
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . 13
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . 25
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . 26
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 26
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
All defined terms under Rule 4-10(a) of Regulation S-X shall have
their statutorily-prescribed meanings when used in this report. Quantities of
natural gas are expressed in this report in terms of thousand cubic feet (Mcf),
million cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in
terms of barrels (bbls), thousands of barrels (Mbbls) and millions of barrels
(MMbbls). Natural gas is compared to oil in terms of barrels of oil equivalent
(boe) or million barrels of oil equivalent (MMboe). Oil and natural gas liquids
are compared with natural gas in terms of million cubic feet equivalent (MMcfe)
and billion cubic feet equivalent (Bcfe). One barrel of oil is the energy
equivalent of six Mcf of natural gas. Daily oil and gas production is expressed
in terms of barrels of oil per day (bopd) and thousands of cubic feet of gas
per day (Mcfd), respectively. Gas sales volumes may be expressed in terms of
one million British thermal units (MMBtu), which is approximately equal to one
Mcf. With respect to information relating to the Company's working interest in
wells or acreage, "net" oil and gas wells or acreage is determined by
multiplying gross wells or acreage by the Company's working interest therein.
Unless otherwise specified, all references to wells and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation formed in
1954, is an independent energy company that explores for, develops, produces,
gathers, processes and markets natural gas and crude oil. Domestically,
Apache's exploration and production interests are spread over 15 states,
focusing on the Gulf of Mexico, the Anadarko Basin of Oklahoma, the Permian
Basin of West Texas and New Mexico, the Gulf Coast and the Rocky Mountain
regions. Internationally, Apache has production interests in Australia and is
currently focusing its international exploration efforts offshore Western
Australia, along the Pacific Rim and in Africa. Apache's common stock has been
listed on the New York Stock Exchange since 1969, and on the Chicago Stock
Exchange since 1960.
Apache holds interests in many of its domestic and international properties
through operating subsidiaries, such as MW Petroleum Corporation (MW), Apache
Energy Resources Corporation (AERC, formerly known as Hadson Energy Resources
Corporation), Apache Energy Limited (AEL, formerly known as Hadson Energy
Limited), Apache International, Inc. and Apache Overseas, Inc. Properties
referred to in this document may be held by those subsidiaries. Apache treats
all operations as one segment of business.
1994 RESULTS
In 1994, Apache had net income of $42.8 million, or $.70 per share, on total
revenues of $545.6 million. Net cash provided by operating activities during
1994 was $335.6 million.
The year represents Apache's seventeenth consecutive year of production
growth and seventh consecutive year of oil and gas reserves growth. Apache's
average daily production was approximately 36 Mbbls of oil and 427 MMcf of
natural gas for the year. The Company's estimated proved reserves at December
31, 1994, were 269 MMboe, of which approximately 63 percent was natural gas.
Apache's growth in reserves during the year reflects the replacement of 197
percent of the Company's 1994 production. Approximately 46 percent of the newly
added reserves were acquired through Apache's ongoing acquisition efforts. The
remainder was attributable to Apache's active drilling and workover program,
which yielded 243 new producing domestic wells out of 299 attempts, and
involved 390 domestic workover and recompletion projects during the year.
At December 31, 1994, Apache had interests in approximately 3,677 net oil
and gas wells and 781,336 net developed acres of oil and gas properties. In
addition, the Company had interests in 603,802 net undeveloped acres under
domestic leases and 4,239,290 net undeveloped acres under international
exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase production, reserves and cash flow
through a combination of acquisitions, moderate-risk drilling and development
of its inventory of existing projects. The Company also emphasizes reducing
operating costs per unit produced and selling marginal and non-strategic
properties in order to increase its profit margins.
For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each acquisition cycle with a cycle
of reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires
well-planned and carefully executed property development and a commitment to a
selective program of ongoing property dispositions. It motivates Apache to
target acquisitions that have ascertainable additional reserve potential and to
apply an active drilling, workover and recompletion program to realize the
potential of the acquired undeveloped and partially developed properties.
Apache prefers to operate its properties so that it can best influence their
development, and the Company therefore operates properties accounting for over
75 percent of its production.
Pursuing its acquire-and-develop strategy, Apache increased its total proved
reserves more than 240 MMboe, or nearly eight-fold, in the last ten years. In
addition to its acquisition strategy, Apache continues to develop and exploit
its existing inventory of workover, recompletion and other development projects
to increase reserves and production. During 1994, Apache acquired $180 million
of additional properties and replaced over 106 percent of its domestic
production through its drilling, workover and recompletion program.
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Apache's international investments supplement its long-term growth strategy.
Although international exploration is recognized as higher-risk than most of
Apache's domestic activities, it offers potential for greater rewards and
significant reserve additions. Apache directed its international efforts in
1994 towards the exploration and development of properties in Western
Australia, China, Indonesia, Egypt, The Congo and the Ivory Coast of Western
Africa, where it believes that reserve additions may be made through
higher-risk exploration and through improved production practices and recovery
techniques.
RECENT ACQUISITIONS AND DISPOSITIONS
1994 ACQUISITIONS. On December 30, 1994, Apache purchased substantially all
of the U.S. oil and gas properties of Crystal Oil Company (Crystal) for
approximately $95.8 million. The producing properties acquired from Crystal are
located primarily along the Arkansas-Louisiana border and in southern
Louisiana, and daily production at the time of acquisition was approximately 20
MMcf of gas and 2,700 bbls of oil. The acquisition also included approximately
32,000 net undeveloped mineral acres in southern Louisiana. Apache acquired an
average 80-percent working interest in the properties overall, including a
97-percent working interest in two fields that account for approximately 60
percent of the value.
During 1994, Apache also acquired approximately 15 MMboe of proved reserves
through 87 smaller, tactical acquisitions for an aggregate consideration of
$84.2 million. Apache also sold $5.9 million of its non-strategic properties
during 1994.
TRANSACTIONS IN EARLY 1995. On March 1, 1995, Apache purchased certain oil
and gas properties from Texaco Exploration and Production Inc. (Texaco) for an
adjusted purchase price of $571 million, effective January 1, 1995. The
transaction is subject to customary closing and post-closing adjustments, and
includes proved reserves at the effective date of approximately 113 million
barrels of energy equivalent, of which approximately 70 percent is oil. The
most recently reported average current daily production on the acquired
properties is approximately 20 Mbbls of oil and 85 MMcf of gas.
The Texaco properties are highly concentrated, with approximately two-thirds
of the reserves located in 54 fields, and are in producing regions where Apache
has existing operations -- the Permian Basin, the Gulf Coast of Texas and
Louisiana, western Oklahoma, eastern Texas, the Rocky Mountains and the Gulf of
Mexico. Apache will operate approximately two-thirds of the production and
acquire an average working interest of 70 percent in the operated properties.
The total acquisition includes approximately 500,000 net mineral acres, as
well as a substantial quantity of seismic data.
On December 21, 1994, Apache entered into a merger agreement with DEKALB
Energy Company (DEKALB), under which the shareholders of DEKALB will receive,
in the aggregate, between 8.0 and 8.9 million shares of Apache common stock
and DEKALB will become a wholly-owned subsidiary of Apache. The transaction
will be accounted for using the pooling of interests method of accounting.
Apache and DEKALB estimate that the cost required to complete the transaction
will total between $8 and $10 million.
DEKALB's reported oil and gas reserves, located almost entirely in
Canada, were estimated to be approximately 364 Bcfe, and included approximately
300 Bcf of natural gas and 11 MMbbls of hydrocarbon liquids. DEKALB also has
approximately 150,000 net undeveloped mineral acres, and has ownership
interests in 14 gas processing plants, six of which it operates. Upon
completion, the DEKALB merger will provide Apache with a substantial presence
in North America's largest natural gas basin, together with the infrastructure,
including skilled professionals, to conduct Canadian operations, and properties
with significant further development potential.
The merger has been approved by the board of directors of Apache and DEKALB,
and holders of a majority of DEKALB's voting stock have agreed to vote their
shares to approve the merger. Consummation of the DEKALB merger is subject to
the satisfaction of certain conditions including the receipt of necessary
regulatory approvals and certain other consents, and is currently expected to
be completed in the second quarter of 1995.
In early 1995, Apache announced plans to accelerate the disposition of
approximately $200 million of lower margin and non-strategic properties,
including sales of a substantial portion of its Rocky Mountain properties and
non-strategic assets in its other regions.
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1993 ACQUISITIONS. In 1993, Apache entered into two agreements to purchase a
combined 104 Bcfe of proved reserves in the Gulf of Mexico from Hall-Houston
Oil Company (Hall-Houston) for an aggregate consideration of $113.7 million. In
June 1993, Apache closed the first of the two transactions, paying $29.3
million for Hall-Houston's interest in Mustang Island Blocks 787 and 805.
Apache acquired substantially all of Hall-Houston's other producing properties
in the Gulf of Mexico for an additional $84.4 million in the second transaction
which closed on August 31, 1993. With the Hall-Houston acquisitions, Apache
more than doubled its existing interest in offshore gas production, acquiring
interests in 63 producing fields and 12 fields under development or awaiting
pipeline connections.
Apache acquired Hadson Energy Resources Corporation (now AERC) through a
series of private transactions and a subsequent merger on November 12, 1993.
The aggregate consideration paid for the acquisition was approximately $98
million, including the issuance of 307,977 shares of Apache common stock.
Apache acquired AERC and its subsidiaries subject to approximately $67.6
million of net liabilities at the time of the merger. Through the acquisition
of AERC, Apache added proved reserves of 66 Bcfe domestically and 64 Bcfe in
Australia. AERC's reserves fit well with Apache's existing interests in
Oklahoma and the Carnarvon Basin offshore Western Australia. Domestically,
nearly two-thirds of the value of AERC's properties are concentrated in
Oklahoma, where Apache was already the largest independent gas producer. AERC's
operations in Western Australia, including the Harriet complex of oil and
natural gas fields, provide Apache with the reserves and infrastructure
required for the commercial development of certain other Australian interests.
During 1993, Apache also acquired 11 MMboe of proved reserves through 71
smaller, tactical acquisitions for an aggregate consideration of $76.5
million. Apache also sold $3.3 million of its non- strategic properties during
1993.
EXPLORATION AND PRODUCTION
The Company's domestic exploration and production activities are divided
into five operating regions, the Gulf of Mexico, Midcontinent, Permian Basin,
Gulf Coast and Rocky Mountain regions. Approximately 96 percent of the
Company's proved reserves are located in these five domestic operating regions.
Internationally, the Company conducts its Australian exploration and production
and Indonesian exploration through its Australian region. Apache's other
international interests are directed by the Company and its subsidiaries
through the Company's principal offices located in Houston, Texas.
GULF OF MEXICO. As a result of Apache's acquisitions of Matagorda Island
Blocks 681 and 682 in late 1992 and the Hall-Houston acquisition in 1993, the
Gulf of Mexico became Apache's largest producing region. Due to the growth
resulting from these acquisitions, Apache divided its former Gulf Coast region
into two regions: Gulf of Mexico and Gulf Coast. The Gulf of Mexico region
encompasses all of Apache's interests in properties offshore Texas, Louisiana
and Alabama. By year-end 1994, Apache increased its production in the Gulf of
Mexico to approximately 203 MMcf of gas per day.
At December 31, 1994, the Gulf of Mexico region encompassed 282,302 net
acres, located in both state and federal waters, and accounted for 48.1 MMboe,
or 18 percent, of the Company's year-end 1994 reserves. Apache participated in
28 wells which were drilled in the region during the year, 21 of which were
completed as producers. The Company performed 36 workover and recompletion
operations in the region during 1994.
MIDCONTINENT. Apache's Midcontinent region is known for its sizable position
in the Anadarko Basin. Apache has drilled and operated in the Anadarko Basin
for over three decades, developing an extensive database of geologic
information and a substantial acreage position. In 1993, Apache enhanced its
position through the acquisition of AERC with its significant acreage and
producing interests in the Anadarko Basin.
At December 31, 1994, Apache held an interest in 271,770 net acres in the
region, which accounted for approximately 75.7 MMboe, or 28 percent, of
Apache's total proved reserves. Apache participated in 103 wells which were
drilled in the Midcontinent region during the year, 90 of which were completed
as producing wells. The Company performed 36 workover and recompletion
operations in the region during 1994.
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PERMIAN BASIN. The Permian Basin of West Texas and New Mexico remained an
important region to Apache in 1994, generating 17 percent of the Company's
production revenues for the year. As of December 31, 1994, Apache held an
interest in 103,247 net acres in the region, which accounted for 57.6 MMboe, or
21 percent, of the Company's total proved reserves. Apache's operations in the
Permian Basin focused primarily on workovers and recompletions, which totaled
51 for the year. Compared with 1993, Apache nearly doubled its drilling
activity in the region during 1994, with 32 of the 38 wells drilled in the
region completed as producers.
GULF COAST. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas, Mississippi and Alabama. In 1994, the region was one of
the most prominent in the Company in the number of workover and recompletion
projects completed and the number of wells drilled. Apache participated in 85
wells drilled in the Gulf Coast region during the year, 74 of which were
completed as producers, including 30 Austin Chalk wells in central Texas, all
of which were productive. The Company performed 173 workover and recompletion
operations during 1994 in the Gulf Coast region. As of December 31, 1994, the
region encompassed approximately 194,107 net acres, and accounted for 43 MMboe,
or 16 percent, of the Company's year-end 1994 total proved reserves.
ROCKY MOUNTAIN. In the Rocky Mountain region, Apache emphasized oil
enhancement opportunities during 1994, conducting 94 development projects. At
year-end, Apache held an interest in 481,162 net acres in the region, which
accounted for approximately 34.2 MMboe, or 13 percent, of the Company's total
proved reserves. Apache participated in 45 wells in the region during the year,
26 of which were productive. Apache has announced the Company's intention to
sell in 1995 substantially all of its Rocky Mountain properties in connection
with its property rationalization program, which emphasizes the disposition of
lower margin properties. The Company currently intends to close its Rocky
Mountain regional office, located in Denver, Colorado, and redeploy those
employees to provide support for its Gulf Coast and Permian Basin operations
and the Company's operations in Canada following the DEKALB merger.
AUSTRALIA. The state of Western Australia has become an important region for
Apache following the completion of the AERC acquisition. In the fourth quarter
of 1993, Apache consolidated the operation of its Australian properties with
AERC's Australian subsidiary, AEL, headquartered in Perth, Western Australia.
During 1994, AEL participated in two successful horizontal development wells in
the Harriet field offshore Western Australia and also participated in nine
exploratory wells. Average oil production in the region increased by 70 percent
from 1993 to approximately 3,200 bbls per day for 1994, primarily as a result
of the addition of the AERC properties in the second half of 1993.
As of December 31, 1994, Apache held 3,373,150 net developed and undeveloped
acres in Western Australia. Australian reserves accounted for 10.8 MMboe, or
four percent, of the Company's total proved reserves at year end. Through AEL
and its subsidiaries, Apache also owns a 22.5-percent interest in and operates
the Harriet Gas Gathering Project, a gas processing and compression facility
with a throughput capacity of 80 MMcfd, and a 60-mile, 12-inch offshore
pipeline with a throughput capacity of 175 MMcfd. The facilities are located in
close proximity to AEL's producing properties offshore in the Carnarvon Basin.
During 1994, AEL produced 2.9 bcf of natural gas. Through AEL, Apache acts as
operator for most of its properties in Western Australia.
In early 1993, Apache took over as operator and increased its interest in
the Java Sea IV block offshore Indonesia and the Padang Panjang block on the
island of Sumatra, Indonesia. In early 1994, operations for Indonesia were
consolidated under the direction of AEL out of its offices in Perth, Western
Australia. In 1994, two exploratory wells were drilled in Indonesia, one of
which was a discovery.
OTHER INTERNATIONAL OPERATIONS. Outside of Australia, Apache's international
interests currently consist only of exploration interests. In 1994, Apache
Overseas, Inc., Apache International, Inc. and their subsidiaries (excluding
Australia and Indonesia as referred to above) drilled three gross exploratory
wells - one each in Egypt, China and The Congo, resulting in two discoveries.
One discovery well was in Zhao Dong block in the Bohai Bay, offshore the
People's Republic of China, where Apache has a 33-percent interest in an area
containing approximately 48,677 undeveloped acres (16,225 acres net to Apache).
The well tested at a rate of over 2,000 bbls per day and was confirmed by an
appraisal well which tested at over 3,500 bbls per day. Future plans call for
at least one additional appraisal well which, if successful, would lead to
field development of the block.
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Apache holds a 25-percent interest in the two-million acre Qarun block in
the western desert of Egypt which is operated by Phoenix Resource Companies of
Qarun. In 1994, Apache participated in an apparent discovery well in the Qarun
block which was plugged and abandoned when well bore problems developed. Plans
call for an appraisal well on the same structure. In February 1995, Apache and
its partners announced the discovery of a second field in the Qarun block
approximately two kilometers from its first apparent discovery. The second well
tested at rates up to 1,370 bopd.
In the Congo, an Apache subsidiary participated in a discovery well that
tested at a rate over 2,000 bbls per day. Through its subsidiary, Apache holds
a 20-percent working interest in the well. An appraisal well and an additional
exploratory well are planned for 1995.
OIL AND NATURAL GAS MARKETING
During 1994, Apache sold approximately 89 percent of its domestic natural
gas on the spot market through Natural Gas Clearinghouse (NGC) or through
market responsive contracts with other parties; the remaining 11 percent was
sold into long-term, premium-priced contracts. Sales to NGC accounted for 40
percent of the Company's oil and gas revenues in 1994. Apache and NGC have
agreed that NGC will market substantially all of Apache's domestic spot market
gas production under terms of their agreement which is effective through
September 1995. The Company believes that if the NGC contract were terminated,
it would not have a material adverse effect on the Company due to the existence
of alternative marketing arrangements and purchasers.
In December 1994, the Company signed a long-term gas contract under
which Apache received an advance payment of $67.4 million. Apache will supply
the purchaser with approximately 43 Bcf of gas over six years, with volumes
averaging 20 MMcfd. Initial deliveries began in January 1995. Apache also
signed a long-term gas supply agreement with a cogeneration company in August
1994, under which Apache will supply a minimum of 51.1 Bcf over ten years for
use in electric power generation from its cogeneration facility located in
Northeast Texas. Deliveries of approximately 20 MMcfd are scheduled to begin in
early 1997.
Apache assumed its own domestic crude oil marketing operations in 1992. Most
of Apache's crude oil production is sold through lease-level marketing to
refiners, traders and transporters, generally under 30-day contracts that
renew automatically until canceled.
In Australia, approximately 22 Bcf of AEL's proved gas reserves are
dedicated to the Gas Corporation of Western Australia, a corporation owned by
the government of Western Australia, doing business as AlintaGas (formerly
SECWA), under a long-term contract with a remaining period of 7 1/2 years. The
agreement contains take-or-pay provisions that require AlintaGas to purchase a
minimum of 35 MMcfd (approximately eight MMcfd net to AEL) through the
remainder of the contract term at a stated minimum price that escalates with
the Western Australia consumer price index. Payments received under this
contract are in Australian dollars. If for any reason the AlintaGas contract was
canceled, AEL might not be able to find other markets for its gas produced from
the Harriet field.
