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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-4300
APACHE CORPORATION
A DELAWARE CORPORATION IRS EMPLOYER 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
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Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Preferred 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 27, 1998...... $3,345,842,930
Number of shares of registrant's common stock outstanding as
of February 27, 1998...................................... 98,407,145
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1998
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.................................................. 11
3. LEGAL PROCEEDINGS........................................... 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 15
6. SELECTED FINANCIAL DATA..................................... 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 17
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 26
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 26
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 (b/d) and thousands of cubic feet of gas per day (Mcf/d)
or millions of British thermal units per day (MMBtu/d), 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 and
produces natural gas, crude oil and natural gas liquids. In North America,
Apache's exploration and production interests are focused on the Gulf of Mexico,
the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western
Sedimentary Basin of Canada. Outside of North America, Apache has exploration
and production interests offshore Western Australia and in Egypt, and
exploration interests in Poland, offshore The People's Republic of China,
offshore the Ivory Coast and in Indonesia. Apache common stock, par value $1.25
per share, 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 U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
(MW), Apache Canada Ltd., DEK Energy Company (DEKALB, formerly known as DEKALB
Energy Company), Apache Energy Limited (formerly known as Hadson Energy
Limited), Apache International, Inc., Apache Overseas, Inc. and Apache PHN
Company, Inc. (Phoenix, formerly known as The Phoenix Resource Companies, Inc.).
Properties referred to in this document may be held by those subsidiaries.
Apache treats all operations as one segment of business.
1997 RESULTS
In 1997, Apache had record net income of $154.9 million, or $1.71 per
share, on total revenues of $1.2 billion. Net cash provided by operating
activities during 1997 was $723.8 million.
The year 1997 was Apache's 20th consecutive year of production growth and
10th consecutive year of oil and gas reserves growth. Apache's average daily
production was 68.9 Mbbls of oil and natural gas liquids and 609 MMcf of natural
gas for the year. Giving effect to 1997 production, acquisitions, dispositions
and drilling activity, the Company's estimated proved reserves increased by 79.6
MMboe in 1997 over the prior year to 585.7 MMboe, of which approximately 53
percent was natural gas. Based on 506.2 MMboe reported at year-end 1996,
Apache's reserve growth during the year reflects replacement of 228 percent of
the Company's 1997 production, including approximately 183 percent through
drilling, revisions, recompletions, workovers and other production enhancement
projects. Apache's active drilling and production-enhancement program yielded
321 new producing North American wells out of 399 attempts and involved 675
major North American workover and recompletion projects during the year.
At December 31, 1997, Apache had interests in approximately 4,246 net oil
and gas wells and 1,777,225 net developed acres of oil and gas properties. In
addition, the Company had approximately 601,258 net undeveloped acres under
North American leases and 20,303,930 net undeveloped acres under international
exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase oil and gas reserves, production,
cash flow and earnings through a combination of exploratory drilling,
development of its inventory of existing projects and property acquisitions
meeting defined financial parameters. The Company's drilling program emphasizes
reserve additions through moderate-risk drilling primarily on its North American
interests, and exploratory drilling primarily on its international interests.
The Company also emphasizes reducing operating costs per unit produced and
selling marginal and non-strategic properties in order to enhance its profit
margins.
Apache's international investments and exploration activities are an
emerging component of its long-term growth strategy. In addition to an active,
moderate-risk drilling program in Apache's North American focus areas,
higher-risk international exploration offers potential for greater rewards and
significant reserve additions. Apache directed its international efforts in 1997
toward development of certain discoveries offshore Western Australia, Egypt and
offshore The People's Republic of China, and toward further exploration efforts
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in those areas and on its concessions offshore the Ivory Coast of western Africa
and in Poland. Apache believes that reserve additions in these international
areas are likely to continue through higher-risk exploration and through
improved production practices and recovery techniques.
For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each acquisition with a cycle of
reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires a well
planned and carefully executed property development program and, where
appropriate, a selective program of 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; as a result, the Company operates properties accounting for over 78
percent of its production.
1997 ACQUISITIONS AND DISPOSITIONS
On October 8, 1997, the Company entered into three agreements with
subsidiaries of Mobil Exploration & Producing Australia Pty Ltd (Mobil) pursuant
to which the Company acquired all the capital stock of three companies owning
interests in certain oil and gas properties and production facilities offshore
Western Australia (the Harriet/East Spar Properties), on November 20, 1997 (the
Ampolex Group Transaction). The total cost of the Ampolex Group Transaction was
approximately $300 million, of which $218 million represented the purchase price
for the capital stock of the acquired companies and $82 million was applied to
discharge existing intercompany debt of one of the acquired companies.
On December 9, 1997, the Company entered into an agreement with Hardy
Petroleum Limited (Hardy) under which Hardy agreed to purchase a 10 percent
interest in the Company's East Spar field and related production facilities. The
transaction closed on January 28, 1998, with a total sales price of
approximately $63 million in cash, such amount being more than Apache's
allocated cost. The Ampolex Group Transaction was recorded net of these
interests.
The Ampolex Group Transaction increased the Company's interest to 47.5
percent from 22.5 percent in the Carnarvon Basin's Harriet area, which includes
the Varanus Island pipeline, processing and production complex and eight
existing oil and gas fields. The transaction also raised the Company's interest
in the East Spar field, which produces through the Varanus Island facilities, to
45 percent from 20 percent net of the sale to Hardy. Apache operates the
Harriet/East Spar Properties.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities were
diversified among five operating regions in 1997, Offshore, Midcontinent,
Western, Gulf Coast and Canada. Approximately 72 percent of the Company's proved
reserves are located in Apache's North American regions. Egypt and Australia are
the Company's most important international regions. The Company's Egyptian
operations are headquartered in Cairo, and Apache conducts its Australian and
Indonesian exploration and production from Perth, Australia. Information
concerning the amount of revenue, operating income and identifiable assets
attributable to U.S., Canadian and international operations is set forth in the
Supplemental Oil and Gas Disclosures under Item 8 below.
Offshore. The Offshore region included all of Apache's interests in
properties offshore Texas and Louisiana. The Offshore region was Apache's
leading region for oil and gas revenues in 1997 with $202 million in revenue
from 12.8 MMboe of production for the year. At December 31, 1997, the Offshore
region held 319,812 net acres, located in both state and federal waters, and
accounted for 45.7 MMboe, or eight percent, of the Company's year-end 1997 total
estimated proved reserves. Apache's operations in the Offshore region focused on
workovers and recompletions, which totaled 58 in the region for 1997. Apache
participated in drilling 27 wells that were drilled in the region during the
year, 14 of which were completed as producers. For 1997, Apache's gas production
from the Offshore region was approximately 66.6 Bcf. At the start of the 1998
fiscal year, the Offshore region was merged into the Gulf Coast region to take
advantage of administrative efficiencies.
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Midcontinent. Apache's Midcontinent region operates in Oklahoma, eastern
Texas, Arkansas and northern Louisiana. The region has focused operations on its
sizable position in the Anadarko Basin of western Oklahoma. Apache has drilled
and operated in the Anadarko Basin for over four decades, developing an
extensive database of geologic information and a substantial acreage position.
The Midcontinent region was Apache's leading producing region for 1997 with
approximately 13.1 MMboe of production generating $197 million in revenue for
the Company.
At December 31, 1997 Apache held an interest in 403,796 net acres in the
region, which accounted for approximately 103.1 MMboe, or 18 percent, of
Apache's total estimated proved reserves. Apache participated in drilling 124
wells in the Midcontinent region during the year, 108 of which were completed as
producing wells. The Company performed 33 workover and recompletion operations
in the region during 1997.
Western. The Western region includes assets in the Permian Basin of western
Texas and New Mexico, the Green River Basin of Colorado and Wyoming, and the San
Juan Basin of New Mexico. In 1997, the Western region produced approximately 9.8
MMboe and $168 million in production revenue. At December 31, 1997, the Company
held 449,270 net acres in the region, which accounted for 136.8 MMboe, or 23
percent, of the Company's total estimated proved reserves. Apache participated
in drilling 124 wells in the Western region, 108 of which were productive wells.
Apache performed 236 workovers and recompletions in the Western region during
the year.
Gulf Coast. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas and Mississippi. In 1997, the Gulf Coast region
contributed approximately $172 million in revenues from production of 9.6 MMboe
for the year. The Company performed 215 workover and recompletion operations
during 1997 in the Gulf Coast region and participated in drilling 43 wells, 31
of which were completed as producers. As of December 31, 1997, the region
encompassed 246,227 net acres, and accounted for 70.9 MMboe, or 12 percent, of
the Company's year-end 1997 total estimated proved reserves.
Canada. Exploration and development activity in the Canadian region is
concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 6.5 MMboe, 84 percent of which was natural gas, and
generated $61 million in production revenue, six percent of the Company's
production revenues in 1997. Apache participated in drilling 81 wells in this
region during the year, 60 of which were completed as producers. The Company
performed 133 workovers and recompletions on operated wells during 1997. At
December 31, 1997, the region encompassed approximately 317,524 net acres, and
accounted for 66 MMboe, or 11 percent, of the Company's year-end 1997 total
estimated proved reserves.
Egypt. At year end, Apache held 13,621,304 net acres in Egypt with 78.7
MMboe of estimated proved reserves or 13 percent of Apache's total estimated
proved reserves. Apache owns a 75 percent interest in the Qarun Block and a 40
percent interest in the Khalda Block, both in the Western Desert of Egypt.
Future production of gas from Khalda is expected to be delivered for sale to the
Egyptian General Petroleum Corporation (EGPC) at a point west of Alexandria,
Egypt, via a 34-inch gas pipeline, construction of which commenced in 1997 with
completion projected to occur in 1999. The costs of building the pipeline will
be borne by Apache, the other Khalda participants and the owners of a
neighboring block. Construction costs paid by Apache and the other Khalda
participants are recoverable from oil and gas production from the Khalda Block.
Both the Khalda and Qarun Concession Agreements provide that Apache and its
partners in the concessions will pay all of the operating and capital costs for
developing the concessions, while the production will be split between EGPC and
the partners. Up to 40 percent of the oil and gas produced from each of the
concessions is available to the Company and its partners to recover operating
and capital costs for the applicable concession. To the extent eligible costs
exceed 40 percent of the oil and gas produced and sold from a concession in any
given quarter, such excess costs may be carried into future quarters without
limit. The remaining 60 percent of all oil and gas produced from the concessions
is divided between EGPC and Apache and its partners, with the percentage
received by Apache and its partners reducing as the gross daily average of oil
and gas produced on a quarterly basis increases. Under the Khalda Agreement,
capital costs are amortized over four years, while the Qarun agreement provides
for a five year amortization.
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In addition to the Qarun and Khalda Blocks, Apache holds interests in the
Darag Block in the northern Gulf of Suez, the East Beni Suef and Asyout Blocks
to the south of the Qarun Block, and three other blocks in the Western Desert of
Egypt, the North East Abu Gharadig Block, the East Bahariya Block, and the West
Mediterranean Block No. 1 (partly onshore and partly offshore). The latter three
blocks were purchased from Mobil Exploration Egypt, Inc. in January 1997, and
Apache's interest in the West Mediterranean Block was increased to 66 percent in
an October 1997 transaction with Amoco Egypt West Mediterranean B.V. Apache also
acquired interests in the Ras El Hekma and Ras Kanayes concessions from Repsol
Exploracion Egipta S.A. in December 1997. Exploratory drilling on the East Beni
Suef Block commenced in 1997 with a significant discovery made on the #1 well.
Delineation drilling is continuing in 1998. Due to conflicting governmental
requirements regarding the placement of drilling rigs on the Darag Block, the
Company is presently unable to explore on the block. Negotiations with
appropriate authorities are continuing to attempt to resolve the impasse and
Apache may ultimately relinquish the Darag concession.
Australia. Western Australia became an important region for Apache after
the 1993 acquisition of Hadson Energy Resources Corporation (subsequently known
as Apache Energy Resources Corporation or AERC). In 1997, natural gas production
in the region increased by 88 percent from the prior year to approximately 26
MMcf/d. Apache acts as operator for most of its Western Australia properties
through a wholly-owned subsidiary, Apache Energy Limited (AEL). During 1997,
Apache's estimated proved reserves in Australia increased by 156 percent to 80
MMboe, or 14 percent of the Company's year-end total estimated proved reserves.
The increase reflects, among other matters, the acquisition of three companies
with holdings in the East Spar and Harriet fields. As of December 31, 1997,
Apache held 159,850 net developed acres and 1,104,440 net undeveloped acres in
Western Australia. Through AEL and its subsidiaries, Apache also operates the
Harriet Gas Gathering Project, a gas processing and compression facility with a
throughput capacity of 175 MMcf/d, and a 60-mile, 12-inch offshore pipeline with
a throughput capacity of 175 MMcf/d that connects to a pipeline grid onshore.
See "1997 Acquisitions and Dispositions" and "Oil and Natural Gas Marketing."
Other International Operations. Outside of Canada, Egypt and Australia,
Apache currently has exploration interests in Poland, offshore The People's
Republic of China, offshore the Ivory Coast and in Indonesia.
Effective April 16, 1997, Apache entered into an agreement with FX Energy,
Inc. (FX Energy) pursuant to which Apache assumed operatorship and a 50 percent
interest in over 5.5 million acres in Poland located near Lublin, southeast of
Warsaw. The Company has also acquired additional acreage in Poland in which FX
Energy does not participate, giving Apache interests in 8,176,065 total gross
undeveloped acres and 5,563,542 net undeveloped acres as of December 31, 1997.
The concessions in Poland include requirements for Apache to drill at least
eleven wells and to shoot at least 1,290 miles of seismic data. In February
1998, Apache entered into an additional agreement with FX Energy, acquiring a 50
percent interest in approximately 3 million acres in the Carpathian area near
the southern border of Poland and options to participate at the present interest
in a further 2.275 million acres in the Pomeranian area of northwest Poland.
Apache's operations in Poland are headquartered in Warsaw.
Apache is also the operator, with a 50 percent interest, of the Zhao Dong
Block in Bohai Bay, offshore The People's Republic of China. In 1994 and 1995,
discovery wells tested at rates between 1,300 and 4,000 b/d of oil. The Company
elected to proceed with the second exploration phase, commencing in May 1996,
which involved a commitment to drill two additional exploratory wells. In early
1997, one well tested at rates up to 11,571 b/d of oil and another tested at
rates up to 15,359 b/d, and the Company is currently evaluating the discovery
areas for commercial potential. An overall development plan for the C and D
Fields in the Zhao Dong Block was submitted to Chinese authorities in late 1997
and is awaiting approval.
In the Ivory Coast, Apache drilled an exploratory well in 1996 on the CI-27
offshore Block, confirming the existence of substantial reserves of gas in the
Foxtrot field and the producibility of some oil from the field's lower horizons.
Apache is operator of the block, holding a 24 percent interest. In March 1997,
Apache and its partners signed a 10 year take or pay contract to supply
approximately 168 Bcf of gas to a power plant in Abidjan at 30 MMcf per day
initially, rising to 50 MMcf per day in the third year. Gas deliveries are to
commence in 1999, upon completion of a pipeline.
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In Indonesia, Apache holds a 39 percent interest in the Bentu Segat Block
on Central Sumatra, on which an undeveloped gas field is located.
OIL AND NATURAL GAS MARKETING
On October 27, 1995, wholly owned affiliates of each of Apache, Oryx Energy
Company and Parker & Parsley Petroleum Company (Parker & Parsley) formed
Producers Energy Marketing, LLC, a Delaware limited liability company
(ProEnergy). ProEnergy became fully operational on April 1, 1996, and markets
substantially all of its members' domestic natural gas pursuant to member gas
purchase agreements having an initial term of 10 years, subject to early
termination following specified events. The price of gas purchased by ProEnergy
from its members is based upon agreed to published indexes. ProEnergy also
provides its members with certain contract administration and other services. In
December 1997, Parker & Parsley gave notice to the other members that it was
withdrawing from ProEnergy effective as of January 1, 1998.
ProEnergy's limited liability company agreement provides that capital
funding obligations, allocations of profit and loss, and voting rights are
calculated based upon the members' respective throughputs of natural gas sold to
ProEnergy. So long as there are two or more members, the approval of any action
requires the votes of at least two members holding the requisite voting
interests. Each member's liability with respect to future capital funding
obligations is subject to certain limitations. Natural gas throughputs are
calculated, profit distributed, and/or capital called on a quarterly basis. As
of December 31, 1997, the Company held an approximate 48 percent interest in
ProEnergy.
Apache is also delivering natural gas under several long-term supply
agreements with terms greater than one-year. In 1997, Apache delivered an
average of 135 MMcf/d under such contracts at an average price of $2.48 per Mcf.
Apache assumed its own U.S. crude oil marketing operations in 1992. Most of
Apache's U.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. Oil produced from Canadian properties is sold to
crude oil purchasers or refiners at market prices, which depend on worldwide
crude prices adjusted for transportation and crude quality. Natural gas produced
from Canadian properties is sold to major aggregators of natural gas, gas
marketers and direct users under long-term and short-term contracts. The oil and
gas contracts provide for sales at specified prices, or at prices that are
subject to change due to market conditions.
The Company diversifies the markets for its Canadian gas production by
selling directly or indirectly to customers through aggregators and brokers in
the United States and Canada. Apache transports natural gas via the Company's
firm transportation contracts to California (12 MMcf/d) and to the Province of
Ontario, Canada (four MMcf/d) through end-users' firm transportation contracts.
Pursuant to an agreement entered into in 1994, the Company is also selling five
MMcf/d of natural gas to the Hermiston Cogeneration Project, located in the
Pacific Northwest of the United States. In 1996, the Company entered into an
agreement with Westcoast Gas Services, Inc. for the sale of 5,000 MMBtu/d for
delivery in the United States for a 10 year term. Sales under the contract are
contingent on regulatory approval of the required pipeline expansion, and are
expected to begin in 1998.
In Australia, the Company entered into seven gas sales contracts during
1997 and has a total of 13 contracts for periods of five to 11 years, to deliver
260 Bcf of AEL's gas from its Harriet and East Spar fields for mining, power
generation, nickel refining, ammonia production and other industrial and
domestic uses. Under these contacts AEL is required to deliver its gas at
contract rates of approximately 50 MMcf/day increasing to 80 MMcf/day by the
year 2000, with take or pay provisions, net to AEL, of approximately 14 Bcf/year
increasing to 20 Bcf/year by the year 2000. Apache operates both the Harriet and
the East Spar Joint Ventures, holding a 47.5 percent interest in Harriet and a
45 percent interest in East Spar.
AEL marketed all oil and natural gas liquids produced from its interests in
the Harriet and East Spar fields during 1997 through a contract with Glencore
International AG (Glencore). Pricing under the contract in 1997 represented a
fixed premium to the quoted market prices of Tapis crude oil, with payment made
in U.S. dollars. In 1997, the weighted average price based on regional
production was $20.51 per barrel. At the
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beginning of January 1998, the Glencore contract was terminated and replaced by
a similar contract with Mitsui Oil (Asia) Pty. Ltd.
In Egypt, oil from the Qarun Block is delivered by pipeline to tanks owned
by the Company and its partners in the Qarun Concession at the Dashour pumping
station northeast of the Qarun Block or by truck to the Tebbin refinery south of
Alexandria, Egypt. At the discretion of the operator of the pipelines, oil from
the Qarun Block is put into the two 42-inch diameter SUMED pipelines, which
transport significant quantities of Egyptian and other crude oil from the Gulf
of Suez to Sidi Kherir, west of Alexandria, Egypt, on the Mediterranean Coast.
