APACHE OFFSHORE INVESTMENT PARTNERSHIP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to
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Commission File Number 0-13546

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APACHE OFFSHORE INVESTMENT PARTNERSHIP
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(Exact Name of Registrant as Specified in Its Charter)

Delaware 41-1464066
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)

Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
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(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (713) 296-6000

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
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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF INCOME
(UNAUDITED)

The accompanying notes to financial statements
are an integral part of this statement.

1

APACHE OFFSHORE INVESTMENT PARTNERSHIP
STATEMENT OF CASH FLOWS
(UNAUDITED)

The accompanying notes to financial statements
are an integral part of this statement.

2

APACHE OFFSHORE INVESTMENT PARTNERSHIP
BALANCE SHEET
(UNAUDITED)

The accompanying notes to financial statements
are an integral part of this statement.

3

APACHE OFFSHORE INVESTMENT PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

The financial statements included herein have been prepared by the
Apache Offshore Investment Partnership (the Partnership), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission,
and reflect all adjustments which are, in the opinion of management, necessary
for a fair statement of the results for the interim periods, on a basis
consistent with the annual audited financial statements. All such adjustments
are of a normal, recurring nature. Certain information, accounting policies, and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Partnership believes that
the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial
statements and the summary of significant accounting policies and notes thereto
included in the Partnership's latest annual report on Form 10-K.

RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform with
current year presentation.

1. RECEIVABLE FROM/PAYABLE TO APACHE CORPORATION

The receivable from/payable to Apache Corporation, the Partnership's
managing partner (Apache or the Managing Partner), represents the net result of
the Investing Partners' revenue and expenditure transactions in the current
month. Generally, cash in this amount will be transferred to Apache in the month
after the Partnership's transactions are processed and the net results of
operations are determined.

2. RIGHT OF PRESENTMENT

As provided in the Partnership Agreement, as amended (the Amended
Partnership Agreement), a first right of presentment offer for 2003 of $12,047
per Unit, plus interest to the date of payment, was made to Investing Partners
in April 2003, based on a valuation date of December 31, 2002. The Partnership
is not in a position to predict how many Units will be presented for repurchase
under the April 2003 offer and cannot, at this time, determine if the
Partnership will have sufficient funds available to repurchase all Units
presented. The Investing Partners have until May 23, 2003 to offer their Units
under the current right of presentment. The Partnership has no obligation to
purchase any Units presented to the extent it determines that it has
insufficient funds for such purchases. The Amended Partnership Agreement
contains limitations on the number of Units that the Partnership can repurchase,
including a limit of 10 percent of the outstanding Units on an annual basis.

3. NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2003, the Partnership adopted Statement of
Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," which resulted in an increase to net oil and gas properties of
$1.1 million and additional liabilities related to asset retirement obligations
of $.8 million. These entries reflect the asset retirement obligation of the
Partnership had the provisions of SFAS No. 143 been applied since inception.
This resulted in a cumulative-effect increase in net income of $.3 million.

Prior to adoption of this statement, such obligations were accrued
ratably over the productive lives of the assets through its depreciation,
depletion and amortization for oil and gas properties; therefore, had SFAS No.
143 not been adopted, net income during the first quarter of 2003 would not have
been materially different. In addition, the net income impact of applying SFAS
No. 143 on the comparable period in 2002 would not have resulted in a material
difference. If SFAS No. 143 had been adopted effective January 1, 2002, the
liability as of that date would have been approximately $.7 million.

4

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

NET INCOME AND REVENUE

The Partnership reported net income for the first quarter of 2003 of
$2.3 million, including the cumulative effect of a change in accounting
principle regarding asset retirement obligations (see Footnote 3). Net income
per investing partnership unit was $1,668. Net income before the cumulative
effect of the change in accounting principle was $2.0 million, or $1,392 per
unit. Current net income before the change in accounting principle was more than
three times the earnings in the same period last year on higher oil and natural
gas prices and natural gas production.

Revenues increased 138 percent, from $1.3 million in the first quarter
of 2002 to $3.2 million in the first quarter of 2003. Natural gas sales
represented 71 percent of the Partnership's total revenues during the first
quarter of 2003, compared to 57 percent during the first quarter of 2002.