AEL markets all oil and natural gas liquids produced from its interests in
the Harriet field through a contract with Marubeni International Petroleum
(Singapore) Pte Limited (Marubeni), which was extended in 1994. Pricing under
the contract in 1994 represented a fixed premium to the average of the quoted
spot market prices of Tapis and Dubai crude oil, with payment made in U.S.
dollars. Production sold under this contract in 1994 realized an average price
of $18.23 per barrel (exclusive of the impact of hedging activities). In 1995,
pricing under this contract will represent a fixed premium of the quoted spot
market price of Tapis crude oil. The Company believes that if this contract
were terminated, it would not have a material adverse effect on the Company due
to the demand for Australian crude oil and the existence of alternative
purchasers.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile in 1994 with Apache's average gas
prices during the year ranging from $1.48 per Mcf in October to $2.15 per Mcf
in February. Fluctuations are largely due to natural gas supply and demand
perceptions. Apache's average realized gas price of $1.81 per Mcf for 1994
declined 11 percent from the prior-year average of $2.03 per Mcf. Apache's 1993
average realized natural gas price increased 15 percent above the 1992
average of $1.76 per Mcf.
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Due to the escalating price contract with AlintaGas, AEL's natural gas
production in Western Australia is not subject to the same degree of price
volatility as is its domestic gas production, however, natural gas sales under
the AlintaGas contract represented only about two percent of the Company's total
natural gas sales at year end. In 1994, the price received for production under
the contract averaged $1.94 per Mcf. Total Australian gas sales in 1994,
including sales under the AlintaGas contract and spot sales to other parties,
averaged $1.90 per Mcf, six percent above the 1993 average of $1.79 per Mcf.
Oil prices remained vulnerable due to unpredictable political and economic
forces during 1994, but partially recovered from the five-year low that Apache
experienced in the fourth quarter of 1993. Management believes that, absent a
comprehensive U.S. energy policy, oil prices will continue to fluctuate in
response to changes in the policies of the Organization of Petroleum Exporting
Countries (OPEC), events in the Middle East and other factors associated with
the world political environment. As a result of the many uncertainties
associated with levels of production maintained by OPEC and other oil producing
countries, the availabilities of world-wide energy supplies and the competitive
relationships and consumer perceptions of various energy sources, management is
unable to predict what changes will occur in crude oil and natural gas prices.
Apache's worldwide crude oil price averaged $15.66 per barrel in 1994, seven
percent lower than the average price of $16.78 per barrel in 1993, and 14
percent lower than the average price of $18.16 per barrel in 1992. Apache's
average crude oil price for its Australian production, including production
sold under the Marubeni contract, was $17.95 per barrel in 1994, seven percent
lower than the average price in 1993.
Terms of the acquisition of MW from Amoco Production Company (Amoco)
included an oil and gas price sharing provision under which certain price
sharing payments may be payable to Amoco. Pursuant to this provision, to the
extent that oil prices exceed specified reference prices that rise to $33.12
per barrel over the eight-year period ending June 30, 1999, and to the extent
that gas prices exceed specified reference prices that rise to $2.68 per Mcf
over the five-year period ending June 30, 1996, Apache will share the excess
price realization with Amoco on a portion of the MW production.
From time to time, Apache buys or sells contracts to hedge a limited portion
of its future oil and gas production against exposure to spot market price
changes. (See Note 8 to the Company's financial statements under Item 8 below.)
The Company's business has been and will continue to be affected by future
worldwide changes in oil and gas prices and the relationship between the prices
of oil and gas. No assurance can be given as to the trend in, or level of,
future oil and gas prices.
RESERVE VALUE CEILING TEST
Under the Securities and Exchange Commission's full cost accounting rules,
the Company reviews the carrying value of its oil and gas properties each
quarter on a country-by-country basis. Under full cost accounting rules,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower of cost or fair market value of unproved properties, as adjusted
for related tax effects and deferred tax reserves. Application of this rule
generally requires pricing future production at the unescalated oil and gas
prices in effect at the end of each fiscal quarter and requires a write-down if
the "ceiling" is exceeded, even if prices declined for only a short period of
time. If a write-down is required, the one-time charge to earnings would not
impact cash flow from operating activities. The Company had no write-downs due
to ceiling test limitations during 1994, but a further weakening of oil and gas
prices from year-end levels would likely result in a write-down of oil and gas
properties during 1995.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
The Company's exploration, production and marketing operations are regulated
extensively at the federal, state and local levels, as well as by other
countries in which the Company does business. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Apache's operations and limit the quantity of
hydrocarbons Apache may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
6
9
At the federal level, the Federal Energy Regulatory Commission (FERC)
regulates interstate transportation of natural gas under the Natural Gas Act
and regulates the maximum selling prices of certain categories of gas sold in
"first sales" in interstate and intrastate commerce under the Natural Gas
Policy Act (NGPA). Effective January 1, 1993, the Natural Gas Wellhead
Decontrol Act deregulated natural gas prices for all "first sales" of natural
gas, which includes all sales by Apache of its own production. As a result, all
sales of the Company's domestically produced natural gas may be sold at market
prices, unless otherwise committed by contract.
Apache's gas sales are affected by regulation of intrastate and interstate
gas transportation. In an attempt to promote competition, the FERC has issued a
series of orders which have altered significantly the marketing and
transportation of natural gas. The effect of these orders has been to enable
the Company to market its natural gas production to purchasers other than the
interstate pipelines located in the vicinity of its producing properties. The
Company believes that these changes have generally improved the Company's
access to transportation and have enhanced the marketability of its natural gas
production. To date, Apache has not experienced any material adverse effect on
gas marketing as a result of these FERC orders; however, the Company cannot
predict what new regulations may be adopted by the FERC and other regulatory
authorities, or what effect subsequent regulations may have on its future gas
marketing.
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties, is
subject to various federal, state, local and foreign country laws and
regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas and impose restrictions on the injection of liquids into subsurface
aquifers that may contaminate groundwater.
Apache maintains insurance coverage which it believes are customary in the
industry, although it is not fully insured against all environmental risks. The
Company is not aware of any environmental claims existing as of December 31,
1994, which would have a material impact upon the Company's financial position
or results of operations.
Apache has made and will continue to make expenditures in its efforts to
comply with these requirements, which it believes are necessary business costs
in the oil and gas industry. Apache has established policies for continuing
compliance with environmental laws and regulations, including regulations
applicable to its operations in Australia and other countries. Apache has also
established operational procedures designed to limit the environmental impact
of its field facilities. The costs incurred by these policies and procedures
are inextricably connected to normal operating expenses such that the Company
is unable to separate the expenses related to environmental matters; however,
the Company does not believe any such additional expenses are material to its
financial position or results of operations.
Although environmental requirements do have a substantial impact upon the
energy industry, generally these requirements do not appear to affect Apache
any differently, or to any greater or lesser extent, than other companies in
the industry. Apache does not believe that compliance with federal, state,
local or foreign country provisions regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment,
will have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries, but there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
COMPETITION
The oil and gas industry is highly competitive. Because oil and gas are
fungible commodities, the principal form of competition with respect to product
sales is price competition. Apache strives to maintain the lowest finding and
production costs possible to maximize profits.
As an independent oil and gas company, Apache frequently competes for
reserve acquisitions, exploration leases, licenses, concessions and marketing
agreements against companies with substantially larger financial and other
resources than Apache possesses. Moreover, many competitors have established
strategic long-term positions and maintain strong governmental relationships in
countries in which the Company may seek new entry. Apache expects this high
degree of competition to continue.
7
10
EMPLOYEES
On December 31, 1994, Apache had 1,086 full-time employees.
OFFICES
Apache's principal executive offices are located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. During 1994, the
Company maintained regional exploration and production offices in Tulsa,
Oklahoma; Houston, Texas; Denver, Colorado; and Perth, Western Australia. In
1995, the Company intends to close its Denver, Colorado office and open a new
office in Calgary, Alberta to oversee exploration and production activities in
Canada following the DEKALB merger.
8
11
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The developed and undeveloped acreage, including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1994, are as follows:
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
----------------------- --------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- -------- -------- -------
GULF OF MEXICO
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 54,749 13,432
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . 113,933 51,755 240,371 99,056
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 96,543 58,805 130,889 59,254
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 210,476 110,560 426,009 171,742
--------- ------- --------- -------
MIDCONTINENT
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . 833 637 3,900 1,824
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . 40 40 -- --
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . 11,905 6,427 82,360 37,668
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . 40,657 15,555 445,935 166,976
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 4,939 3,679 74,382 38,964
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 58,374 26,338 606,577 245,432
--------- ------- --------- -------
PERMIAN BASIN
New Mexico . . . . . . . . . . . . . . . . . . . . . . . 4,801 2,026 62,613 19,036
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 73,548 37,206 67,650 44,979
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 78,349 39,232 130,263 64,015
--------- ------- --------- -------
GULF COAST
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . 1,153 678 483 204
Florida . . . . . . . . . . . . . . . . . . . . . . . . . 162 14 -- --
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . 5,686 4,678 67,090 26,961
Mississippi . . . . . . . . . . . . . . . . . . . . . . . 2,042 781 12,944 3,686
New Mexico . . . . . . . . . . . . . . . . . . . . . . . -- -- 7,698 3,676
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . 48,620 27,103 181,314 126,326
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 57,663 33,254 269,529 160,853
--------- ------- --------- -------
ROCKY MOUNTAIN
Colorado . . . . . . . . . . . . . . . . . . . . . . . . 57,845 34,035 3,001 2,412
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . 6,190 2,047 160 --
Michigan . . . . . . . . . . . . . . . . . . . . . . . . -- -- 40 6
Montana . . . . . . . . . . . . . . . . . . . . . . . . . 27,862 10,177 10,952 7,444
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . 658 329 80 10
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . 149,493 65,674 1,880 881
New Mexico . . . . . . . . . . . . . . . . . . . . . . . 10,975 10,421 39,290 27,999
North Dakota . . . . . . . . . . . . . . . . . . . . . . 48,950 20,214 43,371 23,318
South Dakota . . . . . . . . . . . . . . . . . . . . . . 720 146 3,640 2,835
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . 200 200 1,680 1,034
Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . 461,137 251,175 35,516 20,805
--------- ------- --------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 764,030 394,418 139,610 86,744
--------- ------- --------- -------
TOTAL DOMESTIC . . . . . . . . . . . . . . . . . . . . . . . . 1,168,892 603,802 1,571,988 728,786
--------- ------- --------- -------
9
12
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
----------------------- ----------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- ---------- ---------- --------
INTERNATIONAL
Australia . . . . . . . . . . . . . . . . . . . . . . . 6,833,430 3,320,600 280,460 52,550
China . . . . . . . . . . . . . . . . . . . . . . . . . 48,677 16,225 -- --
The Congo . . . . . . . . . . . . . . . . . . . . . . . 236,228 47,245 -- --
Egypt . . . . . . . . . . . . . . . . . . . . . . . . . 1,927,380 481,845 -- --
Indonesia . . . . . . . . . . . . . . . . . . . . . . . 722,290 280,890 -- --
Ivory Coast . . . . . . . . . . . . . . . . . . . . . . 269,338 92,485 -- --
---------- --------- ---------- -------
TOTAL INTERNATIONAL . . . . . . . . . . . . . . . . . . 10,037,343 4,239,290 280,460 52,550
---------- --------- ---------- -------
TOTAL COMPANY . . . . . . . . . . . . . . . . . . . . . 11,206,235 4,843,092 1, 852,448 781,336
========== ========= ========== =======
PRODUCTIVE OIL AND GAS WELLS
The number of productive oil and gas wells, operated and non-operated, in
which Apache had an interest as of December 31, 1994, is set forth below.
GAS OIL
------------------- -----------------
GROSS NET GROSS NET
----- --- ----- ---
Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . 440 122 40 4
Midcontinent . . . . . . . . . . . . . . . . . . . . . . . 1,580 515 344 139
Permian Basin . . . . . . . . . . . . . . . . . . . . . . . 452 100 2,195 813
Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . 568 382 1,441 1,034
Rocky Mountain . . . . . . . . . . . . . . . . . . . . . . 232 142 772 420
International . . . . . . . . . . . . . . . . . . . . . . . 3 1 27 5
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,275 1,262 4,819 2,415
===== ===== ===== =====
GROSS WELLS DRILLED
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1994, the Company was participating in 29 domestic wells and one
international well in the process of drilling.
EXPLORATORY DEVELOPMENTAL
------------------------ ----------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
1994
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 20 17 37 223 39 262
International . . . . . . . . . . . . . . . . . . . . . . . 7 8 15 2 -- 2
--- --- --- --- --- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 27 25 52 225 39 264
=== === === === === ===
1993
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 12 19 31 198 37 235
International . . . . . . . . . . . . . . . . . . . . . . . 3 5 8 -- -- --
--- --- --- --- --- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 24 39 198 37 235
=== === === === === ===
1992
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 10 32 42 145 16 161
International . . . . . . . . . . . . . . . . . . . . . . . -- 6 6 -- -- --
--- --- --- --- --- ---
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 38 48 145 16 161
=== === === === === ===
10
13
NET WELLS DRILLED
The following table sets forth, for each of the last three fiscal years, the
number of net exploratory and net developmental wells drilled by Apache.
EXPLORATORY DEVELOPMENTAL
----------------------- -----------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
1994
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 10.7 10.4 21.1 100.1 27.0 127.1
International . . . . . . . . . . . . . . . . . . . . . . . 2.3 2.4 4.7 .4 -- .4
----- ----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 13.0 12.8 25.8 100.5 27.0 127.5
===== ===== ===== ===== ===== =====
1993
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 10.4 14.6 90.4 22.2 112.6
International . . . . . . . . . . . . . . . . . . . . . . . 0.6 1.3 1.9 -- -- --
----- ----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 11.7 16.5 90.4 22.2 112.6
===== ===== ===== ===== ===== =====
1992
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 16.6 19.8 60.1 8.0 68.1
International . . . . . . . . . . . . . . . . . . . . . . . -- 1.1 1.1 -- -- --
----- ----- ----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 17.7 20.9 60.1 8.0 68.1
===== ===== ===== ===== ===== =====
Production and Pricing Data
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGLs) and gas production for the Company, average
production costs and average sales prices.
Production Average Sales Price
----------------------------- Average -----------------------------------
Year Ended Oil NGLs Gas Production Oil NGLs Gas
December 31, (Mbbls) (Mbbls) (MMcf) Cost per boe (per bbl) (per bbl) (per Mcf)
- ------------ ------- ------- ------ ------------ --------- --------- ---------
1994 . . . . . . . . . . . . . . 13,084 493 155,905 $3.48 $15.66 $12.39 $1.81
1993 . . . . . . . . . . . . . . 12,294 486 110,622 4.10 16.78 12.35 2.03
1992 . . . . . . . . . . . . . . 12,056 533 95,982 4.38 18.16 12.34 1.76
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION
The following information relating to estimated reserve quantities,
reserve values and discounted future net revenues is derived from, and
qualified in its entirety by reference to, the more complete reserve and
revenue information and assumptions included in the Company's financial
statements under Item 8 below. The Company's estimates of proved reserve
quantities of its domestic properties and certain international properties have
been subject to review by Ryder Scott Company Petroleum Engineers. 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 information represents estimates only and should not be
construed as being exact. See Supplemental Oil and Gas Disclosures under Item 8
below.
11
14
The following table sets forth the Company's estimated proved developed
and undeveloped reserves as of December 31, 1994, 1993 and 1992:
Oil, NGLs and
Natural Gas Condensate
1994 (Bcf) (MMbbls)
---- ----------- --------------
Developed . . . . . . . . . . . . . . . . . . . . . . . . 910.3 89.4
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . 106.0 10.5
------- ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,016.3 99.9
======= ====
1993
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . 720.7 79.4
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . 127.5 10.3
------ ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 848.2 89.7
====== ====
1992
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . 585.4 73.1
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . 57.9 7.6
------ ----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . 643.3 80.7
====== ====
The following table sets forth the estimated future value of all proved
reserves of the Company, and proved developed reserves of the Company, as of
December 31, 1994, 1993 and 1992. Future reserve values are based on year-end
prices except in those instances where the sale of gas and oil is covered by
contract terms providing for determinable escalations. Operating costs,
production and ad valorem taxes, and future development costs are based on
current costs with no escalations.
Present Value of Estimated
Future Net Revenues
Estimated Future Before Income Taxes
Net Revenues (Discounted at 10 Percent)
------------------------ ------------------------------
Proved Proved
Proved Developed Proved Developed
--------- ----------- ---------- --------------
(In thousands)
December 31,
1994 . . . . . . . . . . . . . . . . . . $2,201,585 $2,016,523 $1,396,844 $ 1,311,591
1993 . . . . . . . . . . . . . . . . . . 2,074,505 1,783,187 1,359,117 1,189,268
1992 . . . . . . . . . . . . . . . . . . 1,747,113 1,581,853 1,062,558 987,497
At December 31, 1994, estimated future net revenues expected to be
received from all proved reserves of the Company, and from proved developed
reserves of the Company, were as follows:
Proved
Proved Developed
---------- -----------
(In thousands)
December 31,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 325,137 $ 354,516
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,704 277,788
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 244,404 218,053
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . 1,335,340 1,166,166
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,201,585 $2,016,523
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1994, which would cause a significant
change in the estimated proved reserves reported herein. The estimates above
are based on year-end pricing in accordance with the Securities and Exchange
Commission (SEC) guidelines and do not reflect current prices. Since January 1,
1994, no oil or gas reserve information has been filed with, or included in any
report to, any U.S. authority or agency other than the SEC and the Energy
Information Administration (EIA). The basis of reporting reserves to the EIA
for the Company's reserves is identical to that set forth in the foregoing
table.
12
15
TITLE TO INTERESTS
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to burdens such as net profits interests, liens incident to operating
agreements and current taxes, development obligations under oil and gas leases
and other encumbrances, easements and restrictions, none of which detract
substantially from the value of the interests or materially interfere with
their use in the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 9 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1994.
13
16
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apache's common stock, par value $1.25 per share, is traded on the New
York Stock Exchange and the Chicago Stock Exchange under the symbol APA. The
table below provides certain information regarding Apache common stock for 1994
and 1993. Prices shown are from the New York Stock Exchange Composite
Transactions Reporting System.
1994 1993
---------------------------- -----------------------------
PRICE RANGE PRICE RANGE
-------------- DIVIDENDS -------------- DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
First Quarter . . . . . . . . . . . . . . $26 7/8 $22 1/2 $ 0.07 $26 1/4 $17 5/8 $ 0.07
Second Quarter . . . . . . . . . . . . . 29 22 1/4 0.07 30 1/4 24 3/8 0.07
Third Quarter . . . . . . . . . . . . . . 29 1/4 23 0.07 33 1/2 26 3/8 0.07
Fourth Quarter . . . . . . . . . . . . . 28 7/8 23 5/8 0.07 31 1/4 20 3/8 0.07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 28,
1995, was $25.00. At December 31, 1994, there were 61,440,004 shares of Apache
common stock outstanding, held by approximately 10,400 shareholders of record
and 30,000 beneficial owners.
Each share of Apache common stock also represents one common stock
purchase right which, under certain circumstances, would entitle the holder to
acquire additional shares of common stock. See Note 6 to the Company's
financial statements under Item 8 below.
The Company has paid cash dividends on its common stock for 112
consecutive quarters and intends to continue the payment of dividends at
current levels, although future dividend payments will depend upon the
Company's level of earnings, financial requirements and other relevant factors.
