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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, 1998,
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 26, 1999...... $1,949,775,431
Number of shares of registrant's common stock outstanding as
of February 26, 1999...................................... 97,794,379
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1999
annual meeting of stockholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
DESCRIPTION
ITEM PAGE
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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..................................... 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 18
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 28
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 28
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 28
11. EXECUTIVE COMPENSATION...................................... 28
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 28
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 28
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 29
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, in Egypt and offshore the
Ivory Coast, and exploration interests in Poland and offshore The People's
Republic of China (China). 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 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.,
and Apache Overseas, Inc. Properties referred to in this document may be held by
those subsidiaries. Apache treats all operations as one line of business.
1998 RESULTS
In 1998, Apache had a loss attributable to common stock of $131.4 million,
or $1.34 per share, on total revenues of $875.7 million. The loss reflected, in
large part, the effects of a $158 million after-tax, non-cash charge resulting
from a $243 million price-related reduction in Apache's proved oil and gas
reserves in the United States. Net cash provided by operating activities during
1998 was $471.5 million.
Apache had its 21st consecutive year of production growth and 11th
consecutive year of oil and gas reserves growth in 1998. Apache's average daily
production was 75.8 Mbbls of oil and natural gas liquids and 590 MMcf of natural
gas for the year. Giving effect to 1998 production, acquisitions, dispositions,
revisions and drilling activity, the Company's estimated proved reserves
increased by 27.3 MMboe in 1998 over the prior year to 613 MMboe, of which
approximately 59 percent was natural gas. Based on 585.7 MMboe reported at
year-end 1997, Apache's reserve growth from drilling activity during the year
reflects replacement of 236 percent of the Company's 1998 production. Apache's
active drilling and production-enhancement program yielded 276 new producing
wells out of 383 attempts and involved 590 major North American workover and
recompletion projects during the year.
At December 31, 1998, Apache held interests in approximately 4,086 net oil
and gas wells and 1,803,932 net developed acres of oil and gas properties
worldwide. In addition, the Company had approximately 593,204 net undeveloped
acres under North American leases and 22,566,883 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 1998
toward development of certain discoveries offshore Western Australia, offshore
the Ivory Coast, in Egypt and offshore China, and toward further exploration
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efforts in those areas and on its concessions 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 80
percent of its production.
1998 ACQUISITIONS AND DISPOSITIONS
On November 13, 1998, the Company entered into agreements to acquire
certain oil and gas interests and companies holding oil and gas interests in the
Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus
Petroleum Limited (Novus) for approximately $55 million. The interests have
estimated proved reserves of approximately 5.8 MMboe and daily production of
2,400 barrels of oil equivalent. They are within the Apache-operated Harriet
Joint Venture (which includes production, processing and pipeline infrastructure
associated with the Varanus Island hub), the Airlie Joint Venture (in which the
Company held a prior interest and became operator) and three other exploration
permit areas. The transaction closed in two stages, on December 18, 1998
(approximately $49 million), and on January 29, 1999 (approximately $6 million).
Under the terms of an agreement with Novus, the Company may be required to make
additional payments to Novus based on proved and probable recoverable oil and
condensate reserves, as determined by independent engineers, on a defined
geological structure in the Gipsy-Rose-Lee area, offshore Western Australia. If
required, such payments would be calculated using $2.50 for each barrel of
proved and $1.25 for each barrel of probable oil and condensate reserves. A
payment becomes due if and when a decision is made to construct facilities for
the production of oil or condensate from the designated area.
On February 1, 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase
price of approximately $66.7 million. The Petsec transaction included estimated
proved reserves of approximately 10.4 MMboe on the effective date.
In several transactions with various buyers, Apache also sold largely
marginal properties containing 29.6 MMboe of proved reserves for $131.1 million.
Following the Ampolex Group Transaction described in Apache's 1997 Annual Report
on Form 10-K, the Company entered into an agreement with Hardy Petroleum Limited
(Hardy) pursuant to which Hardy agreed to purchase a 10 percent interest in the
company's East Spar field and related production facilities. This transaction
closed in January 1998 with a total sales price of approximately $63 million in
cash. The Ampolex Group Transaction was recorded net of these interests.
In June 1998, Apache formed a strategic alliance with Cinergy Corp.
(Cinergy) to market substantially all the Company's natural gas production from
North America and sold its 57 percent interest in Producers Energy Marketing LLC
(ProEnergy) for 771,258 shares of Cinergy common stock, subsequently sold for
$26.1 million. ProEnergy will continue to market Apache's North American natural
gas production for 10 years, with an option to terminate after six years, under
an amended and restated gas purchase agreement effective July 1, 1998. During
this period, Apache is generally obligated to deliver most of its North American
gas production to Cinergy and, under certain circumstances, reimburse Cinergy if
certain gas throughput thresholds are not met. Accordingly, Apache recorded a
deferred gain of $20 million, subject to adjustment, on the sale of ProEnergy
that is being amortized over six years.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
diversified among four operating regions: Gulf, Midcontinent, Western and
Canada. Approximately 62 percent of the Company's
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proved reserves are located in these 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
exploration and production operations from Perth. Information concerning the
amount of revenue, operating income (loss) and total assets attributable to
U.S., Canadian and international operations is set forth in Note 12 to the
Company's consolidated financial statements under Item 8 below.
Gulf. The Gulf region encompasses the Texas and Louisiana coasts, central
Texas and the Company's interests in the Gulf of Mexico, offshore Louisiana and
Texas. In 1998, the Gulf region was Apache's leading region for production and
production revenues contributing approximately $224 million in revenues from
production of 17.9 MMboe for the year. The Company performed 182 workover and
recompletion operations during 1998 in the Gulf region and participated in
drilling 30 wells, 11 of which were completed as producers. As of December 31,
1998, the region encompassed 482,546 net acres, and accounted for 81.3 MMboe, or
13 percent, of the Company's year-end 1998 total estimated proved reserves.
Midcontinent. Apache's Midcontinent region operates in Oklahoma, eastern
and northern 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. In 1998, the Midcontinent region had approximately 11.8 MMboe
of production generating $144 million in revenue for the Company.
At December 31, 1998, Apache held an interest in 413,690 net acres in the
region, which accounted for approximately 101.8 MMboe, or 17 percent, of
Apache's total estimated proved reserves. Apache participated in drilling 105
wells in the Midcontinent region during the year, 86 of which were completed as
producing wells. The Company performed 45 workover and recompletion operations
in the region during 1998.
Western. The Western region includes assets in the Permian Basin of western
Texas and New Mexico and the San Juan Basin of New Mexico. In 1998, the Western
region produced approximately 9.9 MMboe and generated $114 million in production
revenue. At December 31, 1998, the Company held 422,914 net acres in the region,
which accounted for 127.8 MMboe or 21 percent, of the Company's total estimated
proved reserves. Apache participated in drilling 98 wells in the Western region,
86 of which were productive wells. Apache performed 294 workovers and
recompletions in the Western region during the year.
Canada. Exploration and development activity in the Canadian region is
concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 7.4 MMboe and generated $64 million in production revenue
in 1998. Apache participated in drilling 66 wells in this region during the
year, 47 of which were completed as producers. The Company performed 69
workovers and recompletions on operated wells during 1998. At December 31, 1998,
the region encompassed approximately 372,720 net acres, and accounted for 67.3
MMboe, or 11 percent, of the Company's year-end 1998 total estimated proved
reserves.
Egypt. At year end, Apache held 13,279,201 net acres in Egypt with 87.6
MMboe of estimated proved reserves or 14 percent of Apache's total estimated
proved reserves. In 1998, Apache had 10.3 MMboe of production in Egypt, which
generated $129 million in production revenues. 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 of the pipeline 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
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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.
In addition to the Qarun and Khalda Blocks, Apache holds interests in 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). Apache also acquired interests in the Ras El Hekma and Ras
Kanayes concessions from Repsol Exploracion Egipto S.A. in December 1997, and
during 1998, Apache became the operator of the W. Mediterranean and East Beni
Suef Blocks. Exploratory drilling on the East Beni Suef Block commenced in 1997
with a significant discovery made on the #1 well. Delineation drilling continued
in 1998. Due to conflicting governmental requirements regarding the placement of
drilling rigs on the Darag Block, the Company relinquished the Darag concession
in the Gulf of Suez and received a refund of a portion of its expenses related
to the 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). In 1998, natural gas production in the
region increased by 95 percent from the prior year to approximately 51 MMcf/d.
Apache acts as operator for most of its Western Australia properties through its
wholly-owned subsidiary, Apache Energy Limited (AEL). During 1998, Apache had
6.3 MMboe of production generating $70 million of production revenue. Estimated
proved reserves in Australia increased by 66 percent to 132.7 MMboe, or 22
percent of the Company's year-end total estimated proved reserves. The increase
reflects, among other matters, the acquisition from Novus of three companies
with holdings in the East Spar and Harriet fields. As of December 31, 1998,
Apache held 226,720 net developed acres and 1,421,290 net undeveloped acres
offshore 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. The Company and the other participants in the East Spar
and Harriet joint ventures are currently building a second 60 mile, 16-inch,
natural gas pipeline from Varanus Island to a connection with the existing
Dampier to Banbury gas pipelines, which is expected to be completed in March
1999. See "1998 Acquisitions and Dispositions" and "Oil and Natural Gas
Marketing."
Other International Operations. Outside of Canada, Egypt and Australia,
Apache currently has exploration and production interests offshore the Ivory
Coast, and exploration interests in Poland and offshore China.
Apache obtained its first properties in Poland on April 16, 1997 when the
Company assumed operatorship and a 50 percent interest in over 5.5 million acres
in Poland located near Lublin, southeast of Warsaw, from FX Energy, Inc. (FX
Energy). The Company has since acquired additional acreage in Poland, including
approximately 1.8 million acres in the Carpathian area near the southern border
of Poland and participation in a further 2.275 million acres in the Pomeranian
area of northwest Poland, giving Apache interests in 12,038,676 total gross
undeveloped acres and 7,494,122 net undeveloped acres as of December 31, 1998.
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. At year end, two
wells were being drilled in Poland, but were abandoned in the first quarter of
1999. Subsequent to year end, Apache and FX Energy entered into an Area of
Mutual Interest Agreement, which covers virtually all of Poland, and plan to
enter into further exploration and production agreements with the Polish Oil and
Gas Company (POGC), the national oil company of 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 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
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of oil and another tested at rates up to 15,359 b/d. 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, as operator of the block and holding a 24
percent interest, completed in January 1999 the development of the "Foxtrot"
offshore gas field and installed a platform and pipeline to shore. 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/d initially,
rising to 50 MMcf/d in the third year. Gas deliveries are expected to commence
in the second quarter of 1999.
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
ProEnergy, a Delaware limited liability company. ProEnergy became fully
operational on April 1, 1996, and marketed 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 was based upon
agreed to published indexes. Effective January 1, 1998, Parker & Parsley
withdrew from ProEnergy. As more fully described in "1998 Acquisitions and
Dispositions" above, in June 1998, Apache sold its interest in ProEnergy to
Cinergy and formed a strategic alliance with Cinergy to market substantially all
the Company's natural gas production from North America. ProEnergy will continue
to market Apache's North American natural gas production for 10 years, with an
option to terminate after six years, under an amended and restated gas purchase
agreement effective July 1, 1998. During this period, Apache is generally
obligated to deliver most of its North American gas production to Cinergy and,
under certain circumstances, may have to make payments to Cinergy if certain gas
throughput thresholds are not met.
Separate from its arrangements with Cinergy, Apache is also delivering
natural gas under several long-term supply agreements with terms greater than
one year. In 1998, Apache delivered an average of 35 MMcf/d under such contracts
at an average price of $2.63 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 not
presently committed to Cinergy 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.
In Australia, the Company entered into several gas sales contracts during
1998, bringing its total to 16 contracts, with terms of four to 12 years, to
deliver 311 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 60 MMcf/day increasing to 92 MMcf/day by the
year 2000, with take or pay provisions, net to AEL, of approximately 20 Bcf/year
increasing to 23 Bcf/year by the year 2000. Apache operates both the Harriet and
the East Spar Joint Ventures, holding a 60 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 1998 through a contract with Mitsui Oil
(Asia) Pty. Ltd. Pricing under the contract in 1998
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represented a fixed premium to the quoted market prices of Tapis crude oil, with
payment made in U.S. dollars. In 1998, the weighted average realized price based
on regional production was $13.07 per barrel. In January 1999, the Mitsui
contract terminated and was replaced by a similar contract with Marubeni
International Petroleum Company.
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 May 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 being
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 1998, with Apache's realized
prices ranging from $2.08 per Mcf in July to $1.73 per Mcf in September.
Fluctuations are largely due to market perceptions about natural gas supply and
demand. Apache's average realized gas price of $1.92 per Mcf for 1998 was down
16 percent from the prior-year average of $2.28 per Mcf, and its 1997 average
realized natural gas price was 13 percent higher than the 1996 average price of
$2.02 per Mcf.
As a result of 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 1998. Total Australian gas sales
in 1998, including long-term contracts and spot sales averaged $1.51 per Mcf,
down 15 percent from the 1997 average of $1.78 per Mcf due to devaluation of the
Australian dollar.
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 periodically by EGPC. In
1998, the average price was $12.57 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 1998 and experienced fluctuations similar to those seen in natural gas
prices for the year, but showing a general downward trend. Apache believes that
oil prices will continue to fluctuate in response to changes in the policies of
the Organization of Petroleum Exporting Countries (OPEC), demand from Asian
countries, events in the Middle East and other factors associated with the world
political and economic 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 1998, Apache's realized worldwide crude oil price ranged from $15.11 per
barrel in January to $9.42 per barrel in December. The average crude oil price
of $12.66 per barrel in 1998 was down 34 percent from the average price of
$19.20 per barrel in 1997, and 39 percent lower than the average price of $20.84
per barrel in 1996. The Company's average crude oil price for its Australian
production was $13.07 per barrel in 1998, 36 percent less than the average price
in 1997.
