APACHE CORP - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001,
OR

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

COMMISSION FILE NUMBER 1-4300

APACHE CORPORATION
A DELAWARE CORPORATION IRS EMPLOYER NO. 41-0747868

ONE POST OAK CENTRAL
2000 POST OAK BOULEVARD, SUITE 100
HOUSTON, TEXAS 77056-4400
TELEPHONE NUMBER (713) 296-6000

Securities Registered Pursuant to Section 12(b) of the Act:

Securities registered Pursuant to Section 12(g) of the Act: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No[ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 28, 2002...... $7,239,122,196
Number of shares of registrant's common stock outstanding as
of February 28, 2002...................................... 137,234,544

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 2002
annual meeting of stockholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS

DESCRIPTION

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), billion cubic feet (Bcf) or trillion cubic feet (Tcf). Oil is
quantified in terms of barrels (bbls); thousands of barrels (Mbbls) and millions
of barrels (MMbbls). Natural gas is compared to oil in terms of barrels of oil
equivalent (boe) or million barrels of oil equivalent (MMboe). Oil and natural
gas liquids are compared with natural gas in terms of million cubic feet
equivalent (MMcfe) and billion cubic feet equivalent (Bcfe). One barrel of oil
is the energy equivalent of six Mcf of natural gas. Daily oil and gas production
is expressed in terms of barrels of oil per day (b/d) and thousands or millions
of cubic feet of gas per day (Mcf/d and MMcf/d, respectively) or millions of
British thermal units per day (MMBtu/d). Gas sales volumes may be expressed in
terms of one million British thermal units (MMBtu), which is approximately,
equal to one Mcf. With respect to information relating to our working interest
in wells or acreage, "net" oil and gas wells or acreage is determined by
multiplying gross wells or acreage by our working interest therein. Unless
otherwise specified, all references to wells and acres are gross.

PART I

ITEM 1. BUSINESS

GENERAL

Apache Corporation, a Delaware corporation formed in 1954, is an
independent energy company that explores for, develops and produces natural gas,
crude oil and natural gas liquids. In North America, our exploration and
production interests are focused in the Gulf of Mexico, the Gulf Coast, the
Permian Basin, the Anadarko Basin and the Western Sedimentary Basin of Canada.
Outside of North America we have exploration and production interests offshore
Western Australia, Egypt and Argentina, and exploration interests in Poland and
offshore The People's Republic of China. Our common stock, par value $1.25 per
share, has been listed on the New York Stock Exchange since 1969, and on the
Chicago Stock Exchange since 1960.

We hold interests in many of our U.S., Canadian and international
properties through operating subsidiaries, such as Apache Canada Ltd., DEK
Energy Company (DEKALB), Apache Energy Limited (AEL), Apache International,
Inc., and Apache Overseas, Inc. Properties referred to in this document may be
held by those subsidiaries. We treat all operations as one line of business.

2001 RESULTS

Despite the turmoil in the economy, financial markets and the energy
industry, Apache ended the year larger, stronger and in a better position to
continue to meet the challenges of the future. Although commodity prices
weakened through the year, Apache's rising production profile fueled record
income attributable to common stock of $704 million on total revenues of $2.8
billion. Net cash provided by operating activities during 2001 was $1.9 billion,
a 27 percent increase from 2000.

In addition to our financial records, Apache turned in another record year
on many operational fronts. We enjoyed our 24th consecutive year of production
growth (up 32 percent), the largest year-over-year percentage increase in a
decade. Our average daily production for the year was 156.3 Mbbls of oil and
natural gas liquids and 1,127.3 MMcf of natural gas. For the first time, more
than half of Apache's production was derived from operations outside of the
United States - the result of our decision over a decade ago to begin allocating
a portion of our cash flow to international growth.

Production and reserve growth were the result of our strategy to take a
disciplined approach to controlling costs and growing through the most efficient
method given prevailing market conditions. As a result, during 2001 Apache grew
through a combination of successful exploitation of our existing asset base,
exploration activities and prudent acquisitions in core areas worldwide. All
told, Apache spent approximately $2.6 billion on acquisitions, exploration and
development, replacing 314 percent of production at a competitive all-in finding
and acquisition cost. Reserves per share (diluted), an important measure of the
company's strength, increased 16 percent to 8.77 boe per share.

Our balance sheet remained strong despite record capital spending. We
exited the year with debt (including preferred interests of subsidiaries and net
of cash and cash equivalents and short-term investments) at 37 percent of total
capitalization, even with year-end 2000. We also maintained a senior unsecured
long-term debt rating of A3 from Moody's, and A- from Standard and Poor's and
Fitch rating agencies.

Per share results have been adjusted for the 10 percent common stock
dividend declared on September 13, 2001, and paid on January 21, 2002 to our
shareholders of record on December 31, 2001. The stock dividend - as well as an
increase in the quarterly dividend from six cents per common share (seven cents
prior to the 10 percent stock dividend) to 10 cents per share - reflected the
judgment of the board of directors that shareholders should participate more
fully in Apache's progress.

1

OUR GROWTH STRATEGY

Our growth strategy is to increase reserves, production, cash flow and
earnings through a balanced growth program that involves exploiting our existing
asset base, acquiring properties to which we can add value, and investing in
high-potential exploration prospects. In order to maximize financial flexibility
during a period of highly volatile natural gas prices coupled with a faltering
U.S. economy, Apache's present plans are to reduce 2002 worldwide capital
expenditures for exploratory and development drilling to approximately $590
million, down from the $1.4 billion we spent in 2001. Any excess cash flow will
be used to reduce debt until such time as we elect either to increase drilling
expenditures should the commodity price environment improve, or to pursue
acquisition opportunities should they become available at reasonable prices.

For our existing assets, we seek to maximize value by increasing production
and reserves while controlling per unit operating costs. Achieving these
objectives requires rigorous pursuit of production enhancement opportunities and
moderate risk drilling, while divesting marginal and non-strategic properties
and pursuing other activities to reduce costs. Given the significant
acquisitions completed over the past two years, our inventory of exploitation
opportunities has never been larger. During 2001, our drilling and production-
enhancement program yielded 828 new gross producing wells out of 939 attempts
and involved 1,350 major North American workover and recompletion projects.

In acquiring new assets, we avoid competitive auctions, choosing instead to
pay appropriate market prices in negotiated deals where we have a higher
likelihood of completing transactions. Our aim is to follow each acquisition
with a cycle of reserve enhancement, property consolidation and cash flow
acceleration, facilitating asset growth and debt reduction. We made acquisitions
totaling $1.2 billion and $1.4 billion in 2001 and 2000, respectively. Recently,
exorbitant acquisition prices have caused Apache to sideline its acquisition
activities until appropriate opportunities arise at more reasonable prices.

Our international exploration activities are an integral and growing
component of our long-term growth strategy. They complement our North American
operations, which are more development oriented. We seek to concentrate our
exploratory investments in a select number of international areas and to become
a dominant operator in those areas. We believe that these investments, although
higher-risk, offer potential for attractive investment returns and significant
reserve additions.

We prefer to operate our properties so that we can best influence their
development. As a result, we operate properties accounting for over 85 percent
of our production.

REVIEW OF COMPANY'S WORLDWIDE OPERATING AREAS

Our portfolio approach provides diversity in terms of hydrocarbon mix (oil
or gas), geologic risk and geographic location. In each of our core producing
areas, we have built teams that have the technical knowledge, sense of urgency
and the desire to wring more out of Apache's assets. Our local expertise also
provides an advantage when acquisition opportunities arise in our core areas.

We currently have interests in seven countries; the United States, Canada,
Egypt, Australia, China, Poland and Argentina. In the U.S., our exploration and
production activities were diversified among three regions: Offshore,
Midcontinent and Southern. In 2002, we consolidated our three U.S. regions into
two regions, Central and Gulf Coast. The new Central region will include the
properties in our Midcontinent region and our interests in the Permian Basin.
The Gulf Coast region will include our onshore Gulf Coast and Gulf of Mexico
properties. Outside the U.S., our exploration and production activities are
focused primarily in Canada, Egypt and Australia. Additionally, we have a
development project underway in China that is expected to commence production in
2003, and have a small production interest in Argentina as a result of
acquisition activity in 2001. We also own exploration acreage in Poland.

2

The table below sets out a brief comparative summary of certain 2001 data
for our core geographic areas. More detailed information regarding the natural
gas, oil, and natural gas liquids (NGLs) production and average prices received
in 2001, 2000 and 1999 for the core geographic areas is available in
Management's Discussion and Analysis of Financial Condition and Results of
Operations in Item 7 of this Form 10-K. In addition, information concerning the
amount of revenue, expenses, operating income (loss) and total assets
attributable to each of the same geographic areas is set forth in Note 15,
Supplemental Oil and Gas Disclosures (Unaudited), and Note 14, Business Segment
Information, both under Item 14 of this Form 10-K.

United States

In the U.S. we had our most active drilling year ever. We completed 369 out
of 419 total wells and replaced 134 percent of our production through drilling.
Our continuing goal is to drill quality prospects in and around our large
domestic reserve and production bases, albeit at an expected slower pace in
2002.

Offshore -- The Offshore region comprises our interests in the Gulf of
Mexico, primarily in the areas offshore Louisiana and Texas. In 2001, the
Offshore region was our leading region for production volumes and revenues. The
Company performed 135 workover and recompletion operations during 2001 in the
Offshore region and completed 47 out of 57 total wells drilled. As of year end
2001, Offshore accounted for 14.8 percent of our estimated proved reserves. In
2002, we currently plan on spending approximately $100 million to drill 17 wells
and to continue our production enhancement program.

Southern -- The Southern region includes assets in the Permian Basin of
western Texas and New Mexico, the San Juan Basin of New Mexico, central Texas
and the Texas and Louisiana coasts. At year-end 2001, the Southern region
accounted for 24 percent of our estimated proved reserves, the second largest in
the company. During 2001, we participated in 230 wells, 210 of which were
completed as productive wells, replacing 225 percent of our production. Apache
performed 695 workovers and recompletions in the region during the year. In
2002, we currently plan to spend approximately $60 million drilling 135 wells
and on our production enhancement programs.

MidContinent -- The Midcontinent region operates in Oklahoma, eastern and
northern Texas, Arkansas and northern Louisiana. The region has focused on its
sizable position in the Anadarko Basin of western Oklahoma. Apache has drilled
and operated in the Anadarko Basin for over four decades, developing an
extensive database of geologic information and a substantial acreage position.
The region accounted for

3

8.6 percent of our estimated proved reserves at year-end. Apache participated in
132 wells during the year, 112 of them were producers. We also performed 65
workover and recompletion operations in the region during 2001. We currently
plan to spend approximately $40 million on an estimated 44 wells and production
exploitation programs in 2002.

Marketing -- In July 1998, we entered into a gas purchase agreement with
Cinergy Marketing and Trading, LLC (Cinergy) to market most of our U.S. natural
gas production for a ten year period, with an option by both parties, after
prior notice, to terminate after six years, and agreed to work with Cinergy to
develop terms for the marketing of most of our Canadian gas production. In
December 1998, however, Apache and Cinergy agreed to postpone the negotiation of
Canadian gas sales terms. During the period of the gas purchase agreement, we
are generally obligated to deliver most of our domestic gas production to
Cinergy and, under certain circumstances, may have to make payments to Cinergy
if certain gas throughput thresholds are not met. All throughput thresholds have
been met. The prices received for its gas production under this agreement
approximate market prices. Disputes have arisen between Cinergy and Apache
concerning various matters, including Cinergy's claim to market our Canadian gas
production. As a result, in September 2001, Cinergy commenced an arbitration
proceeding seeking, among other things, specific performance to require us to
sell our Canadian gas production to Cinergy or pay damages. We are disputing
Cinergy's assertions (including their claim to market our Canadian production),
filing a general denial and counterclaim against Cinergy for amounts arising
from, among other things, a recent audit. We do not believe the arbitration
outcome will be material to our financial position or results of operations. We
continue to market most of our U.S. gas production through Cinergy.

We used long-term, fixed-price physical contracts to lock in a portion of
our domestic future natural gas production at a fixed price. These contracts
represented approximately 11 percent of our 2001 domestic natural gas
production. The contracts provide protection to the Company in the event of
decreasing natural gas prices.

We market our own U.S. crude oil with most of our U.S. production sold
through lease-level marketing to refiners, traders and transporters. Contracts
are generally less than 30 days and renew automatically until canceled. The oil
contracts provide for sales at specified prices, or at prices that are subject
to change due to market conditions.

Canada

Our exploration and development activity in the Canadian region is
concentrated in the Provinces of Alberta, British Columbia and Saskatchewan. The
region comprises 28 percent of our estimated proved reserves, the largest in the
Company. We hold over 3 million net acres in Canada, the largest of the North
American regions and second largest in the Company.

2001 -- In March, we completed the acquisition of subsidiaries of Fletcher
Challenge Energy (Fletcher) which included properties located primarily in
Canada's Western Sedimentary Basin with estimated proved reserves of 120.8 MMboe
as of the acquisition date. We assumed a $103 million liability representing the
fair value of derivative instruments and fixed-price commodity contracts entered
into by Fletcher.

Canada was also our most active region for drilling, with Apache
participating in 447 gross wells, 416 of which were completed as producers. We
also conducted 455 workover and recompletion projects. In fact, we drilled more
wells in Canada in 2001 than we had in all previous years since we entered
Canada. We replaced 242 percent of our Canadian production through drilling and
680 percent of our production from all sources.

2002 -- We currently plan to spend approximately $150 million to drill 39
exploratory and appraisal wells, continue exploitation of properties from our
significant acquisitions over recent years and continue development of our gas
processing infrastructure. At our important Ladyfern development, Apache's share
of production was approximately 100 MMcf per day at the end of 2001, and we
expect further gains in 2002.

Marketing -- Our Canadian natural gas sales include sales to supply
aggregators, to whom we dedicate reserves, and direct sales to brokers and
end-users in the United States and Canada. With the expansion of export capacity
out of Canada in recent years, Canadian prices have strengthened and become
highly
4

correlated to United States domestic prices. To diversify our market exposure,
we transport natural gas via our firm transportation contracts to California (12
MMcf/d), the Chicago area (40 MMcf/d), and Eastern Canada (6 MMcf/d). Pursuant
to an agreement entered into in 1994, we are also selling 5 MMcf/d of natural
gas to the Hermiston Cogeneration Project, located in the Pacific Northwest of
the United States. In 1996, we entered an agreement to sell 5,000 MMbtu/d into
Michigan over a 10-year term. The prices we receive under these contracts are
generally based on market indices.

Oil produced from our Canadian properties is sold to crude oil purchasers
or refiners at market prices, which depend on worldwide crude prices adjusted
for transportation and crude quality.

Egypt

In Egypt, our operations are generally conducted pursuant to production
sharing contracts under which we and our non-governmental co-venturers pay all
operating and capital costs for exploring and developing the concessions. A
percentage of the production, usually up to 40 percent, is available to us and
our co-venturers to recover all our operating and capital costs. The balance of
the production is split with our co-venturers and the Egyptian General Petroleum
Corporation (EGPC) on a contractually defined basis. Apache is the largest
leaseholder in Egypt and the most active driller in the Western Desert. It is
the country with our largest single acreage position and, as of December 31,
2001, we held over 9 million net acres. Total exploratory acreage encompasses 14
concessions (13 operated). Apache is the largest producer of liquid hydrocarbons
and the second largest producer of natural gas in the Western Desert. Apache
operates 10 percent of Egypt's daily oil and gas output.

2001 -- Egypt accounted for 17 percent of our production revenues on 16
percent of our production for the year and accounted for 12.4 percent of our
total estimated proved reserves at December 31, 2001.

The big news in Egypt in 2001 was that we completed two significant
acquisitions. The first was the purchase of approximately 66 MMboe of estimated
proved reserves from Repsol YPF (Repsol), with the main asset in the package
being an additional 50 percent interest and operatorship of the Khalda
concession. This purchase added net production of approximately 60 MMcf/d and
14,000 Bbls/d. Additionally, in November, we completed the acquisition of Novus
Bukha Limited's (Novus) oil and gas concession interests in three Western Desert
concessions including Khalda, where we now own a 100 percent interest. The
acquisition included estimated proved reserves of approximately 11.7 MMboe as of
the acquisition date.

On the exploration front, we had an active drilling year in Egypt,
completing 30 of 43 wells, a success rate of nearly 70 percent, and replacing
129 percent of production through drilling additions. Our drilling finding cost
in Egypt was $4.92/boe. At the Northeast Abu Gharadig Concession in the Western
Desert, the JG-1X, which is operated by Shell Egypt, tested approximately 4,190
b/d and 5 MMcf/d and should be producing in the first half of 2002. Apache has a
48 percent contractor interest in the 2.4-million-acre concession. Apache and
Shell Egypt have identified several potential offset locations. At West
Mediterranean, we developed a gas condensate field onshore, the Akik, which was
discovered in 2000 and is currently producing approximately 8 MMcf/d and 1,400
barrels of condensate per day. In addition to the Akik, we have oil production
of 2,500 Bbls/d in the onshore West Mediterranean area.

