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UNITED STATES 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, 2000,
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
Automatically Convertible Equity Securities New York Stock Exchange
Conversion Preferred Stock, Series C Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
Apache Finance Canada Corporation New York Stock Exchange
7.75% Notes Due 2029
Irrevocably and Unconditionally
Guaranteed by Apache Corporation
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 28, 2001...... $7,262,751,772
Number of shares of registrant's common stock outstanding as
of February 28, 2001...................................... 123,726,606
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 2001
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
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 27
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 29
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 29
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 29
11. EXECUTIVE COMPENSATION...................................... 29
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 29
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 29
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.................................................... 30
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 or millions of cubic feet of gas per
day (Mcf/d and MMcf/d, respectively) or millions of British thermal units per
day (MMBtu/d). Gas sales volumes may be expressed in terms of one million
British thermal units (MMBtu), which is approximately, equal to one Mcf. With
respect to information relating to the Company's working interest in wells or
acreage, "net" oil and gas wells or acreage is determined by multiplying gross
wells or acreage by the Company's working interest therein. Unless otherwise
specified, all references to wells and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation formed
in 1954, is an independent energy company that explores for, develops and
produces natural gas, crude oil and natural gas liquids. In North America,
Apache's exploration and production interests are focused on the Gulf of Mexico,
the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western
Sedimentary Basin of Canada. Outside of North America, Apache has exploration
and production interests offshore Western Australia and in Egypt, and
exploration interests in Poland 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.
2000 RESULTS
Apache had its best year ever in 2000 with record income attributable to
common stock of $693.1 million, or $5.87 per share, on total revenues of $2.3
billion. Net cash provided by operating activities during 2000 was $1.5 billion,
a 140 percent increase from 1999. Both historically high commodity prices and
record production contributed to the outstanding results.
Apache reported its 23rd consecutive year of production growth (up 27
percent) and 13th consecutive year of oil and gas reserves growth (up 35
percent) in 2000. Apache's average daily production was 121.8 Mbbls of oil and
natural gas liquids and 831 MMcf of natural gas for the year. Giving effect to
2000 production, acquisitions, dispositions, revisions and drilling activity,
the Company's estimated proved reserves increased by 279.2 MMboe in 2000 over
the prior year to 1,086.4 MMboe, of which approximately 52 percent was natural
gas. Based on 807.2 MMboe of proved reserves reported at year-end 1999, Apache's
reserve additions (including revisions) during the year reflect replacement of
396 percent of the Company's 2000 production. Apache's drilling and
production-enhancement program yielded 455 new producing wells out of 590
attempts and involved 950 major North American workover and recompletion
projects during the year.
At December 31, 2000, Apache held interests in approximately 6,371 net oil
and gas wells and 3,101,812 net developed acres of oil and gas properties
worldwide. In addition, the Company had 1,007,685 net undeveloped acres under
North American leases and 17,203,835 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. Apache prefers to operate its properties
so that it can best influence their development, as a result, we operate
properties accounting for over 80 percent of our production.
For our existing assets, Apache seeks to maximize value by increasing
production and reserves while reducing operating costs. Achieving these
objectives requires rigorous pursuit of production enhancement opportunities and
moderate risk drilling, while divesting marginal and non-strategic properties
and pursuing other activities to reduce costs. In acquiring new assets, Apache
tries to obtain appropriate prices by generally avoiding auctions where the
Company would have to compete against other buyers. Our aim is to follow each
acquisition with a cycle of reserve enhancement, property consolidation and cash
flow acceleration, facilitating asset growth and debt reduction.
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Apache's international exploration activities are an emerging component of
our long-term growth strategy. Apache seeks to concentrate our exploratory
investments in a select number of international areas and to become the dominant
operator in those regions. Apache believes that these investments, although
higher-risk, offer potential for significant reserve additions, and complement
our North American operations, which are more development oriented.
2000 ACQUISITIONS AND DISPOSITIONS
On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol YPF (Repsol), for approximately $118.7 million, plus
assumed liabilities of approximately $29.8 million. The acquisition included
estimated proved reserves of approximately 28.7 MMboe as of the acquisition
date.
On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware, Inc.
(Collins & Ware) for approximately $320.7 million. The acquisition included
estimated proved reserves of approximately 83.7 MMboe as of the acquisition
date. One-third of the reserves are liquid hydrocarbons.
On August 17, 2000, Apache completed the acquisition of a Delaware limited
liability company owned by subsidiaries of Occidental Petroleum Corporation
(Occidental) and the related natural gas production for approximately $321.2
million, plus future payments of approximately $44.0 million over four years.
The Occidental properties are located in 32 fields on 93 blocks on the Outer
Continental Shelf of the Gulf of Mexico. The acquisition included estimated
proved reserves of approximately 53.1 MMboe as of the acquisition date.
On December 29, 2000, Apache completed the acquisition of Canadian
properties from Canadian affiliates of Phillips Petroleum Company (Phillips) for
approximately $490.3 million. The acquisition included estimated proved reserves
of approximately 70.0 MMboe as of the acquisition date. The properties comprise
approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786
square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama
area of Northwest Alberta. The assets also include three sour gas plants with
total throughput capacity of 150 MMcf per day, 13 compressor stations and 150
miles of owned and operated gas gathering lines.
In 2000, the Company also completed tactical regional acquisitions for cash
consideration totaling $104.0 million. These acquisitions added approximately
18.3 MMboe to the Company's proved reserves.
During 2000, Apache sold proprietary rights to certain Canadian seismic
data and non-strategic oil and gas properties, collecting cash of $26.3 million.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
diversified among four operating regions: Offshore, Midcontinent, Southern and
Canada. Approximately 80 percent of the Company's 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.
Offshore. The Offshore region comprises the Company's interests in the
Gulf of Mexico, offshore Louisiana and Texas. In 2000, the Offshore region was
Apache's leading region for production and production revenues contributing
approximately $771 million in revenues from production of 28.5 MMboe for the
year. The Company performed 188 workover and recompletion operations during 2000
in the offshore region and participated in drilling 35 wells, 22 of which were
completed as producers. As of December 31, 2000, the region encompassed 600,546
net acres, and accounted for 190.2 MMboe, or 18 percent, of the Company's
year-end 2000 total estimated proved reserves.
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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 2000, the Midcontinent region produced approximately 12.1
MMboe, generating $292 million in revenue for the Company.
At December 31, 2000, Apache held an interest in 697,892 net acres in the
region, which accounted for approximately 125.8 MMboe, or 12 percent, of
Apache's total estimated proved reserves. Apache participated in drilling 210
wells in the Midcontinent region during the year, 164 of which were completed as
producing wells. The Company performed 68 workover and recompletion operations
in the region during 2000.
Southern. The Southern region includes assets in the Permian Basin of
western Texas and New Mexico, the San Juan Basin of New Mexico, central Texas,
and the Texas and Louisiana coasts. In 2000, the Southern region produced
approximately 15.5 MMboe and generated $409 million in production revenue. At
December 31, 2000, the Company held 758,746 net acres in the region, which
accounted for 320.1 MMboe, or 29 percent, of the Company's total estimated
proved reserves. Apache participated in drilling 149 wells in the Southern
region, 139 of which were productive wells. Apache performed 490 workovers and
recompletions in the Southern 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 13.8 MMboe and generated $332 million in production
revenue in 2000. Apache participated in drilling 114 wells in this region during
the year, 87 of which were completed as producers. The Company performed 204
workovers and recompletions on operated wells during 2000. At December 31, 2000,
the region encompassed approximately 1,113,031 net acres, and accounted for
228.7 MMboe, or 21 percent, of the Company's year-end 2000 total estimated
proved reserves.
In February 2001, certain subsidiaries of the Company and Murphy Oil
Corporation (Murphy) filed a lawsuit in Canada charging Predator Corporation
(Predator) and others with misappropriation and misuse of confidential well data
to obtain acreage offsetting a significant natural gas discovery in northeast
British Columbia. The lawsuit charges that a wireline service company working
for Apache and Murphy compromised itself by passing on to Predator highly
confidential information on a large natural gas discovery Apache and Murphy made
last year in the Ladyfern area of British Columbia, and that Predator personnel
and their agents trespassed on the discovery well site to obtain additional
confidential well data. Predator has filed a counterclaim seeking more than CN$6
billion. Apache believes that the counterclaim is without merit and that the
amount claimed by Predator is frivolous.
Egypt. At year end, Apache held 11,222,914 net acres in Egypt with 68.2
MMboe of estimated proved reserves or six percent of Apache's total estimated
proved reserves. In 2000, Apache had 13.0 MMboe of production in Egypt, which
generated $361 million in production revenues. Apache owns a 75 percent interest
in the Qarun Block and a 40 percent interest in the Khalda Block, both located
in the Western Desert of Egypt. Production of gas from Khalda is delivered for
sale to the Egyptian General Petroleum Corporation (EGPC) at a point west of
Alexandria, Egypt, via a 34-inch gas pipeline. Additional gas will be delivered
via a southern line expected to be completed by mid-year 2001. The costs of
building the pipeline were borne by Apache, the other Khalda participants and
the owners of a neighboring block, and are recoverable from oil and gas
production from the Khalda Block.
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 is also acquiring interests in the Matruh
Development lease from Shell, which is not currently producing. In late 1999,
Apache acquired from Amoco Egypt 100 percent of the working interest in the
WD-19 area in the Western Desert. Apache drilled additional wells and has tied
them into adjoining Qarun facilities.
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Both the Khalda and Qarun Concession Agreements provide that Apache and its
partners in the concessions will pay all of the operating and capital costs for
developing the concessions, while the production will be split between EGPC and
the partners. Up to 40 percent of the oil and gas produced from each of the
concessions is available to the Company and its partners to recover operating
and capital costs for the applicable concession. To the extent eligible costs
exceed 40 percent of the oil and gas produced and sold from a concession in any
given quarter, such excess costs may be carried into future quarters without
limit. The remaining 60 percent of all oil and gas produced from the concessions
is divided between EGPC and Apache and its partners, with the percentage
received by Apache and its partners being reduced 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 five-year amortization.
After year-end 2000, Apache agreed to acquire all of Repsol's interest in
the Khalda Block (50 percent), the Ras Kanayes Block (32 percent), the Ras El
Hekma Block (50 percent), the North East Abu Gharadig Block (24 percent) and the
portion of the West Mediterranean Block onshore and offshore up to 100 meters
water depth (33 percent). Included in the transaction is Repsol's 50 percent
interest in the Umbarka Development lease, a mature producing area, and 100
percent interest in the South Umbarka Block which also produces oil and gas.
Apache will become operator of all these areas except North East Abu Gharadig.
The terms of the concessions are similar, except for Umbarka, which
provides for payment of a tax and royalty totaling together 50 percent of
Apache's net profits from that area, and does not involve the traditional
"sharing" of production.
Australia. Western Australia became an important region for Apache after
the 1993 acquisition of Hadson Energy Resources Corporation. In 2000, natural
gas production in the region increased by 42 percent from the prior year to
approximately 108 MMcf/d. Apache acts as operator for most of its Western
Australian properties through its wholly-owned subsidiary, Apache Energy Limited
(AEL). During 2000, Apache had 12.3 MMboe of production generating $223.5
million of production revenue. Estimated proven reserves in Australia increased
by two percent to 153.5 MMboe, or 14 percent of the Company's year-end total
estimated proven reserves. The increase reflects additions to oil and gas
reserves in the Harriet Joint Venture. As of December 31, 2000, Apache held
259,240 net developed acres and 1,765,630 net undeveloped acres offshore Western
Australia. Through AEL and its subsidiaries, Apache also operates the Varanus
Island gas hub, with a throughput capacity of 240 MMcf/d, and two 60-mile
(12-inch and 16-inch) pipelines from Varanus Island to connections with the
Dampier to Bunbury and Goldfields Gas Transmission pipelines. See "Oil and
Natural Gas Marketing."
Other International Operations. Outside of Canada, Egypt and Australia,
Apache currently has exploration interests in Poland and offshore China.
Apache obtained its first acreage position in Poland in 1997, when the
Company assumed operatorship and a 50 percent interest in over 5.5 million gross
acres in Poland from FX Energy, Inc. (FX Energy). The Company has 4,891,228 net
undeveloped acres in Poland as of December 31, 2000. A 1999 well, known as the
Wilga-2 well, tested at a combined rate of 16.9 MMcf of gas and 570 barrels of
condensate per day, and a well drilling at yearend, the Tuchola 108-2 well of
the Pomeranian Concession, has also tested at 9.5 MMcf per day. The Wilga-2 well
is located on Block 255 of the Vistula Concession in the Lublin basin. Apache's
operations in Poland are headquartered in Warsaw.
Apache is also the operator, with a 24.5 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. In early 1997, one well tested at
rates up to 11,571 b/d of oil and another tested at rates up to 15,359 b/d. An
overall development plan for the C and D Fields in the Zhao Dong Block was
approved by Chinese authorities in December 2000, and work is expected to
commence in 2001.
In June 2000, our subsidiary, Apache China Corporation LDC (Apache China),
filed a lawsuit against PetroChina Company Limited (PetroChina), China National
Petroleum Corporation and China National Oil and Gas Exploration and Development
Corporation in connection with certain of our Chinese operations in the Zhao
Dong Block of the Bohai Bay in China. The Company filed seeking damages and
injunctive relief to
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prevent the Chinese parties from declaring that Apache and XCL-China had
relinquished some of our Chinese exploratory acreage, and other claims. The
lawsuit was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in
connection with bankruptcy proceedings of XCL-China, Ltd., a co-owner in the
Zhao Dong Block. On June 30, 2000, Apache and PetroChina announced having
reached agreement to resolve the outstanding issues associated with development
of the Zhao Dong Block. The agreement called for PetroChina and the China
National Petroleum Corporation to obtain various governmental approvals
including approval of the overall development plan. By the middle of February
2001, all of the agreed actions had occurred, including all of the required
governmental approvals, and Apache China's lawsuit was dismissed with prejudice.
Apache and the other participants in the Zhao Dong Block are preparing to begin
the construction of production facilities and development drilling in accordance
with the approved overall development plan.
OIL AND NATURAL GAS MARKETING
On October 27, 1995, wholly owned affiliates of each of Apache, Oryx Energy
Company and Parker & Parsley Petroleum Company (Parker & Parsley) formed
Producers Energy Marketing LLC (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. In June 1998, Apache sold its
interest in ProEnergy to Cinergy Corp. (Cinergy) and formed a strategic alliance
with Cinergy to market substantially all the Company's natural gas production
from North America. ProEnergy, renamed Cinergy Marketing & Trading, LLC in June
1999, 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.
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 less than 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 two gas sales contracts during 2000,
bringing its total to 20 contracts. Spot sales continued to two buyers and
short-term additional quantities were agreed with another buyer. In total, AEL
committed a further 21.4 Bcf for delivery over the next six to eight years.
Apache's total Australian delivery rates are expected to average 116 MMcf/d in
2001, excluding spot sales.
In Egypt, oil from the Qarun Block is delivered by pipeline to tanks at the
Dashour pumping station northeast of the Qarun Block or by truck to the Tebbin
refinery south of Alexandria, Egypt. At the discretion
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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 began in 1999 upon completion of a gas pipeline
from the Khalda Block. In late 1997, the same sellers entered into a supplement
to the contract with EGPC to sell an additional 50 MMcf/d through a southern gas
line being constructed by the Company and its partners in the Khalda Block to a
point near the Qarun Block to tie into an existing gas pipeline. This southern
line is expected to complete tie-in by mid-year 2001. The Repsol transaction
referred to above will transfer operatorship of the Khalda gas processing plants
and the Southern gas line to Apache.
OIL AND NATURAL GAS PRICES
Natural gas prices during 2000 experienced a strong upward trend with
Apache's realized prices ranging from $2.37 per Mcf in January to $5.60 per Mcf
in December. Fluctuations are largely due to market perceptions about natural
gas supply and demand. Apache's average realized gas price of $3.59 per Mcf for
2000 was up 66 percent from the prior-year average of $2.16 per Mcf, and its
1999 average realized natural gas price was 12 percent higher than the 1998
average price of $1.93 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 price volatility as is Apache's U.S. and
Canadian gas production; however, natural gas sales under such Australian
minimum price contracts represented less than five percent of the Company's
total natural gas sales for 2000. Total Australian gas sales in 2000, including
long-term contracts and spot sales, averaged $1.34 per Mcf, 11 percent lower
than the 1999 average of $1.51. The decline from 1999 was primarily due to a
lower currency exchange rate.
In Egypt, all oil production from the East Beni Suef, Khalda, West
Mediterranean, WD-19 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 2000, the average price was
$27.81 per barrel. Gas sales from the Khalda Block commenced in 1999 based on a
contract price that is equivalent to 85 percent of the price of Suez Blend crude
oil, FOB Mediterranean.
The price for certain quantities of gas sold and produced in Egypt was
reduced in 2000 to a price based on crude oil with a maximum of $2.65 per Mcf,
following discussions and agreements between EGPC and certain other producers.
These latest agreements do not impact any of Apache's existing gas sales
contracts; however, any new gas sales contracts may be impacted.
Oil prices remained subject to unpredictable political and economic forces
during 2000 and experienced fluctuations similar to those seen in natural gas
prices for the year, and also showed a significant upward 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), worldwide
demand, 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 availability 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 2000, Apache's realized worldwide crude oil price ranged from $22.56 per
barrel in April to $32.54 per barrel in September. The average crude oil price
of $27.37 per barrel in 2000 was up 48 percent from the average price of $18.45
per barrel in 1999, and was 116 percent higher than the average price of $12.70
per barrel in 1998. The Company's average crude oil price for its Australian
production was $29.99 per barrel in 2000, 52 percent more than the average price
in 1999.
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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.
WRITE-DOWNS UNDER THE FULL COST CEILING TEST RULES
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 had no write-downs due to ceiling
test limitations in 2000. Given the volatility of oil and gas prices, it is
reasonably possible that the Company's estimate of discounted future net cash
flows from proved oil and gas reserves could change in the near term. If oil and
gas prices decline significantly in the future, even if only for a short period
of time, it is possible that write-downs of oil and gas properties could occur.
Write-downs required by these rules do not impact cash flow from operating
activities.
VOLATILE PRICES CAN MATERIALLY AFFECT THE COMPANY
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. Oil and natural
gas prices have historically been and are likely to continue to be volatile.
This 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.
UNCERTAINTY IN CALCULATING RESERVES; RATES OF PRODUCTION; DEVELOPMENT
EXPENDITURES; CASH FLOWS
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 the reserve
estimates, including many factors beyond the Company's control. Reserve data
represent only estimates. In addition, the estimates of future net cash flows
from the Company's proved reserves and their present value are based upon
various assumptions about future production levels, prices and costs that may
prove to be incorrect over time. Any significant variance from the assumptions
could result in the actual quantity of the Company's reserves and future net
cash flows from them being materially different from the estimates. In addition,
the Company's estimated reserves may be subject to downward or upward revision
based upon production history, results of future exploration and development,
prevailing oil and gas prices, operating and development costs and other
factors.
7
10
ACQUISITION OR DISCOVERIES OF ADDITIONAL RESERVES IS NEEDED TO AVOID A MATERIAL
DECLINE IN RESERVES AND PRODUCTION
The rate of production from oil and gas properties generally 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 Company's proved reserves
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.
SUBSTANTIAL COSTS INCURRED TO CONFORM TO 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. The Company has made and
will continue to make large expenditures in its efforts to comply with the
requirements of environmental and other regulations. Further, the oil and gas
regulatory environment could change in ways that might substantially increase
these costs. Hydrocarbon-producing states regulate conservation practices and
the protection of correlative rights. These regulations affect the Company's
operations and limit the quantity of hydrocarbons the Company may produce and
sell. In addition, at the U.S. federal level, the Federal Energy Regulatory
Commission regulates interstate transportation of natural gas under the Natural
Gas Act. Other regulated matters include marketing, pricing, transportation and
valuation of royalty payments.