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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 proved oil and
gas properties each quarter on a country-by-country basis. Under these rules,
capitalized costs of proved oil and gas properties, net of accumulated
depreciation, depletion and amortization 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, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices in effect at the end of each fiscal quarter
and require a write-down if the "ceiling" is exceeded, even if prices declined
for only a short period of time. The Company recorded a $243.2 million pre-tax
($158.1 million net of tax) non-cash write-down of the carrying value of the
Company's U.S. proved oil and gas properties as of December 31, 1998, due to
these ceiling test limitations. If oil and gas prices deteriorate from the
Company's year-end realized prices, it is likely that additional write-downs
will occur in 1999. Write-downs required by these rules do 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 estimating and
valuing reserves. 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 drilling activity, 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 with precision 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 different from the
estimates. In addition, the Company's estimated reserves may be subject to
downward or
7
10
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,
1998, 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 financial and other resources substantially
larger 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
12
GENERAL ECONOMIC CONDITIONS
Virtually all of the Company's operations are subject to the risks and
uncertainties of adverse changes in 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 the 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, 1998, Apache had 1,281 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 1998,
the Company maintained regional exploration and production offices in Tulsa,
Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western
Australia; Beijing, China; Abidjan, Cote d' Ivoire; and Warsaw, Poland.
10
13
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, 1998, are as follows:
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
----------------------- ---------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- ---------- --------- ---------
GULF
Louisiana.............................. 180,047 102,800 267,808 142,541
Texas.................................. 145,529 64,313 322,799 172,892
---------- ---------- --------- ---------
Total........................ 325,576 167,113 590,607 315,433
---------- ---------- --------- ---------
MIDCONTINENT
Arkansas............................... 3,983 3,046 4,625 3,354
Kansas................................. 200 93 -- --
Louisiana.............................. 11,809 9,535 48,820 33,823
Michigan............................... 5,052 4,022 -- --
Oklahoma............................... 138,613 51,650 492,790 192,515
Pennsylvania........................... -- -- 796 38
Texas.................................. 70,821 44,906 136,998 70,708
---------- ---------- --------- ---------
Total........................ 230,478 113,252 684,029 300,438
---------- ---------- --------- ---------
WESTERN
Alaska................................. 14,262 -- -- --
Colorado............................... 13,974 12,228 10,979 10,715
Illinois............................... 140 56 -- --
New Mexico............................. 89,746 47,905 101,780 53,475
Ohio................................... 21 11 -- --
Texas.................................. 131,081 62,099 253,626 183,116
Utah................................... 140 35 60 15
Wyoming................................ 60,040 52,968 1,160 291
---------- ---------- --------- ---------
Total........................ 309,404 175,302 367,605 247,612
---------- ---------- --------- ---------
Total United States.......... 865,458 455,667 1,642,241 863,483
---------- ---------- --------- ---------
INTERNATIONAL
Australia.............................. 3,269,200 1,421,290 425,280 226,720
Canada................................. 190,632 137,537 303,016 235,183
China.................................. 1,554,930 777,510 5,911 1,448
Egypt.................................. 26,197,294 12,811,058 842,863 468,143
Ivory Coast............................ 157,258 62,903 37,312 8,955
Poland................................. 12,038,676 7,494,122 -- --
---------- ---------- --------- ---------
Total International.......... 43,407,990 22,704,420 1,614,382 940,449
---------- ---------- --------- ---------
Total Company................ 44,273,448 23,160,087 3,256,623 1,803,932
========== ========== ========= =========
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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, 1998, is set forth below.
GAS OIL
------------- -------------
GROSS NET GROSS NET
----- ----- ----- -----
Midcontinent................................................ 1,745 644 515 141
Western..................................................... 260 143 3,635 1,855
Gulf........................................................ 405 260 560 394
Canada...................................................... 680 425 367 130
Egypt....................................................... 21 8 137 71
Australia................................................... 7 4 20 11
----- ----- ----- -----
Total............................................. 3,118 1,484 5,234 2,602
===== ===== ===== =====
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, 1998, the Company was participating in 14 wells in the U.S., 14 Canadian
wells, 14 Egyptian wells, three Australian wells and two Polish wells in the
process of drilling.
EXPLORATORY DEVELOPMENTAL
------------------------ ------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
1998
United States.................................. 20 16 36 163 34 197
Canada......................................... 17 12 29 30 7 37
Egypt.......................................... 11 24 35 27 5 32
Australia...................................... 7 8 15 -- -- --
Other International............................ -- 1 1 1 -- 1
-- --- --- --- -- ---
Total................................ 55 61 116 221 46 267
== === === === == ===
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
== === === === == ===
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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
---------- ---- ----- ---------- ---- -----
1998
United States................................ 9.9 11.1 21.0 64.0 18.8 82.8
Canada....................................... 16.2 11.0 27.2 28.3 6.1 34.4
Egypt........................................ 5.6 13.5 19.1 11.9 2.8 14.7
Australia.................................... 3.5 3.4 6.9 -- -- --
Other International.......................... -- .2 .2 .2 -- .2
---- ---- ---- ----- ---- -----
Total.............................. 35.2 39.2 74.4 104.4 27.7 132.1
==== ==== ==== ===== ==== =====
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 .2 .1 .3
Other International.......................... -- .4 .4 -- -- --
---- ---- ---- ----- ---- -----
Total.............................. 40.3 49.2 89.5 111.2 20.6 131.8
==== ==== ==== ===== ==== =====
Production and Pricing Data
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGL) and gas production for the Company, average
production costs (excluding severance taxes) and average sales prices.
PRODUCTION AVERAGE SALES PRICE
--------------------------- AVERAGE ---------------------------------
OIL NGL GAS PRODUCTION OIL NGL GAS
YEAR ENDED DECEMBER 31, (MBBLS) (MBBLS) (MMCF) COST PER BOE (PER BBL) (PER BBL) (PER MCF)
- ----------------------- ------- ------- ------- ------------ --------- --------- ---------
1998........................ 26,611 1,052 215,389 $2.88 $12.66 $ 7.94 $1.92
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
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 information represents
estimates only and should not be construed as being exact.
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The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1998, 1997 and 1996:
OIL, NGL
NATURAL AND
GAS CONDENSATE
(BCF) (MMBBLS)
------- ----------
1998
Developed................................................... 1,450.1 178.0
Undeveloped................................................. 722.1 73.0
------- -----
Total............................................. 2,172.2 251.0
======= =====
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
======= =====
The following table sets forth the estimated future value of all the
Company's proved reserves, and proved developed reserves, as of December 31,
1998, 1997 and 1996. 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)
1998................................. $3,994,612 $2,793,698 $2,395,888 $1,764,887
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
At December 31, 1998, 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)
1999........................................................ $ 394,777 $ 441,946
2000........................................................ 431,644 400,389
2001........................................................ 446,532 305,005
Thereafter.................................................. 2,721,659 1,646,358
---------- ----------
Total............................................. $3,994,612 $2,793,698
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1998, 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, 1999, no oil or gas reserve information
has been filed with, or included in any report to, any U.S. authority or agency
other than the SEC and the Energy Information Administration
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17
(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 1998.
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 1998 and
1997. Prices shown are from the New York Stock Exchange Composite Transactions
Reporting System.
1998 1997
-------------------------- --------------------------
PRICE RANGE PRICE RANGE
-------------- DIVIDENDS -------------- DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
------ ----- --------- ------ ----- ---------
First Quarter.............................. $38 3/4 $31 3/16 $.07 $39 3/8 $31 1/4 $.07
Second Quarter............................. 38 1/8 30 3/8 $.07 35 5/8 30 1/8 $.07
Third Quarter.............................. 32 3/8 22 1/2 $.07 42 7/8 32 1/16 $.07
Fourth Quarter............................. 29 5/16 21 3/8 $.07 45 1/16 32 11/16 $.07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 26,
1999, was $19.9375. At December 31, 1998, there were 97,769,122 shares of Apache
common stock outstanding, held by approximately 10,000 shareholders of record
and 45,000 beneficial owners.
The Company has paid cash dividends on its common stock for 128 consecutive
quarters through December 31, 1998, and expects to continue the payment of
dividends at current levels, although future dividend payments will depend upon
the Company's level of earnings, financial requirements and other relevant
factors.
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 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
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18
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.
In August 1998, the Company issued 100,000 shares of 5.68 percent Series B
Cumulative Preferred Stock (the Series B Preferred Stock) in the form of one
million depositary shares, each representing one-tenth (1/10) of a share of
Series B Preferred Stock. Neither the shares of Series B Preferred Stock nor the
depositary shares are traded on any stock exchange. These shares are not
convertible into common equity.
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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, 1998, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1994 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.
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1998(1) 1997(2) 1996(3) 1995(4) 1994
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Total revenues................... $ 875,715 $1,176,273 $ 977,151 $ 750,702 $ 592,626
Net income (loss)................ (129,387) 154,896 121,427 20,207 45,583
Income (loss) attributable to
common stock................... (131,391) 154,896 121,427 20,207 45,583
Net income (loss) per common
share
Basic.......................... (1.34) 1.71 1.42 .28 .65
Diluted........................ (1.34) 1.65 1.38 .28 .65
Cash dividends per common
share(5)....................... .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit)........ $ (78,804) $ 4,546 $ (41,501) $ (22,013) $ (3,203)
Total assets..................... 3,996,062 4,138,633 3,432,430 2,681,450 2,036,627
Long-term debt................... 1,343,258 1,501,380 1,235,706 1,072,076 719,033
Shareholders' equity............. 1,801,833 1,729,177 1,518,516 1,091,805 891,087
Common shares outstanding at end
of year........................ 97,769 93,305 90,059 77,379 69,666
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.
- ---------------
(1) Includes the results of the acquisitions of certain subsidiaries and oil and
gas properties from Novus after December 18, 1998.
(2) Includes financial data after November 20, 1997, relating to the acquisition
from Mobil of three companies owning interests in certain oil and gas
properties and production facilities offshore Western Australia (the Ampolex
Group Transaction.)
(3) Includes financial data after May 20, 1996, for Apache PHN Company, Inc.
(Phoenix, formerly known as The Phoenix Resource Companies, Inc.)
(4) 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.
(5) No cash dividends were paid on outstanding DEKALB common stock in 1995 and
1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
In anticipation of lower commodity prices, Apache entered 1998 with a
primary objective being to strengthen its balance sheet in order to take
advantage of lower cost drilling and acquisition opportunities that accompany
cyclical downturns in product prices. To accomplish this, high cost properties
were sold, drilling capital was curtailed, subordinated debentures were
converted into common equity, and non-convertible preferred stock and public
debt were issued. As a result of these efforts during 1998, Apache reduced debt
by $160 million, from 47 percent to 43 percent of capitalization; the ratio
would have been reduced to 41 percent absent the non-cash, full-cost ceiling
write-down. Debt maturities were also lengthened to an average of 26 years with
approximately three percent of Apache's total debt due over the next three
years. As a result, Apache is in its strongest financial position ever to take
advantage of opportunities brought about by the current industry downturn.
Apache's results of operations and financial position for 1998 were also
significantly impacted by the following factors:
Additional Depreciation, Depletion and Amortization (DD&A) Expense -- Low
oil and gas prices resulted in a non-cash full-cost ceiling write-down of $158.1
million after-tax ($243.2 million pre-tax). There were no such charges in 1997
and 1996.
Commodity Prices -- Apache's average realized oil price decreased $6.54 per
barrel from $19.20 per barrel in 1997 to $12.66 per barrel in 1998, reducing
revenues by $158.9 million. The average realized price for natural gas decreased
$.36 per Mcf from $2.28 per Mcf in 1997 to $1.92 per Mcf in 1998, negatively
impacting revenues by $78.6 million.
RESULTS OF OPERATIONS
Apache reported a 1998 loss attributable to common stock of $131.4 million
as opposed to 1997 income attributable to common stock of $154.9 million. The
1998 loss resulted from a full-cost ceiling write-down at year end. Results for
1998 were further hampered by sharp declines in oil and gas prices. Basic net
income (loss) per common share was $(1.34) for 1998, as compared to $1.71 in
1997. Income attributable to common stock increased $33.5 million in 1997 from
$121.4 million in 1996. Basic net income per common share increased 20 percent
in 1997 from $1.42 in 1996. Diluted net income per common share was $1.65 for
1997, 20 percent above 1996. The increase from 1996 to 1997 was primarily due to
higher oil and gas production, higher natural gas prices and lower operating
costs per unit of production.
Revenues declined $300.6 million in 1998, driven by a 23 percent decrease
in oil and gas production revenues. The decrease in oil and gas production
revenues resulted from a 34 percent decrease in the average realized oil price,
a 16 percent decrease in the average realized price for natural gas and a three
percent decrease in gas production. Crude oil, including natural gas liquids,
contributed 45 percent and natural gas contributed 55 percent of oil and gas
production revenues during 1998. Revenues increased 20 percent in 1997 to $1.2
billion from $977.2 million in 1996. In 1997, crude oil and natural gas liquids
contributed 49 percent and natural gas contributed 51 percent of 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.