2002 -- We made two noteworthy discoveries in Egypt early in 2002 at Khalda
Offset and the South Umbarka development lease. At Khalda Offset, the Ozoris-1X
discovery tested approximately 2,500 b/d. It is six miles from the Khalda Ridge,
a regional high that runs through the area and has estimated reserves of over
200 MMboe discovered to date. We are actively searching for additional
opportunities between Ozoris and the Ridge. At South Umbarka, in which Apache
holds a 100 percent contractor interest, the Khepri 9 discovery tested
approximately 29.5 MMcf/d and 220 barrels of liquids per day. In Egypt, we
currently plan to spend approximately $53 million to drill 29 exploration and
appraisal wells on nine concessions and 27 development wells, primarily in the
Khalda complex. We are also preparing to drill Apache's first deepwater well in
the offshore portion of our West Mediterranean concession. We plan to spend
another estimated $69 million on production enhancements and production
facilities during 2002.

5

Marketing -- In 1996, we and our partners in the Khalda Block in Egypt
entered into a take-or-pay contract with EGPC, which obligates EGPC to pay for
75 percent of 200 MMcf/d of future production of gas from the Khalda Block.
Sales of gas under the contract began in 1999 upon completion of a gas pipeline
from the Khalda Block. In late 1997, the same sellers entered into a supplement
to the contract with EGPC to sell an additional 50 MMcf/d. The Repsol
acquisition discussed above transferred operatorship of the Khalda gas
processing plants at Salam and Tarek to us. Gas sales from the contract are
based on a price that is the energy equivalent of 85 percent of the price of
Suez Blend crude oil, FOB Mediterranean port. In 2000, EGPC reduced the price
for certain quantities of gas purchased from other producers. This "Industry
Pricing" is a sliding scale based on Dated Brent crude oil with a minimum of
$1.50 per MMbtu and a maximum of $2.65 per MMbtu. These latest agreements do not
impact any of our existing gas sales contracts; however, new gas sales contracts
may be impacted.

In Egypt, oil from the Qarun concession and other nearby Western Desert
blocks is delivered by pipeline to tanks at the Dashour tank farm northeast of
the Qarun Block. At the discretion of Arab Petroleum Pipeline Company, the
operator of the SUMED pipelines, oil from the Qarun Block is pumped into the
42-inch diameter pipelines, which transport significant quantities of Egyptian
and other crude oil from the Gulf of Suez to Sidi Kherir on the Mediterranean
Coast. Alternatively, oil can be transported via pipeline owned by Petroleum
Pipeline Company (PPC) to the Mostorad Refinery south of Cairo. In Egypt, all
our oil production is sold to EGPC on a spot basis at a "Western Desert" price
(indexed to Brent Crude Oil), which is applied to virtually all production from
the area. We have the right to export our Egyptian crude oil production;
however, EGPC has first call on the purchase of our Egyptian crude oil and has
exercised this right. We expect EGPC to continue to exercise its call right for
the foreseeable future. Deteriorating economic conditions during 2001 in Egypt
have lessened the availability of U.S. dollars, resulting in a gradual decline
in timeliness of receipts from EGPC.

Australia

In 2001, we produced 15.7 MMboe in Australia (13 percent of our total)
generating $258 million of production revenues. Estimated proved reserves in
Australia were 12.2 percent of our year-end total. We had a very strong
exploration year in Australia, with discoveries at Simpson, Gibson and South
Plato in the first quarter of the year. Production from the Simpson oil field
was brought on line in November and the Gibson and South Plato developments are
expected to begin around mid-2002 at an estimated rate of 10,000 barrels of oil
per day. In total, we completed 12 out of the 24 wells we drilled at a finding
cost of $5.16 per boe. On the development side, we had three discoveries begin
producing in 2001. The Gypsy/North Gypsy (68.5 percent interest) field began
producing late in the first quarter while the Legendre field (31.5 percent
interest) began producing in mid-May. As discussed above, oil production from
the Simpson field (68.5 percent interest) commenced in November of 2001.

In February, 2002, we announced our fourth commercial discovery in the past
12 months in the Carnarvon Basin offshore Western Australia. Apache owns a 68.5
percent working interest in the Double Island discovery and engineering efforts
are underway for the purpose of completing the development in late 2002. For
2002, in Australia, we have budgeted expenditures of approximately $71 million
for 19 exploration wells, three development wells and various production
development and enhancement projects.

Marketing -- In Australia we entered into three gas sales contracts during
2001, bringing our total to 23 contracts. In total, AEL committed a further 26
Bcf for delivery over the next three to 10 years. Our total Australian delivery
rates are expected to average approximately 110 MMcf/d in 2002, excluding spot
sales. As a result of minimum price contracts which escalate at an average of 80
percent of the Australian consumer price index, AEL's natural gas production in
Western Australia is not as subject to price volatility as is our U.S. and
Canadian gas production.

6

Other International

We also have exploration interests offshore China and in Poland and
exploration and production interests in Argentina.

We are the operator, with a 24.5 percent interest, of the Zhao Dong Block
in Bohai Bay, offshore China. In 1994 and 1995, discovery wells tested at rates
between 1,300 and 4,000 b/d of oil. In early 1997, one well tested at rates up
to 11,571 b/d of oil and another tested at rates up to 15,359 b/d. An overall
development plan for the C and D Fields in the Zhao Dong Block was approved by
Chinese authorities in December 2000. During 2001, work commenced with the
awarding of contracts for development drilling and the construction of
production facilities in accordance with the approved overall development plan.
First production is expected in 2003.

We obtained our first acreage position in Poland in 1997, when we assumed
operatorship and a 50 percent interest in over 5.5 million gross acres in Poland
from FX Energy, Inc. At year-end 2001, we had 735,762 net undeveloped acres in
Poland. In 2002, we will continue our efforts to reach agreement with the Polish
Oil and Gas Company to explore more prospective acreage with them and/or buy
producing or proved undeveloped assets. We will also continue engineering
efforts for commercial development at the Wilga discovery.

In 2001, we recorded an impairment to our properties in China and Poland,
which is described in Item 7 of this Form 10-K.

In 2001, we acquired exploration and production assets of Fletcher and
Anadarko Petroleum in Argentina. As a result of these transactions, we are the
operator, with a 100 percent interest, of the Lindero de Piedra and El
Santiagueno Blocks. We also hold interests in the following blocks: Agua Salada
(30 percent), Faro Virgenes (20 percent), CNQ-16 (seven percent) and CNQ-16A (25
percent). For the year, these interests held less than one percent of our proved
reserves and generated small amounts of production and revenue. Our total net
acreage in Argentina was 367,690 acres with 9,510 developed and 358,180
undeveloped at year-end 2001. In 2002, we have tentatively budgeted
approximately $2.6 million of expenditures for Argentina, primarily for drilling
three commitment wells on non-operated blocks and workover activity. Due to the
present uncertainty facing the Argentine economy, Apache will maintain a
defensive posture until improvement is evident. Our staff will concentrate on
identifying opportunities and strategies for growth that can be implemented when
Argentina's political and economic conditions improve.

DRILLING STATISTICS

Worldwide, in 2001, we participated in drilling 939 gross new wells, with
828 (88 percent) completed as producers. Canada was the most active region,
drilling 447 gross new wells with a success rate of 93 percent. We also
performed over 1,350 major workovers and recompletions in North America during
the year. Our drilling activities in the United States generally concentrate on
further development of existing, producing fields rather than exploration. As a
general matter, our international and Canadian drilling activities focus on more
exploration drilling than do our U.S. activities. In addition to our completed
wells, as of the end of the year, we were participating in the drilling of
several wells that had not yet reached completion: two in the U.S. (1.67 net),
six in Canada (5.7 net), three in Egypt (3 net) and one in Australia (.7 net).

7

The following table shows the results of the oil and gas wells drilled and
tested for each of the last three fiscal years:

PRODUCTIVE OIL AND GAS WELLS

The number of productive oil and gas wells, operated and non-operated, in
which we had an interest as of December 31, 2001, is set forth below:

8

GROSS AND NET UNDEVELOPED AND DEVELOPED ACREAGE

The following table sets out our gross and net acreage position in each
country where we have operations.

ESTIMATED PROVED RESERVES AND FUTURE NET CASH FLOWS

As of December 31, 2001, Apache had total estimated proved reserves of 599
million barrels of crude oil, condensate and NGLs and 4 Tcf of natural gas.
Combined, these total estimated proved reserves are equivalent to 1.3 billion
barrels of oil or 7.6 Tcf of gas. The company's reserves have grown for the 16th
consecutive year. Estimated proved developed reserves comprise 75 percent of our
total estimated proved reserves on a boe basis.

The Company's estimates of proved reserves and proved developed reserves at
December 31, 2001, 2000 and 1999, changes in proved reserves during the last
three years, and estimates of future net cash flows and discounted future net
cash flows from proved reserves are contained in Footnote 15, Supplemental Oil
and Gas Disclosures (Unaudited), in the Apache Corporation 2001 Consolidated
Financial Statements under Item 14 of this Form 10-K.

Proved oil and gas reserves are the estimated quantities of natural gas,
crude oil, condensate and NGLs which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Reserves are
considered proved if economical producibility is supported by either actual
production or conclusive formation tests. Reserves which can be produced
economically through application of improved recovery techniques are included in
the "proved" classification when successful testing by a pilot project or the
operation of an installed program in the reservoir provides support for the
engineering analysis on which the project or program is based. Proved developed
oil and gas reserves can be expected to be recovered through existing wells with
existing equipment and operating methods.

Apache emphasizes that the volumes of reserves are estimates which, by
their nature, are subject to revision. The estimates are made using available
geological and reservoir data, as well as production performance data. These
estimates are reviewed annually and revised, either upward or downward, as
warranted by additional performance data.

RISK FACTORS RELATED TO OUR BUSINESS AND OPERATIONS

ACQUISITIONS OR DISCOVERIES OF ADDITIONAL RESERVES ARE NEEDED TO AVOID A
MATERIAL DECLINE IN RESERVES AND PRODUCTION

The rate of production from oil and gas properties generally declines as
reserves are depleted. Except to the extent that we acquire additional
properties containing proved reserves, conduct successful exploration and
development activities or, through engineering studies, identify additional
behind-pipe zones or secondary recovery reserves, our proved reserves will
decline materially as reserves are produced. Future oil and gas production is,
therefore, highly dependent upon our level of success in acquiring or finding
additional reserves.

9

SUBSTANTIAL COSTS INCURRED TO CONFORM TO GOVERNMENT REGULATION OF THE OIL AND
GAS INDUSTRY

Our exploration, production and marketing operations are regulated
extensively at the federal, state and local levels, as well as by other
countries in which we do business. We have made and will continue to make large
expenditures in our efforts to comply with the requirements of environmental and
other regulations. Further, the oil and gas regulatory environment could change
in ways that might substantially increase these costs. Hydrocarbon-producing
states regulate conservation practices and the protection of correlative rights.
These regulations affect our operations and limit the quantity of hydrocarbons
we may produce and sell. In addition, at the U.S. federal level, the Federal
Energy Regulatory Commission regulates interstate transportation of natural gas
under the Natural Gas Act. Other regulated matters include marketing, pricing,
transportation and valuation of royalty payments.

SUBSTANTIAL COSTS INCURRED RELATED TO ENVIRONMENTAL MATTERS

We, as an owner or lessee and operator of oil and gas properties, are
subject to various federal, provincial, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, and require suspension or cessation of operations in affected
areas.

We maintain insurance coverage, which we believe is customary in the
industry, although we are not fully insured against all environmental risks. We
are not aware of any environmental claims existing as of December 31, 2001,
which would have a material impact upon our financial position or results of
operations.

We have made and will continue to make expenditures in our efforts to
comply with these requirements, which we believe are necessary business costs in
the oil and gas industry. We have established policies for continuing compliance
with environmental laws and regulations, including regulations applicable to our
operations in all countries in which we do business. We also have established
operational procedures and training programs designed to minimize the
environmental impact on our field facilities. The costs incurred by these
policies and procedures are inextricably connected to normal operating expenses
such that we are unable to separate the expenses related to environmental
matters; however, we do not believe any such additional expenses are material to
our financial position or results of operations.

Although environmental requirements have a substantial impact upon the
energy industry, generally these requirements do not appear to affect us any
differently, or to any greater or lesser extent, than other companies in the
industry. We do 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 Apache or its subsidiaries; however, there is no
assurance that changes in or additions to laws or regulations regarding the
protection of the environment will not have such an impact.

COMPETITION WITH OTHER COMPANIES COULD HARM US

The oil and gas industry is highly competitive. Our business could be
harmed by competition with other companies. Because oil and gas are fungible
commodities, our principal form of competition is price competition. We strive
to maintain the lowest finding and production costs possible in order to
maximize profits. In addition, as an independent oil and gas company, we
frequently compete for reserve acquisitions, exploration leases, licenses,
concessions and marketing agreements against companies with financial and other
resources substantially larger than those we possess. Many of our competitors
have established strategic long-term positions and maintain strong governmental
relationships in countries in which we may seek new entry.

INSURANCE DOES NOT COVER ALL RISKS

Exploration for and production of oil and natural gas can be hazardous,
involving unforeseen occurrences such as blowouts, cratering, fires and loss of
well control, which can result in damage to or destruction of wells or
production facilities, injury to persons, loss of life, or damage to property or
the environment. We maintain

10

insurance against certain losses or liabilities arising from our operations in
accordance with customary industry practices and in amounts that management
believes to be prudent; however, insurance is not available to us against all
operational risks.

RISKS ARISING FROM THE FAILURE TO FULLY IDENTIFY POTENTIAL PROBLEMS RELATED TO
ACQUIRED RESERVES OR TO PROPERLY ESTIMATE THOSE RESERVES

From time to time we acquire oil and gas properties. Although we perform a
review of the acquired properties that we believe is consistent with industry
practices, such reviews are inherently incomplete. It generally is not feasible
to review in depth every individual property involved in each acquisition.
Ordinarily, we will focus our review efforts on the higher-value properties and
will sample the remainder. However, even a detailed review of records and
properties may not necessarily reveal existing or potential problems, nor will
it permit a buyer to become sufficiently familiar with the properties to assess
fully their deficiencies and potential. Inspections may not always be performed
on every well, and environmental problems, such as ground water contamination,
are not necessarily observable even when an inspection is undertaken. Even when
problems are identified, we often assume certain environmental and other risks
and liabilities in connection with acquired properties. There are numerous
uncertainties inherent in estimating quantities of proved oil and gas reserves
and actual future production rates and associated costs with respect to acquired
properties, and actual results may vary substantially from those assumed in the
estimates (see above). In addition, there can be no assurance that acquisitions
will not have an adverse effect upon our operating results, particularly during
the periods in which the operations of acquired businesses are being integrated
into our ongoing operations.

EMPLOYEES

On December 31, 2001, we had 1,915 employees.

OFFICES

Our principal executive offices are located at One Post Oak Central, 2000
Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 2001, we
maintained regional exploration and/or production offices in Tulsa, Oklahoma;
Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western Australia;
Beijing, China; Warsaw, Poland; and Buenos Aires, Argentina.

TITLE TO INTERESTS

We believe that our 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 our operations. The interests owned by us 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 production payments, 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 our operations.

ITEM 2. PROPERTIES

For information on our domestic and international properties, please see
the discussions in Item 1 of this Form 10-K under Review of Company's Worldwide
Operating Areas as identified by country. For tables setting out a description
of our drilling activities, well counts and acreage positions, please see the
information in Item 1 under Drilling Statistics, Productive Oil and Gas Wells
and Gross and Net Undeveloped Acreage.

11

ITEM 3. LEGAL PROCEEDINGS

The information set forth under the caption "Commitments and Contingencies"
in Note 11 to our financial statements under Item 14 of this Form 10-K.

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 2001.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Apache 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 our common stock for 2001 and 2000.
Prices were obtained from the New York Stock Exchange Composite Transactions
Reporting System; however, the per share prices and dividends shown in the
following table have been adjusted to reflect the 10-percent stock dividend
described below and have been rounded to the indicated decimal place.

- ---------------

(1) We paid dividends of $.25 per share in 2000, of which $.19 was declared in
2000 and $.06 was declared in the fourth quarter of 1999, as a result of
changing our dividend payment schedule from a quarterly basis to an annual
basis.

The closing price per share of our common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 28,
2002, was $52.75. At February 28, 2002, there were 137,234,544 shares of our
common stock outstanding held by approximately 9,000 shareholders of record and
approximately 110,000 beneficial owners.

We have paid cash dividends on our common stock for 35 consecutive years
through December 31, 2001. During 2000, we implemented a change in the payment
schedule for dividends on our common stock from a quarterly basis to an annual
basis; however, during 2001, we implemented a return to a quarterly dividend
payment schedule beginning in 2002. When, and if, declared by our board of
directors, future dividend payments will depend upon our level of earnings,
financial requirements and other relevant factors.