14
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company and
its consolidated subsidiaries for each of the years in the five-year period
ended December 31, 1994, which information has been derived from the Company's
audited financial statements. This information should be read in connection
with and is qualified in its entirety by the more detailed information and
financial statements under Item 8 below.
At or for the Year Ended December 31,
---------------------------------------------------------------------
1994 1993* 1992 1991** 1990
----------- ----------- --------- --------- ---------
(In thousands, except per share amounts)
INCOME STATEMENT DATA
Total revenues $ 545,621 $ 466,638 $ 454,300 $ 356,930 $ 273,410
Net income 42,837 37,334 47,776 34,615 40,297
Net income per common share .70 .70 1.02 .76 .90
Cash dividends per common share .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit) $ (12,891) $ (62,450) $ (43,775) $ (55,023) $ 15,678
Total assets 1,879,022 1,592,407 1,218,704 1,209,291 829,634
Long-term debt 657,486 453,009 454,373 490,988 194,781
Shareholders' equity 816,180 785,854 475,209 439,941 386,780
Common shares outstanding at
end of year 61,440 61,085 46,936 46,855 44,694
*Includes financial data for AERC after June 30, 1993, and for Hall-Houston
after July 31, 1993. See Note 1 to the Company's financial statements under
Item 8 below.
**Includes financial data for MW after June 30, 1991.
Reference is made to Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a discussion of significant
acquisitions and to the Summary of Significant Accounting Policies and Note 1
to the Company's financial statements under Item 8 below.
15
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Apache's financial performance during 1994 is best understood in light
of the following factors:
PRODUCTION INCREASES; COMMODITY PRICES -- The current year's
performance was affected by substantial increases in natural gas production
partially offset by lower average oil and natural gas prices for the year.
Apache's natural gas production increased by 41 percent over the prior year,
attributable principally to developmental drilling, recompletions and
acquisitions completed in 1993. These gains were partially offset as Apache's
average realized natural gas price declined 11 percent from the prior year.
Apache's oil production increased by six percent over the prior year. Although
oil prices improved from the five-year low experienced in the fourth quarter of
1993, Apache's average realized oil price in 1994 was seven percent lower than
in 1993.
ACQUISITIONS-- Apache continued to acquire properties in 1994,
acquiring $180 million of oil and gas properties in the current year following
its mid-1993 acquisition of Hadson Energy Resources Corporation (now known as
Apache Energy Resources Corporation or AERC) and substantially all of the
producing properties of Hall-Houston Oil Company (Hall-Houston) in the Gulf of
Mexico for an aggregate of $211.7 million. The Company's 1994 performance
reflects a full 12 months of ownership of AERC and the Hall-Houston properties;
however, over half of the 1994 acquisitions were booked in the fourth quarter,
too late to have a significant impact on the Company's 1994 performance.
Acquisitions which closed in 1993 and 1994 accounted for approximately 40
percent of the overall increase in gas production from a year ago.
INCREASE IN AVERAGE COMMON SHARES OUTSTANDING -- The weighted average
number of shares of Apache common stock outstanding in 1994 increased by 7.8
million shares (15 percent) over 1993, primarily as a result of the issuance of
5.8 million shares in connection with a public stock offering in March 1993 and
the issuance of 7.8 million shares in connection with the conversion of $150
million of subordinated debentures in September 1993. Proceeds from these
transactions reduced outstanding debt by $281.8 million.
RESULTS OF OPERATIONS
NET INCOME AND REVENUES
The Company reported net income for the year of $42.8 million, a
15-percent increase from 1993 earnings of $37.3 million. Net income of $.70 per
share was unchanged from 1993, as the increase in 1994 net income was offset by
the increase in the weighted average number of shares of Apache common stock
outstanding. Significant factors contributing to the higher earnings were
increased oil production and substantially increased natural gas production
partially offset by decreases in oil and natural gas prices. Volume and price
information concerning the Company's 1994 and 1993 oil and gas production is
summarized in the following table:
Selected Oil and Gas Increase
Operating Statistics 1994 1993 (Decrease)
- --------------------- ------- ------ ----------
Gas volume - Mcf per day:
Domestic . . . . . . . . . . . . . . . . . . . . . 419,161 299,486 40%
International . . . . . . . . . . . . . . . . . . 7,975 3,589 122%
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 427,136 303,075 41%
======= =======
Average Gas Price - Per Mcf . . . . . . . . . . . . $ 1.81 $ 2.03 (11)%
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Selected Oil and Gas Increase
Operating Statistics 1994 1993 (Decrease)
- --------------------- -------- ------- ----------
Oil volume - Barrels per day:
Domestic . . . . . . . . . . . . . . . . . . . . . 32,669 31,809 3%
International . . . . . . . . . . . . . . . . . . 3,177 1,874 70%
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 35,846 33,683 6%
======= =======
Average Oil Price - Per barrel . . . . . . . . . . $ 15.66 $ 16.78 (7)%
Natural Gas Liquids (NGL) -
Barrels per day: . . . . . . . . . . . . . . . . 1,352 1,331 2%
Average NGL Price - Per barrel . . . . . . . . . . $ 12.39 $ 12.35 --
Revenues for 1994 totaled $545.6 million, or 17 percent higher than a year
ago. Oil and gas revenues in 1994 totaled $493.5 million, an increase of 13
percent over production revenues of $437.3 million in 1993. Production
revenues were influenced by record natural gas production, declining natural
gas prices, increased oil production and lower average oil prices for the year.
In addition, Apache's gathering, processing and marketing revenues increased 71
percent to $44.3 million in 1994 from $25.9 million in 1993. Revenues from
international operations increased 70 percent to $26.3 million with a full
twelve months of Australian production from the AERC acquisition.
Natural gas sales contributed $282.5 million to revenues, up 26 percent
from 1993, the result of higher annual production partially offset by lower
prices during 1994. Gas production for the year averaged 427 MMcf per day, up
41 percent from 1993, positively affecting gas sales by $92.1 million. This
increase is principally the result of production increases from developmental
drilling and the contribution from 12 months of operations from properties
acquired in 1993, the most significant of which were the offshore properties
acquired from Hall-Houston and the properties acquired in the merger with AERC.
Acquisitions added approximately 49 MMcfd of production increases for the year,
whereas developmental drilling and recompletions accounted for nearly 75 MMcfd.
Apache's average realized price for its natural gas was $1.81 per Mcf
during 1994, 11 percent lower than the average price of $2.03 per Mcf during
1993, which negatively affected gas sales by $34.6 million. During 1994,
Apache's average realized gas prices ranged from $1.48 per Mcf in October to
$2.15 per Mcf in February. Gas prices remained depressed during the second
half of 1994 due to warmer than usual weather in the northeastern United States
and higher volumes of gas held in inventory by utilities and gas storage
facilities. Hedging activities increased Apache's 1994 gas price by $.01 per Mcf
($1.6 million in sales) compared to $.05 per Mcf decrease ($5.4 million in
sales) in 1993. The 1994 hedging was in the form of floating for fixed price
swap agreements, with hedged volumes ranging from 10,000 MMBtud to 40,000
MMBtud. Hedging activities in 1993 included a $3.8 million net loss from swap
agreements and a $1.6 million payment to Amoco Production Company (Amoco) under
the terms of the price support hedging agreement described in Footnote 8 to the
Company's financial statements. With natural gas spot prices rising
significantly during the second and third quarters of 1993, the 1993 hedging
activities in effect mitigated the upside potential of improving prices.
The impact of increased oil production was offset by lower oil prices in
1994. Oil production contributed $204.9 million to revenues during 1994, less
than one percent below Apache's oil sales in 1993. Average daily oil
production of approximately 35.8 Mbbls of oil increased six percent over the
prior year, positively affecting oil sales by $13.3 million, as acquisitions
offset the effects of natural depletion. Oil sales represented 42 percent of
total oil and gas sales in 1994 compared to 47 percent of total oil and gas
sales in 1993.
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The Company's average realized oil price of $15.66 per barrel declined
seven percent from 1993, negatively affecting oil sales by $14.7 million.
Apache's average realized oil prices in 1994 ranged from $12.65 per barrel in
March to $17.77 per barrel in July. Hedging activities increased Apache's
average realized oil price by $.20 per barrel ($2.6 million in sales) as
compared to a $.39 per barrel increase ($4.8 million in sales) in 1993. The
1994 hedges were in the form of floating for fixed price swap agreements with
respect to the sale of oil, whereas 1993 sales hedges were due to the price
support hedging agreement with Amoco.
Revenues from the sale of natural gas liquids increased one percent from
1993, to $6.1 million in 1994. The higher revenue reflects slightly increased
volumes incidental to Apache's increased gas production.
Revenues from gas gathering, processing and marketing were $44.3 million
in 1994, up 71 percent from 1993. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that generally creates relatively low margins. Gross margins from gathering,
processing and marketing were $6.4 million in 1994, an increase of 32 percent
from 1993.
Other revenues increased to $7.4 million in 1994, up from $2.8 million in
1993. Non-recurring revenues in 1994 included $4 million from the favorable
resolution of take-or-pay contract issues and $2.2 million in gains from the
sale of stock held for investment.
COSTS AND EXPENSES
Operating costs per equivalent unit of production declined 14 percent in
1994, as a 27-percent increase in production volumes more than offset an
eight-percent increase in operating costs. Aggregate operating costs
increased from $128.1 million in 1993 to $137.8 million in 1994. Operating
costs include lifting costs, workover expense, and applicable domestic or
foreign production taxes. On an equivalent unit of production basis, operating
costs in 1994 declined to $3.48 per boe, down from $4.10 per boe in 1993.
Apache's declining costs per boe reflect increasing natural gas production and
lower production costs associated with the operation of gas-bearing properties
as compared with oil-bearing properties. The decline in unit cost reflects the
Company's continued cost saving efforts and the addition of offshore properties
which are not subject to production taxes and traditionally have lower unit
lifting costs.
Depreciation, depletion and amortization (DD&A) expense rose 32 percent
year-over-year to $232.6 million due to increased domestic sales of oil and
natural gas and a higher domestic amortization rate expressed as a percentage
of sales. Apache's domestic amortization rate of 45.5 percent of sales for 1994
increased from 38.7 percent in 1993. The increase in DD&A as a percentage of
sales is a result of lower natural gas and oil prices during 1994 and a higher
average finding cost in 1993 compared to recent years. Recurring international
DD&A increased as a result of substantially increased Australian production.
Although Apache increased its international exploration activity in 1994,
international impairments declined to $7.3 million in 1994 from $23.2 million
in 1993, reflecting the Company's successful international exploration efforts
in China, Egypt, The Congo and Indonesia during 1994.
Administrative, selling and other costs increased $1.7 million in 1994, or
five percent from 1993. Administrative, selling and other costs, on an
equivalent unit of production basis, declined 17 percent from the prior year to
$.88 per boe in 1994 from $1.06 per boe in 1993, reflecting the increase in
production over the prior year and results of the Company's sustained efforts
to contain costs. The Company integrated AERC and the Hall-Houston properties
with minimal increases in administrative staff.
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Net financing costs of $30.7 million were 14 percent higher than 1993.
This was primarily as a result of increasing interest rates and increased debt
in 1994 related to the AERC and Hall-Houston acquisitions which were funded in
the second half of 1993. By year end, effective interest rates on Apache's
floating rate debt, which includes all advances under its bank credit facility,
increased approximately 59 percent over year-end 1993 as market rates increased
at six different times during the year. Apache's average effective interest
rate during 1994 increased to 6.65 percent from 4.96 percent during 1993. On an
equivalent unit of production basis, net financing costs declined to $.78 per
boe in 1994 from $.86 per boe in 1993, as increased production offset the
rising cost of financing. On December 31, 1994, Apache's outstanding debt
balance was $658 million, an increase of 42 percent from $462 million on
December 31, 1993.
PRIOR-YEAR COMPARATIVE INFORMATION
The Company reported net income for 1993 of $37.3 million, or $.70 per
share, a 22-percent decrease from 1992 earnings of $47.8 million, or $1.02 per
share. Significant factors contributing to the lower earnings were after-tax
charges to earnings of $7.8 million, or $.15 per share, taken in the third
quarter related to international impairments and changes in tax laws, the
decline in the Company's realized oil prices during 1993, and the $18.5 million
after-tax gain recognized during 1992 on the sale of the Company's interest in
Natural Gas Clearinghouse (NGC). Excluding only the gain on the 1992 NGC sale,
the Company's 1993 earnings increased 28 percent over 1992.
Volume and price information concerning the Company's 1993 and 1992 oil
and gas production is summarized in the following table:
Selected Oil and Gas Increase
Operating Statistics 1993 1992 (Decrease)
- --------------------- -------- ------- ----------
Gas volume - Mcf per day:
Domestic . . . . . . . . . . . . . . . . . . . . . 299,486 262,245 14%
Foreign . . . . . . . . . . . . . . . . . . . . . 3,589 -- --
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 303,075 262,245 16%
======= =======
Average Gas Price - Per Mcf . . . . . . . . . . . . $ 2.03 $ 1.76 15%
Oil volume - Barrels per day:
Domestic . . . . . . . . . . . . . . . . . . . . . 31,809 31,874 --
Foreign . . . . . . . . . . . . . . . . . . . . . 1,874 1,066 76%
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . 33,683 32,940 2%
======= ======
Average Oil Price - Per Barrel . . . . . . . . . . $ 16.78 $ 18.16 (8)%
Natural Gas Liquids (NGL) -
Barrels per day . . . . . . . . . . . . . . . . . 1,331 1,458 (9)%
Average NGL Price - Per barrel . . . . . . . . . . $ 12.35 $ 12.34 --
Revenues for 1993 totaled $466.6 million, a three-percent increase over
the Company's 1992 revenues. Production revenues in 1993 totaled $437.3
million compared to $394.6 million in 1992. Oil and gas revenues were
influenced by improved gas prices over 1992, declining second-half oil prices,
and the acquisition of AERC and the Hall-Houston properties in the second half
of the year. Revenues from international operations increased 93 percent in
1993, to $15.5 million, with six months of Australian production from the 1993
AERC acquisition.
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Natural gas sales in 1993 contributed $225 million to revenues, up 33
percent from 1992, the result of sustained higher prices and higher production
during 1993. During 1992, Apache's average realized gas price ranged from $1.17
per Mcf in February, the lowest price in 13 years, to a high of $2.40 per Mcf
in October. Apache's average realized price for 1992 was $1.76 per Mcf. In
1993, prices remained in the higher range established in the latter half of
1992. Apache's average realized price for 1993 was $2.03 per Mcf, up 15 percent
over the 1992 average, positively affecting 1993 gas sales by $30.4 million.
Hedging activities decreased gas sales by $5.4 million ($.05 per Mcf) in 1993 as
compared to a $2.5 million decrease in 1992. Both years included losses on swap
agreements and price sharing obligations with Amoco.
The impact of higher gas prices was augmented by higher gas production in
1993 as compared with 1992. Gas production for the year averaged 303.1 MMcf
per day, up 16 percent from 1992, positively affecting gas sales by $25.8
million. This increase is principally the result of production from newly
acquired properties, the most significant of which were the offshore properties
acquired from Hall-Houston, the additional 93-percent working interest in
Matagorda Island Blocks 681 and 682 acquired in 1992, and the properties
acquired in the merger with AERC. Combined, these three acquisitions comprised
332 Bcfe of proved reserves at year end 1993 and contributed 68 MMcf of gas per
day to Apache's 1993 average daily production.
The impact of increased oil production in 1993 was offset by lower oil
prices. Oil production contributed $206.3 million to revenues during 1993, six
percent below Apache's record $218.9 million in oil sales in 1992. Average
daily oil production of approximately 33.7 Mbbls of oil increased two percent
over the prior year, positively affecting oil sales by $4.3 million, as
acquisitions, continuing workover and recompletion operations, and new drilling
in the Permian Basin and Austin Chalk trend offset the effects of natural
depletion.
The Company's average realized oil price of $16.78 per barrel declined
eight percent from 1992, negatively affecting oil sales by $16.9 million.
Hedging activities boosted Apache's average realized oil price in 1993 by $.39
per barrel ($4.8 million in sales) as compared to a $.44 per barrel increase
($5.3 million in sales) in 1992. These were due to Amoco price support hedging
activities.
Revenues from the sale of natural gas liquids and sulfur in 1993 declined
12 percent from 1992 to $6.0 million, a result of lower prices for natural gas
liquids and the sale of the Whitney Canyon gas processing plant in 1992. The
sale of natural gas liquids declined from 1.5 Mbbls per day in 1992 to 1.3
Mbbls per day in 1993.
Revenues from gas gathering, processing and marketing were $25.9 million
in 1993, down 10 percent from 1992. The decline primarily reflects the sale of
Apache's interest in a gas gathering system in western Oklahoma in March 1993.
As a result, gross margins from gathering, processing and marketing were $4.9
million in 1993, a decline of 32 percent from 1992.
Operating costs were up two percent in 1993 to $128.1 million, as a
decline in operating costs per barrel of oil equivalent was offset by the
impact of increased production. Operating costs include lifting costs, workover
expense, and applicable domestic or foreign production taxes. On an equivalent
unit of production basis, operating costs declined six percent in 1993 to $4.10
per boe, down from $4.38 per boe in 1992. Apache's declining costs per boe
reflect increasing natural gas production and lower production costs associated
with operating gas-bearing properties as compared to oil-bearing properties.
Apache's operating costs were also reduced by refunds of well-control insurance
totaling $.7 million and production tax refunds totaling $1.8 million during
1993.
DD&A expense rose 12 percent year-over-year to $176.3 million due to
increased sales of natural gas and increased Australian production. Although
Apache's domestic amortization rate of 38.7 percent of sales for 1993 was down
slightly from 1992, declining oil prices and the higher costs associated with
newly acquired offshore properties, which reflect shorter reserve lives and
faster expected payouts, combined to increase Apache's domestic amortization
rate in the second half of 1993. Recurring international DD&A increased as a
result of substantially increased Australian production.
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International impairments, which rose to $23.2 million in 1993 from $12
million in 1992, included $6.7 million of the Company's investment in West
Africa which the Company wrote-off in the third quarter of 1993 when it
recognized a reduced probability of establishing commercial operations on two
of Apache's concessions. The 1993 impairments also included provisions for
Apache's investment in the Java Sea (Indonesia) and Nanteau (France).
Administrative, selling and other costs were down five percent from those
incurred in 1992, despite the Company's acquisitions during 1993. The reduction
reflects the Company's sustained efforts to contain costs, the non-recurring
administrative costs incurred in the 1992 corporate relocation to Houston, and
the integration of MW. In 1993, Apache successfully assimilated the AERC and
Hall-Houston properties with minimal additions to its administrative staff.
Administrative cost reductions were partially offset, however, by expenses
associated with an employee benefit plan based on Apache common stock, which
increased in price by approximately 25 percent from year-end 1992 to year-end
1993.