The Partnership's oil and gas production volume and price information
is summarized in the following table (gas volumes presented in thousand cubic
feet (Mcf) per day):

FIRST QUARTER 2003 COMPARED TO FIRST QUARTER 2002

Natural gas production revenues for the first quarter of 2003 totaled
$2.3 million, up 198 percent from the first quarter of 2002. Natural gas prices
for the first quarter of 2003 increased 181 percent compared to the year-earlier
period. The $4.45 per Mcf increase in gas prices from a year ago boosted sales
by approximately $1.4 million. Natural gas volumes on a daily basis increased
six percent from a year ago as a result of drilling operations in 2002 and
recompletion activities during the first quarter of 2003. Also, production at
North Padre Island 969 was shut-in for all of the first quarter of 2002 for a
dispute with a pipeline company on increased fees charged for the transportation
of natural gas.

The Partnership's crude oil production revenues for the first quarter
of 2003 totaled $.9 million, a 60 percent increase from the first quarter of
2002. A $12.57 per barrel, or 61 percent, increase in the Partnership's average
realized oil price drove the increase in revenues. Oil production was even with
a year ago as drilling at South Timbalier 295 during 2002 offset natural
depletion.

Declines in oil and gas production can be expected in future periods
due to natural depletion. Given the small number of producing wells owned by the
Partnership, and the fact that offshore wells tend to decline at a faster rate
than onshore wells, the Partnership's future production will be subject to more
volatility than those companies with greater reserves and longer-lived
properties.

OPERATING EXPENSES

The Partnership's depreciation, depletion and amortization (DD&A) rate,
expressed as a percentage of oil and gas sales, was approximately 23 percent
during the first quarter of 2003 compared to 29 percent during the same period
in 2002. The decline in rate in 2003 reflected the impact of reserve additions
in the fourth quarter of 2002 and higher prices in the current year. During the
first quarter, the Partnership recognized $9,197 of accretion expense on the
asset retirement obligation.

5

Lease operating expense (LOE) in the first quarter of 2003 increased 47
percent from the first quarter of 2002 due to higher repair and maintenance
costs and workover costs incurred in 2003.

CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES

CAPITAL RESOURCES AND LIQUIDITY

The Partnership's primary capital resource is net cash provided by
operating activities, which totaled $1.9 million for the first three months of
2003. Net cash provided by operating activities in the quarter was up 136
percent from a year ago as a result of increases in oil and gas prices and
higher natural gas production. Future cash flows will be influenced by
fluctuations in product prices, production levels and operating costs.

The Partnership's future financial condition, results of operations and
cash from operating activities will largely depend upon prices received for its
oil and natural gas production. A substantial portion of the Partnership'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 factors beyond the Partnership'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 66 percent of the Partnership's first quarter
2003 production and 55 percent of total proved reserves at December 31, 2002, on
an energy equivalent basis, the Partnership is affected more by fluctuations in
natural gas prices than in oil prices.

The Partnership's oil and gas reserves and production will also
significantly impact future results of operations and cash from operating
activities. The Partnership's production is subject to fluctuations in response
to remaining quantities of oil and gas reserves, weather, pipeline capacity,
consumer demand, mechanical performance and workover, recompletion and drilling
activities. Declines in oil and gas production can be expected in future years
as a result of normal depletion and the Partnership not participating in
acquisition or exploration activities. Based on production estimates from
independent engineers and current market conditions, the Partnership expects it
will be able to meet its liquidity needs for routine operations in the
foreseeable future. The Partnership will reduce capital expenditures and
distributions to partners as cash from operating activities decline.

In the event that future short-term operating cash requirements are
greater than the Partnership's financial resources, the Partnership may seek
short-term, interest-bearing advances from the Managing Partner as needed. The
Managing Partner, however, is not obligated to make loans to the Partnership.

On an ongoing basis, the Partnership reviews the possible sale of lower
value properties prior to incurring associated dismantlement and abandonment
cost.

CAPITAL COMMITMENTS

The Partnership's primary needs for cash are for operating expenses,
drilling and recompletion expenditures, future dismantlement and abandonment
costs, distributions to Investing Partners, and the purchase of Units offered by
Investing Partners under the right of presentment. The Partnership had no
outstanding debt or lease commitments at March 31, 2003.