SUBSTANTIAL COSTS INCURRED RELATED TO ENVIRONMENTAL MATTERS
The Company, 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.
The Company 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,
2000, which would have a material impact upon the Company's financial position
or results of operations.
The Company 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.
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. The Company 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.
8
11
COMPETITION WITH OTHER COMPANIES COULD HARM THE COMPANY
The oil and gas industry is highly competitive. The Company's business
could be harmed by competition with other companies. Because oil and gas are
fungible commodities, the Company's principal form of competition is price
competition. The Company strives to maintain the lowest finding and production
costs possible to maximize profits. In addition, 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 the Company possesses.
Many of the Company's competitors have established strategic long-term positions
and maintain strong governmental relationships in countries in which the Company
may seek new entry.
INSURANCE DOES NOT COVER ALL RISKS
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 MAY PREVENT THE COMPANY FROM FULLY BENEFITING FROM PRICE INCREASES
To the extent that the Company engages in hedging activities, that protect
against price deterioration, 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 at the delivery point to which the hedging transaction is
indexed.
RISKS ARISING FROM THE FAILURE TO FULLY IDENTIFY POTENTIAL PROBLEMS RELATED TO
ACQUIRED RESERVES OR TO PROPERLY ESTIMATE THOSE RESERVES
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.
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.
9
12
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, among others, 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; risks of loss due to civil strife, acts of war, guerrilla
activities and insurrection; royalty and tax increases; and other risks arising
out of foreign governmental sovereignty over the areas in which the Company's
operations are conducted. These risks may be higher in the developing countries
in which the Company conducts its exploration, development and production
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 United States or may not be
successful in subjecting non-U.S. persons to the jurisdiction of the courts in
the United States, which could adversely affect the outcome of the dispute.
EFFECT OF CHANGES IN FOREIGN EXCHANGE RATES ON THE COMPANY'S CASH FLOW
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 as of 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
Polish and Australian subsidiaries have net financial assets that are
denominated in a currency other than the functional reporting currency of the
subsidiaries. The Company considers its current risk exposure to exchange rate
movements, based on net cash flows, to be immaterial.
EMPLOYEES
On December 31, 2000, Apache had 1,546 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 2000,
the Company maintained regional exploration and/or production offices in Tulsa,
Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western
Australia; Beijing, China; 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, 2000, are as follows:
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
------------------------ -----------------------
GROSS ACRES NET ACRES GROSS ACRES NET ACRES
----------- ---------- ----------- ---------
OFFSHORE
Alabama................................ -- -- 10,919 546
Louisiana.............................. 184,540 125,473 622,568 323,120
Texas.................................. 45,403 24,320 263,199 127,087
---------- ---------- --------- ---------
Total........................ 229,943 149,793 896,686 450,753
---------- ---------- --------- ---------
MIDCONTINENT
Arkansas............................... 738 290 4,351 3,230
Kansas................................. 240 90 40 40
Louisiana.............................. 8,363 5,923 41,599 28,360
Michigan............................... 3,181 2,712 -- --
Oklahoma............................... 194,402 61,339 764,082 332,794
Pennsylvania........................... -- -- 796 38
Texas.................................. 85,658 41,915 614,908 221,161
---------- ---------- --------- ---------
Total........................ 292,582 112,269 1,425,776 585,623
---------- ---------- --------- ---------
SOUTHERN
Alaska................................. 14,262 -- -- --
Colorado............................... 13,333 11,908 10,979 10,715
Illinois............................... 140 56 -- --
Louisiana.............................. 71,424 67,763 78,012 60,856
New Mexico............................. 86,392 48,337 118,087 56,969
Texas.................................. 171,560 84,889 670,114 398,708
Wyoming................................ 25,319 18,532 40 13
---------- ---------- --------- ---------
Total........................ 382,430 231,485 877,232 527,261
---------- ---------- --------- ---------
Total United States.......... 904,955 493,547 3,199,694 1,563,637
---------- ---------- --------- ---------
INTERNATIONAL
Australia.............................. 3,219,730 1,765,630 445,050 259,240
Canada................................. 780,587 514,138 794,735 598,893
China.................................. 5,314 2,657 5,911 1,448
Egypt.................................. 20,835,291 10,544,320 1,011,055 678,594
Poland................................. 9,782,456 4,891,228 -- --
---------- ---------- --------- ---------
Total International.......... 34,623,378 17,717,973 2,256,751 1,538,175
---------- ---------- --------- ---------
Total Company................ 35,528,333 18,211,520 5,456,445 3,101,812
========== ========== ========= =========
11
14
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, 2000, is set forth below:
GAS OIL
------------- -------------
GROSS NET GROSS NET
----- ----- ----- -----
Offshore............................................... 354 184 490 314
Midcontinent........................................... 2,743 1,188 653 229
Southern............................................... 1,018 601 6,182 2,321
Canada................................................. 871 665 1,094 769
Australia.............................................. 6 4 19 10
Egypt.................................................. 21 8 160 78
----- ----- ----- -----
Total........................................ 5,013 2,650 8,598 3,721
===== ===== ===== =====
Gross Wells Drilled
The following table sets forth the number of gross exploratory and gross
development wells drilled in which the Company participated during the last
three fiscal years. 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, 2000, the Company was participating in 75 wells in the U.S., 13 Canadian
wells, four Egyptian wells, two Australian wells and two Polish wells in the
process of drilling.
EXPLORATORY DEVELOPMENTAL
------------------------ ------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
2000
United States............................. 11 15 26 314 54 368
Canada.................................... 3 11 14 84 16 100
Australia................................. 10 10 20 21 3 24
Egypt..................................... 2 24 26 10 -- 10
Other International....................... -- 2 2 -- -- --
-- -- --- --- -- ---
Total........................... 26 62 88 429 73 502
== == === === == ===
1999
United States............................. 11 13 24 97 9 106
Canada.................................... 2 3 5 30 14 44
Australia................................. 2 12 14 5 1 6
Egypt..................................... 3 2 5 38 3 41
Other International....................... -- 5 5 2 -- 2
-- -- --- --- -- ---
Total........................... 18 35 53 172 27 199
== == === === == ===
1998
United States............................. 20 16 36 163 34 197
Canada.................................... 17 12 29 30 7 37
Australia................................. 7 8 15 -- -- --
Egypt..................................... 11 24 35 27 5 32
Other International....................... -- 1 1 1 -- 1
-- -- --- --- -- ---
Total........................... 55 61 116 221 46 267
== == === === == ===
12
15
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
---------- ---- ----- ---------- ---- -----
2000
United States.......................... 5.8 9.1 14.9 201.0 41.6 242.6
Canada................................. 1.0 7.0 8.0 58.7 11.7 70.4
Australia.............................. 5.0 5.8 10.8 9.7 1.6 11.3
Egypt.................................. 1.4 13.7 15.1 4.3 -- 4.3
Other International.................... -- .9 .9 -- -- --
---- ---- ---- ----- ---- -----
Total........................ 13.2 36.5 49.7 273.7 54.9 328.6
==== ==== ==== ===== ==== =====
1999
United States.......................... 4.1 8.2 12.3 59.1 4.8 63.9
Canada................................. 1.3 2.3 3.6 26.2 12.1 38.3
Australia.............................. 2.0 5.4 7.4 2.6 .2 2.8
Egypt.................................. 1.6 1.2 2.8 15.6 1.2 16.8
Other International.................... -- 1.6 1.6 .5 -- .5
---- ---- ---- ----- ---- -----
Total........................ 9.0 18.7 27.7 104.0 18.3 122.3
==== ==== ==== ===== ==== =====
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
Australia.............................. 3.5 3.4 6.9 -- -- --
Egypt.................................. 5.6 13.5 19.1 11.9 2.8 14.7
Other International.................... -- .2 .2 .2 -- .2
---- ---- ---- ----- ---- -----
Total........................ 35.2 39.2 74.4 104.4 27.7 132.1
==== ==== ==== ===== ==== =====
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)
- ----------------------- ------- ------- ------- ------------ --------- --------- ---------
2000.................... 41,920 2,648 303,980 $2.68 $27.37 $19.19 $3.59
1999.................... 33,223 1,437 239,484 2.56 18.45 9.42 2.16
1998.................... 26,611 1,052 215,389 2.87 12.70 7.94 1.93
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, L.P., Petroleum Consultants. 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.
13
16
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 2000, 1999 and 1998:
OIL, NGL
NATURAL AND
GAS CONDENSATE
(BCF) (MMBBLS)
------- ----------
2000
Developed................................................... 2,664.8 354.0
Undeveloped................................................. 718.9 168.5
------- -----
Total............................................. 3,383.7 522.5
======= =====
1999
Developed................................................... 1,873.7 302.0
Undeveloped................................................. 477.9 113.2
------- -----
Total............................................. 2,351.6 415.2
======= =====
1998
Developed................................................... 1,450.1 178.0
Undeveloped................................................. 722.1 73.0
------- -----
Total............................................. 2,172.2 251.0
======= =====
The following table sets forth the estimated future net cash flows of all
the Company's proved reserves, and proved developed reserves, as of December 31,
2000, 1999 and 1998. Future cash inflows are based on year-end prices except in
those instances where the sale of gas and oil is covered by physical contract
terms providing for higher or lower amounts. Operating costs, production and ad
valorem taxes, and future development costs are based on current costs with no
escalations.
PRESENT VALUE OF ESTIMATED
FUTURE NET CASH FLOWS
ESTIMATED FUTURE BEFORE INCOME TAXES
NET CASH FLOWS (DISCOUNTED AT 10 PERCENT)
------------------------- ---------------------------
PROVED PROVED
DECEMBER 31, PROVED DEVELOPED PROVED DEVELOPED
- ------------ ----------- ----------- ------------ ------------
(IN THOUSANDS)
2000............................. $31,238,877 $24,740,047 $17,725,205 $14,285,437
1999............................. 10,392,116 8,638,015 6,068,013 4,890,340
1998............................. 3,994,612 2,793,698 2,395,888 1,764,887
At December 31, 2000, estimated future net cash flows related to the
Company's proved reserves and proved developed reserves were as follows:
PROVED
DECEMBER 31, PROVED DEVELOPED
- ------------ ----------- -----------
(IN THOUSANDS)
2001....................................................... $ 3,330,103 $ 3,288,889
2002....................................................... 3,271,279 2,863,843
2003....................................................... 3,041,370 2,308,585
Thereafter................................................. 21,596,125 16,278,730
----------- -----------
Total............................................ $31,238,877 $24,740,047
=========== ===========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 2000, 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, 2001, 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
14
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 2000.
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 2000 and
1999. Prices shown are from the New York Stock Exchange Composite Transactions
Reporting System.
2000 1999
------------------------------------ ------------------------------------
DIVIDENDS PER DIVIDENDS PER
PRICE RANGE SHARE(1) PRICE RANGE SHARE
---------------- ---------------- ---------------- ----------------
HIGH LOW DECLARED PAID HIGH LOW DECLARED PAID
------ ------ -------- ---- ------ ------ -------- ----
First Quarter............ $51 1/2 $32 1/8 $.07 $.07 $28 9/16 $17 5/8 $.07 $.07
Second Quarter........... 61 1/2 44 -- .07 39 7/8 25 1/16 .07 .07
Third Quarter............ 67 11/16 46 3/8 .14 -- 49 15/16 37 .07 .07
Fourth Quarter........... 74 3/16 51 1/2 -- .14 44 30 .07 .07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 28,
2001, was $58.70. At December 31, 2000, there were 123,634,748 shares of Apache
common stock outstanding held by approximately 10,000 shareholders of record and
62,000 beneficial owners.
- ---------------
(1) The Company paid dividends of $.28 per share in 2000, of which $.21 was
declared in 2000 and $.07 was declared in the fourth quarter of 1999, as a
result of changing its dividend payment schedule from a quarterly basis to
an annual basis.
15
18
The Company has paid cash dividends on its common stock for 34 consecutive
years through December 31, 2000, and expects to continue the payment of
dividends at current levels. During 2000, the Company implemented a change in
the payment schedule for dividends on its common stock from a quarterly basis to
an annual basis. When, and if, declared by the Company's board of directors,
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 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 a person or group becomes the beneficial owner of 20 percent or
more of Apache's outstanding common stock (flip in event), each Right will
become exercisable for shares of Apache's common stock at 50 percent of the then
market price of the common stock. If a 20 percent shareholder of Apache acquires
Apache, by merger or otherwise, in a transaction where Apache does not survive
or in which Apache's common stock is changed or exchanged (flip over event), the
Rights become exercisable for shares of the common stock of the company
acquiring Apache at 50 percent of the then market price for Apache common stock.
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 of a flip in
event. 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. The shares of Series B
Preferred Stock are not convertible into common equity. Holders of the
depositary shares are entitled to receive cumulative cash dividends at an annual
rate of $5.68 per depositary share when, and if, declared by the Company's board
of directors.
In May 1999, the Company issued 140,000 shares of 6.5 percent Automatically
Convertible Equity Securities, Conversion Preferred Stock, Series C (Series C
Preferred Stock) in the form of seven million depositary shares each
representing 1/50th of a share of Series C Preferred Stock. The depositary
shares are traded on the New York Stock Exchange and the Chicago Stock Exchange.
The Series C Preferred Stock is not subject to a sinking fund or mandatory
redemption. On May 15, 2002, each depositary share will automatically convert,
subject to adjustments, into not more than one share and not less than 0.8197 of
a share of the Company's common stock, depending on the market price of the
common stock at that time. In 2000, Apache bought back 75,900 depository shares
at an average price of $34.42 per share. The excess of the purchase price to
reacquire the depository shares over the original issuance price is reflected as
a preferred stock dividend in the accompanying statement of consolidated
operations. At any time prior to May 15, 2002, holders of the depositary shares
may elect to convert each of their shares, subject to adjustments, into not less
than 0.8197 of a share of the Company's common stock (5,675,685 common shares).
Holders of the depositary shares are entitled to receive cumulative cash
dividends at an annual rate of $2.015 per depositary share when, and if,
declared by the Company's board of directors.
On August 2, 2000, the Company completed the public offering of 9.2 million
shares of Apache common stock, including 1.2 million shares for the
underwriters' over-allotment option, for net proceeds of approximately $433.9
million. The proceeds were used to fund a portion of the acquisitions made
during 2000 and repay indebtedness under Apache's commercial paper program.
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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, 2000, which information has been derived from the Company's
audited financial statements. This information should be read in connection
with, and is qualified in its entirety by, the more detailed information in the
Company's financial statements under Item 8 below.
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2000(1) 1999(2) 1998(3) 1997(4) 1996(5)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Total revenues........................ $2,283,904 $1,146,553 $ 760,470 $ 980,979 $ 836,968
Net income (loss)..................... 713,056 200,855 (129,387) 154,896 121,427
Income (loss) attributable to common
stock............................... 693,068 186,406 (131,391) 154,896 121,427
Net income (loss) per common share:
Basic............................... 5.87 1.73 (1.34) 1.71 1.42
Diluted............................. 5.67 1.72 (1.34) 1.65 1.38
Cash dividends per common share(6).... .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit)............. $ 76,673 $ 6,290 $ (78,804) $ 4,546 $ (41,501)
Total assets.......................... 7,481,950 5,502,543 3,996,062 4,138,633 3,432,430
Long-term debt........................ 2,193,258 1,879,650 1,343,258 1,501,380 1,235,706
Shareholders' equity.................. 3,754,640 2,669,427 1,801,833 1,729,177 1,518,516
Common shares outstanding at end of
year................................ 123,635 113,996 97,769 93,305 90,059
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 oil and gas properties
from Repsol, Collins & Ware, Occidental and Phillips after January 24, 2000,
June 30, 2000, August 17, 2000 and December 29, 2000, respectively.
(2) Includes the results of the acquisitions of certain oil and gas properties
from Petsec Energy Inc. (Petsec), Shell Offshore Inc. and affiliated Shell
entities (Shell Offshore), British-Borneo Oil & Gas Plc (British-Borneo) and
Shell Canada Limited (Shell Canada) after February 1, 1999, May 18, 1999,
June 18, 1999 and November 30, 1999, respectively.
(3) Includes the results of the acquisitions of certain subsidiaries and oil and
gas properties from Novus Petroleum Limited (Novus) after December 18, 1998.
Also includes 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 due to ceiling test limitations.
(4) Includes financial data after November 20, 1997, relating to the acquisition
from Mobil Exploration & Producing Australia Pty Ltd (Mobil) of three
companies owning interests in certain oil and gas properties and production
facilities offshore Western Australia (the Ampolex Group Transaction).
(5) Includes financial data after May 20, 1996, for Apache PHN Company, Inc.
(Phoenix, formerly known as The Phoenix Resource Companies, Inc.).
(6) The Company paid dividends of $.28 per share in 2000, of which $.21 was
declared in 2000 and $.07 was declared in the fourth quarter of 1999, as a
result of changing its dividend payment schedule from a quarterly basis to
an annual basis.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Apache's 2000 results were unprecedented in its 46-year history. Record
setting fourth quarter results capped an outstanding year. Driven by the 23rd
consecutive year of production growth and historically high oil and gas
commodity prices, income attributable to common stock of $693.1 million in 2000
exceeded Apache's cumulative retained earnings of the previous 45 years.
Stockholders were rewarded with a year-end closing price of $70.0625 per share,
yielding a market capitalization of approximately $8.7 billion and a shareholder
return of 90 percent for 2000.
Apache's financial position entering the new millennium is its strongest in
history. In mid-December 2000, Moody's Investor Service, Inc. upgraded Apache's
senior unsecured long-term debt rating to A3 from Baa1. In late January 2001,
Standard & Poor's Corporate Ratings Group upgraded Apache's senior unsecured
long-term debt rating to A- from BBB+. Debt as a percentage of total
capitalization declined to 37 percent from 41 percent at the end of 1999,
despite outlays for acquisitions and exploration and development activities
exceeding $2 billion during 2000. Apache is one of only two independent oil and
gas companies with a single-A rating from both Moody's and Standard & Poor's
rating agencies.
Following are several performance achievements for the year:
- Driven by the Company's acquisition and exploitation strategy, oil and
natural gas production averaged 115 Mbbls of oil per day and 831 MMcf of
natural gas per day for the year, 26 percent and 27 percent higher,
respectively, than 1999's record production rates.
- The Company added 377 MMboe to its proved reserves through acquisitions,
drilling and revisions at a worldwide finding cost of $5.65 per boe. The
35 percent increase in proved reserves enabled proved reserves to cross
the one billion boe mark, transforming Apache into a larger, stronger and
more profitable company.
- Oil and gas production revenues more than doubled to $2.3 billion from
$1.1 billion in 1999. Surging oil and natural gas prices contributed
$296.5 million and $343.2 million, respectively, to the increase in
revenues, with production growth accounting for the remainder.
- Net cash provided by operating activities of $1.5 billion increased 140
percent from record levels in 1999.
- Income attributable to common stock of $693.1 million, nearly quadrupled
1999's record. This equates to a 22 percent return on average
shareholders' equity. Income attributable to common stock in 2000 alone
exceeded the retained earnings accumulated over our first 45 years.
- Basic net income per common share of $5.87 rose 239 percent over record
1999 levels.
Apache's outlook for 2001 is favorable given the Company's rising
production profile and current indications for strong product prices. On
December 29, 2000, the Company completed its acquisition of Phillips' Zama
assets located in Western Canada. During the first quarter of 2001, the Company
plans to close acquisitions of Fletcher Challenge Energy subsidiaries with
properties located in Western Canada and Argentina, and substantially all of
Repsol's oil and gas concession interests in Egypt. These three transactions
bring increased net production and are projected to be additive to per share
earnings and net cash provided by operating activities beginning in 2001.
