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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[MARK ONE]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997,
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:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.25 Par Value New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
9.25% Notes due 2002 New York Stock Exchange
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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. [ ]
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Aggregate market value of the voting stock held by
non-affiliates of registrant as of February 27, 1998...... $3,345,842,930
Number of shares of registrant's common stock outstanding as
of February 27, 1998...................................... 98,407,145
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of registrant's proxy statement relating to registrant's 1998
annual meeting of shareholders have been incorporated by reference into Part III
hereof.
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TABLE OF CONTENTS
DESCRIPTION
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ITEM PAGE
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PART I
1. BUSINESS.................................................... 1
2. PROPERTIES.................................................. 11
3. LEGAL PROCEEDINGS........................................... 15
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 15
6. SELECTED FINANCIAL DATA..................................... 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 17
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 26
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 26
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 26
11. EXECUTIVE COMPENSATION...................................... 26
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 26
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 26
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K......................................................... 27
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All defined terms under Rule 4-10(a) of Regulation S-X shall have their
statutorily prescribed meanings when used in this report. Quantities of natural
gas are expressed in this report in terms of thousand cubic feet (Mcf), million
cubic feet (MMcf) or billion cubic feet (Bcf). Oil is quantified in terms of
barrels (bbls); thousands of barrels (Mbbls) and millions of barrels (MMbbls).
Natural gas is compared to oil in terms of barrels of oil equivalent (boe) or
million barrels of oil equivalent (MMboe). Oil and natural gas liquids are
compared with natural gas in terms of million cubic feet equivalent (MMcfe) and
billion cubic feet equivalent (Bcfe). One barrel of oil is the energy equivalent
of six Mcf of natural gas. Daily oil and gas production is expressed in terms of
barrels of oil per day (b/d) and thousands of cubic feet of gas per day (Mcf/d)
or millions of British thermal units per day (MMBtu/d), respectively. Gas sales
volumes may be expressed in terms of one million British thermal units (MMBtu),
which is approximately, equal to one Mcf. With respect to information relating
to the Company's working interest in wells or acreage, "net" oil and gas wells
or acreage is determined by multiplying gross wells or acreage by the Company's
working interest therein. Unless otherwise specified, all references to wells
and acres are gross.
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PART I
ITEM 1. BUSINESS
GENERAL
Apache Corporation (Apache or the Company), a Delaware corporation formed
in 1954, is an independent energy company that explores for, develops and
produces natural gas, crude oil and natural gas liquids. In North America,
Apache's exploration and production interests are focused on the Gulf of Mexico,
the Anadarko Basin, the Permian Basin, the Gulf Coast and the Western
Sedimentary Basin of Canada. Outside of North America, Apache has exploration
and production interests offshore Western Australia and in Egypt, and
exploration interests in Poland, offshore The People's Republic of China,
offshore the Ivory Coast and in Indonesia. Apache common stock, par value $1.25
per share, has been listed on the New York Stock Exchange since 1969, and on the
Chicago Stock Exchange since 1960.
Apache holds interests in many of its U.S., Canadian and international
properties through operating subsidiaries, such as MW Petroleum Corporation
(MW), Apache Canada Ltd., DEK Energy Company (DEKALB, formerly known as DEKALB
Energy Company), Apache Energy Limited (formerly known as Hadson Energy
Limited), Apache International, Inc., Apache Overseas, Inc. and Apache PHN
Company, Inc. (Phoenix, formerly known as The Phoenix Resource Companies, Inc.).
Properties referred to in this document may be held by those subsidiaries.
Apache treats all operations as one segment of business.
1997 RESULTS
In 1997, Apache had record net income of $154.9 million, or $1.71 per
share, on total revenues of $1.2 billion. Net cash provided by operating
activities during 1997 was $723.8 million.
The year 1997 was Apache's 20th consecutive year of production growth and
10th consecutive year of oil and gas reserves growth. Apache's average daily
production was 68.9 Mbbls of oil and natural gas liquids and 609 MMcf of natural
gas for the year. Giving effect to 1997 production, acquisitions, dispositions
and drilling activity, the Company's estimated proved reserves increased by 79.6
MMboe in 1997 over the prior year to 585.7 MMboe, of which approximately 53
percent was natural gas. Based on 506.2 MMboe reported at year-end 1996,
Apache's reserve growth during the year reflects replacement of 228 percent of
the Company's 1997 production, including approximately 183 percent through
drilling, revisions, recompletions, workovers and other production enhancement
projects. Apache's active drilling and production-enhancement program yielded
321 new producing North American wells out of 399 attempts and involved 675
major North American workover and recompletion projects during the year.
At December 31, 1997, Apache had interests in approximately 4,246 net oil
and gas wells and 1,777,225 net developed acres of oil and gas properties. In
addition, the Company had approximately 601,258 net undeveloped acres under
North American leases and 20,303,930 net undeveloped acres under international
exploration and production rights.
APACHE'S GROWTH STRATEGY
Apache's growth strategy is to increase oil and gas reserves, production,
cash flow and earnings through a combination of exploratory drilling,
development of its inventory of existing projects and property acquisitions
meeting defined financial parameters. The Company's drilling program emphasizes
reserve additions through moderate-risk drilling primarily on its North American
interests, and exploratory drilling primarily on its international interests.
The Company also emphasizes reducing operating costs per unit produced and
selling marginal and non-strategic properties in order to enhance its profit
margins.
Apache's international investments and exploration activities are an
emerging component of its long-term growth strategy. In addition to an active,
moderate-risk drilling program in Apache's North American focus areas,
higher-risk international exploration offers potential for greater rewards and
significant reserve additions. Apache directed its international efforts in 1997
toward development of certain discoveries offshore Western Australia, Egypt and
offshore The People's Republic of China, and toward further exploration efforts
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in those areas and on its concessions offshore the Ivory Coast of western Africa
and in Poland. Apache believes that reserve additions in these international
areas are likely to continue through higher-risk exploration and through
improved production practices and recovery techniques.
For Apache, property acquisition is only one phase in a continuing cycle of
business growth. Apache's aim is to follow each acquisition with a cycle of
reserve enhancement, property consolidation and cash flow acceleration,
facilitating asset growth and debt reduction. This approach requires a well
planned and carefully executed property development program and, where
appropriate, a selective program of property dispositions. It motivates Apache
to target acquisitions that have ascertainable additional reserve potential and
to apply an active drilling, workover and recompletion program to realize the
potential of the acquired undeveloped and partially developed properties. Apache
prefers to operate its properties so that it can best influence their
development; as a result, the Company operates properties accounting for over 78
percent of its production.
1997 ACQUISITIONS AND DISPOSITIONS
On October 8, 1997, the Company entered into three agreements with
subsidiaries of Mobil Exploration & Producing Australia Pty Ltd (Mobil) pursuant
to which the Company acquired all the capital stock of three companies owning
interests in certain oil and gas properties and production facilities offshore
Western Australia (the Harriet/East Spar Properties), on November 20, 1997 (the
Ampolex Group Transaction). The total cost of the Ampolex Group Transaction was
approximately $300 million, of which $218 million represented the purchase price
for the capital stock of the acquired companies and $82 million was applied to
discharge existing intercompany debt of one of the acquired companies.
On December 9, 1997, the Company entered into an agreement with Hardy
Petroleum Limited (Hardy) under which Hardy agreed to purchase a 10 percent
interest in the Company's East Spar field and related production facilities. The
transaction closed on January 28, 1998, with a total sales price of
approximately $63 million in cash, such amount being more than Apache's
allocated cost. The Ampolex Group Transaction was recorded net of these
interests.
The Ampolex Group Transaction increased the Company's interest to 47.5
percent from 22.5 percent in the Carnarvon Basin's Harriet area, which includes
the Varanus Island pipeline, processing and production complex and eight
existing oil and gas fields. The transaction also raised the Company's interest
in the East Spar field, which produces through the Varanus Island facilities, to
45 percent from 20 percent net of the sale to Hardy. Apache operates the
Harriet/East Spar Properties.
EXPLORATION AND PRODUCTION
The Company's North American exploration and production activities were
diversified among five operating regions in 1997, Offshore, Midcontinent,
Western, Gulf Coast and Canada. Approximately 72 percent of the Company's proved
reserves are located in Apache's North American regions. Egypt and Australia are
the Company's most important international regions. The Company's Egyptian
operations are headquartered in Cairo, and Apache conducts its Australian and
Indonesian exploration and production from Perth, Australia. Information
concerning the amount of revenue, operating income and identifiable assets
attributable to U.S., Canadian and international operations is set forth in the
Supplemental Oil and Gas Disclosures under Item 8 below.
Offshore. The Offshore region included all of Apache's interests in
properties offshore Texas and Louisiana. The Offshore region was Apache's
leading region for oil and gas revenues in 1997 with $202 million in revenue
from 12.8 MMboe of production for the year. At December 31, 1997, the Offshore
region held 319,812 net acres, located in both state and federal waters, and
accounted for 45.7 MMboe, or eight percent, of the Company's year-end 1997 total
estimated proved reserves. Apache's operations in the Offshore region focused on
workovers and recompletions, which totaled 58 in the region for 1997. Apache
participated in drilling 27 wells that were drilled in the region during the
year, 14 of which were completed as producers. For 1997, Apache's gas production
from the Offshore region was approximately 66.6 Bcf. At the start of the 1998
fiscal year, the Offshore region was merged into the Gulf Coast region to take
advantage of administrative efficiencies.
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Midcontinent. Apache's Midcontinent region operates in Oklahoma, eastern
Texas, Arkansas and northern Louisiana. The region has focused operations on its
sizable position in the Anadarko Basin of western Oklahoma. Apache has drilled
and operated in the Anadarko Basin for over four decades, developing an
extensive database of geologic information and a substantial acreage position.
The Midcontinent region was Apache's leading producing region for 1997 with
approximately 13.1 MMboe of production generating $197 million in revenue for
the Company.
At December 31, 1997 Apache held an interest in 403,796 net acres in the
region, which accounted for approximately 103.1 MMboe, or 18 percent, of
Apache's total estimated proved reserves. Apache participated in drilling 124
wells in the Midcontinent region during the year, 108 of which were completed as
producing wells. The Company performed 33 workover and recompletion operations
in the region during 1997.
Western. The Western region includes assets in the Permian Basin of western
Texas and New Mexico, the Green River Basin of Colorado and Wyoming, and the San
Juan Basin of New Mexico. In 1997, the Western region produced approximately 9.8
MMboe and $168 million in production revenue. At December 31, 1997, the Company
held 449,270 net acres in the region, which accounted for 136.8 MMboe, or 23
percent, of the Company's total estimated proved reserves. Apache participated
in drilling 124 wells in the Western region, 108 of which were productive wells.
Apache performed 236 workovers and recompletions in the Western region during
the year.
Gulf Coast. The Gulf Coast region encompasses the Texas and Louisiana
coasts, central Texas and Mississippi. In 1997, the Gulf Coast region
contributed approximately $172 million in revenues from production of 9.6 MMboe
for the year. The Company performed 215 workover and recompletion operations
during 1997 in the Gulf Coast region and participated in drilling 43 wells, 31
of which were completed as producers. As of December 31, 1997, the region
encompassed 246,227 net acres, and accounted for 70.9 MMboe, or 12 percent, of
the Company's year-end 1997 total estimated proved reserves.
Canada. Exploration and development activity in the Canadian region is
concentrated in the Provinces of Alberta and British Columbia. The region
produced approximately 6.5 MMboe, 84 percent of which was natural gas, and
generated $61 million in production revenue, six percent of the Company's
production revenues in 1997. Apache participated in drilling 81 wells in this
region during the year, 60 of which were completed as producers. The Company
performed 133 workovers and recompletions on operated wells during 1997. At
December 31, 1997, the region encompassed approximately 317,524 net acres, and
accounted for 66 MMboe, or 11 percent, of the Company's year-end 1997 total
estimated proved reserves.
Egypt. At year end, Apache held 13,621,304 net acres in Egypt with 78.7
MMboe of estimated proved reserves or 13 percent of Apache's total estimated
proved reserves. Apache owns a 75 percent interest in the Qarun Block and a 40
percent interest in the Khalda Block, both in the Western Desert of Egypt.
Future production of gas from Khalda is expected to be delivered for sale to the
Egyptian General Petroleum Corporation (EGPC) at a point west of Alexandria,
Egypt, via a 34-inch gas pipeline, construction of which commenced in 1997 with
completion projected to occur in 1999. The costs of building the pipeline will
be borne by Apache, the other Khalda participants and the owners of a
neighboring block. Construction costs paid by Apache and the other Khalda
participants are recoverable from oil and gas production from the Khalda Block.
Both the Khalda and Qarun Concession Agreements provide that Apache and its
partners in the concessions will pay all of the operating and capital costs for
developing the concessions, while the production will be split between EGPC and
the partners. Up to 40 percent of the oil and gas produced from each of the
concessions is available to the Company and its partners to recover operating
and capital costs for the applicable concession. To the extent eligible costs
exceed 40 percent of the oil and gas produced and sold from a concession in any
given quarter, such excess costs may be carried into future quarters without
limit. The remaining 60 percent of all oil and gas produced from the concessions
is divided between EGPC and Apache and its partners, with the percentage
received by Apache and its partners reducing as the gross daily average of oil
and gas produced on a quarterly basis increases. Under the Khalda Agreement,
capital costs are amortized over four years, while the Qarun agreement provides
for a five year amortization.
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In addition to the Qarun and Khalda Blocks, Apache holds interests in the
Darag Block in the northern Gulf of Suez, the East Beni Suef and Asyout Blocks
to the south of the Qarun Block, and three other blocks in the Western Desert of
Egypt, the North East Abu Gharadig Block, the East Bahariya Block, and the West
Mediterranean Block No. 1 (partly onshore and partly offshore). The latter three
blocks were purchased from Mobil Exploration Egypt, Inc. in January 1997, and
Apache's interest in the West Mediterranean Block was increased to 66 percent in
an October 1997 transaction with Amoco Egypt West Mediterranean B.V. Apache also
acquired interests in the Ras El Hekma and Ras Kanayes concessions from Repsol
Exploracion Egipta S.A. in December 1997. Exploratory drilling on the East Beni
Suef Block commenced in 1997 with a significant discovery made on the #1 well.
Delineation drilling is continuing in 1998. Due to conflicting governmental
requirements regarding the placement of drilling rigs on the Darag Block, the
Company is presently unable to explore on the block. Negotiations with
appropriate authorities are continuing to attempt to resolve the impasse and
Apache may ultimately relinquish the Darag concession.
Australia. Western Australia became an important region for Apache after
the 1993 acquisition of Hadson Energy Resources Corporation (subsequently known
as Apache Energy Resources Corporation or AERC). In 1997, natural gas production
in the region increased by 88 percent from the prior year to approximately 26
MMcf/d. Apache acts as operator for most of its Western Australia properties
through a wholly-owned subsidiary, Apache Energy Limited (AEL). During 1997,
Apache's estimated proved reserves in Australia increased by 156 percent to 80
MMboe, or 14 percent of the Company's year-end total estimated proved reserves.
The increase reflects, among other matters, the acquisition of three companies
with holdings in the East Spar and Harriet fields. As of December 31, 1997,
Apache held 159,850 net developed acres and 1,104,440 net undeveloped acres in
Western Australia. Through AEL and its subsidiaries, Apache also operates the
Harriet Gas Gathering Project, a gas processing and compression facility with a
throughput capacity of 175 MMcf/d, and a 60-mile, 12-inch offshore pipeline with
a throughput capacity of 175 MMcf/d that connects to a pipeline grid onshore.
See "1997 Acquisitions and Dispositions" and "Oil and Natural Gas Marketing."
Other International Operations. Outside of Canada, Egypt and Australia,
Apache currently has exploration interests in Poland, offshore The People's
Republic of China, offshore the Ivory Coast and in Indonesia.
Effective April 16, 1997, Apache entered into an agreement with FX Energy,
Inc. (FX Energy) pursuant to which Apache assumed operatorship and a 50 percent
interest in over 5.5 million acres in Poland located near Lublin, southeast of
Warsaw. The Company has also acquired additional acreage in Poland in which FX
Energy does not participate, giving Apache interests in 8,176,065 total gross
undeveloped acres and 5,563,542 net undeveloped acres as of December 31, 1997.
The concessions in Poland include requirements for Apache to drill at least
eleven wells and to shoot at least 1,290 miles of seismic data. In February
1998, Apache entered into an additional agreement with FX Energy, acquiring a 50
percent interest in approximately 3 million acres in the Carpathian area near
the southern border of Poland and options to participate at the present interest
in a further 2.275 million acres in the Pomeranian area of northwest Poland.
Apache's operations in Poland are headquartered in Warsaw.
Apache is also the operator, with a 50 percent interest, of the Zhao Dong
Block in Bohai Bay, offshore The People's Republic of China. In 1994 and 1995,
discovery wells tested at rates between 1,300 and 4,000 b/d of oil. The Company
elected to proceed with the second exploration phase, commencing in May 1996,
which involved a commitment to drill two additional exploratory wells. 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, and the Company is currently evaluating the discovery
areas for commercial potential. An overall development plan for the C and D
Fields in the Zhao Dong Block was submitted to Chinese authorities in late 1997
and is awaiting approval.
In the Ivory Coast, Apache drilled an exploratory well in 1996 on the CI-27
offshore Block, confirming the existence of substantial reserves of gas in the
Foxtrot field and the producibility of some oil from the field's lower horizons.
Apache is operator of the block, holding a 24 percent interest. In March 1997,
Apache and its partners signed a 10 year take or pay contract to supply
approximately 168 Bcf of gas to a power plant in Abidjan at 30 MMcf per day
initially, rising to 50 MMcf per day in the third year. Gas deliveries are to
commence in 1999, upon completion of a pipeline.
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In Indonesia, Apache holds a 39 percent interest in the Bentu Segat Block
on Central Sumatra, on which an undeveloped gas field is located.
OIL AND NATURAL GAS MARKETING
On October 27, 1995, wholly owned affiliates of each of Apache, Oryx Energy
Company and Parker & Parsley Petroleum Company (Parker & Parsley) formed
Producers Energy Marketing, LLC, a Delaware limited liability company
(ProEnergy). ProEnergy became fully operational on April 1, 1996, and markets
substantially all of its members' domestic natural gas pursuant to member gas
purchase agreements having an initial term of 10 years, subject to early
termination following specified events. The price of gas purchased by ProEnergy
from its members is based upon agreed to published indexes. ProEnergy also
provides its members with certain contract administration and other services. In
December 1997, Parker & Parsley gave notice to the other members that it was
withdrawing from ProEnergy effective as of January 1, 1998.
ProEnergy's limited liability company agreement provides that capital
funding obligations, allocations of profit and loss, and voting rights are
calculated based upon the members' respective throughputs of natural gas sold to
ProEnergy. So long as there are two or more members, the approval of any action
requires the votes of at least two members holding the requisite voting
interests. Each member's liability with respect to future capital funding
obligations is subject to certain limitations. Natural gas throughputs are
calculated, profit distributed, and/or capital called on a quarterly basis. As
of December 31, 1997, the Company held an approximate 48 percent interest in
ProEnergy.
Apache is also delivering natural gas under several long-term supply
agreements with terms greater than one-year. In 1997, Apache delivered an
average of 135 MMcf/d under such contracts at an average price of $2.48 per Mcf.
Apache assumed its own U.S. crude oil marketing operations in 1992. Most of
Apache's U.S. crude oil production is sold through lease-level marketing to
refiners, traders and transporters, generally under 30 day contracts that renew
automatically until canceled. Oil produced from Canadian properties is sold to
crude oil purchasers or refiners at market prices, which depend on worldwide
crude prices adjusted for transportation and crude quality. Natural gas produced
from Canadian properties is sold to major aggregators of natural gas, gas
marketers and direct users under long-term and short-term contracts. The oil and
gas contracts provide for sales at specified prices, or at prices that are
subject to change due to market conditions.
The Company diversifies the markets for its Canadian gas production by
selling directly or indirectly to customers through aggregators and brokers in
the United States and Canada. Apache transports natural gas via the Company's
firm transportation contracts to California (12 MMcf/d) and to the Province of
Ontario, Canada (four MMcf/d) through end-users' firm transportation contracts.
Pursuant to an agreement entered into in 1994, the Company is also selling five
MMcf/d of natural gas to the Hermiston Cogeneration Project, located in the
Pacific Northwest of the United States. In 1996, the Company entered into an
agreement with Westcoast Gas Services, Inc. for the sale of 5,000 MMBtu/d for
delivery in the United States for a 10 year term. Sales under the contract are
contingent on regulatory approval of the required pipeline expansion, and are
expected to begin in 1998.
In Australia, the Company entered into seven gas sales contracts during
1997 and has a total of 13 contracts for periods of five to 11 years, to deliver
260 Bcf of AEL's gas from its Harriet and East Spar fields for mining, power
generation, nickel refining, ammonia production and other industrial and
domestic uses. Under these contacts AEL is required to deliver its gas at
contract rates of approximately 50 MMcf/day increasing to 80 MMcf/day by the
year 2000, with take or pay provisions, net to AEL, of approximately 14 Bcf/year
increasing to 20 Bcf/year by the year 2000. Apache operates both the Harriet and
the East Spar Joint Ventures, holding a 47.5 percent interest in Harriet and a
45 percent interest in East Spar.
AEL marketed all oil and natural gas liquids produced from its interests in
the Harriet and East Spar fields during 1997 through a contract with Glencore
International AG (Glencore). Pricing under the contract in 1997 represented a
fixed premium to the quoted market prices of Tapis crude oil, with payment made
in U.S. dollars. In 1997, the weighted average price based on regional
production was $20.51 per barrel. At the
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beginning of January 1998, the Glencore contract was terminated and replaced by
a similar contract with Mitsui Oil (Asia) Pty. Ltd.
In Egypt, oil from the Qarun Block is delivered by pipeline to tanks owned
by the Company and its partners in the Qarun Concession at the Dashour pumping
station northeast of the Qarun Block or by truck to the Tebbin refinery south of
Alexandria, Egypt. At the discretion of the operator of the pipelines, oil from
the Qarun Block is put into the two 42-inch diameter SUMED pipelines, which
transport significant quantities of Egyptian and other crude oil from the Gulf
of Suez to Sidi Kherir, west of Alexandria, Egypt, on the Mediterranean Coast.
All Qarun and Khalda crude oil is currently sold to EGPC. In 1996, the Company
and its partners in the Khalda Block entered into a take or pay contract with
EGPC, which obligates EGPC to pay for 75 percent of 200 MMcf/d of future
production of gas from the Khalda Block. Sales of gas under the contract are
expected to begin in 1999 upon completion of a gas pipeline from the Khalda
Block. In late 1997, the same sellers entered into a supplement to the contract
with EGPC to sell an additional 50 MMcf/d through a southern gas line to be
constructed by the Company and its partners from the Khalda Block to a point
near the Qarun Block to tie into an existing gas pipeline.
OIL AND NATURAL GAS PRICES
Natural gas prices remained volatile during 1997, with Apache's realized
prices ranging from $3.38 per MMbtu in January to $1.78 per MMbtu in April.
Fluctuations are largely due to natural gas supply and demand perceptions.
Apache's average realized gas price of $2.28 per Mcf for 1997 increased 13
percent from the prior-year average of $2.02 per Mcf, and its 1996 average
realized natural gas price was 29 percent higher than the 1995 average price of
$1.57 per Mcf.
Due to minimum price contracts which escalate at an average of 80 percent
of the Australian consumer price index, AEL's natural gas production in Western
Australia is not subject to the same degree of price volatility as Apache's U.S.
and Canadian gas production; however, natural gas sales under such Australian
minimum price contracts represent less than two percent of the Company's total
natural gas sales at the end of 1997. Total Australian gas sales in 1997,
including long-term contracts and spot sales averaged $1.78 per Mcf, a nine
percent decrease from the 1996 average of $1.96 per Mcf.
In Egypt, all oil production from the Khalda and Qarun Blocks is currently
sold to EGPC on a spot basis at a "Western Desert" price, which is applied to
virtually all production from the area and is announced from time to time by
EGPC. In 1997, the average price was $18.65 per barrel. Discussions with EGPC
regarding the possibility of exporting Qarun oil production are continuing. Once
gas sales from the Khalda Block commence, the gas is expected to be sold for a
price which, on a Btu basis, is equivalent to 85 percent of the price of Suez
Blend crude oil, FOB Mediterranean.
Oil prices remained subject to unpredictable political and economic forces
during 1997 experiencing fluctuations similar to those seen in natural gas
prices for the year. Apache believes that oil prices will continue to fluctuate
in response to changes in the policies of the Organization of Petroleum
Exporting Countries (OPEC), events in the Middle East and other factors
associated with the world political environment. As a result of the many
uncertainties associated with levels of production maintained by OPEC and other
oil producing countries, the availabilities of worldwide energy supplies and the
competitive relationships and consumer perceptions of various energy sources,
the Company is unable to predict what changes will occur in crude oil and
natural gas prices.
In 1997, Apache's realized worldwide crude oil price ranged from $24.17 per
barrel in January to $16.71 per barrel in December. The average crude oil price
of $19.20 per barrel in 1997 was down eight percent from the average price of
$20.84 per barrel in 1996, but 12 percent higher than the average price of
$17.09 per barrel in 1995. The Company's average crude oil price for its
Australian production was $20.51 per barrel in 1997, eight percent less than the
average price in 1996.
Terms of the acquisition of MW from Amoco Production Company (Amoco)
included an oil and gas price sharing provision under which certain price
sharing payments may be payable to Amoco. Under this provision, to the extent
that oil prices exceed specified reference prices that rise to $33.12 per barrel
over the
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eight-year period ending June 30, 1999, and to the extent that gas prices
exceeded specified reference prices that rose to $2.68 per Mcf over the
five-year period ended June 30, 1996, Apache will share the excess price
realization with Amoco on a portion of the MW production. No price sharing
payments were required in 1997.
From time to time, Apache buys or sells contracts to hedge a limited
portion of its future oil and gas production against exposure to spot market
price changes. See Note 9 to the Company's consolidated financial statements
under Item 8 below.
The Company's business has been and will continue to be affected by future
worldwide changes in oil and gas prices and the relationship between the prices
of oil and gas. No assurance can be given as to the trend in, or level of,
future oil and gas prices.
FULL COST CEILING TEST
Under the full cost accounting rules of the Securities and Exchange
Commission (SEC), the Company reviews the carrying value of its oil and gas
properties each quarter on a country-by-country basis. Under full cost
accounting rules, capitalized costs of oil and gas properties may not exceed the
present value of estimated future net revenues from proved reserves, discounted
at 10 percent, plus the lower of cost or fair market value of unproved
properties, as adjusted for related tax effects and deferred income taxes.
Application of these rules generally requires pricing future production at the
unescalated oil and gas prices in effect at the end of each fiscal quarter and
requires a write-down if the "ceiling" is exceeded, even if prices declined for
only a short period of time. The Company had no write-downs due to ceiling test
limitations during 1997. Under current pricing there is the potential, while not
a certainty, that a write-off may occur. If a write-down is required, the
one-time charge to earnings would not impact cash flow from operating
activities.
EFFECT OF VOLATILE PRICES
The Company continually analyzes, forecasts and updates its estimates of
energy prices for its internal use in planning, budgeting, and valuation and
reserve estimates. The Company's future financial condition and results of
operations will depend upon the prices received for the Company's oil and
natural gas production and the costs of acquiring, finding, developing and
producing reserves. Prices for oil and natural gas are subject to fluctuations
in response to relatively minor changes in supply, market uncertainty and a
variety of additional factors that are beyond the control of the Company. These
factors include worldwide political instability (especially in the Middle East
and other oil-producing regions), the foreign supply of oil and gas, the price
of foreign imports, the level of consumer product demand, government regulations
and taxes, the price and availability of alternative fuels and the overall
economic environment. A substantial or extended decline in oil and gas prices
would have a material adverse effect on the Company's financial position,
results of operations, quantities of oil and gas that may be economically
produced and access to capital. In addition, the sale of the Company's oil and
gas production depends on a number of factors beyond the Company's control,
including the availability and capacity of transportation and processing
facilities. Oil and natural gas prices have historically been and are likely to
continue to be volatile. Such volatility makes it difficult to estimate the
value of producing properties in acquisitions and to budget and project the
return on exploration and development projects involving the Company's oil and
gas properties. In addition, unusually volatile prices often disrupt the market
for oil and gas properties, as buyers and sellers have more difficulty agreeing
on the purchase price of properties.
RESERVES; RATES OF PRODUCTION; DEVELOPMENT EXPENDITURES; CASH FLOW
There are numerous uncertainties inherent in estimating quantities of oil
and natural gas reserves of any category and in projecting future rates of
production and timing of development expenditures which underlie such reserve
estimates, including many factors beyond the control of the Company. Reserve
data represents only estimates. In addition, the estimates of future net cash
flows from proved reserves of the Company and the present value thereof are
based upon various assumptions about future production levels, prices and costs
that may prove to be incorrect over time (see below). Any significant variance
from the assumptions could result in the actual quantity of the Company's
reserves and future net cash flows therefrom being materially
7
<PAGE> 10
different from the estimates. In addition, the Company's estimated reserves may
be subject to downward or upward revision based upon production history, results
of future exploration and development, prevailing oil and gas prices, operating
and development costs and other factors. The rate of production from oil and gas
properties declines as reserves are depleted. Except to the extent that the
Company acquires additional properties containing proved reserves, conducts
successful exploration and development activities or, through engineering
studies, identifies additional behind-pipe zones or secondary recovery reserves,
the proved reserves of the Company will decline materially as reserves are
produced. Future oil and gas production is, therefore, highly dependent upon the
Company's level of success in acquiring or finding additional reserves.
GOVERNMENT REGULATION OF THE OIL AND GAS INDUSTRY
The Company's exploration, production and marketing operations are
regulated extensively at the federal, state and local levels, as well as by
other countries in which the Company does business. Oil and gas exploration,
development and production activities are subject to various laws and
regulations governing a wide variety of matters. For example,
hydrocarbon-producing states have statutes or regulations addressing
conservation practices and the protection of correlative rights, and such
regulations may affect Apache's operations and limit the quantity of
hydrocarbons Apache may produce and sell. Other regulated matters include
marketing, pricing, transportation, and valuation of royalty payments.
At the U.S. federal level, the Federal Energy Regulatory Commission (FERC)
regulates interstate transportation of natural gas under the Natural Gas Act.
Effective January 1, 1993, the Natural Gas Wellhead Decontrol Act deregulated
natural gas prices for all "first sales" of natural gas, which includes all
sales by Apache of its own production. As a result, all sales of the Company's
natural gas produced in the U.S. may be sold at market prices, unless otherwise
committed by contract.
Apache's gas sales are affected by regulation of intrastate and interstate
gas transportation. In an attempt to promote competition, the FERC has issued a
series of orders which have altered significantly the marketing and
transportation of natural gas. The effect of these orders has been to enable the
Company to market its natural gas production to purchasers other than the
interstate pipelines located in the vicinity of its producing properties. The
Company believes that these changes have generally improved the Company's access
to transportation. To date, Apache has not experienced any material adverse
effect on its gas marketing activities as a result of these FERC orders;
however, the Company cannot predict what new regulations may be adopted by the
FERC and other regulatory authorities, or what effect subsequent regulations may
have on its future gas marketing activities.
ENVIRONMENTAL MATTERS
Apache, as an owner or lessee and operator of oil and gas properties, is
subject to various federal, provincial, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations, subject the lessee to liability for
pollution damages, and require suspension or cessation of operations in affected
areas.
Apache maintains insurance coverage which it believes is customary in the
industry, although it is not fully insured against all environmental risks. The
Company is not aware of any environmental claims existing as of December 31,
1997, which would have a material impact upon the Company's financial position
or results of operations.
Apache has made and will continue to make expenditures in its efforts to
comply with these requirements, which it believes are necessary business costs
in the oil and gas industry. The Company has established policies for continuing
compliance with environmental laws and regulations, including regulations
applicable to its operations in Canada, Australia and other countries. Apache
also has established operational procedures and training programs designed to
minimize the environmental impact of its field facilities. The costs incurred by
these policies and procedures are inextricably connected to normal operating
expenses such that the Company is unable to separate the expenses related to
environmental matters; however, the Company does not believe any such additional
expenses are material to its financial position or results of operations.
8
<PAGE> 11
Although environmental requirements have a substantial impact upon the
energy industry, generally these requirements do not appear to affect Apache any
differently, or to any greater or lesser extent, than other companies in the
industry. Apache does not believe that compliance with federal, state, local or
foreign country provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material adverse effect upon the capital expenditures, earnings or
competitive position of the Company or its subsidiaries; 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
The oil and gas industry is highly competitive. Because oil and gas are
fungible commodities, the principal form of competition with respect to product
sales is price competition. Apache strives to maintain the lowest finding and
production costs possible to maximize profits.
As an independent oil and gas company, Apache frequently competes for
reserve acquisitions, exploration leases, licenses, concessions and marketing
agreements against companies with substantially larger financial and other
resources than Apache possesses. Moreover, many competitors have established
strategic long-term positions and maintain strong governmental relationships in
countries in which the Company may seek new entry. Apache expects this high
degree of competition to continue.
INSURANCE
Exploration for and production of oil and natural gas can be hazardous,
involving unforeseen occurrences such as blowouts, cratering, fires and loss of
well control, which can result in damage to or destruction of wells or
production facilities, injury to persons, loss of life or damage to property or
the environment. The Company maintains insurance against certain losses or
liabilities arising from its operations in accordance with customary industry
practices and in amounts that management believes to be prudent; however,
insurance is not available to the Company against all operational risks.
HEDGING
To the extent that the Company engages in hedging activities, it may be
prevented from realizing the benefits of price increases above the levels of the
hedges. In addition, the Company is subject to basis risk when it engages in
hedging transactions, particularly where transportation constraints restrict the
Company's ability to deliver oil and gas volumes to the delivery point to which
the hedging transaction is indexed.
ACQUISITION RISKS
The Company from time to time acquires oil and gas properties. Although the
Company performs a review of the acquired properties that it believes is
consistent with industry practices, such reviews are inherently incomplete. It
generally is not feasible to review in depth every individual property involved
in each acquisition. Ordinarily the Company will focus its review efforts on the
higher-value properties and will sample the remainder. However, even a detailed
review of records and properties may not necessarily reveal existing or
potential problems, nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and potential.
Inspections may not always be performed on every well, and environmental
problems, such as ground water contamination, are not necessarily observable
even when an inspection is undertaken. Even when problems are identified, the
Company often assumes certain environmental and other risks and liabilities in
connection with acquired properties. There are numerous uncertainties inherent
in estimating quantities of proved oil and gas reserves and actual future
production rates and associated costs with respect to acquired properties, and
actual results may vary substantially from those assumed in the estimates (see
above). In addition, there can be no assurance that acquisitions will not have
an adverse effect upon the Company's operating results, particularly during the
periods in which the operations of acquired businesses are being integrated into
the Company's ongoing operations.
9
<PAGE> 12
GENERAL ECONOMIC CONDITIONS
Virtually all of the Company's operations are subject to the risks and
uncertainties of general economic conditions (domestically, in specific regions
of the United States and Canada, and internationally), the outcome of pending
and/or potential legal or regulatory proceedings, changes in environmental, tax,
labor and other laws and regulations to which the Company is subject, and the
condition of the capital markets utilized by Company to finance its operations.
RISKS OF NON-U.S. OPERATIONS
The Company's non-U.S. oil and natural gas exploration, development and
production activities are subject to political and economic uncertainties
(including but not limited to changes, sometimes frequent or marked, in
governmental energy policies or the personnel administering them), expropriation
of property, cancellation or modification of contract rights, foreign exchange
restrictions, currency fluctuations, royalty and tax increases and other risks
arising out of foreign governmental sovereignty over the areas in which the
Company's operations are conducted, as well as risks of loss due to civil
strife, acts of war, guerrilla activities and insurrection. These risks may be
higher in the developing countries in which the Company conducts such
activities. Consequently, the company's non-U.S. exploration, development and
production activities may be substantially affected by factors beyond the
Company's control, any of which could materially adversely affect the Company's
financial position or results of operations. Furthermore, in the event of a
dispute arising from non-U.S. operations, the Company may be subject to the
exclusive jurisdiction of courts outside the U.S. or may not be successful in
subjecting non-U.S. persons to the jurisdiction of the courts in the U.S., which
could adversely affect the outcome of such dispute.
EMPLOYEES
On December 31, 1997, Apache had 1,287 employees.
OFFICES
Apache's principal executive offices are located at One Post Oak Central,
2000 Post Oak Boulevard, Suite 100, Houston, Texas 77056-4400. At year-end 1997,
the Company maintained regional exploration and production offices in Tulsa,
Oklahoma; Houston, Texas; Calgary, Alberta; Cairo, Egypt; Perth, Western
Australia; and Warsaw, Poland.