All Qarun and Khalda crude oil is currently sold to EGPC. In 1996, the Company
and its partners in the Khalda Block entered into a take or pay contract with
EGPC, which obligates EGPC to pay for 75 percent of 200 MMcf/d of future
production of gas from the Khalda Block. Sales of gas under the contract are
expected to begin in 1999 upon completion of a gas pipeline from the Khalda
Block. In late 1997, the same sellers entered into a supplement to the contract
with EGPC to sell an additional 50 MMcf/d through a southern gas line to be
constructed by the Company and its partners from the Khalda Block to a point
near the Qarun Block to tie into an existing gas pipeline.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile during 1997, with Apache's realized
prices ranging from $3.38 per MMbtu in January to $1.78 per MMbtu in April.
Fluctuations are largely due to natural gas supply and demand perceptions.
Apache's average realized gas price of $2.28 per Mcf for 1997 increased 13
percent from the prior-year average of $2.02 per Mcf, and its 1996 average
realized natural gas price was 29 percent higher than the 1995 average price of
$1.57 per Mcf.
Due to minimum price contracts which escalate at an average of 80 percent
of the Australian consumer price index, AEL's natural gas production in Western
Australia is not subject to the same degree of price volatility as Apache's U.S.
and Canadian gas production; however, natural gas sales under such Australian
minimum price contracts represent less than two percent of the Company's total
natural gas sales at the end of 1997. Total Australian gas sales in 1997,
including long-term contracts and spot sales averaged $1.78 per Mcf, a nine
percent decrease from the 1996 average of $1.96 per Mcf.
In Egypt, all oil production from the Khalda and Qarun Blocks is currently
sold to EGPC on a spot basis at a "Western Desert" price, which is applied to
virtually all production from the area and is announced from time to time by
EGPC. In 1997, the average price was $18.65 per barrel. Discussions with EGPC
regarding the possibility of exporting Qarun oil production are continuing. Once
gas sales from the Khalda Block commence, the gas is expected to be sold for a
price which, on a Btu basis, is equivalent to 85 percent of the price of Suez
Blend crude oil, FOB Mediterranean.
Oil prices remained subject to unpredictable political and economic forces
during 1997 experiencing fluctuations similar to those seen in natural gas
prices for the year. Apache believes that 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 worldwide energy supplies and the
competitive relationships and consumer perceptions of various energy sources,
the Company is unable to predict what changes will occur in crude oil and
natural gas prices.
In 1997, Apache's realized worldwide crude oil price ranged from $24.17 per
barrel in January to $16.71 per barrel in December. The average crude oil price
of $19.20 per barrel in 1997 was down eight percent from the average price of
$20.84 per barrel in 1996, but 12 percent higher than the average price of
$17.09 per barrel in 1995. The Company's average crude oil price for its
Australian production was $20.51 per barrel in 1997, eight percent less than the
average price in 1996.
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. Under this provision, to the extent
that oil prices exceed specified reference prices that rise to $33.12 per barrel
over the
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eight-year period ending June 30, 1999, and to the extent that gas prices
exceeded specified reference prices that rose to $2.68 per Mcf over the
five-year period ended June 30, 1996, Apache will share the excess price
realization with Amoco on a portion of the MW production. No price sharing
payments were required in 1997.
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 9 to the Company's consolidated 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.
FULL COST CEILING TEST
Under the full cost accounting rules of the Securities and Exchange
Commission (SEC), 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 income taxes.
Application of these rules 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. The Company had no write-downs due to ceiling test
limitations during 1997. Under current pricing there is the potential, while not
a certainty, that a write-off may occur. If a write-down is required, the
one-time charge to earnings would not impact cash flow from operating
activities.
EFFECT OF VOLATILE PRICES
The Company continually analyzes, forecasts and updates its estimates of
energy prices for its internal use in planning, budgeting, and valuation and
reserve estimates. The Company's future financial condition and results of
operations will depend upon the prices received for the Company's oil and
natural gas production and the costs of acquiring, finding, developing and
producing reserves. Prices for oil and natural gas are subject to fluctuations
in response to relatively minor changes in supply, market uncertainty and a
variety of additional factors that are beyond the control of the Company. These
factors include worldwide political instability (especially in the Middle East
and other oil-producing regions), the foreign supply of oil and gas, the price
of foreign imports, the level of consumer product demand, government regulations
and taxes, the price and availability of alternative fuels and the overall
economic environment. A substantial or extended decline in oil and gas prices
would have a material adverse effect on the Company's financial position,
results of operations, quantities of oil and gas that may be economically
produced and access to capital. In addition, the sale of the Company's oil and
gas production depends on a number of factors beyond the Company's control,
including the availability and capacity of transportation and processing
facilities. Oil and natural gas prices have historically been and are likely to
continue to be volatile. Such volatility makes it difficult to estimate the
value of producing properties in acquisitions and to budget and project the
return on exploration and development projects involving the Company's oil and
gas properties. In addition, unusually volatile prices often disrupt the market
for oil and gas properties, as buyers and sellers have more difficulty agreeing
on the purchase price of properties.
RESERVES; RATES OF PRODUCTION; DEVELOPMENT EXPENDITURES; CASH FLOW
There are numerous uncertainties inherent in estimating quantities of oil
and natural gas reserves of any category and in projecting future rates of
production and timing of development expenditures which underlie such reserve
estimates, including many factors beyond the control of the Company. Reserve
data represents only estimates. In addition, the estimates of future net cash
flows from proved reserves of the Company and the present value thereof are
based upon various assumptions about future production levels, prices and costs
that may prove to be incorrect over time (see below). Any significant variance
from the assumptions could result in the actual quantity of the Company's
reserves and future net cash flows therefrom being materially
7
10
different from the estimates. In addition, the Company's estimated reserves may
be subject to downward or upward revision based upon production history, results
of future exploration and development, prevailing oil and gas prices, operating
and development costs and other factors. The rate of production from oil and gas
properties declines as reserves are depleted. Except to the extent that the
Company acquires additional properties containing proved reserves, conducts
successful exploration and development activities or, through engineering
studies, identifies additional behind-pipe zones or secondary recovery reserves,
the proved reserves of the Company will decline materially as reserves are
produced. Future oil and gas production is, therefore, highly dependent upon the
Company's level of success in acquiring or finding additional reserves.
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.
At the U.S. federal level, the Federal Energy Regulatory Commission (FERC)
regulates interstate transportation of natural gas under the Natural Gas Act.
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
natural gas produced in the U.S. 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. To date, Apache has not experienced any material adverse
effect on its gas marketing activities 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 activities.
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties, is
subject to various federal, provincial, 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, and require suspension or cessation of operations in affected
areas.
Apache maintains insurance coverage which it believes is 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,
1997, 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. The Company has established policies for continuing
compliance with environmental laws and regulations, including regulations
applicable to its operations in Canada, Australia and other countries. Apache
also has established operational procedures and training programs designed to
minimize 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.
8
11
Although environmental requirements 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; however, 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.
INSURANCE
Exploration for and production of oil and natural gas can be hazardous,
involving unforeseen occurrences such as blowouts, cratering, fires and loss of
well control, which can result in damage to or destruction of wells or
production facilities, injury to persons, loss of life or damage to property or
the environment. The Company maintains insurance against certain losses or
liabilities arising from its operations in accordance with customary industry
practices and in amounts that management believes to be prudent; however,
insurance is not available to the Company against all operational risks.
HEDGING
To the extent that the Company engages in hedging activities, it may be
prevented from realizing the benefits of price increases above the levels of the
hedges. In addition, the Company is subject to basis risk when it engages in
hedging transactions, particularly where transportation constraints restrict the
Company's ability to deliver oil and gas volumes to the delivery point to which
the hedging transaction is indexed.
ACQUISITION RISKS
The Company from time to time acquires oil and gas properties. Although the
Company performs a review of the acquired properties that it believes is
consistent with industry practices, such reviews are inherently incomplete. It
generally is not feasible to review in depth every individual property involved
in each acquisition. Ordinarily the Company will focus its review efforts on the
higher-value properties and will sample the remainder. However, even a detailed
review of records and properties may not necessarily reveal existing or
potential problems, nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and potential.
Inspections may not always be performed on every well, and environmental
problems, such as ground water contamination, are not necessarily observable
even when an inspection is undertaken. Even when problems are identified, the
Company often assumes certain environmental and other risks and liabilities in
connection with acquired properties. There are numerous uncertainties inherent
in estimating quantities of proved oil and gas reserves and actual future
production rates and associated costs with respect to acquired properties, and
actual results may vary substantially from those assumed in the estimates (see
above). In addition, there can be no assurance that acquisitions will not have
an adverse effect upon the Company's operating results, particularly during the
periods in which the operations of acquired businesses are being integrated into
the Company's ongoing operations.
9
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GENERAL ECONOMIC CONDITIONS
Virtually all of the Company's operations are subject to the risks and
uncertainties of general economic conditions (domestically, in specific regions
of the United States and Canada, and internationally), the outcome of pending
and/or potential legal or regulatory proceedings, changes in environmental, tax,
labor and other laws and regulations to which the Company is subject, and the
condition of the capital markets utilized by Company to finance its operations.
RISKS OF NON-U.S. OPERATIONS
The Company's non-U.S. oil and natural gas exploration, development and
production activities are subject to political and economic uncertainties
(including but not limited to changes, sometimes frequent or marked, in
governmental energy policies or the personnel administering them), expropriation
of property, cancellation or modification of contract rights, foreign exchange
restrictions, currency fluctuations, royalty and tax increases and other risks
arising out of foreign governmental sovereignty over the areas in which the
Company's operations are conducted, as well as risks of loss due to civil
strife, acts of war, guerrilla activities and insurrection. These risks may be
higher in the developing countries in which the Company conducts such
activities. Consequently, the company's non-U.S. exploration, development and
production activities may be substantially affected by factors beyond the
Company's control, any of which could materially adversely affect the Company's
financial position or results of operations. Furthermore, in the event of a
dispute arising from non-U.S. operations, the Company may be subject to the
exclusive jurisdiction of courts outside the U.S. or may not be successful in
subjecting non-U.S. persons to the jurisdiction of the courts in the U.S., which
could adversely affect the outcome of such dispute.
EMPLOYEES
On December 31, 1997, Apache had 1,287 employees.
OFFICES
Apache's principal executive offices are located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 1997,
the Company maintained regional exploration and production offices in Tulsa,
Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western
Australia; and Warsaw, Poland.
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ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The undeveloped and developed acreage including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1997, are as follows:
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
------------------------ ----------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- ---------- --------- ---------
OFFSHORE
Louisiana................................... 158,626 88,677 201,884 85,279
Texas....................................... 109,349 66,955 167,645 78,901
---------- ---------- --------- ---------
TOTAL..................................... 267,975 155,632 369,529 164,180
---------- ---------- --------- ---------
MIDCONTINENT
Arkansas.................................... 2,296 1,774 4,625 3,350
Kansas...................................... 160 -- 40 40
Louisiana................................... 11,735 10,180 51,199 34,837
Michigan.................................... 2,693 2,090 -- --
Oklahoma.................................... 127,874 49,505 484,911 192,394
Pennsylvania................................ -- -- 796 38
Texas....................................... 72,036 41,602 130,502 67,986
---------- ---------- --------- ---------
TOTAL..................................... 216,794 105,151 672,073 298,645
---------- ---------- --------- ---------
WESTERN
Alaska...................................... 14,262 -- -- --
Colorado.................................... 14,200 12,472 13,575 12,870
Illinois.................................... 140 56 -- --
New Mexico.................................. 93,888 51,726 98,628 50,746
Ohio........................................ 21 11 -- --
Texas....................................... 136,871 69,789 255,948 192,563
Utah........................................ 3,101 2,462 6,707 6,235
Wyoming..................................... 58,912 43,065 15,591 7,275
---------- ---------- --------- ---------
TOTAL..................................... 321,395 179,581 390,449 269,689
---------- ---------- --------- ---------
GULF COAST
Florida..................................... 162 23 -- --
Louisiana................................... 25,669 19,602 88,577 72,977
Mississippi................................. 10,515 5,108 5,293 3,316
Texas....................................... 53,045 27,937 189,778 117,264
---------- ---------- --------- ---------
TOTAL..................................... 89,391 52,670 283,648 193,557
---------- ---------- --------- ---------
TOTAL UNITED STATES......................... 895,555 493,034 1,715,699 926,071
---------- ---------- --------- ---------
INTERNATIONAL
Canada...................................... 191,454 108,224 338,527 209,300
Egypt....................................... 26,857,700 13,149,995 867,400 471,309
Australia................................... 3,224,740 1,104,440 425,270 159,850
Poland...................................... 8,172,605 5,563,542 -- --
China....................................... 41,580 20,790 7,100 1,740
Ivory Coast................................. 157,258 62,903 37,312 8,955
Indonesia................................... 1,034,380 402,260 -- --
---------- ---------- --------- ---------
TOTAL INTERNATIONAL....................... 39,679,717 20,412,154 1,675,609 851,154
---------- ---------- --------- ---------
TOTAL COMPANY............................... 40,575,272 20,905,188 3,391,308 1,777,225
========== ========== ========= =========
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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, 1997, is set forth below.
GAS OIL
-------------- --------------
GROSS NET GROSS NET
----- ----- ----- -----
Offshore.................................................... 180 67 66 22
Midcontinent................................................ 1,630 617 515 152
Western..................................................... 347 127 3,442 1,744
Gulf Coast.................................................. 315 249 980 798
Canada...................................................... 484 314 433 88
Egypt....................................................... 10 4 108 54
Australia................................................... 7 3 15 7
----- ----- ----- -----
Total..................................................... 2,973 1,381 5,559 2,865
===== ===== ===== =====
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, 1997, the Company was participating in 24 wells in the U.S., nine Canadian
wells, 21 Egyptian wells and two Australian wells in the process of drilling.
EXPLORATORY DEVELOPMENTAL
-------------------------- --------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
1997
United States.............................. 27 25 52 234 32 266
Canada..................................... 19 14 33 41 7 48
Egypt...................................... 7 19 26 23 4 27
Australia.................................. 3 6 9 6 1 7
Other International........................ 1 2 3 1 -- 1
-- -- --- --- -- ---
Total.................................... 57 66 123 305 44 349
== == === === == ===
1996
United States.............................. 28 33 61 201 31 232
Canada..................................... 23 25 48 27 2 29
Egypt...................................... 7 4 11 12 -- 12
Australia.................................. 4 6 10 1 1 2
Other International........................ -- 1 1 -- -- --
-- -- --- --- -- ---
Total.................................... 62 69 131 241 34 275
== == === === == ===
1995
United States.............................. 9 15 24 129 21 150
Canada..................................... 16 13 29 14 5 19
Egypt...................................... 4 2 6 3 -- 3
Australia.................................. 4 6 10 1 1 2
Other International........................ -- 4 4 -- 1 1
-- -- --- --- -- ---
Total.................................... 33 40 73 147 28 175
== == === === == ===
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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
---------- ---- ----- ---------- ---- -----
1997
United States............................. 11.5 11.9 23.4 107.5 19.0 126.5
Canada.................................... 14.5 10.1 24.6 29.0 6.0 35.0
Egypt..................................... 3.7 12.3 16.0 14.4 2.0 16.4
Australia................................. 1.0 1.0 2.0 1.8 .2 2.0
Other International....................... .5 1.4 1.9 .5 -- .5
---- ---- ---- ----- ---- -----
Total................................... 31.2 36.7 67.9 153.2 27.2 180.4
==== ==== ==== ===== ==== =====
1996
United States............................. 17.2 22.8 40.0 77.9 19.1 97.0
Canada.................................... 18.8 21.5 40.3 24.1 1.4 25.5
Egypt..................................... 3.2 3.0 6.2 9.0 -- 9.0
Australia................................. 1.1 1.5 2.6 0.2 0.1 0.3
Other International....................... -- 0.4 0.4 -- -- --
---- ---- ---- ----- ---- -----
Total................................... 40.3 49.2 89.5 111.2 20.6 131.8
==== ==== ==== ===== ==== =====
1995
United States............................. 3.7 6.2 9.9 57.3 14.0 71.3
Canada.................................... 14.0 9.4 23.4 13.4 3.4 16.8
Egypt..................................... 1.0 0.5 1.5 0.6 -- 0.6
Australia................................. 1.4 1.8 3.2 0.2 0.7 0.9
Other International....................... -- 0.7 0.7 -- 0.7 0.7
---- ---- ---- ----- ---- -----
Total................................... 20.1 18.6 38.7 71.5 18.8 90.3
==== ==== ==== ===== ==== =====
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 (excluding severance taxes) 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)
------------ ------- ------- ------- ------------ --------- --------- ---------
1997............... 24,291 843 222,237 $3.07 $19.20 $14.08 $2.28
1996............... 19,465 713 205,305 3.43 20.84 16.41 2.02
1995............... 18,324 763 210,632 3.34 17.09 12.05 1.57
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 Supplemental Oil and Gas Disclosures under
Item 8 below. The Company's estimates of proved reserve quantities of its U.S.,
Canadian and international properties have been subject to review by Ryder Scott
Company Petroleum Engineers. In 1996, the proved reserve quantities of certain
of the Company's Egyptian properties were reviewed by Netherland, Sewell &
Associates, Inc. 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
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information represents estimates only and should not be construed as being
exact. See the Supplemental Oil and Gas Disclosures under Item 8 below.
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1997, 1996 and 1995:
OIL, NGLS
NATURAL AND
GAS CONDENSATE
(BCF) (MMBBLS)
------- ----------
1997
Developed................................................... 1,554.3 203.1
Undeveloped................................................. 317.5 70.7
------- -----
Total.................................................. 1,871.8 273.8
======= =====
1996
Developed................................................... 1,435.3 183.2
Undeveloped................................................. 190.0 52.1
------- -----
Total.................................................. 1,625.3 235.3
======= =====
1995
Developed................................................... 1,298.5 137.5
Undeveloped................................................. 203.4 32.8
------- -----
Total.................................................. 1,501.9 170.3
======= =====
The following table sets forth the estimated future value of all the
Company's proved reserves, and proved developed reserves, as of December 31,
1997, 1996 and 1995. 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
DECEMBER 31, PROVED DEVELOPED PROVED DEVELOPED
- ------------ ---------- ---------- ------------ ------------
(IN THOUSANDS)
1997................................ $5,347,892 $4,301,768 $3,272,618 $2,728,747
1996................................ 7,936,924 6,713,252 4,568,475 4,041,065
1995................................ 4,043,024 3,390,103 2,344,357 2,056,558
At December 31, 1997, estimated future net revenues expected to be received
from all the Company's proved reserves and proved developed reserves were as
follows:
PROVED
DECEMBER 31, PROVED DEVELOPED
- ------------ ---------- ----------
(IN THOUSANDS)
1998........................................................ $ 540,175 $ 618,938
1999........................................................ 711,613 623,300
2000........................................................ 665,515 522,793
Thereafter.................................................. 3,430,589 2,536,737
---------- ----------
Total............................................. $5,347,892 $4,301,768
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1997, 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 SEC guidelines and do not
reflect current prices. Since January 1, 1997, no oil or gas reserve information
has been filed with, or included in any
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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.
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 obligations or duties under applicable laws, ordinances, rules, regulations
and orders of arbitral or governmental authorities. In addition, the interests
may 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 10 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 1997.
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 1997 and
1996. Prices shown are from the New York Stock Exchange Composite Transactions
Reporting System.
1997 1996
-------------------------- ------------------------
PRICE RANGE PRICE RANGE
------------ DIVIDENDS ----------- DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
First Quarter.............................. $39 3/8 $31 1/4 $.07 $29 1/2 $24 3/8 $.07
Second Quarter............................. 35 5/8 30 1/8 $.07 33 1/2 26 3/8 $.07
Third Quarter.............................. 42 7/8 32 1/16 $.07 34 5/8 27 3/4 $.07
Fourth Quarter............................. 45 1/16 32 11/16 $.07 37 7/8 29 1/2 $.07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 27,
1998, was $34.00. At December 31, 1997, there were 93,304,541 shares of Apache
common stock outstanding, held by approximately 10,000 shareholders of record
and 46,000 beneficial owners.
