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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________ TO _________
COMMISSION FILE NUMBER 1-4300
APACHE CORPORATION
A DELAWARE IRS EMPLOYER
CORPORATION NO. 41-0747868
ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 29, 1996 $2,013,681,098
Number of shares of registrant's common stock
outstanding as of February 29, 1996 77,449,273
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1996
annual meeting of shareholders have been incorporated by reference into Part
III hereof.
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TABLE OF CONTENTS
DESCRIPTION
ITEM PAGE
- ---- ----
PART I
1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 16
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 27
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . 28
11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . 28
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . 29
All defined terms under Rule 4-10(a) of Regulation S-X shall have their
statutorily-prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (bbls), thousands of barrels (Mbbls) and millions of barrels (MMbbls).
Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas liquids are
compared with natural gas in terms of million cubic feet equivalent (MMcfe) and
billion cubic feet equivalent (Bcfe). One barrel of oil is the energy
equivalent of six Mcf of natural gas. Daily oil and gas production is expressed
in terms of barrels of oil per day (bopd) and thousands of cubic feet of gas
per day (Mcfd) or millions of British thermal units per day (MMBtud),
respectively. Gas sales volumes may be expressed in terms of one million
British thermal units (MMBtu), which is approximately equal to one Mcf. With
respect to information relating to the Company's working interest in wells or
acreage, "net" oil and gas wells or acreage is determined by multiplying gross
wells or acreage by the Company's working interest therein. Unless otherwise
specified, all references to wells and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation
formed in 1954, is an independent energy company that explores for, develops,
produces, gathers, processes and markets natural gas, 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, East Texas 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 Indonesia, offshore China
and offshore the Ivory Coast. Apache's common stock has been listed on the New
York Stock Exchange since 1969, and on the Chicago Stock Exchange since 1960.
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
(MW), DEK Energy Company (DEKALB, formerly known as DEKALB Energy Company),
Apache Energy Limited (AEL, formerly known as Hadson Energy Limited), Apache
International, Inc. and Apache Overseas, Inc. Properties referred to in this
document may be held by those subsidiaries. Apache treats all operations as one
segment of business.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company
engaged in the exploration for, and the development of, crude oil and natural
gas in Canada, through a merger which resulted in DEKALB becoming a
wholly-owned subsidiary of Apache. The merger was accounted for as a "pooling
of interests" for financial accounting purposes. As a result, this Form 10-K
has been prepared to present information for 1995 and all preceding years on a
combined basis using the pooling of interests method of accounting.
1995 RESULTS
In 1995, Apache had net income of $20.2 million, or $.28 per share, on
total revenues of $750.7 million. Net cash provided by operating activities
during 1995 was $332.1 million.
The year 1995 was Apache's 18th consecutive year of production growth
and eighth consecutive year of oil and gas reserves growth. Apache's average
daily production was approximately 50.2 Mbbls of oil and 577 MMcf of natural
gas for the year. Giving effect to 1995 acquisitions and drilling activity, and
$271.9 million in property dispositions, the Company's estimated proved
reserves increased by 151.3 MMboe in 1995 over the prior year (prior to
restatement for the DEKALB merger) to 420.6 MMboe, of which approximately 60
percent was natural gas. Based on 269.3 MMboe reported at year-end 1994 (which
was increased to 330 MMboe when 1994 results were restated for the DEKALB
merger), Apache's growth in reserves during the year reflects the replacement
of 379 percent of the Company's 1995 production (267 percent based on the
restated 1994 year-end reserves of 330 MMboe). In 1995, the Company replaced
approximately 100 percent of its production through drilling, revisions,
recompletions, workovers and other production enhancement projects. Apache's
active drilling and workover program yielded 168 new producing U.S. and
Canadian wells out of 222 attempts, and involved 539 North American workover
and recompletion projects during the year.
At December 31, 1995, Apache had interests in approximately 4,624 net
oil and gas wells and 1,405,192 net developed acres of oil and gas properties.
In addition, the Company had interests in 777,380 net undeveloped acres under
U.S. and Canadian leases and 3,809,558 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, and cash flow through a combination of acquisitions, moderate-risk
drilling and development of its inventory of existing projects. The Company
also emphasizes reducing operating costs per unit produced and selling marginal
and non-strategic properties in order to increase its profit margins.
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For Apache, property acquisition is only one phase in a continuing
cycle of business growth. Apache's aim is to follow each acquisition cycle with
a cycle of reserve enhancement, property consolidation and cash flow
acceleration, facilitating asset growth and debt reduction. This approach
requires well-planned and carefully executed property development and a
commitment to a selective program of ongoing property dispositions. It
motivates Apache to target acquisitions that have ascertainable additional
reserve potential and to apply an active drilling, workover and recompletion
program to realize the potential of the acquired undeveloped and partially
developed properties. Apache prefers to operate its properties so that it can
best influence their development; as a result, the Company operates properties
accounting for over 75 percent of its production.
Pursuing its acquire-and-develop strategy, Apache increased its total
proved reserves by 383 MMboe, more than 10 fold in the last 10 years (before
restatement of prior years as a result of the DEKALB merger). In addition to
its acquisition strategy, Apache continues to develop and exploit its existing
inventory of workover, recompletion and other development projects to increase
reserves and production. During 1995 Apache acquired $820.9 million of
additional properties (not including the DEKALB merger) and replaced 100
percent of its U.S. production through its drilling, workover and recompletion
program.
Apache's international investments supplement its long-term growth
strategy. Although international exploration is recognized as higher-risk than
most of Apache's U.S. and Canadian activities, it offers potential for greater
rewards and significant reserve additions. Apache directed its international
efforts in 1995 toward development of certain discoveries offshore Western
Australia and in Egypt, and toward further exploration of its concessions in
China, Indonesia, and the Ivory Coast of western Africa, where it believes that
reserve additions may be made through higher-risk exploration and through
improved production practices and recovery techniques.
RECENT ACQUISITIONS AND DISPOSITIONS
In September, 1995, the Company acquired substantially all of the oil
and gas assets (the Aquila Assets) of Aquila Energy Resources Corporation
(Aquila), a wholly owned, indirect subsidiary of UtiliCorp United Inc., for
approximately $210 million, subject to adjustment. The Aquila Assets include:
proved reserves totaling an estimated 157 Bcf of gas equivalent; approximately
107,000 developed and 49,000 undeveloped net acres located primarily in the
Company's Anadarko-Basin and Gulf of Mexico core areas; a five-year, four-month
premium gas contract effective September 1, 1995; and non-operated interests in
four gas processing plants. The gas contract calls for Aquila Energy Marketing
Corporation to purchase 20 to 25 MMcf of gas per day from the Company at a
price of $2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000.
The Aquila Assets were accounted for under the purchase method of accounting.
At the time of acquisition, the Aquila properties were producing
approximately 67 MMcf of gas and 2,900 barrels of oil per day, with
approximately 77 percent of proved reserves concentrated in seven fields and 77
percent of the properties' net production operated by the Company.
Approximately $143 million of the consideration for the Aquila Assets was
provided through deferred tax-free exchange of like-kind properties of
qualifying use. The properties exchanged by the Company were primarily lower
margin and non-strategic properties located in the Rocky Mountains that were
previously selected for sale by the Company in connection with its ongoing
program of selective property dispositions. The remainder of the consideration
for the Aquila Assets was provided by a portion of the proceeds from the sale
of 7.45 million shares of the Company's common stock on September 27, 1995.
TRANSACTIONS IN EARLY 1995. On March 1, 1995, Apache purchased
certain U.S. oil and gas properties from Texaco Exploration and Production Inc.
(Texaco) for an adjusted purchase price of $567 million. The Texaco properties
comprised estimated proved reserves at the effective date of approximately 105
MMboe (after adjustment for the exercise of preferential rights and properties
excluded following due diligence and using unescalated prices), of which
approximately 70 percent was oil. At the time of purchase, the daily production
on the acquired properties was approximately 20 Mbbls of oil and 85 MMcf of
gas.
The Texaco properties are highly concentrated, with approximately
two-thirds of the reserves located in 54 fields, and are in producing regions
where Apache has existing operations: the Permian Basin, the Gulf Coast of
Texas and Louisiana, western Oklahoma, East Texas, the Rocky Mountains and the
Gulf of Mexico. Apache operates approximately two-thirds of the production and
owns an average working interest of 70 percent in the operated
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properties. The Texaco transaction also included the acquisition of
approximately 500,000 net mineral acres, as well as a substantial quantity of
seismic data.
On May 17, 1995, Apache acquired DEKALB, an oil and gas company
engaged in the exploration for, and the development of, crude oil and natural
gas in Canada, through a merger which resulted in DEKALB's becoming a wholly
owned subsidiary of Apache. Pursuant to the merger agreement, the Company
issued 8.4 million shares of Apache Common Stock in exchange for all
outstanding DEKALB capital stock and DEKALB employee stock options outstanding
at the time of the merger and tendered to Apache. The merger was accounted for
as a pooling of interests for financial accounting purposes.
Through the DEKALB merger, Apache acquired an estimated 290 Bcf of
gas and 10 MMbbls of liquid hydrocarbons, together with interests in 14 gas
processing plants, six of which it operates, and 150,000 net undeveloped acres
primarily in the Western Sedimentary Basin of Alberta. The DEKALB merger
provided Apache with the infrastructure to conduct Canadian operations and an
inventory of drilling prospects in North America's largest natural gas basin.
The Canadian region, based on the DEKALB properties, became one of Apache's core
focus areas in 1995.
In early 1995, Apache announced plans to upgrade its properties
through the disposition of lower margin and non-strategic properties, including
the disposition of a substantial portion of its Rocky Mountain properties and
non-strategic assets from its other regions. During 1995, Apache completed
$271.9 million in property dispositions, including the disposition of $143
million of Rocky Mountain properties through a deferred tax-free, like-kind
exchange in consideration for certain of the Aquila Assets.
1994 ACQUISITIONS. On December 30, 1994, Apache purchased
substantially all of the U.S. oil and gas properties of Crystal Oil Company
(Crystal) for approximately $95.8 million. The producing properties acquired
from Crystal are located primarily along the Arkansas-Louisiana border and in
southern Louisiana, and daily production at the time of acquisition was
approximately 20 MMcf of gas and 2,700 bbls of oil. The acquisition also
included approximately 32,000 net undeveloped mineral acres in southern
Louisiana. Apache acquired an average 80-percent working interest in the
properties overall, including a 97-percent working interest in two fields that
account for approximately 60 percent of the value.
During 1994, Apache also acquired approximately 16 MMboe of proved
reserves through 90 smaller, tactical acquisitions for an aggregate
consideration of $84.9 million. Apache also sold $19.6 million of its
non-strategic properties during 1994.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities are
divided into five operating regions, the Gulf Coast, Gulf of Mexico,
Midcontinent, Western and Canadian region. Approximately 95 percent of the
Company's proved reserves are located in the five North American regions.
Apache conducts its Australian exploration and production and its Indonesian
exploration through its Australian region, while all other international
interests are directed by the Company through its principal offices in Houston,
Texas. Information concerning the amount of revenue, operating income and
identifiable assets attributable to U.S., Canadian and international
operations, respectively, is set forth in the Supplemental Oil and Gas
Disclosures under Item 8 below, and incorporated herein by reference.
GULF COAST. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas and Mississippi. It was Apache's leading region in oil
and gas sales in 1995, contributing approximately $158 million from production
of 11.2 MMboe for the year. The region was one of the most prominent in the
Company in the number of workover and recompletion projects completed and the
number of wells drilled. The Company performed 327 workover and recompletion
operations during 1995 in the Gulf Coast region and participated in 36 wells
during the year, 20 of which were completed as producers, including 10 Austin
Chalk wells in Central Texas, eight of which were productive. As of December
31, 1995, the region encompassed approximately 306,249 net acres, and accounted
for 66.5 MMboe, or 16 percent, of the Company's year-end 1995 total proved
reserves.
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GULF OF MEXICO. The Gulf of Mexico region includes all of Apache's
interests in properties offshore Texas, Louisiana and Alabama. It was Apache's
leading region in production in 1995, producing approximately 12.7 MMboe and
$129 million in revenue for the year. At December 31, 1995, the Gulf of Mexico
region encompassed 342,179 net acres, located in both state and federal waters,
and accounted for 41.9 MMboe, or 10 percent, of the Company's year-end 1995
reserves. Apache's operations in the Gulf of Mexico focused on workovers and
recompletions, which totaled 59 in the region for 1995. Apache participated in
16 wells which were drilled in the region during the year, 14 of which were
completed as producers. At year-end, Apache's production in the Gulf of Mexico
was approximately 187 MMcf of gas per day.
MIDCONTINENT. Apache's Midcontinent region is known for its sizable
position in the Anadarko Basin. Apache has drilled and operated in the
Anadarko Basin for nearly four decades, developing an extensive database of
geologic information and a substantial acreage position. In 1995, Apache
enhanced its position through the acquisition of the Aquila Assets and certain
Texaco properties. The Midcontinent region produced approximately 10.9 MMboe
for the year, creating $127 million in revenue for the Company.
At December 31, 1995 Apache held an interest in 410,379 net acres in
the region, which accounted for approximately 100.5 MMboe, or 24 percent, of
Apache's total proved reserves. Apache participated in drilling 57 wells in the
Midcontinent region during the year, 51 of which were completed as producing
wells. The Company performed 40 workover and recompletion operations in the
region during 1995.
WESTERN. The Western region includes the former Permian Basin region
and assets in the Green River Basin of Colorado and Wyoming and in the San Juan
Basin of New Mexico which were previously included in Apache's Rocky Mountain
region. In connection with its property rationalization program, Apache
disposed of a substantial portion of its Rocky mountain properties on September
1, 1995, including 1,600 wells in six states with daily production of
approximately 9 Mbls of oil and 9 MMcf of natural gas. See "Recent
Acquisitions and Dispositions" above. As a result, Apache closed its Rocky
Mountain region office and redeployed those employees to provide support for
its Canadian, Western and Gulf Coast operations.
The Western region properties are important producers for Apache,
producing approximately 8.8 MMboe and $125 million in oil and gas sales, 19
percent of the Company's production revenues during 1995. At December 31,
1995, the Company held 692,967 net acres in the region, which accounted for
134.3 MMboe, or 32 percent of the Company's total estimated proved reserves.
The Western region was also active in workovers and recompletions, which
totaled 76 for the year. Compared with 1994, Apache nearly doubled its
drilling activity in the region during 1995, with 53 of the 65 wells drilled in
the region completed as producers.
CANADA. Exploration and development activity in the Canadian region
is concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 4.8 MMboe, 85 percent of which was natural gas, and
generated $39 million in oil and gas sales, six percent of the Company's
production revenues in 1995. Apache participated in 48 wells in this region
during the year, 30 of which were completed as producers. The Company
performed 28 workovers and recompletions on operated wells during 1995. At
December 31, 1995, the region encompassed approximately 415,943 net acres, and
accounted for 57.9 MMboe, or 14 percent, of the Company's year-end 1995 total
proved reserves.
AUSTRALIA. The state of Western Australia became an important region
for Apache following the completion of the AERC acquisition in November 1993.
In 1995, the region generated four percent of the Company's production revenues
for the year. Natural gas production in the region increased by 20 percent
from the prior year to approximately 9.6 MMcfd in 1995. Average daily oil
production decreased by 1.6 percent to approximately 3,080 bopd in 1995,
primarily as a result of natural depletion. As of December 31, 1995, Apache
held 52,550 net developed acres and 2,954,562 net undeveloped acres in Western
Australia. Apache acts as operator for most of its properties in Western
Australia through its wholly owned subsidiary, AEL.
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During 1995, Apache's proved reserves in Australia increased by 81
percent to 19.6 MMboe, five percent of the Company's total proved reserves at
year end. The increase in Australian reserves was primarily attributable to
natural gas reserves booked at the East Spar discovery which were recorded only
after the Company had entered agreements for the sale and delivery of such gas.
See "Oil and Natural Gas Marketing."
Through AEL and its subsidiaries, Apache also owns a 22.5-percent
interest in and operates the Harriet Gas Gathering Project, a gas processing
and compression facility with a throughput capacity of 80 MMcfd, and a 60-mile,
12-inch offshore pipeline with a throughput capacity of 175 MMcfd. The gas
processing and compression facilities are located on Varanus Island in close
proximity to AEL's producing properties offshore in the Carnarvon Basin. In
1995, the Company and its partners commenced development of the East Spar field
from which gas will be transported to the Varanus Island site and, by agreement
with the Harriet Joint Venture, processed and transported to the mainland where
it will be delivered to gas pipelines connecting to the southwest and to the
eastern goldfields of Western Australia.
Apache also participated in the Wonnich discovery offshore Western
Australia which tested at 27 MMcfd of gas and 1,375 bopd. The company holds a
22.5-percent interest in the Wonnich field and plans to drill appraisal wells
during 1996 to determine the commercial potential of the discovery. Apache is
operator of the appraisal program and is conducting a development feasibility
study.
In early 1994, operations for Indonesia were consolidated under AEL
and directed from its offices in Perth, Western Australia. In 1995, tests were
conducted on two fields in the Bentu Segat Block in Central Sumatra, Indonesia,
confirming proven reserves of approximately 20 Bcf net to Apache. Apache is
operator of the Block, holding a working interest of 39 percent.
OTHER INTERNATIONAL OPERATIONS. Outside of Australia and Indonesia,
Apache currently has exploration and production interests in Egypt and
exploration interests in China and offshore the Ivory Coast. In 1995, Apache
Overseas, Inc., Apache International, Inc. and their subsidiaries (excluding
Australia and Indonesia as discussed above) drilled seven gross exploratory
wells, resulting in four producers, and four development wells, all of which
were productive.
Apache holds a 25-percent interest in the two-million acre Qarun Block
in the Western Desert of Egypt which is operated by Phoenix Resource Companies
of Qarun. Development began at the Qarun field in 1995, with three exploratory
and four development wells drilled. During development of the field,
approximately 6,500 bbls per day are being sold to the Egyptian General
Petroleum Corporation under terms of an early production agreement. Field
development is expected to be complete in late 1996 with production expected to
exceed 30,000 bbls of oil per day. Reserves will be booked in the first
quarter of 1996.
In early 1996 Apache was awarded the Darag Block in the extreme north
of the Gulf of Suez. Apache has a 50-percent interest and will act as
operator of the 460,000-acre Darag Block. Also in early 1996, Apache agreed to
participate as a 50-percent interest holder in the East Beni Suef Block, a
6.8-million-acre concession in the Western Desert of Egypt adjoining the Qarun
Block to the south.
In 1995, Apache became the operator of the Zhao Dong Block in the
Bohai Bay, offshore the People's Republic of China, where Apache increased its
interest to 50 percent in a concession containing approximately 48,677
undeveloped acres. In 1994, a discovery well tested at a rate of over 2,000
bbls per day and was confirmed by an appraisal well which tested 4,000 bbls per
day. In 1995, a second discovery well tested on pump at rates up to 1,300
bbls per day. The Company has elected to proceed with the second phase of
exploration, commencing in May 1996, which involves a commitment to drill two
additional exploratory wells. The Company is currently evaluating the
discovery areas for commercial potential.
OIL AND NATURAL GAS MARKETING
During 1995, Apache sold approximately 85 percent of its U.S. natural
gas on the spot market through Natural Gas Clearinghouse (NGC) or through
market responsive contracts with other parties; the remaining 15 percent was
sold through long-term, premium-priced contracts. Sales to NGC accounted for 27
percent of the Company's oil and gas revenues in 1995. On September 30, 1995,
the Company's contract with NGC terminated and the Company began to
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market all of its own natural gas, including the natural gas previously marketed
by NGC. The Company believes the prices that it obtains through its own natural
gas marketing activities are not substantially different from the prices that
would have been received in marketing through NGC.
On October 27, 1995, wholly-owned affiliates of each of Apache, Oryx
Energy Company and Parker & Parsley Petroleum Company formed Producers Energy
Marketing, LLC, a Delaware limited liability company (ProEnergy). Until
operations of ProEnergy begin, the Company will continue to market its own
natural gas. Once fully operational (which is expected to occur in the second
quarter of 1996), ProEnergy will market substantially all of its members'
domestic natural gas and natural gas liquids 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 will be based upon agreed indexes. ProEnergy will also provide certain
contract administration and other services.
ProEnergy's limited liability company agreement provides that capital
funding obligations, allocations of profit and loss and voting rights are
calculated based upon the members' respective throughputs of natural gas sold
to, or whose sales are managed by, ProEnergy. Each member's liability with
respect to future capital funding obligations is subject to certain
limitations. Natural gas throughputs will be calculated, profit distributed,
and/or capital called on a quarterly basis. As of December 31, 1995, the
Company was the holder of a majority interest in ProEnergy.
Apache is delivering natural gas under several long-term supply
contracts. In connection with the acquisition of the Aquila Assets in
September 1995, the Company entered into a five-year, four-month premium-price
gas contract under which Aquila Energy Marketing Corporation will purchase 20
to 25 MMcf of gas per day from Apache at a price of $2.70 per Mcf in 1996
escalating to $3.20 per Mcf in the year 2000. In August 1994, Apache signed a
long-term gas supply agreement with a cogeneration company under which Apache
will supply a minimum of 51.1 Bcf over 10 years for use in electric power
generation from a cogeneration facility located in northeast Texas. Under the
agreement, deliveries of approximately 20 MMcfd are scheduled to begin in early
1997. In December 1994, the Company signed a long-term gas contract under
which Apache received an advance payment of $67.4 million. Apache will supply
the purchaser with approximately 43 Bcf of gas over a six year period which
began in January 1995, with volumes averaging 20 MMcfd.