10
<PAGE> 13
ITEM 2. PROPERTIES
OIL AND GAS EXPLORATION AND PRODUCTION PROPERTIES AND RESERVES
ACREAGE
The undeveloped and developed acreage including both domestic leases and
international production and exploration rights that Apache held as of December
31, 1997, are as follows:
<TABLE>
<CAPTION>
UNDEVELOPED ACREAGE DEVELOPED ACREAGE
------------------------ ----------------------
GROSS NET GROSS NET
ACRES ACRES ACRES ACRES
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
OFFSHORE
Louisiana................................... 158,626 88,677 201,884 85,279
Texas....................................... 109,349 66,955 167,645 78,901
---------- ---------- --------- ---------
TOTAL..................................... 267,975 155,632 369,529 164,180
---------- ---------- --------- ---------
MIDCONTINENT
Arkansas.................................... 2,296 1,774 4,625 3,350
Kansas...................................... 160 -- 40 40
Louisiana................................... 11,735 10,180 51,199 34,837
Michigan.................................... 2,693 2,090 -- --
Oklahoma.................................... 127,874 49,505 484,911 192,394
Pennsylvania................................ -- -- 796 38
Texas....................................... 72,036 41,602 130,502 67,986
---------- ---------- --------- ---------
TOTAL..................................... 216,794 105,151 672,073 298,645
---------- ---------- --------- ---------
WESTERN
Alaska...................................... 14,262 -- -- --
Colorado.................................... 14,200 12,472 13,575 12,870
Illinois.................................... 140 56 -- --
New Mexico.................................. 93,888 51,726 98,628 50,746
Ohio........................................ 21 11 -- --
Texas....................................... 136,871 69,789 255,948 192,563
Utah........................................ 3,101 2,462 6,707 6,235
Wyoming..................................... 58,912 43,065 15,591 7,275
---------- ---------- --------- ---------
TOTAL..................................... 321,395 179,581 390,449 269,689
---------- ---------- --------- ---------
GULF COAST
Florida..................................... 162 23 -- --
Louisiana................................... 25,669 19,602 88,577 72,977
Mississippi................................. 10,515 5,108 5,293 3,316
Texas....................................... 53,045 27,937 189,778 117,264
---------- ---------- --------- ---------
TOTAL..................................... 89,391 52,670 283,648 193,557
---------- ---------- --------- ---------
TOTAL UNITED STATES......................... 895,555 493,034 1,715,699 926,071
---------- ---------- --------- ---------
INTERNATIONAL
Canada...................................... 191,454 108,224 338,527 209,300
Egypt....................................... 26,857,700 13,149,995 867,400 471,309
Australia................................... 3,224,740 1,104,440 425,270 159,850
Poland...................................... 8,172,605 5,563,542 -- --
China....................................... 41,580 20,790 7,100 1,740
Ivory Coast................................. 157,258 62,903 37,312 8,955
Indonesia................................... 1,034,380 402,260 -- --
---------- ---------- --------- ---------
TOTAL INTERNATIONAL....................... 39,679,717 20,412,154 1,675,609 851,154
---------- ---------- --------- ---------
TOTAL COMPANY............................... 40,575,272 20,905,188 3,391,308 1,777,225
========== ========== ========= =========
</TABLE>
11
<PAGE> 14
PRODUCTIVE OIL AND GAS WELLS
The number of productive oil and gas wells, operated and non-operated, in
which Apache had an interest as of December 31, 1997, is set forth below.
<TABLE>
<CAPTION>
GAS OIL
-------------- --------------
GROSS NET GROSS NET
----- ----- ----- -----
<S> <C> <C> <C> <C>
Offshore.................................................... 180 67 66 22
Midcontinent................................................ 1,630 617 515 152
Western..................................................... 347 127 3,442 1,744
Gulf Coast.................................................. 315 249 980 798
Canada...................................................... 484 314 433 88
Egypt....................................................... 10 4 108 54
Australia................................................... 7 3 15 7
----- ----- ----- -----
Total..................................................... 2,973 1,381 5,559 2,865
===== ===== ===== =====
</TABLE>
GROSS WELLS DRILLED
The following table sets forth the number of gross exploratory and gross
development wells drilled in the last three fiscal years in which the Company
participated. The number of wells drilled refers to the number of wells
commenced at any time during the respective fiscal year. "Productive" wells are
either producing wells or wells capable of commercial production. At December
31, 1997, the Company was participating in 24 wells in the U.S., nine Canadian
wells, 21 Egyptian wells and two Australian wells in the process of drilling.
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENTAL
-------------------------- --------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- --- ----- ---------- --- -----
<S> <C> <C> <C> <C> <C> <C>
1997
United States.............................. 27 25 52 234 32 266
Canada..................................... 19 14 33 41 7 48
Egypt...................................... 7 19 26 23 4 27
Australia.................................. 3 6 9 6 1 7
Other International........................ 1 2 3 1 -- 1
-- -- --- --- -- ---
Total.................................... 57 66 123 305 44 349
== == === === == ===
1996
United States.............................. 28 33 61 201 31 232
Canada..................................... 23 25 48 27 2 29
Egypt...................................... 7 4 11 12 -- 12
Australia.................................. 4 6 10 1 1 2
Other International........................ -- 1 1 -- -- --
-- -- --- --- -- ---
Total.................................... 62 69 131 241 34 275
== == === === == ===
1995
United States.............................. 9 15 24 129 21 150
Canada..................................... 16 13 29 14 5 19
Egypt...................................... 4 2 6 3 -- 3
Australia.................................. 4 6 10 1 1 2
Other International........................ -- 4 4 -- 1 1
-- -- --- --- -- ---
Total.................................... 33 40 73 147 28 175
== == === === == ===
</TABLE>
12
<PAGE> 15
NET WELLS DRILLED
The following table sets forth, for each of the last three fiscal years,
the number of net exploratory and net developmental wells drilled by Apache.
<TABLE>
<CAPTION>
EXPLORATORY DEVELOPMENTAL
--------------------------- ---------------------------
PRODUCTIVE DRY TOTAL PRODUCTIVE DRY TOTAL
---------- ---- ----- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
1997
United States............................. 11.5 11.9 23.4 107.5 19.0 126.5
Canada.................................... 14.5 10.1 24.6 29.0 6.0 35.0
Egypt..................................... 3.7 12.3 16.0 14.4 2.0 16.4
Australia................................. 1.0 1.0 2.0 1.8 .2 2.0
Other International....................... .5 1.4 1.9 .5 -- .5
---- ---- ---- ----- ---- -----
Total................................... 31.2 36.7 67.9 153.2 27.2 180.4
==== ==== ==== ===== ==== =====
1996
United States............................. 17.2 22.8 40.0 77.9 19.1 97.0
Canada.................................... 18.8 21.5 40.3 24.1 1.4 25.5
Egypt..................................... 3.2 3.0 6.2 9.0 -- 9.0
Australia................................. 1.1 1.5 2.6 0.2 0.1 0.3
Other International....................... -- 0.4 0.4 -- -- --
---- ---- ---- ----- ---- -----
Total................................... 40.3 49.2 89.5 111.2 20.6 131.8
==== ==== ==== ===== ==== =====
1995
United States............................. 3.7 6.2 9.9 57.3 14.0 71.3
Canada.................................... 14.0 9.4 23.4 13.4 3.4 16.8
Egypt..................................... 1.0 0.5 1.5 0.6 -- 0.6
Australia................................. 1.4 1.8 3.2 0.2 0.7 0.9
Other International....................... -- 0.7 0.7 -- 0.7 0.7
---- ---- ---- ----- ---- -----
Total................................... 20.1 18.6 38.7 71.5 18.8 90.3
==== ==== ==== ===== ==== =====
</TABLE>
PRODUCTION AND PRICING DATA
The following table describes, for each of the last three fiscal years,
oil, natural gas liquids (NGLs) and gas production for the Company, average
production costs (excluding severance taxes) and average sales prices.
<TABLE>
<CAPTION>
PRODUCTION AVERAGE SALES PRICE
----------------------------- AVERAGE -----------------------------------
YEAR ENDED OIL NGLS GAS PRODUCTION OIL NGLS GAS
DECEMBER 31, (MBBLS) (MBBLS) (MMCF) COST PER BOE (PER BBL) (PER BBL) (PER MCF)
------------ ------- ------- ------- ------------ --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1997............... 24,291 843 222,237 $3.07 $19.20 $14.08 $2.28
1996............... 19,465 713 205,305 3.43 20.84 16.41 2.02
1995............... 18,324 763 210,632 3.34 17.09 12.05 1.57
</TABLE>
ESTIMATED RESERVES AND RESERVE VALUE INFORMATION
The following information relating to estimated reserve quantities, reserve
values and discounted future net revenues is derived from, and qualified in its
entirety by reference to, the more complete reserve and revenue information and
assumptions included in the Company's Supplemental Oil and Gas Disclosures under
Item 8 below. The Company's estimates of proved reserve quantities of its U.S.,
Canadian and international properties have been subject to review by Ryder Scott
Company Petroleum Engineers. In 1996, the proved reserve quantities of certain
of the Company's Egyptian properties were reviewed by Netherland, Sewell &
Associates, Inc. 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
13
<PAGE> 16
information represents estimates only and should not be construed as being
exact. See the Supplemental Oil and Gas Disclosures under Item 8 below.
The following table sets forth the Company's estimated proved developed and
undeveloped reserves as of December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
OIL, NGLS
NATURAL AND
GAS CONDENSATE
(BCF) (MMBBLS)
------- ----------
<S> <C> <C>
1997
Developed................................................... 1,554.3 203.1
Undeveloped................................................. 317.5 70.7
------- -----
Total.................................................. 1,871.8 273.8
======= =====
1996
Developed................................................... 1,435.3 183.2
Undeveloped................................................. 190.0 52.1
------- -----
Total.................................................. 1,625.3 235.3
======= =====
1995
Developed................................................... 1,298.5 137.5
Undeveloped................................................. 203.4 32.8
------- -----
Total.................................................. 1,501.9 170.3
======= =====
</TABLE>
The following table sets forth the estimated future value of all the
Company's proved reserves, and proved developed reserves, as of December 31,
1997, 1996 and 1995. Future reserve values are based on year-end prices except
in those instances where the sale of gas and oil is covered by contract terms
providing for determinable escalations. Operating costs, production and ad
valorem taxes, and future development costs are based on current costs with no
escalations.
<TABLE>
<CAPTION>
PRESENT VALUE OF ESTIMATED
FUTURE NET REVENUES
ESTIMATED FUTURE BEFORE INCOME TAXES
NET REVENUES (DISCOUNTED AT 10 PERCENT)
----------------------- ---------------------------
PROVED PROVED
DECEMBER 31, PROVED DEVELOPED PROVED DEVELOPED
- ------------ ---------- ---------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
1997................................ $5,347,892 $4,301,768 $3,272,618 $2,728,747
1996................................ 7,936,924 6,713,252 4,568,475 4,041,065
1995................................ 4,043,024 3,390,103 2,344,357 2,056,558
</TABLE>
At December 31, 1997, estimated future net revenues expected to be received
from all the Company's proved reserves and proved developed reserves were as
follows:
<TABLE>
<CAPTION>
PROVED
DECEMBER 31, PROVED DEVELOPED
- ------------ ---------- ----------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 540,175 $ 618,938
1999........................................................ 711,613 623,300
2000........................................................ 665,515 522,793
Thereafter.................................................. 3,430,589 2,536,737
---------- ----------
Total............................................. $5,347,892 $4,301,768
========== ==========
</TABLE>
The Company believes that no major discovery or other favorable or adverse
event has occurred since December 31, 1997, which would cause a significant
change in the estimated proved reserves reported herein. The estimates above are
based on year-end pricing in accordance with the SEC guidelines and do not
reflect current prices. Since January 1, 1997, no oil or gas reserve information
has been filed with, or included in any
14
<PAGE> 17
report to, any U.S. authority or agency other than the SEC and the Energy
Information Administration (EIA). The basis of reporting reserves to the EIA for
the Company's reserves is identical to that set forth in the foregoing table.
TITLE TO INTERESTS
The Company believes that its title to the various interests set forth
above is satisfactory and consistent with the standards generally accepted in
the oil and gas industry, subject only to immaterial exceptions which do not
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations. The interests owned by the Company
may be subject to one or more royalty, overriding royalty and other outstanding
interests customary in the industry. The interests may additionally be subject
to obligations or duties under applicable laws, ordinances, rules, regulations
and orders of arbitral or governmental authorities. In addition, the interests
may be subject to burdens such as net profits interests, liens incident to
operating agreements and current taxes, development obligations under oil and
gas leases and other encumbrances, easements and restrictions, none of which
detract substantially from the value of the interests or materially interfere
with their use in the Company's operations.
ITEM 3. LEGAL PROCEEDINGS
The information set forth under the caption "Litigation" in Note 10 to the
Company's financial statements under Item 8 below is incorporated herein by
reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of security holders during the fourth
quarter of 1997.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Apache's common stock, par value $1.25 per share, is traded on the New York
Stock Exchange and the Chicago Stock Exchange under the symbol APA. The table
below provides certain information regarding Apache common stock for 1997 and
1996. Prices shown are from the New York Stock Exchange Composite Transactions
Reporting System.
<TABLE>
<CAPTION>
1997 1996
-------------------------- ------------------------
PRICE RANGE PRICE RANGE
------------ DIVIDENDS ----------- DIVIDENDS
HIGH LOW PER SHARE HIGH LOW PER SHARE
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.............................. $39 3/8 $31 1/4 $.07 $29 1/2 $24 3/8 $.07
Second Quarter............................. 35 5/8 30 1/8 $.07 33 1/2 26 3/8 $.07
Third Quarter.............................. 42 7/8 32 1/16 $.07 34 5/8 27 3/4 $.07
Fourth Quarter............................. 45 1/16 32 11/16 $.07 37 7/8 29 1/2 $.07
</TABLE>
The closing price per share of Apache common stock, as reported on the New
York Stock Exchange Composite Transactions Reporting System for February 27,
1998, was $34.00. At December 31, 1997, there were 93,304,541 shares of Apache
common stock outstanding, held by approximately 10,000 shareholders of record
and 46,000 beneficial owners.
Each share of Apache common stock also represents one preferred share
purchase right which, when exercisable, would entitle the holder to purchase one
ten-thousandth of a share of Series A Junior Participating Preferred Stock for a
purchase price of $100 and, under certain circumstances, would entitle the
holder to acquire additional shares of Apache common stock. See Note 7 to the
Company's financial statements under Item 8 below.
The Company has paid cash dividends on its common stock for 124 consecutive
quarters through December 31, 1997, and expects to continue the payment of
dividends at current levels, although future
15
<PAGE> 18
dividend payments will depend upon the Company's level of earnings, financial
requirements and other relevant factors.
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, 1997, which information has been derived from the Company's
audited financial statements. Apache's previously reported data for 1994 and
1993 has been restated to reflect the merger with DEKALB in May 1995 under the
pooling of interests method of accounting. This information should be read in
connection with and is qualified in its entirety by the more detailed
information in the Company's financial statements under Item 8 below.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997(1) 1996(2) 1995(3) 1994 1993(4)
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Total revenues....................... $1,176,273 $ 977,151 $ 750,702 $ 592,626 $ 512,632
Income from continuing operations.... 154,896 121,427 20,207 45,583 41,421
Income per common share -- continuing
operations(5)
Basic........................... 1.71 1.42 .28 .65 .67
Diluted......................... 1.65 1.38 .28 .65 .67
Cash dividends per common share(6)... .28 .28 .28 .28 .28
BALANCE SHEET DATA
Working capital (deficit)............ $ 4,546 $ (41,501) $ (22,013) $ (3,203) $ (55,538)
Total assets......................... 4,138,633 3,432,430 2,681,450 2,036,627 1,759,203
Long-term debt....................... 1,501,380 1,235,706 1,072,076 719,033 504,334
Shareholders' equity................. 1,729,177 1,518,516 1,091,805 891,087 868,596
Common shares outstanding at end of
year............................... 93,305 90,059 77,379 69,666 69,504
</TABLE>
- ---------------
(1) Includes financial data for the Ampolex Group Transaction after November 20,
1997.
(2) Includes financial data for Phoenix after May 20, 1996.
(3) Includes the results of the acquisitions of certain oil and gas properties
from Texaco Exploration and Production, Inc. (Texaco) and Aquila Energy
Resources Corporation (Aquila) after March 1, 1995 and September 1995,
respectively, and the sale of a substantial portion of the Company's Rocky
Mountain properties in September 1995.
(4) Includes financial data for AERC after June 30, 1993, and the results of the
acquisition of certain oil and gas properties from Hall-Houston Oil Company
(Hall-Houston) after July 31, 1993.
(5) Income per common share -- continuing operations has been restated in
accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share."
(6) No cash dividends were paid on outstanding DEKALB common stock in 1995, 1994
and 1993.
For a discussion of significant acquisitions, reference is made to Item 7,
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and to Note 2 to the Company's consolidated financial statements
under Item 8 below.
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Apache achieved record earnings and cash flow on both an absolute and per
share basis during 1997. Higher natural gas prices, while contributing to the
year's improvements, were partially offset by lower oil prices. More than
product prices, the primary driver behind Apache's 1997 record performance was
increased production volumes, characterized by moderate growth in North American
gas production and substantial increases in oil volumes abroad.
The year's $154.9 million of earnings, coupled with a $75 million
conversion of debt to equity in November and $611 million of cash provided
before changes in working capital and other adjustments (cash flow from
operations), enabled Apache to end 1997 with a debt-to-capitalization ratio of
46.8 percent, up from 44.9 percent in 1996, despite $685.4 million invested in
exploration and development activities and $225.9 million of property
acquisitions. At year-end, approximately 69 percent of Apache's debt was locked
in at fixed rates averaging 7.42 percent.
Other specifics include:
Increased production and higher gas prices -- Higher oil and gas production
and natural gas prices contributed to record earnings and cash flow in 1997.
Egyptian oil development, a full year of production from Egyptian properties
acquired in 1996, and North American gas drilling drove the increased production
for 1997. Apache's oil production increased 25 percent from 1996 to 1997, which
added $92.6 million to revenues. Natural gas production increased nine percent
from 1996 to 1997, which contributed $38.5 million to the increase in revenues.
Apache's average realized natural gas price for 1997 was up 13 percent over
1996, favorably impacting revenues by $51.3 million.
Debt refinancing -- In January 1997, the Company established a $300 million
commercial paper program and expanded that program in June 1997 to $700 million.
Apache also replaced its $1 billion global borrowing-base credit facility with a
new $1 billion global corporate credit facility in June 1997. Apache issued $150
million of senior unsecured 50 year, 7.375-percent debentures in August 1997.
Three of the Company's Egyptian subsidiaries entered into a $250 million
secured, revolving credit facility in October 1997. Apache's Australian finance
subsidiary issued, in December 1997, $170 million of 10 year, 6.5-percent notes
guaranteed by Apache. The Company also received a rating upgrade on its senior
and subordinated long-term debt from Standard & Poor's in January 1997.
RESULTS OF OPERATIONS
NET INCOME AND REVENUE
Apache reported 1997 net income of $154.9 million, an increase of 28
percent or $33.5 million over 1996. The increase is primarily due to higher oil
and gas production, higher natural gas prices and lower operating costs per unit
of production. Basic net income per common share rose to $1.71 compared to $1.42
in 1996; diluted net income per common share increased to $1.65 in 1997 from
$1.38 in 1996. Net income of $121.4 million for 1996 rose from $20.2 million in
1995. Basic net income per common share increased five-fold in 1996 from $.28 in
1995; diluted net income per common share was also $.28 in 1995. The increase
was attributed to higher oil and gas prices and increased oil production.
Revenues increased 20 percent to $1.2 billion in 1997. Oil and natural gas
production revenues increased 18 percent, primarily due to increased oil and gas
production and natural gas prices. Crude oil, including natural gas liquids, and
natural gas contributed 49 percent and 51 percent, respectively, of total oil
and gas production revenues during 1997. Revenues increased 30 percent in 1996
to $977.2 million. Revenues for 1995 were $750.7 million. In 1996, crude oil,
including natural gas liquids, contributed 50 percent and natural gas
contributed 50 percent of total oil and gas production revenues.
17
<PAGE> 20
The table below presents, for the years indicated, the revenues, production
and average prices received from sales of natural gas, oil and natural gas
liquids.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues (in thousands):
Natural gas.............................................. $505,604 $415,736 $330,737
Oil...................................................... 466,291 405,724 313,214
Natural gas liquids...................................... 11,878 11,704 9,193
-------- -------- --------
Total................................................. $983,773 $833,164 $653,144
======== ======== ========
Natural Gas Volume -- Mcf per day:
United States............................................ 492,594 472,171 500,441
Canada................................................... 89,699 74,598 67,083
Egypt.................................................... 563 302 --
Australia................................................ 26,016 13,869 9,551
-------- -------- --------
Total................................................. 608,872 560,940 577,075
======== ======== ========
Average Natural Gas price -- Per Mcf:
United States............................................ $ 2.47 $ 2.17 $ 1.64
Canada................................................... 1.33 1.09 1.00
Egypt.................................................... 2.94 3.21 --
Australia................................................ 1.78 1.96 1.86
Total................................................. 2.28 2.02 1.57
Oil Volume -- Barrels per day:
United States............................................ 40,638 40,600 45,084
Canada................................................... 2,120 1,969 1,999
Egypt.................................................... 19,372 8,295 --
Australia................................................ 4,417 2,318 3,120
-------- -------- --------
Total................................................. 66,547 53,182 50,203
======== ======== ========
Average Oil Price -- Per barrel:
United States............................................ $ 19.31 $ 20.67 $ 17.00
Canada................................................... 19.27 20.84 16.90
Egypt.................................................... 18.65 21.29 --
Australia................................................ 20.51 22.33 18.56
Total................................................. 19.20 20.84 17.09
Natural Gas Liquids (NGL) Volume -- Barrels per day:
United States............................................ 1,684 1,308 1,521
Canada................................................... 627 641 569
-------- -------- --------
Total................................................. 2,311 1,949 2,090
======== ======== ========
Average NGL Price -- Per barrel:
United States............................................ $ 14.50 $ 17.23 $ 12.83
Canada................................................... 12.98 14.73 9.96
Total................................................. 14.08 16.41 12.05
</TABLE>
Natural gas revenues increased by 22 percent from 1996 to 1997 due to
increased natural gas prices and increased production. The average price
received in 1997 was $.26 per Mcf, or 13 percent, higher than 1996. The Company
periodically engages in hedging activities, including fixed-price physical
contracts and financial contracts. Apache realized gains from open hedging
positions favorably impacting the gas price by $.06 per Mcf. Losses under
long-term fixed-price physical contracts negated the hedging gains reducing the
gas price by $.06 per Mcf. The higher prices in 1997 were the result of
favorable North American market conditions. Natural gas prices in Australia
declined in 1997 due to the effect of exchange rates on fixed Australian dollar-
18
<PAGE> 21
denominated gas contracts. Natural gas production for the United States
increased four percent from 1996 to 1997 due to drilling results in the
Midcontinent and Offshore regions. Canadian natural gas production increased 20
percent due to acquisition and drilling activity. Natural gas production from
Australia increased 88 percent from 1996 to 1997. Australian production
increases resulted primarily from a full year of production from the Company's
East Spar properties, which came on line in November 1996, and properties
acquired in the Ampolex Group Transaction.
Natural gas revenues increased 26 percent from 1995 to 1996. Average
natural gas prices were $.45 per Mcf, or 29 percent, higher in 1996 than 1995.
The Company's net hedging activity, including fixed-price physical contracts and
financial contracts reduced the reported prices by $.09 per Mcf in 1996,
compared to a $.07 per Mcf gain in 1995. Natural gas production declined three
percent from 1995 to 1996, primarily due to the natural decline of older
properties in the Company's Offshore and Gulf Coast regions and the sale of
producing properties in late 1995.
Oil revenues increased 15 percent from 1996 to 1997. Egyptian oil
production more than doubled from 1997 due to development activity and the first
full year of production from the Company's Egyptian properties acquired in 1996.
Australian oil production increased 90 percent from 1996 to 1997 due to the
Agincourt prospect. These production increases were partially offset by a
decrease of eight percent in average oil prices received during 1997 due to poor
market conditions.
Oil revenues increased 30 percent from 1995 to 1996, primarily due to
properties acquired in connection with the Phoenix merger and new Egyptian
production from the Company's Qarun field. Decreases in domestic production due
to United States property sales in late 1995, partially offset the impact of
Egyptian production. The average oil price increased 22 percent from 1995 to
1996.
NGL revenues were slightly higher in 1997 than in 1996. NGL production
increased 19 percent from 1996 to 1997, which was offset by a 14 percent
decrease in average prices. NGL revenues increased 27 percent from 1995 to 1996.
Average prices in 1996 were 36 percent higher than in 1995 due to improved
market conditions. The increase in prices was partially offset by a seven
percent decline in production.
OTHER REVENUES AND OPERATING EXPENSES
Gas gathering, processing and marketing revenues increased 38 percent to
$197.0 million in 1997 from 1996. Increased gas volumes and higher gas prices in
1997 drove this increase. Correspondingly, gas gathering, processing and
marketing costs increased in 1997 by 40 percent to $194.3 million. Thus, lower
margins were realized in 1997. Lower crude oil trading margins and lower
pipeline gathering fees were mitigated by higher gas purchase and resale margins
in 1997. During 1996, gas gathering, processing and marketing revenues increased
47 percent to $142.9 million from $97.2 million in 1995. Lower margins were also
realized in 1996 as compared to 1995.
Equity in income (loss) of affiliates represents Apache's share of
ProEnergy losses. Equity in loss of affiliate was $1.7 million and $.3 million
in 1997 and 1996, respectively.
Other revenue for 1997 was a loss of $2.8 million. This amount includes
$4.8 million in foreign currency transaction losses on Canadian dollars and $1.2
million in foreign currency transaction losses on Australian dollars. Canadian
royalty credits of $1.0 million and proceeds received from settlements of $1.8
million partially mitigated these losses. For 1996, other revenue of $1.4
million included a gain on the sale of stock held for investment of $.8 million
and Canadian royalty credits of $1.2 million. Currency transaction losses on
Canadian dollars of $.9 million partially offset these revenues. Other revenue
for 1995 was $.4 million. This amount included $4.3 million in proceeds received
from settlements, $2.2 million in gains from the sales of non-oil and gas
assets, $1.1 million of Canadian royalty credits and $2.1 million of other
income. Losses from the decoupling of NYMEX and wellhead gas prices of $9.3
million offset these revenues.
The Company's depreciation, depletion and amortization (DD&A) expense
increased to $381.4 million in 1997 from $315.1 million in 1996. On an
equivalent barrel basis, full cost DD&A expense increased $.33 per boe, from
$5.44 per boe in 1996 to $5.77 per boe in 1997. Reserve revisions due to price
declines during the
19
<PAGE> 22
first part of 1997 and an increased cost environment in North America negatively
impacted the 1997 rate. Full cost DD&A expense increased in 1996 from $288.4
million, or $5.32 per boe, in 1995.
Apache's operating costs increased three percent to $231.4 million in 1997
from $225.5 million in 1996. Lease operating expense (LOE), excluding severance
taxes, increased from $186.4 million in 1996 to $190.8 million in 1997. LOE
increased as a result of Egyptian oil production enhancements and North American
gas production gains. On an equivalent barrel basis, LOE for 1997 averaged $3.07
per boe, a $.36 decline from $3.43 per boe in 1996. Production increased with a
lower incremental LOE than the 1996 average per unit cost. Specifically, North
American gas production and Egyptian oil production carry much lower per unit
costs than the 1996 property profile. The divestiture of marginal properties in
the U.S. also favorably impacted LOE per boe in 1997. Operating costs increased
seven percent in 1996 from $211.7 million in 1995. LOE, excluding severance
taxes, increased three percent in 1996 from $181.1 million in 1995. LOE per boe
increased three percent in 1996 from $3.34 per boe in 1995. The increase was
driven by a flat domestic cost structure with declining production in the Gulf
Coast region. The Phoenix acquisition in 1995 also increased LOE per boe.
Mitigating these increases was decreased LOE per boe in the Midcontinent region
due to incremental production added through the drillbit.
Administrative, selling and other costs increased $2.3 million, or six
percent, from 1996 to 1997. Under a new bonus plan initiated in 1997, Apache
provided incentive compensation to all employees based on the achievement of
targeted performance, which was the primary reason for the increase. On an
equivalent barrel basis, general and administrative (G&A) expense declined from
$.66 per boe in 1996 to $.62 per boe in 1997. Production increases were not met
with rising administrative costs. Administrative, selling and other costs were
lower in 1996 than in 1995 due to the Company's continuing efforts to control
costs. On an equivalent barrel basis, G&A expense declined two percent in 1996
from $.67 per boe in 1995.
Net financing costs for 1997 increased $10.7 million, or 17 percent, over
1996. Gross interest expense increased by $15.3 million due to higher average
aggregate debt outstanding at higher average interest rates, which resulted from
the extension of Apache's debt maturities. Average aggregate debt outstanding
and average interest rates increased to $1.4 billion and 7.69 percent,
respectively, from $1.2 billion and 7.40 percent in 1996. In 1997, Apache wrote
off $1.2 million in deferred loan costs related to cancellation of two secured
credit facilities with the International Finance Corporation (IFC). Additional
capitalized interest of $5.8 million in 1997 mitigated these increases.
Capitalized interest is based on the carrying value of unproved properties.
Higher international unevaluated costs caused the increase in 1997. Net
financing costs for 1996 decreased $9.0 million, or 13 percent, from the prior
year due to higher amounts of capitalized interest, partially offset by higher
gross interest costs. Capitalized interest increased $11.7 million for 1996 due
to an increase in the unproved property base resulting from acquisitions made in
1995 and 1996. Gross interest expense increased $1.8 million for 1996 as
compared to 1995. Average outstanding debt increased $78.8 million compared to
1995. Offsetting this increase was a decline of .36 percent in Apache's weighted
average interest rate.
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. Pricing
volatility is expected to continue. Gas price realizations ranged from a monthly
low of $1.78 per Mcf to a monthly high of $3.38 per Mcf during 1997. Oil prices
ranged from a low of $16.71 per barrel to a high of $24.17 per barrel during the
same period.
The Company periodically enters into hedging activities with respect to a
portion of its projected oil and natural gas production through a variety of
financial 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
20
<PAGE> 23
production revenues when the associated production occurs. Apache does not hold
or issue derivative instruments for trading purposes. In 1997, Apache recognized
a net gain of $1.4 million from hedging activities that increased oil and gas
production revenues. The net gain in 1997 includes $14.5 million in derivative
income and $13.1 million in losses on fixed price physical gas contracts. In
1996, Apache recognized a net loss from hedging activities of $23.8 million.
Gains or losses on natural gas derivative contracts are expected to be offset by
sales at the spot market price or to preserve the margin on existing physical
contracts. A 10 percent improvement in year-end spot market prices would
increase the fair value of derivative contracts in effect at December 31, 1997
by $21 million, while a 10 percent fall in spot prices would decrease the fair
value of these instruments by $21 million.
Hedging activity relative to oil production resulted in a $.1 million gain
in 1997. The Company did not have any open positions with respect to crude oil
hedging at December 31, 1997.
INTEREST RATE RISK
The Company considers its interest rate risk exposure minimal as a result
of fixing interest rates on over two-thirds of the Company's debt. Total debt at
December 31, 1997, included about $473 million of floating-rate debt. As a
result, Apache's annual interest costs in 1998 will fluctuate based on
short-term interest rates on approximately 31 percent of its total debt
outstanding at December 31, 1997. The impact on annual cash flow of a 10 percent
change in the floating rate (approximately 64 basis points) would be $3 million.
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. Australia gas production is sold under fixed-price Australian dollar
contracts and substantially all capital expenditures and operating costs 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 on the transaction date. Reported cash flow relating to Canadian
operations is based on cash flows measured in Canadian dollars converted to the
U.S. dollar equivalent based on the average of the Canadian and U.S. dollar
exchange rates for the period reported. Substantially all of the Company's
international transactions, outside of Canada and Australia, are denominated in
U.S. dollars.
The Company's Canadian and Australian subsidiaries have net financial
obligations that are denominated in a currency other than the functional
reporting currency of the subsidiaries. A decrease in value of 10 percent in the
Australian and Canadian dollars relative to the U.S. dollar from the year-end
exchange rates would result in a foreign currency loss of approximately $11
million, based on December 31, 1997 amounts. The Company considers its current
risk exposure to exchange rate movements, based on net cash flows, to be
immaterial. The Company did not have any open derivative contracts relating to
foreign currencies at December 31, 1997.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary needs for cash are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, payment of dividends, and capital obligations for affiliated
ventures. The Company funds its exploration and development activities through
internally generated cash flows. Apache budgets its 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 predict future product prices.
21
<PAGE> 24
Capital Expenditures -- Apache's oil and gas capital expenditures over the
last three years are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Exploration and Development:
United States.................................... $375,015 $302,494 $216,430
Canada........................................... 57,669 58,768 27,788
Egypt............................................ 152,564 63,597 11,852
Australia........................................ 70,802 46,838 32,373
Ivory Coast...................................... 1,077 7,914 1,287
Other International.............................. 28,293 14,084 22,438
-------- -------- --------
Total......................................... $685,420 $493,695 $312,168
======== ======== ========
Acquisitions of Oil and Gas Properties............. $225,934 $446,205 $820,918
======== ======== ========
</TABLE>
Expenditures for exploration and development totaled $685.4 million in 1997
compared to $493.7 million in 1996. Apache's drilling program in 1997 added
113.5 MMboe of reserves (including revisions) and replaced 183 percent of
production. In the United States, Apache completed 261 gross wells as producers
out of 318 gross wells drilled during the year, compared with 229 gross
producers out of 293 gross wells drilled in 1996. In Canada, Apache completed 60
gross wells as producers out of 81 gross wells drilled during the year, compared
with 50 gross producers out of 77 gross wells drilled in 1996.
Internationally, the Company completed 41 gross producers out of 73 gross
wells drilled in 1997, compared to 24 gross producers out of 36 gross wells in
1996. The international wells drilled in 1997 included 30 successful wells in
Egypt and nine successful wells in Australia.
The total capital expenditures budget for 1998 is $523.2 million. This
includes $274.0 million for North America. Estimated U.S. exploration and
development expenditures for 1998 are $227.8 million, which includes $122.6
million in the Gulf region, $70.0 million in the Midcontinent region and $35.2
million in the Western region. Apache expects to spend $46.2 million in Canada
in 1998. The Company expects its other international exploration and development
expenditures in 1998, exclusive of facilities, to total approximately $249.2
million.
On November 20, 1997, the Company, acquired all the capital stock of three
companies owning interests in certain oil and gas properties (including 31.9
MMboe of proved oil and natural gas reserves) and production facilities offshore
Western Australia for approximately $300 million pursuant to three agreements
with subsidiaries of Mobil. Funds for the Ampolex Group Transaction were
obtained principally from borrowings under the Company's global credit facility.
The Ampolex Group Transaction, net of the sale of certain properties to
Hardy Petroleum Limited (Hardy), increased the Company's interest to 47.5
percent from 22.5 percent in the Carnarvon Basin's Harriet area, which includes
the Varanus Island pipeline, processing and production complex and eight
existing oil and gas fields. In addition, the Company's interest in the East
Spar field, which produces through the Varanus Island facilities, increased to
45 percent from 20 percent. Apache operates the Harriet/East Spar Properties.
In conjunction with the closing of the Ampolex Group Transaction on
December 9, 1997, the Company entered into an agreement with Hardy under which
Hardy agreed to purchase a 10 percent interest in the Company's East Spar gas
field and related production facilities in Western Australia. The transaction
closed on January 28, 1998 with a total sales price of approximately $63 million
in cash.
In 1997, the Company also completed 45 tactical regional acquisitions for
cash consideration totaling $33.6 million. These acquisitions added
approximately 6.6 MMboe to the Company's reserves.
Cash expenditures for acquisitions of proved oil and gas properties during
1996 totaled $446.2 million compared to $820.9 million in 1995. The Company
added 52 MMboe of proved oil and gas reserves through
22
<PAGE> 25
purchases in 1996. The most significant transaction completed in 1996 was the
merger with Phoenix. Apache acquired oil and gas properties totaling $331.2
million from Phoenix. Apache also acquired $115.0 million of other oil and gas
properties located primarily in the Company's existing focus areas. This amount
included the purchase of certain oil and gas properties from Hall-Houston for
$46 million in cash. Funds for the acquisitions were obtained principally from
borrowings under the Company's revolving bank credit facility.
On March 1, 1995, Apache purchased certain United States oil and gas
properties from Texaco for approximately $567 million in cash, subject to
adjustment. Funds for the Texaco transaction were obtained from several sources,
including increased borrowing capacity under the Company's revolving bank credit
facility and proceeds of Apache's $172.5 million 6-percent convertible
subordinated debentures due 2002 (6-percent debentures), which were issued on
January 4, 1995.
In September 1995, Apache acquired substantially all of the oil and natural
gas assets of Aquila for approximately $210 million. The oil and gas properties
included approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas. Also
included in the transaction was the purchase of a five-year, four-month
premium-price gas contract and interests in four gas processing plants.
Debt and Interest Commitments -- At December 31, 1997, Apache had
outstanding debt of $255 million under its global credit facility and an
aggregate of $1,263.6 million of other debt. This other debt included notes and
debentures maturing in the years 2000 through 2096. Debt outstanding at December
31, 1997 of $1.5 billion was up 23 percent over the $1.2 billion outstanding at
December 31, 1996. The increase reflects the Ampolex Group Transaction and other
1997 property acquisitions. The Company's debt-to-capitalization ratio increased
from 44.9 percent at December 31, 1996 to 46.8 percent at December 31, 1997.
Apache's debt-to-capitalization ratio for January 1998 fell below 42 percent due
in part to the conversion of 90 percent of the $172.5 million 6-percent
debentures into approximately 5.1 million shares of Apache common stock.
Interest payments on the Company's debt for 1998 are projected to be $116.2
million (using weighted average balances for floating rate obligations).
Scheduled principal payments for 1998 total $17.2 million.