In 1995, our board of directors adopted a stockholder rights plan to
replace the former plan adopted in 1986. Under our stockholder rights plan, each
of our common stockholders received a dividend of .9 "preferred stock purchase
right" (adjusted for the 10-percent stock dividend) for each outstanding share
of common stock that the stockholder owned. We refer to these preferred stock
purchase rights as the "rights." Unless the rights have been previously
redeemed, all shares of Apache common stock are issued with rights. The rights
trade automatically with our shares of common stock. Certain triggering events
will give the holders of the rights the ability to purchase shares of our common
stock, or the equivalent stock of a person that acquires us, at a discount. The
triggering events relate to persons or groups acquiring an amount of our common
stock in excess of a set percentage, or attempting to or actually acquiring us.
The details of how the rights operate are set out in our certificate of
incorporation and the Rights Agreement, dated January 31, 1996, between Apache
and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.).
Both of those documents have been filed as exhibits to this Form 10-K and you
should review them to fully understand the effects of the rights. The purpose of
the rights is to encourage potential acquirors to negotiate with our board of
directors

12

before attempting a takeover bid and to provide our board of directors with
leverage in negotiating on behalf of our stockholders the terms of any proposed
takeover. The rights may have certain anti-takeover effects. They should not,
however, interfere with any merger or other business combination approved by our
board of directors.

In May 1999, we issued 140,000 shares of 6.5 percent Automatically
Convertible Equity Securities, Conversion Preferred Stock, Series C (Series C
Preferred Stock) in the form of seven million depositary shares each
representing 1/50th of a share of Series C Preferred Stock. The depositary
shares are traded on the New York Stock Exchange and the Chicago Stock Exchange.
The Series C Preferred Stock is not subject to a sinking fund or mandatory
redemption. On May 15, 2002, each depositary share will automatically convert,
subject to adjustments, into not more than 1.099 shares and not less than 0.9016
of a share of our common stock, depending on the market price of the common
stock at that time. In 2000, we bought back 75,900 depositary shares at an
average price of $34.42 per share. The excess of the purchase price to reacquire
the depositary shares over the original issuance price is reflected as a
preferred stock dividend in the accompanying statement of consolidated
operations. At any time prior to May 15, 2002, holders of the depositary shares
may elect to convert each of their shares, subject to adjustments, into not less
than 0.9016 of a share of our common stock (6,242,769 common shares). Holders of
the depositary shares are entitled to receive cumulative cash dividends at an
annual rate of $2.015 per depositary share when, and if, declared by our board
of directors.

On September 13, 2001, our board of directors declared a 10-percent
dividend on our shares of common stock payable in common stock on January 21,
2002 to shareholders of record on December 31, 2001. Pursuant to the terms of
the declared stock dividend, we issued 12,447,684 shares of our common stock on
January 21, 2002 to the holders of the 124,655,495 shares of common stock
outstanding on December 31, 2001. No fractional shares were issued in connection
with the stock dividend and cash payments totaling $891,132 were made in lieu of
fractional shares.

The following updated financial information concerning the 10-percent stock
dividend is as of December 31, 2001, and is provided as required under the
regulations of The New York Stock Exchange, Inc.:

Amount capitalized in the aggregate (in thousands).......... $544,871
Amount capitalized per share................................ 42.51
Relation of aggregate amount to current earnings............ 77%
Relation of aggregate amount to retained earnings........... 29%
Accounts to which aggregate amount was charged and credited:
Decrease in retained earnings (in thousands).............. $544,871
Increase in common stock (in thousands)................... 16,022
Increase in additional paid-in capital (in thousands)..... 528,849

Although this 10-percent stock dividend increased the outstanding shares of
our common stock by 12,447,684 shares, it does not change any shareholder's
proportionate equity interest in Apache. However, a sale by a shareholder of all
or part of the shares received for this stock dividend will reduce such
shareholder's proportionate equity in us.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company and
its consolidated subsidiaries for each of the years in the five-year period
ended December 31, 2001, which information has been derived from the Company's
audited financial statements. This information should be read in connection
with, and is qualified in its entirety by, the more detailed information in the
Company's financial statements under Item 14 below.

For a discussion of significant acquisitions, refer to Note 3 to the
Company's consolidated financial statements under Item 14 below. During 1998,
the Company recorded $243 million pre-tax ($158 million net of tax) non-cash
write-down of the carrying value of the Company's U.S. proved oil and gas
properties due to ceiling test limitations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

In 2001, Apache turned in another record year on many operational and
financial fronts, the result of our strategy of pursuing growth through a
combination of drilling and acquisition activities in core areas worldwide. The
results were achieved in a year marked with turmoil in the economy, financial
markets and the energy industry. In January, natural gas prices neared $10 per
thousand cubic feet (Mcf), only to fall below $2 per Mcf in October. Although
commodity prices weakened through the year, Apache's rising production profile
fueled record income attributable to common stock and record cash from operating
activities of $704 million and $1.9 billion, respectively.

Throughout the year, we remained focused on increasing our production and
building our reserves at reasonable costs. Our production grew for the 24th
consecutive year, rising 32 percent, to 344,130 barrels of oil equivalent per
day (boe/d), the largest year-over-year percentage increase in a decade. Our
fourth quarter average daily production exceeded 362,000 boe/d, pointing to a
strong start for 2002. Our strategy put in place over a decade ago to seek
opportunities outside the U.S., is paying off for shareholders; for the first
time in our history, over half of our equivalent production came from outside
the U.S., adding to the Company's stability. Additionally, our record reserves
increased for the 16th consecutive year (by 17 percent) to 1.3 billion boe.

Production and reserve growth was driven by successful drilling activities
in Canada and Australia, and strategic acquisitions in Canada and Egypt.
Development activities at the Ladyfern field in Canada, which was discovered on
acreage acquired from Shell Canada in 1999, contributed 12 percent of the
company-wide

14

increase in gas production. In Australia, drilling and development activity at
the Legendre, Gipsy/North Gipsy and Simpson fields accounted for approximately
one-third of our worldwide oil production increase. Worldwide, we spent
approximately $1.4 billion on exploration and development and completed over
$1.2 billion of acquisitions. Our acquisitions were dominated by two
transactions; the acquisition of the Fletcher Challenge Energy properties,
primarily located in Canada, and the acquisition of substantially all of Repsol
YPF's concession interests in Egypt. Including the related goodwill, our
acquisition cost totaled $5.07 per Boe in 2001.

All told, Apache spent approximately $2.6 billion on acquisitions,
exploration and development, replacing 314 percent of production at a
competitive all-in finding and acquisition cost of $5.64 per boe, the outcome of
our long-term strategy to take a disciplined approach to controlling costs and
growing through the most cost effective method given market conditions. Both
acquisitions and drilling are important; a barrel is a barrel no matter how you
obtain it. What matters are its underlying economics. Our strategy is also
reflected in our balance sheet, which remained strong despite a record year of
spending. We exited the year with debt (including preferred interests of
subsidiaries and net of cash and cash equivalents and short-term investments) at
37 percent of total capitalization, even with year-end 2000. We also maintained
a senior unsecured long-term debt rating of A3 from Moody's, and A- from the
Standard and Poor's and Fitch rating agencies.

In September 2001, to recognize Apache's transformation to a stronger, more
profitable Company, we declared a 10-percent common stock dividend paid on
January 21, 2002, to shareholders of record on December 31, 2001. In conjunction
with our stock dividend, we increased our quarterly dividend from six cents per
common share to 10 cents per share. Together, these actions are expected to
result in a 57 percent increase in the dividends you will receive. All of the
share and per share information included in this discussion have been adjusted
for the stock dividend.

RESULTS OF OPERATIONS

Acquisitions and Divestitures

In each of the past three years, Apache has made significant acquisitions
that affect the comparability of our financial results. We acquired 213, 254 and
246 million barrels of oil equivalent (MMboe) of proved reserves for
approximately $0.9, $1.3 and $1.4 billion during 2001, 2000, and 1999,
respectively. In addition, the acquisitions added $197 million of goodwill and
$146 million of production, processing and transportation facilities in 2001,
and $94 million of such facilities in 2000. These acquisitions helped strengthen
our position in our core areas and provided promising prospects for future
exploration and development activities. We will continue our strategy of finding
additional reserves on the acquired properties and accelerating the production
of those already identified.

In connection with some of these acquisitions, we entered into and assumed
fixed price commodity swaps and costless collars that protected Apache from
falling commodity prices. This enabled us to better predict the financial
implications of our acquisitions. These, as well as the gas price swaps
associated with advances from gas purchasers, increased the Company's average
natural gas price by $.09 per Mcf during 2001 and $.05 per Mcf during 2000. They
reduced our average crude oil price by $.42 per bbl during 2001 and $1.62 per
bbl during 2000. Driven by the uncertainty of how the collapse of Enron Corp.
would impact the derivatives markets, we closed all of these positions in
October and November 2001, and recognized a net gain of $10 million. An
additional $21 million net gain will be recognized over the next two years as
the original hedged production occurs.

We continuously evaluate our portfolio of properties and divest those that
are marginal or do not strategically fit into our growth program. We divested
$348, $26 and $155 million of properties during 2001, 2000, and 1999,
respectively.

Revenues

Our revenues are sensitive to changes in prices received for our products.
A substantial portion of our production is sold at prevailing market prices,
which fluctuate in response to many factors that are outside of

15

our control. Imbalances in the supply and demand for oil and natural gas can
have dramatic effects on the prices we receive for our production. Political
instability and availability of alternative fuels could impact worldwide supply,
while economic factors such as the current U.S. recession could impact demand.

The table below presents oil and gas production revenues, production and
average prices received from sales of natural gas, oil and natural gas liquids.

16

Natural Gas Revenues

A 36 percent increase in our natural gas production contributed $390
million to our 2001 revenues. Canada's increase was primarily driven by our
acquisition of producing properties from Phillips Petroleum Company (Phillips)
(December 2000) and Fletcher (March 2001) as well as strong exploration and
development results from the Ladyfern area. A full year of production from the
properties we acquired from Occidental Petroleum Corporation (Occidental)
(August 2000) and Collins & Ware, Inc. (Collins & Ware) (June 2000) helped to
boost our domestic production by 13 percent, while properties acquired from
Repsol helped double our Egyptian production.

During 2000, our natural gas revenues more than doubled. About 60 percent
of this increase was the result of significantly higher natural gas prices.
Recognizing the opportunities that these strong natural gas prices provided, we
acquired numerous properties at reasonable prices and accelerated our drilling
program. Together, these helped increase our production by 27 percent.
Properties acquired from a subsidiary of Repsol (January 2000), Collins & Ware
(June 2000) and Occidental (August 2000) enabled us to increase our domestic
production by 18 percent. Increased developmental activities on the properties
acquired from Shell Canada Limited (Shell Canada) (November 1999) added 31
percent to our Canadian production. The completion of a second pipeline in
Australia helped us tap our existing capacity and increase production by 42
percent in 2000. Similarly, Egyptian gas production nearly tripled in 2000
reflecting a full year of deliveries into the northern portion of the Western
Desert Gas Pipeline.

We have used long-term, fixed-price physical contracts to lock in a portion
of our domestic future natural gas production at fixed prices. These contracts
represented approximately 11 and 10 percent of our 2001 and 2000 domestic
natural gas production, respectively. The contracts provide protection to the
Company in the event of decreasing natural gas prices. The historically high
prices for natural gas during 2001 and 2000, however, resulted in losses under
these contracts, negatively impacting our average realized prices by $.06 per
Mcf in 2001 and $.17 per Mcf in 2000. In addition, due to the availability of
long-term contracts in Australia, substantially all of our Australian natural
gas production is subject to fixed prices.

Crude Oil Revenues

Our crude oil revenues increased in 2001 despite a 16 percent drop in the
average realized price. This was due to a 29 percent increase in our crude oil
production. With the acquisition and subsequent exploitation of properties
acquired from Repsol (March 2001), we increased our Egyptian production by 41
percent. Strong results on properties we acquired from Fletcher (March 2001) and
Phillips (December 2000) helped us increase our Canadian oil production by 76
percent. We also had success on the drilling front, increasing our Australian
production by nearly 51 percent with successful development of the Legendre,
Gipsy/North Gipsy and Simpson fields.

Our crude oil revenues during 2000 nearly doubled, driven by substantially
higher oil prices and significant production growth. During 2000, demand for oil
increased, helping boost oil prices by nearly 50 percent. Apache was in prime
position to take advantage of this pricing environment. We increased our overall
oil production by 26 percent. Our acquisition of properties from Shell Offshore
Inc. and affiliated Shell entities (Shell Offshore) (May 1999), Collins & Ware
(June 2000), and Occidental (August 2000) helped drive domestic oil production
up 24 percent. The acquisition of properties from Shell Canada (November 1999)
significantly expanded our position in Canada and was a major factor in the 382
percent increase in production in that country. Successful drilling in the Stag
field enabled us to increase our Australian production by 46 percent. Our
Egyptian oil production decreased 13 percent as a result of the price-driven
dynamics of certain production sharing contracts.

17

Operating Expenses

The table below presents a detail of our expenses.

Depreciation, Depletion and Amortization

Apache's full cost DD&A expense is driven by many factors including certain
costs incurred in the exploration, development, and acquisition of producing
reserves, production levels, and estimates of proved reserve quantities and
future developmental costs. During 2001, our DD&A per boe increased by $.30 to
$6.05. This was primarily the result of higher drilling and finding costs and
negative reserve revisions associated with declining prices. During 2000, full
cost DD&A expense increased by $.18 to $5.75 per boe due primarily to the cost
of oil producing properties acquired from Occidental ($6.74 per boe).

Depreciation on other assets increased $25 million in 2001 due to
additional facilities acquired from Fletcher (March 2001) and Repsol (March
2001) and the amortization of goodwill. In connection with the adoption of a new
accounting principle effective January 1, 2002, we will no longer amortize our
goodwill. Instead, it will be assessed for periodic impairment, as discussed in
the impairment section below.

Impairments

We periodically assess all of our unproved properties for possible
impairment. When an impairment occurs, costs associated with these properties
are generally transferred to our proved property base where they become subject
to amortization. In some of our international exploration plays, however, we
have not yet established proved reserves. As such, any impairments in these
areas are immediately charged to earnings. During 2001, we impaired a portion of
our unproved property costs in Poland and China by $65 million ($41 million
after-tax). We are continuing to evaluate our operations in Poland, which may
result in additional impairments in 2002.

As discussed in Note 2 of Item 14 of this Form 10-K, beginning in 2002,
goodwill will be subject to a periodic fair-value-based impairment assessment.
The Company has not yet determined whether or the extent to which the impairment
test will affect the consolidated financial statements.

Lease Operating Costs

Lease operating costs are driven in part by the type of commodity produced
and the level of workovers performed. Oil is inherently more expensive to
produce than natural gas. Workovers continue to be an important part of our
strategy. They enable us to exploit our existing reserves by accelerating
production and taking advantage of high pricing environments, such as the one we
had during the first half of 2001. During 2001, these costs were $3.24 per boe,
a $.56 increase from 2000. The increase was primarily driven by three factors.
First, our acquisition of Canadian and offshore Gulf of Mexico oil properties
carry higher production costs than our other operations. Second, although high
commodity prices are beneficial to us overall, they can drive up some of our
production costs. Domestically, we had to pay more for service, power and lease
fuel costs

18

than we did in 2000. Finally, workover activity was up in the U.S. and Canada.
Increases in these two countries were the primary driver of the $.12 increase in
LOE per boe in 2000 over 1999 costs.

Severance and Other Taxes

Severance and other taxes, which generally are based on a percentage of oil
and gas production revenues, increased in 2001 and 2000 due to higher oil and
gas revenues. Also contributing to the increases were higher effective
production tax rates resulting from a loss of available incentives in Oklahoma
due to higher commodity prices and an increase in Canadian Large Corporation Tax
from the added production of the properties acquired from Fletcher (March 2001).

Administrative, Selling and Other Expenses

G&A is influenced by the size of our business. As a result of our active
acquisition program, especially in Canada, G&A increased during 2001 and 2000.
On an equivalent barrel basis, however, expensed G&A fell 10 percent during 2001
to $.71. This was the result of a significant increase in our production while
controlling our costs. During 2000, G&A per boe increased 10 percent to $.79.
This was primarily the result of higher incentive compensation driven by
Apache's then record performance.

Financing Costs, Net

Net financing costs increased by 11 percent in 2001 and 30 percent in 2000
due to higher average outstanding borrowings resulting from increased capital
expenditures and acquisitions. At year-end 2001, approximately 31 percent of our
borrowings were subject to fluctuations in short-term rates. As a result of the
decline in these rates, our weighted average cost of borrowing decreased to 5.9
percent in 2001 from 7.5 percent in 2000.

OIL AND GAS CAPITAL EXPENDITURES

Apache's 2001 acquisition and drilling program added 394.1 MMboe of proved
reserves (including revisions) and replaced 314 percent of production.

The capital expenditure budget for 2002 is approximately $590 million
(excluding acquisitions), including $350 million for North America. Preliminary
North American exploration and development expenditures include $60 million in
the Southern region, $40 million in the Midcontinent region, $100 million in the
Offshore region and $150 million in Canada. The Company has estimated its other
international

19

exploration and development expenditures in 2002, exclusive of facilities, to
total approximately $240 million. Capital expenditures will be reviewed and
possibly adjusted throughout the year in light of changing industry conditions.