YEAR ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- -------- --------
Revenues (in thousands):
Natural gas............................................... $413,870 $505,604 $415,736
Oil....................................................... 336,813 466,291 405,724
Natural gas liquids....................................... 8,355 11,878 11,704
-------- -------- --------
Total............................................. $759,038 $983,773 $833,164
======== ======== ========
Natural Gas Volume -- Mcf per day:
United States............................................. 432,059 492,594 472,171
Canada.................................................... 105,871 89,699 74,598
Egypt..................................................... 1,554 563 302
Australia................................................. 50,624 26,016 13,869
-------- -------- --------
Total............................................. 590,108 608,872 560,940
======== ======== ========
Average Natural Gas price -- Per Mcf:
United States............................................. $ 2.11 $ 2.47 $ 2.17
Canada.................................................... 1.36 1.33 1.09
Egypt..................................................... 1.91 2.94 3.21
Australia................................................. 1.51 1.78 1.96
Total............................................. 1.92 2.28 2.02
Oil Volume -- Barrels per day:
United States............................................. 34,067 40,638 40,600
Canada.................................................... 2,090 2,120 1,969
Egypt..................................................... 27,911 19,372 8,295
Australia................................................. 8,838 4,417 2,318
-------- -------- --------
Total............................................. 72,906 66,547 53,182
======== ======== ========
Average Oil Price -- Per barrel:
United States............................................. $ 12.63 $ 19.31 $ 20.67
Canada.................................................... 12.55 19.27 20.84
Egypt..................................................... 12.57 18.65 21.29
Australia................................................. 13.07 20.51 22.33
Total............................................. 12.66 19.20 20.84
NGL Volume -- Barrels per day:
United States............................................. 2,267 1,684 1,308
Canada.................................................... 616 627 641
-------- -------- --------
Total............................................. 2,883 2,311 1,949
======== ======== ========
Average NGL Price -- Per barrel:
United States............................................. $ 8.38 $ 14.50 $ 17.23
Canada.................................................... 6.32 12.98 14.73
Total............................................. 7.94 14.08 16.41
Natural gas revenues decreased by 18 percent from 1997 to 1998 due to lower
natural gas prices and production. The average realized gas price received in
1998 was $1.92 per Mcf, 16 percent lower than 1997, negatively affecting revenue
by $78.6 million. 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
$.01 per Mcf in 1998. Gains under long-term fixed-price physical contracts
increased the gas price by $.05 per Mcf in 1998. Prices declined in the United
States due to
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unfavorable market conditions. Natural gas prices in Australia declined 15
percent from 1997 resulting from the devaluation of the Australian dollar.
Natural gas production for the United States decreased 12 percent from 1997
to 1998 due to the impact of property sales in the Gulf and Midcontinent
regions, tropical storms in the Gulf of Mexico and natural depletion. In
Australia, natural gas production increased 95 percent driven by a full year of
incremental production from properties acquired in the year-end 1997 Ampolex
Group Transaction. The 18 percent uplift in Canadian production resulted from
development activity and Alberta royalty recoupments received for 1998. Alberta
allows reduction in royalty for costs to build processing and transportation
facilities.
Natural gas revenues increased 22 percent from 1996 to 1997. Average
natural gas prices were $.26 per Mcf, or 13 percent, higher in 1997 than 1996.
The Company's net hedging activity, including fixed-price physical contracts and
financial contracts, had no impact on gas prices in 1997 and reduced prices by
$.09 per Mcf in 1996. Natural gas production increased nine percent from 1996 to
1997 from acquisitions and drilling activity.
The Company's crude oil sales totaled $336.8 million in 1998, a 28 percent
decrease from 1997 due to lower average realized oil prices, which were
partially offset by production increases. On a worldwide basis, average oil
prices decreased 34 percent to $12.66 per barrel negatively impacting oil sales
by $158.9 million. Oil production increased 6,359 barrels per day (approximately
10 percent), in 1998 due to increases in Egypt and Australia. Australian oil
production increased 4,421 barrels per day over 1997 with additional production
from the Ampolex Group Transaction and initial sales from the Stag field.
Egyptian oil production increased 8,539 barrels per day, or 44 percent, as a
result of the price-driven dynamics of certain production sharing contracts and
to a lesser extent, drilling and development activity. U.S. oil production
decreased by 6,571 barrels per day, or 16 percent, primarily due to marginal
property sales in the first half of 1998 and natural reservoir depletion of
mature fields.
Oil revenues increased 15 percent from 1996 to 1997. Egyptian oil
production more than doubled in 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 primarily due
to first production at the Agincourt field. These production increases were
partially offset by an eight percent decrease in average oil prices received
during 1997.
Natural gas liquid revenues decreased 30 percent from 1997. Natural gas
liquid production increased 572 barrels per day, or 25 percent, while natural
gas liquid prices declined by $6.14 per barrel, or 44 percent due to
deteriorating market conditions. Natural gas liquid revenues were slightly
higher in 1997 than in 1996. Natural gas liquid production increased 19 percent
from 1996 to 1997, which was offset by a 14 percent decrease in average prices.
Other Revenues and Operating Expenses
Gas gathering, processing and marketing revenues decreased 40 percent to
$117.4 million in 1998 from 1997. Lower gas prices in 1998 contributed to the
decrease. Gas gathering, processing and marketing costs decreased by 41 percent
to $114.5 million resulting in a slight increase to 1998 margins. During 1997,
gas gathering, processing and marketing revenues increased 38 percent to $197.0
million. Lower margins were realized in 1997 as compared to 1996.
Equity in loss of affiliates represents Apache's share of ProEnergy losses.
Equity in loss of affiliates was $1.6 million, $1.7 million and $.3 million in
1998, 1997 and 1996, respectively. Apache sold its 57 percent interest in
ProEnergy in June 1998.
Recurring DD&A expense increased marginally to $382.8 million in 1998 from
$381.4 million in 1997. On an equivalent barrel basis, recurring full cost DD&A
expense decreased $.11 per boe, from $5.77 per boe in 1997 to $5.66 per boe in
1998. The Company's recurring DD&A expense increased to $381.4 million in 1997
from $315.1 million in 1996. On an equivalent barrel basis, recurring 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 and an increased cost
environment in North America negatively impacted the 1997 rates.
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Apache limits, on a country-by-country basis, the capitalized cost of
proved oil and gas properties, net of accumulated DD&A and deferred income
taxes, to 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. As a
result of low oil and gas prices at December 31, 1998, Apache's capitalized
costs of U.S. oil and gas properties exceeded the ceiling limitation and the
Company reported a $243.2 million pre-tax ($158.1 million net of tax) non-cash
write-down. No additional DD&A was recorded during 1997 or 1996. If oil and gas
prices deteriorate from the Company's year-end realized prices, it is likely
that additional write-downs will occur in 1999. Write-downs required by these
rules do not impact cash flow from operating activities.
Apache's operating costs decreased nine percent in 1998 to $211.6 million
from $231.4 million in 1997. Lease operating expense (LOE), excluding severance
taxes, decreased from $190.8 million in 1997 to $182.9 million in 1998. On an
equivalent barrel basis, LOE for 1998 averaged $2.88 per boe, a $.19 decline
from $3.07 per boe in 1997. Domestic per unit costs were significantly reduced
by the sale of marginal North American properties, and by lower Western and Gulf
region repairs and maintenance costs. Operating costs increased three percent to
$231.4 million in 1997 from $225.5 million in 1996. 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.
Administrative, selling and other costs (G&A) increased $2.5 million, or
seven percent from 1997 to 1998. On an equivalent barrel basis, G&A expense
increased to $.64 per boe in 1998 compared to $.62 per boe in 1997. The increase
in G&A expense was primarily the result of employee separation payments
associated with the sale of marginal North American properties. G&A expense
increased $2.3 million, or six percent, from 1996 to 1997. A new bonus plan
initiated in 1997, under which Apache provided incentive compensation to all
employees based on the achievement of targeted performance, was the primary
reason for the increase. On an equivalent barrel basis, 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.
Net financing costs for 1998 decreased $1.8 million, or two percent, from
1997 primarily due to higher capitalized interest. Gross interest expense
increased $14.6 million due to a slightly higher interest rate on average
outstanding debt in 1998 compared to 1997 and higher imputed interest on
advances from gas purchasers. This was offset by an increase in capitalized
interest, interest income and lower amortization of deferred loan costs. The
Company's weighted average interest rate on outstanding debt was approximately
7.2 percent at December 31, 1998 compared to 7.1 percent at December 31, 1997.
The capitalized interest increase is associated with Egyptian pipeline projects
under construction. The increase in interest income was due to a higher average
cash balance during 1998. 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. In 1997, Apache
wrote off $1.2 million in deferred loan costs related to the Company's election
to cancel two secured credit facilities with the International Finance
Corporation (IFC). Additional capitalized interest of $5.8 million in 1997
mitigated these increases. Capitalized interest associated with higher
international unevaluated costs caused the increase in 1997.
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. Oil price realizations ranged from a low of
$9.42 per barrel to a high of $15.11 per barrel during 1998. Gas price
realizations ranged from a monthly low of $1.73 per Mcf to a monthly high of
$2.08 per Mcf during the same period.
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The Company periodically enters into hedging activities on 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 production revenues
when the associated production occurs. Apache does not hold or issue derivative
instruments for trading purposes. In 1998, Apache recognized a net gain of $11.5
million from hedging activities that increased oil and gas production revenues.
The net gain in 1998 includes $1.3 million in derivative income and $10.2
million in gains from fixed-price physical gas contracts. 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, 1998 by $21.4 million, while a
10 percent drop in spot prices would decrease the fair value of these
instruments by $21.4 million.
Interest Rate Risk
The Company considers its interest rate risk exposure to be minimal as a
result of fixing interest rates on over three-fourths of the Company's debt.
Total debt at December 31, 1998, included about $337.3 million of floating-rate
debt. As a result, Apache's annual interest costs in 1999 will fluctuate based
on short-term interest rates on approximately 25 percent of its total debt
outstanding at December 31, 1998. The impact on annual cash flow of a 10 percent
change in the floating rate (approximately 57 basis points) would be $1.9
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. Australian gas production is sold under fixed-price Australian
dollar contracts and over half the costs incurred 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 $.4
million, based on December 31, 1998 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, 1998.
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 primarily
through internally generated cash flows. Apache budgets 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 accurately 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:
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
Exploration and Development:
United States...................................... $238,140 $375,015 $302,494
Canada............................................. 71,467 57,669 58,768
Egypt.............................................. 124,657 152,564 63,597
Australia.......................................... 86,453 70,802 46,838
Ivory Coast........................................ 24,356 1,077 7,914
Other International................................ 45,626 28,293 14,084
-------- -------- --------
Total...................................... $590,699 $685,420 $493,695
======== ======== ========
Acquisitions of Oil and Gas Properties............... $ 58,402 $225,934 $446,205
======== ======== ========
Expenditures for exploration and development totaled $590.7 million in 1998
compared to $685.4 million in 1997. Apache's drilling program in 1998 added
105.6 MMboe of proved reserves (including revisions) and replaced 166 percent of
production. In the United States, Apache completed 183 gross wells as producers
out of 233 gross wells drilled during the year, compared with 261 gross
producers out of 318 gross wells drilled in 1997. In Canada, Apache completed 47
gross wells as producers out of 66 gross wells drilled during the year, compared
with 60 gross producers out of 81 gross wells drilled in 1997.
Internationally, the Company completed 46 gross producers out of 84 gross
wells drilled in 1998, compared to 41 gross producers out of 73 gross wells in
1997. Successful international wells drilled in 1998 included 38 in Egypt, seven
in Australia and one in China.
The total capital expenditures budget for 1999 is $270.0 million, including
$122.8 million for North America. Estimated U.S. exploration and development
expenditures for 1999 are $89.1 million, which includes $37.3 million in the
Gulf region, $36.2 million in the Midcontinent region and $15.6 million in the
Western region. Apache expects to spend $33.7 million in Canada in 1999. The
Company expects its other international exploration and development expenditures
in 1999, exclusive of facilities, to total approximately $109.9 million. Capital
expenditures will be reviewed and possibly adjusted throughout the year in light
of changing industry conditions.
On November 13, 1998, the Company entered into agreements to acquire
certain oil and gas interests and companies holding oil and gas interests in the
Carnarvon Basin, Western Australia, from subsidiaries of Novus for approximately
$55 million. The interests have proved reserves of approximately 5.8 MMboe and
daily production of 2,400 barrels of oil equivalent. They are within the
Apache-operated Harriet Joint Venture (which includes production, processing and
pipeline infrastructure associated with the Varanus Island hub), the Airlie
Joint Venture (in which the Company held a prior interest and became operator)
and three other exploration permit areas. The transaction closed in two stages,
on December 18, 1998 for approximately $49 million and on January 29, 1999 for
approximately $6 million. Under the terms of an agreement with Novus, the
Company may be required to make additional payments to Novus based on proved and
probable recoverable oil and condensate reserves, as determined by independent
engineers, on a defined geological structure in the Gipsy-Rose-Lee area,
offshore Western Australia. If required, such payments would be calculated using
$2.50 for each barrel of proved and $1.25 for each barrel of probable oil and
condensate reserves. A payment becomes due if and when a decision is made to
construct facilities for the production of oil or condensate from the designated
area.
In 1998, the Company also completed tactical regional acquisitions for cash
consideration totaling $19.4 million. These acquisitions added approximately 9.1
MMboe to the Company's reserves.
On November 20, 1997, the Company acquired, in the Ampolex Group
Transaction, 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
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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 acquisition, net of the sale of certain
properties to Hardy, increased the Company's interest to 47.5 percent from 22.5
percent in the Carnarvon Basin's Harriet area, which included 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 both the Harriet and East Spar properties.
In conjunction with the closing of the Ampolex Group Transaction on
December 9, 1997, the Company entered into an agreement 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 proved reserves.
Expenditures for acquisitions of proved oil and gas properties during 1996
totaled $446.2 million. The Company added 52 MMboe of proved oil and gas
reserves through 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 Oil Company for $46 million in cash. Funds for the acquisitions
were obtained principally from borrowings under the Company's revolving bank
credit facility.
Debt and Interest Commitments -- At December 31, 1998, Apache had
outstanding debt of $153.0 million under its global credit facility and an
aggregate of $1.2 billion of other debt. This other debt included notes and
debentures maturing in the years 2000 through 2096. Debt outstanding at December
31, 1998 of $1.4 billion was comparable to the $1.5 billion outstanding at
December 31, 1997. The Company's debt-to-capitalization ratio improved from 46.8
percent at December 31, 1997 to 43.0 percent at December 31, 1998. Interest
payments on the Company's debt for 1999 are projected to be $129.0 million
(using weighted average balances for floating rate obligations). Scheduled
principal payments for 1999 total $15.5 million.