Dividend Payments -- Dividends paid during 1997 totaled $25.3 million, up
eight percent from 1996, due to the increased number of shares outstanding. The
Company has paid cash dividends on its common stock for 124 consecutive quarters
through December 31, 1997, and expects to continue payment of dividends at
current levels. Future dividend payments will depend on the Company's level of
earnings, financial requirements and other relevant factors.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary capital resources are net cash provided by operating
activities, proceeds from financing activities and proceeds from sales of
non-strategic assets.
Net Cash Provided by Operating Activities -- Apache's net cash provided by
operating activities during 1997 totaled $723.8 million, an increase of 48
percent from the $490.5 million provided in 1996. This increase was due
primarily to higher oil and gas production and higher gas prices in 1997. The
receipt of $115.2 million from a purchaser as an advance also impacted 1997 net
cash provided by operating activities. This advance was for future natural gas
deliveries of 20,000 MMbtu per day over a ten-year period commencing September
1997. Net cash provided by operating activities in 1996 rose $158.4 million from
1995 primarily due to higher product prices.
Long-Term Borrowings -- In January 1997, the Company established a $300
million commercial paper program that allows Apache to borrow funds for up to
270 days at competitive interest rates. The commercial paper program is
supported by availability under the U.S. portion of Apache's global credit
facility. In June 1997, the Company expanded its commercial paper program to
$700 million from $300 million to provide access to additional low-cost,
short-term funds. Since its inception in January 1997, the commercial paper
program has been rated A-2, Prime-2 and D-1- (D-One-Minus) by Standard & Poor's
(S&P), Moody's and Duff and Phelps, respectively.
23
<PAGE> 26
Also in January 1997, S&P upgraded the Company's senior long-term debt
rating from BBB to BBB+ and subordinated long-term debt rating from BBB- to BBB.
Apache was also named to the S&P 500 in 1997.
In June 1997, the Company replaced its $1 billion global borrowing-base
credit facility with a new $1 billion global credit facility that provides
Apache with greater borrowing capacity, increased financial flexibility and less
restrictive covenants, while lowering its all-in borrowing cost by 7 1/2 basis
points.
The global credit facility consists of three separate bank facilities: a
$700 million facility in the U.S.; 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.
In August 1997, Apache issued $150 million principal amount, $148 million
net of discount, of senior unsecured 7.375-percent debentures maturing on August
15, 2047. The proceeds from this issuance were used to reduce the Company's
outstanding commercial paper obligations and for general corporate purposes.
The Company terminated two secured credit facilities with the IFC in
October 1997. This financing was replaced with a secured, revolving credit
facility that provides total commitments of $250 million and an initial
borrowing base of $150 million. This borrowing base will be redetermined
semi-annually. The total amount of commitments under the facility is currently
scheduled to be reduced by set increments every six months, beginning two and
one-half years after the effective date of the facility. The facility is
scheduled to mature on January 3, 2003.
In December 1997, Apache Finance Pty Ltd, an Australian finance subsidiary,
issued $170 million principal amount, $168.7 million net of discount, of 6.5
percent notes due on December 15, 2007. Apache irrevocably and unconditionally
guaranteed the notes, and has the right to redeem the notes prior to maturity,
subject to certain conditions. The proceeds from this issuance were used to
repay funds borrowed for the Ampolex Group Transaction and general corporate
purposes.
In February 1998, Apache issued $150 million principal amount, $148.2
million net of discount, of senior unsecured 7-percent notes maturing on
February 1, 2018. The notes are not redeemable prior to maturity. Net proceeds
from the sale were used to reduce existing short-term obligations and for
general corporate purposes.
Stock Transactions -- In November 1997, all the Company's 3.93-percent
convertible notes were converted into approximately 2.8 million shares of Apache
common stock. The notes were converted at a rate of 37.04 shares of common stock
per $1,000 principal amount.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6 percent debentures were converted into 5.1 million shares of Apache
common stock at a conversion rate of approximately 32.59 shares of common stock
per $1,000 principal amount. The remaining $16.9 million principal amount was
redeemed for $17.4 million in cash, plus accrued and unpaid interest.
Asset Sales -- Apache received $30.1 million in both 1997 and 1996 from the
sale of non-strategic oil and gas properties in a number of separate
transactions.
In January 1998, Apache closed the sale of a 10 percent interest in
Apache's East Spar gas field and related production facilities in Western
Australia for approximately $63 million in cash. Apache used the proceeds to
reduce outstanding loans under the Australian portion of the global credit
facility.
Liquidity -- The Company had $9.7 million in cash and cash equivalents on
hand at December 31, 1997, down from $13.2 million at December 31, 1996.
Apache's ratio of current assets to current liabilities increased from .87:1 at
December 31, 1996, to 1.01:1 at December 31, 1997.
Management believes that cash on hand, net cash generated from operations
and unused committed borrowing capacity under its global 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. As of December 31, 1997, Apache's
available borrowing capacity under its global credit facility was $694.2
million.
24
<PAGE> 27
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer software being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. If left
unremediated, this could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send oil and gas revenue disbursement checks, or engage
in similar normal business activities.
The Company is in the process of replacing significant portions of its
software to more effectively and efficiently meet its business needs.
Replacement computer systems selected by the Company will properly recognize
dates beyond December 31, 1999. The Company presently believes that with
conversions to new software, the Year 2000 Issue will be eliminated. However, if
such conversions are not made, or are not completed timely, the Year 2000 Issue
could have a material impact on the operations of the Company. The Company plans
to replace substantially all of its existing systems within 15 months or not
later than March 31, 1999.
The date on which the Company plans to complete installation of its new
system is based on management's best estimates, which were derived using
numerous assumptions of future events including the continued availability of
certain resources. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those plans.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, and
similar uncertainties.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production and
cash flow by continuing to explore on and develop its inventory of existing
projects and making carefully targeted acquisitions of new assets. Robust oil
and gas prices early in 1997 gave way to weaker prices later in the year and on
into 1998. Crude oil prices have fallen near their lowest level of the 1990's.
While lower prices are expected to negatively impact Apache's 1998 earnings and
cash from operations (see, "Market Risk-Commodity Risk" above and "Item 1.
Business -- Oil and Natural Gas Prices," "Full Cost Center Ceiling Test,"
"Reserves; Rates of Production; Development Expenditures; Cash Flow," and
"Effect of Volatile Prices"), Apache has taken steps to improve its financial
liquidity for the purpose of better positioning the company to fund potential
opportunities that might result from industry adversity. Specific actions that
may be or have been taken which should impact the Company's activities in 1998
and beyond include:
(1) Selling and trading non-strategic properties to upgrade the Company's
property portfolio and reduce debt.
(2) Curtailing projected exploration and development expenditures to remain
within cash from operations.
(3) Calling for redemption of $175 million of debentures of which 90 percent or
$156 million were converted to equity in January 1998.
The above steps should strengthen Apache's financial position and add
liquidity. Should property acquisition prices fall from the premium price
commanded in 1997 to what management believes to be more reasonable levels,
Apache may seek to undertake a significant acquisition. Alternatively, if
drilling costs retreat further from the levels to which they rose in 1997,
Apache may expand its drilling activity. In either event, Apache expects to
review the level of its capital expenditures quarterly in light of financial
results, product prices, drilling costs and prevailing industry conditions. Even
at a reduced capital expenditure level, Apache expects to remain an active
operator in North America drilling moderate-risk wells.
Apache's international properties should continue to grow in importance
with respect to Apache's financial results and future growth prospects. Apache's
international efforts in the coming year will be focused on development of its
discoveries in Egypt, offshore Western Australia, offshore The People's Republic
of China and offshore the Ivory Coast, and exploration efforts on the Company's
concessions in Egypt and its new properties in Poland. While international
exploration is recognized as higher risk than Apache's North
25
<PAGE> 28
American activities, the Company believes it offers potential for greater
rewards and significant reserve additions. Apache also believes that reserve
additions in these international areas may be made through higher risk
exploration and through improved production practices and recovery techniques.
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 on certain events, risks and uncertainties that
may be outside the Company's control which could cause actual results to differ
materially from those anticipated. Some of these include, but are not limited
to, economic and competitive conditions, inflation rates, legislative and
regulatory changes, financial market conditions, political and economic
uncertainties of foreign governments, future business decisions, and other
uncertainties, all of which are difficult to predict.
There are numerous uncertainties inherent in estimating quantities of
proved oil and gas reserves and in projecting future rates of production and
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Future oil and gas
prices also could affect results of operations and cash flows. Although Apache
makes use of futures contracts, swaps, options and fixed-price physical
contracts to mitigate risk, fluctuations in oil and gas prices may affect the
Company's financial position and results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information required
to be filed under this item are presented on pages F-1 through F-34 of this Form
10-K, and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth under the captions "Information About Nominees
for Election as Directors," "Information About Continuing Directors," "Executive
Officers of the Company," and "Voting Securities and Principal Holders" in the
proxy statement relating to the Company's 1998 annual meeting of shareholders
(the Proxy Statement) is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Summary Compensation Table,"
"Option/SAR Grants Table," "Option/SAR Exercises and Year-End Value Table,"
"Employment Contracts and Termination of Employment and Change-in-Control
Arrangements," and "Director Compensation" in the Proxy Statement is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Voting Securities and
Principal Holders" in the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Business Relationships
and Transactions" in the Proxy Statement is incorporated herein by reference.
26
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents included in this report:
1. Financial Statements
<TABLE>
<S> <C>
Report of independent public accountants.................... F-1
Report of management........................................ F-2
Statement of consolidated income for each of the three years
in the period ended December 31, 1997..................... F-3
Statement of consolidated cash flows for each of the three
years in the period ended December 31, 1997............... F-4
Consolidated balance sheet as of December 31, 1997 and
1996...................................................... F-5
Statement of consolidated shareholders' equity for each of
the three years in the
period ended December 31, 1997............................ F-6
Notes to consolidated financial statements.................. F-7
Supplemental oil and gas disclosures........................ F-28
Supplemental quarterly financial data....................... F-34
</TABLE>
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
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between
Registrant and Amoco Production Company (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated July 1, 1991, SEC File No. 1-4300).
2.2 -- Form of Acquisition Agreement between Registrant, HERC
Acquisition Corporation and Hadson Energy Resources
Corporation, dated August 26, 1993, and amended September
28, 1993 (incorporated by reference to Exhibit 2.1 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-67954, filed September 29, 1993).
2.3 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300).
2.4 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc. and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.5 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
</TABLE>
27
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 1, 1993, as filed with the Secretary of
State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report on
Form 10-K for year ended December 31, 1993, SEC File No.
1-4300).
3.2 -- Certificate of Ownership and Merger Merging Apache Energy
Resources Corporation into Registrant, effective December
31, 1995, as filed with the Secretary of State of
Delaware on December 21, 1995 (incorporated by reference
to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
3.3 -- Certificate of Designations, Preferences and Rights of
Series A Junior Participating Preferred Stock of
Registrant, effective January 31, 1996, as filed with the
Secretary of State of Delaware on January 22, 1996
(incorporated by reference to Exhibit 3.3 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
3.4 -- Bylaws of Registrant, as amended July 17, 1997
(incorporated by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
333-32557, filed July 31, 1997).
4.1 -- Form of Registrant's common stock certificate
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights agent,
relating to the declaration of a rights dividend to
Registrant's common shareholders of record on January 31,
1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
10.1 -- Fourth Amended and Restated Credit Agreement, dated
October 31, 1996, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Global Administrative Agent, The Chase Manhattan Bank, as
Co-Agent, First Chicago Capital Markets, Inc., as
Arranger, and Chase Securities Inc., as Arranger
(incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.2 -- Credit Agreement dated October 31, 1996, among Apache
Canada Ltd., a wholly-owned subsidiary of Registrant, the
lenders named therein, and Bank of Montreal, as Canadian
Administrative Agent, The First National Bank of Chicago,
as Global Administrative Agent, First Chicago Capital
Markets, Inc., as Arranger, and Chase Securities Inc., as
Arranger (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.3 -- Credit Agreement dated October 31, 1996, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of Registrant, the lenders
named therein, and Chase Securities Australia Limited, as
Australian Administrative Agent, The First National Bank
of Chicago, as Global Administrative Agent, First Chicago
Capital Markets, Inc., as Arranger, and Chase Securities
Inc., as Arranger (incorporated by reference to Exhibit
10.3 to Registrant's Current Report on Form 8-K, dated
October 31, 1996, SEC File No. 1-4300).
</TABLE>
28
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.4 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
10.5 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.6 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.7 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300).
10.8 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.9 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
(incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.10 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10.1 to Phoenix's
Registration Statement on Form S-1, Registration No.
33-1069, filed October 23, 1985).
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.11 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
*10.12 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation.
10.13 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.14 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.15 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.16 -- Apache Corporation Corporate Administrative Group
Incentive Plan, effective as of January 1, 1989
(incorporated by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.17 -- First Amendment to Apache Corporation Corporate
Administrative Group Incentive Plan, effective January 1,
1990 (incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.18 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.19 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997.
+10.20 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, as restated January 1, 1997 (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.21 -- Apache International, Inc. Common Stock Award Plan, dated
February 12, 1990 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1989, SEC File No. 1-4300).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 9, 1996 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1995, SEC File No.
1-4300).
</TABLE>
30
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 9, 1996 (incorporated by reference to
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
+10.24 -- Apache Corporation 1996 Share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.26 -- Apache Corporation 1998 Stock Option Plan (incorporated
by reference to Appendix A to Registrant's definitive 14A
Proxy Statement relating to Registrant's 1998 annual
meeting of shareholders, SEC File No. 1-4300).
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
+*10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 12, 1997.
+10.30 -- Apache Corporation Directors' Deferred Compensation Plan,
as amended and restated September 14, 1994 (incorporated
by reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994, SEC
File No. 1-4300).
+*10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997.
+10.32 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.35 -- Amended and Restated Employment Agreement, dated December
20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.36 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
</TABLE>
31
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.37 -- Member Gas Purchase Agreement, dated March 1, 1996, by
and among Apache Gathering Company, Apache Corporation,
MW Petroleum Corporation, DEK Energy Company, Apache
Transmission Corporation-Texas and Apache Marketing,
Inc., as Seller, and Producers Energy Marketing, LLC, as
Buyer (incorporated by reference to Exhibit 10.28 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1995, SEC File No. 1-4300).
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
Note: Debt instruments of the Registrant defining the rights of long-term debt
holders in principal amounts not exceeding 10 percent of the Registrant's
consolidated assets have been omitted and will be provided to the
Commission upon request.
(b) Reports on Form 8-K
The following reports on Form 8-K were filed by Apache during the fiscal
quarter ended December 31, 1997:
October 8, 1997 -- Item 2. Acquisition or Disposition of Assets -- Apache,
either directly or indirectly through its wholly-owned subsidiary, Apache Energy
Limited, entered into three share sale agreements with subsidiaries of Mobil
Exploration & Producing Australia Pty Limited for the purchase of all of the
capital stock of three companies that own interests in certain oil and gas
properties and production facilities offshore Western Australia for
approximately U.S. $310 million (subject to adjustments), effective as of July
1, 1997.
December 5, 1997 -- Item 5. Other Events -- Offering to the public by
Apache Finance Pty Ltd of $170 million principal amount of 6 1/2% global notes
due 2007, guaranteed by Apache, issuable under an indenture dated December 9,
1997, and registered pursuant to a registration statement on Form S-3
(Registration Nos. 333-39973 and 333-39973-01).
December 16, 1997 -- Item 5. Other Events -- Apache called for redemption
all of its 6% Convertible Subordinated Debentures due 2002, aggregate amount
outstanding $172.5 million. Holders are entitled to convert the Debentures into
shares of Apache common stock at a conversion price of $30.68 per share. Any
Debentures that remain outstanding (not converted) will be redeemed on January
15, 1998, with holders entitled to receive 103 percent of principal amount.
32
<PAGE> 35
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 20, 1998
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.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ RAYMOND PLANK Chairman and Chief Executive March 20, 1998
- ----------------------------------------------------- Officer (Principal Executive
Raymond Plank Officer)
/s/ ROGER B. PLANK Vice President and Chief March 20, 1998
- ----------------------------------------------------- Financial Officer (Principal
Roger B. Plank Financial Officer)
/s/ THOMAS L. MITCHELL Vice President and Controller March 20, 1998
- ----------------------------------------------------- (Principal Accounting
Thomas L. Mitchell Officer)
</TABLE>
<PAGE> 36
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ FREDERICK M. BOHEN Director March 20, 1998
- -----------------------------------------------------
Frederick M. Bohen
/s/ G. STEVEN FARRIS Director March 20, 1998
- -----------------------------------------------------
G. Steven Farris
/s/ RANDOLPH M. FERLIC Director March 20, 1998
- -----------------------------------------------------
Randolph M. Ferlic
/s/ EUGENE C. FIEDOREK Director March 20, 1998
- -----------------------------------------------------
Eugene C. Fiedorek
/s/ W. BROOKS FIELDS Director March 20, 1998
- -----------------------------------------------------
W. Brooks Fields
/s/ A. D. FRAZIER, JR. Director March 20, 1998
- -----------------------------------------------------
A. D. Frazier, Jr.
/s/ STANLEY K. HATHAWAY Director March 20, 1998
- -----------------------------------------------------
Stanley K. Hathaway
/s/ JOHN A. KOCUR Director March 20, 1998
- -----------------------------------------------------
John A. Kocur
/s/ GEORGE D. LAWRENCE JR. Director March 20, 1998
- -----------------------------------------------------
George D. Lawrence Jr.
/s/ MARY RALPH LOWE Director March 20, 1998
- -----------------------------------------------------
Mary Ralph Lowe
/s/ F. H. MERELLI Director March 20, 1998
- -----------------------------------------------------
F. H. Merelli
/s/ JOSEPH A. RICE Director March 20, 1998
- -----------------------------------------------------
Joseph A. Rice
</TABLE>
<PAGE> 37
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, 1997
and 1996, and the related statements of consolidated income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 27, 1998
F-1
<PAGE> 38
REPORT OF MANAGEMENT
The financial statements and related financial information of Apache
Corporation and Subsidiaries were prepared by and are the responsibility of
management. The statements have been prepared in conformity with generally
accepted accounting principles and include amounts that are based on
management's best estimates and judgments.
Management maintains and places reliance on systems of internal control
designed to provide reasonable assurance, weighing the costs with the benefits
sought, that all transactions are properly recorded in the Company's books and
records, that policies and procedures are adhered to, and that assets are
safeguarded. The systems of internal controls are supported by written policies
and guidelines, internal audits and the selection and training of qualified
personnel.
The consolidated financial statements of Apache Corporation and
Subsidiaries have been audited by Arthur Andersen LLP, independent public
accountants. Their audits included developing an overall understanding of the
Company's accounting systems, procedures and internal controls and conducting
tests and other auditing procedures sufficient to support their opinion on the
fairness of the consolidated financial statements.
The Apache Corporation Board of Directors exercises its oversight
responsibility for the financial statements through its Audit Committee,
composed solely of directors who are not current or former employees of Apache.
The Audit Committee meets periodically with management, internal auditors and
the independent public accountants to ensure that they are successfully
completing designated responsibilities. The internal auditors and independent
public accountants have open access to the Audit Committee to discuss auditing
and financial reporting issues.
Houston, Texas
February 27, 1998
Raymond Plank
Chairman of the Board
and Chief Executive Officer
Roger B. Plank
Vice President and Chief Financial
Officer
Thomas L. Mitchell
Vice President and Chief Accounting
Officer
F-2
<PAGE> 39
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ----------- -----------
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C>
REVENUES:
Oil and gas production revenues....................... $ 983,773 $833,164 $653,144
Gathering, processing and marketing revenues.......... 196,951 142,868 97,207
Equity in income (loss) of affiliates................. (1,683) (281) --
Other revenues........................................ (2,768) 1,400 351
---------- -------- --------
1,176,273 977,151 750,702
---------- -------- --------
OPERATING EXPENSES:
Depreciation, depletion and amortization.............. 381,416 315,144 297,485
Operating costs....................................... 231,370 225,527 211,742
Gathering, processing and marketing costs............. 194,279 138,768 91,243
Administrative, selling and other..................... 38,243 35,911 36,552
Merger costs.......................................... -- -- 9,977
Financing costs:
Interest expense................................... 105,148 89,829 88,057
Amortization of deferred loan costs................ 6,438 5,118 4,665
Capitalized interest............................... (36,493) (30,712) (19,041)
Interest income.................................... (2,768) (2,629) (3,121)
---------- -------- --------
917,633 776,956 717,559
---------- -------- --------
INCOME BEFORE INCOME TAXES.............................. 258,640 200,195 33,143
Provision for income taxes............................ 103,744 78,768 12,936
---------- -------- --------
NET INCOME.............................................. $ 154,896 $121,427 $ 20,207
========== ======== ========
NET INCOME PER COMMON SHARE:
Basic................................................. $ 1.71 $ 1.42 $ .28
========== ======== ========
Diluted............................................... $ 1.65 $ 1.38 $ .28
========== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-3
<PAGE> 40
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
----------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 154,896 $ 121,427 $ 20,207
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization............. 381,416 315,144 297,485
Amortization of deferred loan costs.................. 6,438 5,118 4,665
Provision for deferred income taxes.................. 68,280 61,336 29,382
Other deferred credits............................... -- -- 4,584
Cash distributions in excess of (less than) earnings of
affiliates............................................. 1,768 (163) --
Gain on sale of stock held for investment and other....... (13) (770) (906)
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in receivables..................... 12,556 (55,645) (64,399)
(Increase) decrease in advances to oil and gas ventures
and other............................................ (7,728) 5,737 (189)
Increase in product inventory.......................... (800) (1,487) --
(Increase) decrease in deferred charges and other...... 1,247 (1,834) (1,294)
Increase in payables................................... 1,920 35,998 37,254
Increase (decrease) in accrued expenses................ 9,579 (3,433) 15,236
Increase (decrease) in advance from gas purchaser...... 102,748 (8,540) (7,038)
Increase (decrease) in deferred credits and noncurrent
liabilities.......................................... (8,499) 17,616 (2,864)
----------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 723,808 490,504 332,123
----------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures.................. (685,420) (493,695) (312,168)
Acquisition of oil and gas properties..................... (33,562) (114,971) (820,918)
Non-cash portion of net oil and gas property additions.... 6,208 46,268 5,092
Acquisition of Ampolex, net of cash acquired.............. (299,852) -- --
Acquisition of Phoenix, net of cash acquired.............. -- (43,294) --
Gathering, transmission and processing expenditures....... (52,437) (33,355) (6,700)
Proceeds from sale of oil and gas properties.............. 30,134 30,144 271,937
Purchase of premium gas contract.......................... -- -- (28,700)
Prepaid acquisition cost.................................. -- -- 25,377
Purchase of stock held for investment..................... (1,170) -- (307)
Proceeds from sale of stock held for investment........... 1,183 7,193 2,835
Other capital expenditures, net........................... (12,955) (9,375) (9,859)
Change in equipment inventory and other, net.............. (17,064) (2,712) 3,307
Investment in ProEnergy................................... (1,290) (4,430) --
----------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES................ (1,066,225) (618,227) (870,104)
----------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings...................................... 1,168,201 765,895 856,159
Payments on long-term debt................................ (812,327) (615,765) (500,579)
Dividends paid............................................ (25,275) (23,420) (18,915)
Proceeds from issuance of common stock.................... 11,623 8,145 197,006
Payments to acquire treasury stock........................ (386) (1,698) (26)
Cost of debt and equity transactions...................... (2,894) (5,906) (12,074)
----------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 338,942 127,251 521,571
----------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (3,475) (472) (16,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 13,161 13,633 30,043
----------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 9,686 $ 13,161 $ 13,633
=========== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-4
<PAGE> 41
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,686 $ 13,161
Receivables............................................... 224,025 234,646
Inventories............................................... 36,041 13,963
Advances to oil and gas ventures and other................ 15,579 6,386
Assets held for resale.................................... 62,998 --
----------- -----------
348,329 268,156
----------- -----------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties...................................... 5,530,991 4,713,113
Unproved properties and properties under development,
not being amortized................................... 453,556 388,872
International concession rights, not being amortized... 79,000 99,000
Gas gathering, transmission and processing facilities..... 246,049 121,446
Other..................................................... 71,067 58,882
----------- -----------
6,380,663 5,381,313
Less: Accumulated depreciation, depletion and
amortization........................................... (2,647,478) (2,281,252)
----------- -----------
3,733,185 3,100,061
----------- -----------
OTHER ASSETS:
Deferred charges and other................................ 57,119 64,213
----------- -----------
$ 4,138,633 $ 3,432,430
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt...................... $ 17,200 $ 2,000
Accounts payable.......................................... 178,361 174,941
Accrued operating expense................................. 20,153 17,263
Accrued exploration and development....................... 82,392 76,465
Accrued compensation and benefits......................... 17,600 12,262
Accrued interest.......................................... 20,598 15,576
Other accrued expenses.................................... 7,479 11,150
----------- -----------
343,783 309,657
----------- -----------
LONG-TERM DEBT.............................................. 1,501,380 1,235,706
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES:
Income taxes.............................................. 355,619 254,789
Advances from gas purchaser............................... 154,546 51,798
Other..................................................... 54,128 61,964
----------- -----------
564,293 368,551
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized,
94,478,788 and 91,224,028 shares issued,
respectively........................................... 118,098 114,030
Paid-in capital........................................... 1,085,063 1,002,540
Retained earnings......................................... 561,981 432,588
Treasury stock, at cost, 1,174,247 and 1,165,231 shares,
respectively........................................... (15,506) (15,152)
Currency translation adjustments.......................... (20,459) (15,490)
----------- -----------
1,729,177 1,518,516
----------- -----------
$ 4,138,633 $ 3,432,430
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-5
<PAGE> 42
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENCY TOTAL
COMMON PAID-IN RETAINED TREASURY TRANSLATION SHAREHOLDERS'
STOCK CAPITAL EARNINGS STOCK ADJUSTMENT EQUITY
-------- ---------- --------- -------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994........... $ 88,482 $ 500,101 $335,293 $(13,452) $(19,337) $ 891,087
Net income......................... -- -- 20,207 -- -- 20,207
Dividends ($.28 per common
share).......................... -- -- (20,030) -- -- (20,030)
Common shares issued............... 9,642 187,364 -- -- -- 197,006
Treasury shares purchased.......... -- -- -- (26) -- (26)
Currency translation adjustments... -- -- -- -- 3,561 3,561
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1995........... 98,124 687,465 335,470 (13,478) (15,776) 1,091,805
Net income......................... -- -- 121,427 -- -- 121,427
Dividends ($.28 per common
share).......................... -- -- (24,309) -- -- (24,309)
Common shares issued............... 15,906 315,075 -- -- -- 330,981
Treasury shares issued............. -- -- -- 24 -- 24
Treasury shares purchased.......... -- -- -- (1,698) -- (1,698)
Currency translation adjustments... -- -- -- -- 286 286
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1996........... 114,030 1,002,540 432,588 (15,152) (15,490) 1,518,516
Net income......................... -- -- 154,896 -- -- 154,896
Dividends ($.28 per common
share).......................... -- -- (25,503) -- -- (25,503)
Common shares issued............... 4,068 82,523 -- -- -- 86,591
Treasury shares issued............. -- -- -- 32 -- 32
Treasury shares purchased.......... -- -- -- (386) -- (386)
Currency translation adjustments... -- -- -- -- (4,969) (4,969)
-------- ---------- -------- -------- -------- ----------
BALANCE, DECEMBER 31, 1997........... $118,098 $1,085,063 $561,981 $(15,506) $(20,459) $1,729,177
======== ========== ======== ======== ======== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
F-6
<PAGE> 43
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 four U.S. operating regions (Offshore,
Midcontinent, Gulf Coast and Western), plus a Canadian region. Approximately 72
percent of the Company's proved reserves are located in North America.
Internationally, Apache has exploration and production interests offshore
Western Australia and in Egypt, and exploration interests in Poland, offshore
The People's Republic of China, offshore the Ivory Coast and in Indonesia.
Apache treats all operations as one segment of business.
The Company's future financial condition and results of operations will
depend upon prices received for its oil and natural gas production and the costs
of 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 60 percent of Apache's 1997
production on an energy equivalent basis, the Company is affected more by
fluctuations in natural gas prices than in oil prices.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of Apache and its subsidiaries after elimination
of intercompany balances and transactions. The Company's interests in oil and
gas ventures and partnerships are proportionately consolidated. Apache's
investment in Producers Energy Marketing LLC (ProEnergy), a jointly-owned
natural gas marketing company, is accounted for using the equity method.
Cash Equivalents -- The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to be
cash equivalents. These investments are carried at cost, which approximates
market.
Inventories -- Inventories consist principally of tubular goods and
production equipment, stated at the lower of weighted average cost or market,
and oil produced but not sold, stated at current market value net of costs to
sell.
Property and Equipment -- The Company uses the full cost method of
accounting for its investment in oil and gas properties. Under this method, the
Company capitalizes all acquisition, exploration and development costs incurred
for the purpose of finding oil and gas reserves, including salaries, benefits
and other internal costs directly attributable to these activities. Exclusive of
field-level costs, Apache capitalized $11.9 million, $12.1 million and $12.5
million of internal costs in 1997, 1996 and 1995, respectively. Costs associated
with production and general corporate activities are expensed in the period
incurred. Internal costs attributable to the management of the Company's
producing properties, before recoveries from industry partners, totaled $22.5
million, $17.0 million and $16.3 million in 1997, 1996, and 1995, respectively,
and are included in operating costs in the Company's statement of consolidated
income. 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 reserve volumes are sold (greater than 25 percent),
proceeds from the sale of oil and gas properties are accounted for as reductions
to capitalized costs, and gains and losses are not recognized.
Apache computes the provision for depreciation, depletion and amortization
(DD&A) of oil and gas properties on a quarterly basis using the
unit-of-production method based upon production and estimates of proved reserve
quantities. Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties associated with these
costs are evaluated. The amortizable base includes
F-7
<PAGE> 44
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
estimated future development costs and dismantlement, restoration and
abandonment costs, net of estimated salvage values. These future costs are
generally estimated by engineers employed by Apache.
Apache limits, on a country-by-country basis, the capitalized costs of 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 nonrecurring DD&A expense. Included
in the estimated future net cash flows are Canadian provincial tax credits
expected to be realized beyond the date at which the legislation, under its
provisions, could be repealed. To date, the Canadian provincial government has
not indicated an intention to repeal this legislation.
The costs of certain unevaluated leasehold acreage, wells being drilled and
international concession rights are not being amortized. Costs not being
amortized are periodically assessed for possible impairments or reductions in
value. If a reduction in value has occurred, costs being amortized are increased
or a charge is made against earnings for those international operations where a
reserve base is not yet established.
Buildings, equipment and gas gathering, transmission and processing
facilities are depreciated on a straight-line basis over the estimated useful
lives of the assets, which range from two to 15 years. Accumulated depreciation
for these assets totaled $51.8 million and $36.6 million at December 31, 1997
and 1996, respectively.
Accounts Payable -- Included in accounts payable at December 31, 1997 and
1996, are liabilities of approximately $36.3 million and $36.5 million,
respectively, representing the amount by which checks issued, but not presented
to the Company's banks for collection, exceeded balances in applicable bank
accounts.
Revenue Recognition -- Apache uses the sales method of accounting for
natural gas revenues. Under this method, revenues are recognized based on actual
volumes of gas sold to purchasers. The volumes of gas sold may differ from the
volumes to which Apache is entitled based on its interests in the properties.
Differences between volumes sold and entitled volumes create gas imbalances
which are generally reflected as adjustments to reported gas reserves and future
cash flows in the Company's supplemental oil and gas disclosures. Adjustments
for gas imbalances totaled approximately one percent of Apache's proved gas
reserves at December 31, 1997. Revenue is deferred and a liability is recorded
for those properties where the estimated remaining reserves will not be
sufficient to enable the underproduced owner to recoup its entitled share
through production.
Hedging Activities -- Apache periodically enters into commodity derivatives
contracts and fixed-price physical contracts to manage its exposure to oil and
gas price volatility. Commodity derivatives contracts, which are usually placed
with major financial institutions that the Company believes are minimal credit
risks, may take the form of futures contracts, swaps or options. The oil and gas
reference prices upon which these commodity derivatives contracts are based
reflect various market indices that have a high degree of historical correlation
with actual prices received by the Company. The Company accounts for its
commodity derivatives contracts using the hedge (or deferral) method of
accounting. Under this method, realized gains and losses from the Company's
price risk management activities are recognized in oil and gas production
revenues when the associated production occurs and the resulting cash flows are
reported as cash flows from operating activities. Gains and losses on commodity
derivatives contracts that are closed before the hedged production occurs are
deferred until the production month originally hedged. In the event of a loss of
correlation between changes in oil and gas reference prices under a commodity
derivatives contract and actual oil and gas prices, a gain or loss is recognized
currently to the extent the commodity derivatives contract has not offset
changes in actual oil and gas prices.
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
F-8
<PAGE> 45
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) operating loss and tax credit carryforwards for tax purposes. Deferred tax
assets are reduced by a valuation allowance when, based upon management's
estimates, it is more likely than not that a portion of the deferred tax assets
will not be realized in a future period.
Foreign Currency Translation -- The U.S. dollar is considered the
functional currency for each of the Company's international operations, except
for its Canadian subsidiary whose functional currency is the Canadian dollar.
Translation adjustments resulting from translating the Canadian subsidiary's
foreign currency financial statements into U.S. dollar equivalents are reported
separately and accumulated in a separate component of shareholders' equity. For
other international operations, transaction gains or losses are recognized in
net income.
Net Income Per Common Share -- Basic and diluted net income per common
share have been computed in accordance with Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per Share," which the Company adopted at
year-end 1997. Net income per share amounts for prior periods have been restated
to conform with the provisions of the new standard. Basic net income per common
share is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding for the period. Diluted net
income per common share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. Calculations of basic and diluted net income per common share
are illustrated in Note 7.
Stock-Based Compensation -- The Company accounts for employee stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Nonemployee stock-based compensation is
accounted for using the fair value method in accordance with SFAS No. 123,
"Accounting for Stock-Based Compensation."
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Significant estimates with regard to these financial statements include the
estimate of proved oil and gas reserve volumes and the related present value of
estimated future net cash flows therefrom (see supplemental oil and gas
disclosures).
2. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
On November 20, 1997, the Company acquired all the capital stock of three
companies owning interests in certain oil and gas properties (including 31.9
MMboe of proved oil and natural gas reserves) and production facilities offshore
Western Australia for approximately $300 million from subsidiaries of Mobil
Exploration & Producing Australia Pty Ltd (Ampolex Group Transaction). The
Ampolex Group Transaction, net of the sale of certain properties to Hardy
Petroleum Limited (Hardy), increased the Company's interest to 47.5 percent from
22.5 percent in the Carnarvon Basin's Harriet area, which includes the Varanus
Island pipeline, processing and production complex and eight existing oil and
gas fields. The transaction also increased the Company's interest in the East
Spar field, which produces through the Varanus Island facilities, to 45 percent
from 20 percent. Apache operates the Harriet and East Spar properties.
F-9
<PAGE> 46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The purchase price has been allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Value of properties acquired, including gathering and
transportation facilities................................. $264,539
Assets held for resale...................................... 63,058
Working capital acquired, net............................... 6,692
Deferred income tax liability............................... (34,437)
--------
Cash paid, net of cash acquired............................. $299,852
========
</TABLE>
In conjunction with the closing of the Ampolex Group Transaction, the
Company entered into an agreement with Hardy on December 9, 1997, under which
Hardy agreed to purchase a 10 percent interest in the Company's East Spar field
and related production facilities. The transaction closed on January 28, 1998,
with a total sales price of approximately $63 million in cash. The assets sold
to Hardy are reported as assets held for resale in the accompanying consolidated
balance sheet.
In 1997, the Company also completed 45 tactical regional acquisitions for
cash consideration totaling $33.6 million. These acquisitions added
approximately 6.6 MMboe to the Company's reserves.
On May 20, 1996, Apache acquired, for approximately $396.3 million, The
Phoenix Resource Companies, Inc. (Phoenix, now known as Apache PHN Company,
Inc.), 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. Pursuant to the Merger Agreement, shares of Phoenix common
stock then outstanding and outstanding Phoenix stock options (which were assumed
by Apache) were 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, valued
at $26 per share, were issued and approximately $65 million was paid to former
Phoenix shareholders.
In 1996, the Company also completed 62 tactical regional acquisitions for
cash consideration totaling $115.0 million. These acquisitions added
approximately 18.9 MMboe to the Company's reserves.
In September 1995, Apache acquired substantially all the oil and gas assets
of Aquila Energy Resources Corporation (Aquila) for approximately $210 million.
The acquired assets included proved reserves totaling an estimated 157 Bcf of
gas equivalent, approximately 107,000 developed and 49,000 undeveloped net acres
located primarily in Apache's Anadarko Basin and Gulf of Mexico core areas, a
five-year, four-month premium-price gas contract effective September 1, 1995,
and non-operated interests in four gas processing plants. The gas contract calls
for Aquila Energy Marketing Corporation, a wholly owned subsidiary of UtiliCorp
United Inc., to purchase 20 to 25 MMcf of gas per day from Apache at a price of
$2.70 per Mcf in 1996, escalating to $3.20 per Mcf in the year 2000.
On May 17, 1995, Apache acquired DEKALB Energy Company (DEKALB, now known
as DEK Energy Company), an oil and gas company engaged in the exploration for,
and the development of, crude oil and natural gas in Canada, through a merger
which resulted in DEKALB becoming a wholly owned subsidiary of Apache. Pursuant
to the merger agreement, 8.4 million shares of Apache common stock were
exchanged for the outstanding DEKALB stock and DEKALB employee stock options.
