SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0747868
- -------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
- -------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (713) 296-6000
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X No
---- ----
Number of shares of Apache Corporation common stock, $1.25 par value,
outstanding as of June 30, 1996 89,803,802
(page)
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(Unaudited)
<TABLE>
(In thousands, except per share data) For the Quarter For the Six Months
Ended June 30, Ended June 30,
------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
REVENUES:
<S> <C> <C> <C> <C>
Oil and gas production revenues $ 191,434 $ 174,519 $ 363,355 $ 317,708
Gathering, processing and
marketing revenues 31,327 28,356 65,276 51,225
Other revenues 895 3,177 1,495 4,837
-------- -------- -------- --------
223,656 206,052 430,126 373,770
-------- -------- -------- --------
OPERATING EXPENSES:
Depreciation, depletion
and amortization 76,319 78,830 148,180 148,625
Operating costs 54,360 55,538 106,872 100,517
Gathering, processing and
marketing costs 29,885 26,666 62,295 48,127
Administrative, selling and other 8,271 10,421 17,129 20,110
Merger costs -- 9,977 -- 9,977
Financing costs:
Interest expense 21,742 25,048 41,990 43,609
Amortization of deferred loan costs 1,174 1,150 2,329 2,373
Capitalized interest (7,238) (4,853) (12,539) (8,435)
Interest income (739) (1,020) (1,418) (1,926)
-------- -------- -------- --------
183,774 201,757 364,838 362,977
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 39,882 4,295 65,288 10,793
Provision for income taxes 15,445 3,758 25,196 6,173
-------- -------- -------- --------
NET INCOME $ 24,437 $ 537 $ 40,092 $ 4,620
======== ======== ======== ========
NET INCOME PER COMMON SHARE $ .29 $ .01 $ .49 $ .07
======== ======== ======== ========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 85,738 69,809 81,580 69,741
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
(page)
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Unaudited)
<TABLE>
(In thousands) For the Six Months
Ended June 30,
-------------------------
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 40,092 $ 4,620
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation, depletion and amortization 148,180 148,625
Amortization of deferred loan costs 2,329 2,373
Provision for deferred income taxes 22,045 19,773
Gain on sale of stock held for investment (834) (350)
Other -- 77
Changes in operating assets and liabilities:
Increase in receivables (12,111) (45,373)
Increase in advances to oil and gas ventures
and other (2,689) (969)
(Increase) decrease in other assets (842) 941
Increase in accounts payable 14,106 5,754
Increase (decrease) in accrued expenses (1,179) 9,037
Decrease in advance from gas purchaser (4,131) (3,316)
Increase in deferred credits and
other noncurrent liabilities 9,085 47
-------- --------
Net cash provided by operating activities 214,051 141,239
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures (220,258) (142,129)
Acquisition of oil and gas properties (2,835) (573,856)
Non-cash portion of oil and gas property additions (4,564) (9,882)
Investment in Producers Energy Marketing, LLC (5,785) --
Acquisition of The Phoenix Resource Companies, Inc.,
net of cash acquired (43,294) --
Proceeds from sale of oil and gas properties 2,168 73,196
Purchase of stock held for investment -- (305)
Prepaid acquisition costs -- 25,377
Proceeds from sale of stock held for investment 5,389 5,428
Increase in inventory, net (3,884) (4,121)
Other capital expenditures, net (11,948) (4,233)
-------- --------
Net cash used by investing activities (285,011) (630,525)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 412,408 745,605
Payments on long-term debt (329,703) (250,141)
Proceeds from issuance of common stock 5,260 1,286
Treasury stock activity (7) (2)
Dividends paid (10,842) (8,604)
Costs of debt and equity transactions (3,638) (11,582)
-------- --------
Net cash provided by financing activities 73,478 476,562
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,518 (12,724)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,633 30,043
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,151 $ 17,319
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
(PAGE)
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
(In thousands) June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 16,151 $ 13,633
Receivables 191,579 175,949
Inventories 13,648 9,764
Advances to oil and gas ventures and other 14,812 8,990
---------- ----------
236,190 208,336
---------- ----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 4,356,815 3,956,833
Unproved properties and properties
under development, not being amortized 389,008 335,842
International concession rights 99,000 --
Gas gathering, transmission and processing facilities 95,858 33,088
Other 54,100 51,341
---------- ----------
4,994,781 4,377,104
Less: Accumulated depreciation,
depletion and amortization (2,118,560) (1,975,543)
---------- ----------
2,876,221 2,401,561
---------- ----------
OTHER ASSETS:
Deferred charges and other 67,751 71,553
---------- ----------
$ 3,180,162 $ 2,681,450
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
(page)
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
(In thousands) June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S> <C> <C>
Current maturities of long-term debt $ 13,500 $ 3,000
Accounts payable 153,126 138,269
Accrued operating expense 21,999 26,863
Accrued exploration and development 25,683 30,251
Accrued interest 15,416 9,687
Accrued compensation and benefits 5,653 9,733
Other accrued expenses 14,198 12,546