Each share of Apache common stock also represents one preferred share
purchase right which, when exercisable, would entitle the holder to purchase one
ten-thousandth of a share of Series A Junior Participating Preferred Stock for a
purchase price of $100 and, under certain circumstances, would entitle the
holder to acquire additional shares of Apache common stock. See Note 7 to the
Company's financial statements under Item 8 below.
The Company has paid cash dividends on its common stock for 124 consecutive
quarters through December 31, 1997, and expects to continue the payment of
dividends at current levels, although future
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dividend payments will depend upon the Company's level of earnings, financial
requirements and other relevant factors.
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, 1997, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1994 and
1993 has been restated to reflect the merger with DEKALB in May 1995 under the
pooling of interests method of accounting. This information should be read in
connection with and is qualified in its entirety by the more detailed
information in the Company's financial statements under Item 8 below.
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997(1) 1996(2) 1995(3) 1994 1993(4)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Total revenues....................... $1,176,273 $ 977,151 $ 750,702 $ 592,626 $ 512,632
Income from continuing operations.... 154,896 121,427 20,207 45,583 41,421
Income per common share -- continuing
operations(5)
Basic........................... 1.71 1.42 .28 .65 .67
Diluted......................... 1.65 1.38 .28 .65 .67
Cash dividends per common share(6)... .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit)............ $ 4,546 $ (41,501) $ (22,013) $ (3,203) $ (55,538)
Total assets......................... 4,138,633 3,432,430 2,681,450 2,036,627 1,759,203
Long-term debt....................... 1,501,380 1,235,706 1,072,076 719,033 504,334
Shareholders' equity................. 1,729,177 1,518,516 1,091,805 891,087 868,596
Common shares outstanding at end of
year............................... 93,305 90,059 77,379 69,666 69,504
- ---------------
(1) Includes financial data for the Ampolex Group Transaction after November 20,
1997.
(2) Includes financial data for Phoenix after May 20, 1996.
(3) Includes the results of the acquisitions of certain oil and gas properties
from Texaco Exploration and Production, Inc. (Texaco) and Aquila Energy
Resources Corporation (Aquila) after March 1, 1995 and September 1995,
respectively, and the sale of a substantial portion of the Company's Rocky
Mountain properties in September 1995.
(4) Includes financial data for AERC after June 30, 1993, and the results of the
acquisition of certain oil and gas properties from Hall-Houston Oil Company
(Hall-Houston) after July 31, 1993.
(5) Income per common share -- continuing operations has been restated in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
(6) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994
and 1993.
For a discussion of significant acquisitions, reference is made to Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and to Note 2 to the Company's consolidated financial statements
under Item 8 below.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Apache achieved record earnings and cash flow on both an absolute and per
share basis during 1997. Higher natural gas prices, while contributing to the
year's improvements, were partially offset by lower oil prices. More than
product prices, the primary driver behind Apache's 1997 record performance was
increased production volumes, characterized by moderate growth in North American
gas production and substantial increases in oil volumes abroad.
The year's $154.9 million of earnings, coupled with a $75 million
conversion of debt to equity in November and $611 million of cash provided
before changes in working capital and other adjustments (cash flow from
operations), enabled Apache to end 1997 with a debt-to-capitalization ratio of
46.8 percent, up from 44.9 percent in 1996, despite $685.4 million invested in
exploration and development activities and $225.9 million of property
acquisitions. At year-end, approximately 69 percent of Apache's debt was locked
in at fixed rates averaging 7.42 percent.
Other specifics include:
Increased production and higher gas prices -- Higher oil and gas production
and natural gas prices contributed to record earnings and cash flow in 1997.
Egyptian oil development, a full year of production from Egyptian properties
acquired in 1996, and North American gas drilling drove the increased production
for 1997. Apache's oil production increased 25 percent from 1996 to 1997, which
added $92.6 million to revenues. Natural gas production increased nine percent
from 1996 to 1997, which contributed $38.5 million to the increase in revenues.
Apache's average realized natural gas price for 1997 was up 13 percent over
1996, favorably impacting revenues by $51.3 million.
Debt refinancing -- In January 1997, the Company established a $300 million
commercial paper program and expanded that program in June 1997 to $700 million.
Apache also replaced its $1 billion global borrowing-base credit facility with a
new $1 billion global corporate credit facility in June 1997. Apache issued $150
million of senior unsecured 50 year, 7.375-percent debentures in August 1997.
Three of the Company's Egyptian subsidiaries entered into a $250 million
secured, revolving credit facility in October 1997. Apache's Australian finance
subsidiary issued, in December 1997, $170 million of 10 year, 6.5-percent notes
guaranteed by Apache. The Company also received a rating upgrade on its senior
and subordinated long-term debt from Standard & Poor's in January 1997.
RESULTS OF OPERATIONS
NET INCOME AND REVENUE
Apache reported 1997 net income of $154.9 million, an increase of 28
percent or $33.5 million over 1996. The increase is primarily due to higher oil
and gas production, higher natural gas prices and lower operating costs per unit
of production. Basic net income per common share rose to $1.71 compared to $1.42
in 1996; diluted net income per common share increased to $1.65 in 1997 from
$1.38 in 1996. Net income of $121.4 million for 1996 rose from $20.2 million in
1995. Basic net income per common share increased five-fold in 1996 from $.28 in
1995; diluted net income per common share was also $.28 in 1995. The increase
was attributed to higher oil and gas prices and increased oil production.
Revenues increased 20 percent to $1.2 billion in 1997. Oil and natural gas
production revenues increased 18 percent, primarily due to increased oil and gas
production and natural gas prices. Crude oil, including natural gas liquids, and
natural gas contributed 49 percent and 51 percent, respectively, of total oil
and gas production revenues during 1997. Revenues increased 30 percent in 1996
to $977.2 million. Revenues for 1995 were $750.7 million. In 1996, crude oil,
including natural gas liquids, contributed 50 percent and natural gas
contributed 50 percent of total oil and gas production revenues.
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The table below presents, for the years indicated, the revenues, production
and average prices received from sales of natural gas, oil and natural gas
liquids.
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
Revenues (in thousands):
Natural gas.............................................. $505,604 $415,736 $330,737
Oil...................................................... 466,291 405,724 313,214
Natural gas liquids...................................... 11,878 11,704 9,193
-------- -------- --------
Total................................................. $983,773 $833,164 $653,144
======== ======== ========
Natural Gas Volume -- Mcf per day:
United States............................................ 492,594 472,171 500,441
Canada................................................... 89,699 74,598 67,083
Egypt.................................................... 563 302 --
Australia................................................ 26,016 13,869 9,551
-------- -------- --------
Total................................................. 608,872 560,940 577,075
======== ======== ========
Average Natural Gas price -- Per Mcf:
United States............................................ $ 2.47 $ 2.17 $ 1.64
Canada................................................... 1.33 1.09 1.00
Egypt.................................................... 2.94 3.21 --
Australia................................................ 1.78 1.96 1.86
Total................................................. 2.28 2.02 1.57
Oil Volume -- Barrels per day:
United States............................................ 40,638 40,600 45,084
Canada................................................... 2,120 1,969 1,999
Egypt.................................................... 19,372 8,295 --
Australia................................................ 4,417 2,318 3,120
-------- -------- --------
Total................................................. 66,547 53,182 50,203
======== ======== ========
Average Oil Price -- Per barrel:
United States............................................ $ 19.31 $ 20.67 $ 17.00
Canada................................................... 19.27 20.84 16.90
Egypt.................................................... 18.65 21.29 --
Australia................................................ 20.51 22.33 18.56
Total................................................. 19.20 20.84 17.09
Natural Gas Liquids (NGL) Volume -- Barrels per day:
United States............................................ 1,684 1,308 1,521
Canada................................................... 627 641 569
-------- -------- --------
Total................................................. 2,311 1,949 2,090
======== ======== ========
Average NGL Price -- Per barrel:
United States............................................ $ 14.50 $ 17.23 $ 12.83
Canada................................................... 12.98 14.73 9.96
Total................................................. 14.08 16.41 12.05
Natural gas revenues increased by 22 percent from 1996 to 1997 due to
increased natural gas prices and increased production. The average price
received in 1997 was $.26 per Mcf, or 13 percent, higher than 1996. The Company
periodically engages in hedging activities, including fixed-price physical
contracts and financial contracts. Apache realized gains from open hedging
positions favorably impacting the gas price by $.06 per Mcf. Losses under
long-term fixed-price physical contracts negated the hedging gains reducing the
gas price by $.06 per Mcf. The higher prices in 1997 were the result of
favorable North American market conditions. Natural gas prices in Australia
declined in 1997 due to the effect of exchange rates on fixed Australian dollar-
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denominated gas contracts. Natural gas production for the United States
increased four percent from 1996 to 1997 due to drilling results in the
Midcontinent and Offshore regions. Canadian natural gas production increased 20
percent due to acquisition and drilling activity. Natural gas production from
Australia increased 88 percent from 1996 to 1997. Australian production
increases resulted primarily from a full year of production from the Company's
East Spar properties, which came on line in November 1996, and properties
acquired in the Ampolex Group Transaction.
Natural gas revenues increased 26 percent from 1995 to 1996. Average
natural gas prices were $.45 per Mcf, or 29 percent, higher in 1996 than 1995.
The Company's net hedging activity, including fixed-price physical contracts and
financial contracts reduced the reported prices by $.09 per Mcf in 1996,
compared to a $.07 per Mcf gain in 1995. Natural gas production declined three
percent from 1995 to 1996, primarily due to the natural decline of older
properties in the Company's Offshore and Gulf Coast regions and the sale of
producing properties in late 1995.
Oil revenues increased 15 percent from 1996 to 1997. Egyptian oil
production more than doubled from 1997 due to development activity and the first
full year of production from the Company's Egyptian properties acquired in 1996.
Australian oil production increased 90 percent from 1996 to 1997 due to the
Agincourt prospect. These production increases were partially offset by a
decrease of eight percent in average oil prices received during 1997 due to poor
market conditions.
Oil revenues increased 30 percent from 1995 to 1996, primarily due to
properties acquired in connection with the Phoenix merger and new Egyptian
production from the Company's Qarun field. Decreases in domestic production due
to United States property sales in late 1995, partially offset the impact of
Egyptian production. The average oil price increased 22 percent from 1995 to
1996.
NGL revenues were slightly higher in 1997 than in 1996. NGL production
increased 19 percent from 1996 to 1997, which was offset by a 14 percent
decrease in average prices. NGL revenues increased 27 percent from 1995 to 1996.
Average prices in 1996 were 36 percent higher than in 1995 due to improved
market conditions. The increase in prices was partially offset by a seven
percent decline in production.
OTHER REVENUES AND OPERATING EXPENSES
Gas gathering, processing and marketing revenues increased 38 percent to
$197.0 million in 1997 from 1996. Increased gas volumes and higher gas prices in
1997 drove this increase. Correspondingly, gas gathering, processing and
marketing costs increased in 1997 by 40 percent to $194.3 million. Thus, lower
margins were realized in 1997. Lower crude oil trading margins and lower
pipeline gathering fees were mitigated by higher gas purchase and resale margins
in 1997. During 1996, gas gathering, processing and marketing revenues increased
47 percent to $142.9 million from $97.2 million in 1995. Lower margins were also
realized in 1996 as compared to 1995.
Equity in income (loss) of affiliates represents Apache's share of
ProEnergy losses. Equity in loss of affiliate was $1.7 million and $.3 million
in 1997 and 1996, respectively.
Other revenue for 1997 was a loss of $2.8 million. This amount includes
$4.8 million in foreign currency transaction losses on Canadian dollars and $1.2
million in foreign currency transaction losses on Australian dollars. Canadian
royalty credits of $1.0 million and proceeds received from settlements of $1.8
million partially mitigated these losses. For 1996, other revenue of $1.4
million included a gain on the sale of stock held for investment of $.8 million
and Canadian royalty credits of $1.2 million. Currency transaction losses on
Canadian dollars of $.9 million partially offset these revenues. Other revenue
for 1995 was $.4 million. This amount included $4.3 million in proceeds received
from settlements, $2.2 million in gains from the sales of non-oil and gas
assets, $1.1 million of Canadian royalty credits and $2.1 million of other
income. Losses from the decoupling of NYMEX and wellhead gas prices of $9.3
million offset these revenues.
The Company's depreciation, depletion and amortization (DD&A) expense
increased to $381.4 million in 1997 from $315.1 million in 1996. On an
equivalent barrel basis, full cost DD&A expense increased $.33 per boe, from
$5.44 per boe in 1996 to $5.77 per boe in 1997. Reserve revisions due to price
declines during the
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first part of 1997 and an increased cost environment in North America negatively
impacted the 1997 rate. Full cost DD&A expense increased in 1996 from $288.4
million, or $5.32 per boe, in 1995.
Apache's operating costs increased three percent to $231.4 million in 1997
from $225.5 million in 1996. Lease operating expense (LOE), excluding severance
taxes, increased from $186.4 million in 1996 to $190.8 million in 1997. LOE
increased as a result of Egyptian oil production enhancements and North American
gas production gains. On an equivalent barrel basis, LOE for 1997 averaged $3.07
per boe, a $.36 decline from $3.43 per boe in 1996. Production increased with a
lower incremental LOE than the 1996 average per unit cost. Specifically, North
American gas production and Egyptian oil production carry much lower per unit
costs than the 1996 property profile. The divestiture of marginal properties in
the U.S. also favorably impacted LOE per boe in 1997. Operating costs increased
seven percent in 1996 from $211.7 million in 1995. LOE, excluding severance
taxes, increased three percent in 1996 from $181.1 million in 1995. LOE per boe
increased three percent in 1996 from $3.34 per boe in 1995. The increase was
driven by a flat domestic cost structure with declining production in the Gulf
Coast region. The Phoenix acquisition in 1995 also increased LOE per boe.
Mitigating these increases was decreased LOE per boe in the Midcontinent region
due to incremental production added through the drillbit.
Administrative, selling and other costs increased $2.3 million, or six
percent, from 1996 to 1997. Under a new bonus plan initiated in 1997, Apache
provided incentive compensation to all employees based on the achievement of
targeted performance, which was the primary reason for the increase. On an
equivalent barrel basis, general and administrative (G&A) expense declined from
$.66 per boe in 1996 to $.62 per boe in 1997. Production increases were not met
with rising administrative costs. Administrative, selling and other costs were
lower in 1996 than in 1995 due to the Company's continuing efforts to control
costs. On an equivalent barrel basis, G&A expense declined two percent in 1996
from $.67 per boe in 1995.
Net financing costs for 1997 increased $10.7 million, or 17 percent, over
1996. Gross interest expense increased by $15.3 million due to higher average
aggregate debt outstanding at higher average interest rates, which resulted from
the extension of Apache's debt maturities. Average aggregate debt outstanding
and average interest rates increased to $1.4 billion and 7.69 percent,
respectively, from $1.2 billion and 7.40 percent in 1996. In 1997, Apache wrote
off $1.2 million in deferred loan costs related to cancellation of two secured
credit facilities with the International Finance Corporation (IFC). Additional
capitalized interest of $5.8 million in 1997 mitigated these increases.
Capitalized interest is based on the carrying value of unproved properties.
Higher international unevaluated costs caused the increase in 1997. Net
financing costs for 1996 decreased $9.0 million, or 13 percent, from the prior
year due to higher amounts of capitalized interest, partially offset by higher
gross interest costs. Capitalized interest increased $11.7 million for 1996 due
to an increase in the unproved property base resulting from acquisitions made in
1995 and 1996. Gross interest expense increased $1.8 million for 1996 as
compared to 1995. Average outstanding debt increased $78.8 million compared to
1995. Offsetting this increase was a decline of .36 percent in Apache's weighted
average interest rate.
MARKET RISK
COMMODITY RISK
The Company's major market risk exposure is in the pricing applicable to
its oil and gas production. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot prices applicable to its
United States and Canadian natural gas production. Historically, prices received
for oil and gas production have been volatile and unpredictable. Pricing
volatility is expected to continue. Gas price realizations ranged from a monthly
low of $1.78 per Mcf to a monthly high of $3.38 per Mcf during 1997. Oil prices
ranged from a low of $16.71 per barrel to a high of $24.17 per barrel during the
same period.
The Company periodically enters into hedging activities with respect to a
portion of its projected oil and natural gas production through a variety of
financial and physical arrangements intended to support oil and natural gas
prices at targeted levels and to manage its exposure to oil and gas price
fluctuations. Apache may use futures contracts, swaps, options and fixed-price
physical contracts to hedge its commodity prices. Realized gains or losses from
the Company's price risk management activities are recognized in oil and gas
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production revenues when the associated production occurs. Apache does not hold
or issue derivative instruments for trading purposes. In 1997, Apache recognized
a net gain of $1.4 million from hedging activities that increased oil and gas
production revenues. The net gain in 1997 includes $14.5 million in derivative
income and $13.1 million in losses on fixed price physical gas contracts. In
1996, Apache recognized a net loss from hedging activities of $23.8 million.
Gains or losses on natural gas derivative contracts are expected to be offset by
sales at the spot market price or to preserve the margin on existing physical
contracts. A 10 percent improvement in year-end spot market prices would
increase the fair value of derivative contracts in effect at December 31, 1997
by $21 million, while a 10 percent fall in spot prices would decrease the fair
value of these instruments by $21 million.
Hedging activity relative to oil production resulted in a $.1 million gain
in 1997. The Company did not have any open positions with respect to crude oil
hedging at December 31, 1997.
INTEREST RATE RISK
The Company considers its interest rate risk exposure minimal as a result
of fixing interest rates on over two-thirds of the Company's debt. Total debt at
December 31, 1997, included about $473 million of floating-rate debt. As a
result, Apache's annual interest costs in 1998 will fluctuate based on
short-term interest rates on approximately 31 percent of its total debt
outstanding at December 31, 1997. The impact on annual cash flow of a 10 percent
change in the floating rate (approximately 64 basis points) would be $3 million.
FOREIGN CURRENCY RISK
The Company's cash flow stream relating to certain international operations
is based on the U.S. dollar equivalent of cash flows measured in foreign
currencies. Australia gas production is sold under fixed-price Australian dollar
contracts and substantially all capital expenditures and operating costs are
paid in Australian dollars. Revenue and disbursement transactions denominated in
Australian dollars are converted to U.S. dollar equivalents based on the
exchange rate on the transaction date. Reported cash flow relating to Canadian
operations is based on cash flows measured in Canadian dollars converted to the
U.S. dollar equivalent based on the average of the Canadian and U.S. dollar
exchange rates for the period reported. Substantially all of the Company's
international transactions, outside of Canada and Australia, are denominated in
U.S. dollars.
The Company's Canadian and Australian subsidiaries have net financial
obligations that are denominated in a currency other than the functional
reporting currency of the subsidiaries. A decrease in value of 10 percent in the
Australian and Canadian dollars relative to the U.S. dollar from the year-end
exchange rates would result in a foreign currency loss of approximately $11
million, based on December 31, 1997 amounts. The Company considers its current
risk exposure to exchange rate movements, based on net cash flows, to be
immaterial. The Company did not have any open derivative contracts relating to
foreign currencies at December 31, 1997.
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, payment of dividends, and capital obligations for affiliated
ventures. The Company funds its exploration and development activities through
internally generated cash flows. Apache budgets its capital expenditures based
upon projected cash flows. The Company routinely adjusts its capital
expenditures in response to changes in oil and natural gas prices and cash flow.
The Company cannot predict future product prices.