Merger costs of approximately $10 million were charged to expense in 1995. The
merger was accounted for as a "pooling of interests" and, as a result, the
Company's consolidated financial statements for periods prior to the merger have
been restated to include combined results with DEKALB.
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 approximately $567 million. The Texaco
F-10
<PAGE> 47
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
properties included estimated proved reserves at the effective date, after
adjustment for the exercise of preferential rights and properties excluded
following due diligence, of approximately 105 MMboe.
Except for the DEKALB transaction, each transaction described above has
been accounted for using the purchase method of accounting and has been included
in the financial statements of Apache since the date of acquisition.
The following unaudited pro forma financial information shows the effect on
the Company's consolidated results of operations as if the Phoenix Merger
occurred on January 1, 1996. The pro forma data is based on numerous assumptions
and is not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31, 1996
--------------------------
AS REPORTED PRO FORMA
----------- ---------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER
COMMON SHARE DATA)
<S> <C> <C>
Revenues............................................ $977,151 $992,077
Net income.......................................... 121,427 125,040
Net income per common share:
Basic............................................. $ 1.42 $ 1.39
Diluted........................................... 1.38 1.36
</TABLE>
DIVESTITURES
Apache received $30.1 million in each of 1997 and 1996 from the sale of
non-strategic oil and gas properties in a number of separate transactions.
In September 1995, Apache closed the sale of non-strategic oil and gas
properties in its Rocky Mountain region for approximately $140 million net to
Apache. The assets included Apache's interests in 138 fields with approximately
1,600 active wells in Colorado, Montana, North and South Dakota, Utah and
Wyoming. The Company retained its interests in the Green River Basin of Colorado
and Wyoming and in the San Juan Basin of Colorado and New Mexico. Proceeds from
the sale of all oil and gas properties sold during 1995 totaled $271.9 million.
3. INVESTMENTS IN EQUITY SECURITIES
At December 31, 1997 and 1996, Apache had no investments in equity
securities.
The Company realized gains totaling approximately $13,000, $770,000 and
$906,000 from the sale of equity securities during 1997, 1996 and 1995,
respectively. Apache utilizes the average cost method in computing realized
gains or losses, which are included in other revenues in the accompanying
statement of consolidated income.
F-11
<PAGE> 48
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. DEBT
LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Apache:
Global credit facility -- U.S............................. $ -- $ 220,000
Commercial paper, expected to be refinanced............... 50,800 --
7.95-percent notes due 2026, net of discount.............. 178,531 178,518
6-percent convertible subordinated debentures due 2002.... 172,500 172,500
7.625-percent debentures due 2096, net of discount........ 149,175 149,175
7.375-percent debentures due 2047, net of discount........ 147,984 --
9.25-percent notes due 2002, net of discount.............. 99,805 99,772
7.7-percent notes due 2026, net of discount............... 99,638 99,634
3.93-percent convertible notes due 1997................... -- 75,000
Money market lines of credit.............................. 17,200 2,000
---------- ----------
915,633 996,599
---------- ----------
Subsidiary and other obligations:
Global credit facility -- Australia....................... 139,000 73,500
Global credit facility -- Canada.......................... 116,000 83,000
Apache Finance 6.5-percent notes due 2007, net of
discount............................................... 168,722 --
Revolving credit facility -- Egypt........................ 150,000 --
IFC credit facilities -- Egypt............................ -- 54,750
DEKALB 9.875-percent notes due 2000....................... 29,225 29,225
Other..................................................... -- 632
---------- ----------
602,947 241,107
---------- ----------
Total debt.................................................. 1,518,580 1,237,706
Less: current maturities.................................... (17,200) (2,000)
---------- ----------
Long-term debt.............................................. $1,501,380 $1,235,706
========== ==========
</TABLE>
On June 12, 1997, Apache replaced its $1 billion global borrowing-base
credit facility with a new $1 billion global corporate credit facility (global
credit facility). The global credit facility consists of three separate bank
facilities: a $700 million facility in the United States; a $175 million
facility in Australia; and a $125 million facility in Canada. The global credit
facility enables Apache to draw on the entire $1 billion facility without
restrictions tied to periodic revaluation of the Company's oil and gas reserves.
As of December 31, 1997, Apache's available borrowing capacity under the global
credit facility was $694.2 million. Under the financial covenants of the global
credit facility, the Company must (i) maintain a consolidated tangible net
worth, as defined, of at least $1.051 billion as of December 31, 1997, which is
adjusted for subsequent earnings, and (ii) maintain a ratio of debt to
capitalization of not greater than 60 percent at the end of any fiscal quarter.
The Company was in compliance with all financial covenants at December 31, 1997.
The global credit facility is scheduled to mature on June 12, 2002, and the
agreement provides for perpetual one-year extensions as requested by the
Company, subject to the approval of the lenders. 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, 1997, the margin
over LIBOR for committed loans was .185 percent. The Company also pays a
quarterly facility fee of .09 percent on the total
F-12
<PAGE> 49
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
amount of each of the three facilities, which fee varies based upon the
Company's senior long-term debt rating.
In January 1997, Standard & Poor's upgraded the Company's senior long-term
debt rating from BBB to BBB+ and subordinated long-term debt rating from BBB- to
BBB.
In January 1997, the Company established a $300 million commercial paper
program which allows Apache to borrow funds for up to 270 days at competitive
interest rates. In June 1997, the Company expanded its commercial paper program
to $700 million from $300 million to provide access to additional low-cost,
short-term funds. Since its inception in January 1997, the commercial paper
program has been rated A-2, Prime-2 and D-1- (D-One-Minus) by Standard & Poor's,
Moody's and Duff and Phelps, respectively. As of December 31, 1997, $50.8
million was outstanding under Apache's commercial paper program. The commercial
paper is 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 global credit facility.
In February 1996, Apache issued $100 million principal amount, $99.6
million net of discount, of senior unsecured 7.7-percent notes due March 15,
2026. In April 1996, the Company issued $180 million principal amount, $178.5
million net of discount, of senior unsecured 7.95-percent notes maturing on
April 15, 2026. Additionally, in November 1996, Apache issued $150 million
principal amount, $149.2 million net of discount, of senior unsecured
7.625-percent debentures maturing on November 1, 2096. None of these instruments
are redeemable prior to maturity; however, under certain conditions, Apache has
the right to advance maturity of the above-referenced debentures.
In August 1997, Apache issued $150 million principal amount, $148.0 million
net of discount, of senior unsecured 7.375-percent debentures maturing on August
15, 2047. The debentures are not redeemable prior to maturity; however, Apache
has the right to advance maturity, under certain conditions.
The 9.25-percent notes totaling $100 million were issued by Apache in May
1992 and are not redeemable prior to their maturity in June 2002. Upon certain
changes in control of the Company, these notes are subject to mandatory
repurchase.
In November 1997, the Company's 3.93-percent convertible notes were
converted into approximately 2.8 million shares of Apache common stock at a
conversion price of $27 per share.
At December 31, 1997, the Company also had certain uncommitted money market
lines of credit which are used from time to time for working capital purposes.
As of December 31, 1997, an aggregate of $17.2 million was outstanding under
such credit lines.
In December 1997, Apache Finance Pty Ltd, (Apache Finance), an Australian
finance subsidiary of the Company, issued $170 million principal amount, $168.7
million net of discount, of senior unsecured 6.5-percent notes due December 15,
2007. The notes are irrevocably and unconditionally guaranteed by Apache. The
Company has the right to redeem the notes prior to maturity, under certain
conditions.
On October 30, 1997, three of the Company's Egyptian subsidiaries entered
into a secured, revolving credit facility with a group of banks. The facility
provides for total commitments of $250 million, with availability determined by
a borrowing base formula. The initial borrowing base was set at $150 million and
will be redetermined semi-annually. The total amount of commitments under the
facility is currently scheduled to be reduced by set increments every six
months, beginning two and one-half years after the effective date of the
facility. The facility is presently secured solely by assets associated with the
Company's Qarun and Khalda concessions and shares of stock of the Company's
subsidiaries holding said concessions, with provisions that will permit the
inclusion of other of the Company's Egyptian subsidiaries as borrowers with
security interests on such subsidiaries' assets and shares of stock. Interest is
assessed at LIBOR plus a margin of .375 percent, which is scheduled to increase
to .625 percent on the third anniversary of the facility;
F-13
<PAGE> 50
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
however, if the facility is extended the rate increase would occur two years
from the end of the facility's extended term. A quarterly fee of .375 percent is
payable on the available portion of the commitments, while a quarterly fee of
.1875 percent is payable on the difference between the borrowing base and the
total amount of commitments under the facility. The facility is scheduled to
mature on January 3, 2003.
In October 1997, the Company provided funds to two of its Egyptian
subsidiaries to repay all amounts outstanding under two secured credit
facilities with the International Finance Corporation (IFC), which were
terminated.
The DEKALB 9.875-percent notes mature on July 15, 2000 and are not
redeemable prior to their maturity.
As of December 31, 1997 and 1996, the Company had approximately $18.2
million and $20.3 million, respectively, of unamortized costs associated with
its various debt obligations. These costs are reflected as deferred charges in
the accompanying consolidated balance sheet and are being amortized over the
life of the related debt.
In January 1998, approximately 90 percent, or $155.6 million, of the
Company's 6-percent convertible subordinated debentures was converted into
approximately 5.1 million shares of Apache common stock at a conversion price of
$30.68 per share. The remaining $16.9 million of principal amount was redeemed
for $17.4 million in cash, plus accrued and unpaid interest. The Company
recorded a $.8 million loss on the early extinguishment of debt in January 1998.
In February 1998, Apache issued $150 million principal amount, $148.2
million net of discount, of senior unsecured 7-percent notes maturing on
February 1, 2018. The notes are not redeemable prior to maturity.
The indentures for the notes and debentures 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.
AGGREGATE MATURITIES OF DEBT
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 17,200
1999........................................................ --
2000........................................................ 29,225
2001........................................................ 25,000
2002........................................................ 703,105
Thereafter.................................................. 744,050
----------
$1,518,580
==========
</TABLE>
5. INCOME TAXES
Income before income taxes is composed of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States........................................ $171,304 $154,759 $28,155
International........................................ 87,336 45,436 4,988
-------- -------- -------
Total........................................... $258,640 $200,195 $33,143
======== ======== =======
</TABLE>
F-14
<PAGE> 51
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current taxes:
Federal............................................ $ 300 $ -- $(16,776)
Foreign............................................ 35,164 17,432 330
Deferred taxes....................................... 68,280 61,336 29,382
-------- ------- --------
$103,744 $78,768 $ 12,936
======== ======= ========
</TABLE>
A reconciliation of the federal statutory income tax amounts to the
effective amounts is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory income tax.................................. $ 90,524 $70,068 $11,600
State income tax, less federal benefit................ 3,987 4,558 1,282
Taxation of foreign operations........................ 10,842 5,226 135
Increase in foreign corporate income tax rates........ -- -- 1,757
All other, net........................................ (1,609) (1,084) (1,838)
-------- ------- -------
$103,744 $78,768 $12,936
======== ======= =======
</TABLE>
The net deferred tax liability is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Deferred income........................................... $ (2,259) $ (443)
Federal net operating loss carryforwards.................. (79,009) (65,018)
State net operating loss carryforwards.................... (12,562) (10,363)
Statutory depletion carryforwards......................... (3,316) (5,469)
Alternative minimum tax credits........................... (9,141) (9,130)
Accrued expenses and liabilities.......................... (5,452) (4,805)
Other..................................................... (12,090) (5,301)
--------- ---------
Total deferred tax assets......................... (123,829) (100,529)
Valuation allowance......................................... 1,704 942
--------- ---------
Net deferred tax assets........................... (122,125) (99,587)
--------- ---------
Deferred tax liabilities:
Depreciation, depletion and amortization.................. 471,403 319,226
Foreign loss recapture.................................... -- 18,963
Other..................................................... 6,341 16,187
--------- ---------
Total deferred tax liabilities.................... 477,744 354,376
--------- ---------
Deferred income tax liability............................... $ 355,619 $ 254,789
========= =========
</TABLE>
F-15
<PAGE> 52
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
U.S. deferred taxes have not been provided on foreign earnings totaling
$151.4 million, which are permanently reinvested abroad. Presently, limited
foreign tax credits are available to reduce the U.S. taxes on such amounts if
repatriated.
At December 31, 1997, the Company had U.S. federal net operating loss
carryforwards of $170.4 million that will expire beginning in 1998, foreign net
operating loss carryforwards of $53.7 million that can be carried forward
indefinitely, and U.S. and foreign statutory depletion carryforwards totaling
$8.8 million that can be carried forward indefinitely. The Company has
alternative minimum tax (AMT) credit carryforwards of $9.1 million that can be
carried forward indefinitely, but which can be used only to reduce regular tax
liabilities in excess of AMT liabilities. The Company has investment and other
tax credit carryforwards of $1.7 million that will expire beginning in 1998,
which have been fully reserved through the valuation allowance.
6. ADVANCES FROM GAS PURCHASER
In August 1997, Apache received $115.2 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
ten-year period commencing September 1997. As a condition of the arrangement
with the purchaser, Apache entered into two gas price swap contracts with a
third party under which Apache became a fixed price payor for identical volumes
at average prices starting at $2.19 per MMBtu in 1997 and escalating to $2.59
per MMBtu in 2007. In addition, the purchaser pays Apache a monthly fee of $.07
per MMBtu on the contracted volumes. The net result of these related
transactions is that gas delivered to the purchaser is reported as revenue at
prevailing spot prices with Apache realizing a premium associated with the
monthly fee paid by the purchaser.
In December 1994, Apache received $67.4 million from a purchaser as an
advance payment for future natural gas deliveries of 20,000 MMBtu per day over a
six-year period commencing January 1995. As a condition of the arrangement with
the purchaser, Apache entered into a gas price swap contract with a third party
under which Apache became a fixed price payor for identical volumes at prices
starting at $1.81 per MMBtu in 1995 and escalating at $.10 per MMBtu per year
through the year 2000. The net result of these related transactions is that gas
delivered to the purchaser is reported as revenue at prevailing spot prices with
Apache realizing a $.05 per MMBtu premium associated with a monthly fee paid by
the purchaser.
The Company, through its marketing subsidiaries, may purchase gas from
third parties to satisfy gas delivery requirements under these arrangements.
Contracted volumes relating to these arrangements are included in the Company's
supplemental oil and gas disclosures.
These advance payments have been classified as advances on the balance
sheet and are being reduced as gas is delivered to the purchasers under the
terms of the contracts. At December 31, 1997 and 1996, advances of $154.5
million and $51.8 million, respectively, were still outstanding. Gas volumes
delivered to the purchaser are reported as revenue at prices used to calculate
the amount advanced, before imputed interest, minus or plus amounts paid or
received by Apache applicable to the price swap agreements. Interest expense is
recorded based on a rate of 8 percent and 9.5 percent on the 1997 and 1994
advances, respectively.
F-16
<PAGE> 53
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CAPITAL STOCK
COMMON STOCK OUTSTANDING
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year....................... 90,058,797 77,378,958 69,666,092
Treasury shares acquired, net.................... (9,016) (45,297) (959)
Shares issued for:
Conversion of 3.93-percent notes............... 2,777,777 -- --
Phoenix merger................................. -- 12,189,918 --
DEKALB merger.................................. -- -- 153,229
Public equity offering......................... -- -- 7,450,000
Dividend reinvestment plan..................... 34,249 25,148 26,809
Retirement/401(k) savings plan................. 182,742 183,059 --
Stock option plans............................. 259,992 317,775 83,787
Other.......................................... -- 9,236 --
---------- ---------- ----------
Balance, end of year............................. 93,304,541 90,058,797 77,378,958
========== ========== ==========
</TABLE>
Public Equity Offering -- In September 1995, Apache completed a public
offering of approximately 7.5 million shares of Apache common stock for net
proceeds of $195.5 million.
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, 1997,
1996 and 1995 is presented in the table below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ----------------------------- ----------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE
-------- ------ --------- -------- ------ --------- ------- ------ ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC:
Net income.................... $154,896 90,677 $1.71 $121,427 85,777 $1.42 $20,207 71,792 $.28
===== ===== ====
EFFECT OF DILUTIVE SECURITIES:
Stock option plans............ -- 519 -- 374 -- 80
3.93%-convertible notes....... 1,859 2,435 2,114 2,778 -- --
6%-convertible subordinated
debentures.................. 6,919 5,623 6,916 5,623 -- --
-------- ------ -------- ------ ------- ------
DILUTED:
Net income including assumed
conversions................. $163,674 99,254 $1.65 $130,457 94,552 $1.38 $20,207 71,872 $.28
======== ====== ===== ======== ====== ===== ======= ====== ====
</TABLE>
The 3.93-percent convertible notes and 6-percent convertible subordinated
debentures were not included in the computation of diluted net income per common
share during 1995, because to do so would have been antidilutive.
Stock Option Plans -- At December 31, 1997, officers and certain key
employees have been granted options to purchase the Company's common stock under
employee stock option plans adopted in 1990 and 1995 and under certain
predecessor plans (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. The Company may issue up to
4,007,006 shares of common stock under the Stock Option Plans, of which options
to acquire 411,775 shares of common stock remained available for grant at
December 31, 1997.
On October 31, 1996, the Company established the 1996 Performance Stock
Option Plan (the Performance Plan) for substantially all full-time employees,
excluding officers and certain key employees. Under the Performance Plan, the
exercise price of each option equals the market price of Apache common stock on
the date of grant. All options become exercisable after nine and one-half years
and expire ten years from the date of grant; however, exercisability will be
accelerated if share price goals of $50 and $60 per share,
F-17
<PAGE> 54
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, are attained before January 1, 2000. The Company may issue up to
1,300,000 shares of common stock under the Performance Plan, of which options to
acquire 191,216 shares of common stock remained available for grant at December
31, 1997.
A summary of the status of the plans described above as of December 31,
1997, 1996, and 1995, and changes during the years then ended, is presented in
the table and narrative below (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ------------------------ ------------------------
SHS. UNDER WTD. AVG. SHS. UNDER WTD. AVG. SHS. UNDER WTD. AVG.
OPTION EXER. PRICE OPTION EXER. PRICE OPTION EXER. PRICE
---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 2,885 $30.82 1,218 $23.91 1,340 $20.42
Granted...................... 1,228 34.59 2,032 33.26 397 26.90
Exercised.................... (145) 23.02 (224) 17.58 (131) 16.96
Forfeited.................... (339) 33.08 (141) 27.30 (388) 17.25
------ ------ ------
Outstanding, end of
year(1).................... 3,629 32.20 2,885 30.82 1,218 23.91
====== ====== ======
Exercisable, end of year..... 729 26.96 467 23.88 465 20.16
====== ====== ======
Available for grant, end of
year....................... 603 1,503 2,158
====== ====== ======
Weighted average fair value
of options granted during
the year(2)................ $11.73 $ 9.80 $10.46
====== ====== ======
</TABLE>
The following table summarizes information about stock options covered by
the plans described above that are outstanding at December 31, 1997 (shares in
thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------
NO. OF SHS. WTD. AVG. NO. OF SHS.
RANGE OF UNDER REMAINING WTD. AVG. UNDER WTD. AVG.
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.39 - $19.63............. 69 3.50 $16.71 69 $16.71
21.00 - 29.88............. 943 7.17 27.30 519 26.90
30.25 - 36.00............. 2,458 9.02 33.98 141 32.26
37.88 - 42.44............. 159 9.64 40.64 -- --
----- ---
3,629 729
===== ===
</TABLE>
- ---------------
(1) Excludes 496,900 and 644,100 shares as of December 31, 1997 and 1996,
respectively, issuable under stock options assumed by Apache in connection
with the Phoenix Merger.
(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 1997, 1996 and 1995, respectively: (i)
risk-free interest rates of 6.33, 6.19 and 6.47 percent; (ii) expected lives
of five years for the Stock Option Plans, and 2.5 years for the Performance
Plan; (iii) expected volatility of 31.21, 30.50 and 35.75 percent, and (iv)
expected dividend yields of .82, .85 and 1.04 percent.
F-18
<PAGE> 55
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In May 1997, Apache's shareholders approved the 1996 Share Price
Appreciation Plan (the Appreciation Plan) for officers and certain key
employees. The Appreciation Plan provides for conditional grants denominated in
shares of Apache common stock that vest upon attainment of share price goals of
$50 and $60 per share, respectively, before January 1, 2000. Between 30 and 50
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 (up to a total of 2,000,000
shares in the aggregate) will be issued in Apache common stock. Generally, any
vested amounts will be distributed in three installments over the 36-month
period following attainment of the share price goals. When and if the share
price goals are achieved, the Company will recognize compensation expense over
the 36-month period equal to the value of the stock as of the date the share
price goal is achieved (i.e., $50 or $60 per share, as appropriate) and the
actual amount of cash paid. The shares of Apache common stock contingently
issuable under the Appreciation Plan will be excluded from the computation of
net income per common share until the stated share price goals of $50 and $60
per share are achieved.
A summary of the status of the Appreciation Plan as of December 31, 1997,
and changes during the year then ended, is presented in the table and narrative
below (shares in thousands):
<TABLE>
<CAPTION>
SHARES SUBJECT
TO CONDITIONAL
GRANTS
---------------
<S> <C>
Outstanding, beginning of year.............................. --
Granted..................................................... 1,965
Forfeited................................................... (246)
------
Outstanding, end of year.................................... 1,719
======
Exercisable, end of year.................................... --
======
Available for grant, end of year............................ 281
======
Weighted average fair value of conditional grants(1)........ $13.50
======
</TABLE>
- ---------------
(1) The fair value of each 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 1997: (i) risk-free interest rate of 6.45
percent; (ii) expected volatility of 28.63 percent, and (iii) expected
dividend yield of .84 percent.
F-19
<PAGE> 56
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 no compensation cost has
been recognized for the Stock Option Plans, the Performance Plan, or the
Appreciation Plan. If compensation costs for these plans had been determined in
accordance with SFAS No. 123, the Company's net income and net income per common
share would approximate the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net Income:
As reported....................................... $154,896 $121,427 $20,207
Pro forma......................................... 147,152 119,536 19,968
Net Income per Common Share:
Basic:
As reported.................................... $ 1.71 $ 1.42 $ .28
Pro forma...................................... 1.62 1.39 .28
Diluted:
As reported.................................... $ 1.65 $ 1.38 $ .28
Pro forma...................................... 1.55 1.36 .28
</TABLE>
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.
Preferred Stock -- The Company has five million shares of no par preferred
stock authorized, of which 25,000 shares have been "designated" Series A Junior
Participating Preferred Stock and authorized for issuance pursuant to certain
rights that trade with Apache common stock outstanding. There are no shares of
preferred stock issued and outstanding; however, shares of preferred stock are
reserved for issuance upon the exercise of the preferred stock purchase rights
discussed below.
Rights to Purchase Preferred Stock -- In December 1995, the Company
declared a dividend of one right (a Right) for each share of Apache common stock
outstanding on January 31, 1996. Each Right entitles the registered holder to
purchase from the Company one ten-thousandth (1/10,000) of a share of Series A
Junior Participating Preferred Stock at a price of $100 per one ten-thousandth
of a share, subject to adjustment. The Rights are exercisable 10 calendar days
following a public announcement that certain persons or groups 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 the Company engages
in certain business combinations or a 20 percent shareholder engages in certain
transactions with the Company, the Rights become exercisable for Apache common
stock or common stock of the corporation acquiring the Company (as the case may
be) at 50 percent of the then-market price. Any Rights that are or were
beneficially owned by a person who has acquired 20 percent or more of the
outstanding shares of Apache common stock and who engages in certain
transactions or realizes the benefits of certain transactions with the Company
will become void. The Company may redeem the Rights at $.01 per Right at any
time until 10 business days after public announcement that a person has acquired
20 percent or more of the outstanding shares of Apache common stock. The Rights
will expire on January 31, 2006, unless earlier redeemed by the Company. Unless
the Rights have been previously redeemed, all shares of Apache common stock
issued by the Company 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.
F-20
<PAGE> 57
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In November 1997, Apache acquired certain assets through the Ampolex Group
Transaction for cash and the assumption of certain liabilities. See Note 2.
In November 1997, the Company's $75 million principal amount of
3.93-percent convertible notes were converted into approximately 2.8 million
shares of Apache common stock at a conversion price of $27 per share.
In May 1996, Apache acquired Phoenix for cash and shares of Apache common
stock, and assumed certain outstanding Phoenix stock options. The accompanying
financial statements include the following attributable to the Phoenix Merger:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Value of properties acquired, including gathering
facilities................................................ $ 386,237
Other non-cash assets acquired.............................. 7,901
Common stock issued and options to purchase common stock
assumed (12.2 million and .8 million shares,
respectively)............................................. (322,860)
Liabilities assumed......................................... (27,984)
---------
Cash paid, net of cash acquired............................. $ 43,294
=========
</TABLE>
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest, net of amounts capitalized................ $63,633 $53,228 $ 64,365
Income and other taxes, net of refunds.............. 35,464 6,241 (15,225)
</TABLE>
F-21
<PAGE> 58
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents....................... $ 9,686 $ 9,686 $ 13,161 $ 13,161
Long-term debt:
Bank debt..................................... 405,000 405,000 431,250 431,250
Commercial paper.............................. 50,800 50,800 -- --
7.95-percent notes............................ 178,531 203,868 178,518 186,354
6-percent convertible subordinated
debentures................................. 172,500 197,944 172,500 216,488
7.625-percent debentures...................... 149,175 159,510 149,175 150,045
7.375-percent debentures...................... 147,984 159,825 -- --
9.25-percent notes............................ 99,805 111,210 99,772 111,020
7.7-percent notes............................. 99,638 110,140 99,634 102,348
3.93-percent convertible notes................ -- -- 75,000 99,750
Money market lines and other debt............. 17,200 17,200 2,632 2,632
Apache Finance 6.5-percent notes.............. 168,722 169,881 -- --
DEKALB 9.875-percent notes.................... 29,225 31,598 29,225 32,203
Hedging financial instruments:
Commodity price swaps
-- Natural gas(1).......................... -- 3,319 -- 10,690
-- Oil..................................... -- -- -- (444)
</TABLE>
- ---------------
(1) The fair value of natural gas price swaps at December 31, 1997 and 1996
reflects fixed-to-floating price swaps where there is an offsetting position
with a physical contract. See Commodity Price Hedges.
F-22
<PAGE> 59
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of the financial instruments summarized in the table above. The carrying values
of trade receivables and trade payables included in the accompanying
consolidated balance sheet approximated market value at December 31, 1997 and
1996.
Cash and Cash Equivalents -- The carrying amounts approximated fair value
due to the short maturity of these instruments.
Long-Term Debt -- The fair values of the 7.95-percent, 7.7-percent,
9.25-percent, 9.875-percent and 6.5-percent notes and the 7.375-percent
debentures are based on the quoted market prices for those issues. The fair
values of the 7.625-percent debentures, the 6-percent convertible subordinated
debentures and the 3.93-percent convertible notes are based upon estimates
provided to the Company by independent investment banking firms. The carrying
amount of the bank debt, commercial paper and money market lines of credit
approximates fair value because the interest rates are variable and reflective
of market rates.
Commodity Price Hedges -- Apache periodically enters into commodity
derivative contracts and fixed-price physical contracts to manage its exposure
to oil and gas price volatility. Commodity derivatives contracts, which are
usually placed with major financial institutions that the Company believes are
minimal credit risks, may take the form of futures contracts, swaps or options.
The derivative contracts call for Apache to receive, or make, payments based
upon the differential between a fixed and a variable commodity price as
specified in the contract. As a result of these activities, Apache recognized
hedging gains of $14.5 million in 1997 and hedging losses in 1996 and 1995 of
$23.0 million and $4.3 million, respectively. The 1997 hedging gain and the 1996
and 1995 hedging losses are included in oil and gas production revenues in the
statement of consolidated income.
The 1995 loss reflected a $9.3 million pre-tax charge to earnings resulting
from the loss of correlation of New York Mercantile Exchange (NYMEX) prices from
actual wellhead prices for certain positions in January through March 1996
production, reported as a reduction of other revenues, offset by $5 million of
commodity pricing gains which increased 1995 oil and gas production revenues.
Apache's consolidated balance sheet includes deferred credits totaling $2.2
million and $3.2 million at December 31, 1997 and 1996, respectively, for gains
realized on the early termination of commodity derivative contracts in 1997 and
prior years. These gains will be recognized as oil and gas production revenues
over periods ranging from one to 24 months as the hedged production occurs.
The following table and notes thereto cover the Company's pricing and
notional volumes on open natural gas commodity derivative contracts as of
December 31, 1997:
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 THEREAFTER
----- ----- ----- ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
NYMEX Based Swap Positions:
Pay fixed price (thousand MMBtu/d)(1).... 60 60 60 20 20 20
Average swap price, per MMBtu(1)......... $2.07 $2.12 $2.21 $2.25 $2.30 $2.47
</TABLE>
- ---------------
(1) The Company has various contracts to supply gas at fixed prices. In order
to lock in a margin on a portion of the volumes, the Company is a fixed
price payor on swap transactions. The average physical contract price
ranges from $2.43 in 1998 to $2.66 in 2007. The fair value of these hedges
was $3.3 million at December 31, 1997, with $(1.4) million of this value
relating to the arrangements discussed in Note 6.
F-23
<PAGE> 60
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the purchase of MW Petroleum Corporation in mid-1991,
the Company and Amoco Production Company (Amoco) entered into a hedging
agreement. Under the terms of this agreement, Apache received support payments
when oil fell below specified reference prices during the two-year period ended
June 30, 1993, and Amoco will receive payments in the event oil prices rise
above specified reference prices for any year during the eight-year period
ending June 30, 1999. If price sharing payments are due to Amoco, the volumes
listed below would be doubled until Amoco recovers its net payments previously
made to Apache ($5.8 million through the contract year ended June 30, 1997) plus
interest.
The notional oil volumes and the reference prices specified in the Amoco
price support agreement are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30: MMBBLS PRICE
------------------- ------ ------
<S> <C> <C>
1998................................................... 1.7 $31.25
1999................................................... 1.4 33.12
</TABLE>
Apache was not required to make any price sharing payments in 1997, and
does not expect to be liable to Amoco for future price sharing payments.
10. COMMITMENTS AND CONTINGENCIES
Litigation -- The Company is involved in litigation and is subject to
governmental and regulatory controls arising in the ordinary course of business.
It is the opinion of the Company's management that all claims and litigation
involving the Company are not likely to have a material adverse effect on its
financial position or results of operations.
Environmental -- Apache, as an owner and operator of oil and gas
properties, is subject to various federal, state, local and foreign country laws
and regulations relating to discharge of materials into, and protection of, the
environment. These laws and regulations may, among other things, impose
liability on the lessee under an oil and gas lease for the cost of pollution
clean-up resulting from operations and subject the lessee to liability for
pollution damages. Apache maintains insurance coverage, which it believes, is
customary in the industry, although it is not fully insured against all
environmental risks.
As part of the Company's due diligence review for acquisitions, Apache
conducts an extensive environmental evaluation of purchased properties.
Depending on the extent of an identified environmental problem, the Company may
exclude a property from the acquisition, require the seller to remediate the
property to Apache's satisfaction, or agree to assume liability for remediation
of the property. As of December 31, 1997, Apache had a reserve for environmental
remediation of approximately $6.4 million. The Company is not aware of any
environmental claims existing as of December 31, 1997, 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, The People's Republic of China, Poland, the Ivory Coast and
Indonesia. In order to comply with the contracts and agreements granting these
rights, the Company, through various wholly-owned subsidiaries, is committed to
expend approximately $200 million through 2001.
F-24
<PAGE> 61
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 10 percent of their salaries, with Apache making matching
contributions up to a maximum of six percent of each employee's salary. In
addition, the Company annually contributes 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 nonqualified retirement/savings plan
occurs at the rate of 20 percent per year. Total expenses under all plans were
$6.3 million, $6.5 million and $7.2 million for 1997, 1996 and 1995,
respectively. The unfunded liability for all plans has been accrued in the
consolidated balance sheet.
Lease Commitments -- The Company has leases for office space and equipment
with varying expiration dates through 2007. Net rental expense was $5.8 million,
$6.5 million and $5.2 million for 1997, 1996 and 1995, respectively.
As of December 31, 1997, minimum rental commitments under long-term
operating leases and long-term pipeline transportation commitments, ranging from
one to 26 years, are as follows:
<TABLE>
<CAPTION>
NET
MINIMUM PIPELINE
RENTAL SUBLEASE RENTAL TRANSPORTATION NET MINIMUM
COMMITMENTS RENTALS COMMITMENTS COMMITMENTS COMMITMENTS
----------- -------- ----------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1998..................... $ 8,449 $(1,228) $ 7,221 $ 2,162 $ 9,383
1999..................... 8,261 (900) 7,361 2,262 9,623
2000..................... 7,283 (912) 6,371 2,234 8,605
2001..................... 6,406 (735) 5,671 2,216 7,887
2002..................... 6,063 (506) 5,557 2,114 7,671
Thereafter............... 25,015 (337) 24,678 33,060 57,738
------- ------- ------- ------- --------
$61,477 $(4,618) $56,859 $44,048 $100,907
======= ======= ======= ======= ========
</TABLE>
ProEnergy -- ProEnergy's limited liability company agreement provides that
capital funding obligations, allocations of profit and loss and voting rights
are calculated based upon the members' respective throughputs of natural gas
sold to ProEnergy. With respect to members' votes, if there are two or more
members, the approval of any decision requires the votes of at least two members
holding the requisite voting interests. Each member's liability with respect to
future capital funding obligations is subject to certain limitations. Natural
gas throughputs are calculated, profit distributed, and/or capital called on a
quarterly basis. As of December 31, 1997, the Company held an approximate 48
percent interest in ProEnergy.
F-25
<PAGE> 62
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. TRANSACTIONS WITH RELATED PARTIES AND MAJOR CUSTOMERS
Related Parties -- F.H. Merelli, a member of the Company's board of
directors since July 1997, is chairman, president and chief executive officer of
Key Production Company, Inc. (Key). In the normal course of business, Key paid
to Apache during 1997 approximately $6.5 million for Key's proportionate share
of drilling and workover costs and routine expenses relating to 360 oil and gas
wells in which Key owns interests and for which Apache is the operator. Key
received approximately $14.3 million in 1997 for its proportionate share of
revenues from such interests, of which approximately $6.1 million was paid
directly to Key by Apache or related entities.
Major Purchasers -- In 1997, purchases by ProEnergy and the Egyptian
General Petroleum Corporation accounted for 40 percent and 13 percent of the
Company's oil and gas revenues, respectively. Beginning with April 1996
production, ProEnergy was the principal purchaser of Apache's domestic natural
gas production. In 1996, purchases by ProEnergy accounted for 35 percent of the
Company's oil and gas revenues.
Natural Gas Clearinghouse (NGC) was the principal purchaser of Apache's
spot market gas production from April 1990 through September 30, 1995. Sales to
NGC accounted for 27 percent of the Company's oil and gas revenues in 1995.
Concentration of Credit Risk -- The Company's revenues are derived
principally from uncollateralized sales to customers in the oil and gas
industry; therefore, customers may be similarly affected by changes in economic
and other conditions within the industry. Apache has not experienced significant
credit losses on such sales.
Sales of natural gas by Apache to ProEnergy are similarly uncollateralized.
Apache and the other members of ProEnergy have agreed to fund the reasonably
anticipated future capital needs of ProEnergy. In addition, effective January
31, 1996, ProEnergy entered into a $150 million, three-year revolving credit
facility with a syndicate of banks to finance its operations. However, ProEnergy
remains subject to the risks inherent in the natural gas marketing industry.
F-26
<PAGE> 63
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. BUSINESS SEGMENT INFORMATION
The Company's operations are primarily related to natural gas and crude oil
exploration and production. Accordingly, such operations are classified as one
business segment. Financial information by geographic area is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross Operating Revenues:
United States.................................. $ 938,789 $ 834,983 $ 682,432
Canada......................................... 57,549 48,364 40,508
Egypt.......................................... 132,616 65,040 --
Australia...................................... 49,017 29,045 27,762
Other International............................ (15) -- --
Equity in income (loss) of affiliates............ (1,683) (281) --
---------- ---------- ----------
Total revenues................................... $1,176,273 $ 977,151 $ 750,702
========== ========== ==========
Operating Income (Loss):
United States.................................. $ 264,226 $ 242,201 $ 131,888
Canada......................................... 14,833 10,247 11,077
Egypt.......................................... 72,459 35,262 --
Australia...................................... 19,388 10,283 7,342
Other International............................ (15) -- (75)
---------- ---------- ----------
Operating income................................. 370,891 297,993 150,232
Equity in income (loss) of affiliates............ (1,683) (281) --
Administrative, selling and other................ (38,243) (35,911) (36,552)
Merger costs..................................... -- -- (9,977)
Net financing costs.............................. (72,325) (61,606) (70,560)
---------- ---------- ----------
Income before income taxes....................... $ 258,640 $ 200,195 $ 33,143
========== ========== ==========
Identifiable Assets:
United States.................................. $2,492,233 $2,410,180 $2,295,966
Canada......................................... 285,214 260,818 216,216
Egypt.......................................... 687,784 512,213 13,956
Australia...................................... 582,487 190,867 117,921
Ivory Coast.................................... 10,658 9,456 1,811
Other International............................ 80,257 48,896 35,580
---------- ---------- ----------
Total....................................... $4,138,633 $3,432,430 $2,681,450
========== ========== ==========
</TABLE>
F-27
<PAGE> 64
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES
(UNAUDITED)
Oil and Gas Operations -- The following table sets forth revenue and direct
cost information relating to the Company's oil and gas exploration and
production activities. Apache has no long-term agreements to purchase oil or gas
production from foreign governments or authorities.