Net financing costs declined 17 percent in 1993 despite the use of bank
debt to fund the AERC and Hall-Houston acquisitions. The decline is primarily
attributable to a decline of approximately 100 basis points in Apache's
effective interest in 1993 as compared with 1992, reflecting a general decline
in interest rates and the conversion of Apache's 7 1/2-percent convertible
subordinated debentures due 2000 into shares of Apache common stock in
September 1993. Interest expense also declined as a result of Apache's
repayment of bank debt from a portion of the $131.8 million in net proceeds of
its public offering of common stock in March 1993, the successful conversion of
approximately $150 million of its 7 1/2-percent convertible subordinated
debentures due 2000 and through the redemption of $7 million of 9-percent
convertible subordinated debentures due 2001. Debt reductions attributable to
the public offering and debt conversion in 1993 were offset by debt incurred in
connection with acquisitions. On December 31, 1993, Apache's outstanding debt
balance was $462 million, an increase of one percent from $455.5 million on
December 31, 1992.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, and payment of dividends. The Company generally funds its
exploration and development activities through internally generated cash flows.
Apache budgets its capital expenditures based upon projected cash flows and
routinely adjusts its capital expenditures in response to changes in oil and
gas prices and corresponding changes in cash flow.
Expenditures for exploration and development increased to $302.5 million
in 1994 from $218.9 million in 1993. Domestically, Apache completed 243
producing wells out of 299 gross wells drilled during the year compared with
266 gross wells drilled in 1993, of which 210 were completed as producers.
Internationally, the Company had discoveries on nine of 17 wells drilled in
1994, while completing three of eight wells as producers in 1993. Domestic
expenditures for exploration and development in 1995, including workover and
recompletion operations, are expected to decline to approximately $170 million
as additional funds are used to reduce debt. The Company will step-up its
international activities in 1995 with exploration and development expenditures
expected to rise to approximately $45 million, up from $32 million in 1994.
Cash expenditures for acquisitions during 1994 were $180 million, compared
to $260.9 million in 1993. The most significant acquisition that Apache closed
during 1994 was the purchase of substantially all of the U.S. oil and gas
properties of Crystal Oil Company for $95.8 million. Apache also acquired
approximately $84.2 million of other oil and gas properties through a number of
different transactions during 1994. Funds for the 1994 acquisitions were
obtained principally from borrowings under the Company's revolving bank credit
facility.
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During the fourth quarter of 1994, Apache entered into a merger agreement
with DEKALB Energy Company (DEKALB), with DEKALB to survive as a wholly-owned
subsidiary of Apache and DEKALB shares to be converted into the right to
receive shares of Apache common stock. The Company contemplates that between
8.0 and 8.9 million shares of Apache common stock will be issued in
connection with the merger.
On March 1, 1995, Apache purchased certain oil and gas properties from
Texaco Exploration and Production Inc. (Texaco) for approximately $571 million
in cash, subject to adjustment. Apache delivered a $25 million deposit,
representing a portion of the purchase price, upon execution of the purchase
and sale agreement with Texaco in December 1994, and delivered the balance in
cash at closing. Funds for the Texaco transaction were obtained from several
sources, including increased borrowing capacity under the Company's bank credit
facility and proceeds of Apache's $172.5 million 6-percent Convertible
Subordinated Debentures due 2002 (6-percent debentures), which were issued on
January 4, 1995. On March 1, 1995, lenders increased the Apache revolving
credit facility to $1 billion, subject to borrowing base availability.
The Company aggressively pursues acquisition opportunities as part of its
reserve growth strategy. The amount and timing of future funding requirements
for acquisitions are dependent upon several factors, including the market for
oil and gas properties, and cannot be predicted for the upcoming year.
The aggregate cost of acquisitions in 1993, including the value of the
shares issued and liabilities added through the merger of AERC, totaled $324.6
million. Apache's most significant transactions during 1993 were its
acquisitions of oil and gas properties from Hall-Houston for $113.7 million in
cash and the acquisition of AERC for approximately $98 million in cash and the
issuance of 307,977 shares of Apache common stock. Apache also acquired more
than $76.5 million of other properties during 1993, primarily representing
purchases of additional working interests in properties in which Apache already
held an interest, including the purchase of Key Production Company's interest
in certain properties held by Apache Operating Partnership L.P. prior to its
dissolution during the first quarter of 1993.
Other capital expenditures for 1993 include the purchase of NGC's interest
in a gas gathering system in western Oklahoma which was sold in March 1993, in
a transaction described under "Capital Resources and Liquidity" below.
At December 31, 1994, Apache had outstanding $454 million under its
revolving bank credit facility, $25.8 million in additional bank debt
consolidated through the AEL banker's acceptance facility, and an aggregate of
$177.8 million in principal amount of other long-term debt, comprised
principally of notes and debentures maturing in the years 1997 through 2002.
The Company's overall debt at December 31, 1994, had increased $195.6 million
from December 31, 1993, partly the result of borrowing to fund acquisitions
and the purchase of approximately $15 million of AERC shares tendered to
the Company in the first quarter of 1994. Apache made cash payments on
long-term debt totaling $28.7 million in 1994, of which $9 million was
scheduled under the Company's debt obligations and the remaining amount was
paid due to the termination of AERC's bank credit facility. Interest payments
on the Company's outstanding debt obligations during 1995 are projected (using
weighted average balances for floating rate obligations) to be approximately
$89 million, while scheduled principal payments for 1995 currently total $.1
million.
Dividends paid during 1994 totaled $17.1 million, up 15 percent from 1993,
primarily due to the issuance of approximately 5.8 million shares in connection
with the Company's March 1993 common stock offering, and the issuance of
approximately 7.8 million shares in September 1993 upon the conversion of its
subordinated debentures. The Company's dividend policy currently provides for
the payment of regular quarterly dividends at the rate of $.28 per share
annually. Although no change in the dividend policy is contemplated for 1995,
the declaration and amount of future dividends is dependent upon the Company's
cash requirements, applicable debt covenants and other factors deemed relevant
by the Board of Directors.
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CAPITAL RESOURCES AND LIQUIDITY
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
Net cash provided by operating activities during 1994 was $335.6 million,
up $110.5 million from 1993. The 49-percent improvement in cash flows
primarily reflects increased natural gas production and a $67.4 million advance
on future gas deliveries related to the Company's sale of approximately 43.8
Bcf of natural gas for delivery over a six-year period. (See Note 5 to the
Company's financial statements). Eliminating the effects of forward sale
transactions, net cash provided by operating activities increased by 19 percent
over 1993, reflecting the results of increased production partially offset by
lower oil and gas prices.
The Company anticipates that it will engage in additional forward sale
transactions in the future if sales can be made under terms and conditions that
are favorable to the Company in light of market conditions. Future cash flows
will be influenced by product prices and production volumes and are not
presently ascertainable.
On January 4, 1995, Apache completed the issuance of $172.5 million
principal amount of its 6-percent debentures to reduce bank debt, provide
funding for acquisitions and general corporate purposes. The debentures are
convertible at the option of the holder into Apache common stock at a
conversion price of $30.68 per share.
On March 1, 1995, in connection with the acquisition of certain oil and
gas properties from Texaco, lenders increased the size of Apache's revolving
credit facility from $700 million to $1 billion, subject to borrowing base
availability. The borrowing base is the estimated loan value of the Company's
oil and gas reserves, not including reserves outside the United States and
subject to certain other exclusions, based upon forecast rates of production,
as periodically redetermined by the lenders. Upon closing the Texaco
transaction on March 1, 1995, Apache had approximately $840 million in loans
outstanding under the facility with approximately $60 million remaining
available. (See Note 3 to the Company's financial statements under Item 8
below.)
Under terms of the credit agreement, as amended March 1, 1995, the
Company must (i) maintain a minimum tangible net worth of $650 million, which
is adjusted quarterly for subsequent earnings and securities transactions, and
(ii) maintain a ratio (A) earnings before interest, taxes, depreciation,
depletion and amortization to (B) consolidated interest expense, of not less
than 3.7:1. Restrictive covenants under the facility include certain
limitations on indebtedness and contingent obligations, as well as certain
restrictions on liens and investments in international subsidiaries. The
Company has complied with its financial ratios and restrictive covenants at all
times since the inception of the revolving credit facility in July 1991. The
facility matures on March 1, 2000, and may be extended in one-year increments
with the lenders' consent.
In May 1994, Apache terminated AERC's bank credit facility and
converted the banker's acceptance facility of Apache Energy Limited (AEL), a
wholly-owned Australian subsidiary of AERC, from a reducing term credit
facility to a revolving credit facility with a commitment of $30 million,
subject to financial covenants and borrowing base availability. The AEL
facility provides for advances discounted at a varying rate over the discount
rate prevailing in the Canadian banker's acceptance market. Under the terms
of AEL's revolving credit facility, AEL must maintain certain minimum financial
ratios, including a current ratio (including funds available under the AEL
credit facility) of 1.0 to 1.0, a ratio of consolidated cash flow to debt
service of 1.1 to 1.0, and a ratio of consolidated cash flow to consolidated
interest expense of 3.0 to 1.0. In addition, AEL must maintain a minimum
tangible net worth of $30 million, which is adjusted quarterly for subsequent
earnings, and satisfy restrictive covenants similar to those under
Apache's revolving credit facility. At year end, the borrowing base was $30
million of which $25.8 million was outstanding, and AEL was in compliance with
the financial ratios and restrictive covenants under the facility. Apache and
its subsidiaries (other than AEL and its subsidiaries) have not guaranteed the
AEL credit facility.
In March 1993, Apache and NGC completed the sale of their respective
interests in a gathering system in western Oklahoma. Apache received gross cash
proceeds of approximately $32.2 million in the transaction, of which $16.4
million was attributable to NGC's interest in the system.
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Also in March 1993, Apache completed the public offering of approximately
5.8 million shares of Apache common stock for net proceeds of $131.8 million.
Net proceeds of the offering were used to repay outstanding debt under Apache's
revolving bank credit facility. In September 1993, Apache completed the
conversion of its 7 1/2-percent convertible subordinated debentures due 2000,
resulting in the issuance of approximately 7.8 million shares of Apache common
stock. Primarily as a result of the conversion and Apache's March 1993 equity
offering, Apache's debt as a percentage of capital declined to 37 percent at
December 31, 1993.
In May 1992, Apache issued 9.25-percent notes due 2002 in the principal
amount of $100 million. Proceeds from the offering were used to reduce bank
debt, pay off its 9 1/2-percent convertible debentures due 1996 and for general
corporate purposes. In December 1992, the Company privately placed 3.93-percent
convertible notes due 1997 in the principal amount of $75 million. The
3.93-percent notes are not redeemable before maturity and are convertible into
Apache common stock at the option of the holders at any time prior to maturity
at a conversion price of $27.00 per share. Proceeds from the sale of the
3.93-percent notes were used to repay bank debt.
The Company had $15.1 million in cash and cash equivalents on hand at
December 31, 1994, down from $17.1 million at the end of 1993. The Company's
ratio of current assets to current liabilities at year end of .9:1 improved
from a ratio of .7:1 from year-end 1993.
Management believes that cash on hand at year end, net cash generated from
operations, proceeds from the sale of the 6-percent debentures, and increased
borrowing capacity under its revolving bank credit facility will be adequate to
satisfy the Company's financial obligations, including its purchase obligation
with respect to the Texaco properties (see "Capital Commitments"), and to meet
future liquidity needs for at least the next two fiscal years.
FUTURE TRENDS
The closing of the acquisition of the Texaco properties and the DEKALB
merger mark the completion of a major acquisition cycle which will be followed
by property consolidation and rationalization. Apache is committed to reducing
its debt to capitalization ratio through the selective disposition of marginal
and non-strategic properties and through property development focused on cash
flow and debt reduction. In that regard, Apache announced on February 15, 1995,
the Company's plan to sell substantially all of the oil and gas properties in
its Rocky Mountain region, which includes many lower margin properties. The
Company anticipates that divestiture of the Rocky Mountain properties, together
with disposal of non-strategic assets in other operating regions, will result
in total proceeds of approximately $200 million. While total capital
expenditures will be higher in 1995 due to the acquisition of properties from
Texaco, domestic exploration and development costs will be reduced from their
1994 levels as a result of low product prices and the commitment to reduce
debt. Property dispositions and reduced domestic exploration outlays in 1995
will likely result in lower production and reserves from the level achieved
upon completion of the Texaco and DEKALB transactions. The following factors
may also impact Apache's operating results and financial condition in the
future.
CONTINUING VOLATILITY OF PRODUCT PRICES
In 1994, spot market natural gas prices remained volatile and continued to
behave unpredictably. Spot market oil prices, which are especially vulnerable
to complex and unpredictable political and economic forces, also remained
volatile in 1994, as Apache's average realized price fluctuated from $12.65 per
barrel in March to $17.77 per barrel in July. Management believes that, absent
a comprehensive U.S. energy policy, oil prices will continue to fluctuate in
response to changes in the policies of the Organization of Petroleum Exporting
Countries (OPEC), events in the Middle East and events in certain non-OPEC
countries. Management also believes that gas prices will remain volatile and
may fluctuate due to supply and demand perceptions.
24
27
MARKETING AND HEDGING
In August 1994, Apache named a vice president of marketing to a newly
created position to oversee the marketing and sale of the Company's gas
production. The Company expects to take a more active roll in the marketing of
Apache's production in 1995. Also during 1994, Apache undertook a comprehensive
review of its risk management policies and procedures, with emphasis on
commodity hedging. At December 31, 1994, Apache had two open swap agreements
hedging a total of 30,000 MMBtud of natural gas. (See Note 8 to the Company's
financial statements.) The Company is likely to increase the use of commodity
derivatives contracts to either fix or support oil and gas prices at targeted
levels, or to minimize the impact of price fluctuations.
CEILING TEST FOR FULL COST COMPANIES
Oil and gas producers that conduct their financial reporting under the
full cost accounting rules are subject to Securities and Exchange Commission
(SEC) rules that require quarterly "ceiling test" calculations. This test
requires a write-down when the capitalized cost of oil and gas properties
exceeds the present value of proved reserves, plus the lower of cost or market
value for unproved properties. (See Supplemental Oil and Gas Disclosures to the
Company's financial statements). The test is applied at the end of each fiscal
quarter on a country-by-country basis, and requires a write-down if the
"ceiling" is exceeded, even if prices decline only for a short period of time.
Many full cost companies, including Apache, are concerned about the impact of
prolonged unfavorable gas prices on their ceiling test calculations. A further
deterioration of gas or oil prices from year-end levels would likely result in
the Company recording a non-cash charge to earnings related to its oil and gas
properties in the first quarter of 1995. SEC rules permit the exclusion of
capitalized costs and present value of recently acquired properties in
performing ceiling test calculations. Pursuant to these rules, Apache has
requested waivers and the SEC has granted one-year waivers with respect to the
properties acquired from Texaco and Crystal. If the ceiling is exceeded on all
domestic properties, Apache will be required to perform an additional ceiling
test excluding the Texaco and Crystal properties and record a write-down of
carrying value if the ceiling is still exceeded.
ENVIRONMENTAL REGULATION
The Company operates under numerous state and federal laws regulating the
discharge of materials into, and the protection of, the environment. In the
ordinary course of business, Apache conducts an ongoing review of the effects
of these various environmental laws on its business and operations. The
estimated cost of continued compliance with current environmental laws, based
upon the information currently available, is not material to the Company's
financial position or results of operations. It is impossible to determine
whether and to what extent Apache's future performance may be affected by
environmental laws; however, management does not believe that such laws will
have a material adverse effect on the Company's financial position or results
of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-28 of this
Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Information About Nominees
for Election as Directors," "Continuing Directors," "Executive Officers of the
Company," and "Voting Securities and Principal Holders" in the Company's proxy
statement relating to the Company's 1995 annual meeting of shareholders (the
"Proxy Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table,"
"Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table,"
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and "Director Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and
Principal Holders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Business
Relationships and Transactions" in the Proxy Statement is incorporated herein
by reference.
26
29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS INCLUDED IN THIS REPORT:
1. FINANCIAL STATEMENTS
Report of independent public accountants . . . . . . . . . . . . . . . . . . . . . F-1
Report of management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Statement of consolidated income for each of the three years in the period ended
December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of consolidated cash flows for each of the three years in the period
ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated balance sheet as of December 31, 1994 and 1993 . . . . . . . . . . . F-5
Statement of consolidated shareholders' equity for each of the three years in
the period ended December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . F-7
Summary of significant accounting policies . . . . . . . . . . . . . . . . . . . . F-8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . F-10
Supplemental oil and gas disclosures . . . . . . . . . . . . . . . . . . . . . . . F-22
Supplemental quarterly financial data . . . . . . . . . . . . . . . . . . . . . . F-28
2. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have been omitted because they are
either not required, not applicable or the information required to be
presented is included in the Company's financial statements and
related notes.
27
30
3. EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between Registrant and Amoco Production
Company (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on
Form 8-K, dated July 1, 1991, SEC File No. 1-4300, filed July 19, 1991).
2.2 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and
Registrant, as buyer, dated as of June 2, 1993 (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC File No.
1-4300, filed September 7, 1993).
2.3 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and
Registrant, as buyer, dated as of August 13, 1993 (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC
File No. 1-4300, filed September 7, 1993).
2.4 -- Form of Acquisition Agreement between Registrant, HERC Acquisition Corporation and
Hadson Energy Resources Corporation, dated August 26, 1993, and amended September 28,
1993 (incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement
on Form S-4, Registration No. 33-67954, filed September 29, 1993).
2.5 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as
seller, and Registrant, as buyer, dated December 22, 1994 (incorporated by reference
to Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated November 29, 1994,
SEC File No. 1-4300, filed December 29, 1994).
2.6 -- Agreement and Plan of Merger among Registrant, XPX Acquisitions, Inc. and DEKALB
Energy Company, dated December 21, 1994 (incorporated by reference to Exhibit 2.1 to
Registrant's Registration Statement on Form S-4, Registration No. 33-57321, filed
January 17, 1995).
2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement with Option to Exchange, dated
November 24, 1992, between Shell Offshore Inc., SOI Royalties Inc., and Registrant
(incorporated by reference to Exhibit 10.7 to Apache Offshore Investment Partnership's
Annual Report on Form 10-K for year ended December 31, 1992, SEC File No. 0-13546).
3.1 -- Restated Certificate of Incorporation of Registrant, dated December 1, 1993, as filed
with the Secretary of State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
3.2 -- Bylaws of Registrant, dated as of December 9, 1992 (incorporated by reference to
Exhibit 3.3 to Registrant's Annual Report on Form 10-K for year ended December 31,
1992, SEC File No. 1-4300).
4.1 -- Form of common stock certificate (incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to Registrant's Registration Statement on Form S-3, Registration No.
33-5097, filed May 16, 1986).
28
31
EXHIBIT NO. DESCRIPTION
----------- -----------
4.2 -- Rights Agreement, dated as of January 10, 1986, between Registrant and First Trust
Company, Inc., rights agent, relating to the declaration of Rights to Registrant's
common stockholders of record on January 24, 1986 (incorporated by reference to
Exhibit 4.9 to Registrant's Annual Report on Form 10-K for year ended December 31,
1985, SEC File No. 1-4300).
10.1 -- Second Amended and Restated Credit Agreement, dated April 30, 1994, among Registrant,
the lenders named therein, and The First National Bank of Chicago and Chemical Bank,
as agents (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for quarter ended June 30, 1994, SEC File No. 1-4300).
*10.2 -- Third Amended and Restated Credit Agreement, dated March 1, 1995, among Registrant,
the lenders named therein, and The First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.3 -- Fiscal Agency Agreement, dated as of January 4, 1995, between Registrant and Chemical
Bank, as fiscal agent (incorporated by reference to Exhibit 99.2 to Registrant's
Current Report on Form 8-K, dated December 6, 1994, SEC File No. 1-4300, filed January
11, 1995.)