Dividend Payments -- Apache paid $1.0 million in dividends during 1998 on
its Series B Preferred Stock issued in August 1998. Common dividends paid during
1998 totaled $27.2 million, up 8 percent from 1997, due to the increased number
of common shares outstanding. The Company has paid cash dividends on its common
stock for 128 consecutive quarters through December 31, 1998, 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 1998 totaled $471.5 million, a decrease of 35
percent from the $723.8 million provided in 1997. This decrease was due
primarily to lower oil and gas prices and lower gas production in 1998, offset
by the receipt of $71.8 million from a purchaser as an advance. The advance was
for future natural gas deliveries over a ten-year period commencing August 1998.
Net cash provided by operating activities in 1997 rose $233.3 million from 1996
primarily due to higher product prices. 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.
Long-Term Borrowings -- 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
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27
redeemable prior to maturity. Net proceeds from the sale were used to reduce
existing short-term obligations and for general corporate purposes.
In March 1999, Apache Finance Pty Ltd, the Company's Australian finance
subsidiary, issued $100 million principal amount, $99.3 million net of discount,
of senior unsecured 7.0-percent notes due March 15, 2009. The notes are
irrevocably and unconditionally guaranteed by Apache. The Company has the right
to redeem the notes prior to maturity, under certain conditions related to
changes in relevant tax laws.
Stock Transactions -- 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 price of $30.68 per share. The
remaining $16.9 million 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.
Preferred Stock Issuance -- In August 1998, Apache issued $100 million of
Series B Preferred Stock. The net proceeds of approximately $98.4 million were
used to repay debt outstanding under money market lines of credit and to reduce
outstanding borrowings under the Canadian portion of the Company's global credit
facility. The Series B Preferred Stock has no stated maturity, is not subject to
a sinking fund and is not convertible into Apache common stock or any other
securities of the Company. Apache has the option to redeem the Series B
Preferred Stock at $1,000 per share on or after August 25, 2008.
Asset Sales -- Apache received $131.1 million in 1998 and $30.1 million in
1997 from the sale of non-strategic oil and gas properties in a number of
separate transactions. An additional $63 million was received in 1998 for a 10
percent interest in Apache's East Spar field and related production facilities.
These assets were reported as assets held for resale at December 31, 1997. The
proceeds were used to reduce debt.
Liquidity -- The Company had $14.5 million in cash and cash equivalents on
hand at December 31, 1998, up from $9.7 million at December 31, 1997. Apache's
ratio of current assets to current liabilities decreased from 1.01:1 at December
31, 1997, to .74:1 at December 31, 1998.
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, 1998, Apache's
available borrowing capacity under its global credit facility was $788 million.
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IMPACT OF THE YEAR 2000 ISSUE
The inability of some computer programs and embedded computer chips to
distinguish between the year 1900 and the year 2000 (the Year 2000 issue) poses
a serious threat of business disruption to any organization that utilizes
computer technology and computer chip technology in their business systems or
equipment. Apache has formed a Year 2000 Task Force with representation from
major business units to inventory and assess the risk associated with hardware,
software, telecommunications systems, office equipment, embedded chip controls
and systems, process control systems, facility control systems and dependencies
on external trading partners. The project phases, expected completion dates and
percentage complete as of March 1999 are as follows:
PERCENT
PHASE COMPLETION DATE COMPLETE
- ----- --------------- --------
Organization.............................................. July 1998 100%
Assessment................................................ November 1998 100%
Desktop Computers
Network Hardware
Software
Embedded Systems
External Trading Partners
Building/Infrastructure Systems
Telecommunications Systems
Implementation/Replacement................................ September 1999 75%
Computer Hardware
Core Business Software
Desktop Software
Embedded Systems
Building Systems
Contact External Trading Partners......................... March 1999 100%
Contingency Planning...................................... April 1999 70%
To date, the Company is not aware of any significant Year 2000 issues that
would cause problems in the area of safety, environmental or business
interruption. The Company will assess the risks associated with hardware,
software, infrastructure, embedded chips and external trading partners that are
not Year 2000 compliant. While Apache is confident that Year 2000 remediation
efforts will succeed in minimizing exposure to business disruption, plans are
being developed that will allow continuation of business in all but the worst
case scenarios. All remediation and replacement efforts and contingency planning
are expected to be complete by September 1999. All critical external trading
partners have been contacted to determine Year 2000 readiness and contingency
plans will be developed where assurance of Year 2000 compliance is not received
by March 31, 1999.
In 1997, the Company initiated a project to replace existing business
software as it relates to Apache's production, land, marketing, accounting and
financial systems to more effectively and efficiently meet its business needs.
Replacement computer systems selected by the Company from SAP America, Inc.,
PricewaterhouseCoopers LLP, Innovative Business Solutions and Landmark Graphics
will properly recognize dates beyond December 31, 1999. The Company plans to
implement the replacement software by March 31, 1999. The business system
replacement project is 90 percent complete and the Company believes that the
March 31, 1999 deadline is attainable.
The Company expects the cost to achieve Year 2000 compliance will not
exceed $4 million excluding the cost of implementing business replacement
systems.
26
29
The Company presently believes that with conversions to new software and
completion of efforts planned by the Year 2000 Task Force, the risk associated
with Year 2000 will be significantly reduced. However, the Company is unable to
assure that the consequences of Year 2000 failures of systems maintained by the
Company or by third parties will not materially adversely impact the Company's
results of operations, liquidity or financial condition.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production, cash
flow and earnings by continuing to explore on and develop its inventory of
existing projects and making carefully targeted acquisitions of new assets.
Crude oil prices have fallen to the lowest level in over a decade. Drilling
costs and acquisition prices have also declined. As one of few companies to have
reduced debt in 1998, Apache is well positioned to execute the second phase of
its long-term strategy, which is to complete a meaningful acquisition in 1999
that builds shareholder value. Accordingly, Apache's 1999 plans include:
1. Controlling G&A and LOE expense;
2. Curtailing drilling costs; and
3. Pursuing opportunities to acquire properties.
Although no specific opportunity has as yet been identified as likely, the
Company believes that the number of quality acquisition, merger and joint
venture opportunities has increased dramatically.
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 remain focused on development of its discoveries in Egypt,
offshore Western Australia, China and the Ivory Coast, and exploration efforts
on the Company's concessions in Egypt and in Poland. While international
exploration is recognized as higher risk than Apache's North 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.
Under the full cost accounting rules of the SEC, the Company reviews the
carrying value of its proved oil and gas properties each quarter on a
country-by-country basis. Under these rules, capitalized costs of proved 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, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices in effect at the end of each fiscal quarter
and require a write-down if the "ceiling" is exceeded, even if prices declined
for only a short period of time. The Company recorded a $243.2 million pre-tax
($158.1 million net of tax) non-cash write-down of the carrying value of the
Company's U.S. proved oil and gas properties as of December 31, 1998, due to
these ceiling test limitations. If oil and gas prices deteriorate from the
Company's year-end realized prices, it is likely that additional write-downs
will occur in 1999. Write-downs required by these rules do not impact cash flow
from operating activities.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing
27
30
of actual future production may vary significantly from reserves and production
estimates. The drilling of exploratory wells can involve significant risks,
including those related to timing, success rates and cost overruns. Lease and
rig availability, complex geology and other factors can affect these risks.
Although Apache makes use of futures contracts, swaps, options and fixed-price
physical contracts to mitigate risk, fluctuations in oil and gas prices, or a
prolonged continuation of the current low price of crude oil, may substantially
adversely affect the Company's financial position, results of operations and
cash flows.
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-35 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 "Nominees for Election as
Directors," "Continuing Directors," "Executive Officers of the Company," and
"Voting Securities and Principal Holders" in the proxy statement relating to the
Company's 1999 annual meeting of stockholders (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.
28
31
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 operations for each of the three
years in the period ended December 31, 1998............... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 1998............... F-4
Consolidated balance sheet as of December 31, 1998 and
1997...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the period ended December 31, 1998..... F-6
Notes to consolidated financial statements.................. F-7
Supplemental oil and gas disclosures........................ F-29
Supplemental quarterly financial data....................... F-35
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).
29
32
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 -- Certificate of Ownership and Merger merging Apache PHN
Company, Inc. into Registrant, effective July 1, 1998, as
filed with the Secretary of State of Delaware on July 1,
1998.
*3.5 -- Agreement and Plan of Merger merging MWJR Petroleum
Corporation into Registrant, effective September 1, 1998,
as filed with the Secretary of State of Delaware on
August 19, 1998.
*3.6 -- Certificate of Ownership and Merger merging MW Petroleum
Corporation into Registrant, effective September 1, 1998,
as filed with the Secretary of State of Delaware on
August 19, 1998.
*3.7 -- Certificate of Designations, Preferences and Rights of
5.68% Cumulative Preferred Stock, Series B, of
Registrant, as filed with the Secretary of State of
Delaware on August 21, 1998.
*3.8 -- Certificate of Correction to Certificate of Designations,
Preferences and Rights of 5.68% Cumulative Preferred
Stock, Series B, of Registrant, as filed with the
Secretary of State of Delaware on August 24, 1998.
3.9 -- Bylaws of Registrant, as amended September 17, 1998
(incorporated by reference to Exhibit 3.2 to Registrant's
Quarterly Report on Form 10-Q for quarter ended September
30, 1998, SEC File No. 1-4300).
4.1 -- Form of Certificate for Registrant's Common Stock
(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 -- Form of Certificate for Registrant's 5.68% Cumulative
Preferred Stock, Series B (incorporated by reference to
Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to
Registrant's Current Report on Form 8-K, dated August 18,
1998, SEC File No. 1-4300).
4.3 -- 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).
30
33
EXHIBIT NO. DESCRIPTION
----------- -----------
10.1 -- 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).
10.2 -- 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).
10.3 -- 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).
10.4 -- 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).
10.5 -- 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).
10.6 -- 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).
10.7 -- 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).
31
34
EXHIBIT NO. DESCRIPTION
----------- -----------
10.8 -- 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).
10.9 -- 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 (incorporated by reference
to exhibit 10.12 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997, SEC File No.
1-4300).
10.10 -- 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).
10.11 -- 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).
+10.12 -- 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).
+*10.13 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998.
+*10.14 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998.
+10.15 -- 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).
+10.16 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997
(incorporated by reference to Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997, SEC File No. 1-4300).
+*10.17 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, restated as of January 1, 1997, and
amendments effective as of January 1, 1997, January 1,
1998 and January 1, 1999.
+10.18 -- 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).
+*10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated December 17, 1998.
+*10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated December 17, 1998.
32
35
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.21 -- 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).
+10.22 -- 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).
+*10.23 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated December 17, 1998.
+10.24 -- 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).
+10.25 -- 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).
+*10.26 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998.
+10.27 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997 (incorporated by
reference to Exhibit 10.31 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997, SEC File
No. 1-4300).
+10.28 -- 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).
+10.29 -- 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).
+10.30 -- 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).
+10.31 -- 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).
+10.32 -- 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).
+*10.33 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris.
33
36
EXHIBIT NO. DESCRIPTION
----------- -----------
10.34 -- Amended and Restated Gas Purchase Agreement, effective
July 1, 1998, by and among Registrant and MW Petroleum
Corporation, as Seller, and Producers Energy Marketing,
LLC, as Buyer (incorporated by reference to Exhibit 10.1
to Registrant's Current Report on Form 8-K, dated June
18, 1998, SEC File No. 1-4300).
12.1 -- Statement of Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends (incorporated
by reference to Exhibit 99.1 to Registrant's Current
Report on Form 8-K, dated March 2, 1999, 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
There were no reports on Form 8-K filed by Apache during the fiscal
quarter ended December 31, 1998.
34
37
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 24, 1999
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 24, 1999
- ----------------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
/s/ ROGER B. PLANK Vice President and Chief Financial March 24, 1999
- ----------------------------------------------------- Officer (Principal Financial
Roger B. Plank Officer)
/s/ THOMAS L. MITCHELL Vice President and Controller March 24, 1999
- ----------------------------------------------------- (Principal Accounting Officer)
Thomas L. Mitchell
38
NAME TITLE DATE
- ---- ----- ----
/s/ FREDERICK M. BOHEN Director March 24, 1999
- -----------------------------------------------------
Frederick M. Bohen
/s/ G. STEVEN FARRIS Director March 24, 1999
- -----------------------------------------------------
G. Steven Farris
/s/ RANDOLPH M. FERLIC Director March 24, 1999
- -----------------------------------------------------
Randolph M. Ferlic
/s/ EUGENE C. FIEDOREK Director March 24, 1999
- -----------------------------------------------------
Eugene C. Fiedorek
/s/ A. D. FRAZIER, JR. Director March 24, 1999
- -----------------------------------------------------
A. D. Frazier, Jr.
/s/ STANLEY K. HATHAWAY Director March 24, 1999
- -----------------------------------------------------
Stanley K. Hathaway
/s/ JOHN A. KOCUR Director March 24, 1999
- -----------------------------------------------------
John A. Kocur
/s/ GEORGE D. LAWRENCE JR. Director March 24, 1999
- -----------------------------------------------------
George D. Lawrence Jr.