<TABLE>
<CAPTION>
UNITED STATES CANADA EGYPT AUSTRALIA TOTAL
------------- ------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1997
Oil and gas revenues..................... $740,037 $61,328 $132,493 $49,915 $983,773
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 283,866 25,592 43,945 18,210 371,613
Lease operating expenses............... 151,236 16,122 16,212 7,226 190,796
Production taxes....................... 33,539 -- -- 3,492 37,031
Income tax............................. 101,774 8,748 34,721 7,555 152,798
-------- ------- -------- ------- --------
570,415 50,462 94,878 36,483 752,238
-------- ------- -------- ------- --------
Results of operations.................... $169,622 $10,866 $ 37,615 $13,432 $231,535
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 6.12 $ 3.96 $ 5.47 $ 5.23 $ 5.77
======== ======= ======== ======= ========
1996
Oil and gas revenues..................... $691,065 $48,204 $ 64,990 $28,905 $833,164
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 256,243 20,511 17,930 9,146 303,830
Lease operating expenses............... 152,187 16,439 11,665 6,108 186,399
Production taxes....................... 33,571 -- -- 2,153 35,724
Income tax............................. 94,644 5,022 16,990 4,139 120,795
-------- ------- -------- ------- --------
536,645 41,972 46,585 21,546 646,748
-------- ------- -------- ------- --------
Results of operations.................... $154,420 $ 6,232 $ 18,405 $ 7,359 $186,416
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 5.68 $ 3.73 $ 5.17 $ 5.40 $ 5.44
======== ======= ======== ======= ========
1995
Oil and gas revenues..................... $586,711 $38,831 $ -- $27,602 $653,144
-------- ------- -------- ------- --------
Operating costs:
Depreciation, depletion and
amortization........................ 262,689 15,475 -- 10,225 288,389
Lease operating expenses............... 161,631 12,911 -- 6,534 181,076
Production taxes....................... 26,936 -- -- 1,957 28,893
Income tax............................. 50,118 4,658 -- 3,199 57,975
-------- ------- -------- ------- --------
501,374 33,044 -- 21,915 556,333
-------- ------- -------- ------- --------
Results of operations.................... $ 85,337 $ 5,787 $ -- $ 5,687 $ 96,811
======== ======= ======== ======= ========
Amortization rate per boe(1)............. $ 5.54 $ 3.08 $ -- $ 5.94 $ 5.32
======== ======= ======== ======= ========
</TABLE>
- ---------------
(1) Amortization rate per boe reflects only depreciation, depletion and
amortization of capitalized costs of proved oil and gas properties.
F-28
<PAGE> 65
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Costs Not Being Amortized -- The following table sets forth a summary of
oil and gas property costs not being amortized at December 31, 1997, by the year
in which such costs were incurred:
<TABLE>
<CAPTION>
1994
TOTAL 1997 1996 1995 AND PRIOR
-------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Property acquisition
costs..................... $404,283 $126,420 $160,267 $ 96,228 $ 21,368
Exploration and
development............... 128,273 94,378 3,571 17,705 12,619
-------- -------- -------- -------- ---------
Total....................... $532,556 $220,798 $163,838 $113,933 $ 33,987
======== ======== ======== ======== =========
</TABLE>
Capitalized Costs Incurred -- The following table sets forth the
capitalized costs incurred in oil and gas producing activities:
<TABLE>
<CAPTION>
IVORY OTHER
UNITED STATES CANADA EGYPT AUSTRALIA COAST INTERNATIONAL TOTAL
------------- ------- -------- --------- ------ ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Acquisition of proved
properties(1).......... $ 21,927 $11,635 $ -- $192,372 $ -- $ -- $ 225,934
Acquisition of unproved
properties............. 34,487 6,061 7,744 7,975 -- 136 56,403
Exploration.............. 55,997 21,270 41,910 18,744 67 24,199 162,187
Development.............. 268,788 28,932 90,284 41,844 489 -- 430,337
Capitalized interest..... 15,743 1,406 12,626 2,239 521 3,958 36,493
Property sales........... (24,609) (5,525) -- -- -- -- (30,134)
--------- ------- -------- -------- ------ ------- ---------
$ 372,333 $63,779 $152,564 $263,174 $1,077 $28,293 $ 881,220
========= ======= ======== ======== ====== ======= =========
1996
Acquisition of proved
properties(1).......... $ 109,872 $ 2,499 $333,834 $ -- $ -- $ -- $ 446,205
Acquisition of unproved
properties............. 26,055 5,385 -- -- -- -- 31,440
Exploration.............. 48,578 30,153 31,805 11,012 7,674 11,687 140,909
Development.............. 211,658 21,970 23,056 33,950 -- -- 290,634
Capitalized interest..... 16,203 1,260 8,736 1,876 240 2,397 30,712
Property sales........... (29,459) (685) -- -- -- -- (30,144)
--------- ------- -------- -------- ------ ------- ---------
$ 382,907 $60,582 $397,431 $ 46,838 $7,914 $14,084 $ 909,756
========= ======= ======== ======== ====== ======= =========
1995
Acquisition of proved
properties(1).......... $ 818,682 $ 2,236 $ -- $ -- $ -- $ -- $ 820,918
Acquisition of unproved
properties............. 21,446 3,511 -- -- -- -- 24,957
Exploration.............. 23,520 7,857 11,415 22,227 1,287 20,968 87,274
Development.............. 156,845 15,105 -- 8,946 -- -- 180,896
Capitalized interest..... 14,619 1,315 437 1,200 -- 1,470 19,041
Property sales........... (271,937) -- -- -- -- -- (271,937)
--------- ------- -------- -------- ------ ------- ---------
$ 763,175 $30,024 $ 11,852 $ 32,373 $1,287 $22,438 $ 861,149
========= ======= ======== ======== ====== ======= =========
</TABLE>
- ---------------
(1) Acquisition of proved properties includes unevaluated costs of $53.8
million, $203.6 million (including $99.0 million associated with
international concession rights) and $162.2 million for transactions
completed in 1997, 1996 and 1995, respectively.
F-29
<PAGE> 66
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Capitalized Costs -- The following table sets forth the capitalized costs
and associated accumulated depreciation, depletion and amortization, including
impairments, relating to the Company's oil and gas production, exploration and
development activities:
<TABLE>
<CAPTION>
UNITED IVORY OTHER
STATES CANADA EGYPT AUSTRALIA COAST INTERNATIONAL TOTAL
----------- --------- -------- --------- ------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
1997
Proved properties........... $ 4,279,089 $ 445,314 $379,552 $375,037 $ 2,328 $ 49,671 $ 5,530,991
Unproved properties......... 161,671 21,443 105,544 81,723 7,951 75,224 453,556
International concession
rights.................... -- -- 79,000 -- -- -- 79,000
----------- --------- -------- -------- ------- -------- -----------
4,440,760 466,757 564,096 456,760 10,279 124,895 6,063,547
Accumulated DD&A............ (2,228,575) (197,067) (54,789) (65,605) -- (49,671) (2,595,707)
----------- --------- -------- -------- ------- -------- -----------
$ 2,212,185 $ 269,690 $509,307 $391,155 $10,279 $ 75,224 $ 3,467,840
=========== ========= ======== ======== ======= ======== ===========
1996
Proved properties........... $ 3,846,256 $ 400,113 $251,619 $165,454 $ -- $ 49,671 $ 4,713,113
Unproved properties......... 222,168 21,526 60,913 28,133 9,201 46,931 388,872
International concession
rights.................... -- -- 99,000 -- -- -- 99,000
----------- --------- -------- -------- ------- -------- -----------
4,068,424 421,639 411,532 193,587 9,201 96,602 5,200,985
Accumulated DD&A............ (1,950,760) (179,448) (15,873) (48,895) -- (49,671) (2,244,647)
----------- --------- -------- -------- ------- -------- -----------
$ 2,117,664 $ 242,191 $395,659 $144,692 $ 9,201 $ 46,931 $ 2,956,338
=========== ========= ======== ======== ======= ======== ===========
</TABLE>
F-30
<PAGE> 67
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Oil and Gas Reserve Information -- Proved oil and gas reserve quantities
are based on estimates prepared by the Company's engineers in accordance with
guidelines established by the Securities and Exchange Commission (SEC). The
Company's estimates of proved reserve quantities of its U.S., Canadian and
international properties are subject to review by Ryder Scott Company Petroleum
Engineers, independent petroleum engineers. In 1996, the proved reserve
quantities of certain of the Company's Egyptian properties were subject to
review by Netherland, Sewell & Associates, Inc., 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.
<TABLE>
<CAPTION>
CRUDE OIL, CONDENSATE AND NATURAL GAS LIQUIDS
-------------------------------------------------------
(THOUSANDS OF BARRELS)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
------- ------ ------ --------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
TOTAL PROVED RESERVES:
Balance December 31, 1994..... 94,445 10,716 -- 5,463 -- 110,624
Extensions, discoveries and
other additions........... 6,685 306 -- 3,058 -- 10,049
Purchases of minerals
in-place.................. 99,148 119 -- -- -- 99,267
Revisions of previous
estimates................. 12,172 (388) -- 10 -- 11,794
Production.................. (17,011) (937) -- (1,139) -- (19,087)
Sales of properties......... (42,318) -- -- -- -- (42,318)
------- ------ ------ ------ ----- -------
Balance December 31, 1995..... 153,121 9,816 -- 7,392 -- 170,329
Extensions, discoveries and
other additions........... 9,065 1,123 18,909 14,562 -- 43,659
Purchases of minerals
in-place.................. 3,547 128 30,706 -- -- 34,381
Revisions of previous
estimates................. 12,547 320 -- (1,679) -- 11,188
Production.................. (15,338) (955) (3,036) (849) -- (20,178)
Sales of properties......... (4,019) (66) -- -- -- (4,085)
------- ------ ------ ------ ----- -------
Balance December 31, 1996..... 158,923 10,366 46,579 19,426 -- 235,294
Extensions, discoveries and
other additions........... 32,530 2,677 10,492 12,814 393 58,906
Purchases of minerals
in-place.................. 1,818 278 -- 9,116 -- 11,212
Revisions of previous
estimates................. (7,283) (379) 4,696 -- -- (2,966)
Production.................. (15,448) (1,003) (7,071) (1,612) -- (25,134)
Sales of properties......... (2,923) (611) -- -- -- (3,534)
------- ------ ------ ------ ----- -------
Balance December 31, 1997..... 167,617 11,328 54,696 39,744 393 273,778
======= ====== ====== ====== ===== =======
PROVED DEVELOPED RESERVES:
December 31, 1994........... 84,085 10,612 -- 5,322 -- 100,019
December 31, 1995........... 123,726 9,597 -- 4,141 -- 137,464
December 31, 1996........... 129,551 10,351 38,213 5,106 -- 183,221
December 31, 1997........... 133,035 11,313 42,714 15,690 393 203,145
<CAPTION>
NATURAL GAS
---------------------------------------------------------------
(MILLIONS OF CUBIC FEET)
UNITED IVORY
STATES CANADA EGYPT AUSTRALIA COAST TOTAL
--------- ------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
TOTAL PROVED RESERVES:
Balance December 31, 1994..... 984,288 299,896 -- 31,971 -- 1,316,155
Extensions, discoveries and
other additions........... 85,032 26,488 -- 42,332 -- 153,852
Purchases of minerals
in-place.................. 335,865 4,662 -- -- -- 340,527
Revisions of previous
estimates................. 56,281 (18,141) -- 2,342 -- 40,482
Production.................. (182,661) (24,485) -- (3,486) -- (210,632)
Sales of properties......... (138,464) -- -- -- -- (138,464)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1995..... 1,140,341 288,420 -- 73,159 -- 1,501,920
Extensions, discoveries and
other additions........... 140,208 44,584 59,329 8,346 -- 252,467
Purchases of minerals
in-place.................. 88,023 3,039 12,964 -- -- 104,026
Revisions of previous
estimates................. 35,026 (25,747) -- (5,276) -- 4,003
Production.................. (172,815) (27,303) (111) (5,076) -- (205,305)
Sales of properties......... (29,231) (2,576) -- -- -- (31,807)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1996..... 1,201,552 280,417 72,182 71,153 -- 1,625,304
Extensions, discoveries and
other additions........... 187,270 68,877 58,685 42,936 26,208 383,976
Purchases of minerals
in-place.................. 13,295 13,897 -- 136,817 -- 164,009
Revisions of previous
estimates................. (56,632) 4,257 13,584 -- -- (38,791)
Production.................. (179,796) (32,740) (205) (9,496) -- (222,237)
Sales of properties......... (33,940) (6,500) -- -- -- (40,440)
--------- ------- ------- ------- ------ ---------
Balance December 31, 1997..... 1,131,749 328,208 144,246 241,410 26,208 1,871,821
========= ======= ======= ======= ====== =========
PROVED DEVELOPED RESERVES:
December 31, 1994........... 888,039 274,611 -- 22,265 -- 1,184,915
December 31, 1995........... 1,003,853 274,306 -- 20,308 -- 1,298,467
December 31, 1996........... 1,087,694 274,498 6,977 66,174 -- 1,435,343
December 31, 1997........... 1,009,080 326,237 8,825 183,962 26,208 1,554,312
</TABLE>
F-31
<PAGE> 68
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
Future Net Cash Flows -- Future cash inflows are based on year-end oil and
gas prices except in those instances where future natural gas or oil sales are
covered by physical or derivative 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.
<TABLE>
<CAPTION>
IVORY
UNITED STATES CANADA(1) EGYPT AUSTRALIA COAST TOTAL
------------- --------- ---------- ---------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1997
Cash inflows.............. $ 5,585,925 $ 610,359 $1,196,054 $1,108,969 $ 58,589 $ 8,559,896
Production and development
costs................... (2,151,076) (186,328) (427,608) (415,282) (31,710) (3,212,004)
Income tax expense........ (776,649) (89,852) (235,560) (131,017) -- (1,233,078)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 2,658,200 334,179 532,886 562,670 26,879 4,114,814
10 percent discount
rate.................... (1,049,380) (145,899) (179,290) (157,385) (19,598) (1,551,552)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 1,608,820 $ 188,280 $ 353,596 $ 405,285 $ 7,281 $ 2,563,262
=========== ========= ========== ========== ======== ===========
1996
Cash inflows.............. $ 8,839,819 $ 761,657 $1,272,104 $ 553,781 $ -- $11,427,361
Production and development
costs................... (2,542,757) (204,610) (484,143) (240,451) -- (3,471,961)
Income tax expense........ (1,751,611) (148,745) (260,598) (83,593) -- (2,244,547)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 4,545,451 408,302 527,363 229,737 -- 5,710,853
10 percent discount
rate.................... (1,928,723) (182,645) (208,272) (71,696) -- (2,391,336)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 2,616,728 $ 225,657 $ 319,091 $ 158,041 $ -- $ 3,319,517
=========== ========= ========== ========== ======== ===========
1995
Cash inflows.............. $ 5,617,297 $ 550,627 $ -- $ 287,817 $ -- $ 6,455,741
Production and development
costs................... (2,126,984) (186,388) -- (99,345) -- (2,412,717)
Income tax expense........ (753,425) (82,124) -- (53,520) -- (889,069)
----------- --------- ---------- ---------- -------- -----------
Net cash flows............ 2,736,888 282,115 -- 134,952 -- 3,153,955
10 percent discount
rate.................... (1,105,629) (124,835) -- (53,932) -- (1,284,396)
----------- --------- ---------- ---------- -------- -----------
Discounted future net cash
flows(2)................ $ 1,631,259 $ 157,280 $ -- $ 81,020 $ -- $ 1,869,559
=========== ========= ========== ========== ======== ===========
</TABLE>
- ---------------
(1) Included in cash inflows is approximately $27.3 million, $16.2 million and
$25.3 million ($9.3 million, $5.3 million and $9.8 million after discount at
10 percent per annum) for 1997, 1996 and 1995, respectively, of Canadian
provincial tax credits expected to be realized beyond the date at which the
legislation, under its provisions, could be repealed.
(2) Estimated future net cash flows before income tax expense, discounted at 10
percent per annum, totaled approximately $3.3 billion, $4.6 billion and $2.3
billion as of December 31, 1997, 1996 and 1995, respectively.
F-32
<PAGE> 69
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL OIL AND GAS DISCLOSURES -- (CONTINUED)
(UNAUDITED)
The following table sets forth the principal sources of change in the
discounted future net cash flows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
----------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales, net of production costs................ $ (755,946) $ (611,041) $(443,175)
Net change in prices and production costs..... (1,904,236) 1,336,340 201,723
Discoveries and improved recovery, net of
related costs............................... 644,652 775,136 210,151
Change in future development costs............ 120,462 54,236 74,047
Revision of quantities........................ (40,121) 113,819 127,939
Purchases..................................... 242,958 522,123 726,240
Accretion of discount......................... 456,848 234,436 160,093
Change in income taxes........................ 545,424 (779,980) (186,415)
Sales of properties........................... (48,353) (46,056) (232,629)
Change in production rates and other.......... (17,943) (149,055) (80,960)
----------- ---------- ---------
$ (756,255) $1,449,958 $ 557,014
=========== ========== =========
</TABLE>
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 contracts at specified
prices. Estimates of future liabilities and receivables applicable to oil and
gas commodity hedges are reflected in future cash flows from proved reserves
with such estimates based on prices in effect as of the date of the reserve
report. Fluctuations are largely due to supply and demand perceptions for
natural gas and volatility in oil prices.
Under SEC rules, companies that follow the full cost method of accounting
are required to perform country-by-country quarterly "ceiling test"
calculations. Under this test, capitalized costs of 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, net of related tax effects, plus the lower of cost or fair value
of unproved properties included in the costs being amortized. Application of
these rules during periods of relatively low oil and gas prices, even if of
short-term duration, may result in writedowns.
Many full cost companies, including Apache, are concerned about the impact
of prolonged unfavorable oil prices on their ceiling test calculations. A
deterioration of gas or oil prices from year-end levels could result in the
Company recording a non-cash charge to earnings related to its oil and gas
properties.
F-33
<PAGE> 70
APACHE CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
-------- -------- -------- -------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1997
Revenues................................ $321,828 $258,841 $276,748 $318,856 $1,176,273
Expenses, net........................... 268,951 233,095 245,963 273,368 1,021,377
-------- -------- -------- -------- ----------
Net income.............................. $ 52,877 $ 25,746 $ 30,785 $ 45,488 $ 154,896
======== ======== ======== ======== ==========
Net income per common share(1)
Basic................................. $ .59 $ .29 $ .34 $ .50 $ 1.71
======== ======== ======== ======== ==========
Diluted............................... $ .56 $ .28 $ .33 $ .48 $ 1.65
======== ======== ======== ======== ==========
1996
Revenues................................ $206,470 $223,656 $242,384 $304,641 $ 977,151
Expenses, net........................... 190,815 199,219 212,247 253,443 855,724
-------- -------- -------- -------- ----------
Net income.............................. $ 15,655 $ 24,437 $ 30,137 $ 51,198 $ 121,427
======== ======== ======== ======== ==========
Net income per common share(1)
Basic................................. $ .20 $ .29 $ .34 $ .57 $ 1.42
======== ======== ======== ======== ==========
Diluted............................... $ .20 $ .28 $ .33 $ .54 $ 1.38
======== ======== ======== ======== ==========
</TABLE>
- ---------------
(1) Net income per common share has been restated in accordance with SFAS No.
128, as discussed in Note 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.
F-34
<PAGE> 71
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1 -- Stock Purchase Agreement, dated July 1, 1991, between
Registrant and Amoco Production Company (incorporated by
reference to Exhibit 10.1 to Registrant's Current Report
on Form 8-K, dated July 1, 1991, SEC File No. 1-4300).
2.2 -- Form of Acquisition Agreement between Registrant, HERC
Acquisition Corporation and Hadson Energy Resources
Corporation, dated August 26, 1993, and amended September
28, 1993 (incorporated by reference to Exhibit 2.1 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-67954, filed September 29, 1993).
2.3 -- Purchase and Sale Agreement by and between Texaco
Exploration and Production Inc., as seller, and
Registrant, as buyer, dated December 22, 1994
(incorporated by reference to Exhibit 99.3 to
Registrant's Current Report on Form 8-K, dated November
29, 1994, SEC File No. 1-4300).
2.4 -- Amended and Restated Agreement and Plan of Merger among
Registrant, XPX Acquisitions, Inc. and DEKALB Energy
Company, dated December 21, 1994 (incorporated by
reference to Exhibit 2.1 to Amendment No. 3 to
Registrant's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
2.5 -- Agreement and Plan of Merger among Registrant, YPY
Acquisitions, Inc. and The Phoenix Resource Companies,
Inc., dated March 27, 1996 (incorporated by reference to
Exhibit 2.1 to Registrant's Registration Statement on
Form S-4, Registration No. 333-02305, filed April 5,
1996).
3.1 -- Restated Certificate of Incorporation of Registrant,
dated December 1, 1993, as filed with the Secretary of
State of Delaware on December 16, 1993 (incorporated by
reference to Exhibit 3.1 to Registrant's Annual Report on
Form 10-K for year ended December 31, 1993, SEC File No.
1-4300).
3.2 -- Certificate of Ownership and Merger Merging Apache Energy
Resources Corporation into Registrant, effective December
31, 1995, as filed with the Secretary of State of
Delaware on December 21, 1995 (incorporated by reference
to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
3.3 -- Certificate of Designations, Preferences and Rights of
Series A Junior Participating Preferred Stock of
Registrant, effective January 31, 1996, as filed with the
Secretary of State of Delaware on January 22, 1996
(incorporated by reference to Exhibit 3.3 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
3.4 -- Bylaws of Registrant, as amended July 17, 1997
(incorporated by reference to Exhibit 4.4 to Registrant's
Registration Statement on Form S-8, Registration No.
333-32557, filed July 31, 1997).
4.1 -- Form of Registrant's common stock certificate
(incorporated by reference to Exhibit 4.1 to Registrant's
Annual Report on Form 10-K for year ended December 31,
1995, SEC File No. 1-4300).
4.2 -- Rights Agreement, dated January 31, 1996, between
Registrant and Norwest Bank Minnesota, N.A., rights agent,
relating to the declaration of a rights dividend to
Registrant's common shareholders of record on January 31,
1996 (incorporated by reference to Exhibit (a) to
Registrant's Registration Statement on Form 8-A, dated
January 24, 1996, SEC File No. 1-4300).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.1 -- Fourth Amended and Restated Credit Agreement, dated
October 31, 1996, among Registrant, the lenders named
therein, and The First National Bank of Chicago, as
Global Administrative Agent, The Chase Manhattan Bank, as
Co-Agent, First Chicago Capital Markets, Inc., as
Arranger, and Chase Securities Inc., as Arranger
(incorporated by reference to Exhibit 10.1 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.2 -- Credit Agreement dated October 31, 1996, among Apache
Canada Ltd., a wholly-owned subsidiary of Registrant, the
lenders named therein, and Bank of Montreal, as Canadian
Administrative Agent, The First National Bank of Chicago,
as Global Administrative Agent, First Chicago Capital
Markets, Inc., as Arranger, and Chase Securities Inc., as
Arranger (incorporated by reference to Exhibit 10.2 to
Registrant's Current Report on Form 8-K, dated October
31, 1996, SEC File No. 1-4300).
10.3 -- Credit Agreement dated October 31, 1996, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of Registrant, the lenders
named therein, and Chase Securities Australia Limited, as
Australian Administrative Agent, The First National Bank
of Chicago, as Global Administrative Agent, First Chicago
Capital Markets, Inc., as Arranger, and Chase Securities
Inc., as Arranger (incorporated by reference to Exhibit
10.3 to Registrant's Current Report on Form 8-K, dated
October 31, 1996, SEC File No. 1-4300).
10.4 -- Credit Agreement, dated June 12, 1997, among the
Registrant, the lenders named therein, Morgan Guaranty
Trust Company, as Global Documentation Agent and U.S.
Syndication Agent, The First National Bank of Chicago, as
U.S. Documentation Agent, NationsBank of Texas, N.A., as
Co-Agent, Union Bank of Switzerland, Houston Agency, as
Co-Agent, and The Chase Manhattan Bank, as Global
Administrative Agent (incorporated by reference to
Exhibit 10.1 to Registrant's Current Report on Form 8-K,
dated June 13, 1997, SEC File No. 1-4300).
10.5 -- Credit Agreement, dated June 12, 1997, among Apache
Canada Ltd., a wholly-owned subsidiary of the Registrant,
the lenders named therein, Morgan Guaranty Trust Company,
as Global Documentation Agent, Royal Bank of Canada, as
Canadian Documentation Agent, The Chase Manhattan Bank of
Canada, as Canadian Syndication Agent, Bank of Montreal,
as Canadian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.2 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
10.6 -- Credit Agreement, dated June 12, 1997, among Apache
Energy Limited and Apache Oil Australia Pty. Limited,
wholly-owned subsidiaries of the Registrant, the lenders
named therein, Morgan Guaranty Trust Company, as Global
Documentation Agent, Bank of America National Trust and
Savings Association, Sydney Branch, as Australian
Documentation Agent, The Chase Manhattan Bank, as
Australian Syndication Agent, Citisecurities Limited, as
Australian Administrative Agent, and The Chase Manhattan
Bank, as Global Administrative Agent (incorporated by
reference to Exhibit 10.3 to Registrant's Current Report
on Form 8-K, dated June 13, 1997, SEC File No. 1-4300).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 -- Fiscal Agency Agreement, dated January 4, 1995, between
Registrant and Chemical Bank, as fiscal agent, relating
to Registrant's 6% Convertible Subordinated Debentures
due 2002 (incorporated by reference to Exhibit 99.2 to
Registrant's Current Report on Form 8-K, dated December
6, 1994, SEC File No. 1-4300).
10.8 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Khalda Area in Western Desert of
Egypt by and among Arab Republic of Egypt, the Egyptian
General Petroleum Corporation and Phoenix Resources
Company of Egypt, dated April 6, 1981 (incorporated by
reference to Exhibit 19(g) to Phoenix's Annual Report on
Form 10-K for year ended December 31, 1984, SEC File No.
1-547).
10.9 -- Amendment, dated July 10, 1989, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt by and among Arab
Republic of Egypt, the Egyptian General Petroleum
Corporation and Phoenix Resources Company of Egypt
(incorporated by reference to Exhibit 10(d)(4) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
10.10 -- Farmout Agreement, dated September 13, 1985 and relating
to the Khalda Area Concession, by and between Phoenix
Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10.1 to Phoenix's
Registration Statement on Form S-1, Registration No.
33-1069, filed October 23, 1985).
10.11 -- Amendment, dated March 30, 1989, to Farmout Agreement
relating to the Khalda Area Concession, by and between
Phoenix Resources Company of Egypt and Conoco Khalda Inc.
(incorporated by reference to Exhibit 10(d)(5) to
Phoenix's Quarterly Report on Form 10-Q for quarter ended
June 30, 1989, SEC File No. 1-547).
*10.12 -- Amendment, dated May 21, 1995, to Concession Agreement
for Petroleum Exploration and Exploitation in the Khalda
Area in Western Desert of Egypt between Arab Republic of
Egypt, the Egyptian General Petroleum Corporation, Repsol
Exploracion Egipto S.A., Phoenix Resources Company of
Egypt and Samsung Corporation.
10.13 -- Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area in Western Desert of
Egypt, between Arab Republic of Egypt, the Egyptian
General Petroleum Corporation, Phoenix Resources Company
of Qarun and Apache Oil Egypt, Inc., dated May 17, 1993
(incorporated by reference to Exhibit 10(b) to Phoenix's
Annual Report on Form 10-K for year ended December 31,
1993, SEC File No. 1-547).
10.14 -- Agreement for Amending the Gas Pricing Provisions under
the Concession Agreement for Petroleum Exploration and
Exploitation in the Qarun Area, effective June 16, 1994
(incorporated by reference to Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.15 -- 1982 Employee Stock Option Plan, as updated in January
1987 to conform to the Tax Reform Act of 1986
(incorporated by reference to Exhibit 10.7 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.16 -- Apache Corporation Corporate Administrative Group
Incentive Plan, effective as of January 1, 1989
(incorporated by reference to Exhibit 10.8 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.17 -- First Amendment to Apache Corporation Corporate
Administrative Group Incentive Plan, effective January 1,
1990 (incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1993, SEC File No. 1-4300).
+10.18 -- Apache Corporation 401(k) Savings Plan, dated August 1,
1997, effective January 1, 1997 (incorporated by
reference to Exhibit 10.1 to Registrant's current Report
on Form 8-K, dated August 8, 1997, SEC File No. 1-4300).
+*10.19 -- Apache Corporation Money Purchase Retirement Plan, dated
December 31, 1997, effective January 1, 1997.
+10.20 -- Non-Qualified Retirement/Savings Plan of Apache
Corporation, as restated January 1, 1997 (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.21 -- Apache International, Inc. Common Stock Award Plan, dated
February 12, 1990 (incorporated by reference to Exhibit
10.13 to Registrant's Annual Report on Form 10-K for year
ended December 31, 1989, SEC File No. 1-4300).
+10.22 -- Apache Corporation 1990 Stock Incentive Plan, as amended
and restated February 9, 1996 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1995, SEC File No.
1-4300).
+10.23 -- Apache Corporation 1995 Stock Option Plan, as amended and
restated February 9, 1996 (incorporated by reference to
Exhibit 10.20 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1995, SEC File No. 1-4300).
+10.24 -- Apache Corporation 1996 Share Price Appreciation Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Appendix A to Registrant's definitive 14A
Proxy Statement, SEC File No. 1-4300, filed March 28,
1997).
+10.25 -- Apache Corporation 1996 Performance Stock Option Plan, as
amended and restated January 14, 1997 (incorporated by
reference to Exhibit 10.32 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1996, SEC File
No. 1-4300).
+10.26 -- Apache Corporation 1998 Stock Option Plan (incorporated
by reference to Appendix A to Registrant's definitive 14A
Proxy Statement relating to Registrant's 1998 annual
meeting of shareholders, SEC File No. 1-4300).
+10.27 -- 1990 Employee Stock Option Plan of The Phoenix Resource
Companies, Inc., as amended through September 29, 1995,
effective April 9, 1990 (incorporated by reference to
Exhibit 10.33 to Registrant's Annual Report on Form 10-K
for year ended December 31, 1996, SEC File No. 1-4300).
+10.28 -- Apache Corporation Income Continuance Plan, as amended
and restated February 24, 1988 (incorporated by reference
to Exhibit 10.19 to Registrant's Annual Report on Form
10-K for year ended December 31, 1990, SEC File No.
1-4300).
+*10.29 -- Apache Corporation Non-Employee Directors' Compensation
Plan, as amended and restated December 12, 1997.
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
+10.30 -- Apache Corporation Directors' Deferred Compensation Plan,
as amended and restated September 14, 1994 (incorporated
by reference to Exhibit 10.15 to Registrant's Annual
Report on Form 10-K for year ended December 31, 1994, SEC
File No. 1-4300).
+*10.31 -- Apache Corporation Outside Directors' Retirement Plan, as
amended and restated September 11, 1997.
+10.32 -- Apache Corporation Equity Compensation Plan for
Non-Employee Directors, adopted February 9, 1994, and
form of Restricted Stock Award Agreement (incorporated by
reference to Exhibit 10.26 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1993, SEC File
No. 1-4300).
+10.33 -- Amended and Restated Employment Agreement, dated December
5, 1990, between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.39 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.34 -- First Amendment, dated April 4, 1996, to Restated
Employment Agreement between Registrant and Raymond Plank
(incorporated by reference to Exhibit 10.40 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1996, SEC File No. 1-4300).
+10.35 -- Amended and Restated Employment Agreement, dated December
20, 1990, between Registrant and John A. Kocur
(incorporated by reference to Exhibit 10.10 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1990, SEC File No. 1-4300).
+10.36 -- Employment Agreement, dated June 6, 1988, between
Registrant and G. Steven Farris (incorporated by
reference to Exhibit 10.6 to Registrant's Annual Report
on Form 10-K for year ended December 31, 1989, SEC File
No. 1-4300).
10.37 -- Member Gas Purchase Agreement, dated March 1, 1996, by
and among Apache Gathering Company, Apache Corporation,
MW Petroleum Corporation, DEK Energy Company, Apache
Transmission Corporation-Texas and Apache Marketing,
Inc., as Seller, and Producers Energy Marketing, LLC, as
Buyer (incorporated by reference to Exhibit 10.28 to
Registrant's Annual Report on Form 10-K for year ended
December 31, 1995, SEC File No. 1-4300).
*21.1 -- Subsidiaries of Registrant
*23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Ryder Scott Company Petroleum Engineers
*23.3 -- Consent of Netherland, Sewell & Associates, Inc.
*24.1 -- Power of Attorney (included as a part of the signature
pages to this report)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
+ Management contracts or compensatory plans or arrangements required to be
filed herewith pursuant to Item 14 hereof.
<PAGE> 1
EXHIBIT 10.12
AMENDMENT OF CONCESSION AGREEMENT
SIGNED BY VIRTUE OF LAW NO. 9 OF 1981
AS AMENDED BY LAW NO. 222 OF 1989
FOR PETROLEUM EXPLORATION AND EXPLOITATION
IN KHALDA AREA
WESTERN DESERT OF EGYPT
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE EGYPTIAN GENERAL PETROLEUM CORPORATION
AND
REPSOL EXPLORACION EGIPTO S.A.
AND
PHOENIX RESOURCES COMPANY OF EGYPT
AND
SAMSUNG CORPORATION
THIS AMENDMENT is made and entered on this 21 day of May, 1995 by and between
the ARAB REPUBLIC OF EGYPT (hereinafter referred to as the "A.R.E." or
"GOVERNMENT"), the EGYPTIAN GENERAL PETROLEUM CORPORATION, a legal entity
created by Law No. 167 of 1958 as amended (hereinafter referred to as "EGPC"),
and REPSOL EXPLORACION EGIPTO S.A., a company organized and existing under the
laws of Spain (hereinafter referred to as "REPSOL"), PHOENIX RESOURCES COMPANY
OF EGYPT, a company organized and existing under the laws of the State of
Delaware, U.S.A. (hereinafter referred to as "PHOENIX"), and SAMSUNG
CORPORATION, a company organized and existing under the laws of Korea
(hereinafter referred to as "SAMSUNG"); REPSOL, PHOENIX and SAMSUNG being
hereinafter collectively referred to as "CONTRACTOR".
WITNESSETH:
WHEREAS, by the Concession Agreement for Petroleum Exploration and Exploitation,
signed by virtue of Law No. 9 of 1981, and effective the
<PAGE> 2
sixth day of April 1981 and which is amended by virtue of Law No. 222 for 1989
to incorporate new clauses to grant rights respecting natural gas, the
GOVERNMENT granted to EGPC and other CONTRACTOR parties the right to explore
for and produce petroleum from the "Khalda Area" in the Western Desert of the
A.R.E. The Concession Agreement and its amendment shall be hereinafter referred
to as "Concession Agreement"; and
WHEREAS, it is believed that exploratory prospects exist on the offset area to
the development leases located in the Khalda Area subject of the Concession
Agreement; and
WHEREAS, the Offset Area is needed so that the prospects may be tested and
adequately developed if Petroleum is discovered in sufficient quantities; and
WHEREAS, in accordance with good international petroleum field practices and
accepted international petroleum engineering principles, EGPC and CONTRACTOR
agree to further amend the Concession Agreement in order to incorporate the
aforementioned Offset Area and to provide for its development and exploitation
under such Concession Agreement and this amendment.
NOW, THEREFORE, the Parties hereto agree as follows:
The Concession Agreement is hereby further amended in the following respects
only:
a) By inserting the following at the end of the text of Annex "A" of
which it shall be considered a part:
"In addition to the Area as described elsewhere in this Annex, the
Area covered and affected by this Agreement includes the Offset Area
described here-below. The Offset Area consists of Sub-Area "A" and
Sub-Area "B". Both Sub-Areas shall be considered as a part of the
Concession Agreement.