Apache assumed its own U.S. crude oil marketing operations in 1992.
Most of Apache's crude oil production is sold through lease-level marketing to
refiners, traders and transporters, generally under 30-day contracts that renew
automatically until canceled.
Oil produced from Canadian properties is sold to crude oil purchasers
or refiners at market prices which depend on worldwide crude prices adjusted
for location and quality of the oil. Natural gas produced from Canadian
properties is sold to major aggregators of natural gas, gas marketers and
direct users under long and short-term contracts. The oil and gas contracts
provide for sales at specified prices, or at prices which are subject to change
due to market conditions.
The Company diversifies the markets for its Canadian gas production by
selling directly or indirectly to customers through aggregators and brokers in
the United States and Canada. The Company transports natural gas via the
Company's firm transportation contracts to California (12 MMcfd) and to the
Province of Ontario, Canada (four MMcfd) through end-users' firm transportation
contracts. In 1994, the Company contracted for the sale of five MMcfd of
natural gas to the Hermiston Cogeneration Project, located in the Pacific
Northwest of the United States. The Hermiston Project is expected to commence
purchases of natural gas in the third quarter of 1996.
In Australia, the Company entered into two contracts to deliver 32 Bcf
of gas from the East Spar field for industrial uses, including mining
operations, a power station and a nickel refinery. The contracts provide for
an average daily rate of 15 MMcfd net to the Company. To provide deliveries
under the contracts while the East Spar development is under construction, the
Harriet and East Spar joint ventures entered into a gas sales agreement under
which the Harriet Joint Venture is supplying 42 MMcf of gas per day to East
Spar's industrial customers. Apache operates the Harriet joint venture and
acts as contractor for the East Spar Joint Venture, holding a 22.5-percent
interest in Harriet and a 20-percent interest in East Spar.
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In 1995, the Harriet Joint Venture entered into a take-or-pay contract
to supply natural gas under which AEL has committed 14 Bcf of reserves for
delivery over a 10 year period. Approximately 20 Bcf of AEL's proved gas
reserves are dedicated to the Gas Corporation of Western Australia, a
corporation owned by the government of Western Australia doing business as
AlintaGas, under a long-term contract with a remaining period of 6-1/2 years.
The agreement contains take-or-pay provisions that require AlintaGas to
purchase a minimum of 35 MMcfd (approximately eight MMcfd net to AEL) through
the remainder of the contract term. Payments received under this contract are
in Australian dollars.
AEL markets all oil and natural gas liquids produced from its
interests in the Harriet field through a contract with Marubeni International
Petroleum (Singapore) Pte Limited (Marubeni), which was extended in 1995.
Pricing under the contract in 1995 represented a fixed premium to the quoted
market prices of Tapis crude oil, with payment made in U.S. dollars. In 1995,
production sold under this contract realized an average price of $18.59 per
barrel (exclusive of the impact of hedging activities). The Company believes
that if this contract were terminated, it would not have a material adverse
effect on the Company due to the demand for Australian crude oil and the
existence of alternative purchasers.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile in 1995 with spot-market prices
during the year ranging from $1.25 per Mcf in July to $2.07 per Mcf in
December. Fluctuations are largely due to natural gas supply and demand
perceptions. Apache's average realized gas price of $1.57 per Mcf for 1995
declined 12 percent from the prior-year average of $1.78 per Mcf. Apache's 1994
average realized natural gas price declined eight percent from the 1993 average
of $1.94 per Mcf.
Due to minimum price contracts which escalate at an average of 80% of
the Australian consumer price index, AEL's natural gas production in Western
Australia is not subject to the same degree of price volatility as is its
domestic Apache's U.S. and Canadian gas production; however, natural gas sales
under such Australian minimum price contracts represent only about two percent
of the Company's total natural gas sales at year end. Total Australian gas
sales in 1995, including long-term contracts and spot sales averaged $1.86 per
Mcf, two percent below the 1994 average of $1.90 per Mcf.
Oil prices remained vulnerable to unpredictable political and economic
forces during 1995, but did not experience the wide fluctuations seen in
natural gas prices during the year. Management believes that oil prices will
continue to fluctuate in response to changes in the policies of the
Organization of Petroleum Exporting Countries (OPEC), events in the Middle East
and other factors associated with the world political environment. As a result
of the many uncertainties associated with levels of production maintained by
OPEC and other oil producing countries, the availabilities of world-wide energy
supplies and the competitive relationships and consumer perceptions of various
energy sources, management is unable to predict what changes will occur in
crude oil and natural gas prices.
Apache's world-wide crude oil price averaged $17.09 per barrel in 1995,
up nine percent from the average price of $15.65 per barrel in 1994, and two
percent higher than the average price of $16.74 per barrel in 1993. Apache's
average crude oil price for its Australian production, including production
sold under the Marubeni contract, was $18.59 per barrel in 1995, three percent
higher than the average price in 1994.
Terms of the acquisition of MW from Amoco Production Company (Amoco)
included an oil and gas price sharing provision under which certain price
sharing payments may be payable to Amoco. Pursuant to this provision, to the
extent that oil prices exceed specified reference prices that rise to $33.12
per barrel over the eight-year period ending June 30, 1999, and to the extent
that gas prices exceed specified reference prices that rise to $2.68 per Mcf
over the five-year period ending June 30, 1996, Apache will share the excess
price realization with Amoco on a portion of the MW production.
From time to time, Apache buys or sells contracts to hedge a limited
portion of its future oil and gas production against exposure to spot market
price changes. See Note 9 to the Company's financial statements under Item 8
below.
8
10
The Company's business has been and will continue to be affected by
future world-wide changes in oil and gas prices and the relationship between the
prices of oil and gas. No assurance can be given as to the trend in, or level
of, future oil and gas prices.
RESERVE VALUE CEILING TEST
Under the Securities and Exchange Commission's (SEC's) full cost
accounting rules, the Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis. Under full cost
accounting rules, capitalized costs of oil and gas properties may not exceed
the present value of estimated future net revenues from proved reserves,
discounted at 10 percent, plus the lower of cost or fair market value of
unproved properties, as adjusted for related tax effects and deferred tax
reserves. Application of this rule generally requires pricing future production
at the unescalated oil and gas prices in effect at the end of each fiscal
quarter and requires a write-down if the "ceiling" is exceeded, even if prices
declined for only a short period of time. If a write-down is required, the
one-time charge to earnings would not impact cash flow from operating
activities. The Company had no write-downs due to ceiling test limitations
during 1995.
The SEC's rules permit the exclusion of capitalized costs and present
value of recently acquired properties in performing ceiling test calculations.
Pursuant to these rules, Apache has requested waivers and the SEC has granted
separate one-year waivers with respect to the properties acquired from Texaco
and Aquila, effective from the date of closing, the last of which will expire in
the third quarter of 1996. Under these waivers, if the ceiling is exceeded on
all U.S. properties, Apache is permitted to perform an additional ceiling test
excluding the capitalized costs and present value of the properties acquired
from Texaco and Aquila and would be required to record a write-down of carrying
value if the ceiling is still exceeded. If a write-down is required, it would
result in a one-time charge to earnings but would not impact net cash flow from
operating activities.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels, as well as by
other countries in which the Company does business. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Apache's operations and limit the quantity of
hydrocarbons Apache may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission
(FERC) regulates interstate transportation of natural gas under the Natural Gas
Act. Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act
deregulated natural gas prices for all "first sales" of natural gas, which
includes all sales by Apache of its own production. As a result, all sales of
the Company's natural gas produced in the U.S. may be sold at market prices,
unless otherwise committed by contract.
Apache's gas sales are affected by regulation of intrastate and
interstate gas transportation. In an attempt to promote competition, the FERC
has issued a series of orders which have altered significantly the marketing
and transportation of natural gas. The effect of these orders has been to
enable the Company to market its natural gas production to purchasers other
than the interstate pipelines located in the vicinity of its producing
properties. The Company believes that these changes have generally improved the
Company's access to transportation and have enhanced the marketability of its
natural gas production. To date, Apache has not experienced any material
adverse effect on gas marketing as a result of these FERC orders; however, the
Company cannot predict what new regulations may be adopted by the FERC and
other regulatory authorities, or what effect subsequent regulations may have on
its future gas marketing.
9
11
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties,
is subject to various federal, provincial, state, local and foreign country
laws and regulations relating to discharge of materials into, and protection
of, the environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, require suspension or cessation of operations in affected
areas.
Apache maintains insurance coverage which it believes is customary in
the industry, although it is not fully insured against all environmental risks.
The Company is not aware of any environmental claims existing as of December
31, 1995, which would have a material impact upon the Company's financial
position or results of operations.
Apache has made and will continue to make expenditures in its efforts
to comply with these requirements, which it believes are necessary business
costs in the oil and gas industry. Apache has established policies for
continuing compliance with environmental laws and regulations, including
regulations applicable to its operations in Canada, Australia and other
countries. Apache has also established operational procedures designed to limit
the environmental impact of its field facilities. The costs incurred by these
policies and procedures are inextricably connected to normal operating expenses
such that the Company is unable to separate the expenses related to
environmental matters; however, the Company does not believe any such
additional expenses are material to its financial position or results of
operations.
Although environmental requirements do have a substantial impact upon
the energy industry, generally these requirements do not appear to affect Apache
any differently, or to any greater or lesser extent, than other companies in the
industry. Apache does not believe that compliance with federal, state, local or
foreign country provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries, but there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.
COMPETITION
The oil and gas industry is highly competitive. Because oil and gas
are fungible commodities, the principal form of competition with respect to
product sales is price competition. Apache strives to maintain the lowest
finding and production costs possible to maximize profits.
As an independent oil and gas company, Apache frequently competes for
reserve acquisitions, exploration leases, licenses, concessions and marketing
agreements against companies with substantially larger financial and other
resources than Apache possesses. Moreover, many competitors have established
strategic long-term positions and maintain strong governmental relationships in
countries in which the Company may seek new entry. Apache expects this high
degree of competition to continue.
EMPLOYEES
On December 31, 1995, Apache had 1,285 full-time employees.
OFFICES
Apache's principal executive offices are located at One Post Oak
Central, 2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At
year-end 1995, the Company maintained regional exploration and production
offices in Tulsa, Oklahoma; Houston, Texas; Calgary, Alberta; and Perth,
Western Australia. In 1995, the Company closed its Denver, Colorado office and
redeployed those employees to its remaining region offices in connection with
the sale of a substantial portion of the Company's Rocky Mountain properties
and the reorganization of the Rocky Mountain and Permian Basin regions as
Apache's Western region.
10
12
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The developed and undeveloped acreage, including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1995, are as follows:
Undeveloped Acreage Developed Acreage
-------------------------- ------------------------
Gross Net Gross Net
Acres Acres Acres Acres
----- ----- ----- -----
GULF COAST.............................................
Alabama............................................ 7,789 1,375 -- --
Florida............................................ 162 14 -- --
Louisiana.......................................... 15,850 11,929 129,020 99,533
Mississippi........................................ 3,921 498 4,850 2,354
Texas.............................................. 106,242 47,842 291,635 142,704
--------- ------- --------- ---------
Total.............................................. 133,964 61,658 425,505 244,591
--------- ------- --------- ---------
GULF OF MEXICO
Alabama............................................ -- -- 34,560 9,457
Louisiana.......................................... 96,433 48,613 294,855 128,377
Texas.............................................. 90,783 57,759 233,334 97,973
--------- ------- --------- ---------
Total.............................................. 187,216 106,372 562,749 235,807
--------- ------- --------- ---------
MIDCONTINENT
Arkansas........................................... 699 327 5,548 3,667
Kansas............................................. 160 56 -- --
Louisiana.......................................... 6,750 4,505 49,394 34,112
Oklahoma........................................... 137,051 55,414 532,359 248,162
Pennsylvania....................................... -- -- 796 38
Texas.............................................. 25,301 14,335 136,372 49,763
--------- ------- --------- ---------
Total.............................................. 169,961 74,637 724,469 335,742
--------- ------- --------- ---------
WESTERN
Colorado........................................... 41,299 36,181 18,938 19,387
Michigan........................................... 200 16 -- --
New Mexico ........................................ 100,357 51,699 122,406 58,936
North Dakota ...................................... 100 50 197 197
Texas.............................................. 130,242 66,986 282,377 210,799
Utah............................................... 2,797 1,091 4,647 4,432
Wyoming............................................ 433,154 226,321 34,820 16,872
--------- ------- --------- ---------
Total.............................................. 708,149 382,344 463,385 310,623
--------- ------- --------- ---------
TOTAL UNITED STATES 1,199,290 625,011 2,176,108 1,126,763
--------- ------- --------- ---------
11
13
Undeveloped Acreage Developed Acreage
---------------------- ------------------------
Gross Net Gross Net
Acres Acres Acres Acres
--------- --------- --------- ---------
INTERNATIONAL
Australia.......................................... 8,312,100 2,954,562 280,460 52,550
Canada............................................. 246,391 156,862 389,903 259,081
China.............................................. 48,677 24,339 -- --
Egypt.............................................. 1,909,080 447,270 18,300 4,575
Indonesia.......................................... 722,290 280,890 -- --
Ivory Coast........................................ 256,243 102,497 -- --
---------- --------- --------- ---------
TOTAL INTERNATIONAL.................................... 11,494,781 3,966,420 688,663 316,206
---------- --------- --------- ---------
TOTAL COMPANY.......................................... 12,694,071 4,591,431 2,864,771 1,442,969
========== ========= ========= =========
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, 1995, is set forth below.
Gas Oil
-------------------- ----------------
Gross Net Gross Net
------ ----- ----- -----
Gulf of Mexico . . . . . . . . . . . . . . . . . . . . . . 227 76 66 24
Midcontinent . . . . . . . . . . . . . . . . . . . . . . . 1,478 534 1,465 364
Western . . . . . . . . . . . . . . . . . . . . . . . . . 250 125 3,977 1,982
Gulf Coast . . . . . . . . . . . . . . . . . . . . . . . . 328 262 1,083 866
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . 437 301 649 85
Other International . . . . . . . . . . . . . . . . . . . . 5 1 22 4
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,725 1,299 7,262 3,325
===== ===== ===== =====
GROSS WELLS DRILLED
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1995, the Company was participating in 35 wells in the U.S., six Canadian
wells and three international wells in the process of drilling.
Exploratory Developmental
------------------------ -------------------------
Productive Dry Total Productive Dry Total
---------- --- ----- ---------- --- -----
1995
----
United States . . . . . . . . . . . . . . . . . . . . 9 15 24 129 21 150
Canada . . . . . . . . . . . . . . . . . . . . . . . 16 13 29 14 5 19
International . . . . . . . . . . . . . . . . . . . . 8 12 20 4 2 6
-- -- -- --- -- ---
Total . . . . . . . . . . . . . . . . . . . . . . . 33 40 73 147 28 175
== == == === == ===
1994
----
United States . . . . . . . . . . . . . . . . . . . . 20 17 37 223 39 262
Canada . . . . . . . . . . . . . . . . . . . . . . . 18 12 30 35 3 38
International . . . . . . . . . . . . . . . . . . . . 7 8 15 2 -- 2
Total . . . . . . . . . . . . . . . . . . . . . . . 45 37 82 260 42 302
== == == === == ===
1993
----
United States . . . . . . . . . . . . . . . . . . . . 12 19 31 198 37 235
Canada . . . . . . . . . . . . . . . . . . . . . . . 11 15 26 13 1 14
International . . . . . . . . . . . . . . . . . . . . 3 5 8 -- -- --
Total . . . . . . . . . . . . . . . . . . . . . . . . 26 39 65 211 38 249
== == == === == ===
12
14
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
---------- --- ----- ---------- --- -----
1995
----
United States . . . . . . . . . . . . . . . . . . . . 3.7 6.2 9.9 57.3 14.0 71.3
Canada . . . . . . . . . . . . . . . . . . . . . . . 14.0 9.4 23.4 13.4 3.4 16.8
International . . . . . . . . . . . . . . . . . . . . 2.4 3.0 5.4 0.8 1.4 2.2
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 20.1 18.6 38.7 71.5 18.8 90.3
==== ==== ==== ===== ==== =====
1994
----
United States . . . . . . . . . . . . . . . . . . . . 10.7 10.4 21.1 100.1 27.0 127.1
Canada . . . . . . . . . . . . . . . . . . . . . . . 13.0 7.0 20.0 28.0 2.0 30.0
International . . . . . . . . . . . . . . . . . . . . 2.3 2.4 4.7 0.4 -- 0.4
- ---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 26.0 19.8 45.8 128.5 29.0 157.5
==== ==== ==== ===== ==== =====
1993
----
United States . . . . . . . . . . . . . . . . . . . . 4.2 10.4 14.6 90.4 22.2 112.6
Canada . . . . . . . . . . . . . . . . . . . . . . . 8.0 11.0 19.0 6.0 1.0 7.0
International . . . . . . . . . . . . . . . . . . . . 0.6 1.3 1.9 -- -- --
---- ---- ---- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 12.8 22.7 35.5 96.4 23.2 119.6
==== ==== ==== ===== ==== =====
PRODUCTION AND PRICING DATA
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGLs) and gas production for the Company, average
production costs and average sales prices.
Production Average Sales Price
------------------------- Average ------------------------------------
Year Ended Oil NGLs Gas Production Oil NGLs Gas
December 31, (Mbbls) (Mbbls) (MMcf) Cost per boe (per bbl) (per bbl) (per Mcf)
- ------------- ------- ------- ------ ------------ --------- --------- ---------
1995 . . . . . . . . . . 18,324 763 210,632 $3.91 $17.09 $12.05 $1.57
1994 . . . . . . . . . . 13,815 724 176,396 3.40 15.65 11.28 1.78
1993 . . . . . . . . . . 13,036 733 131,591 3.94 16.74 11.55 1.94
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's financial statements under Item 8 below.
The Company's estimates of proved reserve quantities of its U.S., Canadian and
certain international properties have been subject to review by Ryder Scott
Company Petroleum Engineers. There are numerous uncertainties inherent in
estimating quantities of proved reserves and projecting future rates of
production and timing of development expenditures. The following reserve
information represents estimates only and should not be construed as being
exact. See the Supplemental Oil and Gas Disclosures under Item 8 below.
13
15
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1995, 1994 and 1993:
Oil, NGLs and
Natural Gas Condensate
(Bcf) (MMbbls)
----------- -------------
1995
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,298.5 137.5
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203.4 32.8
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,501.9 170.3
======= =====
1994
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,184.9 100.0
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.3 10.6
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,316.2 110.6
======= =====
1993
----
Developed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 983.7 92.6
Undeveloped . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141.9 10.4
------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125.6 103.0
======= =====
The following table sets forth the estimated future value of all proved
reserves of the Company, and proved developed reserves of the Company, as of
December 31, 1995, 1994 and 1993. Future reserve values are based on year-end
prices except in those instances where the sale of gas and oil is covered by
contract terms providing for determinable escalations. Operating costs,
production and ad valorem taxes, and future development costs are based on
current costs with no escalations.
Present Value of Estimated
Future Net Revenues
Estimated Future Before Income Taxes
Net Revenues (Discounted at 10 Percent)
---------------------- -------------------------------
Proved Proved
Proved Developed Proved Developed
--------- --------- --------- ----------
(In thousands)
December 31,
------------
1995 . . . . . . . . . . . . . . . . $4,043,024 $3,390,103 $2,344,357 $2,056,558
1994 . . . . . . . . . . . . . . . . 2,581,459 2,390,126 1,600,927 1,512,305
1993 . . . . . . . . . . . . . . . . 2,591,290 2,289,172 1,626,096 1,450,669
At December 31, 1995, estimated future net revenues expected to be
received from all proved reserves of the Company, and from proved developed
reserves of the Company, were as follows:
Proved
Proved Developed
--------- ---------
(In thousands)
December 31,
------------
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 457,946 $ 481,326
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 441,549 418,612
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413,937 345,572
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . 2,729,592 2,144,593
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,043,024 $3,390,103
========== ==========
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1995, 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, 1995, no oil or gas reserve
information has been filed with, or included in any report to, any U.S.
authority or agency
14
16
other than the SEC and the Energy Information Administration (EIA). The basis of
reporting reserves to the EIA for the Company's reserves is identical to that
set forth in the foregoing table.
TITLE TO INTERESTS
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to obligations or duties under applicable laws, ordinances, rules, regulations
and orders of arbitral or governmental authorities. In addition, the interests
may be subject to burdens such as net profits interests, liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions, none of which
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 10 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1995.
15
17
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 1995
and 1994. Prices shown are from the New York Stock Exchange Composite
Transactions Reporting System.
1995 1994
---------------------------- ------------------------------
Price Range Price Range
------------- Dividends --------------- Dividends
High Low per Share High Low per Share
---- --- --------- ---- --- ---------
First Quarter . . . . . . . . . . . . . . . $27 3/8 $22 1/4 $ .07 $26 7/8 $22 1/2 $ .07
Second Quarter . . . . . . . . . . . . . . 31 25 3/8 $ .07 29 1/4 22 1/4 $ .07
Third Quarter . . . . . . . . . . . . . . . 30 1/4 25 3/4 $ .07 29 1/4 23 $ .07
Fourth Quarter . . . . . . . . . . . . . . 29 5/8 23 1/8 $ .07 28 7/8 23 5/8 $ .07
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 29,
1996, was $26.00. At December 31, 1995, there were 77,378,958 shares of Apache
common stock outstanding, held by approximately 12,000 shareholders of record
and 30,000 beneficial owners.