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Capital Expenditures -- Apache's oil and gas capital expenditures over the
last three years are summarized below:
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
Exploration and Development:
United States.................................... $375,015 $302,494 $216,430
Canada........................................... 57,669 58,768 27,788
Egypt............................................ 152,564 63,597 11,852
Australia........................................ 70,802 46,838 32,373
Ivory Coast...................................... 1,077 7,914 1,287
Other International.............................. 28,293 14,084 22,438
-------- -------- --------
Total......................................... $685,420 $493,695 $312,168
======== ======== ========
Acquisitions of Oil and Gas Properties............. $225,934 $446,205 $820,918
======== ======== ========
Expenditures for exploration and development totaled $685.4 million in 1997
compared to $493.7 million in 1996. Apache's drilling program in 1997 added
113.5 MMboe of reserves (including revisions) and replaced 183 percent of
production. In the United States, Apache completed 261 gross wells as producers
out of 318 gross wells drilled during the year, compared with 229 gross
producers out of 293 gross wells drilled in 1996. In Canada, Apache completed 60
gross wells as producers out of 81 gross wells drilled during the year, compared
with 50 gross producers out of 77 gross wells drilled in 1996.
Internationally, the Company completed 41 gross producers out of 73 gross
wells drilled in 1997, compared to 24 gross producers out of 36 gross wells in
1996. The international wells drilled in 1997 included 30 successful wells in
Egypt and nine successful wells in Australia.
The total capital expenditures budget for 1998 is $523.2 million. This
includes $274.0 million for North America. Estimated U.S. exploration and
development expenditures for 1998 are $227.8 million, which includes $122.6
million in the Gulf region, $70.0 million in the Midcontinent region and $35.2
million in the Western region. Apache expects to spend $46.2 million in Canada
in 1998. The Company expects its other international exploration and development
expenditures in 1998, exclusive of facilities, to total approximately $249.2
million.
On November 20, 1997, the Company, acquired all the capital stock of three
companies owning interests in certain oil and gas properties (including 31.9
MMboe of proved oil and natural gas reserves) and production facilities offshore
Western Australia for approximately $300 million pursuant to three agreements
with subsidiaries of Mobil. Funds for the Ampolex Group Transaction were
obtained principally from borrowings under the Company's global credit facility.
The Ampolex Group Transaction, net of the sale of certain properties to
Hardy Petroleum Limited (Hardy), increased the Company's interest to 47.5
percent from 22.5 percent in the Carnarvon Basin's Harriet area, which includes
the Varanus Island pipeline, processing and production complex and eight
existing oil and gas fields. In addition, the Company's interest in the East
Spar field, which produces through the Varanus Island facilities, increased to
45 percent from 20 percent. Apache operates the Harriet/East Spar Properties.
In conjunction with the closing of the Ampolex Group Transaction on
December 9, 1997, the Company entered into an agreement with Hardy under which
Hardy agreed to purchase a 10 percent interest in the Company's East Spar gas
field and related production facilities in Western Australia. The transaction
closed on January 28, 1998 with a total sales price of approximately $63 million
in cash.
In 1997, the Company also completed 45 tactical regional acquisitions for
cash consideration totaling $33.6 million. These acquisitions added
approximately 6.6 MMboe to the Company's reserves.
Cash expenditures for acquisitions of proved oil and gas properties during
1996 totaled $446.2 million compared to $820.9 million in 1995. The Company
added 52 MMboe of proved oil and gas reserves through
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purchases in 1996. The most significant transaction completed in 1996 was the
merger with Phoenix. Apache acquired oil and gas properties totaling $331.2
million from Phoenix. Apache also acquired $115.0 million of other oil and gas
properties located primarily in the Company's existing focus areas. This amount
included the purchase of certain oil and gas properties from Hall-Houston for
$46 million in cash. Funds for the acquisitions were obtained principally from
borrowings under the Company's revolving bank credit facility.
On March 1, 1995, Apache purchased certain United States oil and gas
properties from Texaco for approximately $567 million in cash, subject to
adjustment. Funds for the Texaco transaction were obtained from several sources,
including increased borrowing capacity under the Company's revolving 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.
In September 1995, Apache acquired substantially all of the oil and natural
gas assets of Aquila for approximately $210 million. The oil and gas properties
included approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas. Also
included in the transaction was the purchase of a five-year, four-month
premium-price gas contract and interests in four gas processing plants.
Debt and Interest Commitments -- At December 31, 1997, Apache had
outstanding debt of $255 million under its global credit facility and an
aggregate of $1,263.6 million of other debt. This other debt included notes and
debentures maturing in the years 2000 through 2096. Debt outstanding at December
31, 1997 of $1.5 billion was up 23 percent over the $1.2 billion outstanding at
December 31, 1996. The increase reflects the Ampolex Group Transaction and other
1997 property acquisitions. The Company's debt-to-capitalization ratio increased
from 44.9 percent at December 31, 1996 to 46.8 percent at December 31, 1997.
Apache's debt-to-capitalization ratio for January 1998 fell below 42 percent due
in part to the conversion of 90 percent of the $172.5 million 6-percent
debentures into approximately 5.1 million shares of Apache common stock.
Interest payments on the Company's debt for 1998 are projected to be $116.2
million (using weighted average balances for floating rate obligations).
Scheduled principal payments for 1998 total $17.2 million.
Dividend Payments -- Dividends paid during 1997 totaled $25.3 million, up
eight percent from 1996, due to the increased number of shares outstanding. The
Company has paid cash dividends on its common stock for 124 consecutive quarters
through December 31, 1997, and expects to continue payment of dividends at
current levels. Future dividend payments will depend on the Company's level of
earnings, financial requirements and other relevant factors.
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 -- Apache's net cash provided by
operating activities during 1997 totaled $723.8 million, an increase of 48
percent from the $490.5 million provided in 1996. This increase was due
primarily to higher oil and gas production and higher gas prices in 1997. The
receipt of $115.2 million from a purchaser as an advance also impacted 1997 net
cash provided by operating activities. This advance was for future natural gas
deliveries of 20,000 MMbtu per day over a ten-year period commencing September
1997. Net cash provided by operating activities in 1996 rose $158.4 million from
1995 primarily due to higher product prices.
Long-Term Borrowings -- In January 1997, the Company established a $300
million commercial paper program that allows Apache to borrow funds for up to
270 days at competitive interest rates. The commercial paper program is
supported by availability under the U.S. portion of Apache's global credit
facility. In June 1997, the Company expanded its commercial paper program to
$700 million from $300 million to provide access to additional low-cost,
short-term funds. Since its inception in January 1997, the commercial paper
program has been rated A-2, Prime-2 and D-1- (D-One-Minus) by Standard & Poor's
(S&P), Moody's and Duff and Phelps, respectively.
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Also in January 1997, S&P upgraded the Company's senior long-term debt
rating from BBB to BBB+ and subordinated long-term debt rating from BBB- to BBB.
Apache was also named to the S&P 500 in 1997.
In June 1997, the Company replaced its $1 billion global borrowing-base
credit facility with a new $1 billion global credit facility that provides
Apache with greater borrowing capacity, increased financial flexibility and less
restrictive covenants, while lowering its all-in borrowing cost by 7 1/2 basis
points.
The global credit facility consists of three separate bank facilities: a
$700 million facility in the U.S.; a $175 million facility in Australia; and a
$125 million facility in Canada. The global credit facility enables Apache to
draw on the entire $1 billion facility without restrictions tied to periodic
revaluation of the Company's oil and gas reserves.
In August 1997, Apache issued $150 million principal amount, $148 million
net of discount, of senior unsecured 7.375-percent debentures maturing on August
15, 2047. The proceeds from this issuance were used to reduce the Company's
outstanding commercial paper obligations and for general corporate purposes.
The Company terminated two secured credit facilities with the IFC in
October 1997. This financing was replaced with a secured, revolving credit
facility that provides total commitments of $250 million and an initial
borrowing base of $150 million. This borrowing base will be redetermined
semi-annually. The total amount of commitments under the facility is currently
scheduled to be reduced by set increments every six months, beginning two and
one-half years after the effective date of the facility. The facility is
scheduled to mature on January 3, 2003.
In December 1997, Apache Finance Pty Ltd, an Australian finance subsidiary,
issued $170 million principal amount, $168.7 million net of discount, of 6.5
percent notes due on December 15, 2007. Apache irrevocably and unconditionally
guaranteed the notes, and has the right to redeem the notes prior to maturity,
subject to certain conditions. The proceeds from this issuance were used to
repay funds borrowed for the Ampolex Group Transaction and general corporate
purposes.
In February 1998, Apache issued $150 million principal amount, $148.2
million net of discount, of senior unsecured 7-percent notes maturing on
February 1, 2018. The notes are not redeemable prior to maturity. Net proceeds
from the sale were used to reduce existing short-term obligations and for
general corporate purposes.
Stock Transactions -- In November 1997, all the Company's 3.93-percent
convertible notes were converted into approximately 2.8 million shares of Apache
common stock. The notes were converted at a rate of 37.04 shares of common stock
per $1,000 principal amount.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6 percent debentures were converted into 5.1 million shares of Apache
common stock at a conversion rate of approximately 32.59 shares of common stock
per $1,000 principal amount. The remaining $16.9 million principal amount was
redeemed for $17.4 million in cash, plus accrued and unpaid interest.
Asset Sales -- Apache received $30.1 million in both 1997 and 1996 from the
sale of non-strategic oil and gas properties in a number of separate
transactions.
In January 1998, Apache closed the sale of a 10 percent interest in
Apache's East Spar gas field and related production facilities in Western
Australia for approximately $63 million in cash. Apache used the proceeds to
reduce outstanding loans under the Australian portion of the global credit
facility.
Liquidity -- The Company had $9.7 million in cash and cash equivalents on
hand at December 31, 1997, down from $13.2 million at December 31, 1996.
Apache's ratio of current assets to current liabilities increased from .87:1 at
December 31, 1996, to 1.01:1 at December 31, 1997.
Management believes that cash on hand, net cash generated from operations
and unused committed borrowing capacity under its global credit facility will be
adequate to satisfy the Company's financial obligations to meet future liquidity
needs for at least the next two fiscal years. As of December 31, 1997, Apache's
available borrowing capacity under its global credit facility was $694.2
million.
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IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer software being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. If left
unremediated, this could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send oil and gas revenue disbursement checks, or engage
in similar normal business activities.
The Company is in the process of replacing significant portions of its
software to more effectively and efficiently meet its business needs.
Replacement computer systems selected by the Company will properly recognize
dates beyond December 31, 1999. The Company presently believes that with
conversions to new software, the Year 2000 Issue will be eliminated. However, if
such conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company. The Company plans
to replace substantially all of its existing systems within 15 months or not
later than March 31, 1999.
The date on which the Company plans to complete installation of its new
system is based on management's best estimates, which were derived using
numerous assumptions of future events including the continued availability of
certain resources. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, and
similar uncertainties.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production and
cash flow by continuing to explore on and develop its inventory of existing
projects and making carefully targeted acquisitions of new assets. Robust oil
and gas prices early in 1997 gave way to weaker prices later in the year and on
into 1998. Crude oil prices have fallen near their lowest level of the 1990's.
While lower prices are expected to negatively impact Apache's 1998 earnings and
cash from operations (see, "Market Risk-Commodity Risk" above and "Item 1.
Business -- Oil and Natural Gas Prices," "Full Cost Center Ceiling Test,"
"Reserves; Rates of Production; Development Expenditures; Cash Flow," and
"Effect of Volatile Prices"), Apache has taken steps to improve its financial
liquidity for the purpose of better positioning the company to fund potential
opportunities that might result from industry adversity. Specific actions that
may be or have been taken which should impact the Company's activities in 1998
and beyond include:
(1) Selling and trading non-strategic properties to upgrade the Company's
property portfolio and reduce debt.
(2) Curtailing projected exploration and development expenditures to remain
within cash from operations.
(3) Calling for redemption of $175 million of debentures of which 90 percent or
$156 million were converted to equity in January 1998.
The above steps should strengthen Apache's financial position and add
liquidity. Should property acquisition prices fall from the premium price
commanded in 1997 to what management believes to be more reasonable levels,
Apache may seek to undertake a significant acquisition. Alternatively, if
drilling costs retreat further from the levels to which they rose in 1997,
Apache may expand its drilling activity. In either event, Apache expects to
review the level of its capital expenditures quarterly in light of financial
results, product prices, drilling costs and prevailing industry conditions. Even
at a reduced capital expenditure level, Apache expects to remain an active
operator in North America drilling moderate-risk wells.
Apache's international properties should continue to grow in importance
with respect to Apache's financial results and future growth prospects. Apache's
international efforts in the coming year will be focused on development of its
discoveries in Egypt, offshore Western Australia, offshore The People's Republic
of China and offshore the Ivory Coast, and exploration efforts on the Company's
concessions in Egypt and its new properties in Poland. While international
exploration is recognized as higher risk than Apache's North
25
28
American activities, the Company believes it offers potential for greater
rewards and significant reserve additions. Apache also believes that reserve
additions in these international areas may be made through higher risk
exploration and through improved production practices and recovery techniques.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent on certain events, risks and uncertainties that
may be outside the Company's control which could cause actual results to differ
materially from those anticipated. Some of these include, but are not limited
to, economic and competitive conditions, inflation rates, legislative and
regulatory changes, financial market conditions, political and economic
uncertainties of foreign governments, future business decisions, and other
uncertainties, all of which are difficult to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Future oil and gas
prices also could affect results of operations and cash flows. Although Apache
makes use of futures contracts, swaps, options and fixed-price physical
contracts to mitigate risk, fluctuations in oil and gas prices may affect the
Company's financial position and 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-34 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.
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," "Information About Continuing Directors," "Executive
Officers of the Company," and "Voting Securities and Principal Holders" in the
proxy statement relating to the Company's 1998 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, 1997..................... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 1997............... F-4
Consolidated balance sheet as of December 31, 1997 and
1996...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the
period ended December 31, 1997............................ F-6
Notes to consolidated financial statements.................. F-7
Supplemental oil and gas disclosures........................ F-28
Supplemental quarterly financial data....................... F-34
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.
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).
2.2 -- 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).
2.3 -- 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).
2.4 -- Amended and Restated 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 Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.5 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
27
30
EXHIBIT NO. DESCRIPTION
----------- -----------
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 -- Certificate of Ownership and Merger Merging Apache Energy
Resources Corporation into Registrant, effective December
31, 1995, as filed with the Secretary of State of
Delaware on December 21, 1995 (incorporated by reference
to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
3.3 -- Certificate of Designations, Preferences and Rights of
Series A Junior Participating Preferred Stock of
Registrant, effective January 31, 1996, as filed with the
Secretary of State of Delaware on January 22, 1996
(incorporated by reference to Exhibit 3.3 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
3.4 -- Bylaws of Registrant, as amended July 17, 1997
(incorporated by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
333-32557, filed July 31, 1997).
4.1 -- Form of Registrant's common stock certificate
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights agent,
relating to the declaration of a rights dividend to
Registrant's common shareholders of record on January 31,
1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
10.1 -- Fourth Amended and Restated Credit Agreement, dated
October 31, 1996, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Global Administrative Agent, The Chase Manhattan Bank, as
Co-Agent, First Chicago Capital Markets, Inc., as
Arranger, and Chase Securities Inc., as Arranger
(incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.2 -- Credit Agreement dated October 31, 1996, among Apache
Canada Ltd., a wholly-owned subsidiary of Registrant, the
lenders named therein, and Bank of Montreal, as Canadian
Administrative Agent, The First National Bank of Chicago,
as Global Administrative Agent, First Chicago Capital
Markets, Inc., as Arranger, and Chase Securities Inc., as
Arranger (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.3 -- Credit Agreement dated October 31, 1996, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of Registrant, the lenders
named therein, and Chase Securities Australia Limited, as
Australian Administrative Agent, The First National Bank
of Chicago, as Global Administrative Agent, First Chicago
Capital Markets, Inc., as Arranger, and Chase Securities
Inc., as Arranger (incorporated by reference to Exhibit
10.3 to Registrant's Current Report on Form 8-K, dated
October 31, 1996, SEC File No. 1-4300).
28
31
EXHIBIT NO. DESCRIPTION
----------- -----------
10.4 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
10.5 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.6 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.7 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (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).
10.8 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.9 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
(incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.10 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10.1 to Phoenix's
Registration Statement on Form S-1, Registration No.
33-1069, filed October 23, 1985).
29
32
EXHIBIT NO. DESCRIPTION
----------- -----------
10.11 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
*10.12 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation.
10.13 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.14 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.15 -- 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).
+10.16 -- 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).
+10.17 -- 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).
+10.18 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.19 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997.
+10.20 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, as restated January 1, 1997 (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.21 -- 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).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 9, 1996 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1995, SEC File No.
1-4300).
30
33
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 9, 1996 (incorporated by reference to
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
+10.24 -- Apache Corporation 1996 Share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.26 -- Apache Corporation 1998 Stock Option Plan (incorporated
by reference to Appendix A to Registrant's definitive 14A
Proxy Statement relating to Registrant's 1998 annual
meeting of shareholders, SEC File No. 1-4300).
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- 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).
+*10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 12, 1997.
+10.30 -- Apache Corporation Directors' Deferred Compensation Plan,
as amended and restated September 14, 1994 (incorporated
by reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994, SEC
File No. 1-4300).
+*10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997.
+10.32 -- 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).
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.35 -- 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).
+10.36 -- 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).
31
34
EXHIBIT NO. DESCRIPTION
----------- -----------
10.37 -- Member Gas Purchase Agreement, dated March 1, 1996, by
and among Apache Gathering Company, Apache Corporation,
MW Petroleum Corporation, DEK Energy Company, Apache
Transmission Corporation-Texas and Apache Marketing,
Inc., as Seller, and Producers Energy Marketing, LLC, as
Buyer (incorporated by reference to Exhibit 10.28 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1995, SEC File No. 1-4300).
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*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 by Apache during the fiscal
quarter ended December 31, 1997:
October 8, 1997 -- Item 2. Acquisition or Disposition of Assets -- Apache,
either directly or indirectly through its wholly-owned subsidiary, Apache Energy
Limited, entered into three share sale agreements with subsidiaries of Mobil
Exploration & Producing Australia Pty Limited for the purchase of all of the
capital stock of three companies that own interests in certain oil and gas
properties and production facilities offshore Western Australia for
approximately U.S. $310 million (subject to adjustments), effective as of July
1, 1997.
December 5, 1997 -- Item 5. Other Events -- Offering to the public by
Apache Finance Pty Ltd of $170 million principal amount of 6 1/2% global notes
due 2007, guaranteed by Apache, issuable under an indenture dated December 9,
1997, and registered pursuant to a registration statement on Form S-3
(Registration Nos. 333-39973 and 333-39973-01).
December 16, 1997 -- Item 5. Other Events -- Apache called for redemption
all of its 6% Convertible Subordinated Debentures due 2002, aggregate amount
outstanding $172.5 million. Holders are entitled to convert the Debentures into
shares of Apache common stock at a conversion price of $30.68 per share. Any
Debentures that remain outstanding (not converted) will be redeemed on January
15, 1998, with holders entitled to receive 103 percent of principal amount.
32
35
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
/s/ RAYMOND PLANK
------------------------------------
Raymond Plank
Chairman and Chief Executive Officer
Dated: March 20, 1998
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 Roger B. Plank, 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.