Cash Dividend Payments

Apache paid a total of $20 million in dividends during 2001 on its Series B
Preferred Stock issued in August 1998 and its Series C Preferred Stock issued in
May 1999. Dividends on the Series C Preferred Stock will be paid through May 15,
2002, when the shares will automatically convert to common stock (see Note 9
under Item 14 below). Common dividends paid during 2001 totaled $35 million, up
five percent from 2000, due to increased common shares outstanding. The Company
has paid cash dividends on its common stock for 35 consecutive years through
2001. Future dividend payments will depend on the Company's level of earnings,
financial requirements and other relevant factors. The Company has increased its
annual common stock dividend to $.40 per share beginning in 2002.

CAPITAL RESOURCES

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 and payment of dividends. The Company funds its exploration and
development activities primarily through internally generated cash flows. Apache
budgets capital expenditures based upon projected cash flows. The Company
routinely adjusts its capital expenditures in response to changes in oil and
natural gas prices and cash flow. The Company cannot accurately predict future
oil and gas prices.

Net Cash Provided by Operating Activities

Apache's net cash provided by operating activities during 2001 totaled $1.9
billion, an increase of 27 percent over the $1.5 billion in 2000. This increase
was due primarily to higher oil and gas production revenue as a result of
full-year production from 2000 property acquisitions and properties acquired in
2001. Net cash provided by operating activities during 2000 increased $891
million from 1999 due primarily to higher oil and gas production and prices in
2000.

Debt

At December 31, 2001, Apache had outstanding debt of $663 million under its
credit and commercial paper facilities and a total of $1.6 billion of other
debt. This other debt included notes and debentures maturing in the years 2002
through 2096. The 9.25 percent notes totaling $100 million mature on June 1,
2002. These notes and the outstanding debt under credit and commercial paper
facilities are classified as long-term debt because the Company has the ability
and intent to refinance them on a long-term basis through rollover of commercial
paper or availability under the U.S. portion of the global credit facility and
364-day revolving credit facility. The global credit facility is scheduled to
mature in June 2003. The Company is planning to negotiate new credit facilities
in the first half of 2002. The Company's debt, including preferred interests of
subsidiaries and net of cash and cash equivalents and short-term investments,
was 37 percent of total capitalization at December 31, 2001 and 2000. Based on
our current plan for capital spending and projections of debt and interest
rates, interest payments on the Company's debt for 2002 are projected to be $154
million (using weighted average balances for floating rate obligations).

Apache has a $500 million, 364-day revolving credit agreement with a group
of banks. The terms of this facility are substantially the same as those of
Apache's global credit facility. The 364-day credit facility will be used, along
with the U.S. portion of the global credit facility, to support Apache's
commercial paper program, which was increased from $700 million to $1.2 billion
in late July 2000. Refer to Note 6 under Item 14 of this Form 10-K for
discussion of our debt instruments and related covenants.

20

Preferred Interests of Subsidiaries

During 2001, several of our subsidiaries issued a total of $443 million
($441 million, net of issuance costs) of preferred stock and limited partner
interests to unrelated institutional investors, adding to the Company's
financial liquidity. We pay a weighted average return to the investors of 123
basis points above the prevailing LIBOR interest rate. These subsidiaries are
consolidated in the accompanying financial statements with the $441 million
reflected as preferred interests of subsidiaries on the balance sheet.

Stock Transactions

On September 13, 2001, the Company's Board of Directors declared a 10
percent stock dividend, which was paid on January 21, 2002, to shareholders of
record on December 31, 2001. No fractional shares were issued and cash payments
were made in lieu of fractional shares. In connection with the declaration of
this stock dividend, a reclassification was made to transfer $545 million from
retained earnings to common stock and additional paid-in-capital in the
accompanying consolidated balance sheet.

During 2001, the Company repurchased 962,600 shares of common stock to be
held in treasury at an average price of $45.09 per share.

On August 2, 2000, the Company completed the public offering of 10.1
million shares of Apache common stock, including 1.3 million shares for the
underwriters' over-allotment option, at $44.55 per share and total net proceeds
of approximately $434 million. The proceeds were used to fund a portion of the
acquisitions made during 2000 and repay indebtedness under Apache's commercial
paper program.

In the first quarter of 2000, the Company bought back 75,900 depository
shares, each representing one-fiftieth (1/50) of a share of Series C Preferred
Stock, at an average price of $34.42 per share. The excess of the purchase price
to reacquire the depository shares over the original issuance price is reflected
as a preferred stock dividend in the accompanying statement of consolidated
operations.

LIQUIDITY

The Company had $36 million in cash and cash equivalents on hand at
December 31, 2001, slightly down from $37 million at December 31, 2000. Apache's
ratio of current assets to current liabilities increased from 1.14 at December
31, 2000, to 1.34 at December 31, 2001.

The Company had $103 million in short-term securities (U.S. Government
Agency Notes) at December 31, 2001, a portion of which is currently available to
fund operating and exploration activities, and will be available to reduce
long-term debt after August, 2002.

Apache believes that cash on hand, net cash generated from operations,
short-term investments, and unused committed borrowing capacity under its global
credit facility and 364-day credit facility will be adequate to satisfy the
Company's financial obligations to meet liquidity needs for the foreseeable
future. As of December 31, 2001, Apache's available borrowing capacity under its
global credit facility and 364-day revolving credit facility was $839 million.

21

The Company's contractual obligations relate primarily to long-term debt,
preferred interests of subsidiaries, operating leases, pipeline transportation
commitments and international commitments. The following table summarizes the
Company's contractual obligations as of December 31, 2001. Refer to the
indicated footnote to the Company's consolidated financial statements under Item
14 of this Form 10-K for further information regarding these obligations. The
Company expects to fund these contractual obligations with cash generated from
operations.

- ---------------

(a) Note that this table does not include the liability for dismantlement,
abandonment and restoration costs of offshore drilling platforms. The
Company currently includes such costs in the amortizable base of its oil
and gas properties. Effective with the adoption of SFAS No. 143,
"Accounting for Asset Retirement Obligations" on January 1, 2003, the
Company will record a liability for the fair value of this asset retirement
obligation, which will be capitalized as part of the oil and gas
properties' carrying amount. See Note 2 to the accompanying financial
statements for further discussion.

Our liquidity could be impacted by a downgrade of the credit rating for our
senior unsecured long-term debt by Standard & Poor's to BBB- or lower and by
Moody's to Baa3 or lower; however, we do not believe that such a sharp downgrade
is reasonably likely. If our debt were to receive such a downgrade, our
subsidiaries that issued the preferred interests described in Note 12 to the
accompanying financial statements could be in violation of their covenants which
may require them to redeem some of the preferred interests as described in that
Note.

FUTURE TRENDS

Apache's strategy is to increase its oil and gas reserves, production, cash
flow and earnings through a balanced growth program that involves:

- exploiting our existing asset base;

- acquiring properties to which we can add incremental value; and

- investing in high-potential exploration prospects.

In order to maximize financial flexibility during a period of highly
volatile natural gas prices coupled with a faltering U.S. economy, Apache's
present plans are to reduce 2002 worldwide capital expenditures for exploratory
and development drilling to approximately $590 million from $1.4 billion in
2001. Any excess cash flow will be used to reduce debt until such time that we
elect either to increase drilling expenditures should the commodity price
environment improve, or to pursue acquisition opportunities should they become
available at reasonable prices.

22

Exploiting Existing Asset Base

Apache seeks to maximize the value of our existing asset base by increasing
production and reserves while reducing operating costs per unit. In order to
achieve these objectives, we rigorously pursue production enhancement
opportunities such as workovers, recompletions and moderate risk drilling, while
divesting marginal and non-strategic properties and identifying other activities
to reduce costs. Given the significant acquisitions completed over the last two
years, Apache's inventory of exploitation opportunities has never been larger.

Acquiring Properties to Which We Can Add Incremental Value

Apache seeks to purchase reserves at appropriate prices by generally
avoiding auction processes where we are competing against other buyers. Our aim
is to follow each acquisition with a cycle of reserve enhancement, property
consolidation and cash flow acceleration, facilitating asset growth and debt
reduction. Recently exorbitant acquisition prices have caused Apache to sideline
its acquisition activities until appropriate opportunities arise at reasonable
prices.

Investing in High-Potential Exploration Prospects

Apache seeks to concentrate our exploratory investments in a select number
of international areas and to become the dominant operator in those regions. We
believe that these investments, although higher-risk, offer potential for
attractive investment returns and significant reserve additions. Our
international investments and exploration activities are a significant component
of our long-term growth strategy. They complement our North American operations,
which are more development oriented.

A critical component in implementing our three-pronged growth strategy is
maintenance of significant financial flexibility. Rating upgrades on Apache's
senior unsecured long-term debt received from Moody's and Standard & Poor's
illustrate our commitment to preserving a strong balance sheet and building a
solid foundation and competitive advantage with which to pursue our growth
initiatives.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY RISK

The Company's major market risk exposure is in the pricing applicable to
its oil and gas production. Realized pricing is primarily driven by the
prevailing worldwide price for crude oil and spot prices applicable to its
United States and Canadian natural gas production. Historically, prices received
for oil and gas production have been volatile and unpredictable and price
volatility is expected to continue. Monthly oil price realizations ranged from a
low of $17.35 per barrel to a high of $27.67 per barrel during 2001. Average gas
price realizations ranged from a monthly low of $2.24 per Mcf to a monthly high
of $7.33 per Mcf during the same period. Based on the Company's 2001 worldwide
oil production levels, a $1.00 per barrel change in the weighted average price
of oil would increase or decrease revenues by $54 million. Based on the
Company's 2001 worldwide gas production levels, a $.10 per Mcf change in the
weighted average price of gas would increase or decrease revenues by $41
million.

If oil and gas prices decline significantly in the future, even if only for
a short period of time, it is possible that non-cash write-downs of our oil and
gas properties could occur under the full cost accounting rules of the
Securities and Exchange Commission (SEC). Under these rules, we review the
carrying value of our proved oil and gas properties each quarter on a
country-by-country basis to ensure that capitalized costs of proved oil and gas
properties, net of accumulated depreciation, depletion and amortization, and
deferred income taxes, do not exceed the "ceiling". This ceiling is the present
value of estimated future net cash flows from proved oil and gas reserves,
discounted at 10 percent, plus the lower of cost or fair value of unproved
properties included in the costs being amortized, net of related tax effects. If
capitalized costs exceed this limit, the excess is charged to additional DD&A
expense. The calculation of estimated future net cash flows is based on the
prices for crude oil and natural gas in effect on the last day of each fiscal
quarter except for volumes sold under long-term contracts. Write-downs required
by these rules do not impact cash flow from operating activities.

23

The Company periodically enters into hedging activities on a portion of its
projected oil and natural gas production through a variety of financial and
physical arrangements intended to support oil and natural gas prices at targeted
levels and to manage its exposure to oil and gas price fluctuations. Apache may
use futures contracts, swaps, options and fixed-price physical contracts to
hedge its commodity prices. Realized gains or losses from the Company's price
risk management activities are recognized in oil and gas production revenues
when the associated production occurs. Apache does not generally hold or issue
derivative instruments for trading purposes. As indicated in Note 4 under Item
14 below, the Company terminated all of its derivative instruments in October
and November 2001.

Apache sells all of its Egyptian crude oil and natural gas to the EGPC for
U.S. dollars. Deteriorating economic conditions during 2001 in Egypt have
lessened the availability of U.S. dollars resulting in a gradual decline in
timeliness of receipts from EGPC.

INTEREST RATE RISK

The Company considers its interest rate risk exposure to be minimal as a
result of fixing interest rates on approximately 69 percent of the Company's
debt. At December 31, 2001, total debt included $700 million of floating-rate
debt. As a result, Apache's annual interest costs in 2002 will fluctuate based
on short-term interest rates on approximately 31 percent of its total debt
outstanding at December 31, 2001. Additionally, our preferred interests of
subsidiaries of $441 million is subject to fluctuations in short-term interest
rates. The impact on annual cash flow of a 10 percent change in the floating
interest rate, including our preferred interests in subsidiaries, (approximately
22 basis points) would be approximately $2 million. The Company did not have any
open derivative contracts relating to interest rates at December 31, 2001 or
2000.

FOREIGN CURRENCY RISK

The Company's cash flow stream relating to certain international operations
is based on the U.S. dollar equivalent of cash flows measured in foreign
currencies. Australian gas production is sold under fixed-price Australian
dollar contracts and over half the costs incurred are paid in Australian
dollars. Revenue and disbursement transactions denominated in Australian dollars
are converted to U.S. dollar equivalents based on the exchange rate as of the
transaction date. Reported cash flow from Canadian operations is measured in
Canadian dollars and converted to the U.S. dollar equivalent based on the
average of the Canadian and U.S. dollar exchange rates for the period reported.
A portion of Apache's debt in Canada is denominated in U.S. dollars and, as
such, is adjusted for differences in exchange rates at each period-end. This
unrealized adjustment is recorded as other revenues (losses). Substantially all
of the Company's international transactions, outside of Canada and Australia,
are denominated in U.S. dollars. A 10 percent weakening of each of the Canadian
dollar, Polish zloty or Australian dollar will result in a foreign currency loss
of approximately $17 million. The Company did not have any open derivative
contracts relating to foreign currencies at December 31, 2001 or 2000.

FORWARD-LOOKING STATEMENTS AND RISK

Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent upon certain events, risks and uncertainties that
may be outside the Company's control, and which could cause actual results to
differ materially from those anticipated. Some of these include, but are not
limited to, the market prices of oil and gas, economic and competitive
conditions, inflation rates, legislative and regulatory changes, financial
market conditions, political and economic uncertainties of foreign governments,
future business decisions, and other uncertainties, all of which are difficult
to predict.

There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and the
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserve and production estimates. The
drilling of exploratory wells can involve significant risks, including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Although

24

Apache makes use of futures contracts, swaps, options and fixed-price physical
contracts to mitigate risk, fluctuations in oil and gas prices, or a prolonged
continuation of low prices, may substantially adversely affect the Company's
financial position, results of operations and cash flows.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-48 of this Form
10-K, and are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the captions "Nominees for Election as
Directors", "Continuing Directors", "Executive Officers of the Company", and
"Securities Ownership and Principal Holders" in the proxy statement relating to
the Company's 2002 annual meeting of stockholders (the Proxy Statement) is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions "Summary Compensation Table",
"Option/SAR Grants Table", "Option/SAR Exercises and Year-End Value Table",
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements" and "Director Compensation" in the Proxy Statement is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption "Securities Ownership and
Principal Holders" in the Proxy Statement is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Business Relationships
and Transactions" in the Proxy Statement is incorporated herein by reference.

25

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) Documents included in this report:

1. Financial Statements

Report of management........................................ F-1
Report of independent public accountants.................... F-2
Statement of consolidated operations for each of the three
years in the period ended December 31, 2001............... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 2001............... F-4
Consolidated balance sheet as of December 31, 2001 and
2000...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the period ended December 31, 2001..... F-6
Notes to consolidated financial statements.................. F-7

2. Financial Statement Schedules

Financial statement schedules have been omitted because they are either
not required, not applicable or the information required to be presented
is included in the Company's financial statements and related notes.

3. Exhibits

- ---------------

* Filed herewith.

+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.

NOTE: Debt instruments of the Registrant defining the rights of long-term
debt holders in principal amounts not exceeding 10 percent of the Registrant's
consolidated assets have been omitted and will be provided to the Commission
upon request.

(b) Reports on Form 8-K

There were no current reports on Form 8-K filed by Apache during the fiscal
quarter ended December 31, 2001.

30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

APACHE CORPORATION

/s/ RAYMOND PLANK
--------------------------------------
Raymond Plank
Chairman and Chief Executive Officer

Dated: March 21, 2002

POWER OF ATTORNEY

The officers and directors of Apache Corporation, whose signatures appear
below, hereby constitute and appoint Raymond Plank, G. Steven Farris, Z. S.
Kobiashvili and Roger B. Plank, and each of them (with full power to each of
them to act alone), the true and lawful attorney-in-fact to sign and execute, on
behalf of the undersigned, any amendment(s) to this report and each of the
undersigned does hereby ratify and confirm all that said attorneys shall do or
cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

REPORT OF MANAGEMENT

The financial statements and related financial information of Apache
Corporation and subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with accounting
principles generally accepted in the United States and include amounts that are
based on management's best estimates and judgments.

Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to, and that assets are
safeguarded. The systems of internal controls are supported by written policies
and guidelines, internal audits and the selection and training of qualified
personnel.

The consolidated financial statements of Apache Corporation and
subsidiaries have been audited by Arthur Andersen LLP, independent public
accountants. Their audits included developing an overall understanding of the
Company's accounting systems, procedures and internal controls and conducting
tests and other auditing procedures sufficient to support their opinion on the
fairness of the consolidated financial statements.

The Apache Corporation Board of Directors exercises its oversight
responsibility for the financial statements through its Audit Committee,
composed solely of outside directors who are not current employees of Apache or
who have not been employees of Apache within the past ten years. The Audit
Committee meets periodically with management, internal auditors and the
independent public accountants to ensure that they are successfully completing
designated responsibilities. The internal auditors and independent public
accountants have open access to the Audit Committee to discuss auditing and
financial reporting issues.

Raymond Plank
Chairman of the Board
and Chief Executive Officer

Roger B. Plank
Executive Vice President and Chief
Financial Officer

Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)

Houston, Texas
March 12, 2002

F-1

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, 2001
and 2000, and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Apache
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2000, the Company changed its method of accounting for crude oil
inventories. In addition, as discussed in Notes 1 and 4 to the consolidated
financial statements, effective January 1, 2001, the Company changed its method
of accounting for derivative instruments.