Commodity Prices -- Apache's average realized oil price increased $8.92 per
barrel from $18.45 per barrel in 1999 to $27.37 per barrel in 2000, increasing
revenues by $296.5 million. The average realized price for natural gas increased
$1.43 per Mcf from $2.16 per Mcf in 1999 to $3.59 per Mcf in 2000, positively
impacting revenues by $343.2 million.
Production -- Oil production increased 26 percent in 2000 compared to the
prior year. The increase was primarily due to a full year of production from
properties acquired from Shell Offshore and Shell Canada in 1999, properties
acquired from Occidental in 2000 and production from the Stag field in
Australia. The
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increase in oil production positively impacted revenues by $238.1 million. Gas
production increased due to the aforementioned acquisitions, the 1999
British-Borneo acquisition in Australia, production from the properties acquired
from Repsol in 2000, a full year of production from the Khalda concession in
Egypt and the commencement of sales through the Western Desert Gas Pipeline
which became operational in August 1999. The increase in gas production
positively impacted revenues by $231.8 million. Natural gas liquids production
increased 84 percent in 2000 compared to the prior year, which increase was
primarily due to U.S. and Canadian property acquisitions. The increase in
natural gas liquids production positively impacted revenues by $23.2 million.
RESULTS OF OPERATIONS
Apache reported 2000 income attributable to common stock of $693.1 million,
up from $186.4 million in 1999. A significant increase in oil and gas production
revenues was partially offset by higher recurring depreciation, depletion and
amortization (DD&A) expense, lease operating costs, administrative, selling and
other (G&A) expense and interest expense. Basic net income per common share was
$5.87 for 2000, as compared to $1.73 in 1999. Income attributable to common
stock of $186.4 million was reported in 1999 as compared to a loss attributable
to common stock of $131.4 million in 1998. The 1998 loss resulted from a non-
cash, full-cost ceiling test write-down at year-end caused by sharp declines in
oil and gas prices. Basic net income per common share was $1.73 for 1999, as
compared to basic net loss per common share of $1.34 in 1998.
Oil and gas production revenues doubled in 2000 to $2.3 billion as compared
to $1.1 billion in 1999. The increase resulted from a 48 percent increase in the
average realized oil price, a 66 percent increase in the average realized
natural gas price, a 26 percent increase in oil production and a 27 percent
increase in natural gas production. Crude oil, including natural gas liquids,
contributed 52 percent and natural gas contributed 48 percent of oil and gas
production revenues during 2000. Oil and gas production revenues increased 50
percent in 1999 to $1.1 billion as compared to $761.2 million in 1998. The
increased revenues resulted from a 45 percent increase in the average realized
oil price, a 12 percent increase in the average realized price for natural gas,
a 25 percent increase in oil production and an 11 percent increase in natural
gas production. Crude oil, including natural gas liquids, contributed 55 percent
and natural gas contributed 45 percent of oil and gas production revenues during
1999.
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Revenues
The table below presents, for the years indicated, the oil and gas
production revenues, production and average prices received from sales of
natural gas, oil and natural gas liquids.
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- --------
Revenues (in thousands):
Natural gas............................................. $1,092,552 $ 517,582 $414,887
Oil..................................................... 1,147,386 612,829 337,946
Natural gas liquids..................................... 50,821 13,535 8,355
---------- ---------- --------
Total........................................... $2,290,759 $1,143,946 $761,188
========== ========== ========
Natural Gas Volume -- Mcf per day:
United States........................................... 544,703 461,444 432,059
Canada.................................................. 130,485 99,791 105,871
Egypt................................................... 47,464 15,916 1,554
Australia............................................... 107,894 76,220 50,624
Ivory Coast............................................. -- 2,749 --
---------- ---------- --------
Total........................................... 830,546 656,120 590,108
========== ========== ========
Average Natural Gas Price -- Per Mcf:
United States........................................... $ 3.98 $ 2.32 $ 2.11
Canada.................................................. 3.52 1.73 1.36
Egypt................................................... 4.51 3.45 1.91
Australia............................................... 1.34 1.51 1.51
Ivory Coast............................................. -- 1.72 --
Total........................................... 3.59 2.16 1.93
Oil Volume -- Barrels per day:
United States........................................... 56,521 45,556 34,067
Canada.................................................. 14,720 3,053 2,090
Egypt................................................... 27,745 31,751 27,911
Australia............................................... 15,551 10,624 8,838
Ivory Coast............................................. -- 37 --
---------- ---------- --------
Total........................................... 114,537 91,021 72,906
========== ========== ========
Average Oil Price -- Per barrel:
United States........................................... $ 27.77 $ 17.97 $ 12.72
Canada.................................................. 22.25 19.35 12.55
Egypt................................................... 27.81 18.63 12.57
Australia............................................... 29.99 19.70 13.07
Ivory Coast............................................. -- 15.68 --
Total........................................... 27.37 18.45 12.70
NGL Volume -- Barrels per day:
United States........................................... 6,030 3,308 2,267
Canada.................................................. 1,204 630 616
---------- ---------- --------
Total........................................... 7,234 3,938 2,883
========== ========== ========
Average NGL Price -- Per barrel:
United States........................................... $ 19.36 $ 9.37 $ 8.38
Canada.................................................. 18.36 9.64 6.32
Total........................................... 19.19 9.42 7.94
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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.
Natural gas revenues increased by 111 percent from 1999 to 2000 as a result
of increased production volumes and realized prices. The average realized gas
price increased 66 percent in 2000 positively affecting revenues by $343.2
million. U.S. natural gas production, which comprised 66 percent of the
Company's worldwide gas production, sold at an average price of $3.98 per Mcf,
72 percent higher than in 1999, positively impacting natural gas sales by $279.6
million. The Company periodically engages in hedging activities, including
fixed-price physical contracts and financial contracts. Losses under long-term
fixed-price physical contracts decreased the gas price by $.16 per Mcf in 2000
while realized gains from hedging positions positively impacted the gas price by
$.09 per Mcf in 2000.
Natural gas production increased 174.4 MMcf/d, or 27 percent, on a
worldwide basis, favorably impacting revenue by $231.8 million in 2000. In the
United States, gas production increased 83.3 MMcf/d due to acquisition
activities in 2000 and full-year production from acquisitions in 1999.
Development activities and the impact of producing property acquisitions during
1999 increased natural gas production in Canada by 30.7 MMcf/d during 2000.
Egyptian gas production nearly tripled in 2000 reflecting a full year of
deliveries into the northern portion of the Western Desert Gas Pipeline in the
Khalda concession. Natural gas production in Australia increased 31.7 MMcf/d,
primarily due to completion of a second pipeline that increased deliverability
plus additional sales from contracts and the spot market.
Natural gas revenues increased by 25 percent from 1998 to 1999 as a result
of increased production volumes and realized prices. The average realized gas
price increased 12 percent in 1999, positively affecting revenues by $50.6
million. The Company periodically engages in hedging activities, including
fixed-price physical contracts and financial contracts. Gains under long-term
fixed-price physical contracts increased the gas price by $.02 per Mcf in 1999
while realized losses from hedging positions negatively impacted the gas price
by $.01 per Mcf in 1999.
Natural gas production increased 11 percent from 1998 to 1999, favorably
impacting revenues by $52.1 million. In the United States, gas production
increased 29.4 MMcf/d due to acquisition activities, primarily the Shell
Offshore acquisition in 1999. Development activities and the impact of producing
property acquisitions during late 1998 increased natural gas production in
Australia by 25.6 MMcf/d. Egyptian gas production increased tenfold in 1999 as a
result of the completion of the northern portion of the Western Desert Gas
Pipeline in the Khalda concession, where first sales commenced in August 1999.
Crude oil revenues totaled $1.1 billion in 2000, an 87 percent increase
from 1999 due to higher average realized oil prices and production increases. On
a worldwide basis, average oil prices increased 48 percent to $27.37 per barrel
positively impacting oil sales by $296.5 million. Realized losses from hedging
positions negatively impacted the oil price by $1.62 per barrel in 2000. Oil
production increased 23,516 barrels per day, or 26 percent, in 2000. Domestic
oil production increased 10,965 barrels per day, or 24 percent, primarily due to
a full year of production from properties acquired from Shell Offshore in 1999
and production from the Collins & Ware and Occidental acquisitions in 2000.
Canada's oil production increased 382 percent to 14,720 barrels per day,
primarily due to a full year of production from properties acquired from Shell
Canada in 1999. Australian oil production increased 4,927 barrels per day, or 46
percent, over 1999 due to strong performance from the Stag field. Egyptian oil
production decreased 4,006 barrels per day, or 13 percent, as a result of the
price-driven dynamics of certain production sharing contracts.
Crude oil revenues totaled $612.8 million in 1999, an 81 percent increase
from 1998 due to higher average realized oil prices and production increases. On
a worldwide basis, average oil prices increased 45 percent to $18.45 per barrel
positively impacting oil revenues by $152.9 million. Realized losses from
hedging positions negatively impacted the oil price by $.16 per barrel in 1999.
Oil production increased 18,115 barrels
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per day or 25 percent, in 1999 primarily due to increases in the United States.
Domestic oil production increased 11,489 barrels per day, or 34 percent,
primarily due to the acquisition from Shell Offshore. Australian oil production
increased 1,786 barrels per day, or 20 percent, over 1998 with additional
full-year production from the Stag field. Egyptian oil production increased
3,840 barrels per day, or 14 percent, as a result of the price-driven dynamics
of certain production sharing contracts and development activity.
Natural gas liquids revenues in 2000 increased 275 percent from 1999.
Natural gas liquids production increased 3,296 barrels per day, or 84 percent
and natural gas liquids prices increased by $9.77 per barrel, or 104 percent,
due to improved market conditions. Natural gas liquids revenues increased 62
percent in 1999 as compared to 1998. Natural gas liquids production increased
1,055 barrels per day, or 37 percent and natural gas liquids prices increased by
$1.48 per barrel, or 19 percent, due to improved market conditions.
Operating Expenses
Recurring DD&A expense increased to $583.5 million in 2000 from $442.8
million in 1999. On an equivalent barrel basis, recurring full cost DD&A expense
increased $.18 per boe, from $5.57 per boe in 1999 to $5.75 per boe in 2000. The
increase in the overall DD&A rate was primarily the result of the $6.74 per boe
paid to acquire Gulf of Mexico properties from Occidental. The Company's
recurring DD&A expense increased to $442.8 million in 1999 from $382.8 million
in 1998. On an equivalent barrel basis, recurring full cost DD&A expense
decreased $.09 per boe, from $5.66 per boe in 1998 to $5.57 per boe in 1999. The
decrease in the overall DD&A rate was the result of the ceiling test write-down
in 1998, which lowered the carrying amount of those properties being depleted.
Apache limits, on a country-by-country basis, the capitalized cost of 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 in the United States at December 31, 1998, Apache's
capitalized costs of 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 as additional DD&A expense. No additional DD&A expense was
recorded during 2000 or 1999.
Lease operating expense (LOE) increased from $190.6 million in 1999 to
$255.3 million in 2000. On an equivalent barrel basis, LOE for 2000 averaged
$2.68 per boe, a $.12 increase from $2.56 per boe in 1999. Domestic and Canadian
per unit costs increased, reflecting the addition of crude oil production from
the Offshore and Canadian regions. These properties typically have higher
operating costs. LOE increased from $182.1 million in 1998 to $190.6 million in
1999. On an equivalent barrel basis, LOE for 1999 averaged $2.56 per boe, a $.31
decline from $2.87 per boe in 1998. Domestic per unit costs were significantly
reduced due to lower Southern region repairs, maintenance, power and fuel costs
resulting from the sale of marginal properties, partially offset by increases in
the Offshore region due to workover costs associated with acquired properties
located in the Gulf of Mexico from Petsec and Shell Offshore. Severance and
other taxes increased from 1998 to 1999 and from 1999 to 2000 primarily due to
increased severance taxes, which generally are based on a percentage of oil and
gas production revenues, resulting from higher oil and gas prices during those
periods.
G&A expense increased $21.7 million, or 40 percent, from 1999 to 2000. The
Company's overall infrastructure was enlarged to properly handle increased
responsibilities associated with 1999 and 2000 producing property acquisitions.
On an equivalent barrel basis, G&A expense increased 10 percent to $.79 per boe
in 2000 compared to $.72 per boe in 1999. Incentive compensation was higher in
2000 than 1999 based on the Company's performance. G&A expense increased $13.2
million, or 32 percent from 1998 to 1999. On an equivalent barrel basis, G&A
expense increased 13 percent to $.72 per boe compared to $.64 per boe in 1998.
The increase in G&A was primarily due to enlarging the Company's overall
infrastructure to properly handle increased responsibilities associated with
1999 North American producing property acquisitions.
Net financing costs for 2000 increased $24.4 million, or 30 percent, from
1999 primarily due to higher interest expense, partially offset by higher
capitalized interest. Gross interest expense increased $35.1 million resulting
from higher average outstanding debt (up $402 million) in 2000. The weighted
average interest rate
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25
on outstanding debt was 7.5 percent at December 31, 2000 and 1999. The increase
in capitalized interest was due to additional unproved properties acquired from
Shell Canada, Repsol, Collins & Ware and Occidental. Net financing costs for
1999 increased $11.7 million, or 17 percent, from 1998 primarily due to higher
interest expense and lower interest income, partially offset by higher
capitalized interest. Gross interest expense increased $13.3 million resulting
from higher average outstanding debt in 1999. The weighted average interest rate
on outstanding debt increased to 7.5 percent at December 31, 1999, from 7.2
percent at December 31, 1998. The increase in capitalized interest was
associated with Egyptian pipeline projects under construction. The decrease in
interest income was due to a lower average cash balance during 1999.
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 oil and gas prices.
Capital Expenditures -- Apache's oil and gas capital expenditures over the
last three years are summarized below:
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
---------- ---------- --------
(IN THOUSANDS)
Exploration and Development:
United States................................... $ 495,803 $ 217,476 $222,750
Canada.......................................... 135,627 45,691 69,757
Egypt........................................... 84,949 59,808 105,431
Australia....................................... 73,835 60,976 80,099
Ivory Coast..................................... -- 2,553 23,527
Other International............................. 18,077 18,835 39,856
---------- ---------- --------
808,291 405,339 541,420
Capitalized Interest............................ 62,000 45,722 49,279
---------- ---------- --------
Total................................... $ 870,291 $ 451,061 $590,699
========== ========== ========
Acquisitions of Oil and Gas Properties............ $1,324,427 $1,391,206 $ 58,402
========== ========== ========
Expenditures for exploration and development totaled $808.3 million in 2000
compared to $405.3 million in 1999. Apache's drilling program in 2000 added
123.5 MMboe of proved reserves (including revisions) and replaced 130 percent of
production. In the United States, Apache completed 325 gross wells as producers
out of 394 gross wells drilled during the year, compared with 108 gross
producers out of 130 gross wells drilled in 1999. In Canada, Apache completed 87
gross wells as producers out of 114 gross wells drilled during the year,
compared with 32 gross producers out of 49 gross wells drilled in 1999.
Internationally, the Company completed 43 gross producers out of 82 gross
wells drilled in 2000, compared to 50 gross producers out of 73 gross wells in
1999. Successful international wells drilled in 2000 included 12 in Egypt and 31
in Australia.
Total capital expenditures budgeted for 2001 is approximately $1 billion
(excluding acquisitions), including $750.6 million for North America. Estimated
North American exploration and development expenditures include $143.6 million
in the Southern region, $111.7 million in the Midcontinent region, $250.2
million in the Offshore region and $245.1 million in Canada. The Company has
estimated its other international exploration and development expenditures in
2001, exclusive of facilities, to total approximately
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26
$295.7 million. Capital expenditures will be reviewed and possibly adjusted
throughout the year in light of changing industry conditions.
On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol, for approximately $118.7 million, plus assumed liabilities
of approximately $29.8 million. The acquisition included estimated proved
reserves of approximately 28.7 MMboe as of the acquisition date.
On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware for
approximately $320.7 million. The acquisition included estimated proved reserves
of approximately 83.7 MMboe as of the acquisition date. One-third of the
reserves are liquid hydrocarbons.
On August 17, 2000, Apache completed the acquisition of a Delaware limited
liability company owned by subsidiaries of Occidental and the related natural
gas production for approximately $321.2 million, plus future payments of
approximately $44.0 million over four years. The Occidental properties are
located in 32 fields on 93 blocks on the Outer Continental Shelf of the Gulf of
Mexico. The acquisition included estimated proved reserves of approximately 53.1
MMboe as of the acquisition date.
On December 29, 2000, Apache completed the acquisition of Canadian
properties from Canadian affiliates of Phillips for approximately $490.3
million. The acquisition included estimated proved reserves of approximately
70.0 MMboe as of the acquisition date. The properties comprise approximately
212,000 net developed acres and 275,000 net undeveloped acres, 786 square miles
of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama area of
Northwest Alberta. The assets also include three sour gas plants with a total
capacity of 150 MMcf per day, 13 compressor stations and 150 miles of owned and
operated gas gathering lines.
In 2000, the Company also completed tactical regional acquisitions for cash
consideration totaling $104.0 million. These acquisitions added approximately
18.3 MMboe to the Company's proved reserves.
In February 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec for an adjusted purchase price of $67.7 million.
The Petsec transaction included estimated proved reserves of approximately 10.2
MMboe as of the acquisition date.
In May 1999, Apache acquired from Shell Offshore its interest in 22
producing fields and 16 undeveloped blocks located in the Gulf of Mexico. The
Shell Offshore acquisition also included certain production-related assets and
proprietary 2-D and 3-D seismic data covering approximately 1,000 blocks in the
Gulf of Mexico. The purchase price was $687.7 million in cash and one million
shares of Apache common stock (valued at $28.125 per share). The Shell Offshore
acquisition included approximately 123.2 MMboe of proved reserves as of the
acquisition date.
In June 1999, the Company acquired a 10 percent interest in the East Spar
Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both
located in the Carnarvon Basin (offshore Western Australia), from British-Borneo
in exchange for $83.6 million cash and working interests in 11 leases in the
Gulf of Mexico. The British-Borneo transaction included approximately 16.8 MMboe
of proved reserves as of the acquisition date.
In November 1999, Apache acquired from Shell Canada producing properties
and other assets for C$761 million (US$517.8 million). The producing properties
consist of 150,400 net acres and comprise 20 fields with an average working
interest of 55 percent and proved reserves of 87.2 MMboe as of the acquisition
date. Apache also acquired 294,294 net acres of undeveloped leaseholdings, 100
percent interest in a gas processing plant with a potential throughput capacity
of 160 MMcf/d, and 52,700 square miles of 2-D seismic and 884 square miles of
3-D seismic.
In 1999, the Company also completed tactical regional acquisitions for cash
consideration totaling $17.7 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.
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27
In November 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 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, in December 1998 for approximately $49 million and in January 1999
for approximately $6 million.
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.
Pending Acquisitions -- On October 9, 2000, Apache and Shell Overseas
Holdings (Shell) signed a definitive agreement to acquire Fletcher Challenge
Energy (Fletcher). Apache's share of the transaction includes Fletcher
subsidiaries with properties in Canada's Western Sedimentary Basin and Argentina
with proved reserves of 713 Bcfe for approximately $627 million. A portion of
the acquired gas production has been hedged by Fletcher. The transaction is
scheduled to close in the first quarter of 2001, with an effective date of July
1, 2000. In a related transaction, Shell will purchase 1.64 million restricted
shares of Apache common stock for $100 million. Proceeds from this sale are
intended to be used to fund the acquisition, with the remainder to be provided
by debt.