---------- ----------
249,575 230,349
---------- ----------
LONG-TERM DEBT 1,156,781 1,072,076
---------- ----------
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES:
Income taxes 215,746 181,575
Advances on gas contracts 56,207 60,338
Other 53,275 45,307
---------- ----------
325,228 287,220
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000
shares authorized, 90,923,961 and
78,498,892 shares issued, respectively 113,655 98,124
Paid-in capital 1,000,317 687,465
Retained earnings 363,851 335,470
Currency translation adjustment (15,760) (15,776)
Treasury stock, at cost, 1,120,159 and
1,119,934 shares, respectively (13,485) (13,478)
---------- ----------
1,448,578 1,091,805
---------- ----------
$ 3,180,162 $ 2,681,450
========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
(page)
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
(Unaudited)
<TABLE>
(In thousands) For the Quarter
Ended June 30,
---------------------------
1996 1995
---------- -----------
<S> <C> <C>
RETAINED EARNINGS, beginning of period $ 345,700 $ 335,073
Net income 24,437 537
Dividends declared:
Common stock, $.07 per share (6,286) (4,895)
---------- ----------
RETAINED EARNINGS, end of period $ 363,851 $ 330,715
========== ==========
</TABLE>
<TABLE>
For the Six Months
Ended June 30,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
RETAINED EARNINGS, beginning of year $ 335,470 $ 335,293
Net income 40,092 4,620
Dividends declared:
Common stock, $.14 per share (11,711) (9,198)
---------- ----------
RETAINED EARNINGS, end of period $ 363,851 $ 330,715
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
(page)
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The financial statements included herein have been prepared by Apache
Corporation (Apache or the Company) without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission, and reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods, on a basis consistent
with the annual audited financial statements. All such adjustments are of
a normal recurring nature. Certain information, accounting policies, and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations, although the Company believes that
the disclosures are adequate to make the information presented not
misleading. These financial statements should be read in conjunction with
the financial statements and the summary of significant accounting policies
and notes thereto included in the Company's latest annual report on Form
10-K.
1. INCOME TAXES
Under the liability method specified by Statement of Financial
Accounting Standards (SFAS) No. 109, deferred taxes are determined based on
the estimated future tax effect of differences between the financial
statement and tax bases of assets and liabilities given the provisions of
enacted laws.
2. INCOME PER SHARE
Primary income per common share was calculated by dividing net income
by the weighted average common shares outstanding. The effect of common
stock equivalents, including shares issuable upon the exercise of stock
options (calculated using the treasury stock method) and upon the assumed
conversion of the Company's 3.93 percent convertible notes, was not
significant, and the assumed conversion of the six-percent convertible
debentures was anti-dilutive, for all periods presented.
3. STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly,
the adoption of SFAS No. 123, "Accounting for Stock-Based Compensation" in
1996 will have no effect on the Company's results of operations.
4. ACQUISITIONS
On May 20, 1996, Apache acquired The Phoenix Resource Companies, Inc.
(Phoenix), an oil and gas company operating primarily in the Arab Republic
of Egypt, through a merger (Merger) which resulted in Phoenix becoming a
wholly-owned subsidiary of Apache. The Merger was accounted for using the
purchase method of accounting and the results of which are included in the
financial statements of the Company since the date of acquisition.
Pursuant to the Merger agreement, each share of Phoenix common stock then
outstanding, and when exercised, outstanding Phoenix stock options (which
was assumed by Apache) was converted into the right to receive (a) .75
shares of Apache common stock with any fractional shares paid in cash,
without interest, and (b) $4.00 in cash. As a result, 12.2 million shares
of Apache common stock were issued in exchange for outstanding Phoenix
stock.
6
(page)
On March 1, 1995, Apache completed the acquisition of 315 oil and gas
fields from Texaco Exploration and Production Inc. (Texaco) for an adjusted
purchase price of $567 million. The acquisition of the Texaco properties
was accounted for using the purchase method of accounting and is included
in the financial statements of the Company since the date of the
acquisition.
The following unaudited pro forma financial information shows the
effect on the Company's consolidated results of operations as if the
Phoenix acquisition was effective on January 1 of each year presented and
as if the Texaco acquisition was effective on January 1, 1995. The pro
forma data presented is based on numerous assumptions and should not
necessarily be viewed as being indicative of future operations.
<TABLE>
(In thousands, except per share data)
For the Six Months For the Six Months
Ended June 30, 1996 Ended June 30, 1995
----------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues and other income $ 430,126 $ 445,052 $ 373,770 $ 410,787
Net income $ 40,092 $ 43,705 $ 4,620 $ 6,406
Net income per common share $ .49 $ .49 $ .07 $ .08
Weighted average common
shares outstanding 81,580 89,684 69,741 81,931
</TABLE>
5. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activity is presented
below.