NAME TITLE DATE
---- ----- ----
/s/ RAYMOND PLANK Chairman and Chief Executive March 20, 1998
- ----------------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
/s/ ROGER B. PLANK Vice President and Chief March 20, 1998
- ----------------------------------------------------- Financial Officer (Principal
Roger B. Plank Financial Officer)
/s/ THOMAS L. MITCHELL Vice President and Controller March 20, 1998
- ----------------------------------------------------- (Principal Accounting
Thomas L. Mitchell Officer)
36
NAME TITLE DATE
---- ----- ----
/s/ FREDERICK M. BOHEN Director March 20, 1998
- -----------------------------------------------------
Frederick M. Bohen
/s/ G. STEVEN FARRIS Director March 20, 1998
- -----------------------------------------------------
G. Steven Farris
/s/ RANDOLPH M. FERLIC Director March 20, 1998
- -----------------------------------------------------
Randolph M. Ferlic
/s/ EUGENE C. FIEDOREK Director March 20, 1998
- -----------------------------------------------------
Eugene C. Fiedorek
/s/ W. BROOKS FIELDS Director March 20, 1998
- -----------------------------------------------------
W. Brooks Fields
/s/ A. D. FRAZIER, JR. Director March 20, 1998
- -----------------------------------------------------
A. D. Frazier, Jr.
/s/ STANLEY K. HATHAWAY Director March 20, 1998
- -----------------------------------------------------
Stanley K. Hathaway
/s/ JOHN A. KOCUR Director March 20, 1998
- -----------------------------------------------------
John A. Kocur
/s/ GEORGE D. LAWRENCE JR. Director March 20, 1998
- -----------------------------------------------------
George D. Lawrence Jr.
/s/ MARY RALPH LOWE Director March 20, 1998
- -----------------------------------------------------
Mary Ralph Lowe
/s/ F. H. MERELLI Director March 20, 1998
- -----------------------------------------------------
F. H. Merelli
/s/ JOSEPH A. RICE Director March 20, 1998
- -----------------------------------------------------
Joseph A. Rice
37
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, 1997
and 1996, and the related statements of consolidated income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 27, 1998
F-1
38
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 of Apache Corporation and
Subsidiaries 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 Apache Corporation Board of Directors exercises its oversight
responsibility for the financial statements through its Audit Committee,
composed solely of directors who are not current or former employees of 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.
Houston, Texas
February 27, 1998
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Roger B. Plank
Vice President and Chief Financial
Officer
Thomas L. Mitchell
Vice President and Chief Accounting
Officer
F-2
39
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
REVENUES:
Oil and gas production revenues....................... $ 983,773 $833,164 $653,144
Gathering, processing and marketing revenues.......... 196,951 142,868 97,207
Equity in income (loss) of affiliates................. (1,683) (281) --
Other revenues........................................ (2,768) 1,400 351
---------- -------- --------
1,176,273 977,151 750,702
---------- -------- --------
OPERATING EXPENSES:
Depreciation, depletion and amortization.............. 381,416 315,144 297,485
Operating costs....................................... 231,370 225,527 211,742
Gathering, processing and marketing costs............. 194,279 138,768 91,243
Administrative, selling and other..................... 38,243 35,911 36,552
Merger costs.......................................... -- -- 9,977
Financing costs:
Interest expense................................... 105,148 89,829 88,057
Amortization of deferred loan costs................ 6,438 5,118 4,665
Capitalized interest............................... (36,493) (30,712) (19,041)
Interest income.................................... (2,768) (2,629) (3,121)
---------- -------- --------
917,633 776,956 717,559
---------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 258,640 200,195 33,143
Provision for income taxes............................ 103,744 78,768 12,936
---------- -------- --------
NET INCOME.............................................. $ 154,896 $121,427 $ 20,207
========== ======== ========
NET INCOME PER COMMON SHARE:
Basic................................................. $ 1.71 $ 1.42 $ .28
========== ======== ========
Diluted............................................... $ 1.65 $ 1.38 $ .28
========== ======== ========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
40
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
----------- --------- --------------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 154,896 $ 121,427 $ 20,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............. 381,416 315,144 297,485
Amortization of deferred loan costs.................. 6,438 5,118 4,665
Provision for deferred income taxes.................. 68,280 61,336 29,382
Other deferred credits............................... -- -- 4,584
Cash distributions in excess of (less than) earnings of
affiliates............................................. 1,768 (163) --
Gain on sale of stock held for investment and other....... (13) (770) (906)
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in receivables..................... 12,556 (55,645) (64,399)
(Increase) decrease in advances to oil and gas ventures
and other............................................ (7,728) 5,737 (189)
Increase in product inventory.......................... (800) (1,487) --
(Increase) decrease in deferred charges and other...... 1,247 (1,834) (1,294)
Increase in payables................................... 1,920 35,998 37,254
Increase (decrease) in accrued expenses................ 9,579 (3,433) 15,236
Increase (decrease) in advance from gas purchaser...... 102,748 (8,540) (7,038)
Increase (decrease) in deferred credits and noncurrent
liabilities.......................................... (8,499) 17,616 (2,864)
----------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 723,808 490,504 332,123
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures.................. (685,420) (493,695) (312,168)
Acquisition of oil and gas properties..................... (33,562) (114,971) (820,918)
Non-cash portion of net oil and gas property additions.... 6,208 46,268 5,092
Acquisition of Ampolex, net of cash acquired.............. (299,852) -- --
Acquisition of Phoenix, net of cash acquired.............. -- (43,294) --
Gathering, transmission and processing expenditures....... (52,437) (33,355) (6,700)
Proceeds from sale of oil and gas properties.............. 30,134 30,144 271,937
Purchase of premium gas contract.......................... -- -- (28,700)
Prepaid acquisition cost.................................. -- -- 25,377
Purchase of stock held for investment..................... (1,170) -- (307)
Proceeds from sale of stock held for investment........... 1,183 7,193 2,835
Other capital expenditures, net........................... (12,955) (9,375) (9,859)
Change in equipment inventory and other, net.............. (17,064) (2,712) 3,307
Investment in ProEnergy................................... (1,290) (4,430) --
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES................ (1,066,225) (618,227) (870,104)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings...................................... 1,168,201 765,895 856,159
Payments on long-term debt................................ (812,327) (615,765) (500,579)
Dividends paid............................................ (25,275) (23,420) (18,915)
Proceeds from issuance of common stock.................... 11,623 8,145 197,006
Payments to acquire treasury stock........................ (386) (1,698) (26)
Cost of debt and equity transactions...................... (2,894) (5,906) (12,074)
----------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 338,942 127,251 521,571
----------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (3,475) (472) (16,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,161 13,633 30,043
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 9,686 $ 13,161 $ 13,633
=========== ========= =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
41
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,686 $ 13,161
Receivables............................................... 224,025 234,646
Inventories............................................... 36,041 13,963
Advances to oil and gas ventures and other................ 15,579 6,386
Assets held for resale.................................... 62,998 --
----------- -----------
348,329 268,156
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties...................................... 5,530,991 4,713,113
Unproved properties and properties under development,
not being amortized................................... 453,556 388,872
International concession rights, not being amortized... 79,000 99,000
Gas gathering, transmission and processing facilities..... 246,049 121,446
Other..................................................... 71,067 58,882
----------- -----------
6,380,663 5,381,313
Less: Accumulated depreciation, depletion and
amortization........................................... (2,647,478) (2,281,252)
----------- -----------
3,733,185 3,100,061
----------- -----------
OTHER ASSETS:
Deferred charges and other................................ 57,119 64,213
----------- -----------
$ 4,138,633 $ 3,432,430
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,200 $ 2,000
Accounts payable.......................................... 178,361 174,941
Accrued operating expense................................. 20,153 17,263
Accrued exploration and development....................... 82,392 76,465
Accrued compensation and benefits......................... 17,600 12,262
Accrued interest.......................................... 20,598 15,576
Other accrued expenses.................................... 7,479 11,150
----------- -----------
343,783 309,657
----------- -----------
LONG-TERM DEBT.............................................. 1,501,380 1,235,706
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes.............................................. 355,619 254,789
Advances from gas purchaser............................... 154,546 51,798
Other..................................................... 54,128 61,964
----------- -----------
564,293 368,551
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized,
94,478,788 and 91,224,028 shares issued,
respectively........................................... 118,098 114,030
Paid-in capital........................................... 1,085,063 1,002,540
Retained earnings......................................... 561,981 432,588
Treasury stock, at cost, 1,174,247 and 1,165,231 shares,
respectively........................................... (15,506) (15,152)
Currency translation adjustments.......................... (20,459) (15,490)
----------- -----------
1,729,177 1,518,516
----------- -----------
$ 4,138,633 $ 3,432,430
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
CURRENCY TOTAL
COMMON PAID-IN RETAINED TREASURY TRANSLATION SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT EQUITY
-------- ---------- --------- -------- ----------- -------------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1994........... $ 88,482 $ 500,101 $335,293 $(13,452) $(19,337) $ 891,087
Net income......................... -- -- 20,207 -- -- 20,207
Dividends ($.28 per common
share).......................... -- -- (20,030) -- -- (20,030)
Common shares issued............... 9,642 187,364 -- -- -- 197,006
Treasury shares purchased.......... -- -- -- (26) -- (26)
Currency translation adjustments... -- -- -- -- 3,561 3,561
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1995........... 98,124 687,465 335,470 (13,478) (15,776) 1,091,805
Net income......................... -- -- 121,427 -- -- 121,427
Dividends ($.28 per common
share).......................... -- -- (24,309) -- -- (24,309)
Common shares issued............... 15,906 315,075 -- -- -- 330,981
Treasury shares issued............. -- -- -- 24 -- 24
Treasury shares purchased.......... -- -- -- (1,698) -- (1,698)
Currency translation adjustments... -- -- -- -- 286 286
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1996........... 114,030 1,002,540 432,588 (15,152) (15,490) 1,518,516
Net income......................... -- -- 154,896 -- -- 154,896
Dividends ($.28 per common
share).......................... -- -- (25,503) -- -- (25,503)
Common shares issued............... 4,068 82,523 -- -- -- 86,591
Treasury shares issued............. -- -- -- 32 -- 32
Treasury shares purchased.......... -- -- -- (386) -- (386)
Currency translation adjustments... -- -- -- -- (4,969) (4,969)
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1997........... $118,098 $1,085,063 $561,981 $(15,506) $(20,459) $1,729,177
======== ========== ======== ======== ======== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
43
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Apache Corporation (Apache or the Company) is an
independent energy company that explores for, develops and produces natural gas,
crude oil and natural gas liquids. The Company's North American exploration and
production activities are divided into four U.S. operating regions (Offshore,
Midcontinent, Gulf Coast and Western), plus a Canadian region. Approximately 72
percent of the Company's proved reserves are located in North America.
Internationally, Apache has exploration and production interests offshore
Western Australia and in Egypt, and exploration interests in Poland, offshore
The People's Republic of China, offshore the Ivory Coast and in Indonesia.
Apache treats all operations as one segment of business.
The Company's future financial condition and results of operations will
depend upon prices received for its oil and natural gas production and the costs
of finding, acquiring, developing and producing reserves. A substantial portion
of the Company's production is sold under market-sensitive contracts. Prices for
oil and natural gas are subject to fluctuations in response to changes in
supply, market uncertainty and a variety of other factors beyond the Company's
control. These factors include worldwide political instability (especially in
the Middle East), the foreign supply of oil and natural gas, the price of
foreign imports, the level of consumer demand, and the price and availability of
alternative fuels. With natural gas accounting for 60 percent of Apache's 1997
production on an energy equivalent basis, the Company is affected more by
fluctuations in natural gas prices than in oil prices.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Apache and its subsidiaries after elimination
of intercompany balances and transactions. The Company's interests in oil and
gas ventures and partnerships are proportionately consolidated. Apache's
investment in Producers Energy Marketing LLC (ProEnergy), a jointly-owned
natural gas marketing company, is accounted for using the equity method.
Cash Equivalents -- 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.
Inventories -- Inventories consist principally of tubular goods and
production equipment, stated at the lower of weighted average cost or market,
and oil produced but not sold, stated at current market value net of costs to
sell.
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. Exclusive of
field-level costs, Apache capitalized $11.9 million, $12.1 million and $12.5
million of internal costs in 1997, 1996 and 1995, 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 $22.5
million, $17.0 million and $16.3 million in 1997, 1996, and 1995, respectively,
and are included in operating costs in the Company's statement of consolidated
income. Interest costs related to unproved properties and properties under
development are also capitalized to oil and gas properties. Unless a significant
portion of the Company's reserve volumes are sold (greater than 25 percent),
proceeds from the sale of oil and gas properties are accounted for as reductions
to capitalized costs, and gains and 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
unit-of-production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties associated with these
costs are evaluated. The amortizable base includes
F-7
44
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated future development costs 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 oil
and gas properties, net of accumulated DD&A and deferred income taxes, to the
estimated future net cash flows from proved oil and gas reserves discounted at
10 percent, net of related tax effects, plus the lower of cost or fair value of
unproved properties included in the costs being amortized. If capitalized costs
exceed this limit, the excess is charged to nonrecurring DD&A expense. Included
in the estimated future net cash flows are Canadian provincial tax credits
expected to be realized beyond the date at which the legislation, under its
provisions, could be repealed. To date, the Canadian provincial government has
not indicated an intention to repeal this legislation.
The costs of certain unevaluated leasehold acreage, wells being drilled and
international concession rights 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 and gas gathering, transmission and processing
facilities are depreciated on a straight-line basis over the estimated useful
lives of the assets, which range from two to 15 years. Accumulated depreciation
for these assets totaled $51.8 million and $36.6 million at December 31, 1997
and 1996, respectively.
Accounts Payable -- Included in accounts payable at December 31, 1997 and
1996, are liabilities of approximately $36.3 million and $36.5 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.
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 entitled volumes create gas imbalances
which are generally reflected as adjustments to reported gas reserves and future
cash flows in the Company's supplemental oil and gas disclosures. Adjustments
for gas imbalances totaled approximately one percent of Apache's proved gas
reserves at December 31, 1997. 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 its entitled share
through production.
Hedging Activities -- Apache periodically enters into commodity derivatives
contracts and fixed-price physical contracts to manage its exposure to oil and
gas price volatility. Commodity derivatives contracts, which are usually placed
with major financial institutions that the Company believes are minimal credit
risks, may take the form of futures contracts, swaps or options. The oil and gas
reference prices upon which these commodity derivatives contracts are based
reflect various market indices that have a high degree of historical correlation
with actual prices received by the Company. The Company accounts for its
commodity derivatives contracts using the hedge (or deferral) method of
accounting. Under this method, realized gains and losses from the Company's
price risk management activities are recognized in oil and gas production
revenues when the associated production occurs and the resulting cash flows are
reported as cash flows from operating activities. Gains and losses on commodity
derivatives contracts that are closed before the hedged production occurs are
deferred until the production month originally hedged. In the event of a loss of
correlation between changes in oil and gas reference prices under a commodity
derivatives contract and actual oil and gas prices, a gain or loss is recognized
currently to the extent the commodity derivatives contract has not offset
changes in actual oil and gas prices.
Income Taxes -- The Company follows the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the future tax consequences of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
and
F-8
45
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) operating loss and tax credit carryforwards for tax purposes. Deferred tax
assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period.
Foreign Currency Translation -- The U.S. dollar is considered the
functional currency for each of the Company's international operations, except
for its Canadian subsidiary whose functional currency is the Canadian dollar.
Translation adjustments resulting from translating the Canadian subsidiary's
foreign currency financial statements into U.S. dollar equivalents are reported
separately and accumulated in a separate component of shareholders' equity. For
other international operations, transaction gains or losses are recognized in
net income.
Net Income Per Common Share -- Basic and diluted net income per common
share have been computed in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," which the Company adopted at
year-end 1997. Net income per share amounts for prior periods have been restated
to conform with the provisions of the new standard. Basic net income per common
share is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted net
income per common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Calculations of basic and diluted net income per common share
are illustrated in Note 7.
Stock-Based Compensation -- The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Nonemployee stock-based compensation is
accounted for using the fair value method in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation."
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve volumes and the related present value of
estimated future net cash flows therefrom (see supplemental oil and gas
disclosures).
2. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On November 20, 1997, the Company acquired all the capital stock of three
companies owning interests in certain oil and gas properties (including 31.9
MMboe of proved oil and natural gas reserves) and production facilities offshore
Western Australia for approximately $300 million from subsidiaries of Mobil
Exploration & Producing Australia Pty Ltd (Ampolex Group Transaction). The
Ampolex Group Transaction, net of the sale of certain properties to Hardy
Petroleum Limited (Hardy), increased the Company's interest to 47.5 percent from
22.5 percent in the Carnarvon Basin's Harriet area, which includes the Varanus
Island pipeline, processing and production complex and eight existing oil and
gas fields. The transaction also increased the Company's interest in the East
Spar field, which produces through the Varanus Island facilities, to 45 percent
from 20 percent. Apache operates the Harriet and East Spar properties.
F-9
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price has been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows:
(IN THOUSANDS)
Value of properties acquired, including gathering and
transportation facilities................................. $264,539
Assets held for resale...................................... 63,058
Working capital acquired, net............................... 6,692
Deferred income tax liability............................... (34,437)
--------
Cash paid, net of cash acquired............................. $299,852
========
In conjunction with the closing of the Ampolex Group Transaction, the
Company entered into an agreement with Hardy on December 9, 1997, under which
Hardy agreed to purchase a 10 percent interest in the Company's East Spar field
and related production facilities. The transaction closed on January 28, 1998,
with a total sales price of approximately $63 million in cash. The assets sold
to Hardy are reported as assets held for resale in the accompanying consolidated
balance sheet.
In 1997, the Company also completed 45 tactical regional acquisitions for
cash consideration totaling $33.6 million. These acquisitions added
approximately 6.6 MMboe to the Company's reserves.
On May 20, 1996, Apache acquired, for approximately $396.3 million, The
Phoenix Resource Companies, Inc. (Phoenix, now known as Apache PHN Company,
Inc.), an oil and gas company operating primarily in the Arab Republic of Egypt,
through a merger (Merger) which resulted in Phoenix becoming a wholly owned
subsidiary of Apache. Pursuant to the Merger Agreement, shares of Phoenix common
stock then outstanding and outstanding Phoenix stock options (which were assumed
by Apache) were converted into the right to receive (a) .75 shares of Apache
common stock with any fractional shares paid in cash, without interest, and (b)
$4.00 in cash. As a result, 12.2 million shares of Apache common stock, valued
at $26 per share, were issued and approximately $65 million was paid to former
Phoenix shareholders.
In 1996, the Company also completed 62 tactical regional acquisitions for
cash consideration totaling $115.0 million. These acquisitions added
approximately 18.9 MMboe to the Company's reserves.
In September 1995, Apache acquired substantially all the oil and gas assets
of Aquila Energy Resources Corporation (Aquila) for approximately $210 million.
The acquired assets included proved reserves totaling an estimated 157 Bcf of
gas equivalent, approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas, a
five-year, four-month premium-price gas contract effective September 1, 1995,
and non-operated interests in four gas processing plants. The gas contract calls
for Aquila Energy Marketing Corporation, a wholly owned subsidiary of UtiliCorp
United Inc., to purchase 20 to 25 MMcf of gas per day from Apache at a price of
$2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000.
On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known
as DEK Energy Company), an oil and gas company engaged in the exploration for,
and the development of, crude oil and natural gas in Canada, through a merger
which resulted in DEKALB becoming a wholly owned subsidiary of Apache. Pursuant
to the merger agreement, 8.4 million shares of Apache common stock were
exchanged for the outstanding DEKALB stock and DEKALB employee stock options.
Merger costs of approximately $10 million were charged to expense in 1995. The
merger was accounted for as a "pooling of interests" and, as a result, the
Company's consolidated financial statements for periods prior to the merger have
been restated to include combined results with DEKALB.
On March 1, 1995, Apache completed the acquisition of 315 oil and gas
fields from Texaco Exploration and Production Inc. (Texaco) for an adjusted
purchase price of approximately $567 million. The Texaco
F-10
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
properties included estimated proved reserves at the effective date, after
adjustment for the exercise of preferential rights and properties excluded
following due diligence, of approximately 105 MMboe.
Except for the DEKALB transaction, each transaction described above has
been accounted for using the purchase method of accounting and has been included
in the financial statements of Apache since the date of acquisition.