On January 23, 2001, Apache announced the acquisition of substantially all
of Repsol's oil and gas concession interests in Egypt for approximately $410
million with an effective date of January 1, 2001. The properties include
interests in seven Western Desert concessions. The Company already holds
interests in six of the seven concessions. The transaction will be funded with
debt and is expected to close in the first half of 2001.
Debt and Interest Commitments -- At December 31, 2000, Apache had
outstanding debt of $680.1 million under its credit and commercial paper
facilities and an aggregate of $1.5 billion of other debt. This other debt
included notes and debentures maturing in the years 2002 through 2096. Debt
outstanding at December 31, 2000 of $2.2 billion was higher as compared to the
$1.9 billion outstanding at December 31, 1999, due to the Company's significant
acquisition activity during 2000. Even so, the Company's debt-to-capitalization
ratio improved from 41.4 percent at December 31, 1999 to 37.1 percent at
December 31, 2000. Interest payments on the Company's debt for 2001 are
projected to be $179.5 million (using weighted average balances for floating
rate obligations). Anticipated principal payments for 2001 total $25.0 million.
Dividend Payments -- Apache paid a total of $19.7 million in dividends
during 2000 on its Series B Preferred Stock issued in August 1998 and its Series
C Preferred Stock issued in May 1999, up 56 percent from 1999, due to a full
year of dividends on the Series C Preferred Stock. Common dividends paid during
2000 totaled $33.2 million, up 12 percent from 1999, due to the increased number
of common shares outstanding. In 2000, the Company changed the dividend payment
schedule for its common stock from a quarterly basis to an annual basis, with
payment in mid-December to shareholders of record in mid-November. The Company
has paid cash dividends on its common stock for 34 consecutive years through
December 31, 2000. The Company expects to continue payment of dividends at
current levels on an annual basis. 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 sales of non-strategic
assets.
Net Cash Provided by Operating Activities -- Apache's net cash provided by
operating activities during 2000 totaled $1.5 billion, an increase of 140
percent over the $638.2 million reported in 1999. This increase was due
primarily to higher realized oil and gas prices as compared to 1999 and higher
oil and gas production as a result of full-year production from 1999 property
acquisitions and properties acquired in 2000. Net cash
25
28
provided by operating activities during 1999 increased $166.7 million from 1998
due primarily to higher oil and gas production and prices in 1999.
Credit Facility -- On July 14, 2000, Apache entered into a new $500
million, 364-day revolving credit agreement with a group of banks. The terms of
this new facility are substantially the same as those of Apache's global credit
facility. The new facility will be used, along with the U.S. portion of the
global credit facility, to support Apache's commercial paper program, which was
increased from $700 million to $1.2 billion in late July 2000.
Stock Transactions -- In the first quarter of 2000, the Company bought back
75,900 depository shares, each representing one-fiftieth ( 1/50) of a share of
Series C Preferred Stock, at an average price of $34.42 per share. The excess of
the purchase price to reacquire the depository shares over the original issuance
price is reflected as a preferred stock dividend in the accompanying statement
of consolidated operations.
During 2000, the Company repurchased 478,100 shares of common stock to be
held in treasury at an average price of $37.08 per share.
On August 2, 2000, the Company completed the public offering of 9.2 million
shares of Apache common stock, including 1.2 million shares for the
underwriters' over-allotment option, for net proceeds of approximately $433.9
million. The proceeds were used to fund a portion of the acquisitions made
during 2000 and repay indebtedness under Apache's commercial paper program.
Asset Sales -- During 2000, Apache sold proprietary rights to certain
Canadian seismic data and various non-strategic oil and gas properties,
collecting cash of $26.3 million.
Liquidity -- The Company had $37.2 million in cash and cash equivalents on
hand at December 31, 2000, up from $13.2 million at December 31, 1999. Apache's
ratio of current assets to current liabilities increased from 1.02:1 at December
31, 1999, to 1.14:1 at December 31, 2000.
Management believes that cash on hand, net cash generated from operations
and unused committed borrowing capacity under its credit facilities 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, 2000, Apache's
available borrowing capacity under its global credit facility and 364-day
revolving credit facility was $894.9 million.
CHINA
In June 2000, the Company's subsidiary, Apache China, filed a lawsuit
against PetroChina, China National Petroleum Corporation and China National Oil
and Gas Exploration and Development Corporation in connection with certain of
the Company's Chinese operations in the Zhao Dong Block of the Bohai Bay in
China. The Company filed seeking damages and injunctive relief to prevent the
Chinese parties from declaring that Apache and XCL-China, Ltd. had relinquished
some of the Company's Chinese exploratory acreage, and other claims. The lawsuit
was filed in the U.S. Bankruptcy Court in Opelousas, Louisiana, in connection
with bankruptcy proceedings of XCL-China, Ltd., a co-owner in the Zhao Dong
Block. On June 30, 2000, Apache and PetroChina announced having reached
agreement to resolve the outstanding issues associated with development of the
Zhao Dong Block. The agreement called for PetroChina and the China National
Petroleum Corporation to obtain various governmental approvals including
approval of the overall development plan. By the middle of February 2001, all of
the agreed actions had occurred, including all of the required governmental
approvals, and Apache-China's lawsuit was dismissed with prejudice. Apache and
the other participants in the Zhao Dong Block are preparing to begin the
construction of production facilities and development drilling in accordance
with the approved overall development plan.
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FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production, cash
flow and earnings through a balanced growth program that involves:
- exploiting our existing asset base;
- acquiring properties to which we can add incremental value; and
- investing in high-potential exploration prospects.
Exploiting Existing Asset Base
Apache seeks to maximize the value of our existing asset base by increasing
production and reserves while reducing operating costs per unit. In order to
achieve these objectives, we rigorously pursue production enhancement
opportunities such as workovers, recompletions, and moderate risk drilling,
while divesting marginal and non-strategic properties and other activities to
reduce costs. Given the large number of transactions completed over the last two
years, Apache's inventory of exploitation opportunities has never been larger as
evidenced by our $1 billion capital plan for year 2001, which is largely
directed at exploitation activity.
Acquiring Properties to Which We Can Add Incremental Value
Apache seeks to purchase reserves at appropriate prices by generally
avoiding auction processes where we are competing against other buyers. Our aim
is to follow each acquisition with a cycle of reserve enhancement, property
consolidation and cash flow acceleration, facilitating asset growth and debt
reduction. In general, recent high prices and Apache's reputation for getting
deals done, have created more opportunities to negotiate for properties than was
the case several years ago. Transactions made throughout 2000 coupled with those
scheduled to close in the first half of 2001 assure that Apache will achieve its
24th consecutive year of production growth at a time that indicated product
prices for the year are strong.
Investing in High-Potential Exploration Prospects
Apache seeks to concentrate our exploratory investments in a select number
of international areas and to become the dominant operator in those regions. We
believe that these investments, although higher-risk, offer potential for
attractive investment returns and significant reserve additions. Our
international investments and exploration activities are a significant component
of our long-term growth strategy. They complement our North American operations,
which are more development oriented.
A critical component in implementing our three-pronged growth strategy is
maintenance of significant financial flexibility. Apache's recent senior
unsecured long-term debt upgrades by Moody's and Standard & Poor's illustrate
our commitment to preserving a strong balance sheet and gives us a solid
foundation and competitive advantage with which to pursue our growth
initiatives.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 and price
volatility is expected to continue. Monthly oil price realizations ranged from a
low of $22.56 per barrel to a high of $32.54 per barrel during 2000. Gas price
realizations ranged from a monthly low of $2.37 per Mcf to a monthly high of
$5.60 per Mcf during the same period.
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
27
30
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
generally hold or issue derivative instruments for trading purposes. In 2000,
Apache recognized a net loss of $90.9 million from hedging activities that
decreased oil and gas production revenues. This includes losses of $42.1 million
in derivatives and $48.8 million from fixed-price physical gas contracts. Gains
or losses on derivative contracts are expected to continue to be offset by sales
at the spot market price or to preserve the margin on existing physical gas
contracts.
At December 31, 2000, the Company had open natural gas price swap positions
with a positive fair value of $117.5 million. A 10 percent increase in natural
gas prices would increase the fair value by $28.0 million. A 10 percent decrease
in prices would decrease the fair value by $28.0 million. The Company also had
open oil price swap positions at December 31, 2000 with a fair value of $(26.9)
million. A 10 percent increase in oil prices would change the fair value by
$(11.2) million. A 10 percent decrease in oil prices would change the fair value
by $11.2 million. Discount rates used in arriving at fair values range from 6.0
percent for 2001 to 5.9 percent for 2008.
At December 31, 2000, the Company also had natural gas commodity collars
with a fair value of $(94.3) million and oil commodity collars with a fair value
of $9.0 million. A 10 percent increase in oil and gas prices would change the
fair values of the gas collars and the oil collars by $(42.6) million and
$(12.2) million, respectively. A 10 percent decrease in oil and gas prices would
change the fair values of the gas collars and the oil collars by $39.2 million
and $12.8 million, respectively. The model used to arrive at the fair values for
the commodity collars is based on the Black commodity pricing model. Changes in
fair value, assuming 10 percent price changes, assume non-constant volatility
with volatility based on prevailing market parameters at December 29, 2000.
Notional volumes associated with the Company's derivative contracts are
shown in Note 9 to the Company's consolidated financial statements.
INTEREST RATE RISK
The Company considers its interest rate risk exposure to be minimal as a
result of fixing interest rates on approximately 69 percent of the Company's
debt. At December 31, 2000, total debt included $680.1 million of floating-rate
debt. As a result, Apache's annual interest costs in 2001 will fluctuate based
on short-term interest rates on approximately 31 percent of its total debt
outstanding at December 31, 2000. The impact on annual cash flow of a 10 percent
change in the floating rate (approximately 74 basis points) would be
approximately $5.0 million. The Company did not have any open derivative
contracts relating to interest rates at December 31, 2000.
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 as of 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 Polish and Australian subsidiaries have net financial assets
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 dollar
and Polish zloty relative to the U.S. dollar from the year-end exchange rates
would result in a foreign currency loss of approximately $11.3 million, based on
December 31, 2000 amounts. The Company considers its current risk exposure to
exchange rate movements, based on net cash flows, to be
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31
immaterial. The Company did not have any open derivative contracts relating to
foreign currencies at December 31, 2000.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Although Apache makes
use of futures contracts, swaps, options and fixed-price physical contracts to
mitigate risk, fluctuations in oil and gas prices, or a prolonged period of low
prices, 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-38 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
"Securities Ownership and Principal Holders" in the proxy statement relating to
the Company's 2001 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,"
"Long-Term Incentive Plans -- Awards in Last Fiscal Year," "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 "Securities Ownership 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.
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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 management........................................ F-1
Report of independent public accountants.................... F-2
Statement of consolidated operations for each of the three
years in the period ended December 31, 2000............... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 2000............... F-4
Consolidated balance sheet as of December 31, 2000 and
1999...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the period ended December 31, 2000..... F-6
Notes to consolidated financial statements.................. F-7
Supplemental oil and gas disclosures........................ F-32
Supplemental quarterly financial data....................... F-38
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 -- 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).
2.2 -- 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).
2.3 -- 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 16, 1999, as filed with the Secretary of
State of Delaware on December 17, 1999 (incorporated by
reference to Exhibit 99.1 to Registrant's Current Report
on Form 8-K, dated December 17, 1999, SEC File No.
1-4300).
3.2 -- Bylaws of Registrant, as amended May 4, 2000
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, 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).
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33
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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 -- Form of Certificate for Registrant's Automatically
Convertible Equity Securities, Conversion Preferred
Stock, Series C (incorporated by reference to Exhibit
99.8 to Amendment No. 1 on Form 8-K/A to Registrant's
Current Report on Form 8-K, dated April 29, 1999, SEC
File No. 1-4300).
4.4 -- 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).
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).
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34
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998
(incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.13 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998
(incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.14 -- 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).
+10.15 -- Amendments to Apache Corporation 401(k) Savings Plan,
dated October 21, 1999, effective as of January 1, 1997
and 1999.
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35
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 -- Amendments to Apache Corporation Money Purchase
Retirement Plan, dated October 21, 1999, effective as of
January 1, 1997 and 1998.
+10.18 -- 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 (incorporated by reference to
Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1998, SEC File No. 1-4300).
+10.19 -- Amendment to Non-Qualified Retirement/Savings Plan of
Apache Corporation, dated February 22, 2000, effective as
of January 1, 1999 (incorporated by reference to Exhibit
4.7 to Registrant's Registration Statement on Form S-8,
Registration No. 333-31092, filed February 25, 2000); and
Amendment dated July 27, 2000 (incorporated by reference
to Exhibit 4.8 to Amendment No. 1 to Registrant's
Registration Statement on Form S-8, Registration No.
333-31092, filed August 18, 2000).
+*10.20 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated December 14, 2000, effective March 1, 2001.
+*10.21 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+*10.22 -- Apache Corporation 2000 Share Appreciation Plan, dated
December 19, 2000, effective October 12, 2000.
+*10.23 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated December 14, 2000, effective March
1, 2001.
+*10.24 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+*10.25 -- Apache Corporation 2000 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+10.26 -- 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).
+10.27 -- 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).
+*10.28 -- Apache Corporation Deferred Delivery Plan, as amended and
restated December 14, 2000.
+10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998
(incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+*10.30 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated February 8, 2001.
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36
EXHIBIT
NO. DESCRIPTION
- ------- -----------
+*10.31 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, as amended and restated September
14, 2000.
+10.32 -- 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).
+10.33 -- 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).
+10.34 -- 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).
+10.35 -- 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).
+10.36 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
10.37 -- 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 Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Stock
Dividends
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company L.P., Petroleum
Consultants
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
- ---------------
* 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 current reports on Form 8-K filed by Apache during the fiscal
quarter ended December 31, 2000.
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 22, 2001
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 22, 2001
- ----------------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
/s/ ROGER PLANK Executive Vice President and March 22, 2001
- ----------------------------------------------------- Chief Financial Officer
Roger Plank (Principal Financial Officer)
/s/ THOMAS L. MITCHELL Vice President and Controller March 22, 2001
- ----------------------------------------------------- (Principal Accounting Officer)
Thomas L. Mitchell
38
NAME TITLE DATE
---- ----- ----
/s/ FREDERICK M. BOHEN Director March 22, 2001
- -----------------------------------------------------
Frederick M. Bohen
/s/ G. STEVEN FARRIS Director March 22, 2001
- -----------------------------------------------------
G. Steven Farris
/s/ RANDOLPH M. FERLIC Director March 22, 2001
- -----------------------------------------------------
Randolph M. Ferlic
/s/ EUGENE C. FIEDOREK Director March 22, 2001
- -----------------------------------------------------
Eugene C. Fiedorek
/s/ A. D. FRAZIER, JR. Director March 22, 2001
- -----------------------------------------------------
A. D. Frazier, Jr.
/s/ JOHN A. KOCUR Director March 22, 2001
- -----------------------------------------------------
John A. Kocur
/s/ GEORGE D. LAWRENCE, JR. Director March 22, 2001
- -----------------------------------------------------
George D. Lawrence, Jr.
/s/ MARY RALPH LOWE Director March 22, 2001
- -----------------------------------------------------
Mary Ralph Lowe
/s/ F. H. MERELLI Director March 22, 2001
- -----------------------------------------------------
F. H. Merelli
/s/ RODMAN D. PATTON Director March 22, 2001
- -----------------------------------------------------
Rodman D. Patton
/s/ CHARLES J. PITMAN Director March 22, 2001
- -----------------------------------------------------
Charles J. Pitman
39
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 accounting
principles generally accepted in the United States 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.
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Roger B. Plank
Executive Vice President
and Chief Financial Officer
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
Houston, Texas
March 12, 2001
F-1
40
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, 2000
and 1999, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial 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, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 1 to the consolidated financial statements, effective
January 1, 2000 the Company changed its method of accounting for crude oil
inventories.