2
<PAGE> 3
Both Sub Area "A" and Sub-Area "B" consist of 73 full Exploration
blocks 6' x 6' and 12 parts of Exploration blocks, and excluding the
Khepri/Sethos Development Lease. The total of the Offset Area is
approximately 8490 Km(2). The coordinates of the corner points of the
offset area are as follows:
SUB-AREA "A":
<TABLE>
<CAPTION>
Latitude Longitude Due to
-------- --------- ------
NORTH EAST
----- ----
<S> <C> <C> <C>
1. 30 degrees 54' 27 degrees 36' South to point 2
2. 30 degrees 30' 27 degrees 36' West to point 3
3. 30 degrees 30' 27 degrees 06' South to point 4
4. 30 degrees 12' 27 degrees 06' West to point 5
5. 30 degrees 12' 26 degrees 00' North to point 6
6. 30 degrees 30' 26 degrees 00' East to point 7
7. 30 degrees 30' 26 degrees 12' North to point 8
8. 30 degrees 35' 26 degrees 12' West to point 9
9. 30 degrees 35' 26 degrees 00' North to point 10
10. 31 degrees 00' 26 degrees 00' East to point 11
11. 31 degrees 00' 26 degrees 24' South to point 12
12. 30 degrees 48' 26 degrees 24' East to point 13
13. 30 degrees 48' 26 degrees 36' South to point 14
14. 30 degrees 42' 26 degrees 36' East to point 15
15. 30 degrees 42' 26 degrees 48' South to point 16
16. 30 degrees 30' 26 degrees 48' East to point 17
17. 30 degrees 30' 27 degrees 00' North to point 18
18. 30 degrees 36' 27 degrees 00' East to point 19
19. 30 degrees 36' 27 degrees 12' North to point 20
20. 30 degrees 42' 27 degrees 12' East to point 21
21. 30 degrees 42' 27 degrees 18' North to point 22
22. 30 degrees 48' 27 degrees 18' West to point 23
23. 30 degrees 48' 27 degrees 12' North to point 24
24. 30 degrees 54' 27 degrees 12' East to point 1 (starting point)
</TABLE>
3
<PAGE> 4
The Khepri/Sethos Development Lease lies within Sub-Area A, and is excluded
from the additional acreage to be added to the Khalda Concession Agreement. The
following are the coordinates of the corner points of this excluded area:
Khepri/Sethos Development Lease excluded area:
<TABLE>
<CAPTION>
Latitude Longitude Due to
-------- --------- ------
NORTH EAST
----- ----
<S> <C> <C> <C>
1. 30 degrees 45' 26 degrees 25' South to point 2
2. 30 degrees 39' 26 degrees 25' West to point 3
3. 30 degrees 39' 26 degrees 24' South to point 4
4. 30 degrees 38' 26 degrees 24' West to point 5
5. 30 degrees 38' 26 degrees 13' North to point 6
6. 30 degrees 45' 26 degrees 13' East to point 1 (starting point)
</TABLE>
<TABLE>
<CAPTION>
SUB-AREA "B":
Latitude Longitude Due to
-------- --------- ------
NORTH EAST
----- ----
<S> <C> <C> <C>
1. 31 degrees 00' 27 degrees 00' South to point 2
2. 30 degrees 54' 27 degrees 00' West to point 3
3. 30 degrees 54' 26 degrees 51' South to point 4
4. 30 degrees 51' 26 degrees 51' West to point 5
5. 30 degrees 51' 26 degrees 42' North to point 6
6. 30 degrees 54' 26 degrees 42' East to point 7
7. 30 degrees 54' 26 degrees 45' North to point 8
8. 30 degrees 57' 26 degrees 45' East to point 9
9. 30 degrees 57' 26 degrees 51' North to point 10
10. 31 degrees 00' 26 degrees 51' East to point 1 (starting point)
</TABLE>
b) By inserting map "B1" and the text attached as Exhibit (I) to this
Amendment at the end of Annex "B" of which they shall be considered as
an integral part.
4
<PAGE> 5
"B1" is a map of the Offset Area to the Khalda Development Leases at a
scale of 1:1,100,000. It should be noted that the delineation lines
of the individual Exploration Blocks in the map "B1" are intended to
be only illustrative and provisional and may not show accurately their
true position in relation to existing monuments and geographical
features.
c) The following provisions shall apply to this Amendment:
ARTICLE I
WORK PROGRAM AND EXPENDITURES DURING
EXPLORATION PERIOD
(i) CONTRACTOR shall commence Exploration Operations in the Offset Area
hereunder not later than six (6) months after the Effective Date of
this Amendment. Not later than the end of the eighteenth (18th) month
after the Effective Date of this Amendment, CONTRACTOR shall start
exploration drilling in the Offset Area with a commitment of drilling
seven (7) wells and acquiring 100 KM(2) of seismic survey during the
initial Exploration Period. EGPC shall make available for
CONTRACTOR's use all seismic, wells and other exploration data in
EGPC's possession with respect to the Offset Area, as EGPC is entitled
to so do.
(ii) The initial Exploration period shall be four (4) years starting from
the Effective Date of this Amendment. CONTRACTOR may extend this
initial Exploration period for two (2) additional periods of three (3)
years and two (2) years respectively, each upon at least a thirty (30)
days prior written notice to EGPC subject to its fulfillment of the
expenditure of its minimum Exploration obligations, and the drilling
obligations hereunder for the then current period.
5
<PAGE> 6
CONTRACTOR shall spend a minimum of Eight Million (8,000,000) U.S. Dollars on
Exploration operations and activities related thereto during the initial four
(4) year Exploration period; during such initial period CONTRACTOR shall drill
seven (7) wells and acquire 1000 Km of new seismic. For the first three (3)
year extension period CONTRACTOR shall spend a minimum of Seven Million
(7,000,000) U.S. Dollars and shall drill five (5) wells and acquire 1000 Km of
new seismic, and for the second two (2) year extension period CONTRACTOR shall
spend a minimum of Six Million (6,000,000) U.S. Dollars and shall drill four
(4) wells and acquire 300 Km of new seismic.
Should CONTRACTOR spend more than the minimum amount required to be expended or
drill more wells than the minimum required to be drilled or conduct more
seismic than the minimum required to be acquired during the initial four (4)
year Exploration period, or during any period thereafter, the excess may be
subtracted from the minimum amount of money required to be expended by
CONTRACTOR or the minimum number of wells required to be drilled or the minimum
kilometers of seismic to be acquired during any succeeding Exploration period
or periods, as the case may be.
In case CONTRACTOR surrenders its Exploration rights under this Amendment
before or at the end of the fourth (4th) year of the initial Exploration
period, having expended less than the total sum of Eight Million (8,000,000)
U.S. Dollars on Exploration, or in the event at the end of the initial four (4)
year Exploration period CONTRACTOR has expended less than said sum in the
Offset Area, an amount equal to the difference between the said Eight Million
(8,000,000) U.S. Dollars and the amount actually spent on Exploration
activities shall be paid by CONTRACTOR to EGPC at the time of surrendering or
within three (3) months from the end of the fourth (4th) year of the initial
Exploration period, as the case may be. Any
6
<PAGE> 7
expenditure deficiency by CONTRACTOR at the end of any additional period for
the reasons above-noted shall similarly result in a payment by CONTRACTOR to
EGPC of such deficiency. Provided this Amendment is still in force as to
CONTRACTOR, CONTRACTOR shall be entitled to recover any such payments as
Exploration expenditures in the manner provided for under Article VII of the
"Concession Agreement" according to Article IV hereunder.
In case no Commercial Discovery is established by the end of the ninth (9th)
year, or in case CONTRACTOR surrenders the Offset Area under this Amendment
prior to such time, EGPC shall not bear any of the aforesaid expenses spent by
CONTRACTOR.
This Amendment shall be terminated only with respect to the Offset Area if no
Commercial Discovery is established in the Offset Area by the end of the ninth
(9th) year of the Exploration period. In the event at the end of the initial
Exploration period or at the end of the first extension Exploration period a
well is actually drilling or testing, CONTRACTOR shall be allowed up to a six
(6) month period to enable the completion of drilling and testing of any well
actually drilling or testing at the end of such period and to establish a
Commercial Discovery. Such additional Six (6) month period shall be credited to
the next succeeding Exploration period and consequently shall be subtracted
from such succeeding Exploration period.
ARTICLE II
RELINQUISHMENTS
With respect to the Offset Area, at the end of the fourth (4th) year after the
Effective Date of this Amendment, CONTRACTOR shall relinquish to the GOVERNMENT
a total of twenty five (25) percent of
7
<PAGE> 8
the original Offset Area not then converted to a Development Lease or Leases.
Such relinquishment shall be in units of whole Exploration Blocks or parts of
Exploration Blocks not converted to Development Leases so as to enable the
relinquishment requirements to be precisely fulfilled.
At the end of the seventh (7th) year after the Effective Date of this
Amendment; CONTRACTOR shall relinquish to the GOVERNMENT an additional twenty
five (25) percent of the Offset Area not then converted to a Development Lease
or Leases. Such relinquishment shall be in units of whole Exploration Blocks or
parts of Exploration Blocks not converted to Development Leases so as to enable
the relinquishment requirements to be precisely fulfilled.
At the end of the ninth (9th) year of the Exploration period, CONTRACTOR shall
relinquish the remainder of the Offset Area not then converted to a Development
Lease or Leases.
It is understood that at the time of any relinquishment the areas to be
converted into Development Leases and which are submitted to the Minister of
Petroleum for his approval, according to Article (III) (d) of Law No. 222 of
1989 shall, subject to such approval, be deemed to be converted to Development
Leases.
ARTICLE III
OPERATIONS AFTER COMMERCIAL DISCOVERY
On Commercial Discovery, EGPC and CONTRACTOR agree that the Khalda Petroleum
Company (KHALDA) shall be designated to carry out all further Exploration and
Development activities in the Offset Area.
8
<PAGE> 9
ARTICLE IV
RECOVERY OF COSTS & EXPENSES
The costs associated with operations in the Offset Area shall be recovered from
the Petroleum produced from the Area under the Concession Agreement and
according to its provisions. Notwithstanding anything to the contrary in this
Amendment, recovery of such costs shall not be made until, with respect to
Crude Oil, commercial production from the Offset Area (whether directly or
through drainage) commences on regular basis or, with respect to Gas, a
Commercial Discovery occurs from the Offset Area and a gas sales agreement can
be applied as approved by EGPC, no costs associated with operations within the
Offset Area shall be recovered in the event the Offset Area is surrendered
pursuant to the provisions of Article II hereinabove.
ARTICLE V
GAS AND LPG PRICING
The Concession Agreement signed by virtue of Law No. 9 of 1981 for petroleum
Exploration and Exploitation in Khalda Area as amended by the Agreement signed
by virtue of Law No. 222 of 1989 shall remain in effect and shall continue to
apply only as to Gas produced from Khalda, Khalda West and Salem Development
leases.
However, for any new Gas production through new Development operations; the
following Article VII(c)(3) shall be added after Article VII(c)(2) of the
Concession Agreement signed by virtue of Law No. 9 of 1981 as amended by Law
no. 222 of 1989 and shall apply:
(3) Gas and LPG
(i) The Cost Recovery and Profit Shares of Gas subject to a Gas
Sales Agreement between EGPC and CONTRACTOR (as sellers) and
EGPC (as buyer) entered into pursuant to
9
<PAGE> 10
Article VII (e) of the Concession Agreement shall be valued,
delivered to and purchased by EGPC at a price determined
monthly according to the following formula:
PG = 0.85 x F x H
-----------
42.96x10(6)
Where:
PG = the value of the Gas in U.S. Dollars per thousand
cubic feet (MCF).
F = a value in U.S. Dollars per metric ton of the Crude
of Gulf of Suez blend "FOB Ras Shukheir" calculated
by referring to "Platt's Oilgram Price Report" during
a month under the heading "Spot Crude Price
Assessment for Suez Blend". This value reflects the
total averages of the published high and low values
for a barrel during such month divided by the number
of days in such month for which such values were
quoted. The value per metric ton shall be calculated
on the basis of a conversion factor to be agreed upon
annually between EGPC and CONTRACTOR.
H = the number of British Thermal Units (BTUs) per
thousand cubic feet (MCF) of Gas.
In the event that the value of F cannot be determined because Platt's
Oilgram Price Report is not published at all during a month, the
Parties shall meet and agree the value of F by reference to other
published sources. In the event that there are no such published
sources or if the value of F cannot be determined pursuant to the
foregoing for any other reason, the Parties shall meet and agree a
value of F.
Such evaluation of Gas under a formula providing for a fifteen (15)
percent discount is based upon delivery at the delivery point
specified in Article VII (e) 2 (ii) of the Concession
10
<PAGE> 11
Agreement, and is to enable EGPC to finance and maintain the portions
of the pipeline distribution system to be provided by EGPC.
(ii) The Cost Recovery and Profit Shares of LPG produced from a
plant constructed and operated by or on behalf of EGPC and
CONTRACTOR shall be separately valued for Propane and Butane
at the outlet of such LPG plant according to the following
formula (unless otherwise agreed between EGPC and CONTRACTOR):
PLPG = 0.95PR - (Jx0.85 x F )
---------
42.96x10(6)
Where:
PLPG = LPG price (separately determined for Propane and
Butane) in U. S. Dollars per metric ton.
PR = the average over a period of a month of the figures
representing the mid-point between the high and low
prices in U.S. Dollars per metric ton quoted in
"Platt's LPGaswire" during such month for Propane and
Butane FOB Ex-Ref/Stor. West Mediterranean.
J = BTU's removed from the Gas Stream by the LPG plant
per metric ton of LPG produced.
F = the same value as F under sub-paragraph (i) above.
In the event that Platt's LPGaswire is issued on certain days during a month
but not on others, the value of PR shall be calculated using only those issues
which are published during such month. In the event that the value of PR cannot
be determined because Platt's LPGaswire is not published at all during a month,
the Parties shall meet and agree the value of PR by reference to other published
sources. In the event that there are no other such
11
<PAGE> 12
published sources or if the value of PR cannot be determined pursuant to the
foregoing for any other reason, the Parties shall meet and agree the value of
PR by reference to the value of LPG (Propane and Butane) delivered FOB from the
Mediterranean Area.
Such valuation of LPG is based upon delivery at the delivery point specified in
Article VII (e) (2) (iii) of the Concession Agreement.
(iii) The prices of Gas and LPG so calculated shall apply during the
same month.
(iv) The Cost Recovery and Profit Shares of Gas and LPG disposed of
by EGPC and CONTRACTOR other than to EGPC pursuant to Article
VII (e) of the Concession Agreement shall be valued at their
actual realized price.
ARTICLE VI
BONUSES
CONTRACTOR shall pay to EGPC a non-recoverable signature bonus of One Million
(1,000,000) U.S. Dollars on the Effective Date of this Amendment.
ARTICLE VII
MISCELLANEOUS
(a) The word "petroleum" is substituted for the words "crude oil" where
they appear on three separate occasions in Article III(g)(1) and
Article III(g)(2)(i) of the Concession Agreement.
(b) Article III(g)(2)(i)(b) of the Concession Agreement is amended to read
as follows:
The value, as determined in paragraph (c) of Article VII of the EGPC
share of the Excess Cost Recovery Petroleum taken and
12
<PAGE> 13
separately disposed of by CONTRACTOR pursuant to Article VII,
paragraph (a)(2);
PLUS
(c) Article III (g) of the Concession Agreement is hereby renumbered as
Article III (h). This Article III (h) shall read as follows:
In calculating its A.R.E. Income Taxes, EGPC shall be entitled to
deduct all royalties paid by EGPC to the GOVERNMENT and CONTRACTOR's
Egyptian income tax paid by EGPC on CONTRACTOR's behalf.
(d) The last paragraph of Article IV of Annex "D" of the Concession
Agreement which states: "Operating Company shall not engage in any
business or undertake any activity beyond the performance of said
operations.", shall be deleted and replaced by the following:
"Operating company shall not engage in any business or undertake any
activity beyond the performance of said operations unless otherwise
agreed upon by EGPC and CONTRACTOR".
ARTICLE VIII
CONCESSION AGREEMENT FORCE
Except as may be amended by this Amendment, the Concession Agreement and its
amendment shall continue in full force and effect in accordance with their
terms.
ARTICLE IX
EFFECTIVE DATE AND A.R.E. GOVERNMENT APPROVAL
The effective date of this Amendment shall be the date this Amendment is signed
by the Parties after the law is issued by the
13
<PAGE> 14
competent authorities of the A.R.E., authorizing the Minister of Petroleum to
sign this Amendment, and giving to this Amendment full force and effect of law
notwithstanding any countervailing governmental enactment.
REPSOL EXPLORACION EGIPTO S.A.
By: /s/ REPSOL EXPLORACION EGIPTO S.A.
----------------------------------------
Date: May 21, 1995
--------------------------------------
PHOENIX RESOURCES COMPANY OF EGYPT
By: /s/ JOHN E. BRUNO
----------------------------------------
Date: May 21, 1995
--------------------------------------
SAMSUNG CORPORATION
By: /s/ SAMSUNG CORPORATION
----------------------------------------
Date: May 21, 1995
--------------------------------------
EGYPTIAN GENERAL PETROLEUM CORPORATION
By: /s/ EGYPTIAN GENERAL PETROLEUM CORPORATION
----------------------------------------
Date: May 21, 1995
--------------------------------------
ARAB REPUBLIC OF EGYPT
By: /s/ ARAB REPUBLIC OF EGYPT
----------------------------------------
Date: May 21, 1995
--------------------------------------
14
<PAGE> 15
[MAP]
MAP "B1"
AMENDMENT OF CONCESSION AGREEMENT SIGNED BY VIRTUE OF LAW No. 9
OF 1981 AS AMENDED
[EGYPTIAN TRANSLATION]
BETWEEN
THE ARAB REPUBLIC OF EGYPT
AND
THE GENERAL PETROLEUM CORPORATION
AND
REPSOL EXPLORACION EGIPTO S.A.
AND
PHOENIX RESOURCES COMPANY OF EGYPT
AND
SAMSUNG CORPORATION
IN 8490 KM2 APPROXIMATELY
SCALE 1:1,100,000
15
<PAGE> 1
EXHIBIT 10.19
APACHE CORPORATION
MONEY PURCHASE RETIREMENT PLAN
JANUARY 1, 1997
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Account Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Affiliated Entity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Alternate Payee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5 Annual Addition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Company Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Company Mandatory Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Covered Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.13 Determination Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 Disability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 Domestic Relations Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.16 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 Employment Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.18 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.19 Five-Percent Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.20 Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.21 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.22 Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.23 Lapse in Apache Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.24 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.25 Non-Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.26 Non-Key Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.27 Normal Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.28 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.29 Period of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.30 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.31 Qualified Domestic Relations Order ("QDRO"). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.32 Qualified Joint and Survivor Annuity ("QJSA") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.33 Qualified Pre-Retirement Survivor Annuity ("QPSA") . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.34 Reemployment Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.35 Required Beginning Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.36 Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.37 Termination from Service Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.38 Valuation Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.39 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Reemployment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Enrollment Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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<TABLE>
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ARTICLE III CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1 Company Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Participant Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Return of Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Limitation on Annual Additions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE IV INTERESTS IN THE TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.1 Participants' Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Valuation of Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.3 Allocation of Increase or Decrease in Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V AMOUNT OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.1 Vesting Schedule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.3 Restoration of Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
5.4 Method of Forfeiture Restoration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Allocation of Forfeitures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.6 Credits for Pre-Lapse Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.7 Transfers - Portability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.8 Reemployment - Separate Account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Distributable Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.3 Manner of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.4 Time of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.5 Direct Rollover Election. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VII ALLOCATION OF RESPONSIBILITIES - NAMED FIDUCIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.1 No Joint Fiduciary Responsibilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.2 The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 The Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 The Committee - Plan Administrator. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 Committee to Construe Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.6 Organization of Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.7 Interested Committee Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.8 Agent for Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.9 Indemnification of Committee Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.10 Conclusiveness of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.11 Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII TRUST AGREEMENT - INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Trust Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Expenses of Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.3 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE IX TERMINATION AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.1 Termination of Plan or Discontinuance of Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.2 Allocations upon Termination or Discontinuance of Company Contributions . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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9.3 Procedure Upon Termination of Plan or Discontinuance of Contributions. . . . . . . . . . . . . . . . . . . . . 20
9.4 Amendment by Apache. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE X PLAN ADOPTION BY AFFILIATED ENTITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.1 Adoption of Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.2 Agent of Affiliated Entity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
10.3 Disaffiliation and Withdrawal from Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.4 Effect of Disaffiliation or Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
10.5 Distribution Upon Disaffiliation or Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XI TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.1 Application of Top-Heavy Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.2 Determination of Top-Heavy Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
11.3 Special Vesting Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.4 Special Minimum Contribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
11.5 Change in Top-Heavy Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE XII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.1 RIGHT TO DISMISS EMPLOYEES - NO EMPLOYMENT CONTRACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.2 Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.3 Source of Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
12.4 Exclusive Benefit of Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.5 Forms of Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.6 Failure of Any Other Entity to Qualify. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.7 Notice of Adoption of the Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.8 Plan Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.9 Inalienability of Benefits - Domestic Relations Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
12.10 Payments Due Minors or Incapacitated Individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.11 Uniformity of Application. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.12 Disposition of Unclaimed Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
12.13 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XIII UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994 . . . . . . . . . . . . . . . . . . . 29
13.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.2 While a Serviceman. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13.3 Failure to Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
13.4 Return From Uniformed Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
Appendix A -- Participating Companies
Appendix B -- DEKALB Energy Company
iii
<PAGE> 5
APACHE CORPORATION
MONEY PURCHASE RETIREMENT PLAN
PREAMBLE
Apache Corporation, a Delaware corporation ("Apache"), hereby
establishes this money purchase pension plan (the "Plan"), which is intended to
be qualified under Code section 401(a). The Plan is effective as of January 1,
1997.
Each Appendix to this Plan is a part of the Plan document. It is
intended that an Appendix will be used to (1) describe which business entities
are actively participating in the Plan, (2) describe any special participation,
eligibility, vesting, or other provisions that apply to the employees of a
business entity, (3) describe any special provisions that apply to Participants
affected by a designated corporation transaction, and (4) describe any special
distribution rules that apply to directly transferred benefits from other
plans.
ARTICLE I
DEFINITIONS
The following words and phrases shall have the meaning set forth
below:
1.1 "Account Owner" means a Participant who has an Account balance, an
Alternate Payee who has an Account balance, or a beneficiary who has obtained
an interest in the Account of the previous Account Owner because of the
previous Account Owner's death.
1.2 "Account" means the account established pursuant to section 4.1.
1.3 "Affiliated Entity" means:
(a) For all purposes of the Plan except those listed in subsection
(b), the term "Affiliated Entity" means any legal entity that is treated as a
single employer with Apache pursuant to Code section 414(b), 414(c), 414(m), or
414(o).
(b) For purposes of determining Annual Additions under section
1.5, limiting Annual Additions to a Participant's Account under section 3.4,
and construing the defined terms as they are used in sections 1.5 and 3.4 (such
as " Compensation" and "Employee"), the term "Affiliated Entity" means any
legal entity that is treated as a single employer with Apache pursuant to Code
section 414(m) or 414(o), and any legal entity that would be an Affiliated
Entity pursuant to Code section 414(b) or 414(c) if the phrase "more than 50%"
were substituted for the phrase "at least 80%" each place it occurs in Code
section 1563(a)(1).
1.4 "Alternate Payee" means a Participant's Spouse, former spouse, child,
or other dependent who is recognized by a QDRO as having a right to receive
all, or a portion of, the benefits payable under this Plan with respect to such
Participant.
1.5 "Annual Addition" means the allocations to a Participant's Account for
any Limitation Year, as described in detail below.
(a) Annual Additions shall include: (i) Company Contributions
(except as provided in paragraphs (b)(iii) and (b)(v)) to this Plan and Company
contributions to any other defined contribution plan maintained by the Company
or any Affiliated Entity, (ii) after-tax contributions to any other defined
contribution plan maintained by the Company or an Affiliated Entity; (iii)
elective deferrals by the Participant, pursuant to Code section 401(k), to any
other defined contribution plan maintained by the Company or an Affiliated
Entity; (iv) forfeitures allocated to a Participant's Account in this Plan and
any other defined contribution plan maintained by the Company or any Affiliated
Entity (except as provided in paragraphs (b)(iii) and (b)(v) below); (v) all
amounts paid or accrued to a welfare benefit fund as defined in Code section
419(e) and allocated to the separate account (under the welfare
1
<PAGE> 6
benefit fund) of a Key Employee to provide post-retirement medical benefits;
and (vi) contributions allocated on the Participant's behalf to any individual
medical account as defined in Code section 415(l)(2).
(b) Annual Additions shall not include: (i) rollover
contributions made pursuant to Code section 402(c), 403(a)(4), 403(b)(8),
405(d)(3), 408(d)(3), or 409(b)(3)(C) to any defined contribution plan
maintained by the Company or an Affiliated Entity; (ii) repayments of loans
made to a Participant from a qualified plan maintained by the Company or any
Affiliated Entity; (iii) repayments of forfeitures for rehired Participants, as
described in Code sections 411(a)(7)(B) and 411(a)(3)(D); (iv) direct transfers
of funds from one qualified plan to any qualified plan maintained by the
Company or any Affiliated Entity; or (v) repayments of forfeitures of missing
individuals pursuant to section 12.12.
1.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the regulations and rulings in effect thereunder from time to
time.
1.7 "Committee" means the administrative committee provided for in section
7.4.
1.8 "Company" means Apache, any successor thereto, and any Affiliated
Entity that adopts the Plan pursuant to Article X. Each Company is listed in
Appendix A.
1.9 "Company Contributions" means all contributions to the Plan made by
the Company pursuant to section 3.1 for the Plan Year.
1.10 "Company Mandatory Contributions" means all contributions to the Plan
made by the Company pursuant to subsection 3.1(a) for the Plan Year.
1.11 "Compensation" means:
(a) Code Section 415 Compensation.
(i) 1997. This paragraph applies for 1997 only. For
purposes of determining the limitation on Annual Additions under
section 3.4 and the minimum contribution under section 11.4 when the
Plan is top-heavy, Compensation shall mean those amounts reported as
"wages, tips, other compensation" on Form W-2 by the Company or an
Affiliated Entity. For purposes of section 3.4, Compensation shall be
measured over a Limitation Year. For purposes of section 11.4,
Compensation shall be measured over a Plan Year.
(ii) 1998 and Thereafter. This paragraph applies after
1997. For purposes of determining the limitation on Annual Additions
under section 3.4 and the minimum contribution under section 11.4 when
the Plan is top-heavy, Compensation shall mean those amounts reported
as "wages, tips, other compensation" on Form W-2 by the Company or an
Affiliated Entity and elective contributions that are not includable
in the Employee's income pursuant to Code sections 125, 402(e)(3),
402(h), 403(b), 408(p), or 457. For purposes of section 3.4,
Compensation shall be measured over a Limitation Year. For purposes
of section 11.4, Compensation shall be measured over a Plan Year.
(b) Code Section 414(q) Compensation.
(i) 1997. This paragraph applies for 1997 only. For
purposes of identifying Highly Compensated Employees and Key
Employees, Compensation shall mean those amounts reported as "wages,
tips, other compensation" on Form W-2 by the Company or an Affiliated
Entity; Compensation shall also include elective contributions that
are not includable in the Employee's income pursuant to Code sections
125, 402(e)(3), 402(h)(1)(B), or 403(b). Compensation shall be
measured over a Plan Year. Compensation shall include only amounts
paid to the Employee, and shall not include any additional amounts
accrued by the Employee.
2
<PAGE> 7
(ii) 1998 and Thereafter. This paragraph applies after
1997. For purposes of identifying Highly Compensated Employees and
Key Employees, Compensation shall mean those amounts reported as
"wages, tips, other compensation" on Form W-2 by the Company or an
Affiliated Entity, and elective contributions that are not includable
in the Employee's income pursuant to Code sections 125, 402(e)(3),
402(h), 403(b), 408(p), or 457. Compensation shall be measured over a
Plan Year. Compensation shall include only amounts paid to the
Employee, and shall not include any additional amounts accrued by the
Employee.
(c) Benefit Compensation. For purposes of determining and
allocating Company Mandatory Contributions under subsection 3.1(a),
Compensation shall generally mean regular compensation paid by the Company.
(i) Specifically, Compensation shall include:
(A) Regular salary or wages,
(B) Overtime pay,
(C) Bonuses,
(D) Salary reductions pursuant to the Apache
Corporation 401(k) Savings Plan,
(E) Salary reductions that are excludable from an
Employee's gross income pursuant to Code
section 125, and
(F) Amounts contributed as salary deferrals to
the Company's Nonqualified Retirement/Savings
Plan.
(ii) Compensation shall exclude:
(A) Commissions,
(B) Severance pay,
(C) Moving expenses,
(D) Any gross-up of moving expenses to account
for increased income or employment taxes,
(E) Foreign service premiums paid as an
inducement to work outside of the United
States,
(F) Credits or benefits under this Plan and
credits or benefits under the Apache
Corporation 401(k) Savings Plan (except as
provided in subparagraph (i)(D)),
(G) Other contingent compensation,
(H) Any amount relating to the granting of a
stock option by the Company or an
Affiliated Entity, the exercise of such a
stock option, or the sale or deemed sale of
any shares thereby acquired,
(I) Contributions to any other fringe benefit
plan (including, but not limited to,
overriding royalty payments or any other
exploration-related payments),
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<PAGE> 8
(J) Bonuses paid as an inducement to enter the
employment of the Company, and
(K) Any amount paid pursuant to the Apache
Corporation 1996 Share Price Appreciation
Plan.
Compensation shall be measured over that portion of a Plan Year while the
Employee is a Covered Employee. Compensation shall include only amounts paid
to the Employee during the Plan Year, and shall not include any amounts accrued
by but not paid to the Employee during the Plan Year.
(d) Limit on Compensation. For purposes of calculating the
minimum contribution required in top-heavy years under subsection (a) and for
all purposes of subsection (c), the Compensation taken into account for the
Plan Year shall not exceed the dollar limit specified in Code section
401(a)(17) in effect for the Plan Year.
1.12 "Covered Employee" means any Employee of the Company, with the
following exceptions. A leased employee within the meaning of Code section
414(n)(2) shall not be a Covered Employee. A non-resident alien shall not be a
Covered Employee. An Employee included in a unit of Employees covered by a
collective bargaining agreement shall not be a Covered Employee unless the
collective bargaining agreement specifically provides for such Employee's
participation in the Plan. An Employee whose job is classified as "temporary"
shall be a Covered Employee only after he or she has worked for the Company and
Affiliated Entities for six consecutive months. An Employee shall not be a
Covered Employee while he or she is classified as an "intern," a "consultant,"
or an "independent contractor."
1.13 "Determination Date" means, with respect to each Plan Year, the last
day of the preceding Plan Year; provided however, that in the case of the first
Plan Year of the Plan, the Determination Date shall be the last day of the
first Plan Year.
1.14 "Disability" means a disability due to sickness or injury which
renders an Employee incapable of performing any services for the Company or an
Affiliated Entity for which the Employee is qualified by education, training,
or experience. Evidence of disability satisfactory to Apache shall be
required.
1.15 "Domestic Relations Order" means any judgment, decree, or order
(including approval of a property settlement agreement) issued by a court of
competent jurisdiction that relates to the provisions of child support,
alimony, or maintenance payments, or marital property rights to a Spouse,
former spouse, child, or other dependent of the Participant and is made
pursuant to a state domestic relations law (including a community property
law).
1.16 "Employee" means each individual who performs services for the Company
or an Affiliated Entity and whose wages are subject to withholding by the
Company or an Affiliated Entity. The term "Employee" shall include only
individuals currently performing services for the Company or an Affiliated
Entity, and shall exclude former Employees who are still being paid by the
Company or an Affiliated Entity (whether through the payroll system, through
overriding royalty payments, through exploration-related payments, or
otherwise). The term "Employee" shall also include leased employees within the
meaning of Code section 414(n)(2); however, if leased employees constitute 20%
or less of the Non-Highly Compensated Employees of the Company and any
Affiliated Entities, the term "Employee" shall not include any leased employee
covered by a qualified plan described in Code section 414(n)(5)(B) that is
maintained by the leased employee's employer.
1.17 "Employment Commencement Date" means the date on which an Employee
first performs an Hour of Service.
1.18 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations and rulings in effect thereunder from time to
time.
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<PAGE> 9
1.19 "Five-Percent Owner" means:
(a) With respect to a corporation, any individual who owns (either
directly or indirectly according to the rules of Code section 318) more than 5%
of the value of the outstanding stock of the corporation or stock processing
more than 5% of the total combined voting power of all stock of the
corporation.
(b) With respect to a non-corporate entity, any individual who
owns (either directly or indirectly according to rules similar to those of Code
section 318) more than 5% of the capital or profits interest in the entity.
An individual shall be a Five-Percent Owner for a particular year if such
individual is a Five-Percent Owner at any time during such year.
1.20 "Highly Compensated Employee" means, for each Plan Year:
(a) An Employee with Compensation of $80,000 (as adjusted by the
Secretary of the Treasury) or more during the immediately preceding Plan Year,
and
(b) An Employee who is a Five-Percent Owner during the current
Plan Year or who was a Five-Percent Owner during the immediately preceding Plan
Year.
1.21 "Hour of Service" means each hour for which an Employee is paid or
entitled to payment by the Company or an Affiliated Entity for the performance
of duties for the Company or an Affiliated Entity during the applicable
computation period. Hours of Service shall be credited to the Employee for the
computation period or periods in which the duties are performed, regardless of
when the Employee is paid for those duties.
1.22 "Key Employee" means an individual described in Code section 416(i)(1)
and the regulations promulgated thereunder.
1.23 "Lapse in Apache Employment" means the period commencing on the
Termination from Service Date and ending on the Reemployment Commencement Date.
A Participant shall incur a one-year Lapse in Apache Employment if the
Participant does not perform an Hour of Service in the 12-month period
beginning on any anniversary of his or her Termination from Service Date.
1.24 "Limitation Year" means the calendar year.
1.25 "Non-Highly Compensated Employee" means an Employee who is not a
Highly Compensated Employee.
1.26 "Non-Key Employee" means an Employee who is not a Key Employee.
1.27 "Normal Retirement Age" means age 65.
1.28 "Participant" means any individual with an Account balance under the
Plan except beneficiaries and Alternate Payees. The term "Participant" shall
also include any individual who has accrued a benefit pursuant to subsection
3.1(a), but who does not yet have an Account balance.
1.29 "Period of Service" means the following.
(a) General Rule. A period commencing on an Employee's Employment
Commencement Date or Reemployment Commencement Date, whichever is applicable,
and ending on his or her Termination from Service Date. A Period of Service
shall also include the period between an Employee's Termination from Service
Date and his or her Reemployment Commencement Date if the Employee does not
incur a one-year Lapse in Apache Employment between such dates; however, the
period between the first and second anniversaries of an Employee's absence from
work because of parental leave (as explained in paragraph 1.37(b)(i)) shall not
be included in the Employee's Period of Service. Periods of Service shall not
include any period following a Participant's
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<PAGE> 10
Termination from Service Date solely because of a severance payment of payments
made to an individual with respect to his or her termination of employment.
(b) Service Before January 1, 1997. A Period of Service shall
include the Employee's service with Apache and its Affiliated Entities before
January 1, 1997.
(c) Service with Acquired Businesses. A Period of Service shall
also include the Employee's service with the following companies. For purposes
of this subsection, a company's "controlled group" means the company and any
business treated as a single employer with such company pursuant to Code
sections 414(b), 414(c), 414(m), or 414(o).
(i) Amoco Production Company's controlled group, for an
Employee who was employed by the Amoco Production Company's controlled
group and who became an Employee of the Company pursuant to the
provisions of that certain Stock Purchase Agreement effective June 30,
1991, between Amoco Production Company, Apache, and others.
(ii) Hadson Energy Resources Corporation's controlled
group, for an Employee who was a common-law employee of Hadson Energy
Resources Corporation or Hadson Energy Limited on January 1, 1994
(which companies became part of Apache's controlled group on November
12, 1993).
(iii) Crystal Oil Company's controlled group, for an
Employee who was employed by the Crystal Oil Company's controlled
group at the time he or she was hired by Apache, provided that he or
she was hired by Apache within a week of December 30, 1994.
(iv) Texaco Exploration & Production, Inc.'s controlled
group, for an Employee who was employed by the Texaco Exploration &
Production, Inc.'s controlled group at the time he or she was hired by
Apache, provided that he or she was hired by Apache in late February
or early March of 1995.
(v) The Phoenix Resource Companies, Inc.'s controlled
group, for an Employee who was employed by The Phoenix Resource
Companies, Inc.'s controlled group at the time he or she was hired by
Apache, provided that he or she was hired by the Company on May 20,
1996.
1.30 "Plan Year" means the 12-month period on which the records of the Plan
are kept, which shall be the calendar year.
1.31 "Qualified Domestic Relations Order ('QDRO')" means a Domestic
Relations Order that creates or recognizes the existence of an Alternate
Payee's right to, or assigns to an Alternate Payee the right to, receive all or
a portion of the benefits payable with respect to a Participant under the Plan
and with respect to which the requirements of Code section 414(p) and ERISA
section 206(d)(3) are met.
1.32 "Qualified Joint and Survivor Annuity ('QJSA')" means:
(a) For a married Participant, a QJSA is an annuity that will
provide equal monthly payments to the Participant for life, and if the
Participant dies before his or her Spouse, the surviving Spouse shall receive
monthly payments for his or her life, with each monthly payment equal to 50% of
the monthly payment that the Participant received before his or her death.
(b) For an unmarried Participant, a QJSA is an annuity that will
provide equal monthly payments to the Participant for life.
1.33 "Qualified Pre-Retirement Survivor Annuity ('QPSA')" means an annuity
that will provide equal monthly payments to the surviving Spouse of a
Participant, for the life of the surviving Spouse.
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<PAGE> 11
1.34 "Reemployment Commencement Date" means the first date following a
Lapse in Apache Employment on which the Employee performs an Hour of Service.
1.35 "Required Beginning Date" means:
(a) Excepted as provided in subsections (b) and (c), Required
Beginning Date means April 1 of the calendar year following the later of (i)
the calendar year in which the Participant attains age 70-1/2, or (ii) the
calendar year in which the Participant terminates employment with Apache and
all Affiliated Entities.
(b) For a Participant who is both an Employee and a Five-Percent
Owner of Apache or an Affiliated Entity, the term "Required Beginning Date"
means April 1 of the calendar year following the calendar year in which the
Five- Percent Owner attains age 70-1/2. If an Employee older than 70-1/2
becomes a Five-Percent Owner, his or her Required Beginning Date shall be April
1 of the calendar year following the calendar year in which he or she becomes a
Five- Percent Owner.
(c) If a Participant is rehired after his or her Required
Beginning Date, and he or she is not a Five- Percent Owner, he or she shall be
treated upon rehire as if he or she has not yet had a Required Beginning Date,
with the result that his or her minimum required distributions under subsection
6.4(c) will be zero until his or her new Required Beginning Date. His or her
new Required Beginning Date shall be determined pursuant to subsections (a) and
(b).