During the first three months of 2003, the Partnership's oil and gas
property additions totaled $.4 million as the Partnership participated in
recompletions at South Timbalier Block 295. Expenditures were primarily for
recompletion costs on the South Timbalier A-9, A-17 and A-24 wells. The
Partnership did not participate in drilling any new wells during the first
quarter of 2003. Based on information supplied by the operators of the
properties, the Partnership anticipates capital expenditures of approximately
$.8 million for the remainder of 2003, primarily for drilling and recompletions
at South Timbalier Block 295. Such estimates may change based on realized
prices, drilling results or changes by the operator to the development plan.

On March 5, 2003, the Partnership paid distributions to Investing
Partners totaling $.5 million, or $500 per Investing Partner unit. The
Partnership did not make a cash distribution to Investing Partners during the
first quarter of 2002. The amount of future distributions will be dependent on
actual and expected production levels, realized and expected oil and gas prices,
expected drilling and recompletion expenditures, and prudent cash reserves for
future dismantlement and abandonment costs that will be incurred after the
Partnership's reserves are depleted.

6

As provided in the Amended Partnership Agreement, a first right of
presentment offer for 2003 of $12,047 per Unit, plus interest to the date of
payment, was made to Investing Partners in April 2003, based on a valuation date
of December 31, 2002. The Partnership is not in a position to predict how many
Units will be presented for repurchase under the April 2003 offer and cannot, at
this time, determine if the Partnership will have sufficient funds available to
repurchase any Units. The Investing Partners have until May 23, 2003 to offer
their Units under the current right of presentment. The Partnership has no
obligation to purchase any Units presented to the extent it determines that it
has insufficient funds for such purchases. The Amended Partnership Agreement
contains limitations on the number of Units that the Partnership can repurchase,
including a limit of 10 percent of the outstanding Units on an annual basis.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership'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 natural gas production. Prices received for oil and gas production have been
and remain volatile and unpredictable. The Partnership has not used derivative
financial instruments or otherwise engaged in hedging activities during 2002 or
the first three months of 2003.

The information set forth under "Commodity Risk" in Item 7A of the
Partnership's Form 10-K for the year ended December 31, 2002, is incorporated by
reference. Information about market risks for the current quarter is not
materially different.

ITEM 4 - CONTROLS AND PROCEDURES

The certifying officers of the general partner evaluated the
effectiveness of the Partnership's disclosure controls and procedures within the
last 90 days preceding the date of this report. Based on that review and as of
the date of that evaluation, the Partnership's disclosure controls were found to
be adequate, providing effective means to insure that the Partnership timely and
accurately disclose the information it is required to disclose under applicable
laws and regulations. Also, we made no significant changes in the Partnership's
internal controls or any other factors that could affect the Partnership's
internal controls since our most recent internal controls evaluation.

FORWARD-LOOKING STATEMENTS AND RISK

Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Partnership, are
forward-looking statements that are dependent on certain events, risks and
uncertainties that may be outside the Partnership'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
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. Fluctuations in oil
and gas prices, or a prolonged period of low prices, may substantially adversely
affect the Partnership's financial position, results of operations and cash
flows.

7

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits

99.1 - Certification of Chief Executive Officer and Chief
Financial Officer

b. Reports filed on Form 8-K - None.

8

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 OFFSHORE INVESTMENT PARTNERSHIP
By: Apache Corporation, General Partner

Dated: May 13, 2003 /s/ Roger B. Plank
-----------------------------------------------------
Roger B. Plank
Executive Vice President and Chief Financial Officer

Dated: May 13, 2003 /s/ Thomas L. Mitchell
-----------------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)

CERTIFICATIONS

I, Roger B. Plank, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apache Offshore
Investment Partnership;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ Roger B. Plank
- -----------------------------------------------------
Roger B. Plank
Executive Vice President and Chief Financial Officer
of Apache Corporation, General Partner

Date: May 13, 2003

CERTIFICATIONS

I, G. Steven Farris, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apache Offshore
Investment Partnership;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant is made
known to us by others within those entities, particularly
during the period in which this quarterly report is being
prepared;

(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

/s/ G. Steven Farris
- -----------------------------------------------------
G. Steven Farris
President, Chief Executive Officer and
Chief Operating Officer of Apache Corporation,
General Partner

Date: May 13, 2003

INDEX TO EXHIBITS