ARTHUR ANDERSEN LLP

Houston, Texas
March 12, 2002

F-2

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED OPERATIONS

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED CASH FLOWS

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4

APACHE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5

APACHE CORPORATION AND SUBSIDIARIES

STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY -- (CONTINUED)

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

F-6

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations -- Apache Corporation (Apache or the Company) is an
independent energy company that explores for, develops and produces natural gas,
crude oil and natural gas liquids. The Company's North American exploration and
production activities are divided into three U.S. operating regions (Offshore,
Southern and Midcontinent) and a Canadian region. Approximately 75 percent of
the Company's proved reserves are located in North America. Internationally,
Apache has exploration and production interests in Egypt, offshore Western
Australia and in Argentina, and exploration interests in Poland and offshore The
People's Republic of China (China).

The Company's future financial condition and results of operations will
depend upon prices received for its oil and natural gas production and the costs
of finding, acquiring, developing and producing reserves. A substantial portion
of the Company's production is sold under market-sensitive contracts. Prices for
oil and natural gas are subject to fluctuations in response to changes in
supply, market uncertainty and a variety of other factors beyond the Company's
control. These factors include worldwide political instability (especially in
the Middle East), the foreign supply of oil and natural gas, the price of
foreign imports, the level of consumer demand, and the price and availability of
alternative fuels. With natural gas accounting for 55 percent of Apache's 2001
production on an energy equivalent basis, the Company is affected more by
fluctuations in natural gas prices than in oil prices.

Stock Dividend -- On September 13, 2001, the Company's Board of Directors
declared a 10 percent stock dividend payable on January 21, 2002 to shareholders
of record on December 31, 2001. As a result, the Company reclassified
approximately $545 million from retained earnings to common stock and paid-in
capital, which represents the fair market value at the date of declaration of
the shares distributed. No fractional shares were issued and cash payments
totaling $891,000 were made in lieu of fractional shares. All share and per
share information in these financial statements and notes thereto have been
restated to reflect the 10 percent stock dividend.

Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Apache and its subsidiaries after elimination
of intercompany balances and transactions. The Company's interests in oil and
gas exploration and production ventures and partnerships are proportionately
consolidated.

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 fair
value.

Allowance for Doubtful Accounts -- As of December 31, 2001 and 2000, the
Company had an allowance for doubtful accounts of $24 million and $13 million,
respectively.

Marketable Securities -- The Company accounts for investments in debt and
equity securities in accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Investments in debt securities classified as "held to maturity" are
recorded at amortized cost. Investments in debt and equity securities classified
as "available for sale" are recorded at fair value with unrealized gains and
losses recognized in other comprehensive income, net of income taxes. The
Company utilizes the average cost method in computing realized gains and losses,
which are included in other revenues in the consolidated statements of
operations.

Inventories -- Inventories consist principally of tubular goods and
production equipment, stated at the lower of weighted average cost or market,
and oil produced but not sold, stated at the lower of cost (a combination of
production costs and depreciation, depletion and amortization (DD&A) expense) or
market.

Property and Equipment -- The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method, the
Company capitalizes all acquisition, exploration and development costs incurred
for the purpose of finding oil and gas reserves, including salaries, benefits
and other
F-7

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

internal costs directly attributable to these activities. Apache capitalized $20
million, $23 million and $14 million of these internal costs in 2001, 2000 and
1999, respectively. Costs, however, associated with production and general
corporate activities are expensed in the period incurred. Interest costs related
to unproved properties and properties under development are also capitalized to
oil and gas properties. Unless a significant portion of the Company's proved
reserve quantities in a particular country are sold (greater than 25 percent),
proceeds from the sale of oil and gas properties are accounted for as a
reduction to capitalized costs, and gains and losses are not recognized.

Apache computes the 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. Unproved properties are excluded from the amortizable
base until evaluated. Future development costs and dismantlement, restoration
and abandonment costs, net of estimated salvage values, are added to the
amortizable base. These future costs are generally estimated by engineers
employed by Apache.

Apache limits, on a country-by-country basis, the capitalized costs of
proved oil and gas properties, net of accumulated DD&A and deferred income
taxes, to the estimated future net cash flows from proved oil and gas reserves
discounted at 10 percent, net of related tax effects, plus the lower of cost or
fair value of unproved properties included in the costs being amortized. If
capitalized costs exceed this limit, the excess is charged to additional DD&A
expense. Included in the estimated future net cash flows are Canadian provincial
tax credits expected to be realized beyond the date at which the legislation,
under its provisions, could be repealed. To date, the Canadian provincial
government has not indicated an intention to repeal this legislation.

Given the volatility of oil and gas prices, it is reasonably possible that
the Company's estimate of discounted future net cash flows from proved oil and
gas reserves could change in the near term. If oil and gas prices decline
significantly, even if only for a short period of time, it is possible that
write-downs of oil and gas properties could occur in the future.

Significant unproved properties are periodically assessed for possible
impairments or reductions in value. If a reduction in value has occurred, the
impairment is transferred to proved properties. Unproved properties that are
individually insignificant are generally amortized over an average holding
period. For international operations where a reserve base has not yet been
established, the impairment is charged to earnings. During the second quarter of
2001, the Company recorded a $65 million ($41 million after tax) impairment of
unproved property costs in China and Poland. We are continuing to evaluate our
operations in Poland, which may result in additional impairments in 2002.

Buildings, equipment and gas gathering, transmission and processing
facilities are depreciated on a straight-line basis over the estimated useful
lives of the assets, which range from three to 20 years. Accumulated
depreciation for these assets totaled $182 million and $131 million at December
31, 2001 and 2000, respectively.

Accounts Payable -- Included in accounts payable at December 31, 2001 and
2000, are liabilities of approximately $37 million and $56 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.
These differences create imbalances that are recognized as a liability only when
the estimated remaining reserves will not be sufficient to enable the
underproduced owner to recoup its entitled share through production. As of
December 31, 2001 and 2000, the Company has recorded liabilities of $4 million
and $3 million, respectively, for gas imbalances, which are reflected in other
non-current liabilities. No receivables are recorded for those wells where
Apache has taken less than its share of production. Gas imbalances are reflected
as adjustments to proved gas reserves and future cash flows in the unaudited
supplemental oil and gas disclosures. Adjustments
F-8

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for gas imbalances totaled less than one percent of Apache's proved gas reserves
at December 31, 2001, 2000 and 1999.

The Company's Egyptian operations are conducted pursuant to production
sharing contracts under which we and its non-governmental partners pay all
operating and capital costs for exploring and developing the concessions. A
percentage of the production, usually up to 40 percent, is available to us and
our partners to recover all our operating and capital costs. The balance of the
production is split with our partners and the Egyptian General Petroleum
Corporation (EGPC) on a contractually defined basis.

Derivative Instruments and Hedging Activities -- Apache periodically enters
into commodity derivatives contracts to manage its exposure to oil and gas price
volatility. Commodity derivatives contracts, which are usually placed with major
financial institutions that the Company believes are minimal credit risks, may
take the form of futures contracts, swaps or options. The oil and gas reference
prices upon which these commodity derivatives contracts are based, reflect
various market indices that have a high degree of historical correlation with
actual prices received by the Company for its oil and gas production. Realized
gains and losses from the Company's cash flow hedges, including terminated
contracts, are generally recognized in oil and gas production revenues when the
forecasted transaction occurs.

Effective January 1, 2001, Apache adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 establishes
accounting and reporting standards requiring that all derivative instruments be
recorded in the balance sheet as either an asset or liability measured at fair
value (which is generally based on information obtained from independent
parties) and requires that changes in fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Hedge accounting
treatment allows unrealized gains and losses on cash flow hedges to be deferred
in other comprehensive income (for the effective portion of the hedge) until
such time as the forecasted transaction occurs. Upon adoption, Apache formally
documented and designated all hedging relationships and verified that its
hedging instruments were effective in offsetting changes in actual prices
received by the Company. Effectiveness is monitored quarterly and any
ineffectiveness is reported in other revenues (losses) in the statement of
consolidated operations. Prior to the adoption of SFAS No. 133, derivative
instruments were not reflected as derivative assets and liabilities, and
therefore had no carrying value.

Income Taxes -- The Company follows the liability method of accounting for
income taxes under which deferred tax assets and liabilities are recognized for
the future tax consequences of (i) temporary differences between the tax bases
of assets and liabilities and their reported amounts in the financial statements
and (ii) operating loss and tax credit carryforwards for tax purposes. Deferred
tax assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period.

Foreign Currency Translation -- The U.S. dollar is considered the
functional currency for each of the Company's international operations, except
for Canadian subsidiaries whose functional currency is the Canadian dollar.
Translation adjustments resulting from translating the Canadian subsidiaries'
foreign currency financial statements into U.S. dollar equivalents are reported
separately and accumulated in other comprehensive income. Some of the Company's
Canadian subsidiaries have intercompany debt denominated in U.S. dollars. These
transactions are long-term investments, and therefore, foreign currency gains
and losses are recognized in other comprehensive income. Transaction gains and
losses are recognized in other revenues (losses).

Net Income Per Common Share -- Basic net income per share is computed by
dividing income attributable to common stock by the weighted-average number of
common shares outstanding during the period. Diluted net income per common share
reflects the potential dilution that could occur if the Company's dilutive
outstanding stock options were exercised using the average common stock price
for the period and if the Company's 6.5% Automatically Convertible Equity
Securities, Conversion Preferred Stock, Series C

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APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(Series C Preferred Stock) was converted to common stock using the conversion
rate in effect during the period. These potentially dilutive securities are
excluded from the computation of dilutive earnings per share when their effect
is antidilutive. Contingently issuable shares under the 2000 Share Appreciation
Plan (Share Appreciation Plan) will be excluded from the calculation of income
per common share until the stated goals are met (see Note 9).

Stock-Based Compensation -- The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Under this method, the Company records
no compensation expense for stock options granted when the exercise price of
those options is equal to or greater than the market price of the Company's
common stock on the date of grant.

Use of Estimates -- The preparation of financial statements in conformity
with accounting principles generally accepted in the U.S. requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve quantities and the related present value
of estimated future net cash flows therefrom (see Note 15).

Treasury Stock -- The Company follows the weighted average cost method of
accounting for treasury stock transactions.

Change in Accounting Principle -- In December 2000, the staff of the
Securities and Exchange Commission (SEC) announced that commodity inventories
should be carried at cost, not market value. As a result, Apache changed its
accounting for crude oil inventories in the fourth quarter of 2000, retroactive
to the beginning of the year, and recognized a non-cash cumulative-effect charge
to earnings effective January 1, 2000 of $8 million, net of income tax, to value
crude oil inventory at cost. Quarterly results for 2000 also were restated to
reflect this change in accounting principle (see Note 16).

Reclassifications -- Certain prior period amounts have been reclassified to
conform with current year presentations.

2. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, "Intangible Assets". Upon adoption,
goodwill is no longer subject to amortization over its estimated useful life.
Rather, goodwill will be subject to at least an annual assessment for impairment
by applying a fair-value-based test. Apache's goodwill, $189 million at December
31, 2001, represents the excess of the purchase price over the estimated fair
value of the assets acquired and liabilities assumed in the Fletcher and Repsol
acquisitions (see Note 3). During 2001, the goodwill was amortized on a
straight-line basis over 20 years. Goodwill amortization recorded from the date
of the acquisitions through December 31, 2001 was $7 million. The Company
adopted SFAS No. 142 effective January 1, 2002. The initial fair-value-based
goodwill impairment assessment is required to be completed by June 30, 2002.
Thus, the Company has not yet determined whether or the extent to which the
impairment test will affect the consolidated financial statements.

In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations." SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement requires companies to record
the fair value of legal obligations associated with the retirement of tangible
long-lived assets in the period in which it is incurred. The liability is
capitalized as part of the related long-lived asset's carrying amount. Over
time,
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APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

accretion of the liability is recognized as an operating expense and the
capitalized cost is depreciated over the expected useful life of the related
asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002,
with earlier adoption encouraged. The Company's asset retirement obligations
relate primarily to the dismantlement of offshore platforms. The Company expects
to adopt this new standard effective January 1, 2003. The Company is currently
evaluating the impact of adopting this new standard and accordingly has not
quantified the impact on the consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of" and APB Opinion No. 30, "Reporting the
Results of Operations -- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 establishes one accounting model for long-lived
assets to be disposed of by sale as well as resolves implementation issues
related to SFAS No. 121. The Company adopted SFAS No. 144 effective January 1,
2002. The adoption did not have a material impact on the consolidated financial
statements.

3. ACQUISITIONS AND DIVESTITURES

Acquisitions

On March 22, 2001, Apache completed the acquisition of substantially all of
Repsol YPF's (Repsol) oil and gas concession interests in Egypt for
approximately $447 million in cash, subject to normal post closing adjustments.
The properties included interests in seven Western Desert concessions and had
estimated proved reserves of 66 million barrels of oil equivalent (MMboe) as of
the acquisition date. The Company already held interests in five of the seven
concessions.

On March 27, 2001, Apache completed the acquisition of subsidiaries of
Fletcher Challenge Energy (Fletcher) for approximately $465 million in cash and
1.8 million restricted shares of Apache common stock issued to Shell Overseas
Holdings (valued at $55.49 per share), subject to normal post closing
adjustments. The transaction included properties located primarily in Canada's
Western Sedimentary Basin. Estimated proved reserves totaled 120.8 MMboe as of
the acquisition date. Apache assumed a liability of $103 million representing
the fair value of derivative instruments and fixed-price commodity contracts
entered into by Fletcher.

The Fletcher and Repsol purchase prices were allocated to the assets
acquired and liabilities assumed based upon their estimated fair values as of
the date of acquisition, as follows:

On August 23, 2001, Apache completed the acquisition of properties located
in Texas, Oklahoma and New Mexico with estimated proved reserves of 9.2 MMboe as
of the acquisition date for approximately

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APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$53 million in cash and the assumption of certain liabilities, representing the
fair value of derivative instruments of $9 million, subject to normal
post-closing adjustments.

In November 2001, Apache completed the acquisition of all of Novus Bukha
Limited's (Novus) oil and gas concession interests in Egypt for approximately
$66 million in cash. The acquisition included estimated proved reserves of
approximately 11.7 MMboe as of the acquisition date. The properties included
interests in three Western Desert concessions, in which Apache previously held
an interest.

In 2001, the Company also completed other acquisitions for cash
consideration totaling $44 million. These acquisitions added approximately 4.9
MMboe to the Company's proved reserves.

On January 24, 2000, Apache completed the acquisition of producing
properties in Western Oklahoma and the Texas Panhandle, formerly owned by a
subsidiary of Repsol, for approximately $119 million, plus assumed liabilities
of approximately $30 million. The properties were subject to an existing
volumetric production payment, which burdens future production from the acquired
properties. The $30 million assumed liability represents the estimated operating
costs associated with the volumetric production payment. The acquisition
included estimated proved reserves of approximately 28.7 MMboe, which was net of
the 8.4 MMboe production payment as of the acquisition date.

On June 30, 2000, Apache completed the acquisition of long-lived producing
properties in the Permian Basin and South Texas from Collins & Ware, Inc.
(Collins & Ware) for approximately $321 million. The acquisition included
estimated proved reserves of approximately 83.7 MMboe as of the acquisition
date. One-third of the reserves are liquid hydrocarbons.

On August 17, 2000, Apache completed the acquisition of a Delaware limited
liability company (LLC) owned by subsidiaries of Occidental Petroleum
Corporation (Occidental) and the related natural gas production for
approximately $321 million. The accompanying financial statements include a
discounted liability of $37 million as of the acquisition date representing the
present value of future payments of approximately $44 million over four years.
The December 31, 2000 balance sheet includes a remaining discounted liability of
$30 million. The Occidental properties are located in 32 fields on 93 blocks on
the Outer Continental Shelf of the Gulf of Mexico. The acquisition included
estimated proved reserves of approximately 53.1 MMboe as of the acquisition
date.

On December 29, 2000, Apache completed the acquisition of Canadian
properties from Canadian affiliates of Phillips Petroleum Company (Phillips) for
approximately $490 million. The acquisition included estimated proved reserves
of approximately 70.0 MMboe as of the acquisition date. The properties comprise
approximately 212,000 net developed acres and 275,000 net undeveloped acres, 786
square miles of 3-D seismic and 4,155 miles of 2-D seismic located in the Zama
area of Northwest Alberta. The assets also include three sour gas plants with a
total capacity of 150 million cubic feet per day (MMcf/d), 13 compressor
stations and 150 miles of owned and operated gas gathering lines.

In 2000, the Company also completed other acquisitions for cash
consideration totaling $104 million. These acquisitions added approximately 18.3
MMboe to the Company's proved reserves.

The following unaudited pro forma information shows the effect on the
Company's consolidated results of operations as if the Fletcher and Repsol
acquisitions occurred on January 1, 2000, and Collins & Ware, Occidental and
Phillips acquisitions occurred on January 1, 1999. The pro forma information
includes only

F-12

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significant acquisitions and numerous assumptions, and is not necessarily
indicative of future results of operations.