1.36 "Spouse" means the individual of the opposite sex to whom a
Participant is lawfully married according to the laws of the state of the
Participant's domicile.
1.37 "Termination from Service Date" means the earlier of the following
dates:
(a) The last day an Employee performs services for the Company or
an Affiliated Entity if the Employee quits (except as provided in paragraph
(b)(iii)), is discharged, retires, or dies; or
(b) The first anniversary of the day a former Employee is absent
from the Company or Affiliated Entity for any reason other than resignation,
discharge, retirement, or death (such as vacation, holiday, sickness,
disability, leave of absence, or temporary lay-off), with the following
exceptions:
(i) If the former Employee is absent from the Company or
Affiliated Entity because of parental leave (which includes only the
pregnancy of the former Employee, the birth of the former Employee's
child, the placement of a child with the former Employee in connection
with adoption of such child by the former Employee, or the caring for
such child immediately following birth or placement) on the first
anniversary of the day the former Employee was first absent, the
Termination from Service Date shall be the second anniversary of the
day he or she was first absent.
(ii) If the former Employee is absent from the Company or
Affiliated Entity for more than one year because of an approved leave
of absence (either with or without pay) for any reason (including, but
not limited to, jury duty) and the former Employee returns to work at
or prior to the expiration of his or her leave of absence, no
Termination from Service Date shall occur.
(iii) If a former Employee is absent from the Company or an
Affiliated Entity because of a Disability incurred while employed by
the Company or an Affiliated Entity, a Termination from Service Date
shall not occur until the later of the first anniversary of his or her
absence or the date he or she recovers from the Disability, regardless
of whether the former Employee quits during the Disability.
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<PAGE> 12
1.38 "Valuation Date" means the last day of each Plan Year and any other
dates as specified in section 4.2 as of which the assets of the Trust Fund are
valued at fair market value and as of which the increase or decrease in the net
worth of the Trust Fund is allocated among the Participants' Accounts.
1.39 "Year of Service" means all of a Participant's Periods of Service,
expressed in years, and rounded down to the next whole number.
ARTICLE II
PARTICIPATION
2.1 Participation.
Each Covered Employee shall be eligible to participate in the Plan on
the later of January 1, 1997, or the day the Employee first becomes a Covered
Employee. A Covered Employee shall cease to accrue benefits in the Plan on the
day he or she ceases to be a Covered Employee.
2.2 Reemployment.
A rehired Employee shall become eligible to participate in the Plan as
of the later of his or her Reemployment Commencement Date or the date he or she
again becomes a Covered Employee.
2.3 Enrollment Procedure.
Notwithstanding sections 2.1 and 2.2, a Covered Employee shall not be
eligible to participate in the Plan until after completing the enrollment
procedures specified by the Committee. Such enrollment procedures may, for
example, require the Covered Employee to complete and sign an enrollment form
or to complete a voice-response telephone enrollment. The Covered Employee
shall provide the initial investment direction, the address and date of birth
of the Employee, and the name, address, and date of birth of each beneficiary
of the Employee, and any other information requested by the Committee. The
Committee may require that the enrollment procedure be completed a certain
number of days prior to the date any Company Contribution is allocated to the
Covered Employee's Account.
ARTICLE III
CONTRIBUTIONS
3.1 Company Contributions.
(a) Company Mandatory Contributions. For each Plan Year, the
Company shall contribute to the Trust Fund such amount of Company Mandatory
Contributions as are necessary to fund the allocations described in this
subsection. The Company may elect to treat any portion of forfeitures
occurring during the Plan Year as Company Mandatory Contributions, pursuant to
section 5.5. Each "eligible Participant" shall receive an allocation of
Company Mandatory Contributions equal to 6% of the eligible Participant's
Compensation. For purposes of this subsection, an "eligible Participant" is a
Participant who received credit for one Hour of Service as a Covered Employee
during the Plan Year and who is employed by the Company or an Affiliated Entity
on the last day of the Plan Year.
(b) Miscellaneous Contributions.
(i) The Company may make additional contributions to the
Plan to restore amounts forfeited from the Accounts of certain rehired
Participants, pursuant to section 5.4. This additional contribution
shall be required only when the forfeitures occurring during the Plan
Year are insufficient to restore such forfeited amounts, as described
in section 5.5.
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(ii) The Company may make additional contributions to the
Plan to satisfy the minimum contribution required by section 11.4.
The Company may elect to use any portion of forfeitures occurring
during the Plan Year for this purpose, pursuant to section 5.5.
(iii) The Company may make additional contributions to the
Plan to restore the forfeited benefit of any missing individual,
pursuant to section 12.12. This additional contribution shall be
required only when the forfeitures occurring during the Plan Year are
insufficient to restore such forfeited amounts, as described in
section 5.5.
(iv) The Company may make additional contributions to the
Plan to provide make-up contributions for returning servicemen,
pursuant to section 13.4.
(c) Contributions Contingent on Deductibility. The Company
Contributions for a Plan Year (excluding forfeitures and contributions pursuant
to paragraph 3.1(b)(iv)) shall not exceed the amount allowable as a deduction
for Apache's taxable year ending with or within the Plan Year pursuant to Code
section 404. Company Contributions (excluding contributions pursuant to
paragraph 3.1(b)(iv) shall be paid to the Trustee no later than the due date
(including any extensions) for filing the Company's federal income tax return
for such year. Company Contributions shall be made without regard to current
or accumulated earnings and profits. The appropriate contribution of the
Company to the Trust Fund shall be paid by the Company in the form of cash.
3.2 Participant Contributions.
Participants may not contribute to this Plan. The Plan does not
accept rollovers or direct transfers.
3.3 Return of Contributions.
(a) Upon the request of the Company, the Trustee shall return to
the Company, any Company Contribution made under a mistake of fact. The
Trustee may not return any such contribution later than one year after the
Trustee received the contribution. The amount returned shall not exceed the
excess of the amount contributed (reduced to reflect any decrease in the net
worth of the appropriate Accounts attributable thereto) over the amount that
would have been contributed without the mistake of fact. Appropriate
reductions shall be made in the Accounts of Participants to reflect the return
of any contributions previously credited to such Accounts.
(b) Upon the request of the Company, the Trustee shall return to
the Company, any Company Contribution that is not deductible under Code section
404. All contributions under the Plan are expressly conditioned upon their
deductibility for federal income tax purposes. The amount that shall be
returned shall be the excess of the amount contributed (reduced to reflect any
decrease in the net worth of the appropriate Accounts attributable thereto)
over the amount that would have been contributed if there had not been a
mistake in determining the deduction. Appropriate reductions shall be made in
the Accounts of Participants to reflect the return of any contributions
previously credited to such Accounts. Any contribution conditioned on its
deductibility shall be returned only if it is returned within one year after it
is disallowed as a deduction.
(c) A contribution shall be returned under subsection (a) or (b)
only to the extent that its return will not reduce the Account of a Participant
to an amount less than the balance that would have been credited to the
Participant's Account had the contribution not been made.
(d) All Company Contributions are conditioned on the Plan's
initial qualification under Code section 401. The Trustee shall return to the
Company all Company Contributions to the Plan if (i) the Company files the Plan
with the IRS by the end of the time period, including extensions, for filing
Apache's federal income tax return for the year in which the Plan was adopted
(or the Company files the Plan by such later date as the Secretary of the
Treasury may prescribe), and (ii) the Plan receives an adverse determination
with respect to its initial qualification. The Trustee shall return the
Company Contributions within one year of the date of the adverse determination.
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<PAGE> 14
3.4 Limitation on Annual Additions.
(a) Limit. The Annual Additions to a Participant's Account in
this Plan and his or her accounts in any other qualified defined contribution
plan maintained by the Company or an Affiliated Entity for any Limitation Year
shall not exceed in the aggregate the lesser of (i) 25% of such Employee's
Compensation or (ii) $30,000 (as adjusted by the Secretary of the Treasury).
(b) Corrective Mechanism.
(i) Reduction in Annual Additions. A Participant's
Annual Additions shall be reduced, to the extent necessary to satisfy
the foregoing limits, if the Annual Additions arose as a result of a
reasonable error in estimating Compensation, as a result of the
allocation of forfeitures, or as a result of other facts and
circumstances as provided in the regulations under Code section 415.
(ii) Order of Reduction, Multiple Plans. Apache also
maintains the Apache Corporation 401(k) Savings Plan, a profit sharing
plan containing a cash or deferred arrangement. Apache may own more
than 50% of Producers Energy Marketing LLC ("ProEnergy"). When
Apache's ownership of ProEnergy is above 50%, the annual additions to
any qualified defined contribution plan maintained by ProEnergy will
be considered Annual Additions subject to the limitation in subsection
(a). The Participant's Annual Additions shall be reduced, to the
extent necessary, in the following order. First, to the extent that
the Annual Additions in a single plan exceed the limits of subsection
(a), the Annual Additions in that plan shall be reduced, in the order
specified in that plan, to the extent necessary to satisfy the limits
of subsection (a). Then, if the Participant has Annual Additions in
more than one plan and in the aggregate they exceed the limits of
subsection (a), the Annual Additions will be reduced in the following
order: the Annual Additions to the Apache Corporation 401(k) Savings
Plan, in the order specified in that plan; then the Annual Additions
to ProEnergy's plans, in the order specified in those plans; then the
Annual Additions to this Plan.
(iii) Disposition of Excess Annual Additions. Any
reduction of Company Contributions shall be placed in a suspense
account in the Trust Fund and used to reduce future Company
Contributions to the Plan. The following rules shall apply to such
suspense account: (A) no further Company Contributions may be made if
the allocation thereof would be precluded by Code section 415; (B) any
increase or decrease in the net value of the Trust Fund attributable
to the suspense account shall not be allocated to the suspense
account, but shall be allocated to the Accounts; and (C) all amounts
held in the suspense account shall be allocated as of each succeeding
allocation date on which forfeitures may be allocated pursuant to
section 5.5 (and may be allocated more frequently if the Committee so
directs), until the suspense account is exhausted.
ARTICLE IV
INTERESTS IN THE TRUST FUND
4.1 Participants' Accounts.
The Committee shall establish and maintain a separate Account in the
name of each Participant, but the maintenance of such Accounts shall not
require any segregation of assets of the Trust Fund. Each Account shall
contain the Company Contributions allocated to the Participant and the increase
or decrease in the net worth of the Trust Fund attributable to such
contributions.
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<PAGE> 15
4.2 Valuation of Trust Fund.
(a) General. The Trustee shall value the assets of the Trust Fund
at least annually as of the last day of the Plan Year, and as of any other
dates determined by the Committee, at their current fair market value and
determine the net worth of the Trust Fund. In addition, the Committee may
direct the Trustee to have a special valuation of the assets of the Trust Fund
when the Committee determines, in its sole discretion, that such valuation is
necessary or appropriate or in the event of unusual market fluctuations of such
assets. Such special valuation shall not include any contributions made by
Participants since the preceding Valuation Date, any Company Contributions for
the current Plan Year, or any unallocated forfeitures. The Trustee shall
allocate the expenses of the Trust Fund occurring since the preceding Valuation
Date, pursuant to section 8.2, and then determine the increase or decrease in
the net worth of the Trust Fund that has occurred since the preceding Valuation
Date. The Trustee shall determine the share of the increase of decrease that
is attributable to the non-separately accounted for portion of the Trust Fund
and to any amount separately accounted for, as described in subsections (b) and
(c).
(b) Mandatory Separate Accounting. The Trustee shall separately
account for (i) any individually directed investments permitted under section
8.3, and (ii) amounts subject to a Domestic Relations Order, to provide a more
equitable allocation of any increase or decrease in the net worth of the
Accounts.
(c) Permissible Separate Accounting. The Trustee may separately
account for the following amounts to provide a more equitable allocation of any
increase or decrease in the net worth of the Trust Fund:
(i) the distributable amount of a Participant, including
any amount distributable to an Alternate Payee or to a beneficiary of
a deceased Participant; and
(ii) Company Contributions made since the preceding
Valuation Date;
(iii) Any other amounts for which separate accounting will
provide a more equitable allocation of the increase or decrease in the
net worth of the Trust Fund.
4.3 Allocation of Increase or Decrease in Net Worth.
(a) The Committee shall, as of each Valuation Date, allocate the
increase or decrease in the net worth of the Trust Fund that has occurred since
the preceding Valuation Date between the non-separately accounted for portion
of the Trust Fund and the amounts separately accounted for that are identified
in subsections 4.2(b) and 4.2(c).
(b) The increase or decrease attributable to the non-separately
accounted for portion of the Trust Fund shall be allocated among the
appropriate Accounts in the ratio that the dollar value of each such Account
bore to the aggregate dollar value of all such Accounts on the preceding
Valuation Date after all allocations and credits made as of such date had been
completed.
(c) After the allocation in subsection (b) is completed, the
Committee shall allocate any amounts separately accounted for (including the
increase or decrease in the net worth of the Trust Fund attributable to such
amounts) to the appropriate Account.
ARTICLE V
AMOUNT OF BENEFITS
5.1 Vesting Schedule.
(a) General Rule. Unless subsections (b) or (c) provide for
faster vesting, a Participant's interest in his Account shall become vested in
accordance with the following schedule:
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<PAGE> 16
<TABLE>
<CAPTION>
Completed Years of Service Vested Percentage
-------------------------- -----------------
<S> <C>
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 or more 100%
</TABLE>
(b) Full Vesting in Certain Circumstances. A Participant shall
have a fully vested and nonforfeitable interest in his or her Account (i) upon
his or her Normal Retirement Age if he or she is an Employee on such date, (ii)
upon his or her death while an Employee or while on an approved leave of
absence from the Company or an Affiliated Entity, or (iii) upon his or her
termination of employment with the Company or an Affiliated Entity because of a
Disability.
(c) Change of Control. The Accounts of all Participants shall be
fully vested as of the effective date of a "change in control." For purposes
of this subsection, a "change of control" shall mean the event occurring when a
person, partnership, corporation, or other legal entity, together with all
persons, partnerships, corporations, and other legal entities acting in concert
with such person, partnership, corporation, or other legal entity, or any or
all of them, acquires more than 20% of Apache's outstanding voting securities;
provided that a change of control shall not occur if, prior to the acquisition
of more than 20% of Apache's voting securities, Apache's Board of Directors by
majority vote designates the person, partnership, corporation, or other legal
entity as an approved acquiror and resolves that a change of control will not
occur for purposes of this Plan.
5.2 Forfeitures.
(a) Notwithstanding the vesting rules of section 5.1, Annual
Additions to a Participant's Accounts and any increase or decrease in the net
worth of the Participant's Accounts attributable to such Annual Additions may
be reduced to satisfy the limits described in section 3.4. Any reduction shall
be allocated as specified in section 3.4.
(b) Notwithstanding the vesting rules of section 5.1, a missing
individual's vested Accounts may be forfeited as of the last day of any Plan
Year, as provided in section 12.12. Any such forfeiture shall be allocated as
specified in section 5.5.
(c) A Participant's non-vested interest in his or her Account
shall be forfeited at the end of the Plan Year in which the Participant
terminates employment. Any such forfeiture shall be allocated as specified in
section 5.5.
5.3 Restoration of Forfeitures.
(a) The forfeiture of a missing individual's Account, as described
in section 12.12, shall be restored to such individual if the individual makes
a claim for such amount.
(b) If a Participant is rehired before incurring five-consecutive
one-year Lapses in Apache Employment, and the Participant has received a
distribution of his or her entire vested interest in his or her Account (with
the result that the Participant forfeited his or her non-vested interest in
such Account), then the exact amount of the forfeiture shall be restored to the
Participant's Account. All the rights, benefits, and features available to the
Participant when the forfeiture occurred shall be available with respect to the
restored forfeiture.
(c) If a Participant who is rehired before incurring five
consecutive one-year Lapses in Apache Employment has his or her Accounts
restored as above provided, and again terminates employment prior to becoming
fully vested in his or her Account, the vested portion of his or her Account
shall be determined by applying the vested percentage determined under section
5.1 to the sum of (A) and (B), then subtracting (B) from
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<PAGE> 17
such sum, where: (A) is the value of the Participant's Account as of the
Valuation Date immediately following his or her most recent termination of
employment; and (B) is the amount previously distributed to the Participant on
account of the prior termination of employment.
(d) If a Participant is rehired after having incurred five
consecutive one-year Lapses in Apache Employment, then no amount forfeited from
his or her Account shall be restored to that Account.
5.4 Method of Forfeiture Restoration.
Forfeitures that are restored pursuant to section 5.3 shall be
accomplished by an allocation of the forfeitures occurring during the Plan
Year, pursuant to section 5.5, or if such forfeitures are insufficient, by a
special Company Contribution, pursuant to paragraph 3.1(b)(i).
5.5 Allocation of Forfeitures.
The forfeitures that occur during a Plan Year shall be allocated first
to restore the forfeited portions of the Accounts of reemployed Participants
described in section 5.3. Any remaining forfeitures shall be used to pay those
expenses of the Plan that are properly payable from the Trust Fund or to reduce
any type(s) of Company Contributions for the Plan Year in which the forfeiture
occurred. Apache shall decide, on behalf of each employer, the amount and
type(s) of Company Contributions or Plan expenses the forfeitures shall reduce.
5.6 Credits for Pre-Lapse Service.
(a) Company Contributions Made After Reemployment.
(i) A Participant who is vested in any portion of his or
her Account, who incurs a one- year Lapse in Apache Employment, and
who is thereafter reemployed, shall receive credit for vesting
purposes for Years of Service prior to a one-year Lapse in Apache
Employment upon completing a Year of Service after such one-year Lapse
in Apache Employment.
(ii) A Participant who is not vested in any portion of his
or her Account, who incurs a one-year Lapse in Apache Employment, and
who is thereafter reemployed, shall receive credit for vesting
purposes for Years of Service prior to a one-year Lapse in Apache
Employment only if (A) the Participant completes a Year of Service
after such Lapse in Apache Employment, and (B) the number of
consecutive one-year Lapses in Apache Employment is less than the
greater of five or the aggregate number of Years of Service before
such lapse.
(b) Company Contributions Made Prior to Termination. Years of
Service after a Participant has incurred five consecutive one-year Lapses in
Apache Employment shall be disregarded in determining the vested percentage in
a Participant's Account at the time of the lapse.
5.7 Transfers - Portability.
If any other employer adopts this or a similar money purchase pension
plan and enters into a reciprocal agreement with the Company that provides that
(a) the transfer of a Participant from such employer to the Company (or vice
versa) shall not be deemed a termination of employment for purposes of the
plans, and (b) service with either or both employers shall be credited for
purposes of vesting under both plans, then the transferred Participant's
Account shall be unaffected by the transfer, except, if deemed advisable by the
Committee, it may be transferred to the trustee of the other plan.
5.8 Reemployment - Separate Account.
If a Participant who is not fully vested terminates employment and
then returns to employment with the Company or an Affiliated Entity before
receiving the entire vested portion of his or her Account, the vested portion
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that has not been distributed shall be held in a separate Account for such
Participant. The Participant shall be fully vested in such Account and no
further Company Contributions shall be allocated to that Account. In all other
respects, such Account shall be treated as a regular Account. A new Account
shall be established to which all appropriate Company Contributions made after
the date of reemployment shall be allocated. If a Participant becomes fully
vested in two or more Accounts, all such amounts shall be merged into one
Account.
ARTICLE VI
DISTRIBUTION OF BENEFITS
6.1 Beneficiaries.
(a) Designating Beneficiaries. Each Account Owner shall file with
the Committee a designation of the beneficiaries and contingent beneficiaries
to whom the distributable amount (determined pursuant to section 6.2) shall be
paid in the event of the Account Owner's death. In the absence of an effective
beneficiary designation as to any portion of the distributable amount after a
Participant dies, such amount shall be paid to the Participant's surviving
Spouse, or, if none, to his or her estate. In the absence of an effective
beneficiary designation as to any portion of the distributable amount after any
non-Participant Account Owner dies, such amount shall be paid to the Account
Owner's estate. A beneficiary designation may be changed by the Account Owner
at any time and without the consent of any previously designated beneficiary.
(b) Special Rule for Married Participants. If the Account Owner
is a married Participant, his or her Spouse shall be the sole beneficiary
unless the Spouse has consented to the designation of a different beneficiary.
To be effective, the Spouse's consent must be in writing, witnessed by a notary
public, and filed with the Committee. The Spouse must also consent to waive
the QPSA with respect to the benefits payable to another beneficiary, as
described in subsection (c). The Spouse cannot revoke his or her consent to
waive the QPSA. Any spousal consent shall be effective only as to the Spouse
who signed the consent.
(c) Waiver of QPSA. In order for the QPSA to be waived, the
Participant must elect to waive the QPSA (which the Participant may do by
naming a beneficiary other than his or her Spouse) and the Spouse must consent
to the Participant's election. The Committee shall provide the Participant
with a written explanation that describes the terms and conditions of the QPSA,
the Participant's right to choose another beneficiary, the rights of the
Participant's Spouse to insist upon a QPSA, and the Participant's right to
revoke his or her election. The Participant may revoke the QPSA waiver at any
time. The written explanation must be provided within the following time
limits. If the Participant terminates employment prior to age 35, the
explanation must be provided within the period beginning one year before and
ending one year after the termination of employment. If the Participant
terminates employment on or after age 35, the explanation must be provided
within the one of the following periods (whichever period ends last): (i) the
period beginning on the first day of the Plan Year in which the Participant
attains age 32 and ending on the last day of the Plan Year in which the
Participant attains age 34; (ii) the period beginning one year before, and
ending one year after, the Participant first becomes eligible to participate in
the Plan; and (iii) the period beginning one year before, and ending one year
after, a married Participant is fully or partially vested in his or her Account
(which will normally occur either when the Participant gets married or when the
Participant completes one Year of Service). If the Participant elects to waive
the QPSA, with the consent of his or her Spouse, before the first day of the
Plan Year in which the Participant attains age 35, the waiver shall become
invalid on the first day of the Plan Year in which the Participant attains age
35.
(d) Special Rule for Divorces. If a Participant has designated
his or her Spouse as his or her beneficiary, and the Participant and that
Spouse subsequently divorce, then the beneficiary designation shall be void and
of no effect on the day such divorce is final.
6.2 Distributable Amount.
The distributable amount of a Participant's Account is the vested
portion of the Account, reduced by any amount that is payable to an Alternate
Payee pursuant to section 12.9. Furthermore, the Committee shall temporarily
suspend or limit distributions (by reducing the distributable amount), as
explained in subsections
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12.9(e) and 12.9(h), (a) when the Committee is informed that a QDRO affecting
the Participant's Accounts is in process or may be in process, or (b) while the
Committee believes that the Plan may have a cause of action against the
Participant.
6.3 Manner of Distribution.
(a) Participants. This subsection shall apply to distributions to
Participants.
(i) Form of Distribution. The distributable amount shall
be paid in the form of either a single payment or a QJSA, except that
a distribution of a small account under subsection 6.4(d) shall be
paid in the form of a single payment. The distribution to a
Participant shall be in the form of a QJSA unless the Participant
elects a single payment and, if the Participant is married, his or her
Spouse consents to the single payment.
(ii) Consent of Participant and Spouse.
(A) General. Except as provided in subparagraph
(B), a distribution shall not be made unless the Participant
consents to the timing of the distribution. If the
Participant is married and chooses a single payment, the
Participant's Spouse must consent to both the form of payment
and the time of the payment, except as provided in
subparagraph (B).
(B) Exceptions to General Rule. The consent of
the Participant is not required, nor is the consent of a
married Participant's Spouse required, for distributions of
small amounts pursuant to subsection 6.4(d) or for the
distribution of an annuity upon the Participant's Required
Beginning Date, as described in subsection 6.4(c).
(iii) Method of Spouse's Consent. The consent of a
Participant's Spouse must be in writing. The consent is not valid
unless the Committee has provided the written explanation described in
paragraph (iv). The Spouse must acknowledge the affect of his or her
consent. The Spouse's consent must be witnessed by a Committee member
or by a notary public.
(iv) Distribution Procedure. The Committee shall provide
the Participant with a written explanation that contains the
information required by the Code and Treasury Regulations. The
information shall include, at a minimum, the terms and conditions of
the QJSA, the Participant's right to elect a single payment in lieu of
a QJSA, the effect of the Participant electing a single payment in
lieu of a QJSA, the right of the Participant's Spouse to insist upon a
QJSA, and the Participant's right to revoke his or her distribution
election. After the Participant receives this information, the
Participant may elect in writing at any time to receive a single
payment or a QJSA. The Committee may process the Participant's
distribution at any time between 8 and 90 days after the Committee
provides the information. The Participant may revoke his or her
election at any time before his or her distribution is processed. If
the distribution is in the form of a QJSA, the first payment shall be
made as soon as administratively practicable.
(b) Beneficiaries. The distributable amount that is left to a
beneficiary shall be paid in the form of a single payment, unless the
beneficiary is the Participant's Spouse and the Participant's Account balance
is greater than $3,500 ($5,000 effective January 1, 1998), in which case the
distributable amount shall be paid, at the election of the surviving Spouse, in
the form of either a single payment or a QPSA.
(c) Alternate Payees. If the Alternate Payee is not the
Participant's Spouse or former spouse, the amount assigned to the Alternate
Payee shall be paid in the form of a single payment. If the Alternate Payee is
the Participant's Spouse or former spouse, then unless the next sentence
applies, the amount assigned to an Alternate
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Payee shall be paid, at the election of the Alternate Payee or as specified in
the QDRO, in the form of either a single payment or an annuity for the life of
the Alternate Payee. If the amount assigned to the Alternate Payee is $3,500
($5,000 effective January 1, 1998) or less (calculated in accordance with the
applicable Treasury regulations), then the Alternate Payee shall receive a
single sum distribution.
(d) Annuities. If the distribution is to be in the form of an
annuity, the Plan shall purchase an annuity contract that satisfies the
requirements specified in the Plan and in Code sections 401(a)(11) and 417, and
shall distribute such contract to the distributee. The payments under an
annuity shall begin as soon as administratively practicable after the annuity
contract is distributed. The payments shall remain constant for the duration
of the annuity, except for a QJSA where the Spouse outlives the Participant, in
which case the payments are halved when the Participant dies.
6.4 Time of Distribution.
(a) Earliest Date of Distribution. Unless an earlier distribution
is permitted by subsection (b) or required by subsection (c), the earliest date
that a Participant may elect to receive a distribution is as follows.
(i) Termination of Employment or Disability. A
Participant may elect to receive a distribution as soon as practicable
after he or she terminates employment or incurs a Disability.
(ii) During Employment. A Participant may obtain a
distribution while an Employee only if he or she has attained Normal
Retirement Age. After Normal Retirement Age, and while an Employee,
the Participant may withdraw all or any portion of his or her Account.
The minimum withdrawal shall be $1,000 or, if less, the balance of the
Account. Only two withdrawals are permitted each Plan Year under this
paragraph. After an Employee's Required Beginning Date, subsection
(c) shall apply instead of this paragraph.
(b) Alternate Earliest Date of Distribution. Notwithstanding
subsection (a), unless a Participant elects otherwise, his or her distribution
shall commence no later than 60 days after the close of the latest of: (i) the
Plan Year in which the Participant attains Normal Retirement Age; (ii) the Plan
Year in which occurs the tenth anniversary of the year in which the Participant
commenced participation in the Plan; and (iii) the Plan Year in which the
Participant terminates employment with the Company and Affiliated Entities. If
a Participant does not affirmatively elect a distribution, he or she shall be
deemed to have elected to defer the distribution to a date later than that
specified in the preceding sentence.
(c) Latest Date of Distribution. The entire distributable amount
shall be distributed (i) in a single payment not later than the Required
Beginning Date, or (ii) in the form of an annuity with payments beginning no
later than the Required Beginning Date. The terms of the annuity shall comply
with the applicable Treasury Regulations. The payment will be in the form of
an annuity unless the Participant elects a single payment and, if the
Participant is married, his or her Spouse consents to the single payment.
(d) Small Amounts. If the aggregate value of the nonforfeitable
portion of a Participant's Account is $3,500 ($5,000 effective January 1, 1998)
or less (calculated in accordance with the applicable Treasury regulations)
upon the Participant's termination of employment, then the Participant shall
receive a single sum distribution as soon as practicable in the calendar year
after the calendar year in which the Participant terminated employment.
(e) Distribution Upon Participant's Death. If the aggregate cash
value of the nonforfeitable portion of the Participant's Account is $3,500
($5,000 effective January 1, 1998) or less (calculated in accordance with
applicable Treasury regulations), each beneficiary shall receive a single
payment as soon as administratively practicable after the Participant's death.
Otherwise, the beneficiary may elect to have the distributable amount
distributed at any time before the end of the calendar year containing the
fifth anniversary of the Participant's death, unless the beneficiary is the
Participant's Spouse, in which case the surviving Spouse may elect to defer
distribution until the end of the calendar year in which the Participant would
have attained age 70-1/2, or, if later,
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<PAGE> 21
the end of the calendar year containing the first anniversary of the
Participant's death. If the surviving Spouse makes such an election but dies
before receiving the entire distributable amount, then the remaining amount
shall be paid to the beneficiary of the surviving Spouse in a single payment as
soon as administratively practicable after the surviving Spouse's death.
(f) Alternate Payee. Distributions to Alternate Payees and their
beneficiaries shall be made as specified in section 12.9.
6.5 Direct Rollover Election.
(a) General Rule. A Participant, an Alternate Payee who is the
Spouse or former Spouse of the Participant, or a surviving Spouse of a deceased
Participant (collectively, the "distributee") may direct the Trustee to pay all
or any portion of his or her "eligible rollover distribution" to an "eligible
retirement plan" in a "direct rollover." Within a reasonable period of time
before an eligible rollover distribution, the Committee shall inform the
distributee of this direct rollover option, the appropriate withholding rules,
other rollover options, the options regarding income taxation, and any other
information required by Code section 402(f).
(b) Definition of Eligible Rollover Distribution. For purposes of
this section only, an "eligible rollover distribution" is any distribution or
in-service withdrawal other than (i) distributions required under Code section
401(a)(9), (ii) distributions of amounts that have already been subject to
federal income tax (such as defaulted loans or after-tax voluntary
contributions), (iii) installment payments in a series of substantially equal
payments made at least annually and (A) made over a specified period of ten or
more years, (B) made for the life or life expectancy of the distributee, or (C)
made for the joint life or joint life expectancy of the distributee and his or
her designated beneficiary, (iv) a distribution to satisfy the limits of Code
section 415 or 402(g), or (v) any other actual or deemed distribution specified
in the regulations issued under Code section 402(c).
(c) Definition of Eligible Retirement Plan. For purposes of this
section only, (i) for a Participant or an Alternate Payee who is the Spouse or
former Spouse of the Participant, an "eligible retirement plan" is an
individual retirement account or annuity described in Code section 408(a) or
408(b), an annuity plan described in Code section 403(a), or the qualified
trust of a defined contribution plan that accepts eligible rollover
distributions, and (ii) for a surviving Spouse of a deceased Participant, an
"eligible retirement plan" is an individual retirement account or annuity.
(d) Definition of Direct Rollover. For purposes of this section
only, a "direct rollover" is a payment by the Trustee to the eligible
retirement plan specified by the distributee.
ARTICLE VII
ALLOCATION OF RESPONSIBILITIES - NAMED FIDUCIARIES
7.1 No Joint Fiduciary Responsibilities.
The Trustee(s) and the Committee shall be the named fiduciaries under
the Plan and Trust agreement and shall be the only named fiduciaries
thereunder. The fiduciaries shall have only the responsibilities specifically
allocated to them herein or in the Trust agreement. Such allocations are
intended to be mutually exclusive and there shall be no sharing of fiduciary
responsibilities. Whenever one named fiduciary is required by the Plan or
Trust agreement to follow the directions of another named fiduciary, the two
named fiduciaries shall not be deemed to have been assigned a shared
responsibility, but the responsibility of the named fiduciary giving the
directions shall be deemed his or her sole responsibility, and the
responsibility of the named fiduciary receiving those directions shall be to
follow them insofar as the instructions are on their face proper under
applicable law.
7.2 The Company.
The Company shall be responsible for: (a) making Company
Contributions; (b) certifying to the Trustee the names and specimen signatures
of the members of the Committee acting from time to time; (c) keeping
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accurate books and records with respect to its Employees and the appropriate
components of each Employee's Compensation and furnishing such data to the
Committee; (d) selecting agents and fiduciaries to operate and administer the
Plan and Trust; (e) appointing an investment manager if it determines that one
should be appointed; and (f) reviewing periodically the performance of such
agents, managers, and fiduciaries.
7.3 The Trustee.
The Trustee shall be responsible for: (a) the investment of the Trust
Fund to the extent and in the manner provided in the Trust agreement; (b) the
custody and preservation of Trust assets delivered to it; and (c) the payment
of such amounts from the Trust Fund as the Committee shall direct.
7.4 The Committee - Plan Administrator.
The Board of Directors of Apache (the "Board") shall appoint an
administrative Committee consisting of no fewer than three individuals who may
be, but need not be, Participants, officers, directors, or Employees of the
Company. If the Board does not appoint a Committee, Apache shall act as the
Committee under the Plan. The members of the Committee shall hold office at
the pleasure of the Board and shall service without compensation. The
Committee shall be the "Plan administrator" as defined in section 3(16)(A) of
ERISA. It shall be responsible for establishing and implementing a funding
policy consistent with the objectives of the Plan and with the requirements of
ERISA. This responsibility shall include establishing (and revising as
necessary) short-term and long-term goals and requirements pertaining to the
financial condition of the Plan, communicating such goals and requirements to
the persons responsible for the various aspects of the Plan operations, and
monitoring periodically the implementation of such goals and requirements.
7.5 Committee to Construe Plan.
(a) The Committee shall administer the Plan and shall have all
discretion, power, and authority necessary for that purpose, including, but not
by way of limitation, the full and absolute discretion and power to interpret
the Plan, to determine the eligibility, status, and rights of all individuals
under the Plan, and in general to decide any dispute and all questions arising
in connection with the Plan. The Committee shall direct the Trustee concerning
all distributions from the Trust Fund, including the purchase of annuity
contracts, in accordance with the provisions of the Plan, and shall have such
other powers in the administration of the Trust Fund as may be conferred upon
it by the Trust agreement. The Committee shall maintain all Plan records
except records of the Trust Fund.
(b) The Committee may adjust the Account of any Participant, in
order to correct errors and rectify omissions, in such manner as the Committee
believes will best result in the equitable and nondiscriminatory administration
of the Plan.
7.6 Organization of Committee.
The Committee shall adopt such rules as it deems desirable for the
conduct of its affairs and for the administration of the Plan. It may appoint
agents (who need not be members of the Committee) to whom it may delegate such
powers as it deems appropriate, except that any dispute shall be determined by
the Committee. The Committee may make its determinations with or without
meetings. It may authorize one or more of its members or agents to sign
instructions, notices, and determinations on its behalf. The action of a
majority of the Committee shall constitute the action of the Committee.
7.7 Interested Committee Members.
If a Committee decision or action affects a small number of
Participants including a Committee member, then such Committee member shall not
participate in the Committee decision or action. The action of a majority of
the disinterested Committee members shall constitute the action of the
Committee.
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7.8 Agent for Process.
Apache's Vice President, General Counsel, and Secretary shall be the
agents of the Plan for service of all process.
7.9 Indemnification of Committee Members.
The Company shall indemnify and hold the members of the Committee, and
each of them, harmless from the effects and consequences of their acts,
omissions, and conduct in their official capacities, except to the extent that
the effects and consequences thereof shall result from their own willful
misconduct, breach of good faith, or gross negligence in the performance of
their duties. The foregoing right of indemnification shall not be exclusive of
the rights to which each such member may be entitled as a matter of law.
7.10 Conclusiveness of Action.
Any action taken by the Committee on matters within the discretion of
the Committee shall be conclusive, final and binding upon all participants in
the Plan and upon all persons claiming any rights hereunder, including
Alternate Payees and beneficiaries.
7.11 Payment of Expenses.
The members of the Committee shall serve without compensation but
their reasonable expenses shall be paid by the Company. The compensation or
fees of accountants, counsel, and other specialists and any other costs of
administering the Plan or Trust Fund may be charged to the Trust Fund, to the
extent permissible under the provisions of ERISA.
ARTICLE VIII
TRUST AGREEMENT - INVESTMENTS
8.1 Trust Agreement.
Apache has entered into a Trust agreement to provide for the holding,
investment, and administration of the funds of the Plan. The Trust agreement
shall be part of the Plan, and the rights and duties of any individual under
the Plan shall be subject to all terms and provisions of the Trust agreement.
8.2 Expenses of Trust.
(a) Except as provided in subsection (b) below, all taxes upon or
in respect of the Trust shall be paid by the Trustee out of the Trust assets,
and all expenses of administering the Trust shall be paid by the Trustee out of
the Trust assets, to the extent such taxes and expenses are not paid by the
Company or the Account Owner. No fiduciary shall receive any compensation for
services rendered to the Plan if the fiduciary is being compensated on a
full-time basis by the Company.
(b) To the extent not paid by the Company, all expenses of
individually directed transactions in Trust assets, including without
limitation the Trustee's transaction fee, brokerage commissions, transfer
taxes, interest on insurance policy loans, and any taxes and penalties that may
be imposed as a result of an individual's investment direction, shall be
assessed against the Account of the Account Owner directing such transactions.
8.3 Investments.
(a) Section 404(c) Plan. The Plan is intended to be a plan
described in ERISA section 404(c). To the extent that an Account Owner
exercises control over the investment of his or her Accounts, no person who is
a
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fiduciary shall be liable for any loss, or by reason of any breach, that is the
direct and necessary result of the Account Owner's exercise of control.