/s/ MARY RALPH LOWE Director March 24, 1999
- -----------------------------------------------------
Mary Ralph Lowe
/s/ F. H. MERELLI Director March 24, 1999
- -----------------------------------------------------
F. H. Merelli
/s/ JOSEPH A. RICE Director March 24, 1999
- -----------------------------------------------------
Joseph A. Rice
39
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, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. 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, 1998 and 1997, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
March 5, 1999
F-1
40
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
March 5, 1999
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
41
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------- ------------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
REVENUES:
Oil and gas production revenues........................... $ 759,038 $ 983,773 $833,164
Gathering, processing and marketing revenues.............. 117,395 196,951 142,868
Equity in loss of affiliates.............................. (1,558) (1,683) (281)
Other revenues............................................ 840 (2,768) 1,400
---------- ---------- --------
875,715 1,176,273 977,151
---------- ---------- --------
OPERATING EXPENSES:
Depreciation, depletion and amortization:
Recurring.............................................. 382,807 381,416 315,144
Additional............................................. 243,178 -- --
Operating costs........................................... 211,554 231,370 225,527
Gathering, processing and marketing costs................. 114,471 194,279 138,768
Administrative, selling and other......................... 40,731 38,243 35,911
Financing costs:
Interest expense....................................... 119,703 105,148 89,829
Amortization of deferred loan costs.................... 4,496 6,438 5,118
Capitalized interest................................... (49,279) (36,493) (30,712)
Interest income........................................ (4,383) (2,768) (2,629)
---------- ---------- --------
1,063,278 917,633 776,956
---------- ---------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (187,563) 258,640 200,195
Provision (benefit) for income taxes...................... (58,176) 103,744 78,768
---------- ---------- --------
NET INCOME (LOSS)........................................... (129,387) 154,896 121,427
Preferred stock dividends................................. 2,004 -- --
---------- ---------- --------
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCK.................. $ (131,391) $ 154,896 $121,427
========== ========== ========
NET INCOME (LOSS) PER COMMON SHARE:
Basic..................................................... $ (1.34) $ 1.71 $ 1.42
========== ========== ========
Diluted................................................... $ (1.34) $ 1.65 $ 1.38
========== ========== ========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1997 1996
--------- ----------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(129,387) $ 154,896 $ 121,427
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization............. 625,985 381,416 315,144
Amortization of deferred loan costs.................. 4,496 6,438 5,118
Provision (benefit) for deferred income taxes........ (81,856) 68,280 61,336
Cash distributions in excess of (less than) earnings of
affiliates............................................. 1,523 1,768 (163)
Loss (gain) on sale of stock held for investment.......... 364 (13) (770)
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in receivables..................... 65,487 12,556 (55,645)
(Increase) decrease in advances to oil and gas ventures
and other............................................. 3,879 (7,728) 5,737
(Increase) decrease in deferred charges and other...... 13,238 447 (3,321)
Increase (decrease) in payables........................ (65,851) 1,920 35,998
Increase (decrease) in accrued expenses................ (12,161) 9,579 (3,433)
Increase (decrease) in advance from gas purchaser...... 50,922 102,748 (8,540)
Increase (decrease) in deferred credits and noncurrent
liabilities........................................... (5,128) (8,499) 17,616
--------- ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES....... 471,511 723,808 490,504
--------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (699,509) (771,419) (642,021)
Non-cash portion of net oil and gas property additions.... 38,774 6,208 46,268
Acquisition of Novus, net of cash acquired................ (48,499) -- --
Acquisition of Ampolex Group, net of cash acquired........ -- (299,852) --
Acquisition of Phoenix, net of cash acquired.............. -- -- (43,294)
Proceeds from sales of oil and gas properties............. 131,149 30,134 30,144
Purchase of stock held for investment..................... -- (1,170) --
Proceeds from sale of stock held for investment........... 26,147 1,183 7,193
Proceeds from sale of assets held for resale.............. 62,998 -- --
Other, net................................................ (23,180) (31,309) (16,517)
--------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES........... (512,120) (1,066,225) (618,227)
--------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings...................................... 551,897 1,168,201 765,895
Payments on long-term debt................................ (556,141) (812,327) (615,765)
Dividends paid............................................ (28,204) (25,275) (23,420)
Proceeds from issuance of preferred stock................. 98,630 -- --
Proceeds from issuance of common stock.................... 1,240 11,623 8,145
Payments to acquire treasury stock........................ (21,418) (386) (1,698)
Cost of debt and equity transactions...................... (544) (2,894) (5,906)
--------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 45,460 338,942 127,251
--------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 4,851 (3,475) (472)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 9,686 13,161 13,633
--------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 14,537 $ 9,686 $ 13,161
========= =========== =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
43
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
-------------------------
1998 1997
----------- -----------
ASSETS (IN THOUSANDS)
CURRENT ASSETS:
Cash and cash equivalents................................. $ 14,537 $ 9,686
Receivables............................................... 159,806 224,025
Inventories............................................... 40,948 36,041
Advances to oil and gas ventures and other................ 11,679 15,579
Assets held for resale.................................... -- 62,998
----------- -----------
226,970 348,329
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties...................................... 5,901,863 5,530,991
Unproved properties and properties under development,
not being amortized................................... 637,854 532,556
Gas gathering, transmission and processing facilities..... 354,506 246,049
Other..................................................... 88,422 71,067
----------- -----------
6,982,645 6,380,663
Less: Accumulated depreciation, depletion and
amortization........................................... (3,255,104) (2,647,478)
----------- -----------
3,727,541 3,733,185
----------- -----------
OTHER ASSETS:
Deferred charges and other................................ 41,551 57,119
----------- -----------
$ 3,996,062 $ 4,138,633
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 15,500 $ 17,200
Accounts payable.......................................... 115,111 178,361
Accrued operating expense................................. 18,990 20,153
Accrued exploration and development....................... 120,855 82,392
Accrued compensation and benefits......................... 10,692 17,600
Accrued interest.......................................... 19,054 20,598
Other accrued expenses.................................... 5,572 7,479
----------- -----------
305,774 343,783
----------- -----------
LONG-TERM DEBT.............................................. 1,343,258 1,501,380
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes.............................................. 270,493 355,619
Advances from gas purchaser............................... 205,468 154,546
Other..................................................... 69,236 54,128
----------- -----------
545,197 564,293
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized, 100,000 shares of 5.68% Cumulative Series B
issued and outstanding in 1998......................... 98,387 --
Common stock, $1.25 par, 215,000,000 shares authorized,
99,790,337 and 94,478,788 shares issued,
respectively........................................... 124,738 118,098
Paid-in capital........................................... 1,245,738 1,085,063
Retained earnings......................................... 403,098 561,981
Treasury stock, at cost, 2,021,215 and 1,174,247 shares,
respectively........................................... (36,924) (15,506)
Accumulated other comprehensive income.................... (33,204) (20,459)
----------- -----------
1,801,833 1,729,177
----------- -----------
$ 3,996,062 $ 4,138,633
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
44
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE PREFERRED COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS
INCOME STOCK STOCK CAPITAL EARNINGS STOCK INCOME EQUITY
------------- --------- -------- ---------- --------- -------- ------------- ------------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1995.. $ -- $ 98,124 $ 687,465 $ 335,470 $(13,478) $(15,776) $1,091,805
Comprehensive income:
Net income.............. $ 121,427 -- -- -- 121,427 -- -- 121,427
Currency translation
adjustments........... 286 -- -- -- -- -- 286 286
---------
Comprehensive income...... $ 121,713
=========
Dividends ($.28 per
common share)........... -- -- -- (24,309) -- -- (24,309)
Common shares issued...... -- 15,906 315,075 -- -- -- 330,981
Treasury shares
purchased, net.......... -- -- -- -- (1,674) -- (1,674)
------- -------- ---------- --------- -------- -------- ----------
BALANCE, DECEMBER 31, 1996.. -- 114,030 1,002,540 432,588 (15,152) (15,490) 1,518,516
Comprehensive income:
Net income.............. $ 154,896 -- -- -- 154,896 -- -- 154,896
Currency translation
adjustments........... (4,969) -- -- -- -- -- (4,969) (4,969)
---------
Comprehensive income...... $ 149,927
=========
Dividends ($.28 per
common share)........... -- -- -- (25,503) -- -- (25,503)
Common shares issued...... -- 4,068 82,523 -- -- -- 86,591
Treasury shares
purchased, net.......... -- -- -- -- (354) -- (354)
------- -------- ---------- --------- -------- --------- ----------
BALANCE, DECEMBER 31, 1997.. -- 118,098 1,085,063 561,981 (15,506) (20,459) 1,729,177
Comprehensive income:
Net loss................ $(129,387) -- -- -- (129,387) -- -- (129,387)
Currency translation
adjustments........... (12,745) -- -- -- -- -- (12,745) (12,745)
---------
Comprehensive loss........ $(142,132)
=========
Dividends:
Preferred............... -- -- -- (2,004) -- -- (2,004)
Common ($.28 per share). -- -- -- (27,492) -- -- (27,492)
Preferred shares issued... 98,387 -- -- -- -- -- 98,387
Common shares issued...... -- 6,640 160,675 -- -- -- 167,315
Treasury shares
purchased, net.......... -- -- -- -- (21,418) -- (21,418)
------- -------- ---------- --------- -------- --------- ----------
BALANCE, DECEMBER 31, 1998.. $98,387 $124,738 $1,245,738 $ 403,098 $(36,924) $(33,204) $1,801,833
======= ======== ========== ========= ======== ========= ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
45
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 three U.S. operating regions (Gulf,
Midcontinent and Western), plus a Canadian region. Approximately 62 percent of
the Company's proved reserves are located in North America. Internationally,
Apache has exploration and production interests in Egypt, offshore Western
Australia and offshore Ivory Coast, and exploration interests in Poland and
offshore The People's Republic of China (China).
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 56 percent of Apache's 1998
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 exploration and production ventures and partnerships are proportionately
consolidated. Apache's investment in Producers Energy Marketing LLC (ProEnergy)
and a pipeline partnership in Western Australia are accounted for using the
equity method for the periods of ownership. Certain reclassifications have been
made to the 1997 and 1996 financial statements to conform to the classifications
used in the current year.
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 $12.2 million, $11.9 million and $12.1
million of internal costs in 1998, 1997 and 1996, 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 $23.1
million, $22.5 million and $17.0 million in 1998, 1997, and 1996, respectively,
and are included in operating costs in the Company's statement of consolidated
operations. 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 quantities 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 recurring 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
F-7
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
from the amortization base until the properties associated with these costs are
evaluated. The amortizable base includes 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
proved 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 additional 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.
As a result of low oil and gas prices at December 31, 1998, Apache's
capitalized costs of U.S. oil and gas properties exceeded the ceiling limitation
and the Company reported a $243.2 million pre-tax ($158.1 million net of tax)
non-cash write-down. The write-down is reflected as additional DD&A expense in
the accompanying statement of consolidated operations.
The costs of certain unevaluated leasehold acreage and wells being drilled
are not being amortized. Costs not being amortized are periodically assessed for
possible impairments or reductions in value. If a reduction in value has
occurred, costs being amortized are increased or a charge is made against
earnings for those international operations where a reserve base is not yet
established.
Buildings, equipment 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 $70.0 million and $51.8 million at December 31, 1998
and 1997, respectively.
Accounts Payable -- Included in accounts payable at December 31, 1998 and
1997, are liabilities of approximately $24.0 million and $36.3 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 proved 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, 1998. 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.
Derivative Instruments and 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
F-8
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value, and
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of consolidated operations, and
requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. SFAS No.
133 is required to be adopted on January 1, 2000, although earlier adoption is
permitted. The Company is analyzing the effects of SFAS No. 133, but has not yet
quantified the impact on its financial statements or determined the timing or
method of adoption. Management does not believe that the adoption of SFAS No.
133 will have a material impact on the Company's financial condition or results
of operations.
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 (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 other comprehensive income. For other
international operations, transaction gains or losses are recognized in net
income.
Net Income (Loss) Per Common Share -- Basic and diluted net income (loss)
per common share have been computed in accordance with SFAS No. 128, "Earnings
per Share." Basic net income (loss) per common share is computed by dividing
income (loss) attributable to common stock 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.
Diluted net loss per common share does not reflect dilution from potential
common shares, because to do so would have been antidilutive. Calculations of
basic and diluted net income (loss) 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."
Comprehensive Income -- In the first quarter of 1998, the Company adopted
SFAS No. 130, "Reporting Comprehensive Income," which requires companies to
report the components of comprehensive income in a financial statement with the
same prominence as other financial statements. The Company has chosen to
disclose comprehensive income, which is comprised of net income (loss) and
foreign currency translation adjustments, in the accompanying statement of
consolidated shareholders' equity. This information is shown for all periods
presented.
F-9
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Segment Information -- In June 1997, the Financial Accounting Standards
Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information" which established standards for the way that enterprises
report information about operating segments and related information. The Company
adopted the disclosure requirements of SFAS No. 131 at year-end 1998 and
restated prior-year comparative information.
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 quantities 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 13, 1998, the Company entered into agreements to acquire
certain oil and gas interests and companies holding oil and gas interests in the
Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus
Petroleum Limited (Novus) for approximately $55 million. The interests have
estimated proved reserves of approximately 5.8 MMboe and daily production of
2,400 barrels of oil equivalent. They are within the Apache-operated Harriet
Joint Venture (which includes production, processing and pipeline infrastructure
associated with the Varanus Island hub), the Airlie Joint Venture (in which the
Company held a prior interest and became operator) and three other exploration
permit areas. The transaction closed in two stages, on December 18, 1998
(approximately $49 million) and on January 29, 1999 (approximately $6 million).
Under the terms of an agreement with Novus, the Company may be required to make
additional payments to Novus based on proved and probable recoverable oil and
condensate reserves, as determined by independent engineers, on a defined
geological structure in the Gipsy-Rose-Lee area, offshore Western Australia. If
required, such payments would be calculated using $2.50 for each barrel of
proved and $1.25 for each barrel of probable oil and condensate reserves. A
payment becomes due if and when a decision is made to construct facilities for
the production of oil or condensate from the designated area.
The purchase price for the portion of the transaction completed in 1998 was
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................................. $55,223
Working capital acquired, net............................... 2,658
Deferred income tax liability............................... (9,382)
-------
Cash paid, net of cash acquired............................. $48,499
=======
In 1998, the Company also completed tactical regional acquisitions for cash
consideration totaling $19.4 million. These acquisitions added approximately 9.1
MMboe to the Company's proved reserves.
In November 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 subsequent 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
F-10
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The purchase price was 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 were reported as assets held for resale in the accompanying
consolidated balance sheet at December 31, 1997.