ARTHUR ANDERSEN LLP
Houston, Texas
March 12, 2001
F-2
41
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------- ------------- ------------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
REVENUES:
Oil and gas production revenues........................ $2,290,759 $1,143,946 $ 761,188
Equity in income (loss) of affiliates.................. 862 153 (1,558)
Other revenues......................................... (7,717) 2,454 840
---------- ---------- ---------
2,283,904 1,146,553 760,470
---------- ---------- ---------
OPERATING EXPENSES:
Depreciation, depletion and amortization:
Recurring........................................... 583,546 442,844 382,807
Additional.......................................... -- -- 243,178
Lease operating costs.................................. 255,251 190,576 182,138
Severance and other taxes.............................. 59,173 32,400 28,642
Administrative, selling and other...................... 75,615 53,894 40,731
Financing costs:
Interest expense.................................... 168,121 132,986 119,703
Amortization of deferred loan costs................. 2,726 4,854 4,496
Capitalized interest................................ (62,000) (53,231) (49,279)
Interest income..................................... (2,209) (2,343) (4,383)
---------- ---------- ---------
1,080,223 801,980 948,033
---------- ---------- ---------
INCOME (LOSS) BEFORE INCOME TAXES........................ 1,203,681 344,573 (187,563)
Provision (benefit) for income taxes................... 483,086 143,718 (58,176)
---------- ---------- ---------
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE...... 720,595 200,855 (129,387)
Cumulative effect of change in accounting principle,
net of income tax................................... (7,539) -- --
---------- ---------- ---------
NET INCOME (LOSS)........................................ 713,056 200,855 (129,387)
Preferred stock dividends.............................. 19,988 14,449 2,004
---------- ---------- ---------
INCOME (LOSS) ATTRIBUTABLE TO COMMON
STOCK.................................................. $ 693,068 $ 186,406 $(131,391)
========== ========== =========
BASIC NET INCOME (LOSS) PER COMMON SHARE:
Before change in accounting principle.................. $ 5.94 $ 1.73 $ (1.34)
Cumulative effect of change in accounting principle.... (.07) -- --
---------- ---------- ---------
$ 5.87 $ 1.73 $ (1.34)
========== ========== =========
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Before change in accounting principle.................. $ 5.73 $ 1.72 $ (1.34)
Cumulative effect of change in accounting principle.... (.06) -- --
---------- ---------- ---------
$ 5.67 $ 1.72 $ (1.34)
========== ========== =========
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,
-------------------------------------
2000 1999 1998
----------- ----------- ---------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 713,056 $ 200,855 $(129,387)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation, depletion and amortization.............. 583,546 442,844 625,985
Provision (benefit) for deferred income taxes......... 350,703 77,494 (81,856)
Amortization of deferred loan costs................... 2,726 4,854 4,496
Cumulative effect of change in accounting principle... 7,539 -- --
Other................................................. 9,719 1,533 --
Other non-operating activities............................ 8,251 (387) 1,887
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in receivables...................... (253,721) (103,167) 65,487
(Increase) decrease in advances to oil and gas ventures
and other............................................. (6,167) (15,330) 3,879
(Increase) decrease in deferred charges and other....... (1,562) (2,356) 13,238
Increase (decrease) in payables......................... 111,841 24,912 (65,851)
Increase (decrease) in accrued expenses................. 45,281 26,233 (12,161)
Increase (decrease) in advances from gas purchasers..... (27,850) (24,512) 50,922
Increase (decrease) in deferred credits and noncurrent
liabilities........................................... (13,976) 5,201 (5,128)
----------- ----------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 1,529,386 638,174 471,511
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment....................... (1,010,528) (591,316) (699,509)
Non-cash portion of net oil and gas property additions.... 42,934 (19,884) 38,774
Acquisition of Phillips properties........................ (490,250) -- --
Acquisition of Occidental properties...................... (321,206) -- --
Acquisition of Collins & Ware properties.................. (320,682) -- --
Acquisition of Repsol properties.......................... (118,678) -- --
Acquisition of Shell Offshore properties.................. -- (687,677) --
Acquisition of Shell Canada properties.................... -- (517,815) --
Acquisition of British-Borneo interests, net of cash
acquired................................................ -- (83,590) --
Acquisition of Novus subsidiaries, net of cash acquired... -- (5,758) (48,499)
Proceeds from sales of oil and gas properties............. 26,271 155,226 194,147
Other, net................................................ (36,875) (18,937) 2,967
----------- ----------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............. (2,229,014) (1,769,751) (512,120)
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings...................................... 1,125,981 1,602,871 551,897
Payments on long-term debt................................ (793,531) (1,075,821) (556,141)
Dividends paid............................................ (52,945) (42,264) (28,204)
Issuance (repurchase) of preferred stock.................. (2,613) 210,490 98,630
Issuance of common stock.................................. 465,306 455,381 1,240
Payments to acquire treasury stock........................ (17,730) (15,603) (21,418)
Cost of debt and equity transactions...................... (838) (4,843) (544)
----------- ----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......... 723,630 1,130,211 45,460
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 24,002 (1,366) 4,851
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,171 14,537 9,686
----------- ----------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 37,173 $ 13,171 $ 14,537
=========== =========== =========
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,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 37,173 $ 13,171
Receivables............................................... 506,723 259,530
Inventories............................................... 54,764 45,113
Advances to oil and gas ventures and other................ 31,360 25,254
----------- -----------
630,020 343,068
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties....................................... 9,423,922 7,409,787
Unproved properties and properties under development,
not being amortized.................................... 977,491 869,108
Gas gathering, transmission and processing facilities..... 573,621 442,437
Other..................................................... 119,590 105,635
----------- -----------
11,094,624 8,826,967
Less: Accumulated depreciation, depletion and
amortization............................................ (4,282,162) (3,711,109)
----------- -----------
6,812,462 5,115,858
----------- -----------
OTHER ASSETS:
Deferred charges and other................................ 39,468 43,617
----------- -----------
$ 7,481,950 $ 5,502,543
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 25,000 $ 6,158
Accounts payable.......................................... 259,120 148,309
Accrued operating expense................................. 23,893 18,226
Accrued exploration and development....................... 143,916 101,490
Accrued compensation and benefits......................... 34,695 22,631
Accrued interest.......................................... 25,947 28,118
Other accrued expenses.................................... 40,776 11,846
----------- -----------
553,347 336,778
----------- -----------
LONG-TERM DEBT.............................................. 2,193,258 1,879,650
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes.............................................. 699,833 360,324
Advances from gas purchasers.............................. 153,106 180,956
Other..................................................... 127,766 75,408
----------- -----------
980,705 616,688
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares
authorized --
Series B, 5.68% Cumulative Preferred Stock,
100,000 shares issued and outstanding................. 98,387 98,387
Series C, 6.5% Conversion Preferred Stock, 138,482 and
140,000 shares issued and outstanding, respectively... 208,207 210,490
Common stock, $1.25 par, 215,000,000 shares authorized
126,500,776 and 116,403,013 shares issued,
respectively............................................ 158,126 145,504
Paid-in capital........................................... 2,173,183 1,717,027
Retained earnings......................................... 1,226,531 558,721
Treasury stock, at cost, 2,866,028 and 2,406,549 shares,
respectively............................................ (69,562) (52,256)
Accumulated other comprehensive loss...................... (40,232) (8,446)
----------- -----------
3,754,640 2,669,427
----------- -----------
$ 7,481,950 $ 5,502,543
=========== ===========
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
SERIES B SERIES C
COMPREHENSIVE PREFERRED PREFERRED COMMON PAID-IN RETAINED TREASURY
INCOME STOCK STOCK STOCK CAPITAL EARNINGS STOCK
------------- --------- --------- -------- ---------- ---------- --------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1997................... $ -- $ -- $118,098 $1,085,063 $ 561,981 $(15,506)
Comprehensive income:
Net loss................................. $(129,387) -- -- -- -- (129,387) --
Currency translation adjustments......... (12,745) -- -- -- -- -- --
---------
Comprehensive loss......................... $(142,132)
=========
Dividends:
Preferred................................ -- -- -- -- (2,004) --
Common ($.28 per share).................. -- -- -- -- (27,492) --
Preferred shares issued.................... 98,387 -- -- -- -- --
Common shares issued....................... -- -- 6,640 160,675 -- --
Treasury shares purchased, net............. -- -- -- -- -- (21,418)
------- -------- -------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1998................... 98,387 -- 124,738 1,245,738 403,098 (36,924)
Comprehensive income:
Net income............................... $ 200,855 -- -- -- -- 200,855 --
Currency translation adjustments......... 24,543 -- -- -- -- -- --
Unrealized gain on marketable securities,
net of applicable income tax of $129... 215 -- -- -- -- -- --
---------
Comprehensive income....................... $ 225,613
=========
Dividends:
Preferred................................ -- -- -- -- (14,449) --
Common ($.28 per share).................. -- -- -- -- (30,783) --
Preferred shares issued.................... -- 210,490 -- -- -- --
Common shares issued....................... -- -- 20,766 471,289 -- --
Treasury shares purchased, net............. -- -- -- -- -- (15,332)
------- -------- -------- ---------- ---------- --------
BALANCE, DECEMBER 31, 1999................... 98,387 210,490 145,504 1,717,027 558,721 (52,256)
Comprehensive income:
Net income............................... $ 713,056 -- -- -- -- 713,056 --
Currency translation adjustments......... (31,389) -- -- -- -- -- --
Unrealized loss on marketable securities,
net of applicable income tax benefit of
$223................................... (397) -- -- -- -- -- --
---------
Comprehensive income....................... $ 681,270
=========
Dividends:
Preferred................................ -- -- -- -- (19,658) --
Common ($.21 per share).................. -- -- -- -- (25,258) --
Preferred stock repurchased................ -- (2,283) -- -- (330) --
Common shares issued....................... -- -- 12,622 455,728 -- --
Treasury shares purchased, net............. -- -- -- 428 -- (17,306)
------- -------- -------- ---------- ---------- --------
BALANCE, DECEMBER 31, 2000................... $98,387 $208,207 $158,126 $2,173,183 $1,226,531 $(69,562)
======= ======== ======== ========== ========== ========
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE SHAREHOLDERS'
INCOME (LOSS) EQUITY
------------- --------------
(IN THOUSANDS)
BALANCE, DECEMBER 31, 1997................... $(20,459) $1,729,177
Comprehensive income:
Net loss................................. -- (129,387)
Currency translation adjustments......... (12,745) (12,745)
Comprehensive loss.........................
Dividends:
Preferred................................ -- (2,004)
Common ($.28 per share).................. -- (27,492)
Preferred shares issued.................... -- 98,387
Common shares issued....................... -- 167,315
Treasury shares purchased, net............. -- (21,418)
-------- ----------
BALANCE, DECEMBER 31, 1998................... (33,204) 1,801,833
Comprehensive income:
Net income............................... -- 200,855
Currency translation adjustments......... 24,543 24,543
Unrealized gain on marketable securities,
net of applicable income tax of $129... 215 215
Comprehensive income.......................
Dividends:
Preferred................................ -- (14,449)
Common ($.28 per share).................. -- (30,783)
Preferred shares issued.................... -- 210,490
Common shares issued....................... -- 492,055
Treasury shares purchased, net............. -- (15,332)
-------- ----------
BALANCE, DECEMBER 31, 1999................... (8,446) 2,669,427
Comprehensive income:
Net income............................... -- 713,056
Currency translation adjustments......... (31,389) (31,389)
Unrealized loss on marketable securities,
net of applicable income tax benefit of
$223................................... (397) (397)
Comprehensive income.......................
Dividends:
Preferred................................ -- (19,658)
Common ($.21 per share).................. -- (25,258)
Preferred stock repurchased................ -- (2,613)
Common shares issued....................... -- 468,350
Treasury shares purchased, net............. -- (16,878)
-------- ----------
BALANCE, DECEMBER 31, 2000................... $(40,232) $3,754,640
======== ==========
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 (Offshore,
Southern and Midcontinent) and a Canadian region. Approximately 80 percent of
the Company's proved reserves are located in North America. Internationally,
Apache has exploration and production interests in Egypt and offshore Western
Australia, and exploration interests in Poland and offshore The People's
Republic of China (China).
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.
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 53 percent of Apache's 2000
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 were accounted for using the
equity method for the periods of ownership.
Beginning in the first quarter 2000, the portion of gathering, processing
and marketing margin related to oil and gas production revenues has been
reported as a net addition to oil and gas production revenues and the portion
related to gathering fee income has been reported as a reduction to operating
costs in the accompanying statement of consolidated operations.
Reclassifications have been made to reflect this change in the prior year
statements of consolidated operations.
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 the lower of cost (a combination of
production costs and depreciation, depletion and amortization (DD&A) expense) or
market.
Property and Equipment -- The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method, the
Company capitalizes all acquisition, exploration and development costs incurred
for the purpose of finding oil and gas reserves, including salaries, benefits
and other internal costs directly attributable to these activities. Exclusive of
field-level costs, Apache capitalized $22.6 million, $14.2 million and $12.2
million of internal costs in 2000, 1999 and 1998, 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 $29.4
million, $24.4 million and $23.1 million in 2000, 1999 and 1998, respectively,
and are
F-7
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 proved reserve quantities in a particular country are
sold (greater than 25 percent), proceeds from the sale of oil and gas properties
are accounted for as a reduction to capitalized costs, and gains and losses are
not recognized.
Apache computes the provision for recurring DD&A of oil and gas properties
on a quarterly basis using the unit-of-production method based upon production
and estimates of proved reserve quantities. Unevaluated costs and related
capitalized interest costs are excluded from the amortization base until the
properties associated with these costs are evaluated. The amortizable base
includes 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 recorded a $243.2 million pre-tax ($158.1 million net of tax)
non-cash write-down in 1998. The write-down is reflected as additional DD&A
expense in the accompanying statement of consolidated operations. Given the
volatility of oil and gas prices, it is reasonably possible that the Company's
estimate of discounted future net cash flows from proved oil and gas reserves
could change in the near term. If oil and gas prices decline significantly, even
if only for a short period of time, it is possible that additional write-downs
of oil and gas properties could occur in the future.
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 3 to 20 years. Accumulated depreciation
for these assets totaled $131.2 million and $97.4 million at December 31, 2000
and 1999, respectively.
Accounts Payable -- Included in accounts payable at December 31, 2000 and
1999, are liabilities of approximately $55.5 million and $41.6 million,
respectively, representing the amount by which checks issued, but not presented
to the Company's banks for collection, exceeded balances in applicable bank
accounts.
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 less than one percent of Apache's proved
gas reserves at December 31, 2000. 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.
F-8
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 (FASB) 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 derivative instruments
(including certain derivative instruments embedded in other contracts), as
defined, be recorded in the balance sheet as either an asset or liability
measured at fair value, and requires that changes in fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows unrealized gains and losses to be
deferred in other comprehensive income (for the effective portion of the hedge)
until such time as the hedged transaction occurs, and requires that a company
formally document, designate, and assess the effectiveness of derivative
instruments that receive hedge accounting treatment.
Apache adopted SFAS No. 133 on January 1, 2001. The Company recognized a
derivative asset of $121.5 million reflecting the fair value of gas price swaps
entered into in connection with the advances from gas purchasers described in
Note 6. A liability in the same amount was recorded to reflect the obligation to
deliver gas at current forward market prices in excess of the contractual prices
at the inception of the transactions. All other derivative instruments, as
discussed in Note 9, were recorded at fair value representing a net liability of
$116.2 million on the date of adoption. The offset to this liability is a charge
of $71.3 million, net of income taxes, reported in other comprehensive income in
the consolidated balance sheet. However, the FASB continues to deliberate the
appropriate accounting for the portion of the transition adjustment associated
with the time value component of option contracts (zero-cost collars) used by
the Company to manage its exposure to oil and gas price volatility. If the FASB
determines that the time value component of option contracts should be recorded
in earnings at transition, the Company would be required to record a cumulative
effect-type loss to earnings on January 1, 2001 of $21.2 million, net of income
taxes.
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
F-9
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements into U.S. dollar equivalents are reported separately and
accumulated in other comprehensive income. For other international operations,
transaction gains and 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 be 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."
Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the U.S. 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).
Change in Accounting Principle -- In December 2000, the staff of the
Securities and Exchange Commission (SEC) announced that commodity inventories
should be carried at cost, not market value, despite longstanding industry
practice. As a result, Apache changed its accounting for crude oil inventories
in the fourth quarter of 2000, retroactive to the beginning of the year, and
recognized a non-cash cumulative-effect charge to earnings effective January 1,
2000 of $7.5 million, net of income tax, to value crude oil inventory at cost.
Quarterly results for 2000 also were restated to reflect this change in
accounting (see Supplemental Quarterly Financial Data).
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol YPF (Repsol), for approximately $118.7 million, plus
assumed liabilities of approximately $29.8 million. The acquisition included
estimated proved reserves of approximately 28.7 million barrels of oil
equivalent (MMboe) as of the acquisition date.
On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware, Inc.
(Collins & Ware) for approximately $320.7 million. The acquisition included
estimated proved reserves of approximately 83.7 MMboe as of the acquisition
date. One-third of the reserves are liquid hydrocarbons.
On August 17, 2000, Apache completed the acquisition of a Delaware limited
liability company (LLC) owned by subsidiaries of Occidental Petroleum
Corporation (Occidental) and the related natural gas production for
approximately $321.2 million, plus future payments of approximately $44.0
million over four years. The Occidental properties are located in 32 fields on
93 blocks on the Outer Continental Shelf of the
F-10
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Gulf of Mexico. The acquisition included estimated proved reserves of
approximately 53.1 MMboe as of the acquisition date.
On December 29, 2000, Apache completed the acquisition of Canadian
properties from Canadian affiliates of Phillips Petroleum Company (Phillips) for
approximately $490.3 million. The acquisition included estimated proved reserves
of approximately 70.0 MMboe as of the acquisition date. The properties comprise
approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786
square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama
area of Northwest Alberta. The assets also include three sour gas plants with a
total capacity of 150 million cubic feet (MMcf) per day, 13 compressor stations
and 150 miles of owned and operated gas gathering lines.
In 2000, the Company also completed tactical regional acquisitions for cash
consideration totaling $104.0 million. These acquisitions added approximately
18.3 MMboe to the Company's proved reserves.
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 $67.7 million. The Petsec transaction included estimated proved
reserves of approximately 10.2 MMboe as of the acquisition date.
On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated
Shell entities (Shell Offshore) its interest in 22 producing fields and 16
undeveloped blocks located in the Gulf of Mexico. The Shell Offshore acquisition
also included certain production-related assets and proprietary 2-D and 3-D
seismic data covering approximately 1,000 blocks in the Gulf of Mexico. The
purchase price was $687.7 million in cash and one million shares of Apache
common stock (valued at $28.125 per share). The Shell Offshore acquisition
included approximately 123.2 MMboe of proved reserves as of the acquisition
date.
On June 18, 1999, the Company acquired a 10 percent interest in the East
Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture,
both located in the Carnarvon Basin (offshore Western Australia), from
British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $83.6 million
cash and working interests in 11 leases in the Gulf of Mexico. The
British-Borneo transaction included approximately 16.8 MMboe of proved reserves
as of the acquisition date.
The purchase price was allocated to the assets purchased and the
liabilities assumed in the British-Borneo transaction based upon the fair values
on the date of acquisition, as follows (in thousands):
Value of properties acquired, including gathering and
transportation facilities................................. $ 98,582
Value of Gulf of Mexico leases.............................. (3,209)
Working capital acquired, net............................... 4,123
Deferred income tax liability............................... (15,906)
--------
Cash paid, net of cash acquired............................. $ 83,590
========
On November 30, 1999, Apache acquired from Shell Canada Limited (Shell
Canada) producing properties and other assets for C$761 million (US$517.8
million). The producing properties consisted of 150,400 net acres and comprised
20 fields with an average working interest of 55 percent and proved reserves of
87.2 MMboe as of the acquisition date. Apache also acquired 294,294 net acres of
undeveloped leaseholdings, a 100 percent interest in a gas processing plant with
a potential throughput capacity of 160 MMcf per day, and 52,700 square miles of
2-D seismic and 884 square miles of 3-D seismic.
The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Shell Offshore and Shell
Canada acquisitions occurred on January 1, 1998, and the
F-11
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Collins & Ware, Occidental and Phillips acquisitions occurred on January 1,
1999. The pro forma information is based on numerous assumptions and is not
necessarily indicative of future results of operations.
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- ---------- ----------- ---------- ----------- ----------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
Revenues................... $2,283,904 $2,576,941 $1,146,553 $1,620,301 $ 760,470 $1,104,700
Net income (loss).......... 713,056 771,047 200,855 243,946 (129,387) (81,206)
Preferred stock
dividends................ 19,988 19,988 14,449 19,738 2,004 16,109
Income (loss) attributable
to common stock.......... 693,068 751,059 186,406 224,208 (131,391) (97,315)
Net income (loss) per
common share:
Basic.................... $ 5.87 $ 6.09 $ 1.73 $ 1.82 $ (1.34) $ (.85)
Diluted.................. 5.67 5.88 1.72 1.81 (1.34) (.85)
Average common shares
outstanding.............. 117,979 123,358 107,936 123,123 98,066 114,016
In 1999, the Company also completed tactical regional acquisitions for cash
consideration totaling $17.7 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.
In November 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, in December 1998
(approximately $49 million) and in January 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 total purchase price for the two stages of the Novus transaction 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................................. $ 62,657
Working capital acquired, net............................... 2,658
Deferred income tax liability............................... (11,058)
--------
Cash paid, net of cash acquired............................. $ 54,257
========
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.
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.
F-12
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pending Acquisitions
On October 9, 2000, Apache and Shell Overseas Holdings (Shell) signed a
definitive agreement to acquire Fletcher Challenge Energy (Fletcher). Apache's
share of the transaction includes Fletcher subsidiaries with properties in
Canada's Western Sedimentary Basin and Argentina with proved reserves of 713
billion cubic feet of natural gas equivalent for approximately $627 million,
subject to normal post closing adjustments. A portion of the acquired gas
production has been hedged by Fletcher. The transaction is scheduled to close in
the first quarter of 2001, with an effective date of July 1, 2000. In a related
transaction, Shell will purchase 1.64 million restricted shares of Apache common
stock for $100 million. Proceeds from this sale are intended to be used to fund
the acquisition, with the remainder to be provided by debt.
On January 23, 2001, Apache announced the acquisition of substantially all
of Repsol's oil and gas concession interests in Egypt for approximately $410
million with an effective date of January 1, 2001. The properties include
interests in seven Western Desert concessions. The Company already holds
interests in six of the seven concessions. The transaction will be funded with
debt and is expected to close in the first half of 2001.
Divestitures
During 2000, Apache sold proprietary rights to certain Canadian seismic
data and various non-strategic oil and gas properties, collecting cash of $26.3
million.
On September 3, 1999, Apache sold its holdings in the Ivory Coast by
selling its wholly-owned subsidiary, Apache Cote d'Ivoire Petroleum LDC, for a
total sales price of $46.1 million to a consortium consisting of Mondoil Cote
d'Ivoire LLC and Saur Energie Cote d'Ivoire. The sale consisted of 13.7 MMboe of
proved reserves and a gain was recorded to other revenues in the accompanying
statement of consolidated operations.