+10.4 -- 1982 Employee Stock Option Plan, as updated in January 1987 to conform to the Tax
Reform Act of 1986 (incorporated by reference to Exhibit 10.7 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.5 -- Apache Corporation Corporate Administrative Group Incentive Plan, effective as of
January 1, 1989 (incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.6 -- First Amendment to Apache Corporation Corporate Administrative Group Incentive Plan,
effective January 1, 1990 (incorporated by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300).
* +10.7 -- Apache Corporation Retirement/401(k) Savings Plan, dated December 22, 1994, effective
January 1, 1995.
+10.8 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989
(incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.9 -- Apache International, Inc. Common Stock Award Plan, dated February 12, 1990
(incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.10 -- Apache Corporation 1990 Phantom Stock Appreciation Plan, dated as of September 28,
1990 (incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.11 -- Apache Corporation 1990 Stock Incentive Plan, dated as of September 28, 1990
(incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1990, SEC File No. 1-4300).
29
32
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.12 -- Amendment No. 1 to the Apache Corporation 1990 Stock Incentive Plan, dated as of July
17, 1992 (incorporated by reference to Exhibit 4.4 to Registrant's Registration
Statement on Form S-8, Registration No. 33-53442, filed October 19, 1992).
*+10.13 -- Apache Corporation 1995 Stock Option Plan, adopted February 9, 1995.
+10.14 -- Apache Corporation Income Continuance Plan, as amended and restated February 24, 1988
(incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1990, SEC File No. 1-4300).
*+10.15 -- Apache Corporation Directors' Deferred Compensation Plan, as amended and restated
September 14, 1994.
+10.16 -- Apache Corporation Phantom Stock Appreciation Plan for Directors, effective as of May
4, 1989 (incorporated by reference to Exhibit 10.22 to Registrant's Annual Report on
Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.17 -- Apache Corporation Outside Directors' Retirement Plan, effective December 15, 1992
(incorporated by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 1-4300).
+10.18 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, adopted
February 9, 1994, and form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.19 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant
and Raymond Plank (incorporated by reference to Exhibit 10.9 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.20 -- Amended and Restated Employment Agreement, dated December 20, 1990, between Registrant
and John A. Kocur (incorporated by reference to Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.21 -- Employment Agreement, dated March 20, 1991, between Registrant and William J. Johnson
(incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 1-4300).
+10.22 -- Employment Agreement, dated June 6, 1988, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.23 -- Consulting Agreement, dated November 1, 1993, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.30 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1993, SEC File No. 1-4300).
*+10.24 -- Consulting Agreement, effective April 28, 1994, between Registrant and William J.
Johnson.
*+10.25 -- Consulting Agreement, effective January 1, 1995, between Registrant and John L. Moran.
*11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for
the year ended December 31, 1994.
30
33
EXHIBIT NO. DESCRIPTION
----------- -----------
*21.1 -- Subsidiaries of Registrant.
*23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers.
*27.1 -- Financial Data Schedule.
____________________
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
Note: Debt instruments of the Registrant defining the rights of long-term
debt holders in principal amounts not exceeding 10 percent of the
Registrant's consolidated assets have been omitted and will be
provided to the Commission upon request.
(b) REPORTS ON FORM 8-K
The following reports on Form 8-K were filed during the fiscal quarter
ended December 31, 1994:
November 29, 1994 - Item 5. Other Events - Registrant entered into a
memorandum of understanding, and subsequently into a purchase and sale
agreement with Texaco Exploration and Production Inc., under which
Registrant will acquire Texaco's interest in over 300 oil and gas
fields for approximately $600 million, subject to certain adjustments.
December 6, 1994 - Item 5. Other Events - Registrant issued $172.5
million principal amount of 6 percent Convertible Subordinated
Debentures due 2002, which are convertible into the Registrant's
common stock at a conversion price of $30.68 per share.
December 21, 1994 - Item 5. Other Events - Registrant entered into an
agreement and plan of merger with DEKALB Energy Company pursuant to
which (i) each outstanding share of DEKALB stock will be converted
into the right to receive between .85 and .90 shares of the
Registrant's common stock, and (ii) DEKALB will become a wholly-owned
subsidiary of the Registrant.
31
34
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
Date: March 6, 1995 By: /s/ Raymond Plank
Raymond Plank,
Chairman and Chief Executive Officer
POWER OF ATTORNEY
The officers and directors of Apache Corporation, whose signatures appear
below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z. S.
Kobiashvili and Mark A. Jackson, and each of them (with full power to each of
them to act alone), the true and lawful attorney-in-fact to sign and execute,
on behalf of the undersigned, any amendment(s) to this report and each of the
undersigned does hereby ratify and confirm all that said attorneys shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.*
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Raymond Plank Chairman and Chief Executive
Raymond Plank Officer (Principal Executive
Officer) March 6, 1995
/s/ Mark A. Jackson Vice President, Finance March 6, 1995
Mark A. Jackson
/s/ R. Kent Samuel Controller and Chief
R. Kent Samuel Accounting Officer March 6, 1995
* Apache Corporation does not have a Principal Financial Officer.
35
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Frederick M. Bohen Director
Frederick M. Bohen March 6, 1995
/s/ Virgil B. Day Director
Virgil B. Day March 6, 1995
/s/ G. Steven Farris Director
G. Steven Farris March 6, 1995
/s/ Randolph M. Ferlic Director
Randolph M. Ferlic March 6, 1995
/s/ Eugene C. Fiedorek Director
Eugene C. Fiedorek March 6, 1995
/s/ W. Brooks Fields Director
W. Brooks Fields March 6, 1995
/s/ Robert V. Gisselbeck Director
Robert V. Gisselbeck March 6, 1995
/s/ Stanley K. Hathaway Director
Stanley K. Hathaway March 6, 1995
/s/ John A. Kocur Director
John A. Kocur March 6, 1995
/s/ Jay A. Precourt Director
Jay A. Precourt March 6, 1995
/s/ Joseph A. Rice Director
Joseph A. Rice March 6, 1995
36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Shareholders of Apache Corporation:
We have audited the accompanying consolidated balance sheet of Apache
Corporation (a Delaware corporation) and Subsidiaries as of December 31, 1994
and 1993, and the related statements of consolidated income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apache
Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 1, 1995
F-1
37
REPORT OF MANAGEMENT
The financial statements and related financial information of Apache
Corporation and Subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgments.
Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to and that assets are
safeguarded. The systems of internal controls are supported by written policies
and guidelines, internal audits and the selection and training of qualified
personnel.
The consolidated financial statements have been audited by Arthur Andersen
LLP, independent public accountants. Their audits included developing an
overall understanding of the Company's accounting systems, procedures and
internal controls and conducting tests and other auditing procedures sufficient
to support their opinion on the fairness of the consolidated financial
statements.
The Board of Directors exercises its oversight responsibility for the
financial statements through its Audit Committee, composed solely of directors
who are not employed by Apache. The Audit Committee meets periodically with
management, internal auditors and the independent public accountants to ensure
that they are successfully completing designated responsibilities. The internal
auditors and independent public accountants have open access to the Audit
Committee to discuss auditing and financial reporting issues.
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Mark A. Jackson
Vice President, Finance
R. Kent Samuel
Controller and Chief Accounting Officer
F-2
38
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
REVENUES:
Oil and gas production revenues . . . . . . . . . . . . . . . . . $ 493,500 $ 437,342 $ 394,552
Gathering, processing and marketing revenues . . . . . . . . . . . 44,287 25,862 28,594
Equity in income of affiliates . . . . . . . . . . . . . . . . . . 459 624 2,695
Gain on sale of investment in affiliate . . . . . . . . . . . . . -- -- 28,345
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . . . 7,375 2,810 114
---------- ---------- ----------
545,621 466,638 454,300
---------- ---------- ----------
OPERATING EXPENSES:
Depreciation, depletion and amortization . . . . . . . . . . . . . 232,612 176,335 157,508
International impairments . . . . . . . . . . . . . . . . . . . . 7,300 23,200 12,000
Operating costs . . . . . . . . . . . . . . . . . . . . . . . . . 137,820 128,113 125,337
Gathering, processing and marketing costs . . . . . . . . . . . . 37,866 21,010 21,452
Administrative, selling and other . . . . . . . . . . . . . . . . 34,870 33,193 35,010
Financing costs:
Interest expense . . . . . . . . . . . . . . . . . . . . . . 32,066 28,102 35,314
Amortization of deferred loan costs . . . . . . . . . . . . . 3,922 3,896 3,888
Capitalized interest . . . . . . . . . . . . . . . . . . . . (4,889) (4,764) (6,035)
Interest income . . . . . . . . . . . . . . . . . . . . . . . (403) (352) (652)
---------- ---------- ----------
481,164 408,733 383,822
---------- ---------- ----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . 64,457 57,905 70,478
Provision for income taxes . . . . . . . . . . . . . . . . . . . . 21,620 20,571 22,702
---------- ---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334 $ 47,776
========== ========== ==========
NET INCOME PER COMMON SHARE . . . . . . . . . . . . . . . . . . . . . . $ .70 $ .70 $ 1.02
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . . . . . . . . 61,317 53,534 46,904
========== ========== ==========
The accompanying summary of significant accounting policies and notes
to consolidated financial statements are integral parts of this statement.
F-3
39
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Year Ended December 31,
-------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334 $ 47,776
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization . . . . . . . . . . 232,612 176,335 157,508
International impairments . . . . . . . . . . . . . . . . . . 7,300 23,200 12,000
Amortization of deferred loan costs . . . . . . . . . . . . . 3,922 3,896 3,888
Provision for deferred income taxes . . . . . . . . . . . . . 25,370 20,571 14,034
----------- ----------- -----------
312,041 261,336 235,206
Gain on sale of investment in affiliate . . . . . . . . . . . . . -- -- (28,345)
Cash distributions in excess of (less than) earnings of affiliates (459) (662) 2,650
Gain on sale of stock held for investment . . . . . . . . . . . . (2,178) -- --
Changes in operating assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in receivables . . . . . . . . . . . . . (9,961) (9,590) 356
(Increase) decrease in advances to oil and
gas ventures and other . . . . . . . . . . . . . . . . . (2,281) 137 (3,598)
Increase in deferred charges and other . . . . . . . . . . . (3,238) (3,904) (1,415)
Increase (decrease) in payables . . . . . . . . . . . . . . . (14,905) (4,152) 2,187
Increase (decrease) in accrued operating costs . . . . . . . 541 (8,177) (8,660)
Increase in advance from gas purchaser . . . . . . . . . . . 67,376 -- --
Decrease in deferred credits and
noncurrent liabilities . . . . . . . . . . . . . . . . . (11,338) (9,915) (3,983)
----------- ----------- -----------
Net cash provided by operating activities . . . . 335,598 225,073 194,398
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures . . . . . . . . . . . . . (302,530) (218,930) (136,691)
Acquisition of oil and gas properties . . . . . . . . . . . . . . (179,972) (190,181) (62,955)
Noncash portion of net oil and gas property additions . . . . . . 7,595 7,104 2,434
Purchase of AERC stock, net of cash acquired . . . . . . . . . . . (13,885) (70,692) --
Purchase of stock held for investment . . . . . . . . . . . . . . (5,051) -- --
Proceeds from sale of oil and gas properties . . . . . . . . . . . 5,854 3,255 37,167
Prepaid acquisition cost . . . . . . . . . . . . . . . . . . . . . (25,377) -- --
Proceeds from sale of stock held for investment . . . . . . . . . 6,640 -- --
Proceeds from sale of gas gathering system . . . . . . . . . . . . -- 32,201 --
Proceeds from sale of investment in affiliate . . . . . . . . . . -- -- 50,700
Other capital expenditures, net . . . . . . . . . . . . . . . . . (11,306) (30,471) (7,495)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,716) 1,145 (1,173)
----------- ----------- -----------
Net cash used by investing activities . . . . . . . . . (519,748) (466,569) (118,013)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . 224,279 275,424 266,378
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . (28,719) (162,000) (306,565)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (17,131) (14,919) (13,130)
Proceeds from issuance of common stock . . . . . . . . . . . . . . 4,599 134,223 630
Payments to acquire treasury stock . . . . . . . . . . . . . . . . (4) (25) (3)
Costs of debt and equity transactions . . . . . . . . . . . . . . (875) (270) (3,971)
----------- ----------- -----------
Net cash provided (used) by financing activities . . . . 182,149 232,433 (56,661)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . (2,001) (9,063) 19,724
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . . . . 17,064 26,127 6,403
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . . . . . $ 15,063 $ 17,064 $ 26,127
=========== =========== ===========
The accompanying summary of significant accounting policies and notes
to consolidated financial statements are integral parts of this statement.
F-4
40
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
-------------------------------
1994 1993
-------- --------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 15,063 $ 17,064
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 101,801 91,840
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . 8,868 7,152
Advances to oil and gas ventures and other . . . . . . . . . . . 9,165 6,884
------------ ------------
134,897 122,940
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties . . . . . . . . . . . . . . . . . . . . . 2,953,121 2,516,801
Unproved properties and properties under development,
not being amortized . . . . . . . . . . . . . . . . . 145,925 105,597
Gas gathering, transmission and processing facilities . . . . . 25,809 25,809
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,121 36,938
------------ ------------
3,171,976 2,685,145
Less: Accumulated depreciation, depletion and amortization . . . (1,486,543) (1,248,685)
------------ ------------
1,685,433 1,436,460
------------ ------------
OTHER ASSETS:
Deferred charges and other . . . . . . . . . . . . . . . . . . . 58,692 33,007
------------ ------------
$ 1,879,022 $ 1,592,407
============ ===========
The accompanying summary of significant accounting policies and notes
to consolidated financial statements are integral parts of this statement.
F-5
41
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
-------------------------------
1994 1993
-------- --------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . . $ 100 $ 9,017
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 87,674 118,447
Accrued operating expense . . . . . . . . . . . . . . . . . . . 14,772 17,371
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . -- 6,048
Accrued exploration and development . . . . . . . . . . . . . . 22,678 15,083
Accrued compensation and benefits . . . . . . . . . . . . . . . 10,384 9,170
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . 12,180 10,254
------------ -----------
147,788 185,390
------------ -----------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . 657,486 453,009
------------ -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 156,180 128,554
Advance from gas purchaser . . . . . . . . . . . . . . . . . . . 67,376 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,012 39,600
------------ -----------
257,568 168,154
------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized,
62,558,979 and 62,334,241 shares issued, respectively . . . 78,199 77,918
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 543,583 540,155
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 207,850 182,195
Treasury stock, at cost, 1,118,975 and 1,248,827 shares,
respectively . . . . . . . . . . . . . . . . . . . . . . . (13,452) (14,414)
------------ -----------
816,180 785,854
------------ -----------
$ 1,879,022 $ 1,592,407
============ ===========
The accompanying summary of significant accounting policies and notes
to consolidated financial statements are integral parts of this statement.
F-6
42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
Total
Common Paid-In Retained Treasury Shareholders'
Stock Capital Earnings Stock Equity
----- ------- -------- ----- -------
(In thousands)
BALANCE, DECEMBER 31, 1991 . . . . . . . . $ 60,303 $ 268,966 $ 126,122 $ (15,450) $ 439,941
Net income . . . . . . . . . . . . . . -- -- 47,776 -- 47,776
Dividends ($.28 per common share) . . -- -- (13,135) -- (13,135)
Common shares issued . . . . . . . . . 77 382 -- -- 459
Treasury shares issued . . . . . . . . -- (52) -- 223 171
Treasury shares purchased . . . . . . -- -- -- (3) (3)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1992 . . . . . . . . 60,380 269,296 160,763 (15,230) 475,209
Net income . . . . . . . . . . . . . . -- -- 37,334 -- 37,334
Dividends ($.28 per common share) . . -- -- (15,902) -- (15,902)
Common shares issued . . . . . . . . . 17,538 270,859 -- -- 288,397
Treasury shares issued . . . . . . . . -- -- -- 841 841
Treasury shares purchased . . . . . . -- -- -- (25) (25)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1993 . . . . . . . . 77,918 540,155 182,195 (14,414) 785,854
Net income . . . . . . . . . . . . . . -- -- 42,837 -- 42,837
Dividends ($.28 per common share) . . -- -- (17,182) -- (17,182)
Common shares issued . . . . . . . . . 281 3,428 -- -- 3,709
Treasury shares issued . . . . . . . . -- -- -- 966 966
Treasury shares purchased . . . . . . -- -- -- (4) (4)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1994 . . . . . . . . $ 78,199 $ 543,583 $ 207,850 $(13,452) $ 816,180
========= ========= ========= ========= =========
The accompanying summary of significant accounting policies and notes
to consolidated financial statements are integral parts of this statement.
F-7
43
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Apache Corporation (Apache or the Company) and its subsidiaries after
elimination of intercompany balances and transactions. The Company's interests
in oil and gas ventures and partnerships are proportionately consolidated.
Investments in incorporated affiliates in which Apache owns between a
20-percent and 50-percent interest are accounted for using the equity method.
INVENTORIES
Inventories consist principally of tubular goods and production equipment
stated at the lower of weighted average cost or market.
PROPERTY AND EQUIPMENT
The Company uses the full cost method of accounting for its investment in
oil and gas properties. Under this method, the Company capitalizes all
acquisition, exploration and development costs incurred for the purpose of
finding oil and gas reserves, including salaries, benefits and other internal
costs directly attributable to these activities. Apache capitalized $30.9
million, $25.4 million and $24 million of internal costs in 1994, 1993 and
1992, respectively. Costs associated with production and general corporate
activities are expensed in the period incurred. Internal costs attributable to
the management of the Company's producing properties, before recoveries from
industry partners, totaled $12.2 million, $10.2 million and $10 million in
1994, 1993 and 1992, respectively, and are included in operating costs on the
Company's Statement of Consolidated Income. Interest costs related to
development projects in progress for an extended period are also capitalized to
oil and gas properties. Unless significant reserves are involved, proceeds from
the sale of oil and gas properties are accounted for as reductions to
capitalized costs and gains or losses are not recognized.
Apache computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the future gross
revenue method. The quarterly provision is calculated on a country-by-country
basis by multiplying the quarter's oil and gas revenues by an overall rate
which is determined by dividing the unamortized cost of proved oil and gas
properties by the total estimated future oil and gas revenues from proved
reserves. The amortizable base includes estimated future development cost and
dismantlement, restoration and abandonment costs, net of estimated salvage
values. These future costs are generally estimated by engineers employed by
Apache.
Apache limits, on a country-by-country basis, the capitalized costs of
proved oil and gas properties, net of accumulated DD&A, to the estimated future
net cash flows from proved oil and gas reserves, net of related tax effects,
discounted at 10 percent. If capitalized costs exceed this limit, the excess is
charged to DD&A expense. The Company has not recorded any write downs of
capitalized costs in any of the periods presented.
The costs of certain unevaluated domestic and foreign leasehold acreage and
wells in the process of being drilled are not being amortized. Costs not being
amortized are periodically assessed for possible impairments or reductions in
value. If a reduction in value has occurred, costs being amortized are
increased or a charge is made against earnings for those international
operations where a reserve base is not yet established.