In May 1996, Apache acquired Phoenix for cash, Apache common stock and
options to acquire Apache common stock. The accompanying financial
statements include the following attributable to the acquisition:
<TABLE>
<S> <C>
Value of properties acquired, including gathering facilities $ 386,237
Other non-cash assets acquired 7,901
Common stock and options to purchase common stock issued
(12.2 million and .8 million shares, respectively) (322,860)
Liabilities assumed (27,984)
----------
Cash paid, net of cash acquired $ 43,294
==========
</TABLE>
7
(page)
Supplemental Disclosure of Cash Flow Information
The Company considers all highly liquid debt instruments purchased
with an initial maturity of three months or less to be cash equivalents.
These investments are carried at cost which approximates market.
The following table provides additional disclosure of cash payments:
<TABLE>
(In thousands)
For the Six Months
Ended June 30,
-----------------------------
1996 1995
----------- -----------
Cash paid during the period for:
<S> <C> <C>
Interest (net of amounts capitalized) $ 20,898 $ 29,433
Income taxes (net of refunds) 221 439
</TABLE>
6. DEBT
During February 1996, Apache completed its offering of $100 million
principal amount, $99.6 million net of discount, of senior unsecured 7.7-
percent notes due March 15, 2026. During April 1996, Apache issued an
additional $180 million principal amount, $178.5 million net of discount,
of senior unsecured 7.95-percent notes maturing on April 15, 2026. Neither
issue is redeemable prior to maturity and the same indenture governs both
notes and imposes certain obligations 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.
8
(page)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Apache's results of operations and financial position for the first
six months of 1996 were significantly impacted by the following factors:
Commodity Prices - Current year earnings and cash flow continued to be
impacted by higher oil and natural gas price realizations. Apache's net
realized price for natural gas increased $.37 per thousand cubic feet (Mcf)
from $1.50 in the first half of 1995 to $1.87 in the same period of 1996,
favorably impacting revenues by $37.3 million. The Company's realized oil
price increased $1.87 per barrel from $17.20 to $19.07, contributing $16.8
million to the increase in revenues.
Phoenix Acquisition - On May 20, 1996, Apache acquired The Phoenix
Resource Companies, Inc. (Phoenix), through a merger which resulted in
Phoenix becoming a wholly-owned subsidiary of Apache. The assets acquired
in the Phoenix acquisition contributed approximately 8,000 barrels of oil
per day (Bopd) in production during the months of May and June 1996.
RESULTS OF OPERATIONS
Apache reported 1996 second quarter net income of $24.4 million, or
$.29 per share, compared to $.5 million, or $.01 per share, for the same
period last year. Prior year earnings were negatively impacted by a
nonrecurring charge for merger costs of $10 million ($8.7 million, or $.12
per share, after tax), associated with the DEKALB Energy Company merger
completed in 1995. The increase over the prior period was also
attributable to solid increases in both crude oil and natural gas prices as
well as lower operating expenses and financing costs.
Earnings for the first six months of 1996 totaled $40.1 million, or
$.49 per share, compared to $4.6 million, or $.07 per share, during the
first half of 1995. Higher product prices compared to a year ago favorably
impacted earnings but were partially offset by lower production on a barrel
of oil equivalent (Boe) basis and higher lease operating expenses. The
increase in lease operating expenses during the six months ended June 30,
1996, as compared to 1995, was primarily attributable to costs incurred on
properties acquired from Texaco. The results from these properties were
included for the period from March 1, 1995 through June 30, 1995, whereas
they are included in the entire first half of 1996.
Revenues increased nine percent, from $206.1 million in the second
quarter of 1995 to $223.7 million for the same period in 1996. Natural gas
and crude oil sales each contributed approximately 49 percent to the
Company's total oil and gas production revenue during the second quarter,
with the remainder attributable to natural gas liquid sales.
9
(page)
For the first six months of 1996, revenues increased 15 percent to
$430.1 million compared to the same period in 1995. Crude oil and natural
gas production revenue increased 14 percent over the same period in 1995.