Additionally, during 1999, Apache sold 27.9 MMboe of proved reserves in
several transactions from largely marginal North American properties for $110
million.
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.
3. INVESTMENTS IN EQUITY SECURITIES
Apache has certain investments in equity securities which are classified as
"available for sale" pursuant to SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The aggregate cost basis totaled
$1.3 million and $2.3 million at December 31, 2000 and 1999, respectively. The
aggregate fair value approximated $987,000 and the unrealized loss was
approximately $276,000 at December 31, 2000. The aggregate fair value
approximated $2.6 million and the unrealized gain was approximately $300,000 at
December 31, 1999. At December 31, 1998, Apache had no investments in equity
securities.
The Company realized an aggregate gain from the sale of equity securities
totaling $752,000 during 2000, gains totaling $234,000 during 1999 and losses of
$364,000 during 1998. 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.
F-13
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
Long-Term Debt
DECEMBER 31,
-----------------------
2000 1999
---------- ----------
(IN THOUSANDS)
Apache:
Money market lines of credit.............................. $ 25,000 $ 6,158
Commercial paper, expected to be refinanced............... 510,100 --
9.25-percent notes due 2002, net of discount.............. 99,926 99,882
7-percent notes due 2018, net of discount................. 148,339 148,291
7.625-percent notes due 2019, net of discount............. 149,085 149,063
7.7-percent notes due 2026, net of discount............... 99,650 99,646
7.95-percent notes due 2026, net of discount.............. 178,577 178,560
7.375-percent debentures due 2047, net of discount........ 147,998 147,993
7.625-percent debentures due 2096, net of discount........ 149,175 149,175
---------- ----------
1,507,850 978,768
---------- ----------
Subsidiary and other obligations:
Global credit facility -- Australia....................... 95,000 116,000
Revolving credit facility -- Egypt........................ 50,000 196,590
DEKALB 9.875-percent notes due 2000....................... -- 29,225
Apache Finance Australia 6.5-percent notes due 2007, net
of discount............................................ 169,023 168,916
Apache Finance Australia 7-percent notes due 2009, net of
discount............................................... 99,425 99,376
Apache Finance Canada 7.75-percent notes due 2029, net of
discount............................................... 296,960 296,933
---------- ----------
710,408 907,040
---------- ----------
Total debt.................................................. 2,218,258 1,885,808
Less: current maturities.................................... (25,000) (6,158)
---------- ----------
Long-term debt.............................................. $2,193,258 $1,879,650
========== ==========
On July 14, 2000, Apache entered into a new $500 million, 364-day revolving
credit facility with a group of banks. The terms of this new facility are
substantially the same as those of Apache's global credit facility. The new
facility will be used, along with the U.S. portion of the global credit
facility, to support Apache's commercial paper program.
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.
Under the financial covenants of the global credit facility, the Company must
(i) maintain a consolidated tangible net worth, as defined, of at least $1.5
billion as of December 31, 2000, 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, 2000.
As of December 31, 2000, the global credit facility was scheduled to mature
on June 12, 2002, in the amount of $30 million and the remaining $970 million on
June 12, 2003. In February 2001, the $30 million of commitments scheduled to
mature on June 12, 2002, were extended one year, resulting in the entire credit
facility maturing on June 12, 2003. 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,
F-14
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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, 2000, the margin
over LIBOR for committed loans was .17 percent. The Company also pays a
quarterly facility fee of .08 percent on the total amount of each of the three
facilities, which fee varies based upon the Company's senior long-term debt
rating.
As of December 31, 2000, Apache's available borrowing capacity under its
global credit facility and 364-day revolving credit facility was $894.9 million.
At December 31, 2000, 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, 2000, an aggregate of $25 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. In July 2000, the Company further expanded its commercial paper
program to $1.2 billion. The commercial paper balance at December 31, 2000, was
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 U.S. portion of the global credit facility and 364-day
revolving credit facility. The weighted average interest rate for commercial
paper was 6.56 percent in 2000.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6-percent convertible subordinated debentures was converted into
approximately 5.1 million shares of Apache common stock at a conversion price of
$30.68 per share. The remaining $16.9 million of principal amount was redeemed
for $17.4 million in cash, plus accrued and unpaid interest. The Company
recorded a $.8 million loss on the early extinguishment of debt in January 1998.
In May 1992, Apache issued $100 million of 9.25-percent notes which mature
in June 2002. The Company does not have the right to redeem the notes prior to
maturity.
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 Company does not have the right to redeem the notes prior
to maturity.
In June 1999, the Company issued $150 million principal amount, $149.1
million net of discount, of senior unsecured 7.625-percent notes due July 1,
2019. The Company does not have the right to redeem the notes 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.
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.
F-15
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon certain changes in control, the debt instruments described in the
preceding six paragraphs would be 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
originally provided 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 $151 million at December 31, 2000 and will be
redetermined semi-annually. In May 2000, the commitments under the facility
began a scheduled reduction by set increments every six months. The commitments
at December 31, 2000, totaled $212.5 million. 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 increased to .625 percent on January 3, 2001. A quarterly fee of
.375 percent is payable on the available portion of the commitments, while a
quarterly fee of .1875 percent is payable on the difference between the
borrowing base and the total amount of commitments under the facility. The
facility is scheduled to mature on January 3, 2003.
In December 1997, Apache Finance Pty Ltd (Apache Finance Australia), 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 Australia issued $100 million principal
amount, $99.3 million net of discount, of senior unsecured 7-percent notes due
March 15, 2009.
In December 1999, Apache Finance Canada Corporation (Apache Finance
Canada), the Company's Canadian finance subsidiary, issued $300 million
principal amount, $296.9 million net of discount, of senior unsecured
7.75-percent notes due December 15, 2029.
The Apache Finance Australia and Apache Finance Canada notes are
irrevocably and unconditionally guaranteed by Apache. Under certain conditions
related to changes in relevant tax laws, Apache Finance Australia and Apache
Finance Canada have the right to redeem the notes prior to maturity. In the case
of the 6.5-percent notes, Apache Finance Australia may also redeem the notes at
its option subject to an adjustment to keep investors whole. Also, upon certain
changes in control, these notes would be subject to mandatory repurchase.
In December 2000, Moody's Investor Service, Inc. upgraded the Company's
senior unsecured long-term debt rating from Baa1 to A3 and confirmed its
commercial paper rating of Prime-2. In January 2001, Standard & Poor's Corporate
Ratings Group upgraded the Company's senior unsecured long-term debt rating from
BBB+ to A- and confirmed its commercial paper rating of A-2. The Fitch, Inc.
senior unsecured long-term debt rating of A- and commercial paper rating of F-2
also were confirmed.
As of December 31, 2000 and 1999, the Company had approximately $15.4
million and $16.8 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 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-16
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate Maturities of Debt
(IN THOUSANDS)
2001................................................... $ 25,000
2002................................................... 149,926
2003................................................... 605,100
2004................................................... --
2005................................................... --
Thereafter............................................. 1,438,232
----------
$2,218,258
==========
5. INCOME TAXES
Income (loss) before income taxes is composed of the following:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
---------- -------- ---------
(IN THOUSANDS)
United States...................................... $ 654,136 $143,680 $(241,861)
International...................................... 549,545 200,893 54,298
---------- -------- ---------
Total.................................... $1,203,681 $344,573 $(187,563)
========== ======== =========
The total provision (benefit) for income taxes consists of the following:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Current taxes:
Federal............................................ $ 12,000 $ -- $ --
Foreign............................................ 120,383 66,224 23,680
Deferred taxes....................................... 350,703 77,494 (81,856)
-------- -------- --------
Total...................................... $483,086 $143,718 $(58,176)
======== ======== ========
The deferred income tax provision shown above includes amounts related to
the compensation component of non-qualified stock options exercised in each year
for which the benefit was credited directly to shareholders' equity.
A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- --------- ---------
(IN THOUSANDS)
Statutory income tax................................. $421,288 $120,601 $(65,647)
State income tax, less federal benefit............... 9,650 8,482 38
Taxation of foreign operations....................... 52,354 24,519 8,710
Decrease in Australia corporate income tax rate...... -- (16,979) --
U.S. taxes on repatriation of Egyptian earnings...... -- 7,136 --
All other, net....................................... (206) (41) (1,277)
-------- -------- --------
$483,086 $143,718 $(58,176)
======== ======== ========
F-17
56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax liability is comprised of the following:
DECEMBER 31,
--------------------
2000 1999
-------- ---------
(IN THOUSANDS)
Deferred tax assets:
Deferred income........................................... $ (1,799) $ (6,238)
Federal net operating loss carryforwards.................. -- (81,047)
State net operating loss carryforwards.................... (9,481) (8,989)
Statutory depletion carryforwards......................... (4,075) (4,075)
Alternative minimum tax credits........................... (13,118) (9,141)
Accrued expenses and liabilities.......................... (8,413) (6,970)
Other..................................................... (6,201) (13,332)
-------- ---------
Total deferred tax assets......................... (43,087) (129,792)
Valuation allowance......................................... 1,649 1,704
-------- ---------
Net deferred tax assets................................ (41,438) (128,088)
-------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization.................. 738,132 485,428
Other..................................................... 3,139 2,984
-------- ---------
Total deferred tax liabilities.................... 741,271 488,412
-------- ---------
Net deferred income tax liability........................... $699,833 $ 360,324
======== =========
U.S. deferred taxes have not been provided on foreign earnings totaling
$904.3 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, 2000, the Company had U.S. and foreign statutory depletion
carryforwards totaling $10.9 million that can be carried forward indefinitely.
The Company has alternative minimum tax (AMT) credit carryforwards of $13.1
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 $1.6 million that most likely
will be utilized or expire in 2001, which have been fully reserved through a
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 $2.19 per MMBtu in 1997 and escalating to $2.59
per MMBtu in 2007. In addition, the purchaser pays
F-18
57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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. This agreement expired at the end of 2000.
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 from gas purchasers
in the accompanying consolidated balance sheet and are being reduced as gas is
delivered to the purchasers under the terms of the contracts. At December 31,
2000 and 1999, advances of $153.1 and $181.0 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
2000 1999 1998
----------- ----------- ----------
Balance, beginning of year............................. 113,996,464 97,769,122 93,304,541
Treasury shares acquired, net.......................... (459,479) (385,334) (846,968)
Shares issued for:
Public offering(1)................................... 9,200,000 14,950,000 --
Acquisition of Shell Offshore properties............. -- 1,000,000 --
Conversion of 6-percent convertible debentures....... -- -- 5,070,914
Acquisition of oil and gas property interests........ -- -- 176,836
Dividend reinvestment plan........................... -- 12,436 --
401(k) savings plan.................................. -- 24,988 10,477
Stock option plans................................... 897,763 625,252 53,322
----------- ----------- ----------
Balance, end of year................................... 123,634,748 113,996,464 97,769,122
=========== =========== ==========
- ---------------
(1) In August 2000, Apache completed a public offering of 9.2 million shares of
common stock, including 1.2 million shares for the underwriters'
over-allotment option, for net proceeds of $433.9 million. In May 1999,
Apache completed a public offering of approximately 15.0 million shares of
common stock for net proceeds of $444.3 million.
F-19
58
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, 2000, 1999 and 1998 is presented in the table below:
2000 1999 1998
------------------------------ ------------------------------ ------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- ------- --------- -------- ------- --------- --------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic:
Income (loss) attributable
to common stock........... $693,068 117,979 $5.87 $186,406 107,936 $1.73 $(131,391) 98,066 $(1.34)
===== ===== ======
Effect of Dilutive Securities:
Stock options and other..... -- 1,046 -- 418 -- --
Series C Preferred Stock.... 14,307 5,691 -- -- -- --
-------- ------- -------- ------- --------- ------
Diluted:
Income (loss) attributable
to common stock, including
assumed conversions....... $707,375 124,716 $5.67 $186,406 108,354 $1.72 $(131,391) 98,066 $(1.34)
======== ======= ===== ======== ======= ===== ========= ====== ======
The effect of the Series C Preferred Stock was not included in the
computation of diluted net income per common share during 1999 because to do so
would have been antidilutive.
Stock Option Plans -- At December 31, 2000, 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, 1998 and 2000 (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.
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 would have
been accelerated if certain share price goals had been attained before January
1, 2000. These share price goals were not attained and no acceleration will
occur. Under the terms of the Performance Plan, no grants were made after
December 31, 1998.
F-20
59
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the plans described above as of December 31,
2000, 1999 and 1998, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
2000 1999 1998
----------------- ----------------- -----------------
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.......... 4,524 $33.49 4,421 $32.15 3,629 $32.20
Granted................................. 884 49.66 849 37.41 1,243 32.53
Exercised............................... (884) 31.46 (533) 28.53 (20) 26.68
Forfeited............................... (184) 38.02 (213) 33.31 (431) 33.98
------ ------ ------
Outstanding, end of year(1)............. 4,340 37.04 4,524 33.49 4,421 32.15
====== ====== ======
Exercisable, end of year................ 1,398 32.60 1,392 30.64 1,223 28.86
====== ====== ======
Available for grant, end of year........ 1,478 1,276 2,006
====== ====== ======
Weighted average fair value of options
granted during the year(2)............ $20.85 $13.93 $10.87
====== ====== ======
The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 2000 (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
- ------------------------ ----------- ----------- -------- ----------- --------
$13.750 -- $29.875....................... 676 5.80 $27.20 488 $27.25
30.250 -- 37.875....................... 2,349 6.69 34.41 748 33.76
40.000 -- 49.125....................... 1,231 8.96 46.19 162 43.35
53.188 -- 63.630....................... 84 9.56 55.68 -- --
----- -----
4,340 1,398
===== =====
- ---------------
(1) Excludes 142,500, 219,000 and 449,625 shares as of December 31, 2000, 1999
and 1998, respectively, issuable under stock options assumed by Apache in
connection with the 1996 merger with The Phoenix Resource Companies, Inc.
(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 2000, 1999 and 1998, respectively: (i)
risk-free interest rates of 6.74, 5.65 and 5.46 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 37.42, 33.87 and 31.17 percent, and (iv)
expected dividend yields of .57, .75 and .88 percent.
F-21
60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In October 2000, the Company adopted the 2000 Share Appreciation Plan (the
Share Appreciation Plan) under which grants were made to the Company's officers
and substantially all full-time employees. The Share Appreciation Plan provides
for conditional grants of up to an aggregate of 3.5 million shares of Apache
common stock, based on attainment of one or more of three share price goals (the
Share Price Goals) and/or a separate production goal (the Production Goal).
Generally, shares will be issued in three installments over 24 months after
achievement of each goal. When and if the goals are achieved, the Company will
recognize compensation expense over the 24-month vesting period equal to the
value of the stock on the date the particular goal is achieved. The shares of
Apache common stock contingently issuable under the Share Appreciation Plan will
be excluded from the computation of income per common share until the stated
goals are met.
The Share Price Goals are based on achieving a share price of $100, $120
and $180 per share before January 1, 2005. A summary of the number of shares
contingently issuable under the Share Price Goals as of December 31, 2000 is
presented in the table below (shares in thousands):
SHARES SUBJECT TO
CONDITIONAL GRANTS
------------------
Outstanding, beginning of year...................... --
Granted............................................. 2,496
------
Outstanding, end of year(1)......................... 2,496
======
Exercisable, end of year............................ --
======
Weighted average fair value of conditional grants --
Share Price Goals(2).............................. $40.26
======
The Production Goal will be attained if and when the Company's average
daily production equals or exceeds 1.54 barrels of oil equivalent per diluted
share (calculated on an annualized basis) during any fiscal quarter ending
before January 1, 2005. Such level of production is approximately twice the
Company's level of production at the time the Share Appreciation Plan was
adopted. Shares issuable in connection with the Production Goal will be a number
of shares of the Company's common stock equal to (a) 37.5 percent, 75 percent or
150 percent of a participant's annual base salary (at the time of attainment),
as applicable, divided by (b) the average daily per share closing price of the
Company's common stock for the fiscal quarter during which the Production Goal
is attained.
- ---------------
(1) Represents shares issuable upon attainment of $100, $120 and $180 per share
price goals of 542,000, 1,353,000 and 601,000 shares, respectively.
(2) The fair value of each Share Price Goal 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 2000: (i) risk-free interest
rate of 5.95 percent; (ii) expected volatility of 44.69 percent; and (iii)
expected dividend yield of .44 percent.
F-22
61
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, generally, no
compensation cost has been recognized for the Stock Option Plans, the
Performance Plan, or the Share 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:
2000 1999 1998
----------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Income (Loss) Attributable to Common Stock:
As reported...................................... $693,068 $186,406 $(131,391)
Pro forma........................................ 679,856 177,518 (141,306)
Net Income (Loss) per Common Share:
Basic:
As reported................................... $ 5.87 $ 1.73 $ (1.34)
Pro forma..................................... 5.76 1.64 (1.44)
Diluted:
As reported................................... $ 5.67 $ 1.72 $ (1.34)
Pro forma..................................... 5.58 1.64 (1.44)
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.
In December 1998, the Company entered into a conditional stock grant
agreement with an executive of the Company which would award up to 100,000
shares of the Company's common stock in five annual installments. Each
installment has a five-year vesting period, 40 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 (60,000 shares) will be issued in Apache common stock.
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), 100,000 shares have been
designated as the 5.68 percent Series B Cumulative Preferred Stock (the Series B
Preferred Stock) and 140,000 shares have been designated as Automatically
Convertible Equity Securities, Conversion Preferred Stock, Series C (the Series
C 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.
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 a person or group becomes the
beneficial owner of 20 percent or more of Apache's outstanding common stock
(flip in event), each Right will become exercisable for shares of Apache's
common stock at 50 percent of the then market price of the common stock. If a 20
percent shareholder of Apache acquires Apache, by merger or otherwise, in a
transaction where Apache does not survive or in which Apache's common stock is
changed or exchanged (flip over event), the Rights become exercisable for shares
of the common stock of the company acquiring Apache at 50 percent of the then
market price for Apache common
F-23
62
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock. 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 of a flip in event. 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.
Series B Preferred Stock -- In August 1998, Apache issued 100,000 shares
($100 million) 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, for net proceeds of $98.4 million. 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.
Series C Preferred Stock -- In May 1999, Apache issued 140,000 shares ($217
million) of Series C Preferred Stock in the form of seven million depositary
shares each representing one-fiftieth (1/50) of a share of Series C Preferred
Stock, for net proceeds of $210.5 million. The Series C Preferred Stock is not
subject to a sinking fund or mandatory redemption. On May 15, 2002, each
depositary share will automatically convert, subject to adjustments, into not
more than one share and not less than 0.8197 of a share of Apache common stock,
depending on the market price of Apache common stock at that time.
In 2000, Apache bought back 75,900 depository shares at an average price of
$34.42 per share. The excess of the purchase price to reacquire the depository
shares over the original issuance price is reflected as a preferred stock
dividend in the accompanying statement of consolidated operations.
At any time prior to May 15, 2002, holders of the depositary shares may
elect to convert each of their shares, subject to adjustments, into not less
than 0.8197 of a share of Apache common stock (5,675,685 common shares). Holders
of the shares are entitled to receive cumulative cash dividends at an annual
rate of $2.015 per depositary share when, and if, declared by Apache's board of
directors.
Comprehensive Income -- Components of accumulated other comprehensive
income (loss) consist of the following (in thousands):
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
--------- -------- ---------
Currency translation adjustments...................... $(40,050) $(8,661) $(33,204)
Unrealized gain (loss) on marketable securities....... (182) 215 --
-------- ------- --------
Accumulated other comprehensive income (loss)......... $(40,232) $(8,446) $(33,204)
======== ======= ========
The unrealized gain (loss) on marketable securities at December 31, 2000
and 1999 is net of income tax expense (benefit) of $(94,000) and $129,000,
respectively. The currency translation adjustments are not adjusted for income
taxes as they relate to an indefinite investment in a non-U.S. subsidiary.