Each share of Apache common stock also represents one preferred share
purchase right which, when exercisable, would entitle the holder to purchase
one ten-thousandth of a share of Series A Junior Participating Preferred Stock
for a purchase price of $100 and, under certain circumstances, would entitle
the holder to acquire additional shares of Apache common stock. See Note 7 to
the Company's financial statements under Item 8 below.
The Company has paid cash dividends on its common stock for 116
consecutive quarters through December 31, 1995, and intends to continue the
payment of dividends at current levels, although future dividend payments will
depend upon the Company's level of earnings, financial requirements and other
relevant factors.
16
18
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, 1995, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1995 and
prior years has been restated to reflect the merger with DEKALB under the
pooling of interests method of accounting. This information should be read in
connection with and is qualified in its entirety by the more detailed
information in the Company's financial statements under Item 8 below.
At or for the Year Ended December 31,
-----------------------------------------------------------------------
1995 1994 1993(a) 1992(b) 1991(c)
----------- ---------- ---------- ---------- ----------
(In thousands, except per share amounts)
INCOME STATEMENT DATA
Total revenues $ 750,702 $ 592,626 $ 512,632 $ 517,403 $ 457,872
Income (loss) from continuing
operations 20,207 45,583 41,421 (14,632) (35,216)
Income (loss) per common
share - continuing operations .28 .65 .67 (.26) (.65)
Cash dividends per common share(d) .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit) $ (22,013) $ (3,203) $ (55,538) $ (32,775) $ (57,593)
Total assets 2,681,450 2,036,627 1,759,203 1,774,767 1,597,633
Long-term debt 1,072,076 719,033 504,334 524,098 658,395
Shareholders' equity 1,091,805 891,087 868,596 554,524 601,181
Common shares outstanding at
end of year 77,379 69,666 69,504 55,361 55,305
(a) Includes financial data for Hadson Energy Resources Corporation
(subsequently Apache Energy Resources Corporation) after June 30, 1993,
and for Hall-Houston Oil Company after July 31, 1993. See Note 1 to the
Company's financial statements under Item 8 below.
(b) The net loss in 1992 resulted from the sale of substantially all of
DEKALB's U.S. assets for a loss of $25.6 million after-tax. DEKALB also
reported Canadian ceiling test write-downs of $15.9 million after-tax and
U.S. ceiling test write-downs of $24.7 million after-tax.
(c) Includes financial data for MW after June 30, 1991. The net loss in 1991
resulted from DEKALB reporting U.S. ceiling test write-downs of $66
million after-tax.
(d) No cash dividends were paid on outstanding DEKALB common stock in 1995,
1994, 1993 and 1992. Cash dividends paid on DEKALB common stock totaled
$.8 million in 1991.
Reference is made to Item 7, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS," for a discussion of significant
acquisitions and to Note 2 to the Company's financial statements under Item 8
below.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Apache's results of operations and financial position during 1995 were
significantly impacted by the following factors:
PROPERTY ACQUISITIONS - Acquisitions continued to be a significant part of
Apache's growth strategy in 1995, with the Company adding over 156 MMboe of
proved reserves during the year through purchases. Led by the addition of
interests from Texaco Exploration and Production Inc. (Texaco) and Aquila
Energy Resources Corporation (Aquila), Apache spent $820.9 million on the
acquisition of oil and gas properties during 1995. Acquisitions were a major
force behind Apache posting its 18th consecutive year of production growth and
record year-end reserves of 420.6 MMboe. The Texaco and Aquila properties,
combined with properties acquired from Crystal Oil Company (Crystal) in late
1994, boosted Apache's 1995 production by nearly 92 MMcf/d of natural gas and
17 Mb/d of oil.
DEKALB MERGER - On May 17, 1995, Apache acquired DEKALB Energy Company
(DEKALB, now known as DEK Energy Company) through a merger which resulted in
DEKALB becoming a wholly-owned subsidiary of Apache. Pursuant to the merger
agreement, Apache issued 8.4 million shares of its common stock in exchange for
outstanding DEKALB stock and DEKALB employee stock options that remained
outstanding at the time of the merger. The merger was accounted for as a
"pooling of interests." As a result, Apache's financial information for all
preceding periods and the following management discussion have been prepared on
a combined basis using the pooling of interests method of accounting.
Apache's earnings for 1995 were reduced by a non-recurring pre-tax
charge of approximately $10 million for investment banking fees, severance
payments and other costs associated with the merger. The merger costs, which
are largely non-deductible for income tax purposes, reduced Apache's 1995 net
income by $8.7 million, or $.12 per share.
COMMODITY PRICES - During 1995, natural gas spot prices remained volatile,
fluctuating from a low of $1.25 per Mcf in July to a high of $2.07 per Mcf in
December. Domestic spot prices during the first eight months of 1995 lagged
behind comparable prices in 1994, then rebounded above 1994 levels during the
last four months of the year. As a result, Apache's average gas price for 1995
was down 12 percent from a year ago, negatively impacting earnings by
approximately $26 million. A nine-percent increase in the Company's average
oil price from 1994 offset nearly $16 million of the impact of lower gas
prices. On an equivalent basis, prices negatively impacted earnings by $.15
per share.
HEDGING LOSS - In December 1995, Apache recorded a pre-tax hedging loss of
$9.3 million resulting from the decoupling of New York Mercantile Exchange
(NYMEX) natural gas futures prices and actual cash prices received by producers
for natural gas delivered throughout most of the United States. The loss,
which stems from contracts for January through March, 1996 deliveries, reduced
Apache's 1995 net income by $5.9 million, or $.08 per share.
RESULTS OF OPERATIONS
NET INCOME AND REVENUE
Apache reported 1995 net income of $20.2 million, or $.28 per share,
compared with $45.6 million, or $.65 per share in 1994. The decline was due to
the lower natural gas realizations and the non-recurring charges noted above.
Absent one-time charges for the merger costs and hedging loss, 1995 earnings
would have totaled $.48 per share.
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20
Revenues for 1995 totaled $750.7 million, an increase of 27 percent from a
year ago. Apache's oil and gas production revenues, boosted by record levels
of oil and gas production and a $1.44 per barrel increase in Apache's average
realized oil price, rose 21 percent from 1994. A 12 percent decline in the
Company's average realized gas price dampened further improvement in Apache's
oil and gas production revenues. Also during 1995, Apache more than doubled
its gathering, processing and marketing revenues to $97.2 million.
Volume and price information concerning the Company's oil and gas
production is summarized below:
Selected Oil and Gas
Operating Statistics 1995 1994 1993
- --------------------- ----------- ---------- ---------
Natural Gas Volume - Mcf per day:
United States . . . . . . . . . . . . . . 500,441 419,161 299,486
Canada . . . . . . . . . . . . . . . . . . 67,083 56,142 57,449
International . . . . . . . . . . . . . . 9,551 7,975 3,589
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . 577,075 483,278 360,524
========== ========== =========
Average Natural Gas Price - Per Mcf . . . . . $ 1.57 $ 1.78 $ 1.94
Oil Volume - Barrels per day:
United States . . . . . . . . . . . . . . 45,084 32,669 31,809
Canada . . . . . . . . . . . . . . . . . . 1,999 2,003 2,033
International . . . . . . . . . . . . . . 3,120 3,177 1,874
---------- ---------- ---------
Total . . . . . . . . . . . . . . . . . . 50,203 37,849 35,716
========== ========== =========
Average Oil Price - Per barrel . . . . . . . . $ 17.09 $ 15.65 $ 16.74
Natural Gas Liquids (NGL) -
Barrels per day: . . . . . . . . . . . . . 2,090 1,985 2,008
Average NGL Price - Per barrel . . . . . . . . $ 12.05 $ 11.28 $ 11.55
Natural gas sales contributed $330.7 million to 1995 revenues, up five
percent from 1994 as production gains from acquisitions and drilling more than
offset the impact of a $.21 per Mcf decline in the Company's average realized
gas price. Acquisitions boosted Apache's 1995 gas production by approximately
92 MMcf/d, while drilling additions outpaced the impact of property
divestitures and natural depletion. Apache realized production gains in each of
its three operating areas; the United States, Canada and Australia. In
addition to production gains from drilling, the Australian sales benefited from
new markets for its natural gas. The Company's average realized natural gas
price declined 12 percent from 1994, negatively impacting sales by
approximately $44 million.
Reflecting an increase in both production and prices, oil sales jumped 45
percent in 1995 to $313.2 million. Apache's oil production rose 12.4 Mb/d, or
33 percent, from a year ago as property divestitures and natural depletion
partially offset the 17 Mb/d of production added through acquisitions. The
Company's average realized oil price increased nine percent in 1995 to $17.09
per barrel.
Revenues from the sale of natural gas liquids totaled $9.2 million in
1995, up 13 percent from a year ago due to higher prices and a slight increase
in volumes.
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Gathering, processing and marketing revenues in 1995 more than doubled
from a year ago to $97.2 million. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that typically has low margins. Apache's gross margin from gathering,
processing and marketing activities declined seven percent from a year ago due
to the sale of the Company's interest in the Little Knife gas plant as part of
Apache's divestiture of Rocky Mountain properties, reduced gathering volumes,
and a lower per-barrel crude-oil margin resulting from a higher mix of
low-margin sour-grade oil.
Other revenues in 1995 of $.4 million reflects $4.3 million of contract
settlement income, $2.2 million in gains from the sales of non-oil-and-gas
assets, $1.1 million of Canadian royalty credits and $2.1 million of other
income, offset by the $9.3 million hedging loss from the decoupling of NYMEX
and wellhead prices.
COSTS AND EXPENSES
Operating costs increased $62.3 million, or 42 percent, in 1995 due to the
impact of Apache's acquisitions. Based on an equivalent unit of production,
operating costs increased $.51 per barrel to $3.91 per barrel for 1995. The
15- percent increase in unit cost reflects the high percentage of oil
properties comprising the Texaco acquisition, as oil properties typically have
a higher per-unit cost than gas properties.
Depreciation, depletion and amortization (DD&A) expense rose 15 percent
from a year ago due to the increase in oil and gas production. On a per unit
basis, DD&A expense declined six percent to $5.49 per boe. Apache's full cost
amortization rates fell in the United States, Canada and Australia due to the
favorable impact of reserve additions and revisions.
Administrative, selling and other costs declined $2.2 million, or six
percent, in 1995 due primarily to the elimination of duplicate administrative
functions following the merger of DEKALB into Apache. Apache integrated its
1995 acquisitions with minimal increases in administrative staff. On an
equivalent unit of production basis, administrative, selling and other costs
declined 24 percent from 1994 to $.67 per boe.
Net financing costs of $70.6 million were slightly more than double the
1994 amount due to increased debt levels from acquisitions and due to higher
interest rates. Apache's average interest rate increased from 6.3 percent in
1994 to 7.4 percent in 1995 due to higher market rates and Apache's higher debt
to total capitalization rate following the acquisition of properties from
Texaco.
HEDGING ACTIVITY
The Company periodically enters into hedging activities with respect to a
portion of its projected oil and natural gas production through a variety of
financial arrangements intended to support oil and natural gas prices at
targeted levels and to minimize the impact of price fluctuations. Apache uses
swaps, puts, collars and fixed-price contracts to hedge its commodity prices.
As noted in the Company's significant accounting policies, normal recurring
gains or losses on these activities are recognized in oil and gas production
revenues when the hedged volumes are produced.
In 1995, Apache recognized net recurring gains from hedging activities
which boosted oil and gas production revenues by approximately $1.5 million and
$3.5 million, respectively. These gains increased the Company's average
realized oil and natural gas prices in 1995 by $.08 per barrel and $.02 per
Mcf, respectively. Also in 1995, the Company realized $4.8 million of gains
from hedging activities that relate to future production periods. These gains
will be recognized in oil and gas production revenues over periods ranging from
one to 60 months based on physical production.
During the fourth quarter of 1995, Apache entered into swap agreements for
January, February and March 1996 production under which the Company will
receive a fixed price averaging $1.98 per Mcf on approximately 300 MMcf/d. The
hedges, which covered approximately one-half of Apache's expected natural gas
production, will limit the upside potential from the physical sale of Apache's
natural gas during the first quarter of 1996.
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22
In addition to limiting first quarter 1996 gas prices, the hedges on the
1996 production resulted in a charge to current year earnings. In late 1995, a
marketing anomaly developed in which NYMEX natural gas futures prices, commonly
used as the reference price in hedge agreements, lost their correlation to
wellhead prices. Due to frigid temperatures in the northeastern United States
and pipeline constraints in the nation's gas transportation system, NYMEX
natural gas prices rose substantially higher than prices received by producers
west of the Mississippi River. Producers, such as Apache, with large volumes
of production in Texas and Oklahoma were unable to realize the record increases
in NYMEX prices. As a result of this significant decoupling of NYMEX and
wellhead prices, Apache recognized a pre-tax hedging loss of $9.3 million in
1995 which was reported as a reduction of Other Revenues on the Company's
Statement of Consolidated Income.
Effective with contracts covering April 1996 and subsequent deliveries,
Apache has limited its hedges to production volumes deliverable to the
northeastern United States.
PRIOR YEAR COMPARATIVE INFORMATION
Apache reported net income for 1994 of $45.6 million, a three-percent
decrease from 1993 earnings of $46.8 million. The Company's 1993 net income
included a one-time benefit of $5.3 million, or $.08 per share, for the
cumulative effects of a change in accounting principle related to the adoption
of the liability method of accounting for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109. Significant factors contributing
to the higher income from continuing operations were increased oil production
and substantially increased natural gas production, partially offset by
decreases in oil and natural gas prices.
Revenues for 1994 totaled $592.6 million, or 16 percent higher than in
1993. Oil and gas production revenues in 1994 totaled $538.4 million, an
increase of 12 percent over oil and gas production revenues of $481.8 million
in the prior year. Oil and gas production revenues in 1994 were influenced by
record natural gas production, declining natural gas prices, increased oil
production and lower average oil prices for the year. In addition, Apache's
gathering, processing and marketing revenues increased 71 percent to $44.3
million in 1994 from $25.9 million in 1993.
Natural gas sales contributed $314 million to revenues, up 23 percent from
1993, the result of higher annual production partially offset by lower prices
during 1994. Gas production for the year averaged 483 MMcf/d, up 34 percent
from 1993, positively affecting gas sales by $87 million. This increase is
principally the result of production increases from developmental drilling and
the contribution of 12 months of operations from properties acquired in 1993,
the most significant of which were the offshore properties acquired from
Hall-Houston Oil Company (Hall-Houston) and the properties added through
Apache's mid-1993 merger with Hadson Energy Resources Corporation (subsequently
known as Apache Energy Resources Corporation or AERC). Acquisitions added
approximately 50 MMcf/d of production increases for the year, whereas
developmental drilling and recompletions accounted for nearly 73 MMcf/d.
Apache's average realized price for its natural gas was $1.78 per Mcf
during 1994, eight percent lower than the average price of $1.94 per Mcf during
1993, which negatively affected natural gas sales by $28.2 million. Natural
gas prices remained depressed during the second half of 1994 due to warmer than
usual weather in the northeastern United States and higher volumes of gas held
in inventory by utilities and gas storage facilities. Hedging activities
increased Apache's 1994 natural gas price by $.02 per Mcf ($3 million in sales)
compared to a $.04 per Mcf decrease ($5.4 million in sales) in 1993.
The impact of increased oil production was offset by lower oil prices in
1994. Oil production contributed $216.2 million to revenues during 1994, less
than one percent below Apache's oil sales in 1993. Average daily oil
production of approximately 37.9 Mbbls reflected a six percent increase over
the prior year, positively affecting oil sales by $13 million, as acquisitions
offset the effects of natural depletion. Oil sales represented 40 percent of
total oil and gas production revenues in 1994 compared to 45 percent of total
oil and gas production revenues in 1993.
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23
The Company's average realized oil price for 1994 of $15.65 per barrel
declined seven percent from 1993, negatively affecting oil sales by $15
million. Apache's average realized oil prices in 1994 ranged from $12.64 per
barrel in March to $17.84 per barrel in July. Hedging activities increased
Apache's average realized oil price by $.20 per barrel ($2.7 million in sales)
as compared to a $.37 per barrel increase ($4.8 million in sales) in 1993. The
1994 hedges were in the form of floating for fixed price swap agreements with
respect to the sale of oil, whereas 1993 sales hedges were due to the price
support hedging agreement with Amoco Production Company.
Revenues from the sale of natural gas liquids decreased four percent from
1993, to $8.2 million in 1994.
Revenues from gas gathering, processing and marketing were $44.3 million
in 1994, up 71 percent from 1993. The revenue increase primarily reflects
additional volumes sold under crude oil and natural gas contracts, an activity
that generally creates relatively low margins. Gross margins from gathering,
processing and marketing were $6.4 million in 1994, an increase of 32 percent
from 1993.
Other revenues increased to $9.5 million in 1994, up from $4.3 million in
1993. Non-recurring revenues in 1994 included $4 million from the favorable
resolution of take-or-pay contract issues, $2.2 million in gains from the sale
of stock held for investment and $3.3 million of other income.
Operating costs per equivalent unit of production declined 14 percent in
1994, as a 23-percent increase in production volumes more than offset a
six-percent increase in operating costs. Aggregate operating costs increased
from $140.6 million in 1993 to $149.5 million in 1994. On an equivalent unit
of production basis, operating costs in 1994 declined to $3.40 per boe, down
from $3.94 per boe in 1993. Apache's declining costs per boe reflect
increasing natural gas production and lower production costs.
DD&A expense rose 30 percent year-over-year to $257.8 million due to
increased oil and natural gas production and a higher U.S. amortization rate
expressed on a boe basis. Apache's U.S. amortization rate increased from $5.61
per boe in 1993 to $5.88 per boe in 1994 due to higher finding costs during the
last two years. Recurring international DD&A expense increased as higher
Australian production more than offset the impact of lower Canadian production.
Although Apache increased its international exploration activity in 1994,
international impairments declined to $7.3 million in 1994 from $23.2 million
in 1993, reflecting the Company's successful international exploration efforts
in China, Egypt and Indonesia during 1994.
Administrative, selling and other costs increased $2.1 million in 1994, or
six percent from 1993. These costs, on an equivalent unit of production basis,
declined 15 percent from the prior year to $.88 per boe in 1994 from $1.03 per
boe in 1993, reflecting the increase in production over the prior year and
results of the Company's continuing efforts to contain costs. The Company
integrated AERC and the Hall-Houston properties with minimal increases in
administrative staff.
Net financing costs of $34.7 million were 13 percent higher than 1993,
primarily a result of increasing interest rates and increased debt from
acquisitions. Effective interest rates on Apache's floating rate debt, which
includes all advances under its bank credit facility, increased approximately
59 percent over year-end 1993, as market rates increased at six different times
during the year.
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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 generally funds its exploration and development
activities through internally generated cash flows. Apache budgets its capital
expenditures based upon projected cash flows and routinely adjusts its capital
expenditures in response to changes in oil and natural gas prices and
corresponding changes in cash flow.
CAPITAL EXPENDITURES - A summary of oil and gas capital expenditures over
the last three years is presented below:
1995 1994 1993
------------ ------------ ------------
(In thousands)
Exploration and Development:
United States . . . . . . . . . . . . . . . $ 216,430 $ 270,588 $ 200,924
Canada . . . . . . . . . . . . . . . . . . . 27,788 41,595 18,901
Other International . . . . . . . . . . . . 67,950 31,942 18,006
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . . . $ 312,168 $ 344,125 $ 237,831
============ ============ ============
Acquisitions of Oil and Gas Properties $ 820,918 $ 180,742 $ 326,676
============ ============ ============
Expenditures for exploration and development totaled $312.2 million in
1995 compared to $344.1 million in 1994. Apache's drilling program in 1995
added 54 MMboe of reserves (including revisions), replacing 100 percent of
production. In the U.S., Apache completed 138 gross wells as producers out of
174 gross wells drilled during the year compared with 210 gross producers out
of 299 gross wells drilled in 1994. With DEKALB's merger into Apache in 1995
and a higher level of funds spent on acquisitions, the number of wells drilled
in Canada declined from 68 gross wells in 1994 to 48 gross wells in 1995.
Internationally, the Company had discoveries from 12 of 26 wells drilled
in 1995 compared to nine of 17 wells in 1994. The international wells drilled
in 1995 included six successful wells in Egypt, from which full production is
expected to commence by mid 1996, and two wells with oil and gas shows in the
People's Republic of China. Since 1994, Apache has spent approximately $25
million on exploratory wells in the Zhao Dong Block in China, with three
successful wells. Apache, which recently announced plans to proceed with the
second exploration phase under its contract with the People's Republic of
China, is continuing to appraise the field.
U.S. and Canadian expenditures for exploration and development in 1996,
including workover and recompletion operations, are expected to be comparable
to the 1995 expenditure level. The Company expects its other international
exploration and development expenditures in 1996 to total approximately $120
million.
Cash expenditures for acquisitions of oil and gas properties during 1995
totaled $820.9 million as the Company added 156 MMboe of oil and gas reserves
through purchases. The most significant of the 59 transactions Apache
completed during 1995 were the Company's acquisition of properties from Texaco
and Aquila.