Volume and price information for the Company's 1996 and 1995 second
quarter and first six months oil and gas production is summarized in the
following tables:
<TABLE>
For the Quarter Ended June 30, For the Six Months Ended June 30,
-------------------------------- -----------------------------------
Increase Increase
1996 1995 (Decrease) 1996 1995 (Decrease)
------- ------- --------- ------- ------- ---------
Gas Volume - Mcf per day:
<S> <C> <C> <C> <C> <C> <C>
U.S. 462,862 519,147 (11%) 469,400 502,679 (7%)
Canada 76,498 73,683 4% 70,612 67,458 5%
Australia 6,157 4,542 36% 9,641 5,329 81%
Egypt 296 -- -- 148 -- --
-------- -------- -------- --------
Total 545,813 597,372 (9%) 549,801 575,466 (4%)
======== ======== ======== ========
Average Gas Price - Per Mcf:
U.S. $ 2.06 $ 1.59 30% $ 2.00 $ 1.56 28%
Canada .91 1.02 (11%) .99 1.00 (1%)
Australia 2.02 1.87 8% 1.99 1.94 3%
Egypt 2.99 -- -- 2.99 -- --
Total 1.90 1.52 25% 1.87 1.50 25%
Oil Volume - Barrels per day:
U.S. 41,786 50,869 (18%) 40,812 45,334 (10%)
Canada 1,886 2,061 (8%) 1,927 2,014 (4%)
Australia 2,103 3,360 (37%) 2,358 3,217 (27%)
Egypt 7,181 -- -- 4,159 -- --
-------- -------- -------- --------
Total 52,956 56,290 (6%) 49,256 50,565 (3%)
======== ======== ======== ========
Average Oil Price - Per barrel:
U.S. $ 19.65 $ 17.36 13% $ 18.99 $ 17.07 11%
Canada 20.97 17.81 18% 19.49 17.26 13%
Australia 20.78 19.16 8% 20.86 19.05 10%
Egypt 18.68 -- -- 18.66 -- --
Total 19.61 17.48 12% 19.07 17.20 11%
NGL Volume - Barrels per day:
U.S. 1,630 1,378 18% 1,488 1,470 1%
Canada 590 539 9% 630 549 15%
-------- -------- -------- --------
Total 2,220 1,917 16% 2,118 2,019 5%
======== ======== ======== ========
NGL Price - Per barrel:
U.S. $ 14.92 $ 13.29 12% $ 14.98 $ 13.01 15%
Canada 10.16 9.39 8% 11.68 9.80 19%
Total 13.66 12.19 12% 14.00 12.14 15%
</TABLE>
Second Quarter 1996 Compared to Second Quarter 1995
Natural gas sales for the second quarter of 1996 totaled $94.2
million, 14 percent higher than those recorded in 1995. Average natural gas
prices increased 25 percent from second quarter 1995 to $1.90 per Mcf,
favorably impacting revenue by $18.5 million. The increase in average natural
gas prices was due primarily to a strong U.S. second quarter price of $2.06
per Mcf, 30 percent higher than the same period in 1995, partially offset by
an 11-percent decrease in prices being received in Canada. The Company
periodically engages in hedging activities and also enters into fixed price
physical contracts to reduce its exposure to price risk. The net impact of
these activities was to reduce the Company's second quarter realized prices
by $.10 per Mcf in 1996, as compared to a gain of $.11 per Mcf in 1995.
Production for the quarter totaled 546 million cubic feet per day (MMcf/d),
down nine percent from the prior year second quarter, reducing revenue,
when compared to last year, by $7.1 million. U.S. natural gas production
declined 56.3 MMcf/d, or 11 percent, in the second quarter of 1996 compared
to 1995, due primarily to the natural depletion and increasing downtime on
short-lived
10
(page)
offshore properties. Production increases in Canada and Australia
partially offset the second quarter decline in U.S. production.
The Company's crude oil sales for the second quarter totaled $94.5
million, or five percent higher than 1995. Realized price for sales of
crude oil increased 12 percent, to $19.61 per barrel, contributing
approximately $10.2 million to oil and gas production revenue. Partially
offsetting favorable crude oil prices was a six-percent decline in
production of 3.3 thousand barrels of oil per day (Mb/d), resulting in a
decrease in oil and gas production revenues of $5.3 million. U.S. oil
production, which comprises 79 percent of total second quarter 1996 oil
production, declined 18 percent compared to the second quarter of 1995, due
primarily to the sale of producing properties in late 1995. Canadian and
Australian production declined slightly, while Egyptian production
increased 7.2 Mb/d primarily due to the assets acquired from Phoenix.
Revenue from the sale of natural gas liquids totaled approximately
$2.8 million for the second quarter of 1996, as compared to $2.1 million for
the same period in 1995. Increases in both production and realized prices
contributed to the increase in revenue.
Year-to-date 1996 compared to year-to-date 1995
Gas sales for the first six months of 1996 of $187.0 million increased
20 percent, compared to the same period in 1995, as the impact of favorable
natural gas prices more than offset production losses. Average gas prices
increased to $1.87 per Mcf for the first half of 1996 compared to $1.50 per
Mcf for the same period in 1995 while gas production declined four percent,
to 549.8 MMcf/d. Revenues from U.S. natural gas production, which
comprised 85 percent of total gas production, significantly impacted sales
due to favorable pricing. Average U.S. prices increased 28 percent in the
first half of 1996 to $2.00 per Mcf, contributing $37.6 million to the
increase in sales from the prior year first half. U.S. production,
however, declined seven percent to 469.4 MMcf/d negatively impacting sales
by $8.7 million. International natural gas activity contributed $2.3
million to the increase in 1996 sales compared to 1995. The Company's net
hedging activity reduced realized prices by $.14 per Mcf during the first
six months of 1996, compared to a $.13 per Mcf gain during the comparable
period of 1995.