F-24
63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In January 2000, the Company acquired producing properties formerly owned
by a subsidiary of Repsol for cash and the assumption of certain non-cash
liabilities. The accompanying financial statements include the amounts detailed
in Note 2.
In August 2000, the Company acquired an LLC owned by subsidiaries of
Occidental for cash and future payments as discussed in Note 2. The accompanying
financial statements included a discounted liability of $36.8 million as of the
acquisition date for such payments.
In June 1999, the Company acquired certain oil and gas interests from
British-Borneo for cash and the assumption of certain liabilities. The
accompanying financial statements include the amounts detailed in Note 2.
In May 1999, the Company issued one million shares of Apache common stock
to Shell Offshore in connection with the transaction discussed in Note 2.
In December 1998 and January 1999, 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.
Supplemental Disclosure of Cash Flow Information:
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
2000 1999 1998
--------- -------- --------
(IN THOUSANDS)
Cash paid during the year for:
Interest, net of amounts capitalized...................... $108,292 $70,691 $71,968
Income and other taxes, net of refunds.................... 122,716 66,224 23,680
F-25
64
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 2000 and 1999.
2000 1999
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
Cash and cash equivalents.......................... $ 37,173 $ 37,173 $ 13,171 $ 13,171
Long-term debt:
Bank debt........................................ 145,000 145,000 312,590 312,590
Commercial paper................................. 510,100 510,100 -- --
7.95-percent notes............................... 178,577 191,088 178,560 176,760
7.625-percent debentures......................... 149,175 155,580 149,175 136,628
7.625-percent notes.............................. 149,085 154,800 149,063 144,075
7-percent notes.................................. 148,339 145,905 148,291 135,975
7.375-percent debentures......................... 147,998 148,755 147,993 136,755
9.25-percent notes............................... 99,926 104,060 99,882 104,170
7.7-percent notes................................ 99,650 103,280 99,646 95,470
Money market lines of credit..................... 25,000 25,000 6,158 6,158
Apache Finance Australia 6.5-percent notes....... 169,023 168,946 168,916 156,689
Apache Finance Australia 7-percent notes......... 99,425 102,842 99,376 95,238
DEKALB 9.875-percent notes....................... -- -- 29,225 29,655
Apache Finance Canada 7.75-percent notes......... 296,960 302,610 296,933 283,380
Hedging financial instruments:
Commodity price swaps:
-- Natural gas (pay fixed)(1)................. -- 121,453 -- 11,073
-- Natural gas (receive fixed)................ -- (3,924) -- (1,547)
-- Oil (receive fixed)........................ -- (26,948) -- (9,369)
Commodity collars:
-- Natural gas................................ -- (94,323) 183 846
-- Oil........................................ -- 8,966 425 (4,890)
- ---------------
(1) The fair value of natural gas price swaps at December 31, 2000 and 1999
reflects fixed-to-floating price swaps where there is an offsetting physical
position valued at a negative $121.5 million. See Commodity Price Hedges
below.
F-26
65
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, 2000 and
1999.
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 7.625-percent debentures and the
Apache Finance Australia 7-percent notes are based upon estimates provided to
the Company by independent investment banking firms. The fair values of all
other notes and debentures are based on the quoted market prices. The carrying
amount of the bank debt, commercial paper and money market lines of credit
approximated 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 losses of $42.1 million and $6.7 million in 2000 and 1999, respectively,
and hedging gains of $1.3 million in 1998. The hedging gains and losses are
included in oil and gas production revenues in the statement of consolidated
operations.
The following table and note thereto cover the Company's pricing and
notional volumes on open commodity derivative contracts as of December 31, 2000:
2001 2002 2003 2004 2005 THEREAFTER
------ ------ ------ ----- ----- ----------
Natural Gas Swap Positions:
Pay fixed price -- January 2001 to July 2008
(thousand MMBtu/d)(1)......................... 30 30 30 30 32 31
Average swap price, per MMBtu(1)................ $ 2.27 $ 2.31 $ 2.35 $2.39 $2.45 $2.53
Natural Gas Swap Positions:
Receive fixed price -- January 2001 to June 2001
(thousand MMBtu/d)............................ 4 -- -- -- -- --
Average swap price, per MMBtu................... $ 1.58 -- -- -- -- --
Oil Swap Positions:
Receive fixed price -- January 2001 to June 2002
(Mbbl/d)...................................... 9 8 -- -- -- --
Average swap price, per bbl..................... $18.82 $18.45 -- -- -- --
Oil Collar Positions:
Volume -- January 2001 to December 2003
(Mbbl/d)...................................... 11 10 3 -- -- --
Average ceiling price, per bbl.................. $30.96 $27.14 $27.40 -- -- --
Average floor price, per bbl.................... $23.73 $22.11 $22.00 -- -- --
Gas Collar Positions:
Volume -- January 2001 to December 2003
(thousand MMBtu/d)............................ 161 145 45 -- -- --
Average ceiling price, per MMBtu................ $ 5.64 $ 4.67 $ 4.17 -- -- --
Average floor price, per MMBtu.................. $ 3.03 $ 2.89 $ 2.59 -- -- --
- ---------------
(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
$2.32 in 2001 to $2.56 in 2008. The fair value of these hedges was $121.5
million at December 31, 2000, all of which is related to the arrangements
discussed in Note 6.
F-27
66
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, 2000, Apache had a reserve for environmental
remediation of approximately $6.5 million. The Company is not aware of any
environmental claims existing as of December 31, 2000, 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 and Poland. In order to comply with the contracts and
agreements granting these rights, the Company, through various wholly-owned
subsidiaries, is committed to expend approximately $103.5 million through 2004.
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
$9.5 million, $7.8 million and $7.3 million for 2000, 1999 and 1998,
respectively. The unfunded liability for all plans has been accrued in the
consolidated balance sheet.
China -- In June 2000, the Company's subsidiary, Apache China Corporation
LDC (Apache China), filed a lawsuit against PetroChina Company Limited
(PetroChina), China National Petroleum Corporation and China National Oil and
Gas Exploration and Development Corporation in connection with certain of the
Company's Chinese operations in the Zhao Dong Block of the Bohai Bay in China.
The Company filed
F-28
67
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
seeking damages and injunctive relief to prevent the Chinese parties from
declaring that Apache and XCL-China, Ltd. had relinquished some of the Company's
Chinese exploratory acreage, and other claims. The lawsuit was filed in the U.S.
Bankruptcy Court in Opelousas, Louisiana, in connection with bankruptcy
proceedings of XCL-China, Ltd., a co-owner in the Zhao Dong Block. On June 30,
2000, Apache and PetroChina announced having reached agreement to resolve the
outstanding issues associated with development of the Zhao Dong Block. The
agreement called for PetroChina and the China National Petroleum Corporation to
obtain various governmental approvals including approval of the overall
development plan. By the middle of February 2001, all of the agreed actions had
occurred, including all of the required governmental approvals, and Apache
China's lawsuit was dismissed with prejudice. Apache and the other participants
in the Zhao Dong Block are preparing to begin the construction of production
facilities and development drilling in accordance with the approved overall
development plan.
Lease Commitments -- The Company has leases for buildings, facilities and
equipment with varying expiration dates through 2008. Net rental expense was
$15.6 million, $11.5 million and $8.1 million for 2000, 1999 and 1998,
respectively.
As of December 31, 2000, minimum rental commitments under long-term
operating leases, net of sublease rentals, and long-term pipeline transportation
commitments, ranging from one to 23 years, are as follows:
NET MINIMUM
COMMITMENTS
--------------
(IN THOUSANDS)
2001.................................................. $ 22,844
2002.................................................. 23,700
2003.................................................. 19,630
2004.................................................. 16,956
2005.................................................. 16,045
Thereafter............................................ 62,922
--------
$162,097
========
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Strategic Alliance with Cinergy Corp. -- 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, renamed Cinergy Marketing and Trading LLC, 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 and chief executive officer of Key
Production Company, Inc. (Key). In the normal course of business, Key paid to
Apache approximately $2.7 million during 2000 for Key's proportionate share of
drilling and workover costs, mineral interests and routine expenses related to
392 oil and gas wells in which Key owns interests and for which Apache is the
operator. Key received approximately $9.9 million in 2000 for its proportionate
share of revenues from such interests, of which approximately $6.7 million was
paid directly to Key by Apache or related entities.
F-29
68
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Major Purchasers -- In 2000, purchases by Cinergy and the Egyptian General
Petroleum Corporation (EGPC) accounted for 26 percent and 16 percent of the
Company's oil and gas production revenues, respectively. In 1999, purchases by
Cinergy and EGPC accounted for 29 percent and 21 percent of the Company's oil
and gas production revenues, respectively. In 1998, purchases by
Cinergy/ProEnergy and EGPC accounted for 38 percent and 17 percent of the
Company's oil and gas production revenues, respectively.
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 Cinergy are
similarly uncollateralized.
12. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
crude oil and natural gas 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:
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ---------- -------- --------- ------------- ----------
(IN THOUSANDS)
2000
Oil and Gas Production
Revenues...................... $1,374,941 $ 331,503 $360,772 $223,543 $ -- $2,290,759
Operating Expenses:
Depreciation, depletion and
amortization............... 356,998 79,892 84,425 62,183 48 583,546
Operating costs............... 216,001 39,559 28,328 30,536 -- 314,424
---------- ---------- -------- -------- -------- ----------
Operating Income (Loss)......... $ 801,942 $ 212,052 $248,019 $130,824 $ (48) 1,392,789
========== ========== ======== ======== ========
Other Income (Expense):
Equity in income of
affiliates................. 862
Other revenues................ (7,717)
Administrative, selling and
other...................... (75,615)
Financing costs, net.......... (106,638)
----------
Income Before Income Taxes...... $1,203,681
==========
Total Long-Lived Assets......... $3,643,439 $1,378,639 $854,531 $783,884 $151,969 $6,812,462
========== ========== ======== ======== ======== ==========
Total Assets.................... $4,022,749 $1,463,306 $965,733 $856,575 $173,587 $7,481,950
========== ========== ======== ======== ======== ==========
Additions to Long-Lived
Assets........................ $1,461,479 $ 649,804 $ 93,083 $117,248 $ 20,865 $2,342,479
========== ========== ======== ======== ======== ==========
F-30
69
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER
UNITED STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
------------- ---------- -------- --------- ------------- ----------
(IN THOUSANDS)
1999
Oil and Gas Production
Revenues...................... $ 700,649 $ 86,901 $235,935 $118,524 $ 1,937 $1,143,946
Operating Expenses:
Depreciation, depletion and
amortization............... 290,771 34,560 74,736 41,716 1,061 442,844
Operating costs............... 150,505 19,962 26,444 25,216 849 222,976
---------- ---------- -------- -------- -------- ----------
Operating Income................ $ 259,373 $ 32,379 $134,755 $ 51,592 $ 27 478,126
========== ========== ======== ======== ========
Other Income (Expense):
Equity in income of
affiliates................. 153
Other revenues................ 2,454
Administrative, selling and
other...................... (53,894)
Financing costs, net.......... (82,266)
----------
Income Before Income Taxes...... $ 344,573
==========
Total Long-Lived Assets......... $2,548,413 $ 861,829 $845,873 $728,592 $131,151 $5,115,858
========== ========== ======== ======== ======== ==========
Total Assets.................... $2,760,163 $ 894,592 $908,502 $782,520 $156,766 $5,502,543
========== ========== ======== ======== ======== ==========
Additions to Long-Lived
Assets........................ $1,053,285 $ 577,455 $111,534 $175,848 $ 28,286 $1,946,408
========== ========== ======== ======== ======== ==========
1998
Oil and Gas Production
Revenues...................... $ 498,388 $ 63,620 $129,123 $ 70,057 $ -- $ 761,188
Operating Expenses:
Depreciation, depletion and
amortization...............
Recurring.................. 256,507 30,514 59,825 35,961 -- 382,807
Additional................. 243,178 -- -- -- -- 243,178
Operating costs............... 153,490 17,216 23,436 16,638 -- 210,780
---------- ---------- -------- -------- -------- ----------
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)
----------
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-31
70
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 IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
------------- -------- -------- --------- ------ ----------
(IN THOUSANDS)
2000
Oil and gas production
revenues...................... $1,374,941 $331,503 $360,772 $223,543 $ -- $2,290,759
---------- -------- -------- -------- ------ ----------
Operating costs:
Depreciation, depletion and
amortization............... 345,624 76,286 84,302 61,358 -- 567,570
Lease operating expenses...... 167,985 34,487 28,328 24,451 -- 255,251
Production taxes.............. 46,509 -- -- 6,086 -- 52,595
Income tax.................... 305,559 98,489 119,108 44,760 -- 567,916
---------- -------- -------- -------- ------ ----------
865,677 209,262 231,738 136,655 -- 1,443,332
---------- -------- -------- -------- ------ ----------
Results of operations........... $ 509,264 $122,241 $129,034 $ 86,888 $ -- $ 847,427
========== ======== ======== ======== ====== ==========
Amortization rate per boe(1).... $ 6.16 $ 5.53 $ 5.46 $ 4.42 $ -- $ 5.75
========== ======== ======== ======== ====== ==========
1999
Oil and gas production
revenues...................... $ 700,649 $ 86,901 $235,935 $118,524 $1,937 $1,143,946
---------- -------- -------- -------- ------ ----------
Operating costs:
Depreciation, depletion and
amortization............... 280,033 33,671 74,695 40,952 309 429,660
Lease operating expenses...... 124,867 18,095 26,444 20,321 849 190,576
Production taxes.............. 23,212 -- -- 4,895 -- 28,107
Income tax.................... 102,201 15,677 64,702 18,848 273 201,701
---------- -------- -------- -------- ------ ----------
530,313 67,443 165,841 85,016 1,431 850,044
---------- -------- -------- -------- ------ ----------
Results of operations........... $ 170,336 $ 19,458 $ 70,094 $ 33,508 $ 506 $ 293,902
========== ======== ======== ======== ====== ==========
Amortization rate per boe(1).... $ 6.10 $ 4.54 $ 5.25 $ 4.12 $ 1.72 $ 5.57
========== ======== ======== ======== ====== ==========
1998
Oil and gas production
revenues...................... $ 498,388 $ 63,620 $129,123 $ 70,057 $ -- $ 761,188
---------- -------- -------- -------- ------ ----------
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...... 128,811 16,419 23,436 13,472 -- 182,138
Production taxes.............. 21,503 -- -- 3,166 -- 24,669
Income tax (benefit).......... (53,287) 7,686 22,014 6,552 -- (17,035)
---------- -------- -------- -------- ------ ----------
587,199 54,072 105,275 58,409 -- 804,955
---------- -------- -------- -------- ------ ----------
Results of operations........... $ (88,811) $ 9,548 $ 23,848 $ 11,648 $ -- $ (43,767)
========== ======== ======== ======== ====== ==========
Amortization rate per boe(1).... $ 6.21 $ 4.03 $ 5.22 $ 4.86 $ -- $ 5.66
========== ======== ======== ======== ====== ==========
- ---------------
(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-32
71
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, 2000, by the year
in which such costs were incurred:
1997
TOTAL 2000 1999 1998 AND PRIOR
-------- -------- -------- -------- ---------
(IN THOUSANDS)
Property acquisition costs.............. $665,567 $189,481 $211,609 $ 55,619 $208,858
Exploration and development............. 311,924 96,536 43,416 78,639 93,333
-------- -------- -------- -------- --------
Total......................... $977,491 $286,017 $255,025 $134,258 $302,191
======== ======== ======== ======== ========
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)
2000
Acquisition of proved
properties(1)............. $ 922,523 $401,904 $ -- $ -- $ -- $ -- $1,324,427
Acquisition of unproved
properties................ 10,712 11,548 -- -- -- -- 22,260
Exploration................. 26,045 16,331 51,819 40,917 -- 18,077 153,189
Development................. 459,046 107,748 33,130 32,918 -- -- 632,842
Capitalized interest........ 27,185 10,063 12,194 9,908 -- 2,650 62,000
Property sales.............. (10,853) (15,418) -- -- -- -- (26,271)
---------- -------- -------- -------- -------- -------- ----------
$1,434,658 $532,176 $ 97,143 $ 83,743 $ -- $ 20,727 $2,168,447
========== ======== ======== ======== ======== ======== ==========
1999
Acquisition of proved
properties(1)............. $ 801,157 $503,771 $ -- $ 86,278 $ -- $ -- $1,391,206
Acquisition of unproved
properties................ 9,044 5,464 -- -- -- -- 14,508
Exploration................. 29,207 14,218 24,071 26,866 -- 17,097 111,459
Development................. 179,225 26,009 35,737 34,110 2,553 1,738 279,372
Capitalized interest........ 22,031 3,176 7,904 8,289 619 3,703 45,722
Property sales.............. (106,122) (3,872) -- -- (45,232) -- (155,226)
---------- -------- -------- -------- -------- -------- ----------
$ 934,542 $548,766 $ 67,712 $155,543 $(42,060) $ 22,538 $1,687,041
========== ======== ======== ======== ======== ======== ==========
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
========== ======== ======== ======== ======== ======== ==========
- ---------------
(1) Acquisition of proved properties includes unevaluated costs of $125.1
million, $256.4 million and $15.7 million for transactions completed in
2000, 1999 and 1998, respectively.
F-33
72
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 INTERNATIONAL TOTAL
------------- ---------- --------- --------- ------------- -----------
(IN THOUSANDS)
2000
Proved properties............... $ 6,641,162 $1,414,598 $ 639,938 $ 677,999 $ 50,225 $ 9,423,922
Unproved properties............. 296,319 168,228 215,919 146,108 150,917 977,491
----------- ---------- --------- --------- -------- -----------
6,937,481 1,582,826 855,857 824,107 201,142 10,401,413
Accumulated DD&A................ (3,342,791) (326,621) (245,741) (185,543) (50,225) (4,150,921)
----------- ---------- --------- --------- -------- -----------
$ 3,594,690 $1,256,205 $ 610,116 $ 638,564 $150,917 $ 6,250,492
=========== ========== ========= ========= ======== ===========
1999
Proved properties............... $ 5,291,247 $ 939,979 $ 543,132 $ 585,204 $ 50,225 $ 7,409,787
Unproved properties............. 211,576 156,600 215,582 155,160 130,190 869,108
----------- ---------- --------- --------- -------- -----------
5,502,823 1,096,579 758,714 740,364 180,415 8,278,895
Accumulated DD&A................ (2,997,167) (260,573) (174,431) (131,296) (50,225) (3,613,692)
----------- ---------- --------- --------- -------- -----------
$ 2,505,656 $ 836,006 $ 584,283 $ 609,068 $130,190 $ 4,665,203
=========== ========== ========= ========= ======== ===========
F-34
73
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, L.P.