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25
On March 1, 1995, Apache purchased certain U.S. oil and gas properties
from Texaco for approximately $567 million in cash, subject to adjustment.
Apache delivered a $25 million deposit, representing a portion of the purchase
price, upon execution of the purchase and sale agreement with Texaco in
December 1994, and delivered the balance, in cash, at closing. Funds for the
Texaco transaction were obtained from several sources, including increased
borrowing capacity under the Company's bank credit facility and proceeds of
Apache's $172.5 million 6-percent Convertible Subordinated Debentures due 2002
(6-percent debentures), which were issued on January 4, 1995.
In September 1995, Apache acquired substantially all of the oil and gas
assets of Aquila for approximately $210 million. The oil and gas properties
included approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas.
Also included in the transaction was the purchase of a five-year, four-month
premium-gas contract and interests in four gas processing plants.
Cash expenditures for acquisitions, excluding AERC, totaled $180.7 million
in 1994 compared to $192.3 million in 1993. The most significant acquisition
that Apache closed during 1994 was the purchase of substantially all of the
U.S. oil and gas properties of Crystal for $95.8 million. Apache also
acquired approximately $84.9 million of other oil and gas properties through a
number of separate transactions during 1994. Funds for the 1994 acquisitions
were obtained principally from borrowings under the Company's revolving bank
credit facility.
The aggregate cost of acquisitions in 1993, including the value of the
shares issued and liabilities added through the acquisition of AERC, totaled
$326.7 million. Apache's most significant transactions during 1993 were its
acquisitions of oil and gas properties from Hall-Houston for $113.7 million in
cash and the acquisition of AERC for approximately $98 million in cash and the
issuance of 307,977 shares of Apache common stock. Apache also acquired more
than $78.6 million of other properties during 1993, primarily representing
purchases of additional working interests in properties in which Apache already
held an interest.
Other capital expenditures for 1993 include the purchase of Natural Gas
Clearinghouse's (NGC) interest in a gas gathering system in Oklahoma, which
Apache sold in March 1993, as described under "Capital Resources and Liquidity"
below.
DEBT AND INTEREST COMMITMENTS - At December 31, 1995, Apache had
outstanding $620 million under its revolving bank credit facility and an
aggregate of $455.1 million in principal amount of other debt, comprised
principally of notes and debentures maturing in the years 1997 through 2002.
Apache made cash payments on debt totaling $500.6 million in 1995, of which
less than $1 million was scheduled under the Company's debt obligations. The
1995 payments on debt reflect the reduction of amounts outstanding on the
Company's revolving credit facility after issuing $172.5 million of 6-percent
debentures in January 1995, and the reduction of debt through property sales to
achieve the Company's stated goal of maintaining a debt level below 50 percent
of total capitalization. Interest payments on the Company's outstanding debt
obligations during 1996 are projected (using weighted average balances for
floating rate obligations) to be approximately $82 million, while scheduled
principal payments for 1996 currently total $3 million.
DIVIDEND PAYMENTS - Dividends paid during 1995 totaled $18.9 million, up
10 percent from 1994, primarily due to the issuance of 7.45 million shares of
the Company's common stock in connection with the September 1995 common stock
offering. The Company's dividend policy currently provides for the payment of
regular quarterly dividends at the rate of $.28 per share annually, subject to
the Company's cash requirements, applicable debt covenants and other factors
deemed relevant by the Board of Directors.
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26
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
NET CASH PROVIDED BY OPERATING ACTIVITIES - Apache's net cash provided by
operating activities during 1995 totaled $332.1 million, down $25.6 million from
1994. The prior-year cash flow included a $67.4 million advance on future gas
deliveries related to the Company's sale of approximately 43.8 Bcf of natural
gas for delivery over a six-year period. Eliminating the effects of the forward
sale transaction, net cash provided by operating activities in 1995 increased by
five percent over 1994, reflecting the results of increased production partially
offset by lower gas prices and non- recurring charges. Net cash provided by
operating activities in 1994 was up $101.8 million from 1993 primarily due to
increased natural gas production and the $67.4 million forward sale of gas.
LONG-TERM BORROWINGS - On January 4, 1995, Apache completed the issuance
of $172.5 million principal amount of its 6-percent debentures to reduce bank
debt, provide funding for acquisitions and for general corporate purposes. The
debentures are convertible at the option of the holder into Apache common stock
at a conversion price of $30.68 per share. Costs associated with the issue of
these debentures totaled $4.4 million.
On March 1, 1995, in connection with the acquisition of certain oil and
gas properties from Texaco, lenders increased the size of Apache's revolving
credit facility from $700 million to $1 billion, subject to borrowing base
availability. The borrowing base is the estimated loan value of the Company's
oil and gas reserves, not including reserves outside the United States and
subject to certain other exclusions, based upon forecast rates of production,
as periodically redetermined by the lenders.
Under terms of the credit agreement at December 31, 1995, the Company must
(i) maintain a minimum consolidated tangible net worth of $816 million, which
is adjusted quarterly for subsequent earnings and securities transactions, and
(ii) maintain a ratio of (a) earnings before interest expense, state and
federal taxes, and depreciation, depletion and amortization to (b) consolidated
interest expense, of not less than 3.7:1. Restrictive covenants under the
facility include certain limitations on indebtedness and contingent
obligations, as well as certain restrictions on liens. The Company has complied
with its financial ratios and restrictive covenants at all times since the
inception of the revolving credit facility in July 1991. The facility matures
on March 1, 2000, and may be extended in one-year increments with the lenders'
consent.
On February 27, 1996, Apache completed its offering of $100 million
principal amount of unsecured 7.7% notes due March 15, 2026. Proceeds from the
notes will be used to reduce amounts outstanding under the Company's revolving
bank credit facility.
STOCK TRANSACTIONS - On September 27, 1995, Apache closed an equity
offering of 7.45 million shares of Apache common stock. Net proceeds of
approximately $195.5 million were used to repay existing indebtedness under the
Company's revolving bank credit facility, to finance the Aquila transaction and
for general corporate purposes.
In March 1993, Apache completed the public offering of approximately 5.8
million shares of Apache common stock for net proceeds of $131.8 million. Net
proceeds of the offering were used to repay outstanding debt under Apache's
revolving bank credit facility. In September 1993, Apache completed the
conversion of its 7 1/2-percent convertible subordinated debentures due 2000,
resulting in the issuance of approximately 7.8 million shares of Apache common
stock.
In addition to the public offerings, Apache issued 307,977 shares of
Apache common stock in conjunction with its mid-1993 acquisition of AERC.
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27
ASSET SALES - In early 1995, Apache announced plans to accelerate the
disposition of lower-margin and non-strategic properties, including the sale of
a substantial portion of its Rocky Mountain properties. During 1995, Apache
received $271.9 million from the sale of such properties, utilizing the
proceeds to reduce bank debt. Apache received $19.5 million and $10.3 million
from the sale of non-strategic oil and gas properties during 1994 and 1993,
respectively.
In March 1993, Apache and NGC completed the sale of their respective
interests in a gathering system located in western Oklahoma. Apache received
gross cash proceeds of approximately $32.2 million in the transaction, of which
$16.4 million was attributable to NGC's interest in the system.
LIQUIDITY - The Company had $13.6 million in cash and cash equivalents on
hand at December 31, 1995, down from $30 million at the end of 1994. Apache
utilized available cash in 1995 to reduce its bank debt and resulting debt to
total capitalization ratio, achieving a reduction in the Company's interest
rates. Apache's ratio of current assets to current liabilities at year end of
.90:1 declined slightly from a ratio of .98:1 at December 31, 1994.
Management believes that cash on hand at year end, net cash generated from
operations and available borrowing capacity under its revolving bank credit
facility will be adequate to satisfy the Company's financial obligations to
meet future liquidity needs for at least the next two fiscal years.
FUTURE TRENDS
Apache's growth strategy is to increase oil and gas reserves, production
and cash flow through a combination of acquisitions, moderate-risk drilling and
development of its inventory of existing properties. An emerging aspect of
Apache's strategy is its exploration and development activity in the
international arena where there are generally larger reserve targets than in
North America.
In 1996, Apache expects domestic exploration and development outlays to be
comparable to those reported in 1995 as the Company focuses on reserve
enhancement and cash flow acceleration on recently acquired properties.
Internationally, the Company projects capital expenditures to nearly double
from 1995 as Apache continues to exploit its concessions in Western Australia,
Egypt, China and Indonesia. Proposed exploration and development expenditures
in 1996 will be reviewed at least quarterly in light of fluctuating product
prices and Apache's objective to fund operations through internally generated
cash flow.
NATURAL GAS MARKETING
On September 30, 1995, the Company's contract with NGC terminated, and
Apache began to market all of its own natural gas. The Company believes the
prices that it obtains through its own marketing activities are not
substantially different from the prices that would have been received through
NGC.
In October 1995, subsidiaries of Apache, Oryx Energy Company and Parker &
Parsley Petroleum Company announced their formation of Producers Energy
Marketing, LLC (ProEnergy), a natural gas marketing company organized to create
a direct link between natural gas producers and purchasers. ProEnergy is
designed to purchase and sell producer-owned gas directly into the marketplace
at index prices substantially equivalent to spot market prices and provide
expanded value to its customers. Until ProEnergy is fully operational, which
is expected to occur in the second quarter of 1996, Apache will continue to
market its own natural gas. Apache and other members of ProEnergy have agreed
to fund the reasonably anticipated capital needs of ProEnergy. In January
1996, Apache paid $5.8 million to ProEnergy for Apache's share of
capital-funding obligations for the start-up of ProEnergy.
26
28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-34 of this
Form 10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Information About Nominees
for Election as Directors," "Continuing Directors," "Executive Officers of the
Company," and "Voting Securities and Principal Holders" in the Company's proxy
statement relating to the Company's 1996 annual meeting of shareholders (the
"Proxy Statement") is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table,"
"Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table,"
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and "Director Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and
Principal Holders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Business
Relationships and Transactions" in the Proxy Statement is incorporated herein
by reference.
28
30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents included in this report:
1. Financial Statements
Report of independent public accountants . . . . . . . . . . . . . . . . . . . . . . F-1
Auditors' report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Report of management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statement of consolidated income for each of the three years
in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Statement of consolidated cash flows for each of the three years
in the period ended December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated balance sheet as of December 31, 1995 and 1994 . . . . . . . . . . . . F-6
Statement of consolidated shareholders' equity for each of the
three years in the period ended December 31, 1995 . . . . . . . . . . . . . . . . F-8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . F-9
Supplemental oil and gas disclosures . . . . . . . . . . . . . . . . . . . . . . . . F-28
Supplemental quarterly financial data . . . . . . . . . . . . . . . . . . . . . . . F-34
2. Financial Statement Schedules
Financial statement schedules have been omitted because they are
either not required, not applicable or the information required to be
presented is included in the Company's financial statements and
related notes.
29
31
3. Exhibits
Exhibit No. Description
----------- -----------
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between Registrant and Amoco Production Company
(incorporated by reference to Exhibit 10.1 to Registrant's Current Report on Form 8-K, dated July
1, 1991, SEC File No. 1-4300, filed July 19, 1991).
2.2 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and Registrant, as
buyer, dated as of June 2, 1993 (incorporated by reference to Exhibit 10.1 to Registrant's
Current Report on Form 8-K, dated August 31, 1993, SEC File No. 1-4300, filed September 7, 1993).
2.3 -- Purchase and Sale Agreement between Hall-Houston Oil Company, as seller, and Registrant, as
buyer, dated as of August 13, 1993 (incorporated by reference to Exhibit 10.2 to Registrant's
Current Report on Form 8-K, dated August 31, 1993, SEC File No. 1-4300, filed September 7, 1993).
2.4 -- Form of Acquisition Agreement between Registrant, HERC Acquisition Corporation and Hadson Energy
Resources Corporation, dated August 26, 1993, and amended September 28, 1993 (incorporated by
reference to Exhibit 2.1 to Registrant's Registration Statement on Form S-4, Registration No. 33-
67954, filed September 29, 1993).
2.5 -- Purchase and Sale Agreement by and between Texaco Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994 (incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November 29, 1994, SEC File No. 1-4300, filed
December 29, 1994).
2.6 -- 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).
2.7 -- Matagorda Island 681 Field Purchase and Sale Agreement with Option to Exchange, dated November
24, 1992, between Shell Offshore Inc., SOI Royalties Inc., and Registrant (incorporated by
reference to Exhibit 10.7 to Apache Offshore Investment Partnership's Annual Report on Form 10-K
for year ended December 31, 1992, SEC File No. 0-13546).
3.1 -- Restated Certificate of Incorporation of Registrant, dated December 1, 1993, as filed with the
Secretary of State of Delaware on December 16, 1993 (incorporated by reference to Exhibit 3.1 to
Registrant's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300).
*3.2 -- Certificate of Ownership and Merger Merging Apache Energy Resources Corporation into Registrant,
effective December 31, 1995, as filed with the Secretary of State of Delaware on December 21,
1995.
30
32
Exhibit No. Description
----------- -----------
*3.3 -- Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred
Stock of Registrant, effective January 31, 1996, as filed with the Secretary of State of Delaware
on January 22, 1996.
*3.4 -- Bylaws of Registrant, dated as of February 9, 1996.
*4.1 -- Form of Registrant's common stock certificate.
4.2 -- Rights Agreement, dated as of January 10, 1986, between Registrant and First Trust Company, Inc.,
rights agent, relating to the declaration of a rights dividend to Registrant's common
shareholders of record on January 24, 1986 (incorporated by reference to Exhibit 4.9 to
Registrant's Annual Report on Form 10-K for year ended December 31, 1985, SEC File No. 1-4300).
4.3 -- Rights Agreement, dated as of 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 -- Second Amended and Restated Credit Agreement, dated April 30, 1994, among Registrant, the lenders
named therein, and the First National Bank of Chicago and Chemical Bank, as Agents (incorporated
by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for quarter ended June
30, 1994, SEC File No. 1-4300).
10.2 -- Third Amended and Restated Credit Agreement, dated March 1, 1995, among Registrant, the lenders
named therein, and the First National Bank of Chicago, as Administrative Agent and Arranger, and
Chemical Bank, as Co-Agent and Arranger (incorporated by reference to Exhibit 10.2 to
Registrant's Annual Report on Form 10-K for year ended December 31, 1994, SEC File No. 1-4300).
10.3 -- First Amendment to Third Amended and Restated Credit Agreement, dated April 14, 1995, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger (incorporated by reference to
Exhibit 99.3 to Registrant's Registration Statement on Form S-3, Registration No. 33-63923, filed
November 2, 1995).
10.4 -- Second Amendment to Third Amended and Restated Credit Agreement, dated October 23, 1995, among
Registrant, the lenders names therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger (incorporated by reference to
Exhibit 99.4 to Registrant's Registration Statement on Form S-3, Registration No. 33-63923, filed
November 2, 1995).
*10.5 -- Third Amendment to Third Amended and Restated Credit Agreement, dated December 18, 1995, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
*10.6 -- Fourth Amendment to Third Amended and Restated Credit Agreement, dated December 22, 1995, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
31
33
Exhibit No. Description
----------- -----------
*10.7 -- Fifth Amendment to Third Amended and Restated Credit Agreement, dated January 22, 1996, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.8 -- Fiscal Agency Agreement, dated as of January 4, 1995, between Registrant and Chemical Bank, as
fiscal agent (incorporated by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-
K, dated December 6, 1994, SEC File No. 1-4300, filed January 11, 1995.)
+10.9 -- 1982 Employee Stock Option Plan, as updated in January 1987 to conform to the Tax Reform Act of
1986 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1990, SEC File No. 1-4300).
+10.10 -- Apache Corporation Corporate Administrative Group Incentive Plan, effective as of January 1, 1989
(incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1990, SEC File No. 1-4300).
+10.11 -- First Amendment to Apache Corporation Corporate Administrative Group Incentive Plan, effective
January 1, 1990 (incorporated by reference to Exhibit 10.14 to Registrant's Annual Report on Form
10-K for year ended December 31, 1993, SEC File No. 1-4300).
+10.12 -- Apache Corporation Retirement/401(k) Savings Plan, dated December 22, 1994, effective January 1,
1995 (incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1994, SEC File No 1-4300).
+ 10.13 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, each dated April 19, 1995
(incorporated by reference to Exhibit 4.6 to Registrant's Registration Statement on Form S-8,
Registration No. 33-63817, filed October 31, 1995).
+*10.14 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, effective May 4, 1995 and
May 17, 1995.
+*10.15 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989.
+*10.16 -- First Amendment to the Non-Qualified Retirement/Savings Plan of Apache Corporation, dated October
24, 1995.
+10.17 -- Apache International, Inc. Common Stock Award Plan, dated February 12, 1990 (incorporated by
reference to Exhibit 10.13 to Registrant's Annual Report on Form 10-K for year ended December 31,
1989, SEC File No. 1-4300).
+10.18 -- Apache Corporation 1990 Phantom Stock Appreciation Plan, dated as of September 28, 1990
(incorporated by reference to Exhibit 10.17 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1990, SEC File No. 1-4300).
+*10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated February 9, 1996.
32
34
Exhibit No. Description
----------- -----------
+*10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and restated February 9, 1996.
+10.21 -- 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).
+10.22 -- Apache Corporation Directors' Deferred Compensation Plan, as amended and restated September 14,
1994 (incorporated by reference to Exhibit 10.15 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1994, SEC File No. 1-4300).
+10.23 -- Apache Corporation Outside Directors' Retirement Plan, effective December 15, 1992 (incorporated
by reference to Exhibit 10.25 to Registrant's Annual Report on Form 10-K for year ended December
31, 1992, SEC File No. 1-4300).
+10.24 -- Apache Corporation Equity Compensation Plan for Non-Employee Directors, adopted February 9, 1994,
and form of Restricted Stock Award Agreement (incorporated by reference to Exhibit 10.26 to
Registrant's Annual Report on Form 10-K for year ended December 31, 1993, SEC File No. 1-4300).
+10.25 -- Amended and Restated Employment Agreement, dated December 5, 1990, between Registrant and Raymond
Plank (incorporated by reference to Exhibit 10.9 to Registrant's Annual Report on Form 10-K for
year ended December 31, 1990, SEC File No. 1-4300).
+10.26 -- 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).
+10.27 -- 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).
*10.28 -- Member Gas Purchase Agreement, dated March 1, 1996, by and among Apache Gathering Company, Apache
Corporation, MW Petroleum Corporation, DEK Energy Company, Apache Transmission Corporation-Texas
and Apache Marketing, Inc., as seller, and Producers Energy Marketing, LLC, as buyer.
10.29 -- Asset Purchase and Sale Agreement, dated July 8, 1992, between DEKALB and Louis Dreyfus Gas
Holdings Inc. (incorporated by reference to Exhibit 10.10 to DEKALB's Current Report on Form 8-K,
dated October 16, 1992, SEC File No. 0-2886).
*11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for the year
ended December 31, 1995.
33
35
Exhibit No.
-----------
Description
-----------
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Coopers & Lybrand
*23.3 -- Consent of Ryder Scott Company Petroleum Engineers
*27.1 -- Financial Data Schedule
- -------------------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
Note: Debt instruments of the Registrant defining the rights of long-term
debt holders in principal amounts not exceeding 10 percent of the
Registrant's consolidated assets have been omitted and will be
provided to the Commission upon request.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Apache during the
fiscal quarter ended December 31, 1995:
October 27, 1995 - Item 5. Other Events - Wholly owned affiliates of
Apache, Oryx Energy Company and Parker & Parsley Petroleum Company
formed Producers Energy Marketing, LLC ("ProEnergy"), which will
market natural gas and natural gas liquids for such members pursuant
to member gas purchase agreements having an initial term of ten years,
subject to early termination following specified events.
December 14, 1995 - Item 5. Other Events - Apache's board of directors
(i) adopted a Rights Agreement, effective as of the close of business
on January 31, 1996, to replace the existing Rights Agreement (adopted
on January 10, 1986) which expired by its own terms as of the close of
business on January 31, 1996, and (ii) declared a dividend on each
outstanding share of Apache common stock held of record as of January
31, 1996 of one right to purchase, for $100, one ten-thousandth
(1/10,000) of a share of Series A Junior Participating Preferred Stock
or, under certain circumstances, Apache common stock or other
securities.
34
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
APACHE CORPORATION
Date: March 27, 1996 By: /s/ Raymond Plank
-----------------------------------
Raymond Plank,
Chairman and Chief Executive Officer
POWER OF ATTORNEY
The officers and directors of Apache Corporation, whose signatures appear
below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z.S.