For the first six months of 1996, oil sales increased nine percent to
$171.0 million, compared to $157.4 million for the same period in 1995.
Oil revenues were favorably impacted $16.8 million due to a $1.87 per
barrel increase in average realized oil prices. U.S. oil prices increased
$1.92 per barrel, or 11 percent, increasing sales by approximately $14.3
million. International price increases favorably impacted sales by $2.4
million. A decline in oil production from 50.6 Mb/d in the first six
months of 1995 to 49.3 Mb/d for the same period in 1996 offset the
favorable oil price increase by $3.2 million. U.S. production declined ten
percent in 1996 compared to the first half of 1995, due to the property
sales recorded last year and which negatively impacted sales by
approximately $13.3 million. International production increased
significantly, due primarily to the assets acquired from Phoenix, favorably
impacting sales by approximately $10.1 million.
For the first half of 1996, natural gas liquid revenues increased 22
percent to $5.4 million. Compared to the prior year, realized prices
increased 15 percent and production increased five percent, contributing
$.7 million and $.3 million, respectively, to the increase in production
revenues.
11
(page)
OTHER REVENUES AND OPERATING EXPENSES
During the second quarter and first six months of 1996, Apache's gas
gathering, processing and marketing revenues increased ten percent and 28
percent, respectively, to $31.3 million and $65.3 million, driven primarily
by increased gas prices. Apache is actively involved in purchasing and
reselling both crude oil and natural gas. The increase in revenues with
respect to these activities is essentially offset by increased costs to
purchase the gas sold, leaving margins relatively flat between the
respective periods.
Other revenues during the second quarter of 1996 totaling $.9 million,
consisting primarily of a $.8 million gain on the sale of stock held for
investment and Canadian royalty credits, decreased $2.3 million when
compared to the second quarter of 1995. Other revenues in the second
quarter of 1995 included $2.3 million from the settlement of a contract
dispute and $.6 million from the sale of non-oil and gas assets acquired in
the DEKALB merger, in addition to Canadian royalty credits.
The Company's DD&A expense for the second quarter and first six months
of 1996 totaled $76.3 million and $148.2 million, respectively, compared to
$78.8 million and $148.6 million for the comparable periods in 1995.
Decreases in full cost DD&A expense attributable to lower production were
partially offset by increases in the Company's average DD&A rate and
increases in amortization associated with non-oil and gas property assets.
On a equivalent barrel basis, full cost DD&A increased $.07 per Boe, from
$5.34 per Boe to $5.41 per Boe, in the second quarter of 1996 compared to
the second quarter of 1995. For the six months ended June 30, 1996, the
full cost DD&A rate totaled $5.38 per Boe, compared to $5.36 per Boe in
1995.
Operating costs, including lease operating expense and severance
taxes, decreased slightly from $55.5 million in the second quarter of 1995, to
$54.4 million for the same period in 1996. For the first six months of
1996, operating costs totaled $106.9 million, an increase of $6.4 million,
or six percent, over the same period in 1995. On an equivalent barrel
basis, operating costs for the second quarter and six months ended June 30,
1996, increased to $4.09 and $4.10 per Boe, respectively from $3.87 and
$3.74 in 1995. These increases were due primarily to the Company's property
mix shifting more to longer-lived onshore oil producing properties,
resulting from the properties obtained in the Texaco acquisition, which
typically have a higher per-unit cost than higher producing, shorter-lived
offshore gas producing properties.
Administrative, selling and other costs in the second quarter of 1996
declined $2.2 million, or 21 percent, from a year ago, while costs for the
first half of 1996 decreased $3.0 million, or 15 percent. These declines
are a result of the Company's continuing efforts to control costs and its
ability to integrate the assets and operations acquired in 1995 with
minimal increase in administrative staff. On an equivalent barrel basis,
general and administrative expense declined 15 percent, to $.62 per Boe,
for the second quarter of 1996 and 12 percent, to $.66 per Boe, for the
first half of 1996, as compared to the respective periods in 1995.
Net financing costs for the second quarter decreased $5.4 million, or
26 percent, from prior year due to lower gross interest cost incurred and
higher amounts of interest capitalized. Gross interest cost incurred
decreased $3.3 million due to a $76.4 million decrease in average debt
outstanding during the second quarter of 1996, as compared to the second
quarter of 1995, and a decrease in Apache's average interest rate.
Capitalized interest, which is based on the carrying value of unproved
property, increased $2.4 million for the second quarter due to the
acquisitions made in 1995 and 1996 and the resulting increase in the
unproved property base.