Buildings, equipment, gas gathering, transmission and processing facilities
are depreciated on a straight-line basis over the estimated useful lives of the
assets which range from three to 20 years. Accumulated depreciation for these
assets totaled $23.7 million and $17.2 million at December 31, 1994 and 1993,
respectively.
ACCOUNTS PAYABLE
Included in accounts payable at December 31, 1994 and 1993, are liabilities
of approximately $30.3 million and $38.6 million, respectively, representing
the amount by which checks issued but not presented to the Company's banks for
collection exceeded balances in applicable bank accounts.
F-8
44
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Apache uses the sales method of accounting for natural gas revenues. Under
this method, revenues are recognized based on actual volumes of gas sold to
purchasers. The volumes of gas sold may differ from the volumes to which Apache
is entitled based on its interests in the properties. Differences between
volumes sold and volumes based on entitlements create gas imbalances which are
generally reflected as adjustments to reported gas reserves and future cash
flows. Adjustments for gas imbalances totaled less than one percent of Apache's
proved gas reserves at December 31, 1994. Revenue is deferred and a liability
is recorded for those properties where the estimated remaining reserves will
not be sufficient to enable the underproduced owner to recoup their entitled
share through production.
HEDGING ACTIVITIES
The Company periodically enters into commodity derivative contracts in
order to either fix or support oil and gas prices at targeted levels and to
minimize the impact of price fluctuations. Apache uses swaps, puts or
fixed-price contracts to hedge its commodity prices. Gains or losses on these
hedging activities are recognized in oil and gas production revenues when the
hedged production occurs. Estimates of future liabilities and receivables
applicable to oil and gas commodity hedges are reflected in future cash flows
from proved reserves in the supplemental oil and gas disclosures, with such
estimates based on prices in effect as of the date of the reserve report.
The Company also purchases interest rate caps and enters into interest rate
swap transactions in its management of interest rate exposure. Interest rate
swap agreements generally involve the exchange of fixed and floating interest
payment obligations without the exchange of the underlying principal amounts.
Gains or losses on these activities are recognized in interest expense in the
period hedged by the agreements.
INCOME TAXES
The Company provides deferred income taxes for all temporary differences
between financial and income tax reporting. Effective January 1, 1993, the
Company implemented the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the liability
method specified by SFAS No. 109, deferred taxes are determined based on the
estimated future tax effect of differences between the financial statement and
tax bases of assets and liabilities given the provisions of enacted tax laws.
The adoption of SFAS No. 109 did not have a material effect on the accompanying
financial statements.
FOREIGN CURRENCY TRANSLATION
The U.S. dollar is considered the functional currency for each of the
Company's international operations. Translation gains or losses are recognized
in current net income and were not material in any of the periods presented.
INCOME PER COMMON SHARE
Income per common share amounts are based on the weighted average number of
common shares outstanding. The effects of common equivalent shares, which would
include shares from the assumed conversion of the 3.93-percent notes, were
immaterial or were not dilutive for each of the periods presented. Furthermore,
fully diluted income per share, assuming conversion of certain of the
convertible debentures, was not significantly different than primary income per
share for all periods presented.
STATEMENT OF CONSOLIDATED CASH FLOWS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. These
investments are carried at cost which approximates market.
F-9
45
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS AND DIVESTITURES
Completed Transactions
In December 1994, Apache purchased substantially all of the U.S. oil and
gas properties of Crystal Oil Company (Crystal) for approximately $95.8
million. The producing oil and gas properties acquired from Crystal are
located primarily along the Arkansas-Louisiana border and southern Louisiana.
The acquisition also included approximately 32,000 net undeveloped mineral
acres in southern Louisiana.
In 1993, Apache purchased the stock of Hadson Energy Resources Corporation,
(now known as Apache Energy Resources Corporation, AERC) for approximately
$98 million through a series of privately negotiated transactions and a merger
offer approved by a majority of AERC stockholders. In July 1993, Apache
completed the purchase of 4.2 million shares of AERC's outstanding common
stock, or approximately 68 percent of the AERC common stock then outstanding,
for $59.2 million. The Company agreed to pay an additional $1.00 per share
($4.2 million) to the selling stockholders if the Company increased its
ownership in AERC to 80 percent or more. Pursuant to the merger agreement
approved by AERC stockholders on November 12, 1993, AERC stockholders other
than Apache could elect to receive, for each share of AERC common stock, either
$15 in cash or .574 share of Apache common stock. Apache issued 307,977 shares
of Apache common stock valued at $7.9 million and paid a total of $76.1 million
to former stockholders of AERC as consideration for the merger. At December 31,
1993, Apache reflected a liability of $13.9 million accrued for AERC shares
which had not yet been surrendered to Apache. During 1994, Apache completed the
purchase of the remaining AERC shares.
Also in 1993, Apache entered into two agreements to purchase 104 Bcfe of
proved reserves from Hall-Houston Oil Company (Hall-Houston) for an aggregate
consideration of $113.7 million. In June 1993, Apache closed the first of the
two transactions, paying $29.3 million for Hall-Houston's interest in Mustang
Island Blocks 787 and 805. The second transaction, encompassing substantially
all of Hall-Houston's producing properties in the Gulf of Mexico for an
additional $84.4 million, was completed in August 1993. The acquisitions
included interests in 63 producing fields and 12 fields under development or
awaiting pipeline connections.
Effective November 1, 1992, Apache completed the acquisition of Shell
Offshore Inc.'s 93-percent working interest in Matagorda Island Blocks 681 and
682 in the Gulf of Mexico. Apache paid $57.4 million for properties, which
included 14 miles of gathering lines and approximately 11,500 net acres of
leases.
All of the above acquisitions have been accounted for using the purchase
method of accounting and have been included in the financial statements of
Apache since the dates of acquisition.
Effective May 1, 1992, Apache sold its 31.67-percent general partnership
interest in Natural Gas Clearinghouse (NGC) for $50.7 million. The Company
recognized a gain on the sale of approximately $28.3 million or $18.5 million
after tax.
The following unaudited pro forma summary of the Company's consolidated
results of operations in 1993 was prepared as if the Hall-Houston and AERC
acquisitions occurred as of January 1, 1993. The pro forma data for 1992
assumes that the Hall-Houston and AERC acquisitions and the NGC sale occurred
as of or prior to January 1, 1992. The pro forma data is based on numerous
assumptions and is not necessarily indicative of future operations.
F-10
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the Year Ended
December 31,
---------------------------
(Unaudited) 1993 1992
----------- -------- --------
(In thousands, except per
share data)
Oil and gas production revenues . . . . . . . . . . . . $ 481,754 $ 472,914
Total revenues . . . . . . . . . . . . . . . . . . . . . 515,071 507,502
Net income . . . . . . . . . . . . . . . . . . . . . . . 36,970 27,016
Income per share . . . . . . . . . . . . . . . . . . . . $ .69 $ .57
Weighted average shares outstanding . . . . . . . . . . 53,812 47,212
1995 Acquisition
On March 1, 1995, Apache purchased certain oil and gas properties from
Texaco Exploration and Production Inc. (Texaco) for an adjusted purchase price
of $571 million, effective January 1, 1995. The transaction is subject to
customary closing and post-closing adjustments. Apache delivered a $25 million
deposit, representing a portion of the purchase price, upon execution of the
purchase and sale agreement with Texaco in December 1994, and delivered the
balance in cash at closing. Funds for the Texaco transaction were obtained from
several sources, including increased borrowing capacity under the Company's
bank credit facility and proceeds of Apache's $172.5 million 6-percent
Convertible Subordinated Debentures due 2002, which were issued on January 4,
1995. (See Note 3.)
Planned Transactions
On December 21, 1994, Apache entered into a merger agreement with DEKALB
Energy Company (DEKALB), under which shareholders of DEKALB will receive, in
the aggregate, between eight and 8.9 million shares of Apache common stock and
DEKALB will become a wholly-owned subsidiary of Apache. The transaction will
be accounted for using the pooling of interests method and is expected to be
completed in April 1995. Apache and DEKALB estimate that the cost required to
complete the transaction will total between $8 and $10 million.
On February 15, 1995, Apache announced plans to sell non-core oil and gas
properties in the Company's Rocky Mountain region and close its Denver,
Colorado office. The Company anticipates that divestiture of selected Rocky
Mountain properties, together with the disposition of non-strategic assets in
its other operating regions, will result in total proceeds of approximately
$200 million.
2. INVESTMENTS IN EQUITY SECURITIES
Apache has certain investments in equity securities which are classified as
available for sale pursuant to SFAS No. 115. At December 31, 1994, the
aggregate cost basis totaled $7.2 million and the related aggregate fair value
approximated cost.
During 1994, the Company realized gross gains totaling $2.2 million from
the sale of available-for-sale securities. Apache utilizes the average cost
method in computing realized gains or losses, which are included in other
revenues on the accompanying Statement of Consolidated Income.
F-11
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1993, Apache owned approximately 20 percent of the
outstanding shares of Key Production Company, Inc. (Key). In the fourth
quarter of 1994, Apache reduced its ownership interest in Key to approximately
10 percent and discontinued reporting equity earnings from the former
affiliate. Equity earnings attributable to Key, and an equity investment in
NGC during part of 1992 (See Note 1), is presented below:
For the Year Ended December 31,
----------------------------------
1994 1993 1992
------- -------- -------
(In thousands)
Income from affiliates:
Key Production Company . . . . . . . . . . . . . . . . . . . . . . . $ 459 $ 624 $ 4
Natural Gas Clearinghouse . . . . . . . . . . . . . . . . . . . . . -- -- 2,691
------ ------- -------
$ 459 $ 624 $2,695
====== ======= ======
3. DEBT
LONG-TERM DEBT
December 31,
-----------------------------------------
1994 1993
--------- ----------
(In thousands)
Senior debt:
Apache revolving bank facility . . . . . . . . . . . . . . . . . . . . . . $ 454,000 $ 240,000
9.25-percent notes due 2002, net of discount . . . . . . . . . . . . . . . 99,713 99,688
3.93-percent convertible notes due 1997 . . . . . . . . . . . . . . . . . . 75,000 75,000
---------- ----------
628,713 414,688
---------- ----------
Other obligations:
AEL acceptance facility . . . . . . . . . . . . . . . . . . . . . . . . . . 25,800 22,000
AERC bank facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 19,550
Share of offshore partnership financing . . . . . . . . . . . . . . . . . . 2,973 4,636
Other notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 1,152
---------- ----------
28,873 47,338
---------- ----------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 657,586 462,026
Less: Current maturities . . . . . . . . . . . . . . . . . . . . . . . . . (100) (9,017)
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 657,486 $ 453,009
========== ==========
At December 31, 1994, Apache had a $700 million revolving bank facility
funded by a group of banks. The maximum amount available was subject to
periodic redetermination of a borrowing base, determined solely at the
discretion of the banks, predicated upon the Company's oil and gas reserve
values and forecast rate of production. As of December 31, 1994, the borrowing
base was $560 million and the principal amount outstanding was $454 million.
The bank facility was scheduled to mature on April 30, 1998, and the agreement
provided for perpetual one-year extensions as requested year-by-year by the
Company and subject to the approval of the banks. Interest on amounts borrowed
was charged at the First National Bank of Chicago's base rate or at London
Interbank Offered Rates (LIBOR) plus a margin determined by the Company's
public senior debt rating and its ratio of debt to total capital. At December
31, 1994, the margin was .375 percent. Facility and commitment fees were also
determined similar to borrowing fees. The Company paid a facility fee of .25
percent on the available portion of the commitment and .125 percent of the
unavailable portion of the commitment.
F-12
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On March 1, 1995, the Company's revolving bank facility agreement was
amended and restated, increasing the facility to $1 billion. The Company's
borrowing base, including the value of the Texaco properties, was initially set
at $765 million. The facility expires on March 1, 2000, and may be extended in
one-year increments with the lender's consent. In addition to the borrowing
base predicated on the Company's oil and gas reserve value, the bank facility
provides a non-conforming borrowing base as defined in the agreement. The
initial non-conforming borrowing base of $135 million is available until May
10, 1996, and at reduced amounts through November 4, 1996. Financial covenants
of the amended agreement are similar to those existing at December 31, 1994,
and are described below. Based on the Company's ratio of debt to total capital
at March 1, 1995, the interest rate margin over LIBOR increased from .375
percent to 1.125 percent. At the March 1, 1995 debt level, the Company will pay
a facility fee of .375 percent of the available portion of the commitment and
.1875 percent of the unavailable portion of the commitment.
The 9.25-percent notes totaling $100 million were issued in May 1992 and
will mature in June 2002. The notes are not redeemable prior to maturity.
In December 1992, Apache issued the 3.93-percent convertible notes.
These notes mature in November 1997, and are not redeemable prior to maturity.
They are convertible into Apache common stock at $27 per share, subject to
adjustment under certain circumstances.
The indentures for the two note issues impose substantially similar
obligations on the Company including limits on the Company's ability to incur
debt secured by certain liens and on its ability to enter into certain sale and
leaseback transactions. Upon certain changes in control of the Company, both
issues are subject to mandatory repurchase (or conversion at the option of the
noteholders in the case of the 3.93-percent notes).
Financial covenants of the bank facility and the 3.93-percent notes require
the Company to maintain a minimum consolidated tangible net worth ($576 million
as of December 31, 1994 and $650 million as amended on March 1, 1995), which
will be adjusted quarterly for subsequent earnings and equity transactions,
and to maintain a ratio of (i) earnings before interest expense, state and
federal taxes and depreciation, depletion and amortization to (ii) consolidated
interest expense of not less than 3.7:1 for the banks and 3.5:1 for the lenders
under the 3.93-percent notes. The Company was in compliance with all financial
covenants at December 31, 1994.
In conjunction with the AERC acquisition, Apache assumed two bank credit
agreements outstanding at the time it acquired a majority interest in AERC.
During 1994, Apache terminated a bank credit facility held in the name of AERC
and amended and restated the debt agreement of AERC's wholly-owned subsidiary,
Apache Energy Limited (AEL, formerly known as Hadson Energy Limited). The AEL
Acceptance Facility is a separate credit facility provided by Bank of Montreal
which provided funding for the construction of an offshore gas gathering
project. The borrowing base is $30 million, of which $25.8 million was
outstanding at December 31, 1994. The AEL credit facility is not guaranteed by
Apache.
An $18 million banking facility made by Apache on behalf of Apache Offshore
Investment Partnership had $11.1 million outstanding at December 31, 1994, of
which Apache's share was $3 million. Availability under this facility is
reduced quarterly by $1.5 million beginning in October 1995.
On January 4, 1995, Apache completed the issue of $172.5 million of
6-percent Convertible Subordinated Debentures due 2002 (6-percent debentures).
The debentures are convertible at the option of the holder into Apache common
stock at a conversion price of $30.68 per share.
As of December 31, 1994 and 1993, the Company had approximately $12 million
and $14 million, respectively, of unamortized costs associated with its various
debt obligations. These costs are reflected as deferred charges and other in
the accompanying Consolidated Balance Sheet and are being amortized over the
life of the related debt.
See Note 8 for disclosure concerning the fair value of debt instruments.
F-13
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGGREGATE MATURITIES OF DEBT (in thousands)
Proforma at
December 31, March 1,
1994 1995*
------------ ----------
1995 . . . . . . . . . . . . . . . . . . . . . . . . $ 100 $ 100
1996 . . . . . . . . . . . . . . . . . . . . . . . . 160 75,160
1997 . . . . . . . . . . . . . . . . . . . . . . . . 76,607 76,607
1998 . . . . . . . . . . . . . . . . . . . . . . . . 455,205 1,205
1999 . . . . . . . . . . . . . . . . . . . . . . . . 25,800 25,800
Thereafter . . . . . . . . . . . . . . . . . . . . . 99,714 1,037,214
-------- ----------
$657,586 $1,216,086
======== ==========
*Pro forma data reflects the issuance of $172.5 million of 6 percent
debentures as described above and $840 million outstanding under the revolving
bank facility on March 1, 1995.
4. INCOME TAXES
As discussed in the Summary of Significant Accounting Policies, effective
January 1, 1993, the Company adopted SFAS No. 109 "Accounting for Income
Taxes." The cumulative effect of adopting this statement was not material to
the accompanying financial statements.
The total provision for income taxes consists of the following:
For the Year Ended December 31,
----------------------------------------
1994 1993 1992
---------- ----------- -----------
(In thousands)
Current taxes:
Federal. . . . . . . . . . . . . . . . . . . $ (3,750) $ -- $ 8,949
State. . . . . . . . . . . . . . . . . . . . -- -- 856
Foreign. . . . . . . . . . . . . . . . . . . -- -- 110
Deferred taxes . . . . . . . . . . . . . . . . . 25,370 20,571 14,034
---------- ----------- -----------
$ 21,620 $ 20,571 $ 23,949
========== =========== ===========
The 1993 provision for income taxes includes a $3.5 million charge for the
change in federal statutory rates from 34 percent to 35 percent enacted under
the Omnibus Budget Reconciliation Act of 1993 (OBRA).
The 1992 provision for income taxes includes approximately $1.2 million
for Apache's tax provision related to its share of NGC's partnership income.
This provision was reflected as a reduction of equity in income of affiliates
in the Statement of Consolidated Income.
A reconciliation of the federal statutory income tax rates to the effective
rate is as follows:
For the Year Ended December 31,
-----------------------------------
1994 1993 1992
-------- --------- ---------
Statutory income tax rate . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
State income tax, less federal benefit . . . . . . . . . . . . . 1.9 1.9 2.0
Reversal of prior period timing differences at rates in
excess of current statutory rates . . . . . . . . . . . . . . -- -- (1.8)
Utilization of federal income tax credits . . . . . . . . . . . (2.4) (3.7) --
Increase in corporate income tax rate provided for in OBRA . . . -- 6.0 --
All other, net . . . . . . . . . . . . . . . . . . . . . . . . . (1.0) (3.3) (.8)
----- ----- -----
33.5% 35.9% 33.4%
===== ===== =====
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities using the provisions of enacted tax laws.
F-14
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
The net deferred tax liability as of December 31, 1994, is comprised of the
following:
December 31,
--------------------------
1994 1993
---------- ---------
(In thousands)
Deferred tax assets:
Accrued expenses . . . . . . . . . . . . . . . . . . . $ (2,984) $ (8,696)
Deferred income . . . . . . . . . . . . . . . . . . . (30,343) (3,287)
Deferred compensation . . . . . . . . . . . . . . . . (1,927) (2,380)
Net operating loss carryforwards . . . . . . . . . . . (22,443) (18,392)
Alternative minimum tax credits . . . . . . . . . . . (20,792) (20,734)
Other . . . . . . . . . . . . . . . . . . . . . . . . (7,706) (4,238)
---------- ---------
Total deferred tax assets . . . . . . . . . . . . (86,195) (57,727)
---------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization . . . . . . . 234,441 181,981
Other . . . . . . . . . . . . . . . . . . . . . . . . 7,934 4,300
---------- ---------
Total deferred tax liabilities . . . . . . . . . 242,375 186,281
---------- ---------
Deferred income tax (asset) liability . . . . . . . . . . . . $ 156,180 $ 128,554
========== =========
No valuation allowance has been recorded against deferred tax assets at
December 31, 1994.
U.S. deferred taxes have not been provided on foreign earnings totaling $25
million which are permanently reinvested abroad. Presently, limited foreign
tax credits are available to reduce the U.S. taxes on such amounts if
repatriated.