In 1997, the Company also completed tactical regional acquisitions for cash
consideration totaling $33.6 million. These acquisitions added approximately 6.6
MMboe to the Company's proved reserves.
In May 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 (Phoenix 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 tactical regional acquisitions for cash
consideration totaling $115.0 million. These acquisitions added approximately
18.9 MMboe to the Company's proved reserves.
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
------------ ----------
(IN THOUSANDS, EXCEPT PER
(UNAUDITED) 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
F-11
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 1, 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase
price of approximately $66.7 million. The Petsec transaction included estimated
proved reserves of approximately 10.4 MMboe on the effective date.
Divestitures
In 1998, Apache sold marginal properties, primarily in North America,
containing 29.6 MMboe of proved reserves, for $131.1 million. Apache used the
sales proceeds to reduce bank debt.
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.
3. INVESTMENTS IN EQUITY SECURITIES
At December 31, 1998 and 1997, Apache had no investments in equity
securities.
The Company realized losses from the sale of equity securities totaling
approximately $364,000 during 1998, and gains totaling approximately $13,000 and
$770,000 during 1997 and 1996, 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 operations.
4. DEBT
Long-Term Debt
DECEMBER 31,
-----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
Apache:
Global credit facility -- U.S............................. $ -- $ --
Money market lines of credit.............................. 15,500 17,200
Commercial paper, expected to be refinanced............... 59,000 50,800
6-percent convertible subordinated debentures due 2002.... -- 172,500
9.25-percent notes due 2002, net of discount.............. 99,842 99,805
7-percent notes due 2018, net of discount................. 148,246 --
7.7-percent notes due 2026, net of discount............... 99,642 99,638
7.95-percent notes due 2026, net of discount.............. 178,544 178,531
7.375-percent debentures due 2047, net of discount........ 147,988 147,984
7.625-percent debentures due 2096, net of discount........ 149,175 149,175
---------- ----------
897,937 915,633
---------- ----------
Subsidiary and other obligations:
Global credit facility -- Australia....................... 148,000 139,000
Global credit facility -- Canada.......................... 5,000 116,000
Revolving credit facility -- Egypt........................ 109,780 150,000
DEKALB 9.875-percent notes due 2000....................... 29,225 29,225
Apache Finance 6.5-percent notes due 2007, net of
discount............................................... 168,816 168,722
---------- ----------
460,821 602,947
---------- ----------
Total debt.................................................. 1,358,758 1,518,580
Less: current maturities.................................... (15,500) (17,200)
---------- ----------
Long-term debt.............................................. $1,343,258 $1,501,380
========== ==========
F-12
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 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, 1998, Apache's available borrowing capacity under the global
credit facility was $788 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 $1.1 billion as of December 31, 1998, 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, 1998.
The global credit facility is scheduled to mature on June 12, 2002, in the
amount of $40 million and the remaining $960 million on June 12, 2003. 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, 1998, the margin
over LIBOR for committed loans was .185 percent. The Company also pays a
quarterly facility fee of .09 percent on the total amount of each of the three
facilities, which fee varies based upon the Company's senior long-term debt
rating.
At December 31, 1998, 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, 1998, an aggregate of $15.5 million was outstanding under
such credit lines.
In January 1997, the Company established a $300 million commercial paper
program which enables Apache to borrow funds for up to 270 days at competitive
interest rates. In June 1997, Apache 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 Company's 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, 1998, $59.0
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 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.
The 9.25-percent notes totaling $100 million were issued by Apache in May
1992 and are redeemable at maturity in June 2002.
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.
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. The notes are not redeemable prior to maturity; however, under
certain conditions, Apache has the right to advance maturity of these notes.
F-13
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 debentures are not redeemable prior to maturity; however, Apache
has the right to advance maturity, under certain conditions.
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. The debentures are not redeemable prior to maturity;
however, under certain conditions, Apache has the right to advance maturity of
these debentures.
Upon certain changes in control, the debt instruments described in the
preceding five paragraphs are subject to mandatory repurchase.
In October 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 predicated upon those subsidiaries' oil and gas reserve
quantities, forecast rates of production, and future oil and gas prices. The
borrowing base is $121.8 million at December 31, 1998 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
those 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; 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.
The DEKALB 9.875-percent notes mature on July 15, 2000 and are not
redeemable prior to their maturity.
In December 1997, Apache Finance Pty Ltd (Apache Finance), the Company's
Australian finance subsidiary, issued $170 million principal amount, $168.7
million net of discount, of senior unsecured 6.5-percent notes due December 15,
2007. In March 1999, Apache Finance issued $100 million principal amount, $99.3
million net of discount, of senior unsecured 7.0-percent notes due March 15,
2009. These notes are irrevocably and unconditionally guaranteed by Apache. The
Company has the right to redeem these notes prior to maturity, under certain
conditions related to changes in relevant tax laws. Also, upon certain changes
in control, these notes are subject to mandatory repurchase.
As of December 31, 1998 and 1997, the Company had approximately $13.4
million and $18.2 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.
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.
F-14
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate Maturities of Debt
(IN THOUSANDS)
1999........................................................ $ 15,500
2000........................................................ 29,225
2001........................................................ --
2002........................................................ 209,622
2003........................................................ 212,000
Thereafter.................................................. 892,411
----------
$1,358,758
==========
5. INCOME TAXES
Income (loss) before income taxes is composed of the following:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- -------- --------
(IN THOUSANDS)
United States....................................... $(241,861) $171,304 $154,759
International....................................... 54,298 87,336 45,436
--------- -------- --------
Total..................................... $(187,563) $258,640 $200,195
========= ======== ========
The total provision (benefit) for income taxes consists of the following:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- --------
(IN THOUSANDS)
Current taxes:
Federal............................................. $ -- $ 300 $ --
Foreign............................................. 23,680 35,164 17,432
Deferred taxes........................................ (81,856) 68,280 61,336
-------- -------- -------
Total....................................... $(58,176) $103,744 $78,768
======== ======== =======
A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
--------- --------- --------
(IN THOUSANDS)
Statutory income tax.................................. $(65,647) $ 90,524 $70,068
State income tax, less federal benefit................ 38 3,987 4,558
Taxation of foreign operations........................ 8,710 10,842 5,226
All other, net........................................ (1,277) (1,609) (1,084)
-------- -------- -------
$(58,176) $103,744 $78,768
======== ======== =======
F-15
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax liability is comprised of the following:
DECEMBER 31,
---------------------
1998 1997
--------- ---------
(IN THOUSANDS)
Deferred tax assets:
Deferred income........................................... $ (9,087) $ (2,259)
Federal net operating loss carryforwards.................. (88,411) (79,009)
State net operating loss carryforwards.................... (12,670) (12,562)
Statutory depletion carryforwards......................... (3,720) (3,316)
Alternative minimum tax credits........................... (9,141) (9,141)
Accrued expenses and liabilities.......................... (5,590) (5,452)
Other..................................................... (5,374) (12,090)
--------- ---------
Total deferred tax assets......................... (133,993) (123,829)
Valuation allowance......................................... 1,704 1,704
--------- ---------
Net deferred tax assets........................... (132,289) (122,125)
--------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization.................. 391,624 471,403
Other..................................................... 11,158 6,341
--------- ---------
Total deferred tax liabilities.................... 402,782 477,744
--------- ---------
Deferred income tax liability............................... $ 270,493 $ 355,619
========= =========
U.S. deferred taxes have not been provided on foreign earnings totaling
$211.7 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, 1998, the Company had U.S. federal net operating loss
carryforwards of $237.0 million that will expire beginning in 1999, and U.S. and
foreign statutory depletion carryforwards totaling $9.9 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 1999, which have been fully reserved
through the valuation allowance.
6. ADVANCES FROM GAS PURCHASERS
In July 1998, Apache received $71.8 million from a purchaser as an advance
payment for future natural gas deliveries ranging from 6,726 MMBtu per day to
24,669 MMBtu per day, for a total of 45,330,949 MMBtu, over a ten-year period
commencing August 1998. As a condition of the arrangement with the purchaser,
Apache entered into three gas price swap contracts with a third party under
which Apache became a fixed price payor for identical volumes at prices ranging
from $2.34 per MMBtu to $2.56 per MMBtu. In addition, the purchaser pays Apache
a monthly fee of $.08 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 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
F-16
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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, 1998 and 1997, advances of $205.5
million and $154.5 million, respectively, were outstanding. Gas volumes
delivered to the purchaser are reported as revenue at prices used to calculate
the amount advanced, before imputed interest, plus or minus amounts paid or
received by Apache applicable to the price swap agreements. Interest expense is
recorded based on a rate of 8 percent on the 1998 and 1997 advances, and 9.5
percent on the 1994 advances.
7. CAPITAL STOCK
Common Stock Outstanding
1998 1997 1996
---------- ---------- ----------
Balance, beginning of year............................... 93,304,541 90,058,797 77,378,958
Treasury shares acquired, net............................ (846,968) (9,016) (45,297)
Shares issued for:
Conversion of 6-percent convertible debentures......... 5,070,914 -- --
Acquisition of oil and gas property interests.......... 176,836 -- --
Conversion of 3.93-percent convertible notes........... -- 2,777,777 --
Phoenix merger......................................... -- -- 12,189,918
Dividend reinvestment plan............................. -- 34,249 25,148
401(k) savings plan.................................... 10,477 182,742 183,059
Stock option plans..................................... 53,322 259,992 317,775
Other.................................................. -- -- 9,236
---------- ---------- ----------
Balance, end of year..................................... 97,769,122 93,304,541 90,058,797
========== ========== ==========
F-17
56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net Income (Loss) Per Common Share -- A reconciliation of the components of
basic and diluted net income (loss) per common share for the years ended
December 31, 1998, 1997 and 1996 is presented in the table below:
1998 1997 1996
--------------------------- ------------------------- -------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
--------- ------ ------ -------- ------ ----- -------- ------ -----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic:
Income (loss) attributable to common
stock................................. $(131,391) 98,066 $(1.34) $154,896 90,677 $1.71 $121,427 85,777 $1.42
====== ===== =====
Effect of Dilutive Securities:
Stock options........................... -- -- -- 519 -- 374
3.93%-convertible notes................. -- -- 1,859 2,435 2,114 2,778
6%-convertible debentures............... -- -- 6,919 5,623 6,916 5,623
--------- ------ -------- ------ -------- ------
Diluted:
Income (loss) attributable to common
stock, including assumed
conversions........................... $(131,391) 98,066 $(1.34) $163,674 99,254 $1.65 $130,457 94,552 $1.38
========= ====== ====== ======== ====== ===== ======== ====== =====
The effect of stock options and the 6-percent convertible subordinated
debentures were not included in the computation of diluted net income (loss) per
common share during 1998, because to do so would have been antidilutive.
Stock Option Plans -- At December 31, 1998, officers and certain key
employees had been granted options to purchase the Company's common stock under
employee stock option plans adopted in 1990, 1995 and 1998 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
6,489,031 shares of common stock under the Stock Option Plans, of which options
to acquire 2,006,350 shares of common stock remained available for grant at
December 31, 1998.
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 are attained before
January 1, 2000. Under the terms of the Performance Plan, no grants may be made
after December 31, 1998.
F-18
57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the plans described above as of December 31,
1998, 1997, and 1996, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
SHARES AVERAGE SHARES AVERAGE SHARES AVERAGE
UNDER EXERCISE UNDER EXERCISE UNDER EXERCISE
OPTION PRICE OPTION PRICE OPTION PRICE
------ -------- ------ -------- ------ --------
Outstanding, beginning of year...... 3,629 $32.20 2,885 $30.82 1,218 $23.91
Granted............................. 1,243 32.53 1,228 34.59 2,032 33.26
Exercised........................... (20) 26.68 (145) 23.02 (224) 17.58
Forfeited........................... (431) 33.98 (339) 33.08 (141) 27.30
------ ------ ------
Outstanding, end of year(1)......... 4,421 32.15 3,629 32.20 2,885 30.82
====== ====== ======
Exercisable, end of year............ 1,223 28.86 729 26.96 467 23.88
====== ====== ======
Available for grant, end of year.... 2,006 603 1,503
====== ====== ======
Weighted average fair value of
options granted during the
year(2)........................... $10.87 $11.73 $ 9.80
====== ====== ======
The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 1998 (shares in
thousands):
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
NUMBER OF WEIGHTED NUMBER OF
SHARES AVERAGE WEIGHTED SHARES WEIGHTED
UNDER REMAINING AVERAGE UNDER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
RANGE OF EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
------------------------ ----------- ----------- -------- ----------- --------
$ 2.393 - $19.625........................... 67 2.50 $16.80 67 $16.80
21.000 - 29.875........................... 1,272 7.26 27.22 677 27.03
30.250 - 36.000........................... 2,952 8.37 34.24 457 32.74
36.375 - 42.438........................... 130 8.71 40.66 22 41.00
----- -----
4,421 1,223
===== =====
- ---------------
(1) Excludes 449,600, 496,900 and 644,100 shares as of December 31, 1998, 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 1998, 1997 and 1996, respectively: (i)
risk-free interest rates of 5.46, 6.33 and 6.19 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 31.17, 31.21 and 30.50 percent, and (iv)
expected dividend yields of .88, .82 and .85 percent.
F-19
58
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 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 (loss) per
common share until the stated share price goals of $50 and $60 per share are
achieved. Under the terms of the Appreciation Plan, no conditional grants may be
made after December 31, 1998.
A summary of the status of the Appreciation Plan as of December 31, 1998
and 1997, and changes during the years then ended, is presented in the table and
narrative below (shares in thousands):
SHARES SUBJECT TO
CONDITIONAL GRANTS
-------------------
1998 1997
-------- --------
Outstanding, beginning of year.............................. 1,719 --
Granted..................................................... 190 1,965
Forfeited................................................... (200) (246)
------ ------
Outstanding, end of year.................................... 1,709 1,719
====== ======
Exercisable, end of year.................................... -- --
====== ======
Available for grant, end of year............................ -- 281
====== ======
Weighted average fair value of conditional grants(1)........ $ 6.72 $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 1998 and 1997, respectively: (i) risk-free
interest rates of 5.37 and 6.45 percent; (ii) expected volatility of 33.11
and 28.63 percent; and (iii) expected dividend yields of .82 and .84
percent.