Net financing costs decreased 15 percent from $35.6 million in the
first half of 1995 to $30.4 million in the first half of 1996 due to a
lower average interest rate and an increase in interest capitalized,
partially offset by higher average debt outstanding as compared to last
year.
12
(page)
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
Capital Commitments
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and
interest on outstanding debt and payment of dividends. The Company
generally funds its exploration and development activities through
internally generated cash flow. Apache budgets capital expenditures
based upon projected cash flow and routinely adjusts its capital
expenditures in response to changes in oil and natural gas prices and
corresponding changes in cash flow. The Company is not in a position to
predict future product prices.
Capital Expenditures - A summary of oil and gas capital expenditures
during the first six months of 1996 and 1995 is presented below:
<TABLE>
(In millions)
1996 1995
------- -------
Exploration and Development:
<S> <C> <C>
North America $ 165.6 $ 105.8
International 54.6 36.3
------- -------
Total $ 220.2 $ 142.1
======= ======
Acquisitions of Oil and Gas Properties $ 334.1 $ 573.9
======= ======
</TABLE>
In North America, Apache completed 112 producing wells out of 152
wells drilled during the first half of 1996, while internationally, the
Company discovered seven new producers of 12 wells drilled. Worldwide,
Apache was drilling or completing an additional 65 wells as of June 30, 1996.
In addition, the Company completed 181 production enhancement projects,
including 99 recompletions, during the first half of 1996.
Exploration and development expenditures exceeded cash from
operations, before changes in other assets and liabilities, by approximately
$7.6 million in the first half of 1996. This resulted from Apache
accelerating a portion of its 1996 drilling and recompletion program, to
maximize production from newly acquired properties. In addition, due to the
limited drilling season in the Company's Canadian region imposed by
winter-access-only requirements, the annual Canadian drilling budget had to be
concentrated in the first half of the year.
Oil and gas property acquisitions, excluding gathering facilities,
totaled $334.1 million in the first half of 1996, consisting primarily of
$331.2 related to the acquisition of proved and unproved oil and gas
properties from Phoenix. The remaining $2.9 million in property
acquisitions for 1996 reflects the Company's focus on expanding its
ownership in properties and fields in which it already holds an interest.
First half 1995 acquisitions included the Company's $567 million
acquisition of 315 oil and gas fields from Texaco Exploration and
Production, Inc. Apache divested $73.2 million of non-core oil and gas
properties in the first six months of 1995; and during the first six months
of 1996, the Company divested a small number of non-core properties for
$2.2 million.
13
(page)
Capital Resources and Liquidity
Net Cash Provided by Operating Activities - Apache's net cash provided
by operating activities during the first half of 1996 totaled $214.1
million, an increase of 52 percent from the $141.2 million in 1995. This
increase was due primarily to higher product prices and lower working
capital requirements as compared to last year.
Long-Term Borrowings - During February 1996, Apache completed the
issuance of $100 million principal amount, $99.6 million after discount,
of senior unsecured 7.7 percent notes due March 15, 2026. During April
1996, the Company issued an additional $180 million principal amount,
$178.5 million net of discount, of senior unsecured 7.95-percent notes
due on April 15, 2026. The proceeds from both issuances were used to
repay a portion of the Company's revolving credit facility and for
general corporate purposes.
These two 30-year note offerings were placed during periods when 30-
year interest rates on Treasury bills were near historic 20-year lows.
In addition to the benefits of securing longer-term financing at
favorable interest rates and reducing Apache's exposure to future adverse
interest rate fluctuations, the issuance of these notes will improve the
Company's short-term liquidity due to the borrowing base under the
Company's revolving bank credit facility being reduced by an amount less
than the net proceeds obtained from issuing the notes.
Liquidity - The Company had $16.2 million in cash and cash equivalents
on hand at June 30, 1996, up from the $13.6 million at December 31, 1995.
Apache's ratio of current assets to current liabilities increased from
.90:1 at December 31, 1995, to .95:1 at June 30, 1996.
Management believes that cash on hand, net cash generated from
operations and available borrowing capacity under its revolving bank
credit facility will be adequate to satisfy the Company's financial
obligations to meet future liquidity needs for at least the next two
fiscal years.
FUTURE TRENDS
Apache's growth strategy has been to increase oil and gas reserves,
production and cash flow through a combination of acquisitions, moderate-
risk drilling and development of existing properties. In recent years,
however, Apache has focused primarily on a number of large property
acquisitions. Having obtained a sizable, balanced and diversified base
of core assets in six North American and two international arenas, the
Company expects to focus, in 1996, on reserve enhancement and cash flow
acceleration in these areas. Outside of the potential impact of the
merger with Phoenix, the Company projects international capital
expenditures to nearly double from 1995, as Apache continues to exploit
its concessions in Western Australia, Egypt, China and Indonesia.