The following unaudited pro forma financial information shows the effect on
the Company's consolidated results of operations as if the Phoenix Merger
occurred on January 1, 1996. The pro forma data is based on numerous assumptions
and is not necessarily indicative of future results of operations.
FOR THE YEAR
ENDED DECEMBER 31, 1996
--------------------------
AS REPORTED PRO FORMA
----------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER
COMMON SHARE DATA)
Revenues............................................ $977,151 $992,077
Net income.......................................... 121,427 125,040
Net income per common share:
Basic............................................. $ 1.42 $ 1.39
Diluted........................................... 1.38 1.36
DIVESTITURES
Apache received $30.1 million in each of 1997 and 1996 from the sale of
non-strategic oil and gas properties in a number of separate transactions.
In September 1995, Apache closed the sale of non-strategic oil and gas
properties in its Rocky Mountain region for approximately $140 million net to
Apache. The assets included Apache's interests in 138 fields with approximately
1,600 active wells in Colorado, Montana, North and South Dakota, Utah and
Wyoming. The Company retained its interests in the Green River Basin of Colorado
and Wyoming and in the San Juan Basin of Colorado and New Mexico. Proceeds from
the sale of all oil and gas properties sold during 1995 totaled $271.9 million.
3. INVESTMENTS IN EQUITY SECURITIES
At December 31, 1997 and 1996, Apache had no investments in equity
securities.
The Company realized gains totaling approximately $13,000, $770,000 and
$906,000 from the sale of equity securities during 1997, 1996 and 1995,
respectively. Apache utilizes the average cost method in computing realized
gains or losses, which are included in other revenues in the accompanying
statement of consolidated income.
F-11
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
LONG-TERM DEBT
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
Apache:
Global credit facility -- U.S............................. $ -- $ 220,000
Commercial paper, expected to be refinanced............... 50,800 --
7.95-percent notes due 2026, net of discount.............. 178,531 178,518
6-percent convertible subordinated debentures due 2002.... 172,500 172,500
7.625-percent debentures due 2096, net of discount........ 149,175 149,175
7.375-percent debentures due 2047, net of discount........ 147,984 --
9.25-percent notes due 2002, net of discount.............. 99,805 99,772
7.7-percent notes due 2026, net of discount............... 99,638 99,634
3.93-percent convertible notes due 1997................... -- 75,000
Money market lines of credit.............................. 17,200 2,000
---------- ----------
915,633 996,599
---------- ----------
Subsidiary and other obligations:
Global credit facility -- Australia....................... 139,000 73,500
Global credit facility -- Canada.......................... 116,000 83,000
Apache Finance 6.5-percent notes due 2007, net of
discount............................................... 168,722 --
Revolving credit facility -- Egypt........................ 150,000 --
IFC credit facilities -- Egypt............................ -- 54,750
DEKALB 9.875-percent notes due 2000....................... 29,225 29,225
Other..................................................... -- 632
---------- ----------
602,947 241,107
---------- ----------
Total debt.................................................. 1,518,580 1,237,706
Less: current maturities.................................... (17,200) (2,000)
---------- ----------
Long-term debt.............................................. $1,501,380 $1,235,706
========== ==========
On June 12, 1997, Apache replaced its $1 billion global borrowing-base
credit facility with a new $1 billion global corporate credit facility (global
credit facility). The global credit facility consists of three separate bank
facilities: a $700 million facility in the United States; a $175 million
facility in Australia; and a $125 million facility in Canada. The global credit
facility enables Apache to draw on the entire $1 billion facility without
restrictions tied to periodic revaluation of the Company's oil and gas reserves.
As of December 31, 1997, Apache's available borrowing capacity under the global
credit facility was $694.2 million. Under the financial covenants of the global
credit facility, the Company must (i) maintain a consolidated tangible net
worth, as defined, of at least $1.051 billion as of December 31, 1997, which is
adjusted for subsequent earnings, and (ii) maintain a ratio of debt to
capitalization of not greater than 60 percent at the end of any fiscal quarter.
The Company was in compliance with all financial covenants at December 31, 1997.
The global credit facility is scheduled to mature on June 12, 2002, and the
agreement provides for perpetual one-year extensions as requested by the
Company, subject to the approval of the lenders. At the Company's option, the
interest rate is based on (i) the greater of (a) The Chase Manhattan Bank's
prime rate or (b) the federal funds rate plus one-half of one percent, (ii) the
London Interbank Offered Rate (LIBOR) plus a margin determined by the Company's
senior long-term debt rating, or (iii) a margin that is determined by
competitive bids from the participating banks. At December 31, 1997, the margin
over LIBOR for committed loans was .185 percent. The Company also pays a
quarterly facility fee of .09 percent on the total
F-12
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of each of the three facilities, which fee varies based upon the
Company's senior long-term debt rating.
In January 1997, Standard & Poor's upgraded the Company's senior long-term
debt rating from BBB to BBB+ and subordinated long-term debt rating from BBB- to
BBB.
In January 1997, the Company established a $300 million commercial paper
program which allows Apache to borrow funds for up to 270 days at competitive
interest rates. In June 1997, the Company expanded its commercial paper program
to $700 million from $300 million to provide access to additional low-cost,
short-term funds. Since its inception in January 1997, the commercial paper
program has been rated A-2, Prime-2 and D-1- (D-One-Minus) by Standard & Poor's,
Moody's and Duff and Phelps, respectively. As of December 31, 1997, $50.8
million was outstanding under Apache's commercial paper program. The commercial
paper is classified as long-term debt in the accompanying consolidated balance
sheet as the Company has the ability and intent to refinance such amounts on a
long-term basis through either the rollover of commercial paper or available
borrowing capacity under the global credit facility.
In February 1996, Apache issued $100 million principal amount, $99.6
million net of discount, of senior unsecured 7.7-percent notes due March 15,
2026. In April 1996, the Company issued $180 million principal amount, $178.5
million net of discount, of senior unsecured 7.95-percent notes maturing on
April 15, 2026. Additionally, in November 1996, Apache issued $150 million
principal amount, $149.2 million net of discount, of senior unsecured
7.625-percent debentures maturing on November 1, 2096. None of these instruments
are redeemable prior to maturity; however, under certain conditions, Apache has
the right to advance maturity of the above-referenced debentures.
In August 1997, Apache issued $150 million principal amount, $148.0 million
net of discount, of senior unsecured 7.375-percent debentures maturing on August
15, 2047. The debentures are not redeemable prior to maturity; however, Apache
has the right to advance maturity, under certain conditions.
The 9.25-percent notes totaling $100 million were issued by Apache in May
1992 and are not redeemable prior to their maturity in June 2002. Upon certain
changes in control of the Company, these notes are subject to mandatory
repurchase.
In November 1997, the Company's 3.93-percent convertible notes were
converted into approximately 2.8 million shares of Apache common stock at a
conversion price of $27 per share.
At December 31, 1997, the Company also had certain uncommitted money market
lines of credit which are used from time to time for working capital purposes.
As of December 31, 1997, an aggregate of $17.2 million was outstanding under
such credit lines.
In December 1997, Apache Finance Pty Ltd, (Apache Finance), an Australian
finance subsidiary of the Company, issued $170 million principal amount, $168.7
million net of discount, of senior unsecured 6.5-percent notes due December 15,
2007. The notes are irrevocably and unconditionally guaranteed by Apache. The
Company has the right to redeem the notes prior to maturity, under certain
conditions.
On October 30, 1997, three of the Company's Egyptian subsidiaries entered
into a secured, revolving credit facility with a group of banks. The facility
provides for total commitments of $250 million, with availability determined by
a borrowing base formula. The initial borrowing base was set at $150 million and
will be redetermined semi-annually. The total amount of commitments under the
facility is currently scheduled to be reduced by set increments every six
months, beginning two and one-half years after the effective date of the
facility. The facility is presently secured solely by assets associated with the
Company's Qarun and Khalda concessions and shares of stock of the Company's
subsidiaries holding said concessions, with provisions that will permit the
inclusion of other of the Company's Egyptian subsidiaries as borrowers with
security interests on such subsidiaries' assets and shares of stock. Interest is
assessed at LIBOR plus a margin of .375 percent, which is scheduled to increase
to .625 percent on the third anniversary of the facility;
F-13
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
however, if the facility is extended the rate increase would occur two years
from the end of the facility's extended term. A quarterly fee of .375 percent is
payable on the available portion of the commitments, while a quarterly fee of
.1875 percent is payable on the difference between the borrowing base and the
total amount of commitments under the facility. The facility is scheduled to
mature on January 3, 2003.
In October 1997, the Company provided funds to two of its Egyptian
subsidiaries to repay all amounts outstanding under two secured credit
facilities with the International Finance Corporation (IFC), which were
terminated.
The DEKALB 9.875-percent notes mature on July 15, 2000 and are not
redeemable prior to their maturity.
As of December 31, 1997 and 1996, the Company had approximately $18.2
million and $20.3 million, respectively, of unamortized costs associated with
its various debt obligations. These costs are reflected as deferred charges in
the accompanying consolidated balance sheet and are being amortized over the
life of the related debt.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6-percent convertible subordinated debentures was converted into
approximately 5.1 million shares of Apache common stock at a conversion price of
$30.68 per share. The remaining $16.9 million of principal amount was redeemed
for $17.4 million in cash, plus accrued and unpaid interest. The Company
recorded a $.8 million loss on the early extinguishment of debt in January 1998.
In February 1998, Apache issued $150 million principal amount, $148.2
million net of discount, of senior unsecured 7-percent notes maturing on
February 1, 2018. The notes are not redeemable prior to maturity.
The indentures for the notes and debentures described above place certain
restrictions on the Company, including limits on Apache's ability to incur debt
secured by certain liens and its ability to enter into certain sale and
leaseback transactions.
AGGREGATE MATURITIES OF DEBT
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
1998........................................................ $ 17,200
1999........................................................ --
2000........................................................ 29,225
2001........................................................ 25,000
2002........................................................ 703,105
Thereafter.................................................. 744,050
----------
$1,518,580
==========
5. INCOME TAXES
Income before income taxes is composed of the following:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
United States........................................ $171,304 $154,759 $28,155
International........................................ 87,336 45,436 4,988
-------- -------- -------
Total........................................... $258,640 $200,195 $33,143
======== ======== =======
F-14
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes consists of the following:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- ------- --------
(IN THOUSANDS)
Current taxes:
Federal............................................ $ 300 $ -- $(16,776)
Foreign............................................ 35,164 17,432 330
Deferred taxes....................................... 68,280 61,336 29,382
-------- ------- --------
$103,744 $78,768 $ 12,936
======== ======= ========
A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
Statutory income tax.................................. $ 90,524 $70,068 $11,600
State income tax, less federal benefit................ 3,987 4,558 1,282
Taxation of foreign operations........................ 10,842 5,226 135
Increase in foreign corporate income tax rates........ -- -- 1,757
All other, net........................................ (1,609) (1,084) (1,838)
-------- ------- -------
$103,744 $78,768 $12,936
======== ======= =======
The net deferred tax liability is comprised of the following:
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Deferred income........................................... $ (2,259) $ (443)
Federal net operating loss carryforwards.................. (79,009) (65,018)
State net operating loss carryforwards.................... (12,562) (10,363)
Statutory depletion carryforwards......................... (3,316) (5,469)
Alternative minimum tax credits........................... (9,141) (9,130)
Accrued expenses and liabilities.......................... (5,452) (4,805)
Other..................................................... (12,090) (5,301)
--------- ---------
Total deferred tax assets......................... (123,829) (100,529)
Valuation allowance......................................... 1,704 942
--------- ---------
Net deferred tax assets........................... (122,125) (99,587)
--------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization.................. 471,403 319,226
Foreign loss recapture.................................... -- 18,963
Other..................................................... 6,341 16,187
--------- ---------
Total deferred tax liabilities.................... 477,744 354,376
--------- ---------
Deferred income tax liability............................... $ 355,619 $ 254,789
========= =========
F-15
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. deferred taxes have not been provided on foreign earnings totaling
$151.4 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, 1997, the Company had U.S. federal net operating loss
carryforwards of $170.4 million that will expire beginning in 1998, foreign net
operating loss carryforwards of $53.7 million that can be carried forward
indefinitely, and U.S. and foreign statutory depletion carryforwards totaling
$8.8 million that can be carried forward indefinitely. The Company has
alternative minimum tax (AMT) credit carryforwards of $9.1 million that can be
carried forward indefinitely, but which can be used only to reduce regular tax
liabilities in excess of AMT liabilities. The Company has investment and other
tax credit carryforwards of $1.7 million that will expire beginning in 1998,
which have been fully reserved through the valuation allowance.
6. ADVANCES FROM GAS PURCHASER
In August 1997, Apache received $115.2 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
ten-year period commencing September 1997. As a condition of the arrangement
with the purchaser, Apache entered into two gas price swap contracts with a
third party under which Apache became a fixed price payor for identical volumes
at average prices starting at $2.19 per MMBtu in 1997 and escalating to $2.59
per MMBtu in 2007. In addition, the purchaser pays Apache a monthly fee of $.07
per MMBtu on the contracted volumes. The net result of these related
transactions is that gas delivered to the purchaser is reported as revenue at
prevailing spot prices with Apache realizing a premium associated with the
monthly fee paid by the 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 for identical volumes at prices
starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per year
through the year 2000. The net result of these related transactions is that gas
delivered to the purchaser is reported as revenue at prevailing spot prices with
Apache realizing a $.05 per MMBtu premium associated with a monthly fee paid by
the purchaser.
The Company, through its marketing subsidiaries, may purchase gas from
third parties to satisfy gas delivery requirements under these arrangements.
Contracted volumes relating to these arrangements are included in the Company's
supplemental oil and gas disclosures.
These advance payments have been classified as advances on the balance
sheet and are being reduced as gas is delivered to the purchasers under the
terms of the contracts. At December 31, 1997 and 1996, advances of $154.5
million and $51.8 million, respectively, were still outstanding. Gas volumes
delivered to the purchaser are reported as revenue at prices used to calculate
the amount advanced, before imputed interest, minus or plus amounts paid or
received by Apache applicable to the price swap agreements. Interest expense is
recorded based on a rate of 8 percent and 9.5 percent on the 1997 and 1994
advances, respectively.
F-16
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL STOCK
COMMON STOCK OUTSTANDING
1997 1996 1995
---------- ---------- ----------
Balance, beginning of year....................... 90,058,797 77,378,958 69,666,092
Treasury shares acquired, net.................... (9,016) (45,297) (959)
Shares issued for:
Conversion of 3.93-percent notes............... 2,777,777 -- --
Phoenix merger................................. -- 12,189,918 --
DEKALB merger.................................. -- -- 153,229
Public equity offering......................... -- -- 7,450,000
Dividend reinvestment plan..................... 34,249 25,148 26,809
Retirement/401(k) savings plan................. 182,742 183,059 --
Stock option plans............................. 259,992 317,775 83,787
Other.......................................... -- 9,236 --
---------- ---------- ----------
Balance, end of year............................. 93,304,541 90,058,797 77,378,958
========== ========== ==========
Public Equity Offering -- In September 1995, Apache completed a public
offering of approximately 7.5 million shares of Apache common stock for net
proceeds of $195.5 million.
Net Income Per Common Share -- A reconciliation of the components of basic
and diluted net income per common share for the years ended December 31, 1997,
1996 and 1995 is presented in the table below:
1997 1996 1995
----------------------------- ----------------------------- ----------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- ------ --------- -------- ------ --------- ------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BASIC:
Net income.................... $154,896 90,677 $1.71 $121,427 85,777 $1.42 $20,207 71,792 $.28
===== ===== ====
EFFECT OF DILUTIVE SECURITIES:
Stock option plans............ -- 519 -- 374 -- 80
3.93%-convertible notes....... 1,859 2,435 2,114 2,778 -- --
6%-convertible subordinated
debentures.................. 6,919 5,623 6,916 5,623 -- --
-------- ------ -------- ------ ------- ------
DILUTED:
Net income including assumed
conversions................. $163,674 99,254 $1.65 $130,457 94,552 $1.38 $20,207 71,872 $.28
======== ====== ===== ======== ====== ===== ======= ====== ====
The 3.93-percent convertible notes and 6-percent convertible subordinated
debentures were not included in the computation of diluted net income per common
share during 1995, because to do so would have been antidilutive.
Stock Option Plans -- At December 31, 1997, officers and certain key
employees have been granted options to purchase the Company's common stock under
employee stock option plans adopted in 1990 and 1995 and under certain
predecessor plans (collectively, the Stock Option Plans). Under the Stock Option
Plans, the exercise price of each option equals the market price of Apache's
common stock on the date of grant. Options generally become exercisable ratably
over a four-year period and expire after 10 years. The Company may issue up to
4,007,006 shares of common stock under the Stock Option Plans, of which options
to acquire 411,775 shares of common stock remained available for grant at
December 31, 1997.
On October 31, 1996, the Company established the 1996 Performance Stock
Option Plan (the Performance Plan) for substantially all full-time employees,
excluding officers and certain key employees. Under the Performance Plan, the
exercise price of each option equals the market price of Apache common stock on
the date of grant. All options become exercisable after nine and one-half years
and expire ten years from the date of grant; however, exercisability will be
accelerated if share price goals of $50 and $60 per share,
F-17
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, are attained before January 1, 2000. The Company may issue up to
1,300,000 shares of common stock under the Performance Plan, of which options to
acquire 191,216 shares of common stock remained available for grant at December
31, 1997.
A summary of the status of the plans described above as of December 31,
1997, 1996, and 1995, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
1997 1996 1995
------------------------ ------------------------ ------------------------
SHS. UNDER WTD. AVG. SHS. UNDER WTD. AVG. SHS. UNDER WTD. AVG.
OPTION EXER. PRICE OPTION EXER. PRICE OPTION EXER. PRICE
---------- ----------- ---------- ----------- ---------- -----------
Outstanding, beginning of
year....................... 2,885 $30.82 1,218 $23.91 1,340 $20.42
Granted...................... 1,228 34.59 2,032 33.26 397 26.90
Exercised.................... (145) 23.02 (224) 17.58 (131) 16.96
Forfeited.................... (339) 33.08 (141) 27.30 (388) 17.25
------ ------ ------
Outstanding, end of
year(1).................... 3,629 32.20 2,885 30.82 1,218 23.91
====== ====== ======
Exercisable, end of year..... 729 26.96 467 23.88 465 20.16
====== ====== ======
Available for grant, end of
year....................... 603 1,503 2,158
====== ====== ======
Weighted average fair value
of options granted during
the year(2)................ $11.73 $ 9.80 $10.46
====== ====== ======
The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 1997 (shares in
thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------
NO. OF SHS. WTD. AVG. NO. OF SHS.
RANGE OF UNDER REMAINING WTD. AVG. UNDER WTD. AVG.
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
-------- ----------- ----------- --------- ----------- ---------
$ 2.39 - $19.63............. 69 3.50 $16.71 69 $16.71
21.00 - 29.88............. 943 7.17 27.30 519 26.90
30.25 - 36.00............. 2,458 9.02 33.98 141 32.26
37.88 - 42.44............. 159 9.64 40.64 -- --
----- ---
3,629 729
===== ===
- ---------------
(1) Excludes 496,900 and 644,100 shares as of December 31, 1997 and 1996,
respectively, issuable under stock options assumed by Apache in connection
with the Phoenix Merger.
(2) The fair value of each option is estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995, respectively: (i)
risk-free interest rates of 6.33, 6.19 and 6.47 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 31.21, 30.50 and 35.75 percent, and (iv)
expected dividend yields of .82, .85 and 1.04 percent.