Kobiashvili and Mark A. Jackson, and each of them (with full power to each of
them to act alone), the true and lawful attorney-in-fact to sign and execute,
on behalf of the undersigned, any amendment(s) to this report and each of the
undersigned does hereby ratify and confirm all that said attorneys shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Raymond Plank Chairman and Chief Executive
- ------------------------------ Officer (Principal Executive
Raymond Plank Officer) March 27, 1996
/s/ Mark A. Jackson Vice President and Chief
- ------------------------------ Financial Officer (Principal
Mark A. Jackson Financial Officer) March 27, 1996
/s/ Thomas L. Mitchell Controller and Chief
- ------------------------------ Accounting Officer (Principal
Thomas L. Mitchell Accounting Officer) March 27, 1996
35
37
Signature Title Date
- --------- ----- ----
/s/ Frederick M. Bohen Director
- -------------------------------
Frederick M. Bohen March 27, 1996
/s/ Virgil B. Day Director
- -------------------------------
Virgil B. Day March 27, 1996
/s/ G. Steven Farris Director
- -------------------------------
G. Steven Farris March 27, 1996
/s/ Randolph M. Ferlic Director
- -------------------------------
Randolph M. Ferlic March 27, 1996
/s/ Eugene C. Fiedorek Director
- -------------------------------
Eugene C. Fiedorek March 27, 1996
/s/ W. Brooks Fields Director
- -------------------------------
W. Brooks Fields March 27, 1996
/s/ Robert V. Gisselbeck Director
- -------------------------------
Robert V. Gisselbeck March 27, 1996
/s/ Stanley K. Hathaway Director
- -------------------------------
Stanley K. Hathaway March 27, 1996
/s/ John A. Kocur Director
- -------------------------------
John A. Kocur March 27, 1996
/s/ Joseph A. Rice Director
- -------------------------------
Joseph A. Rice March 27, 1996
38
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, 1995
and 1994, and the related statements of consolidated income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1995. 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 did not audit the financial statements of
DEKALB Energy Company, a company acquired during 1995 in a transaction
accounted for as a pooling of interests, as of and for the years ended December
31, 1994 and 1993, as discussed in Note 2. Such financial statements are
included in the consolidated financial statements of Apache Corporation and
Subsidiaries and reflect total assets and total revenues of 10 percent and
eight percent, respectively, of the related consolidated totals as of and for
the year ended December 31, 1994, and total revenues of nine percent of the
related consolidated total for the year ended December 31, 1993, after
restatement to reflect certain adjustments as set forth in Note 2. The
financial statements of DEKALB Energy Company, prior to those adjustments, were
audited by other auditors whose report has been furnished to us and our
opinion, insofar as it relates to pre-1995 amounts included for DEKALB Energy
Company, is based solely upon the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits, and the report of other
auditors, provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 5 to the Consolidated Financial Statements, effective
January 1, 1993, the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN LLP
Houston, Texas
February 27, 1996
F-1
39
AUDITORS' REPORT
To the Shareholders and Board of Directors of DEKALB Energy Company:
We have audited the consolidated balance sheets of DEKALB Energy Company as
at December 31, 1994 and 1993, and the consolidated statements of operations,
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the consolidated financial position of DEKALB Energy
Company as at December 31, 1994, and the consolidated results of its operations
and its cash flows for each of the two years in the period ended December 31,
1994, in accordance with United States generally accepted accounting
principles.
COOPERS & LYBRAND
Calgary, Alberta
February 13, 1995
F-2
40
REPORT OF MANAGEMENT
The financial statements and related financial information of Apache
Corporation and Subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgments.
Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to and that assets are
safeguarded. The systems of internal controls are supported by written
policies and guidelines, internal audits and the selection and training of
qualified personnel.
The financial statements of Apache Corporation and Subsidiaries, except for
DEKALB Energy Company prior to 1995, have been audited by Arthur Andersen LLP,
independent public accountants. The financial statements of DEKALB Energy
Company and its subsidiaries for 1994 and prior periods were audited by Coopers
& Lybrand. Their audits included developing an overall understanding of each
Company's accounting systems, procedures and internal controls and conducting
tests and other auditing procedures sufficient to support their opinions on the
fairness of the respective 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 employed by Apache. The Audit
Committee meets periodically with management, internal auditors and the
independent public accountants to ensure that they are successfully completing
designated responsibilities. The internal auditors and independent public
accountants have open access to the Audit Committee to discuss auditing and
financial reporting issues.
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Mark A. Jackson
Vice President and Chief Financial Officer
Thomas L. Mitchell
Controller and Chief Accounting Officer
F-3
41
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
For the Year Ended December 31,
---------------------------------------------------
1995 1994 1993
------------ ------------- -------------
(In thousands, except per common share data)
REVENUES:
Oil and gas production revenues . . . . . . . . . . . $ 653,144 $ 538,389 $ 481,848
Gathering, processing and marketing revenues . . . . . 97,207 44,287 25,862
Equity in income of affiliates . . . . . . . . . . . . -- 459 624
Other revenues . . . . . . . . . . . . . . . . . . . . 351 9,491 4,298
------------ ------------- -------------
750,702 592,626 512,632
------------ ------------- -------------
OPERATING EXPENSES:
Depreciation, depletion and amortization . . . . . . . 297,485 257,821 198,320
Impairments . . . . . . . . . . . . . . . . . . . . . -- 7,300 23,200
Gain on disposal of assets . . . . . . . . . . . . . . -- -- (513)
Operating costs . . . . . . . . . . . . . . . . . . . 211,742 149,474 140,580
Gathering, processing and marketing costs . . . . . . 91,243 37,866 21,010
Administrative, selling and other . . . . . . . . . . 36,552 38,729 36,629
Merger costs . . . . . . . . . . . . . . . . . . . . . 9,977 -- --
Financing costs:
Interest expense . . . . . . . . . . . . . . . . . . 88,057 37,838 34,205
Amortization of deferred loan costs . . . . . . . . 4,665 3,987 3,896
Capitalized interest . . . . . . . . . . . . . . . . (19,041) (6,034) (6,279)
Interest income . . . . . . . . . . . . . . . . . . (3,121) (1,048) (1,145)
------------ ------------- -------------
717,559 525,933 449,903
------------ ------------- -------------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 33,143 66,693 62,729
Provision for income taxes . . . . . . . . . . . . . . 12,936 21,110 21,308
------------ ------------- -------------
INCOME FROM CONTINUING OPERATIONS . . . . . . . . . . . . 20,207 45,583 41,421
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . -- -- 5,334
------------ ------------- -------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 20,207 $ 45,583 $ 46,755
============ ============= =============
INCOME PER COMMON SHARE:
Continuing operations . . . . . . . . . . . . . . . . $ .28 $ .65 $ .67
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . . . . -- -- .08
------------ ------------- -------------
NET INCOME PER COMMON SHARE . . . . . . . . . . . . . . . $ .28 $ .65 $ .75
============ ============= =============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . . . . . 71,792 69,715 62,013
============ ============= =============
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-4
42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
For the Year Ended December 31,
---------------------------------------------------
1995 1994 1993
------------- ------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations . . . . . . . . . . . . $ 20,207 $ 45,583 $ 41,421
Adjustments to reconcile income from continuing
operations to net cash provided by operating activities:
Depreciation, depletion and amortization . . . . . . . 297,485 257,821 198,320
Impairments . . . . . . . . . . . . . . . . . . . . . . -- 7,300 23,200
Amortization of deferred loan costs . . . . . . . . . . 4,665 3,987 3,896
Provision for deferred income taxes . . . . . . . . . 29,382 24,385 20,539
Other deferred credits . . . . . . . . . . . . . . . . 4,584 -- --
Gain on disposal of assets . . . . . . . . . . . . . . -- -- (513)
Other . . . . . . . . . . . . . . . . . . . . . . . . . -- 46 140
Cash distributions less than earnings of affiliates . . . -- (459) (662)
Gain on sale of stock held for investment . . . . . . . . (906) (2,178) --
Changes in operating assets and liabilities,
net of effects of acquisitions:
Increase in receivables . . . . . . . . . . . . . . . . (64,399) (12,128) (8,641)
(Increase) decrease in advances to oil and
gas ventures and other . . . . . . . . . . . . . . . (189) (2,281) 137
(Increase) decrease in deferred charges and other . . . (1,294) (3,238) 2,120
Increase (decrease) in payables . . . . . . . . . . . . 37,254 (17,288) (5,463)
Increase (decrease) in accrued operating expenses . . . 15,236 541 (8,177)
Advance from gas purchaser . . . . . . . . . . . . . . (7,038) 67,376 --
Decrease in deferred credits and noncurrent liabilities (2,864) (11,768) (11,166)
------------- ------------- -------------
Cash flows from continuing operations . . . . . . . . 332,123 357,699 255,151
Cash flows from discontinued operations . . . . . . . -- 70 840
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . 332,123 357,769 255,991
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures . . . . . . . . . (312,168) (344,125) (237,831)
Acquisition of oil and gas properties . . . . . . . . . . (820,918) (180,742) (192,256)
Purchase of premium gas contract . . . . . . . . . . . . . (28,700) -- --
Non-cash portion of net oil and gas property additions . 5,092 5,480 8,789
Purchase of AERC stock, net of cash acquired . . . . . . . -- (13,885) (70,692)
Purchase of stock held for investment . . . . . . . . . . (307) (5,051) --
Proceeds from sale of oil and gas properties . . . . . . . 271,937 19,525 10,342
Prepaid acquisition cost . . . . . . . . . . . . . . . . . 25,377 (25,377) --
Proceeds from sale of stock held for investment . . . . . 2,835 6,640 --
Proceeds from sale of gas gathering system . . . . . . . . -- -- 32,201
Other capital expenditures, net . . . . . . . . . . . . . (16,559) (11,968) (32,370)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . 3,307 (1,716) 1,145
------------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES: . . . . . . (870,104) (551,219) (480,672)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings . . . . . . . . . . . . . . . . . . . 856,159 244,058 275,424
Payments on long-term debt . . . . . . . . . . . . . . . . (500,579) (38,019) (180,400)
Net increase (decrease) in short-term borrowings . . . . . -- (5,478) 5,455
Dividends paid . . . . . . . . . . . . . . . . . . . . . . (18,915) (17,131) (14,919)
Proceeds from issuance of common stock . . . . . . . . . . 197,006 4,599 134,224
Payments to acquire treasury stock . . . . . . . . . . . . (26) (3,389) (104)
Cost of debt and equity transactions . . . . . . . . . . . (12,074) (875) (270)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . 521,571 183,765 219,410
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (16,410) (9,685) (5,271)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . 30,043 39,728 44,999
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 13,633 $ 30,043 $ 39,728
============= ============= =============
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-5
43
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
---------------------------------
1995 1994
------------- --------------
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 13,633 $ 30,043
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,949 111,310
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,764 8,868
Advances to oil and gas ventures and other . . . . . . . . . . . . . 8,990 10,093
------------- --------------
208,336 160,314
------------- --------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . 3,956,833 3,265,770
Unproved properties and properties under
development, not being amortized . . . . . . . . . . . . . . . . 335,842 157,379
Gas gathering, transmission and processing facilities . . . . . . . . 33,088 25,809
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,341 49,912
------------- --------------
4,377,104 3,498,870
Less: Accumulated depreciation, depletion and amortization . . . . . (1,975,543) (1,682,039)
------------- --------------
2,401,561 1,816,831
------------- --------------
OTHER ASSETS:
Deferred charges and other . . . . . . . . . . . . . . . . . . . . . 71,553 59,482
------------- --------------
$ 2,681,450 $ 2,036,627
============= ==============
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-6
44
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31,
-----------------------------
1995 1994
------------ ------------
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt . . . . . . . . . . . . . . . . $ 3,000 $ 100
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 138,269 92,861
Accrued operating expense . . . . . . . . . . . . . . . . . . . . . 26,863 16,722
Accrued exploration and development . . . . . . . . . . . . . . . . . 30,251 25,077
Accrued compensation and benefits . . . . . . . . . . . . . . . . . . 9,733 10,794
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . . 22,233 17,963
------------ ------------
230,349 163,517
------------ ------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,072,076 719,033
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,575 151,216
Advance from gas purchaser . . . . . . . . . . . . . . . . . . . . . 60,338 67,376
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,307 44,398
------------ ------------
287,220 262,990
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized,
78,498,892 and 70,785,067 shares issued, respectively . . . . . . 98,124 88,482
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 687,465 500,101
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 335,470 335,293
Treasury stock, at cost, 1,119,934 and
1,118,975 shares, respectively . . . . . . . . . . . . . . . . . . (13,478) (13,452)
Currency translation adjustments . . . . . . . . . . . . . . . . . . (15,776) (19,337)
------------ ------------
1,091,805 891,087
------------ ------------
$ 2,681,450 $ 2,036,627
============ ============
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-7
45
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
Currency Total
Common Paid-In Retained Treasury Translation Shareholders'
Stock Capital Earnings Stock Adjustment Equity
-------- --------- ---------- -------- ----------- -------------
(In thousands)
BALANCE, DECEMBER 31, 1992 . . . . . . . . . . $ 70,912 $ 229,137 $ 276,039 $(15,339) $ (6,225) $554,524
Net income . . . . . . . . . . . . . . . . -- -- 46,755 -- -- 46,755
Dividends ($.28 per common share) . . . . . -- -- (15,902) -- -- (15,902)
Common shares issued . . . . . . . . . . . 17,538 270,859 -- -- -- 288,397
Treasury shares issued . . . . . . . . . . -- (108) -- 950 -- 842
Treasury shares purchased . . . . . . . . . -- -- -- (104) -- (104)
Treasury shares retired . . . . . . . . . . (8) (71) -- 79 -- --
Currency translation adjustments . . . . . -- -- -- -- (5,916) (5,916)
-------- --------- ---------- -------- -------- ---------
BALANCE, DECEMBER 31, 1993 . . . . . . . . . . 88,442 499,817 306,892 (14,414) (12,141) 868,596
Net income . . . . . . . . . . . . . . . . -- -- 45,583 -- -- 45,583
Dividends ($.28 per common share) . . . . . -- -- (17,182) -- -- (17,182)
Common shares issued . . . . . . . . . . . 281 3,428 -- -- -- 3,709
Treasury shares issued . . . . . . . . . . -- -- -- 966 -- 966
Treasury shares purchased . . . . . . . . . -- -- -- (3,389) -- (3,389)
Treasury shares retired . . . . . . . . . . (241) (3,144) -- 3,385 -- --
Currency translation adjustments . . . . . -- -- -- -- (7,196) (7,196)
-------- --------- ---------- -------- -------- ---------
BALANCE, DECEMBER 31, 1994 . . . . . . . . . . 88,482 500,101 335,293 (13,452) (19,337) 891,087
Net income . . . . . . . . . . . . . . . . -- -- 20,207 -- -- 20,207
Dividends ($.28 per common share) . . . . . -- -- (20,030) -- -- (20,030)
Common shares issued . . . . . . . . . . . 9,642 187,364 -- -- -- 197,006
Treasury shares purchased . . . . . . . . . -- -- -- (26) -- (26)
Currency translation adjustments . . . . . -- -- -- -- 3,561 3,561
-------- --------- ---------- -------- -------- ---------
BALANCE, DECEMBER 31, 1995 . . . . . . . . . . $ 98,124 $ 687,465 $ 335,470 $(13,478) $(15,776) $1,091,805
======== ========= ========== ======== ======== =========
The accompanying notes to consolidated financial
statements are an integral part of this statement.
F-8
46
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, produces, gathers,
processes and markets natural gas, crude oil and natural gas liquids. The
Company's North American exploration and production activities are divided into
four U.S. operating regions, the Gulf of Mexico, Midcontinent, Gulf Coast and
Western regions, plus a Canadian region. Approximately 95 percent of the
Company's proved reserves are located in the four U.S. regions and Canada.
Internationally, Apache has production interests in Australia and Egypt, and is
currently focusing its international exploration efforts in Western Australia,
Egypt, China and Indonesia.
Apache holds interests in many of its properties through operating
subsidiaries, such as MW Petroleum Corporation (MW), DEK Energy Company (DEK,
formerly known as DEKALB Energy Company), Apache Energy Limited (AEL, formerly
known as Hadson Energy Limited), Apache International, Inc. and Apache
Overseas, Inc. Properties referred to in this document may be held by those
subsidiaries. Apache treats all operations as one segment of business.
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 acquiring, finding, 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 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 65 percent
of Apache's 1995 production on an energy equivalent basis, the Company was
affected more by fluctuations in natural gas prices than in oil prices.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Apache and its subsidiaries after
elimination of intercompany balances and transactions. The Company's interests
in oil and gas ventures and partnerships are proportionately consolidated.
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, production
equipment and oil produced but not sold, all stated at the lower of weighted
average cost or market.
PROPERTY AND EQUIPMENT - The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method,
the Company capitalizes all acquisition, exploration and development costs
incurred for the purpose of finding oil and gas reserves, including salaries,
benefits and other internal costs directly attributable to these activities.
Exclusive of field level costs, Apache capitalized $12.5 million, $14.6 million
and $12.2 million of internal costs in 1995, 1994 and 1993, 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 $16.3 million, $13.2 million and $10.8 million in 1995, 1994, and 1993,
respectively, and are included in operating costs on the Company's Statement of
Consolidated Income. Interest costs related to development projects in
progress for an extended period are also
F-9
47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
capitalized to oil and gas properties. Unless a significant portion of the
Company's reserve volumes are sold (greater than 25 percent), proceeds from the
sale of oil and gas properties are accounted for as reductions to capitalized
costs, and gains or losses are not recognized.
Apache computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the
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 and determined to be productive. 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, to the estimated future
net cash flows from proved oil and gas reserves, net of related tax effects,
discounted at 10 percent. If capitalized costs exceed this limit, the excess
is charged to DD&A expense. Included in the estimated future net cash flows
are Canadian provincial tax credits expected to be realized beyond the date at
which the legislation, under its provisions, could be repealed. To date, the
Canadian provincial government has not indicated an intention to repeal this
legislation.
The costs of certain unevaluated leasehold acreage and wells in the process
of being drilled are not being amortized. Costs not being amortized are
periodically assessed for possible impairments or reductions in value. If a
reduction in value has occurred, costs being amortized are increased or a
charge is made against earnings for those international operations where a
reserve base is not yet established.
Buildings, equipment, gas gathering, transmission and processing facilities
are depreciated on a straight-line basis over the estimated useful lives of the
assets, which range from two to 20 years. Accumulated depreciation for these
assets totaled $26.3 million and $25.7 million at December 31, 1995 and 1994,
respectively.
ACCOUNTS PAYABLE - Included in accounts payable at December 31, 1995 and
1994, are liabilities of approximately $48 million and $30.3 million,
respectively, representing the amount by which checks issued but not presented
to the Company's banks for collection exceeded balances in applicable bank
accounts.
REVENUE RECOGNITION - Apache uses the sales method of accounting for
natural gas revenues. Under this method, revenues are recognized based on
actual volumes of gas sold to purchasers. The volumes of gas sold may differ
from the volumes to which Apache is entitled based on its interests in the
properties. Differences between volumes sold and volumes based on entitlements
create gas imbalances which are generally reflected as adjustments to reported
gas reserves and future cash flows. Adjustments for gas imbalances totaled
less than one percent of Apache's proved gas reserves at December 31, 1995.
Revenue is deferred and a liability is recorded for those properties where the
estimated remaining reserves will not be sufficient to enable the underproduced
owner to recoup their entitled share through production.
F-10
48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
HEDGING ACTIVITIES - The Company periodically enters into commodity
derivative contracts in order to either fix or support oil and gas prices at
targeted levels and to minimize the impact of price fluctuations. Apache uses
swaps, puts or fixed-price contracts to hedge its commodity prices. Gains or
losses on these hedging activities are recognized in oil and gas production
revenues when the hedged volumes are produced. Estimates of future liabilities
and receivables applicable to oil and gas commodity hedges are reflected in
future cash flows from proved reserves in the supplemental oil and gas
disclosures, with such estimates based on prices in effect as of the date of
the reserve report.
The Company also purchases interest rate caps and enters into interest rate
swap transactions in its management of interest rate exposure. Interest rate
swap agreements generally involve the exchange of fixed and floating interest
payment obligations without the exchange of the underlying principal amounts.
Gains or losses on these activities are recognized in interest expense in the
period hedged by the agreements.
INCOME TAXES - The Company provides deferred income taxes for all temporary
differences between financial and income tax reporting. Effective January 1,
1993, the Company implemented the provisions of Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under the
liability method specified by SFAS No. 109, deferred taxes are determined based
on the estimated future tax effect of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted tax laws. The adoption of SFAS No. 109 resulted in a one-time benefit
of $5.3 million in the first quarter of 1993.
FOREIGN CURRENCY TRANSLATION - The U.S. dollar is considered the functional
currency for each of the Company's international operations except for the
Canadian subsidiary whose functional currency is the Canadian dollar.
Translation adjustments resulting from translating the Canadian subsidiary
foreign currency financial statements into U.S. dollar equivalents are reported
separately and accumulated in a separate component of shareholders' equity. For
other international operations, translation gains or losses are recognized in
current net income and were not material in any of the periods presented.
INCOME PER COMMON SHARE - Amounts are based on the weighted average number
of shares of common stock outstanding. The effects of common equivalent
shares, which would include shares from the assumed conversion of the
3.93-percent notes, were immaterial or were not dilutive for each of the
periods presented. Furthermore, fully diluted income per share, assuming
conversion of certain of the convertible debentures, was not significantly
different than primary income per share for all periods presented.
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." Accordingly, the adoption of SFAS No. 123, "Accounting for
Stock-Based Compensation" in 1996 will have no effect on the Company's results
of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepting accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve volumes and the related present value of
estimated future net revenues therefrom (see Supplemental Oil and Gas
Disclosures).
F-11
49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
In September 1995, Apache acquired substantially all of the oil and gas
assets of Aquila Energy Resources Corporation (Aquila) for approximately $210
million. The acquired assets included proved reserves totaling an estimated
157 Bcf of gas equivalent, approximately 107,000 developed and 49,000
undeveloped net acres located primarily in Apache's Anadarko Basin and Gulf of
Mexico core areas, a five-year, four-month premium-price gas contract effective
September 1, 1995, and non-operated interests in four gas processing plants.