Exploration and development expenditures are being reviewed quarterly in
light of fluctuating product prices and Apache's objective to fund
operations through internally generated cash flow.
Natural Gas Marketing
In October 1995, subsidiaries of Apache, Oryx Energy Company and
Parker & Parsley Petroleum Company announced the formation of Producers
Energy Marketing, LLC (ProEnergy), a natural gas marketing company
organized to create a direct link between natural gas producers and
purchasers. In April 1996, ProEnergy began purchasing and selling
producer-owned gas directly into the marketplace at index prices
substantially equivalent to spot market prices. In January 1996, Apache
contributed $5.8 million for its share of capital-funding obligations for
the start-up of ProEnergy.
14
(page)
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 ("PSLRA")
The foregoing discussion and analysis contains certain
"forward-looking statements" as defined by the PSLRA including, without
limitation, discussions as to expectations, beliefs, plans, objectives and
future financial performance, and assumptions underlying or concerning matters
discussed reflecting management's current expectations of the manner in
which the various factors discussed therein may affect the Company's
business in the future. Any matters that are not historical facts are
forward-looking and, accordingly, involve estimates, assumptions and
uncertainties which could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. There
is no assurance that the Company's expectations will be realized or that
unexpected events will not have an adverse impact on the Company's
business.
15
(page)
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 8 to the Consolidated
Financial Statements contained in the registrant's Form 10-K for
the year ended December 31, 1995 (filed with the Securities and
Exchange Commission on March 27, 1996) is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held in
Houston, Texas at 10:00 a.m. local time, on Thursday, May 2, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934, as amended. There was
no solicitation in opposition to the nominees for election as
directors as listed in the proxy statement, and all nominees were
elected.
Out of a total of 77,491,422 shares of the Company's common
stock outstanding and entitled to vote, 67,608,639 shares were
present at the meeting in person or by proxy, representing
approximately 87.25 percent. Matters voted upon at the meeting
were as follows:
a) Election of five directors to serve on the Company's board
of directors. Messrs. Farris, Ferlic, Gisselbeck and Kocur were
elected to serve until the 1999 Annual Meeting, and Ms. Lowe was
elected to serve until the annual meeting in 1998. The vote
tabulation with respect to each nominee was as follows:
<TABLE>
Nominee For Authority Withheld
- -------------------- ---------- ------------------
<S> <C> <C>
G. Steven Farris 56,524,619 11,084,020
Randolph M. Ferlic 56,560,201 11,048,438
Robert V. Gisselbeck 56,499,275 11,109,364
John A. Kocur 56,546,515 11,062,124
Mary Ralph Lowe 56,561,415 11,047,224
</TABLE>
b) Adoption of amendments to the Company's 1995 Stock
Incentive Plan and to the 1995 Stock Option Plan were approved by
a vote of 63,487,860 shares for, 3,774,931 shares against, 345,848
abstentions, and zero broker non-votes.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Computation of Earnings per Share.
27.1 Financial Data Table.
(b) Reports filed on Form 8-K.
16
(page)
The following current reports were filed during the fiscal
quarter ended June 30, 1996:
Form 8-K dated April 16, 1996 -
Item 5. Registration Statement on Form S-4 - The
Registration Statement on Form S-4 includes a prospectus with
respect the shares of Apache common stock to be issued in the
proposed merger of a wholly-owned subsidiary of Apache, with
The Phoenix Resource Companies, Inc., and a proxy statement
soliciting the vote of the stockholders of Phoenix to approve
the merger.
Item 7. Consent of Arthur Andersen LLP (Apache), Consent
of Coopers & Lybrand, Consent of Arthur Andersen LLP (Phoenix),
Consent of Ryder Scott Company Petroleum Engineers, Consent of
Petrie Parkman & Co., Consent of Andrews & Kurth LLP, Consent
of Netherland, Sewell & Associates, Inc., Proxy
Statement/Prospectus dated April 17, 1996 and Financial
Statements of The Phoenix Resource Companies, Inc.
Form 8-K, dated April 22, 1996 -
Item 5. Proposed Offer of Senior Debt Securities up to
$180,000,000 - Exhibits are filed in connection with the
proposed offering of up to $180,000,000 of senior debt
securities ("the notes") by Apache issued pursuant to an
indenture dated February 15, 1996. The notes are described in
Apache's Registration Statement on Form S-3 (File No. 33-63923)
declared effective December 13, 1995.
Item 7. Underwriting Agreement, dated April 19, 1996,
between Underwriters and the Registrant, Form of 7.95% Notes
due 2026, Opinion, dated April 19, 1996, or Z.S. Kobiashvili,
Vice President and General Counsel of the Registrant, as to the
legality of the Notes, Consent of Z.S. Kobiashvili (included in
Exhibit 5.1), and Sixth Amendment to the Third Amended and
Restated Credit Agreement, dated April 18, 1996, among the
Registrant, the lenders named therein, and The First National
Bank of Chicago, as Administrative Agent and Arranger, and
Chemical Bank, as Co-Agent and Arranger.