F-18
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, Apache's shareholders approved the 1996 Share Price
Appreciation Plan (the Appreciation Plan) for officers and certain key
employees. The Appreciation Plan provides for conditional grants denominated in
shares of Apache common stock that vest upon attainment of share price goals of
$50 and $60 per share, respectively, before January 1, 2000. Between 30 and 50
percent of the conditional grants will be paid in cash at the market value of
the stock on the date of payment, and the balance (up to a total of 2,000,000
shares in the aggregate) will be issued in Apache common stock. Generally, any
vested amounts will be distributed in three installments over the 36-month
period following attainment of the share price goals. When and if the share
price goals are achieved, the Company will recognize compensation expense over
the 36-month period equal to the value of the stock as of the date the share
price goal is achieved (i.e., $50 or $60 per share, as appropriate) and the
actual amount of cash paid. The shares of Apache common stock contingently
issuable under the Appreciation Plan will be excluded from the computation of
net income per common share until the stated share price goals of $50 and $60
per share are achieved.
A summary of the status of the Appreciation Plan as of December 31, 1997,
and changes during the year then ended, is presented in the table and narrative
below (shares in thousands):
SHARES SUBJECT
TO CONDITIONAL
GRANTS
---------------
Outstanding, beginning of year.............................. --
Granted..................................................... 1,965
Forfeited................................................... (246)
------
Outstanding, end of year.................................... 1,719
======
Exercisable, end of year.................................... --
======
Available for grant, end of year............................ 281
======
Weighted average fair value of conditional grants(1)........ $13.50
======
- ---------------
(1) The fair value of each conditional grant is estimated as of the date of
grant using a Monte Carlo simulation with the following weighted-average
assumptions used for grants in 1997: (i) risk-free interest rate of 6.45
percent; (ii) expected volatility of 28.63 percent, and (iii) expected
dividend yield of .84 percent.
F-19
56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25 and related interpretations, under which no compensation cost has
been recognized for the Stock Option Plans, the Performance Plan, or the
Appreciation Plan. If compensation costs for these plans had been determined in
accordance with SFAS No. 123, the Company's net income and net income per common
share would approximate the following pro forma amounts:
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
Net Income:
As reported....................................... $154,896 $121,427 $20,207
Pro forma......................................... 147,152 119,536 19,968
Net Income per Common Share:
Basic:
As reported.................................... $ 1.71 $ 1.42 $ .28
Pro forma...................................... 1.62 1.39 .28
Diluted:
As reported.................................... $ 1.65 $ 1.38 $ .28
Pro forma...................................... 1.55 1.36 .28
The pro forma amounts shown above may not be representative of future
results, as the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995.
Preferred Stock -- The Company has five million shares of no par preferred
stock authorized, of which 25,000 shares have been "designated" Series A Junior
Participating Preferred Stock and authorized for issuance pursuant to certain
rights that trade with Apache common stock outstanding. There are no shares of
preferred stock issued and outstanding; however, shares of preferred stock are
reserved for issuance upon the exercise of the preferred stock purchase rights
discussed below.
Rights to Purchase Preferred Stock -- In December 1995, the Company
declared a dividend of one right (a Right) for each share of Apache common stock
outstanding on January 31, 1996. Each Right entitles the registered holder to
purchase from the Company one ten-thousandth (1/10,000) of a share of Series A
Junior Participating Preferred Stock at a price of $100 per one ten-thousandth
of a share, subject to adjustment. The Rights are exercisable 10 calendar days
following a public announcement that certain persons or groups have acquired 20
percent or more of the outstanding shares of Apache common stock or 10 business
days following commencement of an offer for 30 percent or more of the
outstanding shares of Apache common stock. In addition, if the Company engages
in certain business combinations or a 20 percent shareholder 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
outstanding shares of Apache 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 $.01 per Right at any
time until 10 business days after public announcement that a person has acquired
20 percent or more of the outstanding shares of Apache common stock. The Rights
will expire on January 31, 2006, unless earlier redeemed by the Company. Unless
the Rights have been previously redeemed, all shares of Apache common stock
issued by the Company after January 31, 1996 will include Rights. Unless and
until the Rights become exercisable, they will be transferred with and only with
the shares of Apache common stock.
F-20
57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In November 1997, Apache acquired certain assets through the Ampolex Group
Transaction for cash and the assumption of certain liabilities. See Note 2.
In November 1997, the Company's $75 million principal amount of
3.93-percent convertible notes were converted into approximately 2.8 million
shares of Apache common stock at a conversion price of $27 per share.
In May 1996, Apache acquired Phoenix for cash and shares of Apache common
stock, and assumed certain outstanding Phoenix stock options. The accompanying
financial statements include the following attributable to the Phoenix Merger:
(IN THOUSANDS)
Value of properties acquired, including gathering
facilities................................................ $ 386,237
Other non-cash assets acquired.............................. 7,901
Common stock issued and options to purchase common stock
assumed (12.2 million and .8 million shares,
respectively)............................................. (322,860)
Liabilities assumed......................................... (27,984)
---------
Cash paid, net of cash acquired............................. $ 43,294
=========
Supplemental Disclosure of Cash Flow Information
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- ---------
(IN THOUSANDS)
Cash paid (received) during the year for:
Interest, net of amounts capitalized................ $63,633 $53,228 $ 64,365
Income and other taxes, net of refunds.............. 35,464 6,241 (15,225)
F-21
58
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. 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, 1997 and 1996.
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Cash and cash equivalents....................... $ 9,686 $ 9,686 $ 13,161 $ 13,161
Long-term debt:
Bank debt..................................... 405,000 405,000 431,250 431,250
Commercial paper.............................. 50,800 50,800 -- --
7.95-percent notes............................ 178,531 203,868 178,518 186,354
6-percent convertible subordinated
debentures................................. 172,500 197,944 172,500 216,488
7.625-percent debentures...................... 149,175 159,510 149,175 150,045
7.375-percent debentures...................... 147,984 159,825 -- --
9.25-percent notes............................ 99,805 111,210 99,772 111,020
7.7-percent notes............................. 99,638 110,140 99,634 102,348
3.93-percent convertible notes................ -- -- 75,000 99,750
Money market lines and other debt............. 17,200 17,200 2,632 2,632
Apache Finance 6.5-percent notes.............. 168,722 169,881 -- --
DEKALB 9.875-percent notes.................... 29,225 31,598 29,225 32,203
Hedging financial instruments:
Commodity price swaps
-- Natural gas(1).......................... -- 3,319 -- 10,690
-- Oil..................................... -- -- -- (444)
- ---------------
(1) The fair value of natural gas price swaps at December 31, 1997 and 1996
reflects fixed-to-floating price swaps where there is an offsetting position
with a physical contract. See Commodity Price Hedges.
F-22
59
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the table above. The carrying values
of trade receivables and trade payables included in the accompanying
consolidated balance sheet approximated market value at December 31, 1997 and
1996.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Long-Term Debt -- The fair values of the 7.95-percent, 7.7-percent,
9.25-percent, 9.875-percent and 6.5-percent notes and the 7.375-percent
debentures are based on the quoted market prices for those issues. The fair
values of the 7.625-percent debentures, the 6-percent convertible subordinated
debentures and the 3.93-percent convertible notes are based upon estimates
provided to the Company by independent investment banking firms. The carrying
amount of the bank debt, commercial paper and money market lines of credit
approximates fair value because the interest rates are variable and reflective
of market rates.
Commodity Price Hedges -- Apache periodically enters into commodity
derivative contracts and fixed-price physical contracts to manage its exposure
to oil and gas price volatility. Commodity derivatives contracts, which are
usually placed with major financial institutions that the Company believes are
minimal credit risks, may take the form of futures contracts, swaps or options.
The derivative contracts 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. As a result of these activities, Apache recognized
hedging gains of $14.5 million in 1997 and hedging losses in 1996 and 1995 of
$23.0 million and $4.3 million, respectively. The 1997 hedging gain and the 1996
and 1995 hedging losses are included in oil and gas production revenues in the
statement of consolidated income.
The 1995 loss reflected a $9.3 million pre-tax charge to earnings resulting
from the loss of correlation of New York Mercantile Exchange (NYMEX) prices from
actual wellhead prices for certain positions in January through March 1996
production, reported as a reduction of other revenues, offset by $5 million of
commodity pricing gains which increased 1995 oil and gas production revenues.
Apache's consolidated balance sheet includes deferred credits totaling $2.2
million and $3.2 million at December 31, 1997 and 1996, respectively, for gains
realized on the early termination of commodity derivative contracts in 1997 and
prior years. These gains will be recognized as oil and gas production revenues
over periods ranging from one to 24 months as the hedged production occurs.
The following table and notes thereto cover the Company's pricing and
notional volumes on open natural gas commodity derivative contracts as of
December 31, 1997:
1998 1999 2000 2001 2002 THEREAFTER
----- ----- ----- ----- ----- ----------
NYMEX Based Swap Positions:
Pay fixed price (thousand MMBtu/d)(1).... 60 60 60 20 20 20
Average swap price, per MMBtu(1)......... $2.07 $2.12 $2.21 $2.25 $2.30 $2.47
- ---------------
(1) The Company has various contracts to supply gas at fixed prices. In order
to lock in a margin on a portion of the volumes, the Company is a fixed
price payor on swap transactions. The average physical contract price
ranges from $2.43 in 1998 to $2.66 in 2007. The fair value of these hedges
was $3.3 million at December 31, 1997, with $(1.4) million of this value
relating to the arrangements discussed in Note 6.
F-23
60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 received support payments
when oil fell below specified reference prices during the two-year period ended
June 30, 1993, and Amoco will receive payments in the event oil prices rise
above specified reference prices for any year during the eight-year period
ending June 30, 1999. If price sharing payments are due to Amoco, the volumes
listed below would be doubled until Amoco recovers its net payments previously
made to Apache ($5.8 million through the contract year ended June 30, 1997) plus
interest.
The notional oil volumes and the reference prices specified in the Amoco
price support agreement are summarized below:
YEAR ENDED JUNE 30: MMBBLS PRICE
------------------- ------ ------
1998................................................... 1.7 $31.25
1999................................................... 1.4 33.12
Apache was not required to make any price sharing payments in 1997, and
does not expect to be liable to Amoco for future price sharing payments.
10. COMMITMENTS AND CONTINGENCIES
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 and subject the lessee to liability for
pollution damages. Apache maintains insurance coverage, which it believes, is
customary in the industry, although it is not fully insured against all
environmental risks.
As part of the Company's due diligence review for acquisitions, Apache
conducts an extensive environmental evaluation of purchased properties.
Depending on the extent of an identified environmental problem, the Company may
exclude a property from the acquisition, require the seller to remediate the
property to Apache's satisfaction, or agree to assume liability for remediation
of the property. As of December 31, 1997, Apache had a reserve for environmental
remediation of approximately $6.4 million. The Company is not aware of any
environmental claims existing as of December 31, 1997, which have not been
provided for or would otherwise have a material impact on its financial position
or results of operations. There can be no assurance, however, that current
regulatory requirements will not change, or past non-compliance with
environmental laws will not be discovered on the Company's properties.
International Commitments -- The Company, through its subsidiaries, has
acquired or has been conditionally or unconditionally granted exploration rights
in Australia, Egypt, The People's Republic of China, Poland, the Ivory Coast and
Indonesia. In order to comply with the contracts and agreements granting these
rights, the Company, through various wholly-owned subsidiaries, is committed to
expend approximately $200 million through 2001.
F-24
61
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Retirement and Deferred Compensation Plans -- The Company provides a 401(k)
savings plan for employees which allows 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 six percent of each participating
employee's compensation, as defined, to a money purchase retirement plan. The
401(k) plan and the money purchase retirement plan are subject to certain
annually-adjusted, government-mandated restrictions which limit the amount of
each employee's contributions.
For certain eligible employees, the Company also provides a non-qualified
retirement/savings plan which allows the deferral of up to 50 percent of each
such employee's salary, and which accepts employee contributions and the
Company's matching contributions in excess of the above-referenced restrictions
on the 401(k) savings plan and money purchase retirement plan. Additionally,
Apache Energy Limited and Apache Canada Ltd. maintain separate retirement plans,
as required under the laws of Australia and Canada, respectively.
Vesting in the Company's contributions to the 401(k) savings plan, the
money purchase retirement plan and the nonqualified retirement/savings plan
occurs at the rate of 20 percent per year. Total expenses under all plans were
$6.3 million, $6.5 million and $7.2 million for 1997, 1996 and 1995,
respectively. The unfunded liability for all plans has been accrued in the
consolidated balance sheet.
Lease Commitments -- The Company has leases for office space and equipment
with varying expiration dates through 2007. Net rental expense was $5.8 million,
$6.5 million and $5.2 million for 1997, 1996 and 1995, respectively.
As of December 31, 1997, minimum rental commitments under long-term
operating leases and long-term pipeline transportation commitments, ranging from
one to 26 years, are as follows:
NET
MINIMUM PIPELINE
RENTAL SUBLEASE RENTAL TRANSPORTATION NET MINIMUM
COMMITMENTS RENTALS COMMITMENTS COMMITMENTS COMMITMENTS
----------- -------- ----------- -------------- -----------
(IN THOUSANDS)
1998..................... $ 8,449 $(1,228) $ 7,221 $ 2,162 $ 9,383
1999..................... 8,261 (900) 7,361 2,262 9,623
2000..................... 7,283 (912) 6,371 2,234 8,605
2001..................... 6,406 (735) 5,671 2,216 7,887
2002..................... 6,063 (506) 5,557 2,114 7,671
Thereafter............... 25,015 (337) 24,678 33,060 57,738
------- ------- ------- ------- --------
$61,477 $(4,618) $56,859 $44,048 $100,907
======= ======= ======= ======= ========
ProEnergy -- ProEnergy's limited liability company agreement provides that
capital funding obligations, allocations of profit and loss and voting rights
are calculated based upon the members' respective throughputs of natural gas
sold to ProEnergy. With respect to members' votes, if there are two or more
members, the approval of any decision requires the votes of at least two members
holding the requisite voting interests. Each member's liability with respect to
future capital funding obligations is subject to certain limitations. Natural
gas throughputs are calculated, profit distributed, and/or capital called on a
quarterly basis. As of December 31, 1997, the Company held an approximate 48
percent interest in ProEnergy.
F-25
62
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Related Parties -- F.H. Merelli, a member of the Company's board of
directors since July 1997, is chairman, president and chief executive officer of
Key Production Company, Inc. (Key). In the normal course of business, Key paid
to Apache during 1997 approximately $6.5 million for Key's proportionate share
of drilling and workover costs and routine expenses relating to 360 oil and gas
wells in which Key owns interests and for which Apache is the operator. Key
received approximately $14.3 million in 1997 for its proportionate share of
revenues from such interests, of which approximately $6.1 million was paid
directly to Key by Apache or related entities.
Major Purchasers -- In 1997, purchases by ProEnergy and the Egyptian
General Petroleum Corporation accounted for 40 percent and 13 percent of the
Company's oil and gas revenues, respectively. Beginning with April 1996
production, ProEnergy was the principal purchaser of Apache's domestic natural
gas production. In 1996, purchases by ProEnergy accounted for 35 percent of the
Company's oil and gas revenues.
Natural Gas Clearinghouse (NGC) was the principal purchaser of Apache's
spot market gas production from April 1990 through September 30, 1995. Sales to
NGC accounted for 27 percent of the Company's oil and gas revenues in 1995.
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.
Sales of natural gas by Apache to ProEnergy are similarly uncollateralized.
Apache and the other members of ProEnergy have agreed to fund the reasonably
anticipated future capital needs of ProEnergy. In addition, effective January
31, 1996, ProEnergy entered into a $150 million, three-year revolving credit
facility with a syndicate of banks to finance its operations. However, ProEnergy
remains subject to the risks inherent in the natural gas marketing industry.
F-26
63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
The Company's operations are primarily related to natural gas and crude oil
exploration and production. Accordingly, such operations are classified as one
business segment. Financial information by geographic area is presented below:
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
Gross Operating Revenues:
United States.................................. $ 938,789 $ 834,983 $ 682,432
Canada......................................... 57,549 48,364 40,508
Egypt.......................................... 132,616 65,040 --
Australia...................................... 49,017 29,045 27,762
Other International............................ (15) -- --
Equity in income (loss) of affiliates............ (1,683) (281) --
---------- ---------- ----------
Total revenues................................... $1,176,273 $ 977,151 $ 750,702
========== ========== ==========
Operating Income (Loss):
United States.................................. $ 264,226 $ 242,201 $ 131,888
Canada......................................... 14,833 10,247 11,077
Egypt.......................................... 72,459 35,262 --
Australia...................................... 19,388 10,283 7,342
Other International............................ (15) -- (75)
---------- ---------- ----------
Operating income................................. 370,891 297,993 150,232
Equity in income (loss) of affiliates............ (1,683) (281) --
Administrative, selling and other................ (38,243) (35,911) (36,552)
Merger costs..................................... -- -- (9,977)
Net financing costs.............................. (72,325) (61,606) (70,560)
---------- ---------- ----------
Income before income taxes....................... $ 258,640 $ 200,195 $ 33,143
========== ========== ==========
Identifiable Assets:
United States.................................. $2,492,233 $2,410,180 $2,295,966
Canada......................................... 285,214 260,818 216,216
Egypt.......................................... 687,784 512,213 13,956
Australia...................................... 582,487 190,867 117,921
Ivory Coast.................................... 10,658 9,456 1,811
Other International............................ 80,257 48,896 35,580
---------- ---------- ----------
Total....................................... $4,138,633 $3,432,430 $2,681,450
========== ========== ==========
F-27
64
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.
UNITED STATES CANADA EGYPT AUSTRALIA TOTAL
------------- ------- -------- --------- --------
(IN THOUSANDS)
1997
Oil and gas revenues..................... $740,037 $61,328 $132,493 $49,915 $983,773
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 283,866 25,592 43,945 18,210 371,613
Lease operating expenses............... 151,236 16,122 16,212 7,226 190,796
Production taxes....................... 33,539 -- -- 3,492 37,031
Income tax............................. 101,774 8,748 34,721 7,555 152,798
-------- ------- -------- ------- --------
570,415 50,462 94,878 36,483 752,238
-------- ------- -------- ------- --------
Results of operations.................... $169,622 $10,866 $ 37,615 $13,432 $231,535
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 6.12 $ 3.96 $ 5.47 $ 5.23 $ 5.77
======== ======= ======== ======= ========
1996
Oil and gas revenues..................... $691,065 $48,204 $ 64,990 $28,905 $833,164
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 256,243 20,511 17,930 9,146 303,830
Lease operating expenses............... 152,187 16,439 11,665 6,108 186,399
Production taxes....................... 33,571 -- -- 2,153 35,724
Income tax............................. 94,644 5,022 16,990 4,139 120,795
-------- ------- -------- ------- --------
536,645 41,972 46,585 21,546 646,748
-------- ------- -------- ------- --------
Results of operations.................... $154,420 $ 6,232 $ 18,405 $ 7,359 $186,416
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 5.68 $ 3.73 $ 5.17 $ 5.40 $ 5.44
======== ======= ======== ======= ========
1995
Oil and gas revenues..................... $586,711 $38,831 $ -- $27,602 $653,144
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 262,689 15,475 -- 10,225 288,389
Lease operating expenses............... 161,631 12,911 -- 6,534 181,076
Production taxes....................... 26,936 -- -- 1,957 28,893
Income tax............................. 50,118 4,658 -- 3,199 57,975
-------- ------- -------- ------- --------
501,374 33,044 -- 21,915 556,333
-------- ------- -------- ------- --------
Results of operations.................... $ 85,337 $ 5,787 $ -- $ 5,687 $ 96,811
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 5.54 $ 3.08 $ -- $ 5.94 $ 5.32
======== ======= ======== ======= ========
- ---------------
(1) Amortization rate per boe reflects only depreciation, depletion and
amortization of capitalized costs of proved oil and gas properties.