The gas contract calls for Aquila Energy Marketing Corporation, a wholly owned
subsidiary of UtiliCorp, to purchase 20 to 25 MMcf of gas per day from Apache
at a price of $2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the
year 2000.
On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known
as DEK Energy Company), an oil and gas company engaged in the exploration for,
and the development of, crude oil and natural gas in Canada, through a merger
which resulted in DEKALB becoming a wholly owned subsidiary of Apache.
Pursuant to the merger agreement, 8.4 million shares of Apache common stock
were exchanged for the outstanding DEKALB stock and DEKALB employee stock
options. Merger costs of approximately $10 million were charged to expense in
the second quarter of 1995. The merger was accounted for as a "pooling of
interests" and, as a result, the Company's consolidated financial statements
for periods prior to the merger have been restated to include combined results
with DEKALB.
In connection with the DEKALB merger, the methods used by Apache and DEKALB
in computing DD&A of proved oil and gas properties were conformed to the
units-of-production method using physical units. This method was previously
used by DEKALB and in conforming the methods used, Apache adopted the
units-of-production method in lieu of the future gross revenue method. The
conforming adjustments for DD&A have been reflected retroactively in the
accompanying consolidated financial statements along with an adjustment to
DEKALB's previously recorded deferred tax valuation allowance for U.S.
operating loss carryforwards expected to be utilized by Apache in future
periods. All other adjustments are reclassifications to conform financial
statement presentation. Apache and DEKALB had no significant intercompany
transactions prior to the merger.
F-12
50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the previously separate results of Apache and DEKALB to
the restated combined results is as follows:
For the Year Ended December 31,
----------------------------------
1994 1993
------------- ------------
(In thousands)
Revenues:
Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 545,621 $ 466,638
DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,290 45,903
Reclassifications to
conform presentation . . . . . . . . . . . . . . . . . . . 715 91
------------- ------------
$ 592,626 $ 512,632
============= ============
Income from continuing operations:
Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334
DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,813 5,672
Conforming adjustments:
DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . (6,682) (4,311)
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,615 2,726
------------- ------------
$ 45,583 $ 41,421
============= ============
Net income:
Apache . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,837 $ 37,334
DEKALB . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,813 11,006
Conforming adjustments:
DD&A . . . . . . . . . . . . . . . . . . . . . . . . . . (6,682) (4,311)
Income taxes . . . . . . . . . . . . . . . . . . . . . . 2,615 2,726
------------- ------------
$ 45,583 $ 46,755
============= ============
On March 1, 1995, Apache completed the acquisition of 315 oil and gas
fields from Texaco Exploration and Production Inc. (Texaco) for an adjusted
purchase price of $567 million. The Texaco properties included estimated
proved reserves at the effective date, after adjustment for the exercise of
preferential rights and properties excluded following due diligence, of
approximately 105 MMboe.
In December 1994, Apache purchased substantially all of the U.S. oil and
gas properties of Crystal Oil Company (Crystal) for approximately $95.8
million. The producing oil and gas properties acquired from Crystal are
located primarily along the Arkansas-Louisiana border and southern Louisiana.
The acquisition also included approximately 32,000 net undeveloped mineral
acres in southern Louisiana.
In 1993, Apache purchased the outstanding stock of Hadson Energy Resources
Corporation (subsequently known as Apache Energy Resources Corporation, or
AERC, which was merged into Apache in December 1995) for approximately $98
million through a series of privately negotiated transactions and a merger
approved by AERC stockholders. In July 1993, Apache completed the purchase of
4.2 million shares of AERC's outstanding common stock, or approximately 68
percent of the AERC common stock then outstanding, for $59.2 million. The
Company agreed to pay an additional $1.00 per share ($4.2 million) to the
selling stockholders if the Company increased its ownership in AERC to 80
percent or more. Pursuant to the merger agreement approved by AERC
stockholders on November 12, 1993, AERC stockholders other than Apache could
elect to receive, for each share of AERC
F-13
51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock, either $15 in cash or .574 share of Apache common stock. Apache
issued 307,977 shares of Apache common stock valued at $7.9 million and paid a
total of $76.1 million to former stockholders of AERC as consideration for the
merger. At December 31, 1993, Apache reflected a liability of $13.9 million
accrued for AERC shares which had not yet been surrendered to Apache. During
1994, Apache completed the purchase of the remaining AERC shares for cash.
Also in 1993, Apache entered into two agreements to purchase a total of 104
Bcfe of proved reserves from Hall- Houston Oil Company (Hall-Houston) for an
aggregate consideration of $113.7 million. These transactions included
interests in 63 producing fields and 12 fields under development or awaiting
pipeline connections.
Except for the DEKALB transaction, each transaction described above has
been accounted for using the purchase method of accounting and has been
included in the financial statements of Apache since the dates of acquisition.
The following unaudited pro forma summary of the Company's consolidated
results of operations were prepared as if the Texaco transaction, discussed
above, occurred on January 1 of each of the years presented. The pro forma
data is based on numerous assumptions and is not necessarily indicative of
future operations.
For the Year Ended December 31,
-----------------------------------
(Unaudited) 1995 1994
- ----------- ------------- -------------
(In thousands, except per common share data)
Revenues and other income . . . . . . . . . . . . . . . . $ 774,477 $ 755,926
Net income . . . . . . . . . . . . . . . . . . . . . . . 18,914 35,359
Income per common share . . . . . . . . . . . . . . . . . .26 .51
Weighted average common shares outstanding . . . . . . . 71,792 69,715
DIVESTITURES
In September 1995, Apache closed the sale of non-strategic oil and gas
properties in its Rocky Mountain region for approximately $140 million net to
Apache. The assets included Apache's interests in 138 fields with
approximately 1,600 active wells in Colorado, Montana, North and South Dakota,
Utah and Wyoming. The Company retained its interests in the Green River Basin
of Colorado and Wyoming and in the San Juan Basin of Colorado and New Mexico.
Proceeds from the sale of all oil and gas properties sold during 1995 totaled
$271.9 million.
3. INVESTMENTS IN EQUITY SECURITIES
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." At December 31, 1995, the
aggregate cost basis totaled $5.6 million and the related aggregate fair value
approximated cost.
The Company realized gross gains totaling $.9 million and $2.2 million from
the sale of available-for-sale securities during 1995 and 1994, respectively.
Apache utilizes the average cost method in computing realized gains or losses,
which are included in other revenues on the accompanying Statement of
Consolidated Income.
F-14
52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
December 31,
----------------------------------
1995 1994
------------- ------------
(In thousands)
LONG-TERM DEBT
Apache debt:
Revolving bank facility . . . . . . . . . . . . . . . . . . . $ 620,000 $ 454,000
6-percent subordinated debentures due 2002 . . . . . . . . . . 172,500 --
9.25-percent notes due 2002, net of discount . . . . . . . . . 99,742 99,713
3.93-percent convertible notes due 1997 . . . . . . . . . . . 75,000 75,000
Money market lines . . . . . . . . . . . . . . . . . . . . . . 3,000 --
------------- ------------
970,242 628,713
------------- ------------
Subsidiary and other obligations:
Bank of Montreal facility . . . . . . . . . . . . . . . . . . 27,000 --
DEKALB 9.875-percent note due 2000 . . . . . . . . . . . . . . 29,225 29,225
DEKALB 10-percent note due 1998 . . . . . . . . . . . . . . . 22,100 22,100
Royal Bank of Canada facility . . . . . . . . . . . . . . . . -- 10,222
AEL acceptance facility . . . . . . . . . . . . . . . . . . . 24,200 25,800
Share of offshore partnership financing . . . . . . . . . . . 2,309 2,973
Other notes payable . . . . . . . . . . . . . . . . . . . . . -- 100
------------- ------------
104,834 90,420
------------- ------------
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,075,076 719,133
Less: Current maturities . . . . . . . . . . . . . . . . . . . . (3,000) (100)
------------- ------------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,072,076 $ 719,033
============= ============
At December 31, 1995, Apache had a $1 billion revolving bank facility
funded by a group of banks. The maximum amount available is subject to
periodic redetermination of a borrowing base, determined solely at the
discretion of the banks, predicated upon the Company's oil and gas reserve
values and forecast rate of production. As of December 31, 1995, the borrowing
base was $706 million and the principal amount outstanding was $620 million.
The bank facility is scheduled to mature on March 1, 2000, and the agreement
provides for perpetual one-year extensions as requested year-by- year by the
Company and is subject to the approval of the banks. Interest on amounts
borrowed is charged at the First National Bank of Chicago's base rate or at the
London Interbank Offered Rates (LIBOR) plus a margin determined by the
Company's public senior debt rating and its ratio of debt to total capital. At
December 31, 1995, the margin was .35 percent. The Company pays a facility fee
of .15 percent on the available portion of the commitment and .075 percent on
the unavailable portion of the commitment.
On January 4, 1995, Apache completed the issue of $172.5 million of
6-percent Convertible Subordinated Debentures due 2002 (the 6-percent
debentures). The 6-percent debentures are convertible at the option of the
holder into Apache common stock at a price of $30.68 per share.
The 9.25-percent notes totaling $100 million were issued by Apache in May
1992 and are not redeemable prior to their maturity in June 2002. In December
1992, Apache issued the 3.93-percent convertible notes. The 3.93-percent notes
mature in November
F-15
53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, and are not redeemable prior to maturity; however, they are convertible
into Apache common stock at $27 per share, subject to adjustment under certain
circumstances.
The indentures for the 9.25-percent and 3.93-percent note issues impose
substantially similar obligations on the Company, including limits on the
Company's ability to incur debt secured by certain liens and on its ability to
enter into certain sale and leaseback transactions. Upon certain changes in
control of the Company, both issues are subject to mandatory repurchase (or
conversion at the option of the noteholders in the case of the 3.93-percent
notes).
Financial covenants of the $1 billion bank facility require the Company to
maintain a minimum consolidated tangible net worth of not less than $816
million at December 31, 1995. The minimum consolidated tangible net worth
requirement is adjusted quarterly for subsequent earnings and equity
transactions. The Company is also required to maintain a ratio of (i) earnings
before interest expense, state and federal taxes and depreciation, depletion
and amortization to (ii) consolidated interest expense of not less than 3.7:1.
The Company was in compliance with all financial covenants at December 31,
1995.
At December 31, 1995, the Company also had an aggregate borrowing capacity
of $40 million under certain uncommitted money market lines of credit which the
Company used from time to time for working capital purposes. As of December
31, 1995, an aggregate of $3 million was outstanding under such lines of
credit.
In connection with Apache's Canadian operations, Apache Canada Ltd., a
wholly-owned subsidiary of DEK, also had a $30 million U.S. revolving term
credit facility under which $27 million was outstanding at December 31, 1995.
The size of this facility was increased to $45 million in January 1996.
The DEKALB 10-percent and 9.875-percent notes mature on April 15, 1998 and
July 15, 2000, respectively. The 10 percent notes are currently redeemable at
par plus accrued interest.
During 1994, Apache amended and restated the debt agreement of AERC's
wholly-owned subsidiary, Apache Energy Limited (AEL, formerly known as Hadson
Energy Limited). The AEL Acceptance Facility is a separate credit facility
with the Bank of Montreal which provided funding for the construction of an
offshore gas gathering project. The borrowing base is $30 million, of which
$24.2 million was outstanding at December 31, 1995. The AEL credit facility is
not guaranteed by Apache.
A $35 million banking facility was established in 1992 by Apache on behalf
of Apache Offshore Investment Partnership. At December 31, 1995, the
commitment under this facility was $16.5 million, which is scheduled to reduce
by $1.5 million on a quarterly basis. The amount outstanding at year-end was
$8.6 million, of which Apache's share was $2.3 million.
As of December 31, 1995 and 1994, the Company had approximately $19.3
million and $12 million, respectively, of unamortized costs associated with
its various debt obligations. These costs are reflected as deferred charges on
the accompanying Consolidated Balance Sheet and are being amortized over the
life of the related debt.
On February 27, 1996, Apache completed its offering of $100 million
principal amount of unsecured 7.7-percent notes due March 15, 2026.
F-16
54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AGGREGATE MATURITIES OF DEBT
December 31, 1995
-----------------
(In thousands)
1996 . . . . . . . . . . . . . . . . . . . . . . $ 3,000
1997 . . . . . . . . . . . . . . . . . . . . . . 103,101
1998 . . . . . . . . . . . . . . . . . . . . . . 23,308
1999 . . . . . . . . . . . . . . . . . . . . . . 24,200
2000 . . . . . . . . . . . . . . . . . . . . . . 649,225
Thereafter . . . . . . . . . . . . . . . . . . . 272,242
-------------
$ 1,075,076
=============
5. INCOME TAXES
Income(loss) before income taxes is composed of the following:
For the Year Ended December 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
(In thousands)
United States . . . . . . . . . . . . . . . $ 28,155 $ 59,948 $ 74,279
International . . . . . . . . . . . . . . . 4,988 6,745 (11,550)
------------- ------------- -------------
Total . . . . . . . . . . . . . . . . . . $ 33,143 $ 66,693 $ 62,729
============= ============= =============
The total provision for income taxes consists of the following:
For the Year Ended December 31,
-----------------------------------------------
1995 1994 1993
------------- ------------- -------------
(In thousands)
Current taxes:
Federal . . . . . . . . . . . . . . . . $ (16,776) $ (3,890) $ 140
State . . . . . . . . . . . . . . . . . -- 100 50
Foreign . . . . . . . . . . . . . . . . 330 515 579
Deferred taxes . . . . . . . . . . . . . . . 29,382 24,385 20,539
------------- ------------- -------------
12,936 21,110 21,308
Cumulative effect of adoption of
SFAS No. 109 . . . . . . . . . . . . . . -- -- (5,334)
------------- ------------- -------------
$ 12,936 $ 21,110 $ 15,974
============= ============= =============
F-17
55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1993 provision for income taxes includes a $3.5 million charge for the
change in federal statutory rates from 34 percent to 35 percent enacted under
the Omnibus Budget Reconciliation Act (OBRA) of 1993. Effective January 1,
1993, the Company adopted SFAS No. 109, resulting in a one-time benefit of $5.3
million.
A reconciliation of the federal statutory income tax amounts to the
effective amounts is as follows:
For the Year Ended December 31,
---------------------------------------------
1995 1994 1993
------------ ------------ -----------
(In thousands)
Statutory income tax . . . . . . . . . . . . . . . $ 11,600 $ 23,343 $ 21,955
State income tax, less federal benefit . . . . . . 1,282 1,013 965
Taxation of foreign operations . . . . . . . . . . 135 1,486 969
Utilization of federal income tax credits . . . . -- (1,545) (2,133)
Increase in corporate income tax rate
provided for in OBRA . . . . . . . . . . . . . . -- -- 3,500
Increase in foreign corporate
income tax rates . . . . . . . . . . . . . . . . 1,757 -- --
DEKALB income tax benefit limitation
recorded (reversed) . . . . . . . . . . . . . . . (1,200) (2,499) (1,769)
All other, net . . . . . . . . . . . . . . . . . . (638) (688) (2,179)
------------ ------------ -----------
$ 12,936 $ 21,110 $ 21,308
============ ============ ===========
Deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities using the provisions of enacted tax laws.
The net deferred tax liability is comprised of the following:
December 31,
----------------------------------
1995 1994
--------------- ---------------
(In thousands)
Deferred tax assets:
Deferred income . . . . . . . . . . . . . . . . . . . . . . $ (2,410) $ (30,343)
Federal net operating loss carryforwards . . . . . . . . . (57,642) (27,448)
State net operating loss carryforwards . . . . . . . . . . (10,126) (5,660)
Alternative minimum tax credits . . . . . . . . . . . . . . (6,239) (20,792)
Accrued expenses and liabilities . . . . . . . . . . . . . (9,136) (7,628)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,787) (9,392)
--------------- ---------------
Total deferred tax assets . . . . . . . . . . . . . . . (95,340) (101,263)
Valuation allowance . . . . . . . . . . . . . . . . . . . . . 1,374 1,374
--------------- ---------------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . (93,966) (99,889)
--------------- ---------------
Deferred tax liabilities:
Depreciation, depletion and amortization . . . . . . . . . 271,020 243,171
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,521 7,934
--------------- ---------------
Total deferred tax liabilities . . . . . . . . . . . . . 275,541 251,105
--------------- ---------------
Deferred income tax liability . . . . . . . . . . . . . . . . $ 181,575 $ 151,216
=============== ===============
F-18
56
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. deferred taxes have not been provided on foreign earnings totaling $61
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, 1995, the Company has U.S. Federal net operating loss
carryforwards of $158.8 million and statutory depletion carryforwards of $7
million available to reduce future U.S. Federal taxable income. The net
operating loss carryforwards will expire unless otherwise utilized, beginning
in 1996. The statutory depletion may be carried forward indefinitely. The
Company has alternative minimum tax (AMT) credit carryforwards of $6.2 million
and investment tax credits of approximately $1.6 million. AMT credits can be
carried forward indefinitely and may only be used to reduce regular tax
liabilities in excess of AMT liabilities. If the investment tax credits are
not utilized, they will expire by 1996. The Company also has foreign net
operating loss carryforwards of $5.9 million and foreign capital loss
carryforwards of $6.3 million which may be carried forward indefinitely and may
be utilized to reduce future foreign taxable income. Management believes it is
more likely than not that the deferred tax assets, net of the valuation
allowance, will be realized.
6. ADVANCE FROM GAS PURCHASER
In December 1994, Apache received $67.4 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over
a six-year period commencing January 1995. As a condition of the arrangement
with the purchaser, Apache entered into a gas price swap contract with a third
party under which Apache became a fixed price payor at identical volumes and at
prices starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per
year through the year 2000. The net result of these related transactions is
that gas delivered to the purchaser will be reported as revenue at prevailing
spot prices in the future with Apache realizing a $.05 per MMBtu premium
associated with a monthly fee to be paid by the purchaser. The Company,
through its marketing subsidiaries, may purchase gas from third parties to
satisfy gas delivery requirements of this arrangement. Contracted volumes
relating to this arrangement are included in the Company's Supplemental Oil and
Gas Disclosures.
This payment has been classified as an advance on the balance sheet and is
being reduced as gas is delivered to the purchaser under the terms of the
contract. At December 31, 1995, $60.3 million was still outstanding. Gas
volumes delivered to the purchaser are reported as revenue at prices used to
calculate the amount advanced, before imputed interest, minus or plus amounts
paid or received by Apache applicable to the price swap agreement. Interest
expense is recorded based on a 9 1/2-percent rate.
F-19
57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL STOCK
COMMON STOCK OUTSTANDING
1995 1994 1993
---------- ---------- ----------
Balance, beginning of year . . . . . . . . . . . . 69,666,092 69,504,310 55,361,438
Treasury shares issued (acquired), net . . . . . . (959) 129,852 119,087
Treasury shares acquired and retired . . . . . . . -- (192,808) (6,302)
Shares issued:
DEKALB merger . . . . . . . . . . . . . . . . . 153,229 -- --
Public equity offerings . . . . . . . . . . . . 7,450,000 -- 5,795,000
Acquisition of AERC . . . . . . . . . . . . . . -- 2,974 305,003
Conversion of 7 1/2-percent debentures . . . . -- -- 7,816,453
Dividend reinvestment plan . . . . . . . . . . 26,809 13,789 --
Stock option plans 83,787 207,975 113,631
---------- ---------- ----------
Balance, end of year . . . . . . . . . . . . . . . 77,378,958 69,666,092 69,504,310
========== ========== ==========
Public Equity Offering -- In September 1995, Apache completed a public
offering of approximately 7.5 million shares of Apache common stock for net
proceeds of $195.5 million.
In March 1993, Apache completed a public offering of approximately 5.8
million shares of Apache common stock for net proceeds of $131.8 million.
Stock Option Plans -- At December 31, 1995, common shares totaling
3,376,070 were reserved for issuance under stock option plans for officers and
key employees. The outstanding options expire at various dates through 2004
and are exercisable at prices ranging from $2.3927 to $29.00 with an aggregate
exercise price of $29.1 million. The following table summarizes the changes in
stock options for each year and the number of common shares available for
option grants at year end:
1995 1994 1993
--------- --------- ---------
Outstanding, beginning of year . . . . . . . . . 1,340,048 1,178,505 1,173,158
Exercised ($2.3927 to $26.875) . . . . . . . . . (130,513) (207,975) (129,085)
Granted ($23.25 to $29.00) . . . . . . . . . . . 396,600 546,984 355,505
Canceled or expired ($8.432 to $27.25) . . . . . (387,768) (177,466) (221,073)
--------- --------- ---------
Outstanding, end of year . . . . . . . . . . . . 1,218,367 1,340,048 1,178,505
========= ========= =========
Available for grant, end of year . . . . . . . 2,157,703 815,191 1,241,460
========= ========= =========
Preferred Stock -- The Company has five million shares of no par preferred
stock authorized, of which 25,000 shares have been "designated" Series A Junior
Participating Preferred Stock and authorized for issuance pursuant to certain
rights that trade with Apache common stock. There are no shares of preferred
stock issued and outstanding; however, shares of preferred stock are reserved
for issuance upon the exercise of the preferred stock purchase rights discussed
below.