F-20
59
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:
1998 1997 1996
------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income (Loss) Attributable to Common Stock:
As reported....................................... $(131,391) $154,896 $121,427
Pro forma......................................... (141,306) 147,152 119,536
Net Income (Loss) per Common Share:
Basic:
As reported.................................... $ (1.34) $ 1.71 $ 1.42
Pro forma...................................... (1.44) 1.62 1.39
Diluted:
As reported.................................... $ (1.34) $ 1.65 $ 1.38
Pro forma...................................... (1.44) 1.55 1.36
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" as Series A Junior Participating
Preferred Stock (the Series A Preferred Stock) and 100,000 shares have been
designated as the 5.68 percent Series B Cumulative Preferred Stock (the Series B
Preferred Stock). The shares of Series A Preferred Stock are authorized for
issuance pursuant to certain rights that trade with Apache common stock
outstanding and are reserved for issuance upon the exercise of the Rights as
defined and discussed below.
Series B Preferred Stock -- In August 1998, Apache issued 100,000 shares of
Series B Preferred Stock in the form of one million depositary shares, each
representing one-tenth (1/10) of a share of Series B Preferred Stock. The Series
B Preferred Stock has no stated maturity, is not subject to a sinking fund and
is not convertible into Apache common stock or any other securities of the
Company. Apache has the option to redeem the Series B Preferred Stock at $1,000
per share on or after August 25, 2008. Holders of the shares are entitled to
receive cumulative cash dividends at an annual rate of $5.68 per depositary
share when, and if, declared by Apache's board of directors. The net proceeds of
approximately $98.4 million were used to repay debt outstanding under money
market lines of credit and to reduce outstanding borrowings under the Canadian
portion of the Company's global credit facility.
Rights to Purchase Series A 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 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.
F-21
60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In December 1998, the Company acquired certain oil and gas interests from
subsidiaries of Novus for cash and the assumption of certain liabilities. The
accompanying financial statements include the amounts detailed in Note 2.
In June 1998, Apache formed a strategic alliance with Cinergy Corp.
(Cinergy) and sold its 57 percent interest in ProEnergy for 771,258 shares of
Cinergy common stock valued at $26.5 million.
In March 1998, Apache acquired certain oil and gas property interests for
approximately 177,000 shares of Apache common stock valued at $6.1 million.
In January 1998, approximately 90 percent, or $155.6 million principal
amount, 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.
In November 1997, Apache acquired certain assets through the Ampolex Group
Transaction for cash and the assumption of certain liabilities. The accompanying
financial statements include the amounts detailed in 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
=========
F-22
61
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Disclosure of Cash Flow Information:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
Cash paid during the year for:
Interest, net of amounts capitalized.................. $71,968 $63,633 $53,228
Income and other taxes, net of refunds................ 23,680 35,464 6,241
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, 1998 and 1997.
1998 1997
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Cash and cash equivalents.......................... $ 14,537 $ 14,537 $ 9,686 $ 9,686
Long-term debt:
Bank debt........................................ 262,780 262,780 405,000 405,000
Commercial paper................................. 59,000 59,000 50,800 50,800
7.95-percent notes............................... 178,544 195,624 178,531 203,868
7.625-percent debentures......................... 149,175 147,749 149,175 159,510
7-percent notes.................................. 148,246 148,410 -- --
7.375-percent debentures......................... 147,988 152,055 147,984 159,825
9.25-percent notes............................... 99,842 109,290 99,805 111,210
7.7-percent notes................................ 99,642 105,660 99,638 110,140
6-percent convertible subordinated debentures.... -- -- 172,500 197,944
Money market lines of credit..................... 15,500 15,500 17,200 17,200
Apache Finance 6.5-percent notes................. 168,816 171,530 168,722 169,881
DEKALB 9.875-percent notes....................... 29,225 30,589 29,225 31,598
Hedging financial instruments:
Commodity price swaps
-- Natural gas(1)............................. -- (13,066) -- 3,319
-- Oil........................................ -- 3 -- --
- ---------------
(1) The fair value of natural gas price swaps at December 31, 1998 and 1997
reflects fixed-to-floating price swaps where there is an offsetting position
with a physical contract. See Commodity Price Hedges.
F-23
62
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, 1998 and
1997.
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, 6.5-percent and 7-percent notes and the 7.375-percent debentures
are based on the quoted market prices for those issues. The fair values of the
9.875-percent notes and 7.625-percent debentures are, and the 6-percent
convertible subordinated debentures were, 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 $1.3 million and $14.5 million in 1998 and 1997, respectively,
and hedging losses of $23.0 million in 1996. The hedging gains and losses are
included in oil and gas production revenues in the statement of consolidated
operations.
Apache's consolidated balance sheet includes deferred credits totaling $1.0
million and $2.2 million at December 31, 1998 and 1997, respectively, for gains
realized on the early termination of commodity derivative contracts in 1998 and
prior years. These gains will be recognized as oil and gas production revenues
over periods ranging from one to 12 months as the hedged production occurs.
The following table and note thereto cover the Company's pricing and
notional volumes on open natural gas commodity derivative contracts as of
December 31, 1998:
1999 2000 2001 2002 2003 THEREAFTER
----- ----- ----- ----- ----- ----------
New York Mercantile Exchange Based Swap
Positions:
Pay fixed price (thousand MMBtu/d)(1)...... 50 50 30 30 30 30
Average swap price, per MMBtu(1)........... $2.22 $2.27 $2.27 $2.31 $2.35 $2.49
- ---------------
(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
$2.26 in 1999 to $2.56 in 2008. The fair value of these hedges was $(13.1)
million at December 31, 1998, all of which is related to the arrangements
discussed in Note 6.
F-24
63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1998, Apache had a reserve for environmental
remediation of approximately $6.1 million. The Company is not aware of any
environmental claims existing as of December 31, 1998, 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, China, Poland and the Ivory Coast. In order to comply with
the contracts and agreements granting these rights, the Company, through various
wholly-owned subsidiaries, is committed to expend approximately $154.5 million
through 2002.
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 12 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 non-qualified retirement/savings plan
occurs at the rate of 20 percent per year. Total expenses under all plans were
$7.3 million, $6.3 million and $6.5 million for 1998, 1997 and 1996,
respectively. The unfunded liability for all plans has been accrued in the
consolidated balance sheet.
Lease Commitments -- The Company has leases for buildings, facilities and
equipment with varying expiration dates through 2007. Net rental expense was
$8.1 million, $5.8 million and $6.5 million for 1998, 1997 and 1996,
respectively.
F-25
64
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1998, minimum rental commitments under long-term
operating leases, net of sublease rentals, and long-term pipeline transportation
commitments, ranging from one to 25 years, are as follows:
NET MINIMUM
COMMITMENTS
--------------
(IN THOUSANDS)
1999........................................................ $ 12,422
2000........................................................ 10,112
2001........................................................ 8,866
2002........................................................ 8,694
2003........................................................ 9,097
Thereafter.................................................. 55,147
--------
$104,338
========
Partnership in Western Australia -- Apache is a partner in a partnership
formed to construct and operate a 62-mile pipeline from Varanus Island to
onshore facilities in Western Australia. Apache has a 50 percent interest in the
partnership and has guaranteed 50 percent of the partnership's share of
construction costs, and any related debt incurred by the partnership, during the
construction phase of the pipeline up to the time pipeline certification is
obtained. After certification and the finalization of certain documentation
related to the partnership's debt, partnership debt will be non-recourse to
Apache. The Company has dedicated the production volumes of six take-or-pay gas
sales contracts to the pipeline. Apache will be required to prepay
transportation tariffs in the event Apache receives payments under the
take-or-pay provisions of these contracts, or in the event the Company fails to
deliver the volumes required by the contracts and requested by the purchasers.
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Strategic Alliance with Cinergy -- In June 1998, Apache formed a strategic
alliance with Cinergy to market substantially all the Company's natural gas
production from North America and sold its 57 percent interest in ProEnergy for
771,258 shares of Cinergy common stock subsequently sold for $26.1 million.
ProEnergy will continue to market Apache's North American natural gas production
for 10 years, with an option to terminate after six years, under an amended and
restated gas purchase agreement effective July 1, 1998. During this period,
Apache is generally obligated to deliver most of its North American gas
production to Cinergy and, under certain circumstances, reimburse Cinergy if
certain gas throughput thresholds are not met. Accordingly, Apache recorded a
deferred gain of $20.0 million, subject to adjustment, on the sale of ProEnergy
that is being amortized over six years.
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 1998 approximately $7.7 million for Key's proportionate share
of drilling and workover costs, mineral interests and routine expenses relating
to 369 oil and gas wells in which Key owns interests and for which Apache is the
operator. Key received approximately $5.7 million in 1998 for its proportionate
share of revenues from such interests, of which approximately $3.4 million was
paid directly to Key by Apache or related entities.
Major Purchasers -- In 1998, purchases by ProEnergy and the Egyptian
General Petroleum Corporation (EGPC) accounted for 38 percent and 17 percent of
the Company's oil and gas production revenues, respectively. In 1997, purchases
by ProEnergy and EGPC accounted for 40 percent and 13 percent of the Company's
oil and gas production revenues, respectively. In 1996, purchases by ProEnergy
accounted for 35 percent of the Company's oil and gas production revenues.
F-26
65
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
12. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on profit or loss
from oil and gas operations before income and expense items incidental to oil
and gas operations and income taxes. Apache's reportable segments are managed
separately because of their geographic locations. Financial information by
operating segment is presented below:
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
---------- -------- -------- --------- ------------- ----------
(IN THOUSANDS)
1998
Oil and Gas Production Revenues... $ 496,238 $ 63,620 $129,123 $ 70,057 $ -- $ 759,038
Operating Expenses:
Depreciation, depletion and
amortization
Recurring.................. 256,507 30,514 59,825 35,961 -- 382,807
Additional................. 243,178 -- -- -- -- 243,178
Operating costs................. 154,264 17,216 23,436 16,638 -- 211,554
Gathering, processing and
marketing, net............... (2,924) -- -- -- -- (2,924)
---------- -------- -------- -------- -------- ----------
Operating Income (Loss)........... $ (154,787) $ 15,890 $ 45,862 $ 17,458 $ -- (75,577)
========== ======== ======== ======== ========
Other Income (Expense):
Equity in loss of affiliates.... (1,558)
Other revenues.................. 840
Administrative, selling and
other........................ (40,731)
Financing costs, net............ (70,537)
----------
Income (Loss) Before Income
Taxes........................... $ (187,563)
==========
Total Long-Lived Assets........... $1,892,020 $290,341 $809,075 $592,979 $143,126 $3,727,541
========== ======== ======== ======== ======== ==========
Total Assets...................... $2,046,628 $305,238 $853,561 $633,981 $156,654 $3,996,062
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets.... $ 274,395 $ 73,327 $219,162 $145,037 $ 70,251 $ 782,172
========== ======== ======== ======== ======== ==========
F-27
66
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
---------- -------- -------- --------- ------------- ----------
(IN THOUSANDS)
1997
Oil and Gas Production Revenues... $ 740,037 $ 61,328 $132,493 $ 49,915 $ -- $ 983,773
Operating Expenses:
Depreciation, depletion and
amortization................. 292,531 26,028 43,945 18,912 -- 381,416
Operating costs................. 187,753 16,687 16,212 10,718 -- 231,370
Gathering, processing and
marketing, net............... (2,672) -- -- -- -- (2,672)
---------- -------- -------- -------- -------- ----------
Operating Income.................. $ 262,425 $ 18,613 $ 72,336 $ 20,285 $ -- 373,659
========== ======== ======== ======== ========
Other Income (Expense):
Equity in loss of affiliates.... (1,683)
Other revenues.................. (2,768)
Administrative, selling and
other........................ (38,243)
Financing costs, net............ (72,325)
----------
Income Before Income Taxes........ $ 258,640
==========
Total Long-Lived Assets........... $2,243,489 $270,604 $649,758 $483,817 $ 85,517 $3,733,185
========== ======== ======== ======== ======== ==========
Total Assets...................... $2,492,233 $285,214 $687,784 $582,487 $ 90,915 $4,138,633
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets.... $ 409,167 $ 69,881 $205,001 $335,986 $ 29,365 $1,049,400
========== ======== ======== ======== ======== ==========
1996
Oil and Gas Production Revenues... $ 691,065 $ 48,204 $ 64,990 $ 28,905 $ -- $ 833,164
Operating Expenses:
Depreciation, depletion and
amortization................. 265,649 20,882 18,113 10,500 -- 315,144
Operating costs................. 188,367 17,234 11,665 8,261 -- 225,527
Gathering, processing and
marketing, net............... (4,100) -- -- -- -- (4,100)
---------- -------- -------- -------- -------- ----------
Operating Income.................. $ 241,149 $ 10,088 $ 35,212 $ 10,144 $ -- 296,593
========== ======== ======== ======== ========
Other Income (Expense):
Equity in loss of affiliates.... (281)
Other revenues.................. 1,400
Administrative, selling and
other........................ (35,911)
Financing costs, net............ (61,606)
----------
Income Before Income Taxes........ $ 200,195
==========
Total Long-Lived Assets........... $2,145,398 $243,003 $488,703 $166,735 $ 56,222 $3,100,061
========== ======== ======== ======== ======== ==========
Total Assets...................... $2,410,180 $260,818 $512,213 $190,867 $ 58,352 $3,432,430
========== ======== ======== ======== ======== ==========
Additions to Long-Lived Assets.... $ 428,208 $ 61,710 $493,088 $ 46,838 $ 21,998 $1,051,842
========== ======== ======== ======== ======== ==========
F-28
67
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)
1998
Oil and gas production revenues........... $496,238 $63,620 $129,123 $70,057 $759,038
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and amortization
Recurring............................ 246,994 29,967 59,825 35,219 372,005
Additional........................... 243,178 -- -- -- 243,178
Lease operating expenses................ 129,585 16,419 23,436 13,472 182,912
Production taxes........................ 21,503 -- -- 3,166 24,669
Income tax (benefit).................... (54,383) 7,686 22,014 6,552 (18,131)
-------- ------- -------- ------- --------
586,877 54,072 105,275 58,409 804,633
-------- ------- -------- ------- --------
Results of operations..................... $(90,639) $ 9,548 $ 23,848 $11,648 $(45,595)
======== ======= ======== ======= ========
Amortization rate per boe(1).............. $ 6.21 $ 4.03 $ 5.22 $ 4.86 $ 5.66
======== ======= ======== ======= ========
1997
Oil and gas production 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 production 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
======== ======= ======== ======= ========
- ---------------
(1) Amortization rate per boe reflects only depreciation, depletion and
amortization (DD&A) of capitalized costs of proved oil and gas properties
(and excludes the additional DD&A recorded in 1998).