In February 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase
price of $68 million. The Petsec transaction included estimated proved reserves
of approximately 10.2 MMboe as of the acquisition date.

In May 1999, Apache acquired from Shell Offshore Inc. and affiliated Shell
entities (Shell Offshore) its interest in 22 producing fields and 16 undeveloped
blocks located in the Gulf of Mexico. The Shell Offshore acquisition also
included certain production-related assets and proprietary 2-D and 3-D seismic
data covering approximately 1,000 blocks in the Gulf of Mexico. The purchase
price was $688 million in cash and 1.1 million shares of Apache common stock
(valued at $25.57 per share). The Shell Offshore acquisition included
approximately 123.2 MMboe of proved reserves as of the acquisition date.

In June 1999, the Company acquired a 10 percent interest in the East Spar
Joint Venture and an 8.4 percent interest in the Harriet Joint Venture, both
located in the Carnarvon Basin (offshore Western Australia), from British-Borneo
Oil and Gas Plc (British-Borneo) in exchange for $84 million cash, the
assumption of $19 million in liabilities, primarily related to deferred income
taxes, and working interests in 11 leases in the Gulf of Mexico. The
British-Borneo transaction included approximately 16.8 MMboe of proved reserves
as of the acquisition date.

In November 1999, Apache acquired from Shell Canada Limited (Shell Canada)
producing properties and other assets for $518 million. The producing properties
consist of 150,400 net acres and comprise 20 fields with an average working
interest of 55 percent and proved reserves of 87.2 MMboe as of the acquisition
date. Apache also acquired 294,294 net acres of undeveloped leaseholdings, a 100
percent interest in a gas processing plant with a potential throughput capacity
of 160 MMcf/d, and 52,700 square miles of 2-D seismic and 884 square miles of
3-D seismic.

In 1999, the Company also completed other acquisitions for cash
consideration totaling $18 million. These acquisitions added approximately 8.8
MMboe to the Company's proved reserves.

Each transaction described above has been accounted for using the purchase
method of accounting and has been included in the consolidated financial
statements of Apache since the date of acquisition.

F-13

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Divestitures

In 2001, Apache sold marginal properties, primarily in North America,
containing 88 MMboe of proved reserves, for $348 million. Apache used the sales
proceeds to reduce bank debt.

During 2000, Apache sold proprietary rights to certain Canadian seismic
data and various non-strategic oil and gas properties, collecting cash of $26
million.

During 1999, Apache sold its holdings in the Ivory Coast by selling its
wholly-owned subsidiary, Apache Cote d'Ivoire Petroleum LDC, for a total sales
price of $46 million to a consortium consisting of Mondoil Cote d'Ivoire LLC and
Saur Energie Cote d'Ivoire. The sale consisted of 13.7 MMboe of proved reserves
and a gain was recorded to other revenues in the accompanying statement of
consolidated operations.

Additionally, during 1999, Apache sold 27.9 MMboe of proved reserves in
several transactions from largely marginal North American properties for $110
million.

4. DERIVATIVE INSTRUMENTS AND FIXED-PRICE PHYSICAL CONTRACTS

Apache uses a variety of strategies to manage its exposure to fluctuations
in commodity prices. The Company's derivative positions divide into three
general categories: (1) Apache's hedging activity, (2) derivatives assumed in
acquisitions (Acquired Contracts), and (3) advances from gas purchasers. The
following table details the fair value of these positions as of January 1, 2001,
or as of the acquisition date in the case of Acquired Contracts:

Driven by the uncertainty of how the collapse of Enron Corp. could have
impacted the derivative markets, Apache closed all of its derivative positions
and certain fixed-price physical contracts during October and November 2001,
receiving proceeds of approximately $62 million (referred to below as the
"Unwind").

Apache Hedging Activity -- The Company entered into cash flow hedges in
connection with certain acquisitions. The success of these acquisitions is
primarily based on Apache's ability to achieve targeted production at forecasted
prices. These hedges effectively reduced price risk on a portion of the
production from the acquisitions.

Effective January 1, 2001, Apache adopted SFAS No. 133. At that time,
natural gas prices were approaching historical record highs. Although Apache was
realizing higher prices on its production, the fair value of the Company's cash
flow hedges were out-of-the-money by approximately $116 million ($71 million,
net of income tax). This unrealized loss was reflected as a charge to other
comprehensive income. Throughout the year, commodity prices were trending
downward. As a result, Apache realized only $40 million of this loss during the
year. In connection with the Unwind, the Company closed out the rest of these
open positions and received cash proceeds of $8 million. These proceeds will be
recognized in earnings over the next two years as the original hedged production
occurs.

The Company also uses long-term, fixed-price physical contracts to lock in
a portion of its natural gas production at a given price. In the Unwind, the
Company received approximately $13 million to terminate contracts with certain
counterparties. Since the Company has no continuing performance obligations
under the contracts, the amount was recognized as a gain in other revenues
(losses) in 2001.

F-14

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Acquired Contracts -- In addition to the cash flow hedges the Company
entered into, Apache assumed $113 million of derivative and physical contracts
in connection with two acquisitions. Because these derivatives were
out-of-the-money when the Company acquired them, the liability was factored into
the consideration paid to the sellers (see Note 3). Since commodity prices
generally decreased after the acquisitions, Apache was able to settle this
liability in the Unwind for only $67 million, including $37 million paid to
terminate the remaining open positions. As a result, Apache realized a gain of
$32 million during 2001, and will realize an additional $14 million gain over
the next two years as the original hedged production occurs.

Advances from Gas Purchasers -- Effective January 1, 2001, Apache
recognized a derivative asset of $121 million reflecting the fair value of gas
price swaps entered into in connection with certain advance payments received
from gas purchasers in 1998 and 1997. Apache also recognized a derivative
liability of $121 million reflecting the fair value of an embedded fixed price
physical contract. The net effect of these transactions resulted in Apache
delivering natural gas to the advance purchasers at prevailing market prices.
Apache terminated the gas price swaps in the Unwind, receiving proceeds of $78
million. These proceeds will be recognized into earnings over the remaining life
of the contracts and effectively increase the original contract's fixed prices
by approximately 51 percent. Upon termination, Apache designated the remaining
contractual volumes of gas that will be delivered to the purchaser as a normal,
fixed-price physical contract. See Note 8 for additional information on the
advances from gas purchasers.

5. SHORT-TERM INVESTMENTS

On August 7, 2001, Apache purchased $116 million in U.S. Government Agency
Notes. These notes pay interest at rates from 6.25 percent to 6.375 percent and
mature on October 15, 2002. The Company subsequently sold $13 million of the
notes during 2001.

At December 31, 2001, Apache had $103 million of U.S. Government Agency
Notes, $17 million of which are designated as "available for sale" securities.
The Company recognizes unrealized gains and losses on the "available for sale"
securities in accumulated other comprehensive income, net of taxes. The
remaining $86 million is designated as "held to maturity" and is carried at
amortized cost.

F-15

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. DEBT

Long-Term Debt

The Company's $1 billion global credit facility consists of three separate
bank facilities: a $700 million facility in the United States; a $175 million
facility in Australia; and a $125 million facility in Canada. The global credit
facility enables Apache to draw on the entire $1 billion facility without
restrictions tied to periodic revaluation of the Company's oil and gas reserves.
Under the financial covenants of the global credit facility, the Company must
(i) maintain a consolidated tangible net worth, as defined, of at least $1.9
billion as of December 31, 2001, which is adjusted for subsequent earnings, (ii)
maintain an aggregate book value for assets of Apache Corporation and certain
subsidiaries, as defined, of at least $1.8 billion as of December 31, 2001, and
(iii) maintain a ratio of debt to capitalization of not greater than 60 percent
at the end of any fiscal quarter. The Company was in compliance with all
financial covenants at December 31, 2001.

The global credit facility matures on June 12, 2003. At the Company's
option, the interest rate is based on (i) the greater of (a) The Chase Manhattan
Bank's prime rate or (b) the federal funds rate plus one-half of one percent,
(ii) the London Interbank Offered Rate (LIBOR) plus a margin determined by the
Company's senior long-term debt rating, or (iii) a margin that is determined by
competitive bids from the participating banks. At December 31, 2001, the margin
over LIBOR for committed loans was .17 percent. The

F-16

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company currently pays a quarterly facility fee of .08 percent on the total
amount of each of the three facilities. This fee varies based upon the Company's
senior unsecured long-term debt rating.

The Company also has a $500 million, 364-day revolving credit facility with
a group of banks. The terms of this facility are substantially the same as those
of Apache's global credit facility. The 364-day revolving credit facility is
scheduled to mature on July 12, 2002. This facility is used, along with the U.S.
portion of the global credit facility, to support Apache's commercial paper
program. The 364-day credit facility allows the Company to convert outstanding
revolving loans into one-year term loans on the revolving commitment termination
date.

As of December 31, 2001, Apache's available borrowing capacity under its
global credit facility and 364-day revolving credit facility was $839 million.

At December 31, 2001, the Company also had certain uncommitted money market
lines of credit which are used from time to time for working capital purposes,
under which an aggregate of $3 million was outstanding as of December 31, 2001.
Such credit lines are classified as long-term debt in the accompanying
consolidated balance sheet as the Company has the ability and intent to
refinance such amounts on a long-term basis through available borrowing capacity
under the global credit facility and 364-day credit facility.

The Company has a $1.2 billion commercial paper program which enables
Apache to borrow funds for up to 270 days at competitive interest rates. The
commercial paper balances at December 31, 2001 and 2000 were classified as
long-term debt in the accompanying consolidated balance sheet as the Company has
the ability and intent to refinance such amounts on a long-term basis through
either the rollover of commercial paper or available borrowing capacity under
the U.S. portion of the global credit facility and 364-day revolving credit
facility. The weighted average interest rate for commercial paper was 4.10
percent in 2001 and 6.56 percent in 2000.

The Company does not have the right to redeem any of its notes or
debentures (other than the Apache Finance Australia 6.5 - percent notes
mentioned below) prior to maturity. Under certain conditions, the Company has
the right to advance maturity on the 7.7 - percent notes, 7.95 - percent notes,
7.375 - percent debentures and 7.625 - percent debentures.

The 9.25 - percent notes mature on June 1, 2002. These notes are classified
as long-term debt in the accompanying consolidated balance sheet as the Company
has the ability and intent to refinance such amounts on a long-term basis
through available borrowing capacity under the global credit facility.

In July 2001, the Company's three Egyptian subsidiaries that had a secured,
revolving credit facility with a group of banks elected to terminate that
Egyptian credit facility.

The notes issued by Apache Finance Pty Ltd (Apache Finance Australia) and
Apache Finance Canada Corporation (Apache Finance Canada) are irrevocably and
unconditionally guaranteed by Apache and, in the case of Apache Finance
Australia, by Apache North America, Inc., an indirect wholly-owned subsidiary of
the Company. Under certain conditions related to changes in relevant tax laws,
Apache Finance Australia and Apache Finance Canada have the right to redeem the
notes prior to maturity. In the case of the 6.5 - percent notes, Apache Finance
Australia may also redeem the notes at its option subject to a make-whole
premium (see Note 17).

In August 2001, Apache Clearwater, Inc. (Apache Clearwater), a subsidiary
of Apache, issued $37 million of senior floating rate notes, which mature August
9, 2003. The notes bear interest at a rate equal to three-month LIBOR plus 1.05
percent and are redeemable at the Company's discretion.

The total amount of discounts on the Company's debt is $11 million at
December 31, 2001, and is being amortized over the life of the debt issuances as
additional interest expense.

F-17

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2001 and 2000, the Company had approximately $14 million
and $15 million, respectively, of unamortized deferred loan costs associated
with its various debt obligations. These costs are included in deferred charges
and other in the accompanying consolidated balance sheet and are being amortized
to expense over the life of the related debt.

The indentures for the notes described above place certain restrictions on
the Company, including limits on Apache's ability to incur debt secured by
certain liens and its ability to enter into certain sale and leaseback
transactions. Upon certain change in control, all of these debt instruments
would be subject to mandatory repurchase, at the option of the holders.

Aggregate Maturities of Debt

The Company made cash payments for interest of $176 million, $170 million
and $124 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

7. INCOME TAXES

Income before income taxes is composed of the following:

The total provision for income taxes consists of the following:

F-18

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:

The net deferred tax liability is comprised of the following:

The Company has not recorded deferred income taxes on the undistributed
earnings of its foreign subsidiaries as management intends to permanently
reinvest such earnings. As of December 31, 2001, the undistributed earnings of
the foreign subsidiaries amounted to approximately $1.6 billion. Upon
distribution of these earnings in the form of dividends or otherwise, the
Company may be subject to U.S. income taxes and foreign withholding taxes. It is
not practical, however, to estimate the amount of taxes that may be payable on
the eventual remittance of these earnings after consideration of available
foreign tax credits. Presently, limited foreign tax credits are available to
reduce the U.S. taxes on such amounts if repatriated.

At December 31, 2001, the Company had federal net operating loss
carryforwards of $7 million and state net operating loss carryforwards of $261
million. The state net operating losses will expire over the next 15 years, if
they are not otherwise utilized. The Company has alternative minimum tax (AMT)
credit carryforwards of $14 million that can be carried forward indefinitely,
but which can be used only to reduce regular tax liabilities in excess of AMT
liabilities. Investment and other tax credit carryforwards of $2 million

F-19

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expired in 2001. These credits had been fully reserved in 2000 through a
valuation allowance. The foreign net operating loss relates to foreign
pre-production expenditures which will not be deductible for foreign tax
purposes until production begins, which is expected to be in 2003. Once these
expenditures are deducted for foreign tax purposes, any net operating loss has a
five-year carryforward period.

The Company made cash payments for income and other taxes, net of refunds,
of $172 million, $123 million and $66 million for the years ended December 31,
2001, 2000 and 1999, respectively.

8. ADVANCES FROM GAS PURCHASERS

In July 1998, Apache received $72 million from a purchaser as an advance
payment for future natural gas deliveries ranging from 6,726 MMBtu per day to
24,669 MMBtu per day, for a total of 45,330,949 MMBtu, over a 10-year period
commencing August 1998. In addition, the purchaser pays Apache a monthly fee of
$.08 per MMBtu on the contracted volumes. Concurrent with this arrangement,
Apache entered into three gas price swap contracts with a third party under
which Apache became a fixed price payor for identical volumes at prices ranging
from $2.34 per MMBtu to $2.56 per MMBtu. The net result of these related
transactions was that gas delivered to the purchaser was reported as revenue at
prevailing spot prices with Apache realizing a premium associated with the
monthly fee paid by the purchaser.

In August 1997, Apache received $115 million from a purchaser as an advance
payment for future natural gas deliveries of 20,000 MMBtu per day over a
ten-year period commencing September 1997. In addition, the purchaser pays
Apache a monthly fee of $.07 per MMBtu on the contracted volumes. Concurrent
with this arrangement, Apache entered into two gas price swap contracts with a
third party under which Apache became a fixed price payor for identical volumes
at average prices starting at $2.19 per MMBtu in 1997 and escalating to $2.59
per MMBtu in 2007. The net result of these related transactions was that gas
delivered to the purchaser was reported as revenue at prevailing spot prices
with Apache realizing a premium associated with the monthly fee paid by the
purchaser.

Contracted volumes relating to these arrangements are included in the
Company's unaudited supplemental oil and gas disclosures.

These advance payments have been classified as advances from gas purchasers
and are being recognized in oil and gas production revenues as gas is delivered
to the purchasers under the terms of the contracts. At December 31, 2001 and
2000, advances of $140 and $153 million, respectively, were outstanding. Gas
volumes delivered to the purchaser are reported as revenue at prices used to
calculate the amount advanced, before imputed interest, plus or minus amounts
paid or received by Apache applicable to the price swap agreements. Interest
expense is recorded based on a rate of eight percent.

In October and November 2001, Apache terminated the gas price swap
contracts associated with these advances and received proceeds of $78 million.
The effect of terminating these derivative instruments reduces future price risk
exposure to natural gas price volatility by establishing a fixed price for the
remaining quantities of gas to be delivered under the terms of the contracts.
Upon termination, Apache designated the remaining contractual volumes of gas
that will be delivered to the purchasers as a normal fixed price physical sale.
The prices used in settling the derivatives represented an average 51 percent
increase over the prices reflected in the original contracts. No gain or loss
was recognized at termination. The settlement is carried as a deferred credit on
the balance sheet and will be recognized in monthly sales based on the portion
of the proceeds applicable to each production month over the remaining life of
the contracts.

F-20

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. CAPITAL STOCK

Common Stock Outstanding

- ---------------

(1) In August 2000, Apache completed a public offering of 10.1 million shares of
common stock, including 1.3 million shares for the underwriters'
over-allotment option, for net proceeds of $434 million. In May 1999, Apache
completed a public offering of approximately 16.4 million shares of common
stock for net proceeds of $444 million.

(2) In March 2001, Apache issued to Shell Overseas Holdings 1.8 million
restricted shares for net proceeds of $100 million in connection with the
Fletcher acquisition.

(3) In May 1999, Apache issued to Shell Offshore 1.1 million shares in
connection with the acquisition of Gulf of Mexico properties from Shell
Offshore.