F-20
58
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rights to Purchase Preferred Stock -- In December 1995, the Company
declared a dividend of one right (a Right) for each outstanding share of Apache
common stock effective on January 31, 1996. Each Right entitles the registered
holder to purchase from the Company one ten-thousandth (1/10,000) of a share of
Series A Junior Participating Preferred Stock at a price of $100 per one
ten-thousandth of a share, subject to adjustment. The Rights are exercisable
10 calendar days following a public announcement that certain persons or groups
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. Unless and until the Rights
become exercisable, they will be transferred with and only with the shares of
Apache common stock. If the Company engages in certain business combinations
or a 20- percent shareholder engages in certain transactions with the Company,
the Rights become exercisable for Apache common stock or common stock of the
corporation acquiring the Company (as the case may be) at 50 percent of the
then-market price. Any Rights that are or were beneficially owned by a person
who has acquired 20 percent or more of the outstanding shares of Apache common
stock and who engages in certain transactions or realizes the benefits of
certain transactions with the Company will become void. The Company may redeem
the Rights at $.01 per Right at any time until 10 business days after public
announcement that a person has acquired 20 percent or more of the outstanding
shares of Apache common stock. The Rights will expire on January 31, 2006,
unless earlier redeemed by the Company. Unless the Rights have been previously
redeemed, all shares of Apache common stock issued by the Company will include
Rights.
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below.
In 1993, Apache acquired Hadson Energy Resources Corporation (now AERC) for
approximately $98 million in cash and Apache common stock. The accompanying
financial statements include the following attributable to the acquisition:
(In thousands)
Value of properties acquired, including gathering facilities . . . . . . . . . . . . . $ 159,996
Common stock issued (305,003 shares) . . . . . . . . . . . . . . . . . . . . . . (7,777)
Liability for AERC shares not surrendered as of December 31, 1993 . . . . . . . . (13,906)
Cash paid, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . (70,692)
---------------
Net AERC liabilities added through consolidation . . . . . . . . . . . . . . . . $ 67,621
===============
During the first quarter of 1994, the Company issued 2,974 shares of Apache
common stock and paid $13.9 million for AERC shares that had not been
surrendered by the end of 1993.
In September 1993, Apache called for redemption of its 7 1/2-percent
convertible subordinated debentures due 2000. Approximately 99 percent of the
holders of the debentures elected to convert the principal amount of their
debentures into shares of Apache common stock, with the balance electing to
receive cash ($.1 million).
(In thousands)
Long-term debt converted into common stock . . . . . . . . . . . . . . . . . . $ 149,900
Unamortized debt issue costs charged to equity . . . . . . . . . . . . . . . . (2,686)
---------------
Increase to shareholders' equity
(7.8 million shares of common stock issued) . . . . . . . . . . . . . . . . . $ 147,214
===============
F-21
59
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the Year Ended December 31,
----------------------------------------
1995 1994 1993
---------- ---------- ----------
(In thousands)
Cash paid (received) during the year for:
Interest, net of amounts capitalized . . . . . . . $ 64,365 $ 30,909 $ 35,336
Income and other taxes, net of refunds . . . . . . (15,225) 6,874 (86)
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, 1995 and 1994.
1995 1994
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- ----------
(In thousands)
Cash and cash equivalents . . . . . . . . . . $ 13,633 $ 13,633 $ 30,043 $ 30,043
Investment securities . . . . . . . . . . . . 5,620 6,084 7,242 7,422
Long-term debt:
Bank debt . . . . . . . . . . . . . . . . . (671,200) (671,200) (490,022) (490,022)
6-percent subordinated debentures . . . . . (172,500) (198,375) -- --
9.25-percent notes due 2002 . . . . . . . . (99,742) (113,750) (99,713) (100,213)
3.93-percent convertible notes due 1997 . . (75,000) (88,733) (75,000) (79,928)
9.875-percent notes due 2000 . . . . . . . (29,225) (33,217) (29,225) (29,079)
10-percent notes due 1998 . . . . . . . . . (22,100) (22,199) (22,100) (21,934)
Other debt . . . . . . . . . . . . . . . . . ( 5,309) ( 5,309) (3,073) (3,073)
Hedging financial instruments:
Interest rate swap . . . . . . . . . . . . -- (40) -- (181)
Foreign currency rate contracts . . . . . . -- 81 -- --
Commodity price swaps (1) . . . . . . . . . (9,326) (30,631) -- (1,190)
(1) Includes $(7.9) million in 1995 for fixed to floating price swaps where
there is an offsetting position with a physical contract. See Commodity
Price Hedges below.
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, 1995 and
1994.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Investment Securities -- The fair value of investments are based on quoted
market prices at year end.
Debt -- The fair value of the 9.25-percent notes was based on the quoted
market price for that issue, while the fair value of the 3.93-percent notes was
estimated based on quotes obtained from private investment firms. The fair
values of the 6-percent debentures and 9.875-percent and 10-percent notes are
based upon estimates provided to the Company by independent sources.
F-22
60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest Rate Instruments -- The Company periodically enters into various
financial instruments to manage its interest rate exposure. At December 31,
1995, the Company had one outstanding interest rate swap agreement with a
notional principal amount totaling $6 million. The notional amount reduces by
$2 million each quarter through July 1996, with interest fixed at 8.15 percent.
The fair value of the open interest rate swap was the estimated amount that the
Company would pay to terminate the swap agreement, taking into account current
interest rates and the credit worthiness of the swap counterparties.
Foreign Currency Rate Contracts -- The Company periodically enters into
forward foreign currency exchange contracts to reduce the impact of foreign
currency fluctuations on operating results. At December 31, 1995, Apache had
open forward contracts for $2.5 million of Australian dollars. The fair value
of these contracts was based on rates quoted from financial institutions.
Commodity Price Hedges -- The Company enters into certain commodity
derivative contracts to reduce the risk caused by fluctuations in the prices of
oil and natural gas. During the last three years, Apache has used swaps, puts
and fixed-price contracts to hedge its commodity prices. Apache's hedging
activities are primarily conducted with major investment and commercial banks
which the Company believes are minimal credit risks. The agreements call for
Apache to receive, or make, payments based upon the differential between a
fixed and a variable commodity price as specified in the contract. As a result
of these activities, Apache recognized net hedging losses in 1995 and 1993 of
$4.3 million and $.6 million, respectively, while recognizing a net gain of
$5.7 million in 1994. The 1995 net loss reflected a $9.3 million pre-tax
charge to earnings resulting from the loss of correlation of New York
Mercantile Exchange (NYMEX) prices from actual wellhead prices for certain
positions in January through March 1996 production, reported as a reduction of
other revenues; offset by $5 million of commodity pricing gains which increased
1995 oil and gas production revenues. The 1994 net hedging gain and 1993 net
hedging loss were recognized in oil and gas production revenues during each of
the respective years.
At December 31, 1995, Apache's Consolidated Balance Sheet included deferred
credits totaling $4.8 million for gains realized on the early termination of
commodity price hedges in 1995 and prior years. The hedging gains will be
recognized into oil and gas production revenues over periods ranging from one
to 60 months as the hedged production occurs.
F-23
61
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table and notes thereto cover the Company's pricing and
notional volumes on open natural gas commodity hedges as of December 31, 1995:
Production Periods
-----------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------- ------
NYMEX Based Swap Positions:
Receive fixed price (thousand MMBtu/d)(1) 162.1 -- -- -- --
Average swap price, per MMBtu(1) 1.89 -- -- -- --
Pay fixed price (thousand MMBtu/d)(2) 48.2 46.4 40.0 40.0 40.0
Average swap price, per MMBtu(2) 1.85 1.92 2.02 2.11 2.21
(1) The Company receives a payment in the event the swap price is above the
NYMEX settlement price and, conversely, makes a payment if the NYMEX
settlement price is greater than the swap price. To reduce its exposure to
a non- correlation of NYMEX prices and the cash markets for natural gas
during the first quarter of 1996, the Company entered into reverse swap
transactions. Volumes and pricing relating to the reverse swap positions,
which are not reflected in the above table, equated to 34.1 thousand
MMBtu/d with an average fixed swap price of $2.77 per MMBtu. The Company
will make payments if the swap prices are greater than NYMEX settlement
prices on these positions the first quarter of 1996.
(2) 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 $2.24 in 1996 to $2.78 in 2000. The fair value of these hedges
was a negative $7.9 million at December 31, 1995, with most of the negative
value related to the arrangement discussed in Note 6.
At December 31, 1995, the Company had price swaps in place for the year
1996 for 100,000 barrels of Australian crude oil production at an average TAPIS
crude oil price of $19.23 per barrel and for 532,500 barrels of its domestic
production at an average NYMEX price of $18.54 per barrel.
In connection with the purchase of MW in mid-1991, the Company and Amoco
Production Company (Amoco) entered into a hedging agreement. Under the terms
of this agreement, Apache would receive support payments in the event oil
prices fell below specified reference prices for any year during the two-year
period ended June 30, 1993, and Amoco will receive payments in the event oil
prices rose above specified reference prices for any year during the eight-year
period ending June 30, 1999, or in the event gas prices exceeded specified
reference prices for any year during the five-year period ending June 30, 1996.
In the event price sharing payments are due to Amoco, the volumes listed below
would be doubled until Amoco recovers its net payments to Apache ($5.8 million
through the contract year ended June 30, 1995) plus interest.
The notional volumes and the reference prices specified in the Amoco price
support agreement are summarized below:
Oil Gas
------------------ -----------------
Year Ended June 30: MMbbls Price Bcf Price
------------------- ------ ----- --- -----
1996 . . . . . . . . . . . 2.4 $27.80 10.5 $2.68
1997 . . . . . . . . . . . 2.0 29.48 -- --
1998 . . . . . . . . . . . 1.7 31.25 -- --
1999 . . . . . . . . . . . 1.4 33.12 -- --
Based on the Company's projection of oil and gas prices for the years
noted above, Apache will not be liable to Amoco for future price sharing
payments.
F-24
62
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, subject the lessee to liability
for pollution damages, require suspension or cessation of operations in
affected areas and impose restrictions on the injection of liquids into
subsurface aquifers that may contaminate ground water. Apache maintains
insurance coverage which it believes are customary in the industry, although it
is not fully insured against all environmental risks.
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 the property from the acquisition, or agree to assume liability for
remediation of the property. As of December 31, 1995, Apache had a reserve for
environmental remediation of approximately $8 million. The Company is not aware
of any environmental claims existing as of December 31, 1995, 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, The Congo, Egypt, China, Indonesia and the Ivory Coast.
In order to comply with the contracts and agreements granting these rights, the
Company, through various wholly owned subsidiaries, is committed to expend
approximately $81.8 million through 1998.
Retirement and Deferred Compensation Plans -- The Company provides a
retirement/401(k) savings plan and a non- qualified retirement/savings plan for
employees. These plans allow participating employees to elect to contribute up
to 10 percent of their salaries, with Apache making matching contributions up
to a maximum of six percent of each employee's salary. In addition, the
Company annually contributes a percentage of each participating employee's
compensation, as defined, to the plan. Vesting in the Company's contributions
occurs at the rate of 20 percent per year. Additionally, DEK maintains a
separate retirement plan. Total expenses under all plans were $7 million, $5.8
million and $5.6 million for 1995, 1994 and 1993, respectively. The unfunded
liability for all plans has been accrued in the Consolidated Balance Sheet.
Lease Commitments -- The Company has leases for office space and equipment
with varying expiration dates through 2007. Net rental expense was $5.2
million, $4.4 million and $5.0 million for 1995, 1994 and 1993, respectively.
F-25
63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1995, minimum rental commitments under long-term
operating leases and long-term pipeline transportation commitments, ranging
from 15 to 30 years, are as follows:
Net
Minimum Pipeline Net
Rental Sublease Rental Transportation Minimum
Commitments Rentals Commitments Commitments Commitments
------------ ---------- ------------ -------------- ------------
(In thousands)
1996 . . . . . . . $ 8,922 $ (1,539) $ 7,383 $ 3,926 $ 11,309
1997 . . . . . . . 7,545 (798) 6,747 3,187 9,934
1998 . . . . . . . 7,349 (228) 7,121 2,831 9,952
1999 . . . . . . . 7,089 (147) 6,942 2,813 9,755
2000 . . . . . . . 6,413 (147) 6,266 2,796 9,062
Thereafter . . . . 36,093 (86) 36,007 51,937 87,944
------------ ---------- ------------ ------------ ------------
$ 73,411 $ (2,945) $ 70,466 $ 67,490 $ 137,956
============ ========== ============ ============ ============
11. CUSTOMER INFORMATION
Major Purchasers -- Natural Gas Clearinghouse (NGC) was the principal
purchaser of Apache's spot market gas production from April 1990 through
September 30, 1995. On September 30, 1995, the Company's contract with NGC was
terminated, and Apache began marketing its own natural gas. Sales to NGC
accounted for 27 percent, 37 percent and 33 percent of the Company's oil and
gas revenues in 1995, 1994 and 1993, respectively. Sales to Amoco represented
11 percent of the Company's 1993 oil and gas revenues and were less than 10
percent for 1995 and 1994.
Apache will sell substantially all of its natural gas production to
ProEnergy upon commencement of full operations of ProEnergy (which is
anticipated to occur in the second quarter of 1996). As of December 31, 1995,
Apache, by agreement, owned a 57.91 percent interest in ProEnergy. Apache's
interest, however, will fluctuate as its throughput of natural gas varies.
Sales of natural gas by Apache to ProEnergy will be made at agreed index
prices, which indices are based generally upon prevailing spot market prices at
the relevant delivery points.
Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced
significant credit losses on such sales.
Sales of natural gas by Apache to ProEnergy will similarly be
uncollateralized. Apache and the other members of ProEnergy have agreed to fund
the reasonably anticipated future capital needs of ProEnergy. In addition,
ProEnergy announced on February 1, 1996, that it had executed a $150 million,
three-year revolving credit facility with a syndicate of banks to finance its
operations. ProEnergy will, however, be subject to the risks inherent in the
natural gas marketing industry.
F-26
64
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
The Company's operations are primarily related to natural gas and
crude oil exploration and production. Accordingly, such operations are
classified as one business segment. Financial information by geographic area
is presented below:
1995 1994 1993
------------ ------------ ------------
(In thousands)
Gross Operating Revenues:
United States . . . . . . . . . . . . . . . . . . . $ 682,432 $ 518,735 $ 450,517
Canada . . . . . . . . . . . . . . . . . . . . . . . 40,508 47,005 45,994
Other International . . . . . . . . . . . . . . . . 27,762 26,427 15,497
Equity in income of affiliates and gain
on sale of investment in affiliate . . . . . . . . . -- 459 624
------------ ------------ ------------
Total revenues . . . . . . . . . . . . . . . . . . . . . $ 750,702 $ 592,626 $ 512,632
============ ============ ============
Operating Income (Loss):
United States . . . . . . . . . . . . . . . . . . . $ 131,888 $ 119,764 $ 130,008
Canada . . . . . . . . . . . . . . . . . . . . . . . 11,077 20,748 18,385
Other International . . . . . . . . . . . . . . . . 7,267 (806) (18,982)
------------ ------------ ------------
Operating income . . . . . . . . . . . . . . . . . . . . 150,232 139,706 129,411
Equity in income of affiliates and gain on sale
of investment in affiliate . . . . . . . . . . . . . -- 459 624
Administrative, selling and other . . . . . . . . . . . . (36,552) (38,729) (36,629)
Merger costs . . . . . . . . . . . . . . . . . . . . . . (9,977) -- --
Financing costs . . . . . . . . . . . . . . . . . . . . . (70,560) (34,743) (30,677)
------------ ------------ ------------
Income before income taxes . . . . . . . . . . . . . . . $ 33,143 $ 66,693 $ 62,729
============ ============ ============
Identifiable Assets:
United States . . . . . . . . . . . . . . . . . . . $ 2,295,966 $ 1,717,058 $ 1,460,267
Canada . . . . . . . . . . . . . . . . . . . . . . . 216,216 196,589 187,574
Other International . . . . . . . . . . . . . . . . 169,268 122,980 111,362
------------ ------------ ------------
Total . . . . . . . . . . . . . . . . . $ 2,681,450 $ 2,036,627 $ 1,759,203
============ ============ ============
F-27
65
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
Oil and Gas Operations -- The following table sets forth revenue and
direct cost information relating to the Company's oil and gas exploration and
production activities. Apache has no long-term agreements to purchase oil or
gas production from foreign governments or authorities.
For the Year Ended December 31,
----------------------------------------------
1995 1994 1993
------------ ------------ ------------
(In thousands)
UNITED STATES
Oil and gas revenues . . . . . . . . . . . . . . . . . $ 586,711 $ 467,161 $ 421,845
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization . . . . . 262,689 222,935 170,128
Loss on disposal of assets . . . . . . . . . . . -- -- (513)
Lease operating . . . . . . . . . . . . . . . . . 161,631 107,361 102,830
Production taxes . . . . . . . . . . . . . . . . . 26,936 22,280 21,218
Income tax . . . . . . . . . . . . . . . . . . . . 50,118 44,821 50,215
------------ ------------ ------------
501,374 397,397 343,878
------------ ------------ ------------
Results of operations . . . . . . . . . . . . . . . . . $ 85,337 $ 69,764 $ 77,967
============ ============ ============
Amortization rate per boe . . . . . . . . . . . . . . . $ 5.54 $ 5.88 $ 5.61
============ ============ ============
CANADA
Oil and gas revenues . . . . . . . . . . . . . . . . . $ 38,831 $ 44,889 $ 44,506
------------ ------------- ------------
Operating costs:
Depreciation, depletion and amortization . . . . . 15,475 14,603 15,142
Lease operating . . . . . . . . . . . . . . . . . 12,911 11,654 12,467
Income tax . . . . . . . . . . . . . . . . . . . . 4,658 8,833 8,164
------------ ------------- ------------
33,044 35,090 35,773
------------ ------------- ------------
Results of operations . . . . . . . . . . . . . . . . . $ 5,787 $ 9,799 $ 8,733
============ ============ ============
Amortization rate per boe . . . . . . . . . . . . . . . $ 3.08 $ 3.34 $ 3.38
============ ============ ============
OTHER INTERNATIONAL
Oil and gas revenues . . . . . . . . . . . . . . . . . $ 27,602 $ 26,339 $ 15,497
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization . . . . . 10,225 11,754 7,214
Impairments . . . . . . . . . . . . . . . . . . . -- 7,300 23,200
Lease operating . . . . . . . . . . . . . . . . . 6,534 6,257 3,456
Production taxes . . . . . . . . . . . . . . . . . 1,957 1,922 609
Income tax (benefit) . . . . . . . . . . . . . . . 3,199 (295) (6,264)
------------ ------------ ------------
21,915 26,938 28,215
------------ ------------ ------------
Results of operations . . . . . . . . . . . . . . . . . $ 5,687 $ (599) $ (12,718)
============ ============ ============
Amortization rate per boe - recurring . . . . . . . . . $ 5.94 $ 7.15 $ 8.00
============ ============ ============
TOTAL
Oil and gas revenues . . . . . . . . . . . . . . . . . $ 653,144 $ 538,389 $ 481,848
------------ ------------ ------------
Operating costs:
Depreciation, depletion and amortization . . . . . 288,389 249,292 192,484
Impairments . . . . . . . . . . . . . . . . . . . -- 7,300 23,200
(Gain) loss on disposal of assets . . . . . . . . -- -- (513)
Lease operating . . . . . . . . . . . . . . . . . 181,076 125,272 118,753
Production taxes . . . . . . . . . . . . . . . . . 28,893 24,202 21,827
Income tax . . . . . . . . . . . . . . . . . . . . 57,975 53,359 52,115
------------ ------------ ------------
556,333 459,425 407,866
------------ ------------ ------------
Results of operations . . . . . . . . . . . . . . . . . $ 96,811 $ 78,964 $ 73,982
============ ============ ============
F-28
66
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, 1995, by the
year in which such costs were incurred:
1992 and
Total 1995 1994 1993 Prior
----------- ---------- ---------- ---------- ----------
(In thousands)
Leasehold and seismic . . . . . $ 241,138 $ 172,187 $ 29,956 $ 18,408 $ 20,587
Exploration and development . . 10,208 10,208 -- -- --
International . . . . . . . . . 84,496 57,739 16,765 8,810 1,182
----------- ---------- ---------- ---------- ----------
Total . . . . . . . . . . . . . $ 335,842 $ 240,134 $ 46,721 $ 27,218 $ 21,769
=========== =========== ========== ========== ==========
Capitalized Costs Incurred -- The following table sets forth the capitalized
costs incurred in oil and gas producing activities:
For the Year Ended December 31,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
(In thousands)
UNITED STATES
Acquisition of proved properties(1) . . . . . . . . $ 818,682 $ 179,972 $ 242,659
Acquisition of unproved properties . . . . . . . . 21,446 32,526 14,342
Exploration . . . . . . . . . . . . . . . . . . . 23,520 16,722 16,979
Development . . . . . . . . . . . . . . . . . . . 156,845 216,451 164,839
Capitalized interest . . . . . . . . . . . . . . . 14,619 4,889 4,764
Property sales . . . . . . . . . . . . . . . . . . (271,937) (5,854) (9,430)
----------- ----------- -----------
763,175 444,706 434,153
----------- ----------- -----------
CANADA
Acquisition of proved properties . . . . . . . . . 2,236 770 2,075
Acquisition of unproved properties . . . . . . . . 3,511 7,337 2,686
Exploration . . . . . . . . . . . . . . . . . . . 7,857 13,399 8,168
Development . . . . . . . . . . . . . . . . . . . . 15,105 19,714 6,532
Capitalized interest . . . . . . . . . . . . . . . 1,315 1,145 1,515
Property sales . . . . . . . . . . . . . . . . . . -- (13,671) (912)
----------- ----------- -----------
30,024 28,694 20,064
----------- ----------- -----------
OTHER INTERNATIONAL
Acquisition of proved properties(2) . . . . . . . . -- -- 81,942
Exploration . . . . . . . . . . . . . . . . . . . 55,897 30,089 18,006
Development . . . . . . . . . . . . . . . . . . . . 8,946 1,853 --
Capitalized interest . . . . . . . . . . . . . . . 3,107 -- --
----------- ----------- -----------
67,950 31,942 99,948
----------- ----------- -----------
TOTAL
Acquisition of proved properties . . . . . . . . . 820,918 180,742 326,676
Acquisition of unproved properties . . . . . . . . 24,957 39,863 17,028
Exploration . . . . . . . . . . . . . . . . . . . 87,274 60,210 43,153
Development . . . . . . . . . . . . . . . . . . . 180,896 238,018 171,371
Capitalized interest . . . . . . . . . . . . . . . 19,041 6,034 6,279
Property sales . . . . . . . . . . . . . . . . . . (271,937) (19,525) (10,342)
----------- ----------- -----------
$ 861,149 $ 505,342 $ 554,165
=========== =========== ===========
- ---------------------
(1) Acquisition of proved properties included unevaluated cost of $162.2
million, $12 million and $26.8 million for transactions completed in
1995, 1994 and 1993, respectively.