F-28
65
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, 1997, by the year
in which such costs were incurred:
1994
TOTAL 1997 1996 1995 AND PRIOR
-------- -------- -------- -------- ---------
(IN THOUSANDS)
Property acquisition
costs..................... $404,283 $126,420 $160,267 $ 96,228 $ 21,368
Exploration and
development............... 128,273 94,378 3,571 17,705 12,619
-------- -------- -------- -------- ---------
Total....................... $532,556 $220,798 $163,838 $113,933 $ 33,987
======== ======== ======== ======== =========
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities:
IVORY OTHER
UNITED STATES CANADA EGYPT AUSTRALIA COAST INTERNATIONAL TOTAL
------------- ------- -------- --------- ------ ------------- ---------
(IN THOUSANDS)
1997
Acquisition of proved
properties(1).......... $ 21,927 $11,635 $ -- $192,372 $ -- $ -- $ 225,934
Acquisition of unproved
properties............. 34,487 6,061 7,744 7,975 -- 136 56,403
Exploration.............. 55,997 21,270 41,910 18,744 67 24,199 162,187
Development.............. 268,788 28,932 90,284 41,844 489 -- 430,337
Capitalized interest..... 15,743 1,406 12,626 2,239 521 3,958 36,493
Property sales........... (24,609) (5,525) -- -- -- -- (30,134)
--------- ------- -------- -------- ------ ------- ---------
$ 372,333 $63,779 $152,564 $263,174 $1,077 $28,293 $ 881,220
========= ======= ======== ======== ====== ======= =========
1996
Acquisition of proved
properties(1).......... $ 109,872 $ 2,499 $333,834 $ -- $ -- $ -- $ 446,205
Acquisition of unproved
properties............. 26,055 5,385 -- -- -- -- 31,440
Exploration.............. 48,578 30,153 31,805 11,012 7,674 11,687 140,909
Development.............. 211,658 21,970 23,056 33,950 -- -- 290,634
Capitalized interest..... 16,203 1,260 8,736 1,876 240 2,397 30,712
Property sales........... (29,459) (685) -- -- -- -- (30,144)
--------- ------- -------- -------- ------ ------- ---------
$ 382,907 $60,582 $397,431 $ 46,838 $7,914 $14,084 $ 909,756
========= ======= ======== ======== ====== ======= =========
1995
Acquisition of proved
properties(1).......... $ 818,682 $ 2,236 $ -- $ -- $ -- $ -- $ 820,918
Acquisition of unproved
properties............. 21,446 3,511 -- -- -- -- 24,957
Exploration.............. 23,520 7,857 11,415 22,227 1,287 20,968 87,274
Development.............. 156,845 15,105 -- 8,946 -- -- 180,896
Capitalized interest..... 14,619 1,315 437 1,200 -- 1,470 19,041
Property sales........... (271,937) -- -- -- -- -- (271,937)
--------- ------- -------- -------- ------ ------- ---------
$ 763,175 $30,024 $ 11,852 $ 32,373 $1,287 $22,438 $ 861,149
========= ======= ======== ======== ====== ======= =========
- ---------------
(1) Acquisition of proved properties includes unevaluated costs of $53.8
million, $203.6 million (including $99.0 million associated with
international concession rights) and $162.2 million for transactions
completed in 1997, 1996 and 1995, respectively.
F-29
66
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and associated accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities:
UNITED IVORY OTHER
STATES CANADA EGYPT AUSTRALIA COAST INTERNATIONAL TOTAL
----------- --------- -------- --------- ------- ------------- -----------
(IN THOUSANDS)
1997
Proved properties........... $ 4,279,089 $ 445,314 $379,552 $375,037 $ 2,328 $ 49,671 $ 5,530,991
Unproved properties......... 161,671 21,443 105,544 81,723 7,951 75,224 453,556
International concession
rights.................... -- -- 79,000 -- -- -- 79,000
----------- --------- -------- -------- ------- -------- -----------
4,440,760 466,757 564,096 456,760 10,279 124,895 6,063,547
Accumulated DD&A............ (2,228,575) (197,067) (54,789) (65,605) -- (49,671) (2,595,707)
----------- --------- -------- -------- ------- -------- -----------
$ 2,212,185 $ 269,690 $509,307 $391,155 $10,279 $ 75,224 $ 3,467,840
=========== ========= ======== ======== ======= ======== ===========
1996
Proved properties........... $ 3,846,256 $ 400,113 $251,619 $165,454 $ -- $ 49,671 $ 4,713,113
Unproved properties......... 222,168 21,526 60,913 28,133 9,201 46,931 388,872
International concession
rights.................... -- -- 99,000 -- -- -- 99,000
----------- --------- -------- -------- ------- -------- -----------
4,068,424 421,639 411,532 193,587 9,201 96,602 5,200,985
Accumulated DD&A............ (1,950,760) (179,448) (15,873) (48,895) -- (49,671) (2,244,647)
----------- --------- -------- -------- ------- -------- -----------
$ 2,117,664 $ 242,191 $395,659 $144,692 $ 9,201 $ 46,931 $ 2,956,338
=========== ========= ======== ======== ======= ======== ===========
F-30
67
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 U.S., Canadian and
international properties are subject to review by Ryder Scott Company Petroleum
Engineers, independent petroleum engineers. In 1996, the proved reserve
quantities of certain of the Company's Egyptian properties were subject to
review by Netherland, Sewell & Associates, Inc., independent 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 data represents estimates only
and should not be construed as being exact.
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
-------------------------------------------------------
(THOUSANDS OF BARRELS)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
------- ------ ------ --------- ----- -------
TOTAL PROVED RESERVES:
Balance December 31, 1994..... 94,445 10,716 -- 5,463 -- 110,624
Extensions, discoveries and
other additions........... 6,685 306 -- 3,058 -- 10,049
Purchases of minerals
in-place.................. 99,148 119 -- -- -- 99,267
Revisions of previous
estimates................. 12,172 (388) -- 10 -- 11,794
Production.................. (17,011) (937) -- (1,139) -- (19,087)
Sales of properties......... (42,318) -- -- -- -- (42,318)
------- ------ ------ ------ ----- -------
Balance December 31, 1995..... 153,121 9,816 -- 7,392 -- 170,329
Extensions, discoveries and
other additions........... 9,065 1,123 18,909 14,562 -- 43,659
Purchases of minerals
in-place.................. 3,547 128 30,706 -- -- 34,381
Revisions of previous
estimates................. 12,547 320 -- (1,679) -- 11,188
Production.................. (15,338) (955) (3,036) (849) -- (20,178)
Sales of properties......... (4,019) (66) -- -- -- (4,085)
------- ------ ------ ------ ----- -------
Balance December 31, 1996..... 158,923 10,366 46,579 19,426 -- 235,294
Extensions, discoveries and
other additions........... 32,530 2,677 10,492 12,814 393 58,906
Purchases of minerals
in-place.................. 1,818 278 -- 9,116 -- 11,212
Revisions of previous
estimates................. (7,283) (379) 4,696 -- -- (2,966)
Production.................. (15,448) (1,003) (7,071) (1,612) -- (25,134)
Sales of properties......... (2,923) (611) -- -- -- (3,534)
------- ------ ------ ------ ----- -------
Balance December 31, 1997..... 167,617 11,328 54,696 39,744 393 273,778
======= ====== ====== ====== ===== =======
PROVED DEVELOPED RESERVES:
December 31, 1994........... 84,085 10,612 -- 5,322 -- 100,019
December 31, 1995........... 123,726 9,597 -- 4,141 -- 137,464
December 31, 1996........... 129,551 10,351 38,213 5,106 -- 183,221
December 31, 1997........... 133,035 11,313 42,714 15,690 393 203,145
NATURAL GAS
---------------------------------------------------------------
(MILLIONS OF CUBIC FEET)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
--------- ------- ------- --------- ------ ---------
TOTAL PROVED RESERVES:
Balance December 31, 1994..... 984,288 299,896 -- 31,971 -- 1,316,155
Extensions, discoveries and
other additions........... 85,032 26,488 -- 42,332 -- 153,852
Purchases of minerals
in-place.................. 335,865 4,662 -- -- -- 340,527
Revisions of previous
estimates................. 56,281 (18,141) -- 2,342 -- 40,482
Production.................. (182,661) (24,485) -- (3,486) -- (210,632)
Sales of properties......... (138,464) -- -- -- -- (138,464)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1995..... 1,140,341 288,420 -- 73,159 -- 1,501,920
Extensions, discoveries and
other additions........... 140,208 44,584 59,329 8,346 -- 252,467
Purchases of minerals
in-place.................. 88,023 3,039 12,964 -- -- 104,026
Revisions of previous
estimates................. 35,026 (25,747) -- (5,276) -- 4,003
Production.................. (172,815) (27,303) (111) (5,076) -- (205,305)
Sales of properties......... (29,231) (2,576) -- -- -- (31,807)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1996..... 1,201,552 280,417 72,182 71,153 -- 1,625,304
Extensions, discoveries and
other additions........... 187,270 68,877 58,685 42,936 26,208 383,976
Purchases of minerals
in-place.................. 13,295 13,897 -- 136,817 -- 164,009
Revisions of previous
estimates................. (56,632) 4,257 13,584 -- -- (38,791)
Production.................. (179,796) (32,740) (205) (9,496) -- (222,237)
Sales of properties......... (33,940) (6,500) -- -- -- (40,440)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1997..... 1,131,749 328,208 144,246 241,410 26,208 1,871,821
========= ======= ======= ======= ====== =========
PROVED DEVELOPED RESERVES:
December 31, 1994........... 888,039 274,611 -- 22,265 -- 1,184,915
December 31, 1995........... 1,003,853 274,306 -- 20,308 -- 1,298,467
December 31, 1996........... 1,087,694 274,498 6,977 66,174 -- 1,435,343
December 31, 1997........... 1,009,080 326,237 8,825 183,962 26,208 1,554,312
F-31
68
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future cash inflows are based on year-end oil and
gas prices except in those instances where future natural gas or oil sales are
covered by physical or derivative contract terms providing for higher or lower
amounts. Operating costs, production and ad valorem taxes and future development
costs are based on current costs with no escalation.
The following table sets forth unaudited information concerning future net
cash flows for oil and gas reserves, net of income tax expense. Income tax
expense has been computed using expected future tax rates and giving effect to
tax deductions and credits available, under current laws, and which 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.
IVORY
UNITED STATES CANADA(1) EGYPT AUSTRALIA COAST TOTAL
------------- --------- ---------- ---------- -------- -----------
(IN THOUSANDS)
1997
Cash inflows.............. $ 5,585,925 $ 610,359 $1,196,054 $1,108,969 $ 58,589 $ 8,559,896
Production and development
costs................... (2,151,076) (186,328) (427,608) (415,282) (31,710) (3,212,004)
Income tax expense........ (776,649) (89,852) (235,560) (131,017) -- (1,233,078)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 2,658,200 334,179 532,886 562,670 26,879 4,114,814
10 percent discount
rate.................... (1,049,380) (145,899) (179,290) (157,385) (19,598) (1,551,552)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 1,608,820 $ 188,280 $ 353,596 $ 405,285 $ 7,281 $ 2,563,262
=========== ========= ========== ========== ======== ===========
1996
Cash inflows.............. $ 8,839,819 $ 761,657 $1,272,104 $ 553,781 $ -- $11,427,361
Production and development
costs................... (2,542,757) (204,610) (484,143) (240,451) -- (3,471,961)
Income tax expense........ (1,751,611) (148,745) (260,598) (83,593) -- (2,244,547)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 4,545,451 408,302 527,363 229,737 -- 5,710,853
10 percent discount
rate.................... (1,928,723) (182,645) (208,272) (71,696) -- (2,391,336)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 2,616,728 $ 225,657 $ 319,091 $ 158,041 $ -- $ 3,319,517
=========== ========= ========== ========== ======== ===========
1995
Cash inflows.............. $ 5,617,297 $ 550,627 $ -- $ 287,817 $ -- $ 6,455,741
Production and development
costs................... (2,126,984) (186,388) -- (99,345) -- (2,412,717)
Income tax expense........ (753,425) (82,124) -- (53,520) -- (889,069)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 2,736,888 282,115 -- 134,952 -- 3,153,955
10 percent discount
rate.................... (1,105,629) (124,835) -- (53,932) -- (1,284,396)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 1,631,259 $ 157,280 $ -- $ 81,020 $ -- $ 1,869,559
=========== ========= ========== ========== ======== ===========
- ---------------
(1) Included in cash inflows is approximately $27.3 million, $16.2 million and
$25.3 million ($9.3 million, $5.3 million and $9.8 million after discount at
10 percent per annum) for 1997, 1996 and 1995, respectively, of Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed.
(2) Estimated future net cash flows before income tax expense, discounted at 10
percent per annum, totaled approximately $3.3 billion, $4.6 billion and $2.3
billion as of December 31, 1997, 1996 and 1995, respectively.
F-32
69
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,
--------------------------------------
1997 1996 1995
----------- ---------- ---------
(IN THOUSANDS)
Sales, net of production costs................ $ (755,946) $ (611,041) $(443,175)
Net change in prices and production costs..... (1,904,236) 1,336,340 201,723
Discoveries and improved recovery, net of
related costs............................... 644,652 775,136 210,151
Change in future development costs............ 120,462 54,236 74,047
Revision of quantities........................ (40,121) 113,819 127,939
Purchases..................................... 242,958 522,123 726,240
Accretion of discount......................... 456,848 234,436 160,093
Change in income taxes........................ 545,424 (779,980) (186,415)
Sales of properties........................... (48,353) (46,056) (232,629)
Change in production rates and other.......... (17,943) (149,055) (80,960)
----------- ---------- ---------
$ (756,255) $1,449,958 $ 557,014
=========== ========== =========
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 natural gas or oil 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 the full cost method of accounting
are required to perform country-by-country quarterly "ceiling test"
calculations. Under this test, capitalized costs of oil and gas properties, net
of accumulated DD&A and deferred income taxes, may not exceed the present value
of estimated future net cash flows from proved oil and gas reserves discounted
at 10 percent, net of related tax effects, plus the lower of cost or fair value
of unproved properties included in the costs being amortized. Application of
these rules during periods of relatively low oil and gas prices, even if of
short-term duration, may result in writedowns.
Many full cost companies, including Apache, are concerned about the impact
of prolonged unfavorable oil prices on their ceiling test calculations. A
deterioration of gas or oil prices from year-end levels could result in the
Company recording a non-cash charge to earnings related to its oil and gas
properties.
F-33
70
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1997
Revenues................................ $321,828 $258,841 $276,748 $318,856 $1,176,273
Expenses, net........................... 268,951 233,095 245,963 273,368 1,021,377
-------- -------- -------- -------- ----------
Net income.............................. $ 52,877 $ 25,746 $ 30,785 $ 45,488 $ 154,896
======== ======== ======== ======== ==========
Net income per common share(1)
Basic................................. $ .59 $ .29 $ .34 $ .50 $ 1.71
======== ======== ======== ======== ==========
Diluted............................... $ .56 $ .28 $ .33 $ .48 $ 1.65
======== ======== ======== ======== ==========
1996
Revenues................................ $206,470 $223,656 $242,384 $304,641 $ 977,151
Expenses, net........................... 190,815 199,219 212,247 253,443 855,724
-------- -------- -------- -------- ----------
Net income.............................. $ 15,655 $ 24,437 $ 30,137 $ 51,198 $ 121,427
======== ======== ======== ======== ==========
Net income per common share(1)
Basic................................. $ .20 $ .29 $ .34 $ .57 $ 1.42
======== ======== ======== ======== ==========
Diluted............................... $ .20 $ .28 $ .33 $ .54 $ 1.38
======== ======== ======== ======== ==========
- ---------------
(1) Net income per common share has been restated in accordance with SFAS No.
128, as discussed in Note 1. The sum of the individual quarterly net income
per common share amounts may not agree with year-to-date net income per
common share as each quarterly computation is based on the weighted average
number of common shares outstanding during that period. In addition,
certain potentially dilutive securities were not included in certain of the
quarterly computations of diluted net income per common share because to do
so would have been antidilutive.
F-34
71
EXHIBIT INDEX
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).
2.2 -- 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).
2.3 -- 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).
2.4 -- Amended and Restated 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 Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.5 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
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 -- Certificate of Ownership and Merger Merging Apache Energy
Resources Corporation into Registrant, effective December
31, 1995, as filed with the Secretary of State of
Delaware on December 21, 1995 (incorporated by reference
to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
3.3 -- Certificate of Designations, Preferences and Rights of
Series A Junior Participating Preferred Stock of
Registrant, effective January 31, 1996, as filed with the
Secretary of State of Delaware on January 22, 1996
(incorporated by reference to Exhibit 3.3 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
3.4 -- Bylaws of Registrant, as amended July 17, 1997
(incorporated by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
333-32557, filed July 31, 1997).
4.1 -- Form of Registrant's common stock certificate
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights agent,
relating to the declaration of a rights dividend to
Registrant's common shareholders of record on January 31,
1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
72
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 -- Fourth Amended and Restated Credit Agreement, dated
October 31, 1996, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Global Administrative Agent, The Chase Manhattan Bank, as
Co-Agent, First Chicago Capital Markets, Inc., as
Arranger, and Chase Securities Inc., as Arranger
(incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.2 -- Credit Agreement dated October 31, 1996, among Apache
Canada Ltd., a wholly-owned subsidiary of Registrant, the
lenders named therein, and Bank of Montreal, as Canadian
Administrative Agent, The First National Bank of Chicago,
as Global Administrative Agent, First Chicago Capital
Markets, Inc., as Arranger, and Chase Securities Inc., as
Arranger (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.3 -- Credit Agreement dated October 31, 1996, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of Registrant, the lenders
named therein, and Chase Securities Australia Limited, as
Australian Administrative Agent, The First National Bank
of Chicago, as Global Administrative Agent, First Chicago
Capital Markets, Inc., as Arranger, and Chase Securities
Inc., as Arranger (incorporated by reference to Exhibit
10.3 to Registrant's Current Report on Form 8-K, dated
October 31, 1996, SEC File No. 1-4300).
10.4 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
10.5 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.6 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
73
EXHIBIT NO. DESCRIPTION
----------- -----------
10.7 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (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).
10.8 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.9 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
(incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.10 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10.1 to Phoenix's
Registration Statement on Form S-1, Registration No.
33-1069, filed October 23, 1985).
10.11 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
*10.12 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation.
10.13 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.14 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.15 -- 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).
74
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.16 -- 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).
+10.17 -- 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).
+10.18 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.19 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997.
+10.20 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, as restated January 1, 1997 (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.21 -- 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).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 9, 1996 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1995, SEC File No.
1-4300).
+10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 9, 1996 (incorporated by reference to
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
+10.24 -- Apache Corporation 1996 Share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.26 -- Apache Corporation 1998 Stock Option Plan (incorporated
by reference to Appendix A to Registrant's definitive 14A
Proxy Statement relating to Registrant's 1998 annual
meeting of shareholders, SEC File No. 1-4300).
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- 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).
+*10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 12, 1997.
75
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.30 -- Apache Corporation Directors' Deferred Compensation Plan,
as amended and restated September 14, 1994 (incorporated
by reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994, SEC
File No. 1-4300).
+*10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997.
+10.32 -- 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).
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.35 -- 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).
+10.36 -- 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).
10.37 -- Member Gas Purchase Agreement, dated March 1, 1996, by
and among Apache Gathering Company, Apache Corporation,
MW Petroleum Corporation, DEK Energy Company, Apache
Transmission Corporation-Texas and Apache Marketing,
Inc., as Seller, and Producers Energy Marketing, LLC, as
Buyer (incorporated by reference to Exhibit 10.28 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1995, SEC File No. 1-4300).
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*27.1 -- Financial Data Schedule
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.