F-29
68
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, 1998, by the year
in which such costs were incurred:
1995
TOTAL 1998 1997 1996 AND PRIOR
-------- -------- -------- -------- ---------
(IN THOUSANDS)
Property acquisition costs...... $423,549 $ 65,404 $117,375 $149,970 $ 90,800
Exploration and development..... 214,305 119,765 64,216 -- 30,324
-------- -------- -------- -------- --------
Total................. $637,854 $185,169 $181,591 $149,970 $121,124
======== ======== ======== ======== ========
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA IVORY COAST INTERNATIONAL TOTAL
------------- ------- -------- --------- ----------- ------------- ---------
(IN THOUSANDS)
1998
Acquisition of proved
properties(1)............ $ 13,240 $ 1,034 $ 2,249 $ 41,608 $ 271 $ -- $ 58,402
Acquisition of unproved
properties............... 20,819 5,458 -- -- -- -- 26,277
Exploration................ 27,482 20,054 65,696 39,578 -- 30,563 183,373
Development................ 174,449 44,245 39,735 40,521 23,527 9,293 331,770
Capitalized interest....... 15,390 1,710 19,226 6,354 829 5,770 49,279
Property sales............. (123,861) (4,943) -- -- -- (12,645) (141,449)
--------- ------- -------- -------- ------- -------- ---------
$ 127,519 $67,558 $126,906 $128,061 $24,627 $ 32,981 $ 507,652
========= ======= ======== ======== ======= ======== =========
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
========= ======= ======== ======== ======= ======== =========
- ---------------
(1) Acquisition of proved properties includes unevaluated costs of $15.7
million, $53.8 million and $203.6 million for transactions completed in
1998, 1997 and 1996, respectively.
F-30
69
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:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA IVORY COAST INTERNATIONAL TOTAL
------------- --------- --------- --------- ----------- ------------- -----------
(IN THOUSANDS)
1998
Proved properties..... $ 4,430,504 $ 480,836 $ 454,434 $465,009 $21,409 $ 49,671 $ 5,901,863
Unproved properties... 137,775 21,996 236,568 119,812 13,497 108,206 637,854
----------- --------- --------- -------- ------- -------- -----------
4,568,279 502,832 691,002 584,821 34,906 157,877 6,539,717
Accumulated DD&A...... (2,717,135) (213,615) (108,491) (96,229) -- (49,671) (3,185,141)
----------- --------- --------- -------- ------- -------- -----------
$ 1,851,144 $ 289,217 $ 582,511 $488,592 $34,906 $108,206 $ 3,354,576
=========== ========= ========= ======== ======= ======== ===========
1997
Proved properties..... $ 4,279,089 $ 445,314 $ 379,552 $375,037 $ 2,328 $ 49,671 $ 5,530,991
Unproved properties... 161,671 21,443 184,544 81,723 7,951 75,224 532,556
----------- --------- --------- -------- ------- -------- -----------
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
=========== ========= ========= ======== ======= ======== ===========
F-31
70
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
------- ------ ------- --------- ----- -------
PROVED DEVELOPED RESERVES:
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
December 31, 1998........................... 107,306 10,962 33,705 24,674 1,352 177,999
TOTAL PROVED RESERVES:
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
Extensions, discoveries
and other additions....................... 36,655 1,917 5,906 11,765 930 57,173
Purchases of minerals
in-place.................................. 4,768 59 -- 1,214 -- 6,041
Revisions of previous
estimates................................. (40,868) (155) 4,739 (3,121) 29 (39,376)
Production.................................. (13,262) (988) (10,188) (3,225) -- (27,663)
Sales of properties......................... (18,726) (219) -- -- -- (18,945)
------- ------ ------- ------ ----- -------
Balance December 31, 1998.................... 136,184 11,942 55,153 46,377 1,352 251,008
======= ====== ======= ====== ===== =======
NATURAL GAS
--------------------------------------------------------------
(MILLIONS OF CUBIC FEET)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
--------- ------- ------- --------- ------ ---------
PROVED DEVELOPED RESERVES:
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
December 31, 1998........................... 869,464 322,576 4,790 173,764 79,515 1,450,109
TOTAL PROVED RESERVES:
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
Extensions, discoveries
and other additions....................... 146,112 60,660 31,201 267,533 50,406 555,912
Purchases of minerals
in-place.................................. 25,188 599 -- 27,373 -- 53,160
Revisions of previous
estimates................................. (43,778) (7,812) 19,550 (76) 2,901 (29,215)
Production.................................. (157,701) (38,643) (567) (18,478) -- (215,389)
Sales of properties......................... (52,995) (11,068) -- -- -- (64,063)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1998.................... 1,048,575 331,944 194,430 517,762 79,515 2,172,226
========= ======= ======= ======= ====== =========
F-32
71
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.
UNITED IVORY
STATES CANADA(1) EGYPT AUSTRALIA COAST TOTAL
----------- --------- ---------- ---------- -------- -----------
(IN THOUSANDS)
1998
Cash inflows............................... $ 3,523,294 $763,349 $ 877,861 $1,208,235 $129,965 $ 6,502,704
Production and development costs........... (1,496,382) (240,166) (263,199) (479,627) (28,718) (2,508,092)
Income tax expense......................... (327,470) (127,405) (166,751) (156,409) (29,211) (807,246)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............................. 1,699,442 395,778 447,911 572,199 72,036 3,187,366
10 percent discount rate................... (675,035) (165,220) (127,723) (209,448) (45,889) (1,223,315)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash flows(2)........ $ 1,024,407 $230,558 $ 320,188 $ 362,751 $ 26,147 $ 1,964,051
=========== ========= ========== ========== ======== ===========
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
=========== ========= ========== ========== ======== ===========
- ---------------
(1) Included in cash inflows is approximately $27.9 million, $27.3 million and
$16.2 million ($9.1 million, $9.3 million and $5.3 million after discount at
10 percent per annum) for 1998, 1997 and 1996, 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 $2.4 billion, $3.3 billion and $4.6
billion as of December 31, 1998, 1997 and 1996, respectively.
F-33
72
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,
--------------------------------------
1998 1997 1996
----------- ----------- ----------
(IN THOUSANDS)
Sales, net of production costs................. $ (551,457) $ (755,946) $ (611,041)
Net change in prices and production costs...... (1,253,213) (1,904,236) 1,336,340
Discoveries and improved recovery, net of
related costs................................ 620,153 644,652 775,136
Change in future development costs............. 251,638 120,462 54,236
Revision of quantities......................... (149,859) (40,121) 113,819
Purchases of minerals in-place................. 52,785 242,958 522,123
Accretion of discount.......................... 327,262 456,848 234,436
Change in income taxes......................... 277,518 545,424 (779,980)
Sales of properties............................ (132,337) (48,353) (46,056)
Change in production rates and other........... (41,701) (17,943) (149,055)
----------- ----------- ----------
$ (599,211) $ (756,255) $1,449,958
=========== =========== ==========
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 the full cost accounting rules of the SEC, the Company reviews the
carrying value of its proved oil and gas properties each quarter on a
country-by-country basis. Under these rules, capitalized costs of proved 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, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices at the end of each fiscal quarter and require
a write-down if the "ceiling" is exceeded, even if prices declined for only a
short period of time. The Company recorded a $243.2 million pre-tax ($158.1
million net of tax) non-cash write-down of the carrying value of Apache's U.S.
proved oil and gas properties as of December 31, 1998, due to these ceiling test
limitations. If oil and gas prices deteriorate from the Company's year-end
realized prices, it is likely that additional write-downs will occur in 1999.
Write-downs required by these rules do not impact cash flow from operating
activities.
F-34
73
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
FIRST SECOND THIRD FOURTH(2) TOTAL
-------- -------- -------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1998
Revenues.............................. $245,941 $220,132 $211,683 $ 197,959 $ 875,715
Expenses, net......................... 228,585 210,896 208,482 357,139 1,005,102
-------- -------- -------- --------- ----------
Net income (loss)..................... $ 17,356 $ 9,236 $ 3,201 $(159,180) $ (129,387)
======== ======== ======== ========= ==========
Income (loss) attributable to common
stock............................... $ 17,356 $ 9,236 $ 2,617 $(160,600) $ (131,391)
======== ======== ======== ========= ==========
Net income (loss) per common share(1)
Basic............................... $ .18 $ .09 $ .03 $ (1.64) $ (1.34)
======== ======== ======== ========= ==========
Diluted............................. $ .18 $ .09 $ .03 $ (1.64) $ (1.34)
======== ======== ======== ========= ==========
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
======== ======== ======== ========= ==========
- ---------------
(1) The sum of the individual quarterly net income (loss) per common share
amounts may not agree with year-to-date net income (loss) 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 (loss) per common share because
to do so would have been antidilutive.
(2) As a result of low oil and gas prices at December 31, 1998, the carrying
value of Apache's U.S. oil and gas properties exceeded the ceiling
limitation and the Company reported a $243.2 million pre-tax ($158.1 million
net of tax) non-cash write-down in the fourth quarter of 1998.
F-35
74
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between
Registrant and Amoco Production Company (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated July 1, 1991, SEC File No. 1-4300).
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 -- Certificate of Ownership and Merger merging Apache PHN
Company, Inc. into Registrant, effective July 1, 1998, as
filed with the Secretary of State of Delaware on July 1,
1998.
*3.5 -- Agreement and Plan of Merger merging MWJR Petroleum
Corporation into Registrant, effective September 1, 1998,
as filed with the Secretary of State of Delaware on
August 19, 1998.
*3.6 -- Certificate of Ownership and Merger merging MW Petroleum
Corporation into Registrant, effective September 1, 1998,
as filed with the Secretary of State of Delaware on
August 19, 1998.
*3.7 -- Certificate of Designations, Preferences and Rights of
5.68% Cumulative Preferred Stock, Series B, of
Registrant, as filed with the Secretary of State of
Delaware on August 21, 1998.
75
EXHIBIT NO. DESCRIPTION
----------- -----------
*3.8 -- Certificate of Correction to Certificate of Designations,
Preferences and Rights of 5.68% Cumulative Preferred
Stock, Series B, of Registrant, as filed with the
Secretary of State of Delaware on August 24, 1998.
3.9 -- Bylaws of Registrant, as amended September 17, 1998
(incorporated by reference to Exhibit 3.2 to Registrant's
Quarterly Report on Form 10-Q for quarter ended September
30, 1998, SEC File No. 1-4300).
4.1 -- Form of Certificate for Registrant's Common Stock
(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 -- Form of Certificate for Registrant's 5.68% Cumulative
Preferred Stock, Series B (incorporated by reference to
Exhibit 4.2 to Amendment No. 2 on Form 8-K/A to
Registrant's Current Report on Form 8-K, dated August 18,
1998, SEC File No. 1-4300).
4.3 -- 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 -- 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).
10.2 -- 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).
10.3 -- 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).
10.4 -- 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).
76
EXHIBIT NO. DESCRIPTION
----------- -----------
10.5 -- 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).
10.6 -- 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).
10.7 -- 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).
10.8 -- 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).
10.9 -- 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 (incorporated by reference
to exhibit 10.12 to Registrant's Annual Report on Form
10-K for year ended December 31, 1997, SEC File No.
1-4300).
10.10 -- 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).
10.11 -- 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).
+10.12 -- 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).
+*10.13 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998.
+*10.14 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998.
+10.15 -- 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).
77
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.16 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997
(incorporated by reference to Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1997, SEC File No. 1-4300).
+*10.17 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, restated as of January 1, 1997, and
amendments effective as of January 1, 1997, January 1,
1998 and January 1, 1999.
+10.18 -- 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).
+*10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated December 17, 1998.
+*10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated December 17, 1998.
+10.21 -- 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).
+10.22 -- 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).
+*10.23 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated December 17, 1998.
+10.24 -- 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).
+10.25 -- 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).
+*10.26 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998.
+10.27 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997 (incorporated by
reference to Exhibit 10.31 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1997, SEC File
No. 1-4300).
+10.28 -- 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).
+10.29 -- 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).
78
EXHIBIT NO. DESCRIPTION
----------- -----------
+10.30 -- 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).
+10.31 -- 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).
+10.32 -- 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).
+*10.33 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris.
10.34 -- Amended and Restated Gas Purchase Agreement, effective
July 1, 1998, by and among Registrant and MW Petroleum
Corporation, as Seller, and Producers Energy Marketing,
LLC, as Buyer (incorporated by reference to Exhibit 10.1
to Registrant's Current Report on Form 8-K, dated June
18, 1998, SEC File No. 1-4300).
12.1 -- Statement of Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends (incorporated
by reference to Exhibit 99.1 to Registrant's Current
Report on Form 8-K, dated March 2, 1999, 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.