At December 31, 1994, the Company has U.S. federal net operating loss
carryforwards of $27 million and statutory depletion carryforwards of $6.6
million available to reduce future U.S. federal taxable income. The net
operating loss carryforwards will expire unless otherwise utilized, beginning
in 1995. The statutory depletion may be carried forward indefinitely. The
Company has alternative minimum tax (AMT) credit carryforwards of $20.8
million. AMT credits can be carried forward indefinitely and may only be used
to reduce regular tax liabilities in excess of AMT liabilities. The Company
also has foreign net operating loss carryforwards of $22.2 million and foreign
capital loss carryforwards of $8.4 million which may be carried forward
indefinitely and may be utilized to reduce future foreign taxable income.
5. ADVANCE FROM GAS PURCHASER
In December 1994, Apache received $67.4 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over
a six-year period commencing January 1995. As a condition of the arrangement
with the purchaser, Apache entered into a gas price swap contract with a third
party under which Apache became a fixed price payor at identical volumes and at
prices starting at $1.81 per MMBtu and escalating at $.10 per MMBtu per year
through the year 2000. In addition, the purchaser will pay to Apache a monthly
fee of $.05 per MMBtu on the contracted volumes. The net result of these
related transactions is that gas delivered to the purchaser will be reported as
revenue at prevailing spot prices in the future with Apache realizing a small
premium associated with the monthly fee to be paid by the purchaser.
The payment has been classified as an advance on the December 31, 1994
balance sheet and will be reduced as gas is delivered to the purchaser under
the terms of the contract. Gas volumes delivered to the purchaser will be
reported as revenues at prices used to calculate the amount advanced, before
inputed interest, minus or plus amounts paid or received by Apache applicable
to the price swap agreement. Interest expense will be recorded based on a
9 1/2-percent rate.
F-15
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
6. CAPITAL STOCK
COMMON STOCK OUTSTANDING
1994 1993 1992
---------- ---------- ----------
Balance, beginning of year . . . . . . . . . . . . . 61,085,414 46,936,240 46,854,794
Treasury shares issued (acquired), net . . . . . . . 129,852 119,087 19,791
Shares issued:
Public offering . . . . . . . . . . . . . . . . -- 5,795,000 --
Acquisition of AERC . . . . . . . . . . . . . . 2,974 305,003 --
Conversion of 7 1/2-percent debentures . . . . . -- 7,816,453 --
Dividend reinvestment plan . . . . . . . . . . . 13,789 -- --
Stock options . . . . . . . . . . . . . . . . . 207,975 113,631 61,655
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . . 61,440,004 61,085,414 46,936,240
========== ========== ==========
Public Offering -- In March 1993, Apache completed the public offering of
approximately 5.8 million shares of Apache common stock for net proceeds of
$131.8 million.
Stock Option Plans -- At December 31, 1994, common shares totaling
1,766,925 were reserved for issuance under stock option plans for officers and
key employees. The outstanding options expire at various dates through 2004 and
are exercisable at prices ranging from $8.625 to $26.875 with an aggregate
exercise price of $21 million. The following table summarizes the changes in
stock options for the year and the number of common shares available for grant
at year end:
1994 1993 1992
---------- ---------- ----------
Outstanding, beginning of year . . . . . . . . . . . 909,875 846,550 666,650
Exercised ($7.313 to $26.625) . . . . . . . . . . . (207,975) (115,200) (94,050)
Granted ($13.875 to $26.875) . . . . . . . . . . . . 376,200 264,600 326,700
Canceled or expired ($8.625 to $26.875) . . . . . . (125,800) (86,075) (52,750)
---------- ---------- ----------
Outstanding, end of year . . . . . . . . . . . . . . 952,300 909,875 846,550
========== ========== ==========
Available for grant, end of year . . . . . . . . . . 814,625 1,121,775 1,300,300
========== ========== ==========
Rights to Purchase Common Stock -- In 1986, the Company declared a
dividend of one right to purchase one share of common stock at $50 per share
(subject to adjustment) on each outstanding share of common stock (the Rights).
The Rights are exercisable only if certain persons or groups acquire 20 percent
or more of the common stock or commence a tender offer for 30 percent or more
of the common stock. If the Company engages in certain business combinations or
a 20-percent stockholder engages in certain transactions with the Company, the
Rights become exercisable for Apache common stock or common stock of the
corporation acquiring the Company (as the case may be) at 50 percent of the
then-market price. Any Rights that are or were beneficially owned by a person
who has acquired 20 percent or more of the common stock and who engages in
certain transactions or realizes the benefits of certain transactions with the
Company will become void. The Company may redeem the Rights at a specified
price at any time until 10 business days after public announcement that a
person has acquired 20 percent or more of the outstanding shares of common
stock. The Rights will expire on January 31, 1996, unless earlier redeemed by
the Company. Unless the Rights have been previously redeemed, all shares of
common stock issued by the Company will include Rights.
Preferred Stock -- The Company has five million shares of no par
preferred stock authorized, of which none are outstanding.
F-16
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
7. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented below.
In 1993, Apache purchased Hadson Energy Resources Corporation (now AERC)
for approximately $98 million in cash and Apache common stock. The accompanying
financial statements included the following attributable to the acquisition:
(In thousands)
Value of properties acquired, including gathering facilities . . . . . . . . . . $ 159,996
Common stock issued (305,003 shares) . . . . . . . . . . . . . . . . . . . . . . (7,777)
Liability for AERC shares not surrendered as of December 31, 1993 . . . . . . . (13,906)
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . (70,692)
---------
Net AERC liabilities added through consolidation . . . . . . . . . . . . . . . . $ 67,621
=========
During the first quarter of 1994, the Company issued 2,974 shares of
Apache common stock and paid $13.9 million for AERC shares which had not been
surrendered by the end of 1993.
In September 1993, Apache called for the redemption of its 7 1/2-percent
convertible subordinated debentures due 2000. Following receipt of the notice
of redemption, nearly all holders of the debentures elected to convert the
principal amount of their debentures into shares of Apache common stock.
Holders of less than one-tenth of one percent of the debentures elected to
receive cash ($.1 million).
(In thousands)
Long-term debt converted into common stock . . . . . . . . . . . . . . . . . . $149,900
Unamortized debt issue costs charged to equity . . . . . . . . . . . . . . . . (2,686)
--------
Increase to shareholders' equity (common stock issued, 7.8 million shares) . . $147,214
========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Year Ended December 31,
----------------------------------
1994 1993 1992
------- ------- -------
(In thousands)
Cash paid (received) during the year for:
Interest, net of amounts capitalized . . . . . . . . . . $26,291 $30,379 $27,373
Income taxes, net of refunds . . . . . . . . . . . . . . 6,260 (780) 19,642
F-17
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
8. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1994 and 1993.
1994 1993
-------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
(In thousands)
Cash and cash equivalents . . . . . . . . . $ 15,063 $ 15,063 $ 17,064 $ 17,064
Investment securities . . . . . . . . . . . 7,242 7,422 -- --
Long-term debt:
Bank debt . . . . . . . . . . . . . . . (479,800) (479,800) (281,550) (281,550)
9.25-percent notes due 2002 . . . . . . (99,714) (100,213) (99,688) (100,311)
3.93-percent convertible notes due 1997 (75,000) (79,928) (75,000) (87,323)
Unrecognized financial instruments:
Interest rate swap . . . . . . . . . . . -- (181) -- --
Commodity price swaps . . . . . . . . . -- (3,090) -- --
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the above table. The carrying values
of trade receivables and trade payables included in the accompanying
Consolidated Balance Sheet approximated market value at December 31, 1994 and
1993.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Investment Securities -- The fair value of investments are based on quoted
market prices.
Debt -- The fair value of the 9.25-percent notes was based on the quoted
market price for that issue, while the fair value of the 3.93-percent notes was
estimated based on quotes obtained from private investment firms. The
difference between the carrying amount and the fair value of the Company's
other debt obligations was not significant.
Interest Rate Instruments -- The Company periodically enters into various
financial instruments to manage its interest rate exposure. At December 31,
1994, the Company had one outstanding interest rate swap agreement with a
notional principal amount totaling $14 million. The notional amount reduces by
$2 million quarterly through July 1996, with interest fixed at 8.15 percent.
The fair value of the open interest rate swap was the estimated amount that
the Company would pay to terminate the swap agreement, taking into account
current interest rates and the credit worthiness of the swap counterparties.
F-18
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
Commodity Price Hedges -- The Company enters into certain commodity
derivative contracts to reduce the risk caused by fluctuations in the prices of
oil and natural gas. During the last three years, Apache has used swaps, puts
and fixed-price contracts to hedge its commodity prices. Apache's hedging
activities are primarily conducted with major investment and commercial banks
which the Company believes are minimal credit risks. The agreements call for
Apache to receive, or make, payments based upon the differential between a
fixed and a variable commodity price as specified in the contract.
At December 31, 1994, Apache had two open price swap contracts as discussed
below. Also at December 31, 1994, Apache's Consolidated Balance Sheet included
deferred credits totaling $.9 million for gains realized on the early
termination of commodity price hedges. The hedging gains will be amortized to
oil and gas production revenues over periods ranging from one to 38 months.
Apache entered into a swap agreement under which the Company will receive a
fixed price of $2.1825 per MMBtu and pay the floating price on 10,000 MMBtu per
day over a five-year period starting in January 1995. Based on the estimated
amount Apache would receive to terminate the swap agreement, the fair value of
this asset at December 31, 1994 was $3.3 million.
Apache also entered into a swap agreement, as discussed in Note 5, to
become a fixed price payor on 20,000 MMBtu per day over a six-year period
starting January 1995. The estimated amount Apache would have to pay to
terminate this contract at December 31, 1994 was $6.4 million.
In connection with the purchase of MW Petroleum Corporation in mid-1991,
the Company and Amoco Production Company (Amoco) entered into a hedging
agreement. Under the terms of this agreement, Apache would receive support
payments in the event oil prices fell below specified reference prices for any
year during the two-year period ended June 30, 1993, and Amoco will receive
payments in the event oil prices rose above specified reference prices for any
year during the eight-year period ending June 30, 1999, or in the event gas
prices exceeded specified reference prices for any year during the five-year
period ending June 30, 1996. In the event price sharing payments are due to
Amoco, the volumes listed below would be doubled until Amoco recovers its net
payments to Apache ($5.8 million through the contract year ended June 30, 1994)
plus interest.
The notional volumes and the reference prices specified in the Amoco price
support agreement are summarized below:
Oil Gas
------------------ -------------
Year Ended June 30: MMbbl Price Bcf Price
------------------- ------ ----- --- -----
1995 . . . . . . . . . . . 2.8 $ 26.25 12.3 $ 2.45
1996 . . . . . . . . . . . 2.4 27.80 10.5 2.68
1997 . . . . . . . . . . . 2.0 29.48 -- --
1998 . . . . . . . . . . . 1.7 31.25 -- --
1999 . . . . . . . . . . . 1.4 33.12 -- --
Based on the Company's projection of oil and gas prices for the years noted
above, Apache will not be liable to Amoco for future price sharing payments.
F-19
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
Investment in Program Operations -- Prior to 1989, the Company organized
numerous oil and gas limited partnerships. At December 31, 1994, Apache was
contingently liable for $8.1 million of bank financing arranged by the Company
on behalf of the Apache Offshore Investment Partnership (See Note 3).
As compensation for its services as general partner and operator, the
Company shares in oil and gas revenues, receives a management fee in accordance
with formulas described in each limited partnership agreement, and is
reimbursed for administrative, exploration and production expenses incurred on
behalf of the partnerships. These reimbursements ($.5 million, $.6 million and
$4.8 million in the years 1994, 1993 and 1992, respectively) have been netted
against operating expenses in the accompanying financial statements.
Litigation -- The Company is involved in litigation and is subject to
governmental and regulatory controls arising in the ordinary course of
business. It is the opinion of the Company's management that all claims and
litigation involving the Company are not likely to have a material adverse
effect on its financial position or results of operations.
Environmental -- Apache, as an owner and operator of oil and gas
properties, is subject to various federal, state, local and foreign country
laws and regulations relating to discharge of materials into, and protection
of, the environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas and impose restrictions on the injection of liquids into subsurface
aquifers that may contaminate ground water. Apache maintains insurance coverage
which it believes are customary in the industry, although it is not fully
insured against all environmental risks. The Company is not aware of any
environmental claims existing as of December 31, 1994, which would have a
material impact on its financial position or results of operations.
International Commitments -- The Company, through its subsidiaries, has
acquired or has been conditionally or unconditionally granted exploration
rights in Australia, The Congo, Egypt, China, Indonesia and the Ivory Coast.
In order to comply with the contracts and agreements granting these rights, the
Company, through various wholly-owned subsidiaries, is committed to expend
approximately $50 million through 1997.
Retirement and Deferred Compensation Plans -- The Company provides a
retirement/401(k) savings plan and a non-qualified retirement/savings plan for
employees. These plans allow participating employees to elect to contribute up
to 10 percent of their salaries, with Apache making matching contributions up
to a maximum of six percent of each employee's salary. In addition, the Company
annually contributes a percentage of each participating employee's
compensation, as defined, to the plan. Vesting in the Company's contributions
occurs at the rate of 20 percent per year. Total expenses under these plans
were $5.2 million, $5 million and $4.2 million for 1994, 1993 and 1992,
respectively.
F-20
56
APACHE CORPORATION SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --- (CONTINUED)
Lease Commitments -- The Company has leases for office space with varying
expiration dates through 2007. Net rental expense was $4.1 million, $4.6
million and $5.7 million for 1994, 1993 and 1992, respectively.
As of December 31, 1994, minimum rental commitments under long-term
operating leases are as follows:
Net
Minimum
Rental Sublease Rental
Commitments Rentals Commitments
---------- ------- -----------
(In thousands)
1995 . . . . . . . . . . . . . . . . . . . . . . . . $ 6,744 $ (1,355) $ 5,389
1996 . . . . . . . . . . . . . . . . . . . . . . . . 6,858 (1,396) 5,462
1997 . . . . . . . . . . . . . . . . . . . . . . . . 5,171 (582) 4,589
1998 . . . . . . . . . . . . . . . . . . . . . . . . 4,986 -- 4,986
1999 . . . . . . . . . . . . . . . . . . . . . . . . 5,433 -- 5,433
Thereafter . . . . . . . . . . . . . . . . . . . . . 37,150 -- 37,150
--------- -------- ---------
$ 66,342 $ (3,333) $ 63,009
========= ======== =========
10. CUSTOMER INFORMATION
Major Purchasers -- NGC has been the principal purchaser of Apache's spot
market gas production since April 1990. Sales to NGC accounted for 40 percent,
36 percent and 27 percent of the Company's oil and gas revenues in 1994, 1993
and 1992, respectively. Sales to Amoco represented 11 percent and 27 percent
of the Company's 1993 and 1992 oil and gas revenues, respectively, and were
less than 10 percent for 1994.
Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced
significant credit losses on such sales. The Company believes that if the NGC
contract was terminated, it would not have a material adverse effect on the
Company due to the existence of alternative marketing arrangements and
purchasers.
The proved gas reserves in the Carnarvon Basin of Western Australia
acquired in the AERC acquisition are dedicated for sale to the Gas Corporation
of Western Australia, a corporation owned by the government of Western
Australia, doing business as AlintaGas (formerly SECWA), pursuant to a
long-term, take-or-pay contract. If the AlintaGas contract were terminated,
the Company might not be able to find other markets for the gas produced from
these fields. Although the Company considers such an occurrence highly
unlikely, the loss of the AlintaGas contract might force the Company to
write-down the carrying value of these fields.
F-21
57
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
Oil and Gas Operations -- The following table sets forth revenue and
direct cost information relating to the Company's oil and gas exploration and
production activities. Apache has no long-term agreements to purchase oil or
gas production from foreign governments or authorities.
For the Year Ended December 31,
----------------------------------
1994 1993 1992
---- ---- ----
(In thousands)
UNITED STATES
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 467,161 $ 421,845 $ 386,533
--------- --------- ---------
Operating costs:
Depreciation, depletion and amortization . . . . . . 212,329 163,285 149,909
Lease operating . . . . . . . . . . . . . . . . . . 107,361 102,830 99,934
Production taxes . . . . . . . . . . . . . . . . . . 22,280 21,218 23,803
Income tax . . . . . . . . . . . . . . . . . . . . . 44,821 50,035 39,045
--------- --------- ---------
386,791 337,368 312,691
--------- --------- ---------
Results of operations . . . . . . . . . . . . . . . . . . $ 80,370 $ 84,477 $ 73,842
========= ========= =========
Amortization rate . . . . . . . . . . . . . . . . . . . . 45.5% 38.7% 38.8%
========= ========= =========
INTERNATIONAL
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 26,339 $ 15,497 $ 8,019
--------- --------- ---------
Operating costs:
Depreciation, depletion and amortization . . . . . . 11,754 7,214 3,883
Impairments . . . . . . . . . . . . . . . . . . . . 7,300 23,200 12,000
Lease operating . . . . . . . . . . . . . . . . . . 6,257 3,456 1,600
Production taxes . . . . . . . . . . . . . . . . . . 1,922 609 --
Income tax (benefit) . . . . . . . . . . . . . . . . (295) (6,264) (3,181)
--------- --------- ---------
26,938 28,215 14,302
--------- --------- ---------
Results of operations . . . . . . . . . . . . . . . . . . $ (599) $ (12,718) $ (6,283)
========= ========= =========
Amortization rate-recurring . . . . . . . . . . . . . . . 44.6% 46.6% 48.7%
========= ========= ==========
TOTAL
Oil and gas revenues . . . . . . . . . . . . . . . . . . $ 493,500 $ 437,342 $ 394,552
--------- --------- ---------
Operating costs:
Depreciation, depletion and amortization . . . . . . 224,083 170,499 153,792
Impairments . . . . . . . . . . . . . . . . . . . . 7,300 23,200 12,000
Lease operating . . . . . . . . . . . . . . . . . . 113,618 106,286 101,534
Production taxes . . . . . . . . . . . . . . . . . . 24,202 21,827 23,803
Income tax . . . . . . . . . . . . . . . . . . . . . 44,526 43,771 35,864
--------- --------- ---------
413,729 365,583 326,993
--------- --------- ---------
Results of operations . . . . . . . . . . . . . . . . . . $ 79,771 $ 71,759 $ 67,559
========= ========= =========
F-22
58
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Costs Not Being Amortized -- The following table sets forth a summary of
oil and gas property costs not being amortized at December 31, 1994, by the
year in which such costs were incurred.
1991 and
Total 1994 1993 1992 Prior
--------- -------- --------- -------- ---------
(In thousands)
Leasehold and seismic . . . . . . . . . . . . . . $ 102,466 $ 38,220 $ 28,828 $ 2,931 $ 32,487
Exploration and development . . . . . . . . . . . 9,206 9,206 -- -- --
International . . . . . . . . . . . . . . . . . . 34,253 22,856 11,397 -- --
--------- -------- --------- ------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . $ 145,925 $ 70,282 $ 40,225 $ 2,931 $ 32,487
========= ======== ========= ======= =========
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities.