Net Income Per Common Share -- A reconciliation of the components of basic
and diluted net income per common share for the years ended December 31, 2001,
2000 and 1999 is presented in the table below:

The effect of the Series C Preferred Stock was not included in the
computation of diluted net income per common share during 1999, because to do so
would have been antidilutive.

Stock Option Plans -- At December 31, 2001, officers and certain key
employees had been granted options to purchase the Company's common stock under
employee stock option plans adopted in 1990, 1995, 1998 and 2000 (collectively,
the Stock Option Plans). Under the Stock Option Plans, the exercise price of
each option equals the market price of Apache's common stock on the date of
grant. Options generally become exercisable ratably over a four-year period and
expire after 10 years.

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APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1996 Performance Stock Option Plan -- On October 31, 1996, the Company
established the 1996 Performance Stock Option Plan (the Performance Plan) for
substantially all full-time employees, excluding officers and certain key
employees. Under the Performance Plan, the exercise price of each option equals
the market price of Apache common stock on the date of grant. All options become
exercisable after nine and one-half years and expire 10 years from the date of
grant. Under the terms of the Performance Plan, no grants were made after
December 31, 1998.

A summary of the status of the plans described above as of December 31,
2001, 2000 and 1999, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):

The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 2001 (shares in
thousands):

- ---------------

(1) Excludes 136,125 shares, 156,750 shares and 240,900 shares as of December
31, 2001, 2000 and 1999, respectively, issuable under stock options assumed
by Apache in connection with the 1996 acquisition of The Phoenix Resource
Companies, Inc.

(2) The fair value of each option is estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 2001, 2000 and 1999, respectively: (i)
risk-free interest rates of 4.95, 6.74 and 5.65 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 41.39, 37.42 and 33.87 percent, and (iv)
expected dividend yields of .51, .57 and .75 percent.

F-22

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October 2000, the Company adopted the Share Appreciation Plan under
which grants were made to the Company's officers and substantially all full-time
employees. The Share Appreciation Plan provides for issuance of up to an
aggregate of 3.85 million shares of Apache common stock, based on attainment of
one or more of three share price goals (the Share Price Goals) and/or a separate
production goal (the Production Goal). Generally, shares will be issued in three
installments over 24 months after achievement of each goal. When and if the
goals are achieved, the Company will recognize compensation expense over the
24-month vesting period equal to the value of the stock on the date the
particular goal is achieved. The shares of Apache common stock contingently
issuable under the Share Appreciation Plan will be excluded from the computation
of income per common share until the stated goals are met.

The Share Price Goals are based on achieving a share price of $91, $109 and
$164 per share before January 1, 2005. A summary of the number of shares
contingently issuable under the Share Price Goals as of December 31, 2001 and
2000 is presented in the table below (shares in thousands):

The Production Goal will be attained if and when the Company's average
daily production equals or exceeds 1.40 barrels of oil equivalent per diluted
share (calculated on an annualized basis) during any fiscal quarter ending
before January 1, 2005. Such level of production was approximately twice the
Company's level of production at the time the Share Appreciation Plan was
adopted. Shares issuable in connection with the Production Goal will be a number
of shares of the Company's common stock equal to (a) 37.5 percent, 75 percent or
150 percent of a participant's annual base salary (at the time of attainment),
as applicable, divided by (b) the average daily per share closing price of the
Company's common stock for the fiscal quarter during which the Production Goal
is attained.

In 2001, the Company modified the Stock Option Plans, 1996 Performance
Stock Option Plan and 2000 Share Appreciation Plan to allow for immediate
vesting upon a change in control of ownership. No compensation expense was
recognized as a result of this change.

- ---------------

(1) Represents shares issuable upon attainment of $91, $109 and $164 per share
price goals of 660,128 shares, 1,649,899 shares and 733,235 shares,
respectively, in 2001 and 596,200 shares, 1,488,300 shares and 661,100
shares, respectively, in 2000.

(2) The fair value of each Share Price Goal conditional grant is estimated as of
the date of grant using a Monte Carlo simulation with the following
weighted-average assumptions used for grants in 2001 and 2000, respectively:
(i) risk-free interest rate of 4.31 and 5.95 percent; (ii) expected
volatility of 46.04 and 44.69 percent; and (iii) expected dividend yield of
.72 and .44 percent.
F-23

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company accounts for its stock-based compensation plans under APB
Opinion No. 25 and related interpretations, under which, generally, no
compensation cost has been recognized for the Stock Option Plans, the
Performance Plan, or the Share Appreciation Plan. If compensation costs for
these plans had been determined in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net income and net income per common
share would approximate the following pro forma amounts:

The pro forma amounts shown above may not be representative of future
results, as the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995.

In December 1998, the Company entered into a conditional stock grant
agreement with an executive of the Company which would award up to 109,998
shares of the Company's common stock in five annual installments. Each
installment has a five-year vesting period, 40 percent of the conditional grants
will be paid in cash at the market value of the stock on the date of payment and
the balance (65,998 shares) will be issued in Apache common stock. In 2001, the
Company modified the conditional stock grant agreement to allow for immediate
vesting upon a change in control of ownership. No compensation expense was
recognized as a result of this change.

Preferred Stock

The Company has five million shares of no par preferred stock authorized,
of which 25,000 shares have been designated as Series A Junior Participating
Preferred Stock (the Series A Preferred Stock), 100,000 shares have been
designated as the 5.68 percent Series B Cumulative Preferred Stock (the Series B
Preferred Stock) and 140,000 shares have been designated as Series C Preferred
Stock. The shares of Series A Preferred Stock are authorized for issuance
pursuant to certain rights that trade with Apache common stock outstanding and
are reserved for issuance upon the exercise of the Rights as defined and
discussed below.

Rights to Purchase Series A Preferred Stock -- In December 1995, the
Company declared a dividend of .9 right (a Right) (adjusted for the 10-percent
stock dividend) for each share of Apache common stock outstanding on January 31,
1996. Each full Right entitles the registered holder to purchase from the
Company one ten-thousandth (1/10,000) of a share of Series A Preferred Stock at
a price of $100 per one ten-thousandth of a share, subject to adjustment. The
Rights are exercisable 10 calendar days following a public announcement that
certain persons or groups have acquired 20 percent or more of the outstanding
shares of Apache common stock or 10 business days following commencement of an
offer for 30 percent or more of the outstanding shares of Apache common stock.
In addition, if a person or group becomes the beneficial owner of 20 percent or
more of Apache's outstanding common stock (flip in event), each Right will
become exercisable for shares of Apache's common stock at 50 percent of the then
market price of the common stock. If a 20 percent shareholder of Apache acquires
Apache, by merger or otherwise, in a transaction where Apache
F-24

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

does not survive or in which Apache's common stock is changed or exchanged (flip
over event), the Rights become exercisable for shares of the common stock of the
company acquiring Apache at 50 percent of the then market price for Apache
common stock. Any Rights that are or were beneficially owned by a person who has
acquired 20 percent or more of the outstanding shares of Apache common stock and
who engages in certain transactions or realizes the benefits of certain
transactions with the Company will become void. If an offer to acquire all of
the Company's outstanding shares of common stock is determined to be fair by
Apache's board of directors, the transaction will not trigger a flip in event or
a flip over event. The Company may also redeem the Rights at $.01 per Right at
any time until 10 business days after public announcement of a flip in event.
The Rights will expire on January 31, 2006, unless earlier redeemed by the
Company. Unless the Rights have been previously redeemed, all shares of Apache
common stock issued by the Company after January 31, 1996 will include Rights.
Unless and until the Rights become exercisable, they will be transferred with
and only with the shares of Apache common stock.

Series B Preferred Stock -- In August 1998, Apache issued 100,000 shares
($100 million) of Series B Preferred Stock in the form of one million depositary
shares, each representing one-tenth (1/10) of a share of Series B Preferred
Stock, for net proceeds of $98 million. The Series B Preferred Stock has no
stated maturity, is not subject to a sinking fund and is not convertible into
Apache common stock or any other securities of the Company. Apache has the
option to redeem the Series B Preferred Stock at $1,000 per preferred share on
or after August 25, 2008. Holders of the shares are entitled to receive
cumulative cash dividends at an annual rate of $5.68 per depositary share when,
and if, declared by Apache's board of directors.

Series C Preferred Stock -- In May 1999, Apache issued 140,000 shares ($217
million) of Series C Preferred Stock in the form of seven million depositary
shares each representing one-fiftieth (1/50) of a share of Series C Preferred
Stock, for net proceeds of $211 million. The Series C Preferred Stock is not
subject to a sinking fund or mandatory redemption. At any time prior to May 15,
2002, holders of the depositary shares may elect to convert each of their
shares, subject to adjustments, into not less than 0.9016 of a share of Apache
common stock (6,242,769 common shares). Holders of the shares are entitled to
receive cumulative cash dividends at an annual rate of 6.5 percent, or $2.015
per depositary share when, and if, declared by Apache's board of directors. On
May 15, 2002, each depositary share will automatically convert, subject to
adjustments, into not more than 1.099 shares and not less than 0.9016 of a share
of Apache common stock, depending on the market price of Apache common stock at
that time.

In 2000, Apache bought back 75,900 depositary shares at an average price of
$34.42 per share. The excess of the purchase price to reacquire the depositary
shares over the original issuance price is reflected as a preferred stock
dividend in the accompanying statement of consolidated operations.

Comprehensive Income -- Components of accumulated other comprehensive
income (loss) consist of the following (in thousands):

The unrealized gain (loss) on available for sale securities at December 31,
2001, 2000 and 1999 is net of income tax expense (benefit) of $67,000, $(94,000)
and $129,000, respectively. The currency translation adjustments are not
adjusted for income taxes as they relate to a permanent investment in non-U.S.
subsidiaries.

F-25

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A rollforward of the unrealized gain on derivatives is presented in the
table below:

10. FINANCIAL INSTRUMENTS

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 2001 and 2000. See Note 4
for a discussion of the Company's derivative instruments.

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 fair value at December 31, 2001 and 2000
because of the short-term nature of such items.

F-26

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Short-Term Investments -- The fair value of the Company's short-term
investments are estimates provided to the Company by independent investment
banking firms.

Long-Term Debt -- The fair value of the 7.625-percent debentures is based
upon an estimate provided to the Company by an independent investment banking
firm. The fair values of all other notes and debentures are based on quoted
market prices. The carrying amount of the global credit facility, commercial
paper and money market lines of credit approximated fair value because the
interest rates are variable and reflective of market rates.

11. COMMITMENTS AND CONTINGENCIES

Litigation

China -- In June 2000, our subsidiary, Apache China Corporation LDC (Apache
China), filed a lawsuit against PetroChina Company Limited (PetroChina), China
National Petroleum Corporation and China National Oil and Gas Exploration and
Development Corporation in connection with certain operations in the Zhao Dong
Block of the Bohai Bay, offshore China. Apache China, PetroChina and XCL-China,
Ltd. (XCL-China) agreed to modify their agreements relating to the development
of the Zhao Dong Block (including certain extensions of time). These
modifications have been approved by the appropriate Chinese governmental
authorities and the bankruptcy court presiding over XCL-China's bankruptcy
proceeding, and the lawsuit was subsequently dismissed. XCL-China continues
under bankruptcy protection and the presiding court is considering two competing
plans for XCL-China's reorganization. The final court approval of a plan is not
expected before April 2002. Development activities, including construction of
production facilities, are continuing in accordance with the overall development
plan and the modified agreements.

Canada -- In December 2000, certain subsidiaries of the Company and Murphy
Oil Corporation (Murphy) filed a lawsuit in Canada charging The Predator
Corporation Ltd. (Predator) and others with misappropriation and misuse of
confidential well data to obtain acreage offsetting a significant natural gas
discovery made by Apache and Murphy during 2000 in the Ladyfern area of
northeast British Columbia. In February 2001, Predator filed a counterclaim
seeking more than C$6 billion and has since filed an application to reduce this
amount to no more than C$3.6 billion. Management believes that the counterclaim
is without merit and that the amount claimed by Predator is frivolous.

Cinergy -- As described in Note 13 Transactions with Related Parties and
Major Customers, Cinergy Marketing & Trading, LLC (Cinergy) purchases most of
our United States natural gas production. Disputes have arisen between Cinergy
and Apache concerning various matters, including Cinergy's claim to market our
Canadian gas production. As a result, in September 2001, Cinergy commenced an
arbitration proceeding seeking, among other things, specific performance to
require us to sell our Canadian gas production to Cinergy or pay damages. We are
disputing Cinergy's assertions (including their claim to market our Canadian
production), filing a general denial and counterclaim against Cinergy for
amounts arising from, among other things, a recent audit. Management does not
believe the outcome of the arbitration will be material to our financial
position or results of operations. We continue to market most of our U.S. gas
production through Cinergy.

The Company is involved in litigation and is subject to governmental and
regulatory controls arising in the ordinary course of business. It is the
opinion of the Company's management that all claims and litigation involving the
Company are not likely to have a material adverse effect on its financial
position or results of operations.

Environmental -- Apache, as an owner and operator of oil and gas
properties, is subject to various federal, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations and subject the
F-27

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lessee to liability for pollution damages. Apache maintains insurance coverage,
which it believes, is customary in the industry, although it is not fully
insured against all environmental risks.

As part of the Company's due diligence review for acquisitions, Apache
conducts an extensive environmental evaluation of purchased properties.
Depending on the extent of an identified environmental problem, the Company may
exclude a property from the acquisition, require the seller to remediate the
property to Apache's satisfaction, or agree to assume liability for remediation
of the property. As of December 31, 2001, Apache had an undiscounted reserve for
environmental remediation of approximately $9 million. The Company is not aware
of any environmental claims existing as of December 31, 2001, which have not
been provided for or would otherwise have a material impact on its financial
position or results of operations. There can be no assurance, however, that
current regulatory requirements will not change, or past non-compliance with
environmental laws will not be discovered on the Company's properties.

International Commitments -- The Company, through its subsidiaries, has
acquired or has been conditionally or unconditionally granted exploration rights
in Australia, Egypt, China and Poland. In order to comply with the contracts and
agreements granting these rights, the Company, through various wholly-owned
subsidiaries, is committed to expend approximately $83 million through 2005.

Retirement and Deferred Compensation Plans -- The Company provides a 401(k)
savings plan for employees which allows participating employees to elect to
contribute up to 25 percent of their salaries, with Apache making matching
contributions up to a maximum of six percent of each employee's salary. In
addition, the Company annually contributes six percent of each participating
employee's compensation, as defined, to a money purchase retirement plan. The
401(k) plan and the money purchase retirement plan are subject to certain
annually-adjusted, government-mandated restrictions which limit the amount of
each employee's contributions.

For certain eligible employees, the Company also provides a non-qualified
retirement/savings plan which allows the deferral of up to 50 percent of each
such employee's salary, and which accepts employee contributions and the
Company's matching contributions in excess of the above-referenced restrictions
on the 401(k) savings plan and money purchase retirement plan. Additionally,
Apache Energy Limited and Apache Canada Ltd. maintain separate retirement plans,
as required under the laws of Australia and Canada, respectively.

Vesting in the Company's contributions to the 401(k) savings plan, the
money purchase retirement plan and the non-qualified retirement/savings plan
occurs at the rate of 20 percent per year. Upon a change in control of
ownership, vesting is immediate. Total costs under all plans were $16 million,
$9 million and $8 million for 2001, 2000 and 1999, respectively. The unfunded
liability for all plans as of December 31, 2001 and 2000 have been recorded in
other accrued expenses.

Lease Commitments -- The Company has leases for buildings, facilities and
equipment with varying expiration dates through 2008. Net rental expense was $18
million, $16 million and $12 million for 2001, 2000 and 1999, respectively.

F-28

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2001, minimum rental commitments under long-term
operating leases, net of sublease rentals and long-term pipeline transportation
commitments, ranging from one to 23 years, are as follows:

12. PREFERRED INTERESTS OF SUBSIDIARIES

In August 2001, Apache entered into a series of financing transactions,
described below, to pay down existing debt and increase financial flexibility.

Apache contributed interests in various fields valued at $923 million to
new subsidiaries in connection with the financing transactions. Additionally,
Apache contributed $116 million in U.S. Government Agency Notes, as discussed in
Note 5. Unrelated institutional investors contributed $443 million ($441
million, net of issuance costs) to the various subsidiaries in exchange for
preferred stock ($82 million) of the subsidiaries and a limited partner interest
($361 million) in one of the entities. The third party investors are entitled to
receive a weighted average return of 123 basis points above the prevailing LIBOR
interest rate. The preferred stock and limited partner interests are repayable
from the assets of the subsidiaries. Apache retains credit risks related to
collection of proceeds from product sales and intercompany loans. Apache also
has an obligation to contribute an aggregate amount not to exceed $250 million
to fund present and future business operations of the subsidiaries. However, the
investors are not entitled to receive more than their $443 million original
investment, plus the agreed-upon return. One of the subsidiaries also issued $37
million of senior floating rate notes as discussed in Note 6.

The limited partnership is scheduled to terminate as of August 9, 2021.
However, the general partner, an Apache subsidiary, may elect to retire all or
part of the limited partner's interest at any time without penalty. In addition,
the limited partnership agreement requires that the limited and general partners
reset the partners' rate of return over LIBOR every five years beginning in
2006. If the partners fail to mutually agree on new rates of return, the general
partner must either dissolve the partnership or purchase the limited partner's
interest. Upon dissolution of the partnership, retirement of the limited
partner's interest, or purchase of the limited partner's interest by the general
partner, the limited partner will receive the unrecouped balance of its initial
$361 million capital investment.