Form 8-K, dated May 20, 1996 -
Item 2. Consummation of The Phoenix Resource Companies,
Inc. merger - On May 20, 1996, the merger between Apache and
The Phoenix Resource Companies, Inc. ("Phoenix") was
consummated pursuant to the Merger Agreement, dated March 27,
1996.
Item 7. Agreement and Plan of Merger among Apache, YPY and
Phoenix dated March 27, 1996 (incorporated by reference to
Exhibit 99.1 to Apache's Current Report on Form 8-K, dated
March 27, 1996, SEC File No. 1-4300), Consent of Arthur
Andersen LLP (Apache), Consent of Arthur Andersen LLP
(Phoenix), Press Release, dated March 28, 1996, "Apache and
Phoenix to Merge" (incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated March 27, 1996,
SEC File No. 1-4300) and Press Release, dated May 20, 1996,
"Apache and Phoenix Complete Merger".
Form 8-KA Amendment No.1, dated May 20, 1996 -
Item 2. Consummation of The Phoenix Resource Companies,
Inc. merger - On May 20, 1996, the merger between Apache and
The Phoenix Resource Companies, Inc. ("Phoenix") was
consummated pursuant to the Merger Agreement, dated March 27,
1996.
17
(page)
Item 7. Financial Statements and Pro Forma Financial
Information -
(a) The audited consolidated balance sheet of
Phoenix and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the
three years ended December 31, 1995, 1994 and 1993,
together with the related notes to consolidated
financial statements and the report of independent
accountants, dated February 23, 1996, previously filed
with the Phoenix Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as amended.
(b) The unaudited consolidated balance sheet of
Phoenix and subsidiaries as of March 31, 1996, and the
related consolidated statements of income and cash flows
for the fiscal quarters ended March 31, 1996 and 1995,
together with the related notes to consolidated
financial statements, previously filed with the Phoenix
Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996.
(c) Pro Forma Financial Information.
18
(page)
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
Dated: August 14, 1996 /s/ Mark A. Jackson
---------------------------------------
Mark A. Jackson
Vice President and Chief Financial Officer
Dated: August 14, 1996 /s/ Thomas L. Mitchell
---------------------------------------
Thomas L. Mitchell
Controller and Chief Accounting Officer
EXHIBIT 11.1
APACHE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share data)
<TABLE>
For the Quarter Ended For the Six Months
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- ------- --------
Weighted Average Calculation:
- -----------------------------
<S> <C> <C> <C> <C>
Net income $ 24,437 $ 537 $ 40,092 $ 4,620
======== ======== ======== ========
Weighted average common
shares outstanding 85,738 69,809 81,580 69,741
======== ======== ======== ========
Net income per share,
based on weight average common
shares outstanding $ .29 $ .01 $ .49 $ .07
======== ======== ======== ========
Primary Calculation:
- --------------------
Net income $ 24,437 $ 537 $ 40,092 $ 4,620
Assumed conversion of
3.93-percent debentures 526 534 1,052 1,083
-------- -------- -------- --------
Net income, as adjusted $ 24,963 $ 1,071 $ 41,144 $ 5,703
======== ======== ======== ========
Common Stock Equivalents:
Weighted average common shares
outstanding 85,738 69,809 81,580 69,741
Stock options, using the treasury stock
method of accounting 663 116 507 116
Assumed conversion of 3.93-percent
debentures 2,778 2,778 2,778 2,778
-------- -------- -------- --------
89,179 72,703 84,865 72,635
======== ======== ======== ========
Net income per common share primary $ .28 $ .01 $ .48 $ .07
======== ======== ======== ========
</TABLE>
The assumed conversion of the 6-percent convertible subordinated debentures due
2002 would be anti-dilutive for the second quarter and first six months of
1996.
(page)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000006769
<NAME> APACHE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 16,151
<SECURITIES> 0
<RECEIVABLES> 191,579
<ALLOWANCES> 0
<INVENTORY> 13,648
<CURRENT-ASSETS> 236,190
<PP&E> 4,994,781
<DEPRECIATION> 2,118,560
<TOTAL-ASSETS> 3,180,162
<CURRENT-LIABILITIES> 249,575
<BONDS> 1,156,781
0
0
<COMMON> 113,655
<OTHER-SE> 1,334,923
<TOTAL-LIABILITY-AND-EQUITY> 3,180,162
<SALES> 363,355
<TOTAL-REVENUES> 430,126
<CGS> 317,347
<TOTAL-COSTS> 317,347
<OTHER-EXPENSES> 17,129
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,780
<INCOME-PRETAX> 65,288
<INCOME-TAX> 25,196
<INCOME-CONTINUING> 40,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,092
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
</TABLE>