For the Year Ended December 31,
---------------------------------------------
1994 1993 1992
-------- -------- --------
(In thousands)
UNITED STATES
Acquisition of proved properties . . . . . . . . . . . . $ 179,972 $ 242,659 $ 62,955
Acquisition of unproved properties . . . . . . . . . . . 32,526 14,342 8,226
Exploration . . . . . . . . . . . . . . . . . . . . . . . 16,722 16,979 17,074
Development . . . . . . . . . . . . . . . . . . . . . . . 216,451 164,839 93,277
Capitalized interest . . . . . . . . . . . . . . . . . . 4,889 4,764 6,035
Property sales . . . . . . . . . . . . . . . . . . . . . (5,854) (3,255) (37,167)
---------- ---------- ----------
444,706 440,328 150,400
---------- ---------- ----------
INTERNATIONAL
Acquisition of proved properties . . . . . . . . . . . . -- 81,942 --
Exploration . . . . . . . . . . . . . . . . . . . . . . . 30,089 18,006 10,091
Development . . . . . . . . . . . . . . . . . . . . . . . 1,853 -- 1,988
---------- ---------- ----------
31,942 99,948 12,079
---------- ---------- ----------
TOTAL
Acquisition of proved properties . . . . . . . . . . . . 179,972 324,601 62,955
Acquisition of unproved properties . . . . . . . . . . . 32,526 14,342 8,226
Exploration . . . . . . . . . . . . . . . . . . . . . . . 46,811 34,985 27,165
Development . . . . . . . . . . . . . . . . . . . . . . . 218,304 164,839 95,265
Capitalized interest . . . . . . . . . . . . . . . . . . 4,889 4,764 6,035
Property sales . . . . . . . . . . . . . . . . . . . . . (5,854) (3,255) (37,167)
---------- ---------- ----------
$ 476,648 $ 540,276 $ 162,479
- ------------------ ========== ========== ==========
Foreign acquisitions in 1993 included $16.8 million of unevaluated costs
added through the merger of AERC.
F-23
59
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and related accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities.
December 31,
------------------------------------
1994 1993
---------- --------
(In thousands)
UNITED STATES
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,810,670 $ 2,390,644
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 111,672 86,992
------------ -------------
2,922,342 2,477,636
Accumulated depreciation, depletion and amortization . . . . . . . . . (1,383,556) (1,171,227)
------------ -------------
1,538,786 1,306,409
------------ -------------
INTERNATIONAL
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,451 126,157
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 34,253 18,605
------------ -------------
176,704 144,762
Accumulated depreciation, depletion and amortization . . . . . . . . . (79,270) (60,216)
------------ -------------
97,434 84,546
------------ -------------
TOTAL
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,953,121 2,516,801
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 145,925 105,597
------------ -------------
3,099,046 2,622,398
Accumulated depreciation, depletion and amortization . . . . . . . . . (1,462,826) (1,231,443)
------------ -------------
$ 1,636,220 $ 1,390,955
============ =============
F-24
60
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Oil and Gas Reserve Information -- Proved oil and gas reserve quantities
are based on estimates prepared by the Company's engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC). The
Company's estimates of proved reserve quantities of its domestic properties and
certain international properties are subject to review by Ryder Scott Company
Petroleum Engineers, independent petroleum engineers. International proved
reserves, for all periods presented below, are located in Australia.
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.
OIL, CONDENSATE AND
NATURAL GAS LIQUIDS 1994 1993 1992
----------------------- ----------------------- ----------------------
United United United
States Int'l Total States Int'l Total States Int'l Total
------ ------- ------- ------- ------- ------ ------- ------ -----
(Thousands of barrels)
Total proved reserves:
Beginning of year . . . . . . . . . 83,723 6,000 89,723 80,195 464 80,659 79,166 648 79,814
Extensions, discoveries and other
additions . . . . . . . . . . . . 9,669 349 10,018 10,885 -- 10,885 7,112 -- 7,112
Purchases of minerals in-place . . 9,232 -- 9,232 9,871 5,095 14,966 226 -- 226
Revisions of previous estimates . . 5,347 273 5,620 (3,215) 1,125 (2,090) 7,796 206 8,002
Production . . . . . . . . . . . . (12,418) (1,159) (13,577) (12,096) (684) (12,780) (12,199) (390) (12,589)
Sales of properties . . . . . . . . (1,108) -- (1,108) (1,917) -- (1,917) (1,906) -- (1,906)
------ ----- ------ ------- ----- ------- ------- ----- -------
End of year . . . . . . . . . . . . 94,445 5,463 99,908 83,723 6,000 89,723 80,195 464 80,659
====== ====== ====== ======= ====== ======= ======= ===== =======
Proved developed reserves:
Beginning of year . . . . . . . . . 74,288 5,113 79,401 72,596 464 73,060 68,573 648 69,221
End of year . . . . . . . . . . . . 84,085 5,322 89,407 74,288 5,113 79,401 72,596 464 73,060
NATURAL GAS 1994 1993 1992
--------------------------- -------------------------- -------------------------
United United United
States Int'l Total States Int'l Total States Int'l Total
-------- ------- ------- ------- ------ ----- ------ ----- ------
(Million cubic feet))
Total proved reserves:
Beginning of year . . . . . . . . . 814,859 33,360 848,219 643,299 -- 643,299 602,048 -- 602,048
Extensions, discoveries and other
additions . . . . . . . . . . . . 190,386 408 190,794 119,210 -- 119,210 68,650 -- 68,650
Purchases of minerals in-place . . 158,309 -- 158,309 174,115 33,343 207,458 68,685 -- 68,685
Revisions of previous estimates . . (21,937) 1,114 (20,823) (7,335) 1,327 (6,008) 34,042 -- 34,042
Production . . . . . . . . . . . . (152,994) (2,911) (155,905) (109,312) (1,310) (110,622) (95,982) -- (95,982)
Sales of properties . . . . . . . . (4,335) -- (4,335) (5,118) -- (5,118) (34,144) -- (34,144)
------- ----- -------- ------- ----- ------- ------- ---- ---------
End of year . . . . . . . . . . . . 984,288 31,971 1,016,259 814,859 33,360 848,219 643,299 -- 643,299
======== ======= ========= ======== ======= ======== ======== ==== ========
Proved developed reserves:
Beginning of year . . . . . . . . . 696,421 24,251 720,672 585,424 -- 585,424 549,742 -- 549,742
End of year . . . . . . . . . . . . 888,039 22,265 910,304 696,421 24,251 720,672 585,424 -- 585,424
F-25
61
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future revenues are based on year-end prices
except in those instances where the sale of natural gas is covered by contract
terms providing for determinable escalations. 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. Income tax
expense has been computed using expected future tax rates and giving effect to
permanent differences and credits which, under current laws, relate to oil and
gas producing activities. 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.
December 31,
-------------------------------------
1994 1993 1992
------ ------ ------
(In thousands)
UNITED STATES
Cash inflows . . . . . . . . . . . . . . . . . . . . . . $ 3,401,300 $ 3,062,525 $ 2,789,334
Production and development costs . . . . . . . . . . . . (1,294,801) (1,085,205) (1,045,549)
Income tax expense . . . . . . . . . . . . . . . . . . . (376,932) (362,353) (338,177)
----------- ----------- -----------
Net cash flows . . . . . . . . . . . . . . . . . . . . . 1,729,567 1,614,967 1,405,608
10-percent annual discount rate . . . . . . . . . . . . . (628,408) (550,887) (542,118)
----------- ----------- -----------
Discounted future net cash flows . . . . . . . . . . . . 1,101,159 1,064,080 863,490
----------- ----------- -----------
INTERNATIONAL
Cash inflows . . . . . . . . . . . . . . . . . . . . . . 163,303 154,466 9,231
Production and development costs . . . . . . . . . . . . (68,217) (57,281) (5,903)
Income tax expense . . . . . . . . . . . . . . . . . . . (27,910) (24,680) (588)
----------- ----------- -----------
Net cash flows . . . . . . . . . . . . . . . . . . . . . 67,176 72,505 2,740
10-percent annual discount rate . . . . . . . . . . . . . (15,366) (21,209) (26)
----------- ----------- -----------
Discounted future net cash flows . . . . . . . . . . . . 51,810 51,296 2,714
----------- ----------- -----------
TOTAL
Cash inflows . . . . . . . . . . . . . . . . . . . . . . 3,564,603 3,216,991 2,798,565
Production and development costs . . . . . . . . . . . . (1,363,018) (1,142,486) (1,051,452)
Income tax expense . . . . . . . . . . . . . . . . . . . (404,842) (387,033) (338,765)
----------- ----------- -----------
Net cash flows . . . . . . . . . . . . . . . . . . . . . 1,796,743 1,687,472 1,408,348
10-percent annual discount rate . . . . . . . . . . . . . (643,774) (572,096) (542,144)
----------- ----------- -----------
Discounted future net cash flows* . . . . . . . . . . . . $ 1,152,969 $ 1,115,376 $ 866,204
- ------------------ =========== =========== ===========
* Estimated future net cash flows before income tax expense, discounted 10
percent, totaled approximately $1.40 billion, $1.36 billion and $1.06
billion as of December 31, 1994, 1993 and 1992, respectively.
F-26
62
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
The following table sets forth the principal sources of change in the
discounted future net cash flows:
For the Year Ended December 31,
------------------------------------
1994 1993 1992
------- --------- -------
(In thousands)
Sales, net of production costs . . . . . . . . . . . . . . $ (355,680) $ (309,229) $ (269,215)
Net change in prices and production costs . . . . . . . . . (113,871) (78,162) (23,318)
Discoveries and improved recovery, net of related costs . . 176,429 205,255 113,467
Change in future development costs . . . . . . . . . . . . 26,462 450 16,913
Revision of quantities . . . . . . . . . . . . . . . . . . 12,499 (29,360) 78,020
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . 163,511 347,860 99,228
Accretion of discount . . . . . . . . . . . . . . . . . . . 135,912 106,256 99,797
Change in income taxes . . . . . . . . . . . . . . . . . . (134) (47,387) (17,609)
Sales of properties . . . . . . . . . . . . . . . . . . . . (6,878) (3,500) (40,413)
Change in production rates and other . . . . . . . . . . . (657) 56,989 (9,869)
---------- ---------- ---------
$ 37,593 $ 249,172 $ 47,001
========== ========== =========
Impact of Pricing -- The estimates of cash flows and reserve quantities
shown above are based on year-end oil and gas prices, except in those cases
where future gas sales are covered by contracts at specified prices. Estimates
of future liabilities and receivables applicable to oil and gas commodity
hedges are reflected in future cash flows from proved reserves with such
estimates based on prices in effect as of the date of the reserve report.
Fluctuations are largely due to supply and demand perceptions for natural gas
and volatility in oil prices.
Under SEC rules, companies that follow full cost accounting methods are
required to make quarterly "ceiling test" calculations. Under this test,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower of cost or fair market value of unproved properties, as adjusted
for related tax effects and deferred tax reserves. Application of these rules
during periods of relatively low oil and gas prices, even if of short-term
duration, may result in write-downs.
Many full cost companies, including Apache, are concerned about the
impact of prolonged unfavorable gas prices on their ceiling test calculations.
A further deterioration of gas or oil prices from year-end levels would likely
result in the Company recording a non-cash charge to earnings related to its
oil and gas properties in the first quarter of 1995. SEC rules permit the
exclusion of capitalized costs and present value of recently acquired
properties in performing ceiling test calculations. Pursuant to these rules,
Apache has requested waivers and the SEC has granted one-year waivers with
respect to the properties acquired from Texaco and Crystal. If the ceiling is
exceeded on all domestic properties, Apache will be required to perform an
additional ceiling test excluding the Texaco and Crystal properties and record
a write-down of carrying value if the ceiling is still exceeded.
F-27
63
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
First Second Third Fourth Total
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
1994
Revenues . . . . . . . . . . . . . . . . $121,591 $134,947 $140,765 $148,318 $545,621
Expenses, net . . . . . . . . . . . . . . 112,184 124,751 130,191 135,658 502,784
-------- -------- -------- -------- --------
Net income . . . . . . . . . . . . . . . $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837
======== ======== ======== ======== ========
Net income per common share . . . . . . . $ .15 $ .17 $ .17 $ .21 $ .70
======== ======== ======== ======== ========
1993
Revenues . . . . . . . . . . . . . . . . $108,592 $111,270 $122,013 $124,763 $466,638
Expenses, net . . . . . . . . . . . . . . 97,000 99,775 120,932 111,597 429,304
------- ------- -------- -------- --------
Net income . . . . . . . . . . . . . . . $ 11,592 $ 11,495 $ 1,081 $ 13,166 $ 37,334
======== ======== ======== ======== ========
Net income per common share . . . . . . . $ .24 $ .22 $ .02 $ .22 $ .70
======== ======== ======== ======== ========
F-28
64
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between Registrant and Amoco Production
Company (incorporated by reference to Exhibit 10.1 to Registrant's Current Report on
Form 8-K, dated July 1, 1991, SEC File No. 1-4300, filed July 19, 1991).
2.2 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and
Registrant, as buyer, dated as of June 2, 1993 (incorporated by reference to Exhibit
10.1 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC File No.
1-4300, filed September 7, 1993).
2.3 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and
Registrant, as buyer, dated as of August 13, 1993 (incorporated by reference to
Exhibit 10.2 to Registrant's Current Report on Form 8-K, dated August 31, 1993, SEC
File No. 1-4300, filed September 7, 1993).
2.4 -- Form of Acquisition Agreement between Registrant, HERC Acquisition Corporation and
Hadson Energy Resources Corporation, dated August 26, 1993, and amended September 28,
1993 (incorporated by reference to Exhibit 2.1 to Registrant's Registration Statement
on Form S-4, Registration No. 33-67954, filed September 29, 1993).
2.5 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as
seller, and Registrant, as buyer, dated December 22, 1994 (incorporated by reference
to Exhibit 99.3 to Registrant's Current Report on Form 8-K, dated November 29, 1994,
SEC File No. 1-4300, filed December 29, 1994).
2.6 -- Agreement and Plan of Merger among Registrant, XPX Acquisitions, Inc. and DEKALB
Energy Company, dated December 21, 1994 (incorporated by reference to Exhibit 2.1 to
Registrant's Registration Statement on Form S-4, Registration No. 33-57321, filed
January 17, 1995).
2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement with Option to Exchange, dated
November 24, 1992, between Shell Offshore Inc., SOI Royalties Inc., and Registrant
(incorporated by reference to Exhibit 10.7 to Apache Offshore Investment Partnership's
Annual Report on Form 10-K for year ended December 31, 1992, SEC File No. 0-13546).
3.1 -- Restated Certificate of Incorporation of Registrant, dated December 1, 1993, as filed
with the Secretary of State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
3.2 -- Bylaws of Registrant, dated as of December 9, 1992 (incorporated by reference to
Exhibit 3.3 to Registrant's Annual Report on Form 10-K for year ended December 31,
1992, SEC File No. 1-4300).
4.1 -- Form of common stock certificate (incorporated by reference to Exhibit 4.4 to
Amendment No. 1 to Registrant's Registration Statement on Form S-3, Registration No.
33-5097, filed May 16, 1986).
65
EXHIBIT NO. DESCRIPTION
----------- -----------
4.2 -- Rights Agreement, dated as of January 10, 1986, between Registrant and First Trust
Company, Inc., rights agent, relating to the declaration of Rights to Registrant's
common stockholders of record on January 24, 1986 (incorporated by reference to
Exhibit 4.9 to Registrant's Annual Report on Form 10-K for year ended December 31,
1985, SEC File No. 1-4300).
10.1 -- Second Amended and Restated Credit Agreement, dated April 30, 1994, among Registrant,
the lenders named therein, and The First National Bank of Chicago and Chemical Bank,
as agents (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report
on Form 10-Q for quarter ended June 30, 1994, SEC File No. 1-4300).
*10.2 -- Third Amended and Restated Credit Agreement, dated March 1, 1995, among Registrant,
the lenders named therein, and The First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.3 -- Fiscal Agency Agreement, dated as of January 4, 1995, between Registrant and Chemical
Bank, as fiscal agent (incorporated by reference to Exhibit 99.2 to Registrant's
Current Report on Form 8-K, dated December 6, 1994, SEC File No. 1-4300, filed January
11, 1995.)
+10.4 -- 1982 Employee Stock Option Plan, as updated in January 1987 to conform to the Tax
Reform Act of 1986 (incorporated by reference to Exhibit 10.7 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.5 -- Apache Corporation Corporate Administrative Group Incentive Plan, effective as of
January 1, 1989 (incorporated by reference to Exhibit 10.8 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.6 -- First Amendment to Apache Corporation Corporate Administrative Group Incentive Plan,
effective January 1, 1990 (incorporated by reference to Exhibit 10.14 to Registrant's
Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300).
* +10.7 -- Apache Corporation Retirement/401(k) Savings Plan, dated December 22, 1994, effective
January 1, 1995.
+10.8 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989
(incorporated by reference to Exhibit 10.11 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.9 -- Apache International, Inc. Common Stock Award Plan, dated February 12, 1990
(incorporated by reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.10 -- Apache Corporation 1990 Phantom Stock Appreciation Plan, dated as of September 28,
1990 (incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.11 -- Apache Corporation 1990 Stock Incentive Plan, dated as of September 28, 1990
(incorporated by reference to Exhibit 10.18 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1990, SEC File No. 1-4300).
66
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.12 -- Amendment No. 1 to the Apache Corporation 1990 Stock Incentive Plan, dated as of July
17, 1992 (incorporated by reference to Exhibit 4.4 to Registrant's Registration
Statement on Form S-8, Registration No. 33-53442, filed October 19, 1992).
*+10.13 -- Apache Corporation 1995 Stock Option Plan, adopted February 9, 1995.
+10.14 -- Apache Corporation Income Continuance Plan, as amended and restated February 24, 1988
(incorporated by reference to Exhibit 10.19 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1990, SEC File No. 1-4300).
*+10.15 -- Apache Corporation Directors' Deferred Compensation Plan, as amended and restated
September 14, 1994.
+10.16 -- Apache Corporation Phantom Stock Appreciation Plan for Directors, effective as of May
4, 1989 (incorporated by reference to Exhibit 10.22 to Registrant's Annual Report on
Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.17 -- Apache Corporation Outside Directors' Retirement Plan, effective December 15, 1992
(incorporated by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 1-4300).
+10.18 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, adopted
February 9, 1994, and form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.19 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant
and Raymond Plank (incorporated by reference to Exhibit 10.9 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.20 -- Amended and Restated Employment Agreement, dated December 20, 1990, between Registrant
and John A. Kocur (incorporated by reference to Exhibit 10.10 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1990, SEC File No. 1-4300).
+10.21 -- Employment Agreement, dated March 20, 1991, between Registrant and William J. Johnson
(incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 1-4300).
+10.22 -- Employment Agreement, dated June 6, 1988, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.6 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1989, SEC File No. 1-4300).
+10.23 -- Consulting Agreement, dated November 1, 1993, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.30 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1993, SEC File No. 1-4300).
*+10.24 -- Consulting Agreement, effective April 28, 1994, between Registrant and William J.
Johnson.
*+10.25 -- Consulting Agreement, effective January 1, 1995, between Registrant and John L. Moran.
*11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for
the year ended December 31, 1994.
*21.1 -- Subsidiaries of Registrant.
*23.1 -- Consent of Arthur Andersen LLP.
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers.
*27.1 -- Financial Data Schedule.
___________________
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.