Petroleum Consultants, 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, 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
December 31, 1999................ 186,962 50,401 30,719 33,887 -- 301,969
December 31, 2000................ 232,361 66,484 26,028 29,124 -- 353,997
TOTAL PROVED RESERVES:
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
Extensions, discoveries and other
additions...................... 23,370 1,114 5,327 4,056 -- 33,867
Purchases of minerals in-place... 76,493 70,640 -- 4,686 -- 151,819
Revisions of previous
estimates...................... 27,615 772 (9,815) 3,225 (30) 21,767
Production....................... (17,836) (1,344) (11,589) (3,878) (13) (34,660)
Sales of properties.............. (7,169) (81) -- -- (1,309) (8,559)
-------- -------- ------- ------ ------ -------
Balance December 31,1999.......... 238,657 83,043 39,076 54,466 -- 415,242
Extensions, discoveries and other
additions...................... 36,681 6,589 9,168 6,074 -- 58,512
Purchases of minerals in-place... 60,519 29,514 -- -- -- 90,033
Revisions of previous
estimates...................... 2,655 159 1,012 429 -- 4,255
Production....................... (22,894) (5,828) (10,155) (5,691) -- (44,568)
Sales of properties.............. (914) (87) -- -- -- (1,001)
-------- -------- ------- ------ ------ -------
Balance December 31, 2000......... 314,704 113,390 39,101 55,278 -- 522,473
======== ======== ======= ====== ====== =======
NATURAL GAS TOTAL
---------------------------------------------------------------- -----------
(MILLIONS OF CUBIC FEET) (THOUSAND
BARRELS OF
UNITED IVORY OIL
STATES CANADA EGYPT AUSTRALIA COAST TOTAL EQUIVALENT)
--------- -------- ------- --------- ------- --------- -----------
PROVED DEVELOPED RESERVES:
December 31, 1997................ 1,009,080 326,237 8,825 183,962 26,208 1,554,312 462,197
December 31, 1998................ 869,464 322,576 4,790 173,764 79,515 1,450,109 419,684
December 31, 1999................ 1,004,844 397,704 106,830 364,369 -- 1,873,747 614,260
December 31, 2000................ 1,579,865 660,334 93,205 331,390 -- 2,664,794 798,129
TOTAL PROVED RESERVES:
Balance December 31,1997.......... 1,131,749 328,208 144,246 241,410 26,208 1,871,821 585,748
Extensions, discoveries and other
additions...................... 146,112 60,660 31,201 267,533 50,406 555,912 149,825
Purchases of minerals in-place... 25,188 599 -- 27,373 -- 53,160 14,901
Revisions of previous
estimates...................... (43,778) (7,812) 19,550 (76) 2,901 (29,215) (44,245)
Production....................... (157,701) (38,643) (567) (18,478) -- (215,389) (63,561)
Sales of properties.............. (52,995) (11,068) -- -- -- (64,063) (29,622)
--------- -------- ------- ------- ------- --------- ----------
Balance December 31,1998.......... 1,048,575 331,944 194,430 517,762 79,515 2,172,226 613,046
Extensions, discoveries and other
additions...................... 34,804 13,015 11,725 10,837 -- 70,381 45,597
Purchases of minerals in-place... 393,716 99,535 -- 72,770 -- 566,021 246,156
Revisions of previous
estimates...................... 27,221 1,835 (44,297) 40 (4,296) (19,497) 18,518
Production....................... (168,428) (36,424) (5,809) (27,820) (1,003) (239,484) (74,574)
Sales of properties.............. (121,001) (2,852) -- -- (74,216) (198,069) (41,571)
--------- -------- ------- ------- ------- --------- ----------
Balance December 31,1999.......... 1,214,887 407,053 156,049 573,589 -- 2,351,578 807,172
Extensions, discoveries and other
additions...................... 154,489 94,792 32,967 55,195 -- 337,443 114,752
Purchases of minerals in-place... 736,079 246,360 -- -- -- 982,439 253,773
Revisions of previous
estimates...................... 32,414 (8,397) 2,966 (6) -- 26,977 8,751
Production....................... (199,362) (47,758) (17,371) (39,489) -- (303,980) (95,231)
Sales of properties.............. (10,454) (333) -- -- -- (10,787) (2,799)
--------- -------- ------- ------- ------- --------- ----------
Balance December 31, 2000......... 1,928,053 691,717 174,611 589,289 -- 3,383,670 1,086,418
========= ======== ======= ======= ======= ========= ==========
F-35
74
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 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)
2000
Cash inflows...................... $26,652,689 $ 8,865,939 $1,430,178 $2,133,073 $ -- $ 39,081,879
Production and development
costs........................... (5,549,309) (1,343,831) (298,711) (651,151) -- (7,843,002)
Income tax expense................ (7,132,257) (2,194,511) (375,112) (385,953) -- (10,087,833)
----------- ----------- ---------- ---------- -------- ------------
Net cash flows.................... 13,971,123 5,327,597 756,355 1,095,969 -- 21,151,044
10 percent discount rate.......... (6,148,566) (2,478,102) (238,985) (337,741) -- (9,203,394)
----------- ----------- ---------- ---------- -------- ------------
Discounted future net cash
flows(2)........................ $ 7,822,557 $ 2,849,495 $ 517,370 $ 758,228 $ -- $ 11,947,650
=========== =========== ========== ========== ======== ============
1999
Cash inflows...................... $ 8,559,045 $ 2,635,191 $1,529,575 $2,227,818 $ -- $ 14,951,629
Production and development
costs........................... (2,820,412) (845,373) (254,287) (639,441) -- (4,559,513)
Income tax expense................ (1,527,499) (427,930) (428,608) (310,472) -- (2,694,509)
----------- ----------- ---------- ---------- -------- ------------
Net cash flows.................... 4,211,134 1,361,888 846,680 1,277,905 -- 7,697,607
10 percent discount rate.......... (1,815,462) (667,085) (252,379) (387,320) -- (3,122,246)
----------- ----------- ---------- ---------- -------- ------------
Discounted future net cash
flows(2)........................ $ 2,395,672 $ 694,803 $ 594,301 $ 890,585 $ -- $ 4,575,361
=========== =========== ========== ========== ======== ============
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
=========== =========== ========== ========== ======== ============
- ---------------
(1) Included in cash inflows is approximately $10.9 million, $30.8 million and
$27.9 million ($3.3 million, $9.7 million and $9.1 million after discount at
10 percent per annum) for 2000, 1999 and 1998, 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 $17.7 billion, $6.1 billion and
$2.4 billion as of December 31, 2000, 1999 and 1998, respectively.
F-36
75
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,
---------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS)
Sales, net of production costs................ $(2,064,471) $ (923,068) $ (551,457)
Net change in prices and production costs..... 4,693,840 2,619,118 (1,253,213)
Discoveries and improved recovery, net of
related costs............................... 2,703,195 282,523 620,153
Change in future development costs............ 67,442 82,853 251,638
Revision of quantities........................ 135,669 90,221 (149,859)
Purchases of minerals in-place................ 5,796,278 1,488,905 52,785
Accretion of discount......................... 606,801 239,589 327,262
Change in income taxes........................ (4,284,904) (1,060,814) 277,518
Sales of properties........................... (25,585) (136,453) (132,337)
Change in production rates and other.......... (255,976) (71,564) (41,701)
----------- ----------- -----------
$ 7,372,289 $ 2,611,310 $ (599,211)
=========== =========== ===========
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 physical contracts at
specified prices. Price 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. Given the volatility of oil and gas
prices, it is reasonably possible that the Company's estimate of discounted
future net cash flows from proved oil and gas reserves could change in the near
term. If oil and gas prices decline significantly, even if only for a short
period of time, it is possible that write-downs of oil and gas properties could
occur in the future.
F-37
76
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
FIRST(1) SECOND(1) THIRD(1) FOURTH TOTAL
-------- --------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2000
Revenues................................... $448,191 $486,413 $618,513 $730,787 $2,283,904
Expenses, net.............................. 331,195 342,181 416,265 473,668 1,563,309
-------- -------- -------- -------- ----------
Income before change in accounting
principle................................ 116,996 144,232 202,248 257,119 720,595
Cumulative effect of change in accounting
principle, net of income tax............. (7,539) -- -- -- (7,539)
-------- -------- -------- -------- ----------
Net income................................. $109,457 $144,232 $202,248 $257,119 $ 713,056
======== ======== ======== ======== ==========
Income attributable to common stock........ $104,193 $139,324 $197,340 $252,211 $ 693,068
======== ======== ======== ======== ==========
Basic net income per common shares(2):
Before change in accounting principle.... $ .98 $ 1.22 $ 1.64 $ 2.04 $ 5.94
======== ======== ======== ======== ==========
After change in accounting principle..... $ .92 $ 1.22 $ 1.64 $ 2.04 $ 5.87
======== ======== ======== ======== ==========
Diluted net income per common share(2):
Before change in accounting principle.... $ .96 $ 1.18 $ 1.58 $ 1.96 $ 5.73
======== ======== ======== ======== ==========
After change in accounting principle..... $ .90 $ 1.18 $ 1.58 $ 1.96 $ 5.67
======== ======== ======== ======== ==========
1999
Revenues................................... $163,422 $246,418 $340,821 $395,892 $1,146,553
Expenses, net.............................. 165,590 213,650 268,043 298,415 945,698
-------- -------- -------- -------- ----------
Net income (loss).......................... $ (2,168) $ 32,768 $ 72,778 $ 97,477 $ 200,855
======== ======== ======== ======== ==========
Income (loss) attributable to common
stock.................................... $ (3,588) $ 29,632 $ 67,831 $ 92,531 $ 186,406
======== ======== ======== ======== ==========
Net income (loss) per common share(2):
Basic.................................... $ (.04) $ .28 $ .59 $ .81 $ 1.73
======== ======== ======== ======== ==========
Diluted.................................. $ (.04) $ .28 $ .59 $ .80 $ 1.72
======== ======== ======== ======== ==========
- ---------------
(1) Prior quarters for 2000 have been restated to reflect a change in accounting
principle, which was effective as of January 1, 2000 (see Note 1 to the
consolidated financial statements).
(2) 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.
F-38
77
BOARD OF DIRECTORS
FREDERICK M. BOHEN(3)(5)
Former Executive Vice President and
Chief Operating Officer
The Rockefeller University
G. STEVEN FARRIS
President and Chief Operating Officer
Apache Corporation
RANDOLPH M. FERLIC, M.D.(1)(2)(4)
Founder and Former President,
Surgical Services of the Great Plains, P.C.
EUGENE C. FIEDOREK(2)
Private Investor, Former Managing Director,
EnCap Investments L.C.
A. D. FRAZIER, JR.(3)(5)
President and Chief Executive Officer
Chicago Stock Exchange, Inc.
JOHN A. KOCUR(1)(3)(4)
Attorney at Law; Former Vice Chairman
of the Board,
Apache Corporation
GEORGE D. LAWRENCE JR.(1)(3)
Private Investor; Former Chief Executive Officer,
The Phoenix Resource Companies, Inc.
MARY RALPH LOWE(3)(4)(5)
President and Chief Executive Officer,
Maralo, LLC
F. H. MERELLI(1)(2)
Chairman of the Board and Chief Executive Officer,
Key Production Company, Inc.
RODMAN D. PATTON(2)
Former Managing Director,
Merrill Lynch Energy Group
CHARLES J. PITMAN(4)
Former Regional President -- Middle East/
Caspian/Egypt/India,
BP Amoco plc, and Sole Member,
Shaker Mountain Energy Associates, LLC
RAYMOND PLANK(1)(4)
Chairman of the Board and Chief Executive Officer
Apache Corporation
OFFICERS
RAYMOND PLANK
Chairman of the Board and Chief Executive Officer
G. STEVEN FARRIS
President and Chief Operating Officer
MICHAEL S. BAHORICH
Executive Vice President -- Exploration and
Production Technology
H. CRAIG CLARK
Executive Vice President -- U.S. Operations
JOHN A. CRUM
Executive Vice President -- Eurasia and New Ventures
ROGER B. PLANK
Executive Vice President and Chief Financial Officer
LISA A. STEWART
Executive Vice President --
Business Development and E&P Services
ZURAB S. KOBIASHVILI
Senior Vice President and General Counsel
JEFFREY M. BENDER
Vice President -- Human Resources
MATTHEW W. DUNDREA
Vice President and Treasurer
ROBERT J. DYE
Vice President -- Investor Relations
ERIC L. HARRY
Vice President and Associate General Counsel
ANTHONY R. LENTINI, JR.
Vice President -- Public and International Affairs
THOMAS L. MITCHELL
Vice President and Controller
CHERI L. PEPER
Corporate Secretary
- ---------------
(1) Executive Committee
(2) Audit Committee
(3) Management, Development & Compensation Committee
(4) Nominating Committee
(5) Stock Option Plan Committee
78
SHAREHOLDER INFORMATION
STOCK DATA
DIVIDENDS
PRICE RANGE PER SHARE*
------------------- ----------------
HIGH LOW DECLARED PAID
2000 -------- -------- -------- -----
First Quarter $51.5000 $32.1250 $0.07 $0.07
Second Quarter $61.5000 $44.0000 -- $0.07
Third Quarter $67.6875 $46.3750 $0.14 --
Fourth Quarter $74.1875 $51.5000 -- $0.14
1999
First Quarter $28.5625 $17.6250 $0.07 $0.07
Second Quarter $39.8750 $25.0625 $0.07 $0.07
Third Quarter $49.9375 $37.0000 $0.07 $0.07
Fourth Quarter $44.0000 $30.0000 $0.07 $0.07
* The Company paid dividends of $0.28 per share in 2000, of which $0.21 was
declared in 2000 and $0.07 was declared in the fourth quarter of 1999, as a
result of changing its dividend payment schedule during 2000 from a quarterly
basis to an annual basis.
The Company has paid cash dividends on its common stock for 34 consecutive years
through December 31, 2000. Absent significant events, the Company expects to
maintain the current dividend level on its common stock. During 2000, the
Company changed the dividend payment schedule on its common stock from a
quarterly basis to an annual basis. Future dividend payments will depend upon
the Company's level of earnings, financial requirements and other relevant
factors. Apache common stock is listed on the New York and Chicago stock
exchanges (symbol APA). At December 31, 2000, the company's shares of common
stock outstanding were held by approximately 10,000 shareholders of record and
50,000 beneficial owners. Also listed on the New York Stock Exchange are:
- - the company's 9.25% notes, due 2002
(symbol APA 02)
- - the company's $2.015 depositary shares
(symbol APAPrC)
- - Apache Finance Canada's 7.75% notes, due 2029 (symbol APA 29)
CORPORATE OFFICES
One Post Oak Central
2000 Post Oak Boulevard
Suite 100
Houston, Texas 77056-4400
(713) 296-6000
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
711 Louisiana
Suite 1300
Houston, Texas 77002
STOCK TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank Minnesota, N.A.
(formerly known as Norwest Bank Minnesota, N.A.)
161 North Concord Exchange
P.O. Box 738
South St. Paul, Minnesota 55075
(651) 450-4064 or (800) 468-9716
Communications concerning the transfer of shares, lost certificates, dividend
checks, duplicate mailings or change of address should be directed to the stock
transfer agent.
DIVIDEND REINVESTMENT PLAN
Shareholders of record may invest their dividends automatically in additional
shares of Apache common stock at the market price. Participants may also invest
up to an additional $5,000 in Apache shares each quarter through this service.
All bank service fees and brokerage commissions on purchases are paid by Apache.
A prospectus describing the terms of the Plan and an authorization form may be
obtained from the Company's stock transfer agent, Wells Fargo Bank Minnesota,
N.A.
ANNUAL MEETING
Apache will hold its annual meeting of shareholders on Thursday, May 3, 2001, at
10 a.m. in the Ballroom, Doubletree Hotel at Post Oak, 2001 Post Oak Boulevard,
Houston, Texas. Apache plans to web cast the annual meeting live; connect
through the Apache web site: http://www.apachecorp.com
STOCK HELD IN "STREET NAME"
The Company maintains a direct mailing list to ensure that shareholders with
stock held in brokerage accounts receive information on a timely basis.
Shareholders wanting to be added to this list should direct their requests to
Apache's Public and International Affairs Department, 2000 Post Oak Boulevard,
Suite 100, Houston, Texas, 77056-4400, by calling (713) 296-6157 or by e-mail to
requests@apachecorp.com.
FORM 10-K REQUEST
Shareholders and other persons interested in obtaining, without cost, a copy of
the Company's Form 10-K filed with the Securities and Exchange Commission may do
so by writing to Cheri L. Peper, Corporate Secretary, 2000 Post Oak Boulevard,
Suite 100, Houston, Texas, 77056-4400.
INVESTOR RELATIONS
Shareholders, brokers, securities analysts or portfolio managers seeking
information about the Company are welcome to contact Robert J. Dye, Vice
President of Investor Relations, at (713) 296-6662.
Members of the news media and others seeking information about the Company
should contact Apache's Public and International Affairs Department at (713)
296-6107.
WEB SITE: http://www.apachecorp.com
79
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
2.1 -- 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).
2.2 -- 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).
2.3 -- 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 16, 1999, as filed with the Secretary of
State of Delaware on December 17, 1999 (incorporated by
reference to Exhibit 99.1 to Registrant's Current Report
on Form 8-K, dated December 17, 1999, SEC File No.
1-4300).
3.2 -- Bylaws of Registrant, as amended May 4, 2000
(incorporated by reference to Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March
31, 2000, 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 -- Form of Certificate for Registrant's Automatically
Convertible Equity Securities, Conversion Preferred
Stock, Series C (incorporated by reference to Exhibit
99.8 to Amendment No. 1 on Form 8-K/A to Registrant's
Current Report on Form 8-K, dated April 29, 1999, SEC
File No. 1-4300).
4.4 -- 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).
80
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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).
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).
81
EXHIBIT
NO. DESCRIPTION
- ------- -----------
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 -- Apache Corporation Corporate Incentive Compensation Plan
A (Senior Officers' Plan), dated July 16, 1998
(incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.13 -- Apache Corporation Corporate Incentive Compensation Plan
B (Strategic Objectives Format), dated July 16, 1998
(incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+10.14 -- 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).
+10.15 -- Amendments to Apache Corporation 401(k) Savings Plan,
dated October 21, 1999, effective as of January 1, 1997
and 1999.
+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 -- Amendments to Apache Corporation Money Purchase
Retirement Plan, dated October 21, 1999, effective as of
January 1, 1997 and 1998.
+10.18 -- 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 (incorporated by reference to
Exhibit 10.17 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1998, SEC File No. 1-4300).
+10.19 -- Amendment to Non-Qualified Retirement/Savings Plan of
Apache Corporation, dated February 22, 2000, effective as
of January 1, 1999 (incorporated by reference to Exhibit
4.7 to Registrant's Registration Statement on Form S-8,
Registration No. 333-31092, filed February 25, 2000); and
Amendment dated July 27, 2000 (incorporated by reference
to Exhibit 4.8 to Amendment No. 1 to Registrant's
Registration Statement on Form S-8, Registration No.
333-31092, filed August 18, 2000).
82
EXHIBIT
NO. DESCRIPTION
- ------- -----------
+*10.20 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated December 14, 2000, effective March 1, 2001.
+*10.21 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+*10.22 -- Apache Corporation 2000 Share Appreciation Plan, dated
December 19, 2000, effective October 12, 2000.
+*10.23 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated December 14, 2000, effective March
1, 2001.
+*10.24 -- Apache Corporation 1998 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+*10.25 -- Apache Corporation 2000 Stock Option Plan, as amended and
restated December 14, 2000, effective March 1, 2001.
+10.26 -- 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).
+10.27 -- 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).
+*10.28 -- Apache Corporation Deferred Delivery Plan, as amended and
restated December 14, 2000.
+10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 17, 1998
(incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
+*10.30 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated February 8, 2001.
+*10.31 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, as amended and restated September
14, 2000.
+10.32 -- 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).
+10.33 -- 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).
+10.34 -- 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).
+10.35 -- 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).
83
EXHIBIT
NO. DESCRIPTION
- ------- -----------
+10.36 -- Conditional Stock Grant Agreement, dated December 17,
1998, between Registrant and G. Steven Farris
(incorporated by reference to Exhibit 10.33 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1998, SEC File No. 1-4300).
10.37 -- 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 Ratios of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Stock
Dividends
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company L.P., Petroleum
Consultants
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.