If Apache's senior unsecured long-term debt ratings from Standard & Poor's
and Moody's fall to BBB- or lower or Baa3 or lower, respectively, or if either
rating is withdrawn, our subsidiaries that issued the preferred stock and
limited partnership interests may need to obtain additional cash or cash
equivalents or redeem part of the preferred interests to remain in compliance
with certain covenants. Also, if Apache's rating falls to BB or lower or Ba2 or
lower, the limited partner has the right to cause the dissolution of the
partnership, though we can avoid this by exercising our right to retire the
limited partnership interests without penalty.

F-29

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The preferred stock certificates require that the Apache subsidiaries and
their preferred shareholders reset the preferred stock dividend rate every five
years beginning in 2006. If they fail to mutually agree on a new rate, the
Apache subsidiaries must either register the stock for public sale, or redeem
all of the outstanding preferred stock. The Apache subsidiaries may elect to
redeem all or part of the preferred stock at any time without penalty.

The assets and liabilities of the subsidiaries are included in Apache's
consolidated financial statements at historical costs, with the preferred stock
and limited partner interests of the subsidiaries reflected as a preferred
interests of subsidiaries in the consolidated balance sheet. The dividends paid
on the preferred stock and distributions paid on the limited partner interests
are reflected as preferred interests of subsidiaries in the statement of
consolidated operations.

13. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS

Strategic Alliance with Cinergy Corp. -- In June 1998, Apache formed a
strategic alliance with Cinergy to market substantially all the Company's
natural gas production from the United States and agreed to develop terms for
the marketing of most of Apache's Canadian production under an amended and
restated gas purchase agreement effective July 1, 1998. Apache sold its 57
percent interest in ProEnergy for 771,258 shares of Cinergy Corp. common stock,
which the Company subsequently sold for $26 million. In December 1998, Apache
and Cinergy agreed to postpone the negotiation of terms to market most of
Apache's Canadian production. ProEnergy, renamed Cinergy Marketing and Trading
LLC, will continue to market Apache's North American natural gas production
until June 30, 2008, with an option, following prior notice, to terminate on
June 30, 2004. During this period, Apache is generally obligated to deliver most
of its United States gas production to Cinergy and, under certain circumstances,
reimburse Cinergy if certain gas throughput thresholds are not met. All
throughput thresholds have been met. Because of the Company's obligation under
the agreement, Apache recorded a deferred gain of $20 million, subject to
adjustment, on the sale of ProEnergy that is being amortized over six years, the
non-cancelable term of the agreement. At December 31, 2001, the remaining
balance was $8 million. The prices received for its gas production under this
agreement approximate market prices. As described in Note 11, Commitments and
Contingencies, Apache and Cinergy are parties to arbitration. We continue to
market most of our U.S. gas production through Cinergy.

Related Parties -- F.H. Merelli, a member of the Company's board of
directors since July 1997, is chairman and chief executive officer of Key
Production Company, Inc. (Key). In the normal course of business, Key paid to
Apache approximately $4 million during 2001 and $3 million during both 2000 and
1999 for Key's proportionate share of drilling and workover costs, mineral
interests and routine expenses related to oil and gas wells in which Key owns
interests and for which Apache is the operator. Key received approximately $12
million, $10 million and $6 million in 2001, 2000 and 1999, respectively, for
its proportionate share of revenues from such interests, of which approximately
$7 million in both 2001 and 2000, and $4 million in 1999, was paid directly to
Key by Apache or related entities.

Major Customers -- In 2001, purchases by Cinergy and EGPC accounted for 35
percent and 17 percent of the Company's oil and gas production revenues,
respectively. In 2000, purchases by Cinergy and EGPC accounted for 26 percent
and 16 percent of the Company's oil and gas production revenues, respectively.
In 1999, purchases by Cinergy and EGPC accounted for 29 percent and 21 percent
of the Company's oil and gas production revenues, respectively. No other
purchaser has accounted for more than 10 percent of revenues for 2001, 2000 or
1999.

Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced significant
credit losses on such sales. Sales of natural gas by Apache to Cinergy are
similarly uncollateralized. Deteriorating economic
F-30

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

conditions in Egypt may reduce EGPC's ability to obtain the necessary amount of
U.S. dollars to fulfill its ongoing obligations. During 2001, the Company
experienced a gradual decline in timeliness of receipts from EGPC, and
continuation of the hard currency shortage in Egypt could lead to further
delays, deferrals of payment or non-payment in the future.

14. BUSINESS SEGMENT INFORMATION

Apache has five reportable segments which are primarily in the business of
crude oil and natural gas exploration and production. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies. The Company evaluates performance based on profit or loss
from oil and gas operations before income and expense items incidental to oil
and gas operations and income taxes. Apache's reportable segments are managed
separately because of their geographic locations. Financial information by
operating segment is presented below:

F-31

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

F-32

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. 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.

- ---------------

(1) Amortization rate per boe reflects only DD&A of capitalized costs of proved
oil and gas properties.
F-33

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Costs Not Being Amortized -- The following table sets forth a summary of
oil and gas property costs not being amortized at December 31, 2001, by the year
in which such costs were incurred:

Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities:

- ---------------

(1) Acquisitions include unproved costs of $77 million, $125 million and $256
million for transactions completed in 2001, 2000 and 1999, respectively.
F-34

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Capitalized Costs -- The following table sets forth the capitalized costs
and associated accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities:

F-35

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 SEC. The Company's estimates of proved reserve
quantities of its U.S., Canadian and international properties are subject to
review by Ryder Scott Company, L.P. Petroleum Consultants, independent petroleum
engineers.

There are numerous uncertainties inherent in estimating quantities of
proved reserves and projecting future rates of production and timing of
development expenditures. The following reserve data represents estimates only
and should not be construed as being exact.

F-36

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future Net Cash Flows -- Future cash inflows are based on year-end oil and
gas prices except in those instances where future natural gas or oil sales are
covered by physical contract terms providing for higher or lower amounts.
Operating costs, production and ad valorem taxes and future development costs
are based on current costs with no escalation.

The following table sets forth unaudited information concerning future net
cash flows for oil and gas reserves, net of income tax expense. Income tax
expense has been computed using expected future tax rates and giving effect to
tax deductions and credits available, under current laws, and which relate to
oil and gas producing activities. This information does not purport to present
the fair market value of the Company's oil and gas assets, but does present a
standardized disclosure concerning possible future net cash flows that would
result under the assumptions used.

- ---------------

(1) 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.

(2) Estimated future net cash flows before income tax expense, discounted at 10
percent per annum, totaled approximately $7.4 billion, $17.7 billion and
$6.1 billion as of December 31, 2001, 2000 and 1999, respectively.
F-37

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth the principal sources of change in the
discounted future net cash flows:

Impact of Pricing -- The estimates of cash flows and reserve quantities
shown above are based on year-end oil and gas prices, except in those cases
where future natural gas or oil sales are covered by physical contracts at
specified prices. Price fluctuations are largely due to supply and demand
perceptions for natural gas and volatility in oil prices.

Under the full cost accounting rules of the SEC, the Company reviews the
carrying value of its proved oil and gas properties each quarter on a
country-by-country basis. Under these rules, capitalized costs of proved oil and
gas properties, net of accumulated DD&A and deferred income taxes, may not
exceed the present value of estimated future net cash flows from proved oil and
gas reserves, discounted at 10 percent, plus the lower of cost or fair value of
unproved properties included in the costs being amortized, net of related tax
effects. These rules generally require pricing future oil and gas production at
the unescalated oil and gas prices at the end of each fiscal quarter and require
a write-down if the "ceiling" is exceeded. Given the volatility of oil and gas
prices, it is reasonably possible that the Company's estimate of discounted
future net cash flows from proved oil and gas reserves could change in the near
term. If oil and gas prices decline significantly, even if only for a short
period of time, it is possible that write-downs of oil and gas properties could
occur in the future.

F-38

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)

- ---------------

(1) The sum of the individual quarterly net income per common share amounts may
not agree with year-to-date net income per common share as each quarterly
computation is based on the weighted average number of common shares
outstanding during that period. In addition, certain potentially dilutive
securities were not included in certain of the quarterly computations of
diluted net income per common share because to do so would have been
antidilutive.

(2) Earnings per share have been restated to reflect the 10-percent stock
dividend declared September 13, 2001, payable January 21, 2002 to
shareholders of record on December 31, 2001.

(3) Results for the first, second and third quarters of 2000 have been restated
to reflect a change in accounting principle requiring crude oil inventories
to be recorded at cost.

(4) During the second quarter of 2001, the Company recorded a nonrecurring $65
million impairment ($41 million after-tax) of unproved property costs in
Poland and China.

(5) See Note 3, Acquisitions and Divestitures, for a discussion of our
significant acquisitions and divestitures.

F-39

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. SUPPLEMENTAL GUARANTOR INFORMATION

Prior to 2001, Apache Finance Australia was a finance subsidiary of Apache
with no independent operations. In this capacity, it issued approximately $270
million of publicly traded notes that are fully and unconditionally guaranteed
by Apache and, beginning in 2001, Apache North America, Inc. The guarantors of
Apache Finance Australia have joint and several liability. Similarly, Apache
Finance Canada was also a finance subsidiary of Apache and had issued
approximately $300 million of publicly traded notes that were fully and
unconditionally guaranteed by Apache.

Generally, the issuance of publicly traded securities would subject those
subsidiaries to the reporting requirements of the SEC. Since these subsidiaries
had no independent operations and qualified as "finance subsidiaries", they were
exempted from these requirements.

During 2001, Apache contributed stock of its Australian and Canadian
operating subsidiaries to Apache Finance Australia and Apache Finance Canada,
respectively. As a result of these contributions, they no longer qualify as
finance subsidiaries. As allowed by the SEC rules, the following condensed
consolidating financial statements are provided as an alternative to filing
separate financial statements.

Each of the companies presented in the condensed consolidating financial
statements are wholly owned and have been consolidated in Apache Corporation's
consolidated financial statements for all periods presented. As such, the
condensed consolidating financial statements should be read in conjunction with
the financial statements of Apache Corporation and subsidiaries and notes
thereto of which this note is an integral part.

F-40

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001

F-41

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000

F-42

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999

F-43

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2001

F-44

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2000

F-45

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999

F-46

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 2001

F-47

APACHE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET
FOR THE YEAR ENDED DECEMBER 31, 2000

F-48

BOARD OF DIRECTORS

FREDERICK M. BOHEN(3)(5)
Acting Executive Vice President and
Chief Operating Officer,
The Rockefeller University

G. STEVEN FARRIS
President and Chief Operating Officer,
Apache Corporation

RANDOLPH M. FERLIC, M.D.(1)(2)(4)
Founder and Former President,
Surgical Services of the Great Plains, P.C.

EUGENE C. FIEDOREK(2)
Private Investor, Former Managing Director,
EnCap Investments L.C.

A. D. FRAZIER, JR.(3)(5)
Chairman of the Board and Chief Executive Officer,
The Chicago Stock Exchange

JOHN A. KOCUR(1)(3)(4)
Attorney at Law; Former Vice Chairman of the Board,
Apache Corporation

GEORGE D. LAWRENCE JR.(1)(3)
Private Investor; Former Chief Executive Officer,
The Phoenix Resource Companies, Inc.

MARY RALPH LOWE(3)(4)(5)
President and Chief Executive Officer,
Maralo, LLC

F. H. MERELLI(1)(2)
Chairman of the Board and Chief Executive Officer,
Key Production Company, Inc.

RODMAN D. PATTON(2)
Former Managing Director,
Merrill Lynch Energy Group

CHARLES J. PITMAN(4)
Former Regional President - Middle East/ Caspian/Egypt/India, BP Amoco plc;
Sole Member, Shaker Mountain Energy Associates, LLC

RAYMOND PLANK(1)
Chairman of the Board and Chief Executive Officer,
Apache Corporation

OFFICERS

RAYMOND PLANK
Chairman of the Board and Chief Executive Officer

G. STEVEN FARRIS
President and Chief Operating Officer

MICHAEL S. BAHORICH
Executive Vice President - Exploration and
Production Technology

JOHN A. CRUM
Executive Vice President - Eurasia and New Ventures

ROGER B. PLANK
Executive Vice President and Chief Financial Officer

LISA A. STEWART
Executive Vice President
Business Development and E&P Services

ZURAB S. KOBIASHVILI
Senior Vice President and General Counsel

JEFFREY M. BENDER
Vice President - Human Resources

THOMAS P. CHAMBERS
Vice President - Corporate Planning

MATTHEW W. DUNDREA
Vice President and Treasurer

ROBERT J. DYE
Vice President - Investor Relations

ERIC L. HARRY
Vice President and Associate General Counsel

ANTHONY R. LENTINI, JR.
Vice President - Public and International Affairs

THOMAS L. MITCHELL
Vice President and Controller

JON W. SAUER
Vice President - Tax

CHERI L. PEPER
Corporate Secretary

- ---------------

(1) Executive Committee

(2) Audit Committee

(3) Management, Development & Compensation Committee

(4) Nominating Committee

(5) Stock Option Plan Committee

SHAREHOLDER INFORMATION

Stock Data

* Per share prices have been adjusted to reflect the effects of the ten percent
stock dividend.

** The Company paid $0.25 per share in 2000, of which $0.19 was declared in 2000
and $0.06 was declared in the fourth quarter of 1999, as a result of changing
its dividend payment schedule during 2000 from a quarterly basis to an annual
basis. The amounts in the chart have been adjusted to reflect the ten percent
stock dividend.

The Company has paid cash dividends on its common stock for 35 consecutive
years through December 31, 2001. During 2000, the Company changed the dividend
payment schedule on its common stock from a quarterly basis to an annual basis;
however, during 2001, the Company implemented a return to a quarterly dividend
payment schedule beginning in 2002. Future dividend payments will depend upon
the Company's level of earnings, financial requirements and other relevant
factors.

Apache common stock is listed on the New York and Chicago stock exchanges
(symbol APA). At December 31, 2001, the Company's shares of common stock
outstanding were held by approximately 9,000 shareholders of record and 110,000
beneficial owners. Also listed on the New York Stock Exchange are:

o the Company's 9.25% notes, due 2002
(symbol APA 02)

o the Company's $2.015 depositary shares
(symbol APAPrC)

o Apache Finance Canada's 7.75% notes, due 2029 (symbol APA 29)

CORPORATE OFFICES
One Post Oak Central
2000 Post Oak Boulevard
Suite 100
Houston, Texas 77056-4400
(713) 296-6000

INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
711 Louisiana
Suite 1300
Houston, Texas 77002

STOCK TRANSFER AGENT AND REGISTRAR
Wells Fargo Bank Minnesota, N.A.
(formerly known as Norwest Bank Minnesota, N.A.)
Attn: Shareowner Services
P.O. Box 64854
South St. Paul, Minnesota 55164-0854
(651) 450-4064 or (800) 468-9716

Communications concerning the transfer of shares, lost certificates, dividend
checks, duplicate mailings or change of address should be directed to the stock
transfer agent.

DIVIDEND REINVESTMENT PLAN
Shareholders of record may invest their dividends automatically in additional
shares of Apache common stock at the market price. Participants may also invest
up to an additional $5,000 in Apache shares each quarter through this service.
All bank service fees and brokerage commissions on purchases are paid by Apache.
A prospectus describing the terms of the Plan and an authorization form may be
obtained from the Company's stock transfer agent, Wells Fargo Bank Minnesota,
N.A.

ANNUAL MEETING
Apache will hold its annual meeting of shareholders on Thursday, May 2, 2002, at
10 a.m. in the Ballroom, Doubletree Hotel at Post Oak, 2001 Post Oak Boulevard,
Houston, Texas. Apache plans to web cast the annual meeting live; connect
through the Apache web site: http://www.apachecorp.com.

STOCK HELD IN "STREET NAME"
The Company maintains a direct mailing list to ensure that shareholders with
stock held in brokerage accounts receive information on a timely basis.
Shareholders wanting to be added to this list should direct their requests to
Apache's Public and International Affairs Department, 2000 Post Oak Boulevard,
Suite 100, Houston, Texas, 77056-4400, by calling (713) 296-6157 or by
registering on Apache's web site: http://www.apachecorp.com.

FORM 10-K REQUEST
Shareholders and other persons interested in obtaining, without cost, a copy of
the Company's Form 10-K filed with the Securities and Exchange Commission may do
so by writing to Cheri L. Peper, Corporate Secretary, 2000 Post Oak Boulevard,
Suite 100, Houston, Texas, 77056-4400.

INVESTOR RELATIONS
Shareholders, brokers, securities analysts or portfolio managers seeking
information about the Company are welcome to contact Robert J. Dye, Vice
President of Investor Relations, at (713) 296-6662.

Members of the news media and others seeking information about the Company
should contact Apache's Public and International Affairs Department at (713)
296-6107.

WEB SITE: http://www.apachecorp.com

EXHIBIT INDEX

- ---------------

* Filed herewith.

+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.