(2) International acquisitions in 1993 included $16.8 million of unevaluated
costs added through the merger of AERC.
F-29
67
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and related accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities:
December 31,
----------------------------------
1995 1994
--------------- --------------
(In thousands)
UNITED STATES
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,434,170 $ 2,810,670
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 251,347 111,672
--------------- --------------
3,685,517 2,922,342
Accumulated depreciation, depletion and amortization . . . . . . . . (1,700,228) (1,437,540)
--------------- --------------
1,985,289 1,484,802
--------------- --------------
CANADA
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 346,547 312,649
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 15,957 11,454
--------------- --------------
362,504 324,103
Accumulated depreciation, depletion and amortization . . . . . . . . (159,533) (139,555)
--------------- --------------
202,971 184,548
--------------- --------------
OTHER INTERNATIONAL
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 176,116 142,451
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 68,538 34,253
--------------- --------------
244,654 176,704
Accumulated depreciation, depletion and amortization . . . . . . . . (89,495) (79,270)
--------------- --------------
155,159 97,434
--------------- --------------
TOTAL
Proved properties . . . . . . . . . . . . . . . . . . . . . . . . . . 3,956,833 3,265,770
Unproved properties . . . . . . . . . . . . . . . . . . . . . . . . . 335,842 157,379
--------------- --------------
4,292,675 3,423,149
Accumulated depreciation, depletion and amortization . . . . . . . . (1,949,256) (1,656,365)
--------------- --------------
$ 2,343,419 $ 1,766,784
=============== ==============
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
certain international properties are subject to review by Ryder Scott Company
Petroleum Engineers, independent petroleum engineers. Other international
proved reserves, for all periods presented below, are located in Australia.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.
F-30
68
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Crude Oil, Condensate and Natural Gas Liquids
----------------------------------------------
(In thousands of barrels)
United Other
States Canada Int'l Total
------- ------ ------ -------
Total proved reserves:
Balance December 31, 1992 . . . . . . . . . . . . . . . 80,195 13,984 464 94,643
Extensions, discoveries and other additions . . . 10,885 397 -- 11,282
Purchases of minerals in-place . . . . . . . . . 9,871 188 5,095 15,154
Revisions of previous estimates . . . . . . . . . (3,215) (300) 1,125 (2,390)
Production . . . . . . . . . . . . . . . . . . . (12,096) (989) (684) (13,769)
Sales of properties . . . . . . . . . . . . . . . (1,917) (46) -- (1,963)
------- ------ ------ -------
Balance December 31, 1993 . . . . . . . . . . . . . . . 83,723 13,234 6,000 102,957
Extensions, discoveries and other additions . . . 9,669 690 349 10,708
Purchases of minerals in-place . . . . . . . . . 9,232 83 -- 9,315
Revisions of previous estimates . . . . . . . . . 5,347 (2,239) 273 3,381
Production . . . . . . . . . . . . . . . . . . . (12,418) (962) (1,159) (14,539)
Sales of properties . . . . . . . . . . . . . . . (1,108) (90) -- (1,198)
------- ------ ------ -------
Balance December 31, 1994 . . . . . . . . . . . . . . . 94,445 10,716 5,463 110,624
Extension, discoveries and other additions . . . 6,685 306 3,058 10,049
Purchases of minerals in-place . . . . . . . . . 99,148 119 -- 99,267
Revisions of previous estimates . . . . . . . . . 12,172 (388) 10 11,794
Production . . . . . . . . . . . . . . . . . . . (17,011) (937) (1,139) (19,087)
Sales of properties . . . . . . . . . . . . . . . (42,318) -- -- (42,318)
------- ------ ------ -------
Balance December 31, 1995 . . . . . . . . . . . . . . . 153,121 9,816 7,392 170,329
======= ====== ====== =======
Proved developed reserves:
December 31, 1992 . . . . . . . . . . . . . . . . . . . 72,596 13,972 464 87,032
December 31, 1993 . . . . . . . . . . . . . . . . . . . 74,288 13,221 5,113 92,622
December 31, 1994 . . . . . . . . . . . . . . . . . . . 84,085 10,612 5,322 100,019
December 31, 1995 . . . . . . . . . . . . . . . . . . . 123,726 9,597 4,141 137,464
Natural Gas
------------------------------------------------
(Millions of cubic feet)
United Other
States Canada Int'l Total
--------- ------- ------ ---------
Total proved reserves:
Balance December 31, 1992 . . . . . . . . . . . . . . . 643,299 276,343 -- 919,642
Extensions, discoveries and other additions . . . 119,210 19,094 -- 138,304
Purchases of minerals in-place . . . . . . . . . 174,115 4,405 33,343 211,863
Revisions of previous estimates . . . . . . . . . (7,335) 2,198 1,327 (3,810)
Production . . . . . . . . . . . . . . . . . . . (109,312) (20,969) (1,310) (131,591)
Sales of properties . . . . . . . . . . . . . . . (5,118) (3,660) -- (8,778)
--------- ------- ------ ---------
Balance December 31, 1993 . . . . . . . . . . . . . . . 814,859 277,411 33,360 1,125,630
Extensions, discoveries and other additions . . . 190,386 44,912 408 235,706
Purchases of minerals in-place . . . . . . . . . 158,309 2,710 -- 161,019
Revisions of previous estimates . . . . . . . . . (21,937) 6,880 1,114 (13,943)
Production . . . . . . . . . . . . . . . . . . . (152,994) (20,491) (2,911) (176,396)
Sales of properties . . . . . . . . . . . . . . . (4,335) (11,526) -- (15,861)
--------- ------- ------ ---------
Balance December 31, 1994 . . . . . . . . . . . . . . . 984,288 299,896 31,971 1,316,155
Extension, discoveries and other additions . . . 85,032 26,488 42,332 153,852
Purchases of minerals in-place . . . . . . . . . 335,865 4,662 -- 340,527
Revisions of previous estimates . . . . . . . . . 56,281 (18,141) 2,342 40,482
Production . . . . . . . . . . . . . . . . . . . (182,661) (24,485) (3,486) (210,632)
Sales of properties . . . . . . . . . . . . . . . (138,464) -- -- (138,464)
--------- ------- ------ ---------
Balance December 31, 1995 . . . . . . . . . . . . . . . 1,140,341 288,420 73,159 1,501,920
========= ======= ====== =========
Proved developed reserves:
December 31, 1992 . . . . . . . . . . . . . . . . . . . 585,424 263,305 -- 848,729
December 31, 1993 . . . . . . . . . . . . . . . . . . . 696,421 263,070 24,251 983,742
December 31, 1994 . . . . . . . . . . . . . . . . . . . 888,039 274,611 22,265 1,184,915
December 31, 1995 . . . . . . . . . . . . . . . . . . . 1,003,853 274,306 20,308 1,298,467
F-31
69
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future revenues are based on year-end prices
except in those instances where the sale of natural gas is covered by contract
terms providing for determinable escalations. Operating costs, production and
ad valorem taxes and future development costs are based on current costs with
no escalation.
The following table sets forth unaudited information concerning future net
cash flows for oil and gas reserves, net of income tax expense. Income tax
expense has been computed using expected future tax rates and giving effect to
permanent differences and credits which, under current laws, relate to oil and
gas producing activities. This information does not purport to present the
fair market value of the Company's oil and gas assets, but does present a
standardized disclosure concerning possible future net cash flows that would
result under the assumptions used.
December 31,
---------------------------------------------------------
1995 1994 1993
--------------- --------------- --------------
(In thousands)
UNITED STATES
Cash inflows . . . . . . . . . . . . . . . . $ 5,617,297 $ 3,401,300 $ 3,062,525
Production and development costs . . . . . . (2,126,984) (1,294,801) (1,085,205)
Income tax expense . . . . . . . . . . . . . (753,425) (376,932) (362,353)
--------------- --------------- --------------
Net cash flows . . . . . . . . . . . . . . . 2,736,888 1,729,567 1,614,967
10-percent annual discount rate . . . . . . . (1,105,629) (628,408) (550,887)
--------------- --------------- --------------
Discounted future net cash flows . . . . . . 1,631,259 1,101,159 1,064,080
--------------- --------------- --------------
CANADA
Cash inflows (1) . . . . . . . . . . . . . . 550,627 536,463 672,023
Production and development costs . . . . . . (186,388) (156,589) (155,238)
Income tax expense . . . . . . . . . . . . . (82,124) (91,740) (135,319)
--------------- --------------- --------------
Net cash flows . . . . . . . . . . . . . . . 282,115 288,134 381,466
10-percent annual discount rate . . . . . . . (124,835) (128,558) (179,046)
--------------- --------------- --------------
Discounted future net cash flows . . . . . . 157,280 159,576 202,420
--------------- --------------- --------------
OTHER INTERNATIONAL
Cash inflows . . . . . . . . . . . . . . . . 287,817 163,303 154,466
Production and development costs . . . . . . (99,345) (68,217) (57,281)
Income tax expense . . . . . . . . . . . . . (53,520) (27,910) (24,680)
--------------- --------------- --------------
Net cash flows . . . . . . . . . . . . . . . 134,952 67,176 72,505
10-percent annual discount rate . . . . . . . (53,932) (15,366) (21,209)
--------------- --------------- --------------
Discounted future net cash flows . . . . . . 81,020 51,810 51,296
--------------- --------------- --------------
TOTAL
Cash inflows . . . . . . . . . . . . . . . . 6,455,741 4,101,066 3,889,014
Production and development costs . . . . . . (2,412,717) (1,519,607) (1,297,724)
Income tax expense . . . . . . . . . . . . . (889,069) (496,582) (522,352)
--------------- --------------- --------------
Net cash flows . . . . . . . . . . . . . . . 3,153,955 2,084,877 2,068,938
10-percent annual discount rate . . . . . . . (1,284,396) (772,332) (751,142)
--------------- --------------- --------------
Discounted future net cash flows (2) . . . . $ 1,869,559 $ 1,312,545 $ 1,317,796
=============== =============== ==============
- ---------------
(1) Included in cash inflows is approximately $25.3 million, $25.7 million and
$39.4 million ($9.8 million, $9.8 million and $12.0 million after discount
at 10 percent per annum) for 1995, 1994 and 1993, respectively, of Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed.
(2) Estimated future net cash flows before income tax expense, discounted at 10
percent per annum, totaled approximately $2.34 billion, $1.60 billion and
$1.63 billion as of December 31, 1995, 1994 and 1993, respectively.
F-32
70
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,
----------------------------------------
1995 1994 1993
----------- ----------- ----------
(In thousands)
Sales, net of production costs . . . . . . . . . . . . . . . $ (443,175) $ (388,915) $ (341,268)
Net change in prices and production costs . . . . . . . . . . 201,723 (173,059) (25,742)
Discoveries and improved recovery, net of related costs . . . 210,151 211,358 227,500
Change in future development costs . . . . . . . . . . . . . 74,047 24,065 2,236
Revision of quantities . . . . . . . . . . . . . . . . . . . 127,939 13,167 (26,752)
Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . 726,240 165,273 352,918
Accretion of discount . . . . . . . . . . . . . . . . . . . . 160,093 159,302 124,599
Change in income taxes . . . . . . . . . . . . . . . . . . . (186,415) 16,517 (67,242)
Sales of properties . . . . . . . . . . . . . . . . . . . . . (232,629) (21,497) (7,698)
Change in production rates and other . . . . . . . . . . . . (80,960) (11,462) 47,372
----------- ----------- ----------
$ 557,014 $ (5,251) $ 285,923
=========== =========== ==========
Impact of Pricing -- The estimates of cash flows and reserve quantities
shown above are based on year-end oil and gas prices, except in those cases
where future gas sales are covered by contracts at specified prices. Estimates
of future liabilities and receivables applicable to oil and gas commodity
hedges are reflected in future cash flows from proved reserves with such
estimates based on prices in effect as of the date of the reserve report.
Fluctuations are largely due to supply and demand perceptions for natural gas
and volatility in oil prices.
Under SEC rules, companies that follow full cost accounting methods are
required to make quarterly "ceiling test" calculations. Under this test,
capitalized costs of oil and gas properties may not exceed the present value of
estimated future net revenues from proved reserves, discounted at 10 percent,
plus the lower of cost or fair market value of unproved properties, as adjusted
for related tax effects and deferred tax reserves. Application of these rules
during periods of relatively low oil and gas prices, even if of short-term
duration, may result in write-downs.
Many full cost companies, including Apache, are concerned about the impact
of prolonged unfavorable gas prices on their ceiling test calculations. A
deterioration of gas or oil prices from year-end levels could result in the
Company recording a non-cash charge to earnings related to its oil and gas
properties. SEC rules permit the exclusion of capitalized costs and present
value of recently acquired properties in performing ceiling test calculations.
Pursuant to these rules, Apache has requested waivers and the SEC has granted
two separate one-year waivers with respect to the properties acquired from
Texaco and Aquila. If the ceiling is exceeded on all U.S. properties, Apache
will be required to perform an additional ceiling test excluding the Texaco and
Aquila properties and record a write-down of carrying value if the ceiling is
still exceeded.
F-33
71
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
First Second Third Fourth Total
---------- --------- --------- ---------- ----------
(In thousands, except per share amounts)
1995
Revenues . . . . . . . . . . . . . . . . . . $ 167,718 $ 206,052 $ 181,247 $ 195,685 $ 750,702
Expenses, net . . . . . . . . . . . . . . . . 163,635 205,515 174,205 187,140 730,495
---------- --------- --------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . $ 4,083 $ 537 $ 7,042 $ 8,545 $ 20,207
========== ========= ========= ========== ==========
Net income per common share . . . . . . . . . $ .06 $ .01 $ .10 $ .11 $ .28
========== ========= ========= ========== ==========
1994
Revenues . . . . . . . . . . . . . . . . . . $ 132,721 $ 147,054 $ 152,971 $ 159,880 $ 592,626
Expenses, net . . . . . . . . . . . . . . . . 124,496 134,147 140,582 147,818 547,043
---------- --------- --------- ---------- ----------
Net income $ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
========== ========= ========= ========== ==========
Net income per common share . . . . . . . . . $ .12 $ .19 $ .18 $ .17 $ .65
========== ========= ========= ========== ==========
- ------------------
The sum of the individual quarterly earnings per share may not agree with
year-to-date earnings per share as each period's computation is based on the
weighted average number of common shares outstanding during that period.
F-34
72
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA -- (CONTINUED)
(UNAUDITED)
The 1994 quarterly data shown above was restated to combine the
operations of DEKALB with Apache in accordance with the "pooling of interests"
method of accounting. Additionally, as described in Note 2 to the consolidated
financial statements, conforming adjustments relative to DD&A and income taxes
were made along with certain reclassifications. A reconciliation of the
separate results, as previously reported in Apache's and DEKALB's 1994
quarterly reports on Form 10-Q, to the combined results is an follows:
First Second Third Fourth Total
---------- ---------- --------- --------- ---------
(In thousands, except per share amounts)
Revenues:
Apache . . . . . . . . . . . . . . . . . . . . $ 121,591 $ 134,947 $ 140,765 $ 148,318 $ 545,621
DEKALB . . . . . . . . . . . . . . . . . . . . 11,130 12,107 12,206 10,847 46,290
Reclassification to conform presentation . . . -- -- -- 715 715
---------- ---------- --------- --------- ---------
$ 132,721 $ 147,054 $ 152,971 $ 159,880 $ 592,626
========== ========== ========= ========= =========
Income from continuing operations:
Apache . . . . . . . . . . . . . . . . . . . . $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837
DEKALB . . . . . . . . . . . . . . . . . . . . 1,750 2,416 1,890 757 6,813
Conforming adjustments . . . . . . . . . . . . (2,932) 295 (75) (1,355) (4,067)
---------- ---------- --------- --------- ---------
$ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
========== ========== ========= ========= =========
Net income:
Apache . . . . . . . . . . . . . . . . . . . . $ 9,407 $ 10,196 $ 10,574 $ 12,660 $ 42,837
DEKALB . . . . . . . . . . . . . . . . . . . . 1,750 2,416 1,890 757 6,813
Conforming adjustments . . . . . . . . . . . . (2,932) 295 (75) (1,355) (4,067)
---------- ---------- --------- --------- ---------
$ 8,225 $ 12,907 $ 12,389 $ 12,062 $ 45,583
========== ========== ========= ========= =========
Income per common share from
continuing operations:
Apache . . . . . . . . . . . . . . . . . . . . $ .15 $ .17 $ .17 $ .21 $ .70
---------- ---------- --------- --------- ---------
DEKALB . . . . . . . . . . . . . . . . . . . . $ .18 $ .25 $ .20 $ .08 $ .71
---------- ---------- --------- --------- ---------
As combined . . . . . . . . . . . . . . . . . $ .16 $ .19 $ .18 $ .19 $ .71
Conforming adjustments . . . . . . . . . . . . (.04) -- -- (.02) (.06)
---------- ---------- --------- --------- ---------
$ .12 $ .19 $ .18 $ .17 $ .65
========== ========== ========= ========= =========
Net income per common share:
Apache . . . . . . . . . . . . . . . . . . . . $ .15 $ .17 $ .17 $ .21 $ .70
---------- ---------- --------- --------- ---------
DEKALB . . . . . . . . . . . . . . . . . . . . $ .18 $ .25 $ .20 $ .08 $ .71
---------- ---------- --------- --------- ---------
As combined . . . . . . . . . . . . . . . . . $ .16 $ .19 $ .18 $ .19 $ .71
Conforming adjustments . . . . . . . . . . . . (.04) -- -- (.02) (.06)
---------- ---------- --------- --------- ---------
$ .12 $ .19 $ .18 $ .17 $ .65
========== ========== ========= ========= =========
F-35
73
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
3.2 -- Certificate of Ownership and Merger Merging Apache Energy Resources Corporation into Registrant,
effective December 31, 1995, as filed with the Secretary of State of Delaware on December 21,
1995.
3.3 -- Certificate of Designations, Preferences and Rights of Series A Junior Participating Preferred
Stock of Registrant, effective January 31, 1996, as filed with the Secretary of State of Delaware
on January 22, 1996.
3.4 -- Bylaws of Registrant, dated as of February 9, 1996.
4.1 -- Form of Registrant's common stock certificate.
10.5 -- Third Amendment to Third Amended and Restated Credit Agreement, dated December 18, 1995, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.6 -- Fourth Amendment to Third Amended and Restated Credit Agreement, dated December 22, 1995, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.7 -- Fifth Amendment to Third Amended and Restated Credit Agreement, dated January 22, 1996, among
Registrant, the lenders named therein, and the First National Bank of Chicago, as Administrative
Agent and Arranger, and Chemical Bank, as Co-Agent and Arranger.
10.14 -- Amendments to the Apache Corporation Retirement/401(k) Savings Plan, effective May 4, 1995 and
May 17, 1995.
10.15 -- Non-Qualified Retirement/Savings Plan of Apache Corporation, dated November 16, 1989 .
10.16 -- First Amendment to the Non-Qualified Retirement/Savings Plan of Apache Corporation, dated October
24, 1995.
10.19 -- Apache Corporation 1990 Stock Incentive Plan, as amended and restated February 9, 1996.
10.20 -- Apache Corporation 1995 Stock Option Plan, as amended and restated February 9, 1996.
10.28 -- Member Gas Pruchase Agreement, dated March 1, 1996, by and among Apache Gathering Company, Apache
Corporation, MW Petroleum Corporation, DEK Energy Company, Apache Transmission Corporation-Texas
and Apache Marketing, Inc., as seller, and Producers Energy Marketing, LLC, as buyer.
11.1 -- Statement regarding computation of earnings per share of Registrant's common stock for the year
ended December 31, 1995.
21.1 -- Subsidiaries of Registrant
23.1 -- Consent of Arthur Andersen LLP
23.2 -- Consent of Coopers & Lybrand
23.3 -- Consent of Ryder Scott Company Petroleum Engineers
27.1 -- Financial Data Schedule