(b) Directed Investments. Accounts shall be invested, upon the
written or telephone voice-response direction of each Account Owner, in any one
or more of a series of investment funds designated by the Committee from time
to time. The funds available for investment and the principal features
thereof, including a general description of the investment objectives, the risk
and return characteristics, and the type and diversification of the investment
portfolio of each fund, shall be communicated to the Account Owners in the Plan
from time to time. Any changes in such funds shall be immediately communicated
to all Account Owners.
(c) Absence of Directions. To the extent that an Account Owner
fails to affirmatively direct the investment of his or her Accounts, the
Committee shall direct the Trustee in writing concerning the investment of such
Accounts. The Committee shall act by majority vote. Any dissenting member of
the Committee shall, having registered his or her dissent in writing,
thereafter cooperate to the extent necessary to implement the decision of the
Committee.
(d) Change in Investment Directions. Account Owners may change
their investment directions, with respect to the investment of new
contributions and with respect to the investment of existing amounts allocated
to Accounts, on any business day. The Committee shall establish procedures for
giving investment directions, which shall be in writing and communicated to
Account Owners.
ARTICLE IX
TERMINATION AND AMENDMENT
9.1 Termination of Plan or Discontinuance of Contributions.
Apache expects to continue the Plan indefinitely, but the continuance
of the Plan and the payment of contributions are not assumed as contractual
obligations. Apache may terminate the Plan or discontinue contributions at any
time. Upon the termination of the Plan, each Participant's Account shall
become fully vested. Upon the partial termination of the Plan, the Accounts of
all affected Participants shall become fully vested. The only Participants who
are affected by a partial termination are those whose employment with the
Company or Affiliated Entity is terminated as a result of the corporate event
causing the partial termination; Employees terminated for cause are not
affected by a partial termination.
9.2 Allocations upon Termination.
Upon the termination or partial termination of the Plan, the Committee
shall promptly notify the Trustee of such termination. The Trustee shall
promptly determine, in the manner prescribed in section 4.2, the net worth of
the Trust Fund. The Trustee shall advise the Committee of any increase or
decrease in such net worth that has occurred since the preceding Valuation
Date. The Committee shall allocate, in the manner described in section 4.3,
among the remaining Plan Accounts, in the manner described in Articles III, IV,
and V, any Company Contributions or forfeitures occurring since the preceding
Valuation Date.
9.3 Procedure Upon Termination of Plan.
If the Plan has been terminated or partially terminated, then, after
the allocations required under section 9.2 have been completed, the Trustee
shall distribute or transfer the Accounts of affected Employees as follows.
(a) If the affected Employee's Account has an aggregate value of
$3,500 ($5,000 effective January 1, 1998) or less (calculated in accordance
with applicable Treasury regulations), then the Trustee shall distribute the
Employee's Account to the Employee in a single payment.
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(b) If the affected Employee's Account has a value of more than
$3,500 ($5,000 effective January 1, 1998) (calculated in accordance with
applicable Treasury regulations), then the Trustee shall distribute the
Employee's Account to the Employee in either a single payment or a QJSA.
(c) In lieu of distributing Accounts under subsections (a) or (b),
the Company may direct the Trustee to transfer the Employee's Account to
another qualified defined contribution plan maintained by the Company or an
Affiliated Entity.
Any distribution or transfer made pursuant to this section shall be in cash.
After all such distributions or transfers have been made, the Trustee shall be
discharged from all obligation under the Trust; no Participant, Spouse,
Alternate Payee, or beneficiary who has received any such distribution, or for
whom any such transfer has been made, shall have any further right or claim
under the Plan or Trust.
9.4 Amendment by Apache.
Apache may at any time amend the Plan in any respect, without prior
notice, subject to the following limitations. No amendment shall be made that
would have the effect of vesting in the Company any part of the Trust Fund or
of diverting any part of the Trust Fund to purposes other than for the
exclusive benefit of Account Owners. The rights of any Account Owner with
respect to contributions previously made shall not be adversely affected by any
amendment. No amendment shall reduce or restrict, either directly or
indirectly, the accrued benefit (within the meaning of Code section 411(d)(6))
of any Account Owner before the amendment, except as permitted by the Internal
Revenue Service.
If the vesting schedule is amended, each Participant with at least
three Years of Service may elect, within the period specified in the following
sentence after the adoption of the amendment, to have his or her nonforfeitable
percentage computed under the Plan without regard to such amendment. The
period during which the election may be made shall commence with the date the
amendment is adopted and shall end on the latest of: (a) 60 days after the
amendment is adopted; (b) 60 days after the amendment becomes effective; or (c)
60 days after the Participant is issued written notice of the amendment by the
Company or Committee. Furthermore, no amendment shall decrease the
nonforfeitable percentage, measured as of the later of the date the amendment
is adopted or effective, of any Account Owner's Account.
Each amendment shall be in writing. Each amendment shall be approved
by Apache's Board of Directors (the "Board") or by an officer of Apache who is
authorized by the Board to amend the Plan. Each amendment shall be executed by
an officer of Apache to whom the Board has delegated the authority to execute
the amendment.
ARTICLE X
PLAN ADOPTION BY AFFILIATED ENTITIES
10.1 Adoption of Plan.
Apache may permit any Affiliated Entity to adopt the Plan and Trust
for its Employees. Thereafter, such Affiliated Entity shall deliver to the
Trustee a certified copy of the resolutions or other documents evidencing its
adoption of the Plan and Trust.
10.2 Agent of Affiliated Entity.
By becoming a party to the Plan, each Affiliated Entity appoints
Apache as its agent with authority to act for the Affiliated Entity in all
transactions in which Apache believes such agency will facilitate the
administration of the Plan. Apache shall have the sole authority to amend and
terminate the Plan.
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10.3 Disaffiliation and Withdrawal from Plan.
(a) Disaffiliation. Any Affiliated Entity that has adopted the
Plan and thereafter ceases for any reason to be an Affiliated Entity shall
forthwith cease to be a party to the Plan.
(b) Withdrawal. Any Affiliated Entity may, by appropriate action
and written notice thereof to Apache, provide for the discontinuance of its
participation in the Plan. Such withdrawal from the Plan shall not be
effective until the end of the Plan Year.
10.4 Effect of Disaffiliation or Withdrawal.
If at the time of disaffiliation or withdrawal, the disaffiliating or
withdrawing entity, by appropriate action, adopts a substantially identical
plan that provides for direct transfers from this Plan, then, as to employees
of such entity, no plan termination shall have occurred; the new plan shall be
deemed a continuation of this Plan for such employees. In such case, the
Trustee shall transfer to the trustee of the new plan all of the assets held
for the benefit of employees of the disaffiliating or withdrawing entity, and
no forfeitures or acceleration of vesting shall occur solely by reason of such
action. Such payment shall operate as a complete discharge of the Trustee, and
of all organizations except the disaffiliating or withdrawing entity, of all
obligations under this Plan to employees of the disaffiliating or withdrawing
entity and to their beneficiaries. A new plan shall not be deemed
substantially identical to this Plan if it provides slower vesting than this
Plan. Nothing in this section shall authorize the divesting of any vested
portion of a Participant's Account.
10.5 Distribution Upon Disaffiliation or Withdrawal.
(a) Disaffiliation. If an entity disaffiliates from Apache and
the provisions of section 10.4 are not followed, then the following rules apply
to the Account of employees of the disaffiliating entity. If the
disaffiliating entity maintains a defined contribution plan, and that plan will
accept a direct transfer from this Plan, the Company may direct the Trustee to
transfer the employee's Account to the other plan. Otherwise, the employee's
Account shall remain in this Plan, and Article VI will govern the distribution
of such Account.
(b) Withdrawal. If an Affiliated Entity withdraws from the Plan
and the provisions of section 10.4 are not followed, then the following rules
apply to the Accounts of Employees of the withdrawing entity. If the
withdrawing entity maintains a defined contribution plan, and that plan will
accept a direct transfer from this Plan, the Company may direct the Trustee to
transfer the Employee's Account to the other plan. Otherwise, the Employee's
Account shall remain in this Plan, and Article VI will govern the distribution
of such Account.
ARTICLE XI
TOP-HEAVY PROVISIONS
11.1 Application of Top-Heavy Provisions.
The provisions of this Article XII shall be applicable only if the
Plan becomes "top-heavy" as defined below for any Plan Year. If the Plan
becomes "top-heavy" as of the Determination Date for a Plan Year, the
provisions of this Article XII shall apply to the Plan effective as of the
first day of such Plan Year and shall continue to apply to the Plan until the
Plan ceases to be "top-heavy" or until the Plan is terminated or otherwise
amended.
11.2 Determination of Top-Heavy Status.
The Plan shall be considered "top-heavy" for a Plan Year if, as of the
Determination Date for that Plan Year, the aggregate of the Account balances
(as calculated according to the regulations under Code section 416) of Key
Employees under this Plan (and under all other plans required or permitted to
be aggregated with this Plan) exceeds 60% of the aggregate of the Account
balances (as calculated according to the regulations under Code section 416) in
this Plan (and under all other plans required or permitted to be aggregated
with this Plan) of all
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current Employees and all former Employees who terminated employment within
five years of the Determination Date. This ratio shall be referred to as the
"top-heavy ratio". For purposes of determining the Account balance of any
Participant, distributions made with respect to such individual within a
five-year period ending on the Determination Date shall be included. This
shall also apply to distributions under a terminated plan that, if it had not
been terminated, would have been required to be included in an aggregation
group. The Account balances of a Participant who had once been a Key Employee,
but who is not a Key Employee during the Plan Year, shall not be taken into
account. The following plans must be aggregated with this Plan for the
top-heavy test: (a) a qualified plan maintained by the Company or an
Affiliated Entity in which a Key Employee participated during this Plan Year or
during the previous four Plan Years and (b) any other qualified plan maintained
by the Company or an Affiliated Entity that enables this Plan or any plan
described in clause (a) to meet the requirements of Code sections 401(a)(4) or
410. The following plans may be aggregated with this Plan for the top-heavy
test: any qualified plan maintained by the Company or an Affiliated Entity
that, in combination with the Plan or any plan required to be aggregated with
this Plan when testing this Plan for top- heaviness, would satisfy the
requirements of Code sections 401(a)(4) and 410. If one or more of the plans
required or permitted to be aggregated with this Plan is a defined benefit
plan, a Participant's "account balance" shall equal the present value of his or
her accrued benefit, including any distributions within five years of the
Determination Date. If the aggregation group includes more than one defined
benefit plan, the same actuarial assumptions shall be used with respect to each
such defined benefit plan. The foregoing top-heavy ratio shall be computed in
accordance with the provisions of Code section 416(g), together with the
regulations and rulings thereunder.
11.3 Special Vesting Rule.
Unless section 5.1 provides for faster vesting, the amount credited to
the Participant's Account shall vest in accordance with the following schedule
during any top-heavy Plan Year:
<TABLE>
<CAPTION>
Completed Years of Service Vested Percentage
-------------------------- -----------------
<S> <C>
fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
11.4 Special Minimum Contribution.
Notwithstanding the provisions of section 3.1 and Article IV to the
contrary, in every top-heavy Plan Year, a minimum allocation is required for
each Non-Key Employee who both (a) performed one or more Hours of Service
during the Plan Year as a Covered Employee after satisfying any eligibility
requirement of section 2.1, and (b) was an Employee on the last day of the Plan
Year. The minimum allocation shall be a percentage of each Non-Key Employee's
Compensation. The percentage shall be the lesser of 3% or the largest
percentage obtained for any Key Employee by dividing his or her Annual
Additions (to this Plan and any other plan aggregated with this Plan) for the
Plan Year by his or her Compensation for the Plan Year. If the Participant
participates in both this Plan and the Apache Corporation 401(k) Savings Plan,
then the Participant's minimum allocation to this Plan shall be reduced by any
allocation of "Company Discretionary Contributions" or forfeitures treated as
Company Discretionary Contributions that he or she receives in that plan for
the Plan Year.
11.5 Change in Top-Heavy Status.
If the Plan ceases to be a "top-heavy" plan as defined in this Article
XII, and if any change in the benefit structure, vesting schedule, or other
component of a Participant's accrued benefit occurs as a result of such change
in top-heavy status, the nonforfeitable portion of each Participant's benefit
attributable to Company Contributions shall not be decreased as a result of
such change. In addition, each Participant with at least three Years of
Service with the Company and Affiliated Entities on the date of such change,
may elect to have the nonforfeitable
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<PAGE> 28
percentage computed under the Plan without regard to such change in status.
The period during which the election may be made shall commence on the date the
Plan ceases to be a top-heavy plan and shall end on the later of (a) 60 days
after the change in status occurs, (b) 60 days after the change in status
becomes effective, or (c) 60 days after the Participant is issued written
notice of the change by the Company or the Committee.
ARTICLE XII
MISCELLANEOUS
12.1 RIGHT TO DISMISS EMPLOYEES - NO EMPLOYMENT CONTRACT.
THE COMPANY AND AFFILIATED ENTITIES MAY TERMINATE THE EMPLOYMENT OF
ANY EMPLOYEE AS FREELY AND WITH THE SAME EFFECT AS IF THIS PLAN WERE NOT IN
EXISTENCE. PARTICIPATION IN THIS PLAN BY AN EMPLOYEE SHALL NOT CONSTITUTE AN
EXPRESS OR IMPLIED CONTRACT OF EMPLOYMENT BETWEEN THE COMPANY OR AN AFFILIATED
ENTITY AND THE EMPLOYEE.
12.2 Claims Procedure.
(a) All claims shall be filed by the Participant, the
Participant's beneficiary, or the authorized representative of the claimant, by
completing any procedures that the Committee requires. These procedures shall
be reasonable and may include the completion of forms and the submission of
documents and additional information.
(b) The Committee shall review all materials and shall decide
whether to approve or deny the claim. If a claim is denied in whole or in
part, written notice of denial shall be furnished by the Committee to the
claimant within 90 days after the receipt of the claim by the Committee, unless
special circumstances require an extension of time for processing the claim, in
which event notification of the extension shall be provided to the claimant and
the extension shall not exceed 90 days. The written notice shall set forth the
specific reasons for such denial, specific reference to pertinent Plan
provisions, a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material
or information is necessary, all written in a manner calculated to be
understood by the claimant. The notice shall include appropriate information
as to the steps taken if the claimant wishes to submit the denied claim for
review. The claimant may request a review upon written application, may review
pertinent documents, and may submit issues or comments in writing. The
claimant must request a review within the reasonable period of time prescribed
by the Committee. In no event shall such a period of time be less than 60
days. The Committee shall decide all reviews of denied claims. A decision on
review shall be rendered within 60 days of the receipt of request for review by
the Committee. If special circumstances require a further extension of time
for processing, a decision shall be rendered not later than 120 days following
the Committee's receipt of the request for review. If such an extension of
time for review is required, written notice of the extension shall be furnished
to the claimant prior to the commencement of the extension. The Committee's
decision on review shall be furnished to the claimant. Such decision shall be
in writing and shall include specific reasons for the decision, written in a
manner calculated to be understood by the claimant, as well as specific
references to the pertinent Plan provisions on which the decision is based.
(c) The Committee shall have total discretionary authority to
determine eligibility, status, and the rights of all individuals under the Plan
and to construe any and all terms of the Plan.
12.3 Source of Benefits.
All benefits payable under the Plan shall be paid solely from the
Trust Fund, and the Company and Affiliated Entities assume no liability or
responsibility therefor.
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<PAGE> 29
12.4 Exclusive Benefit of Employees.
It is the intention of the Company that no part of the Trust, other
than as provided in sections 3.3, 8.2, and 12.9 hereof and the Trust Agreement,
ever to be used for or diverted for purposes other than for the exclusive
benefit of Participants, Alternate Payees, and their beneficiaries, and that
this Plan shall be construed to follow the spirit and intent of the Code and
ERISA.
12.5 Forms of Notices.
Wherever provision is made in the Plan for the filing of any notice,
election, or designation by a Participant, Spouse, Alternate Payee, or
beneficiary, the action of such individual may be evidenced by the execution of
such form as the Committee may prescribe for the purpose. The Committee may
also prescribe alternate methods for filing any notice, election, or
designation (such as telephone voice-response or e-mail).
12.6 Failure of Any Other Entity to Qualify.
If any entity adopts this Plan but fails to obtain or retain the
qualification of the Plan under the applicable provisions of the Code, such
entity shall withdraw from this Plan upon a determination by the Internal
Revenue Service that it has failed to obtain or retain such qualification.
Within 30 days after the date of such determination, the assets of the Trust
Fund held for the benefit of the Employees of such entity shall be separately
accounted for and disposed of in accordance with the Plan and Trust.
12.7 Notice of Adoption of the Plan.
The Company shall provide each of its Employees with notice of the
adoption of this Plan, notice of any amendments to the Plan, and notice of the
salient provisions of the Plan prior to the end of the first Plan Year. A
complete copy of the Plan shall also be made available for inspection by
Employees or any Account Owner.
12.8 Plan Merger.
If this Plan is merged or consolidated with, or its assets or
liabilities are transferred to, any other qualified plan of deferred
compensation, each Participant shall be entitled to receive a benefit
immediately after the merger, consolidation, or transfer that is equal to or
greater than the benefit the Participant would have been entitled to receive
immediately before the merger, consolidation, or transfer if this Plan had then
been terminated.
12.9 Inalienability of Benefits - Domestic Relations Orders.
(a) Except as provided in subsections (b) and (g) below, no
Participant or beneficiary shall have any right to assign, alienate, transfer,
or encumber his or her interest in any benefits under this Plan, nor shall such
benefits be subject to any legal process to levy upon or attach the same for
payment of any claim against any such Participant or beneficiary.
(b) Subsection (a) shall apply to the creation, assignment, or
recognition of a right to any benefit payable with respect to a Participant
pursuant to a Domestic Relations Order unless such Domestic Relations Order is
a QDRO, in which case the Plan shall make payment of benefits in accordance
with the applicable requirements of any such QDRO.
(c) In order to be a QDRO, the Domestic Relations Order must
satisfy the requirements of Code section 414(p) and ERISA section 206(d)(3).
In particular, the Domestic Relations Order: (i) must specify the name and the
last known mailing address of the Participant; (ii) must specify the name and
mailing address of each Alternate Payee covered by the order; (iii) must
specify either the amount or percentage of the Participant's benefits to be
paid by the Plan to each such Alternate Payee, or the manner in which such
amount or percentage is to be determined; (iv) must specify the number of
payments or period to which such order applies; (v) must specify each plan to
which such order applies; (vi) may not require the Plan to provide any type or
form of benefit, or any
25
<PAGE> 30
option, not otherwise provided under the Plan, subject to the provisions of
subsection (f); (vii) may not require the Plan to provide increased benefits
(determined on the basis of actuarial value); and (viii) may not require the
payment of benefits to an Alternate Payee if such benefits have already been
designated to be paid to another Alternate Payee under another order previously
determined to be a QDRO.
(d) In the case of any payment before an Employee has separated
from service, a Domestic Relations Order shall not be treated as failing to
meet the requirements of subsection (c) solely because such order requires that
payment of benefits be made to an Alternate Payee (i) on or after the dates
specified in subsection (f), (ii) as if the Employee had retired on the date on
which such payment is to begin under such order (but taking into account only
the Account balance on such date), and (iii) in any form in which such benefits
may be paid under the Plan to the Employee. For purposes of this subsection,
the Account balance as of the date specified in the QDRO shall be the vested
portion of the Employee's Account on such date.
(e) The Committee shall establish reasonable procedures to
determine the qualified status of Domestic Relations Orders and to administer
distributions under QDROs. Such procedures shall be in writing and shall
permit an Alternate Payee to designate a representative to receive copies of
notices. The Committee shall temporarily suspend distributions and withdrawals
from the Participant's Accounts, except to the extent necessary to make the
required minimum distributions under Code section 401(a)(9), when the Committee
receives a Domestic Relations Order or a draft of such an order that affects
the Participant's Accounts or when one or the following individuals informs the
Committee, orally or in writing, that a QDRO is in process or may be in
process: the Participant, a prospective Alternate Payee, or counsel for the
Participant or a prospective Alternate Payee. The Committee shall promulgate
reasonable and non- discriminatory rules regarding such suspensions, including
but not limited to how long such suspensions remain in effect. However, the
Participant may receive such distributions and withdrawals from the Plan,
subject to the rules of Article VI, as are consented to in writing by all
prospective Alternate Payees identified in the Domestic Relations Order or, in
the absence of a Domestic Relations Order, as are consented to in writing by
the prospective Alternate Payee(s) who informed the Committee that a QDRO was
in process or may be in process. When the Committee receives a Domestic
Relations Order it shall promptly notify the Participant and each Alternate
Payee of such receipt and provide them with copies of the Plan's procedures for
determining the qualified status of the order. Within a reasonable period
after receipt of a Domestic Relations Order, the Committee shall determine
whether such order is a QDRO and notify the Participant and each Alternate
Payee of such determination. During any period in which the issue of whether a
Domestic Relations Order is a QDRO is being determined (by the Committee, by a
court of competent jurisdiction, or otherwise), the Committee shall separately
account for the amounts payable to the Alternate Payee if the order is
determined to be a QDRO. If the order (or modification thereof) is determined
to be a QDRO within 18 months after the date the first payment would have been
required by such order, the Committee shall pay the amounts separately
accounted for (plus any interest thereon) to the individual(s) entitled
thereto. However, if the Committee determines that the order is not a QDRO, or
if the issue as to whether such order is a QDRO has not been resolved within 18
months after the date of the first payment would have been required by such
order, then the Committee shall pay the amounts separately accounted for (plus
any interest thereon) to the individual(s) who would have been entitled to such
amounts if there had been no order. Any determination that an order is a QDRO
that is made after the close of the 18-month period shall be applied
prospectively only. If the Plan's fiduciaries act in accordance with fiduciary
provision of ERISA in treating a Domestic Relations Order as being (or not
being) a QDRO or in taking action in accordance with this subsection, then the
Plan's obligation to the Participant and each Alternate Payee shall be
discharged to the extent of any payment made pursuant to the acts of such
fiduciaries.
(f) The Alternate Payee shall have the following rights under the
Plan:
(i) An Alternate Payee shall receive a distribution of
his or her vested Plan assets as soon as administratively practicable
after the date specified in the QDRO. An Alternate Payee may elect
(or the QDRO may specify) distribution as soon as administratively
practicable after the Domestic Relations Order is determined to be a
QDRO, even if the Participant is not then eligible to receive a
distribution from the Plan. Notwithstanding the above, if the vested
amount assigned to the Alternate Payee is $3,500 ($5,000 effective
January 1, 1998) or less (calculated in accordance with the applicable
Treasury regulations), then the Alternate Payee shall receive a
26
<PAGE> 31
single sum distribution of the vested amount as soon as
administratively practicable after the order is determined to be a
QDRO.
(ii) If the amount assigned to an Alternate Payee is not
fully vested, then the Plan will distribute the vested portion
pursuant to paragraph (i) and shall retain the unvested portion in the
Alternate Payee's Account. The unvested portion shall remain in the
Alternate Payee's Account until the Participant terminates employment,
at which time the unvested portion shall be forfeited. When the
vested percentage increases, the newly vested portion shall be
distributed as elected by the Alternate Payee or specified by the
QDRO. Notwithstanding the above, if the vested Account balance is
$3,500 ($5,000 effective January 1, 1998) or less and the vested
Account balance at the time of any prior distributions was also less
than $3,500 ($5,000 effective January 1, 1998), then the Alternate
Payee shall receive a single sum distribution of the vested amount as
soon as administratively practicable after the order is determined to
be a QDRO.
(iii) Upon the Alternate Payee's death, his or her interest
in the Plan shall be distributed as soon as practicable to the
Alternate Payee's beneficiary, as determined in subsection 6.1(a).
(iv) Distribution to an Alternate Payee must begin on or
before the Participant's Required Beginning Date, unless the Committee
determines the Domestic Relations Order is a QDRO after the
Participant's Required Beginning Date, in which case distribution to
the Alternate Payee shall occur as quickly as administratively
practicable.
(v) The Alternate Payee may bring claims against the Plan
in the same manner as a Participant pursuant to section 12.2.
(g) Subsection (a) shall not apply to any offset of a
Participant's benefits against an amount that the Participant is ordered or
required to pay to the Plan if the following conditions are met.
(i) The order or requirement to pay must arise (A) under
a judgment of conviction for a crime involving the Plan, (B) under a
civil judgment (including a consent order or decree) entered by a
court in an action brought in connection with a violation (or alleged
violation) of part 4 of subtitle B of title I of ERISA, or (C)
pursuant to a settlement agreement between the Secretary of Labor and
the Participant, or a settlement agreement between the Pension Benefit
Guaranty Corporation and the Participant, in connection with a
violation (or alleged violation) of part 4 of subtitle B of title I of
ERISA by a fiduciary or any other person.
(ii) The judgment, order, decree, or settlement agreement
must expressly provide for the offset of all or part of the amount
ordered or required to be paid to the Plan against the Participant's
benefits provided under the Plan.
(iii) If the Participant is married at the time at which
the offset is to be made, (A) either the Participant's Spouse must
have already waived his or her right to a QPSA and QJSA or the
Participant's Spouse must consent in writing to such offset with such
consent witnessed by a notary public or representative of the Plan (or
it is established to the satisfaction of a Plan representative that
such consent may not be obtained by reason of circumstances described
in Code section 417(a)(2)(B)), or (B) the Participant's Spouse is
ordered or required in such judgment, order, decree, or settlement to
pay an amount to the Plan in connection with a violation of part 4 of
subtitle B of title I of ERISA, or (C) in such judgment, order,
decree, or settlement, the Participant's Spouse retains the right to
receive a survivor annuity under a qualified joint and survivor
annuity pursuant to Code section 401(a)(11)(A)(i) and under a
qualified preretirement survivor annuity provided pursuant to Code
section 401(a)(11)(A)(ii). The value of the Spouse's survivor annuity
in subparagraph (C) shall be determined as if the Participant
terminated employment on the date of the offset, there was no offset,
the Plan
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<PAGE> 32
permitted commencement of benefits only on or after Normal Retirement
Age, the Plan provided only the "minimum- required qualified joint and
survivor annuity," and the amount of the qualified preretirement
survivor annuity under the Plan is equal to the amount of the survivor
annuity payable under the "minimum-required qualified joint and
survivor annuity." For purposes of this paragraph only, the
"minimum-required qualified joint and survivor annuity" is the
qualified joint and survivor annuity which is the actuarial equivalent
of the Participant's accrued benefit (within the meaning of Code
section 411(a)(7)) and under which the survivor annuity is 50% of the
amount of the annuity which is payable during the joint lives of the
Participant and his or her Spouse.
(h) The Committee shall temporarily suspend distributions and
withdrawals from a Participant's Accounts, except to the extent necessary to
make the required minimum distributions under Code section 401(a)(9), when the
Committee has reason to believe that the Plan may be entitled to an offset of
the Participant's benefits described in subsection (g). The Committee shall
promulgate reasonable and non-discriminatory rules regarding such suspensions,
including but not limited to how long such suspensions remain in effect.
12.10 Payments Due Minors or Incapacitated Individuals.
If any individual entitled to payment under the Plan is a minor, the
Committee shall cause the payment to be made to the custodian or representative
who, under the state law of the minor's domicile, is authorized to receive
funds on behalf of the minor. If any individual entitled to payment under this
Plan has been legally adjudicated to be mentally incompetent or incapacitated,
the Committee shall cause the payment to be made to the custodian or
representative who, under the state law of the incapacitated individual's
domicile, is authorized to receive funds on behalf of the incapacitated
individual. Payments made pursuant to such power shall operate as a complete
discharge of the Trust Fund, the Trustee, and the Committee.
12.11 Uniformity of Application.
The provisions of this Plan shall be applied in a uniform and
non-discriminatory manner in accordance with rules adopted by the Committee,
which rules shall be systematically followed and consistently applied so that
all individuals similarly situated shall be treated alike.
12.12 Disposition of Unclaimed Payments.
Each Participant, Alternate Payee, or beneficiary with an Account
balance in this Plan must file with the Committee from time to time in writing
his or her address, the address of each beneficiary (if applicable), and each
change of address. Any communication, statement, or notice addressed to such
individual at the last address filed with the Committee (or if no address is
filed with the Committee then at the last address as shown on the Company's
records) will be binding on such individual for all purposes of the Plan.
Neither the Committee nor the Trustee shall be required to search for or locate
any missing individual. If the Committee notifies an individual that he or she
is entitled to a distribution and also notifies him or her that a failure to
respond may result in a forfeiture of benefits, and the individual fails to
claim his or her benefits under the Plan or make his or her address known to
the Committee within a reasonable period of time after the notification, then
the benefits under the Plan of such individual shall be forfeited. Any amount
forfeited pursuant to this section shall be allocated pursuant to section 5.5.
If the individual should later make a claim for this forfeited amount, the
Company shall, if the Plan is still in existence, make a special contribution
to the Plan equal to the forfeiture, and such amount shall be distributed to
the individual; if the Plan is not then in existence, the Company shall pay the
amount of the forfeiture to the individual.
12.13 Applicable Law.
This Plan shall be construed and regulated by ERISA, the Code, and,
unless otherwise specified herein and to the extent applicable, the laws of the
State of Texas, excluding any conflicts-of-law provisions.
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<PAGE> 33
ARTICLE XIII
UNIFORMED SERVICES EMPLOYMENT AND REEMPLOYMENT RIGHTS ACT OF 1994
13.1 General.
(a) The Uniformed Services Employment and Reemployment Rights Act
of 1994 (the "USERRA"), which is codified at 38 USCA Sections 4301-4318,
confers certain rights on individuals who leave civilian employment to perform
certain services in the Armed Forces, the National Guard, the commissioned
corps of the Public Health Service, or in any other category designated by the
President of the United States in time of war or emergency (collectively, the
"Uniformed Services"). An Employee who joins the Uniformed Services shall be
referred to as a "Serviceman" in this Article. This Article shall be
interpreted to provide such individuals with all the benefits required by the
USERRA but no greater benefits than those required by the USERRA. This Article
shall supersede any contrary provisions in the remainder of the Plan.
(b) When a Serviceman leaves the Uniformed Services, he or she may
have reemployment rights with the Company or Affiliated Entities, depending on
many factors, including the length of his or her stay in the Uniformed Services
and the type of discharge he or she received. When this Article speaks of the
date a Serviceman's potential USERRA reemployment rights expire, it means the
date on which the Serviceman fails to qualify for reemployment rights (if, for
example, he or she is dishonorably discharged, or remains in the Uniformed
Services for more than 5 years) or, if the Serviceman obtains reemployment
rights, the date his or her reemployment rights lapse because the Serviceman
failed to timely exercise those rights.
(c) This Article shall apply to anyone who was a Serviceman on
December 12, 1994, and to anyone who became a Serviceman on or after December
12, 1994.
13.2 While a Serviceman.
In general, a Serviceman shall be treated as an Employee while he or
she continues to receive wages from the Company or an Affiliated Entity, and
once the Serviceman's wages from the Company or Affiliated Entity cease, the
Serviceman shall be treated as if he or she were on an approved, unpaid leave
of absence.
(a) Company Contributions. Wages paid by the Company to a
Serviceman shall be included in his or her Compensation as if the Serviceman
were an Employee. If the Employee was a Covered Employee when he or she became
a Serviceman and his or her wages continue through the last day of a Plan Year,
then (i) the Serviceman shall be treated as an "eligible Participant" under
subsection 3.1(a) for that Plan Year (and shall therefore receive an allocation
of any Company Mandatory Contribution); and (ii) he or she shall be treated as
an Employee under subsection 11.4(a) (and, if he or she is a Non-Key Employee,
he or she shall therefore receive any minimum required allocation if the Plan
is top-heavy).
(b) Investments. If the Serviceman has an account balance in the
Plan, he or she is an Account Owner and may therefore direct the investment of
his or her Accounts pursuant to section 8.3.
(c) Distributions and Withdrawals. For purposes of Article VI
(relating to distributions), the Serviceman shall be treated as an Employee
until the day on which his or her potential USERRA reemployment rights expire.
See section 13.3 once his or her potential USERRA rights expire.
(d) QDROs. QDROs shall be processed while the Participant is a
Serviceman. The Committee has the discretion to establish special procedures
under subsection 12.9(e) for Servicemen, by, for example, extending the usual
deadlines to accommodate any practical difficulties encountered by the
Serviceman that are attributable to his or her service in the Uniformed
Services.
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<PAGE> 34
13.3 Failure to Return.
(a) If a Serviceman is not reemployed before his or her potential
USERRA reemployment rights expire, the Committee shall determine his or her
Termination from Service Date by treating his or her service in the Uniformed
Services as an approved leave of absence but treating the expiration of his or
her potential USERRA reemployment rights as the failure to timely return from
his or her leave of absence, with the consequence that his or her Termination
from Service Date will generally be the earlier of the date his or her
potential USERRA rights expired or one year after the date he or she joined the
Uniformed Services. Once his or her Termination from Service Date has been
determined, the Committee shall determine his or her vested percentage. For
purposes of Article VI (relating to distributions), the day the Serviceman's
potential USERRA reemployment rights expired shall be treated as the day he or
she terminated employment with the Company and Affiliated Entities. For
purposes of subsection 5.2(c) (relating to the timing of forfeitures), the
Serviceman's last day of employment shall be the day his or her potential
USERRA reemployment rights expired.
(b) If the Company or an Affiliated Company hires a former
Serviceman after his or her potential USERRA reemployment rights have expired,
he or she shall be treated like any other former employee who is rehired.
13.4 Return From Uniformed Service.
This section applies solely to a Serviceman who returns to employment
with the Company or an Affiliated Entity because he or she exercised his or her
reemployment rights under the USERRA.
(a) Credit for Service. A Serviceman's length of time in the
Uniformed Services shall be treated as service with the Company for purposes of
vesting and determining his or her eligibility to participate in the Plan upon
reemployment.
(b) Participation. If the Serviceman satisfies the eligibility
requirements of section 2.1 before his or her reemployment, and he or she is a
Covered Employee upon his or her reemployment, he or she may participate in the
Plan immediately upon his or her return.
(c) Make-Up Company Mandatory Contribution. The Company shall
contribute an additional contribution to a Serviceman's Account equal to the
Company Mandatory Contribution (including any forfeitures treated as Company
Mandatory Contributions) that would have been allocated to such Account if the
Serviceman had remained employed during his or her time in the Uniformed
Services, and had earned his or her Deemed Compensation during that time. See
subsection (e) for guidance on applying the various limits contained in the
Code to the calculation of the additional mandatory contribution.
(d) Make-Up Miscellaneous Contributions. The Company shall
contribute to the Serviceman's Accounts any top-heavy minimum contribution he
or she would have received pursuant to section 11.4, (including any forfeitures
treated as QNECs or top-heavy minimum contributions) if he or she had remained
employed during his or her time in the Uniformed Services, and had earned
Deemed Compensation during that time. See subsection (e) for guidance on
applying the various limits contained in the Code to the calculation of the
top-heavy minimum contribution.
(e) Application of Limitations.
(i) The make-up contributions under subsections (c) and
(d) (the "Make-Up Contributions") shall be ignored for purposes of
determining the Company's maximum contribution under subsection
3.1(c), the limits on Annual Additions under section 3.4, the
non-discrimination requirements of Code section 401(a)(4), and (if the
Serviceman is a Key Employee) calculating the minimum required
top-heavy contribution under section 11.4.
30
<PAGE> 35
(ii) In order to determine the maximum Make-Up
Contributions, the following limitations shall apply.
(A) The Serviceman's "Aggregate Compensation" for
each year shall be calculated. His or her Aggregate
Compensation shall be equal to his or her actual Compensation,
plus his or her Deemed Compensation that would have been paid
during that year. Each type of Aggregate Compensation (for
benefit purposes, for purposes of determining whether the
Serviceman is a Highly Compensated Employee, etc.) shall be
determined separately.
(B) The Serviceman's Aggregate Compensation each
Plan Year shall be limited to the dollar limit in effect for
that Plan Year under Code section 401(a)(17), for the purposes
and in the manner specified in subsection 1.11(d).
(C) The limits of subsection 3.1(c) (relating to
the maximum contribution by the Company to the Plan) for each
Plan Year shall be calculated by using the Serviceman's
Aggregate Compensation for that Plan Year, and by treating the
Make-Up Contributions that are attributable to that Plan
Year's Deemed Compensation as having been made during that
Plan Year.
(D) The limits of section 3.4 (relating to the
maximum Annual Additions to a Participant's Accounts) shall be
calculated for each Limitation Year by using the Serviceman's
Aggregate Compensation for that Limitation Year, and by
treating as Annual Additions all the Make-Up Contributions
that are attributable to that Limitation Year's Deemed
Compensation.
(f) Deemed Compensation. A Serviceman's Deemed Compensation is
the Compensation that he or she would have received (including raises) had he
or she remained employed by the Company or Affiliated Entity during his or her
time in the Uniformed Services, unless it is not reasonably certain what his or
her Compensation would have been, in which case his or her Deemed Compensation
shall be based on his or her average rate of compensation during the 12 months
(or, if shorter, his or her period of employment with the Company and
Affiliated Entities) immediately before he or she entered the Uniformed
Services. A Serviceman's Deemed Compensation shall be reduced by any
Compensation actually paid to him or her during his or her time in the
Uniformed Services (such as vacation pay). Deemed Compensation shall cease
when the Serviceman's potential USERRA reemployment rights expire. Each type
of Deemed Compensation (for benefit purposes, for purposes of determining if
the Serviceman is a Highly Compensated Employee, etc.) shall be determined
separately.
APACHE CORPORATION
Date: 12/31/97 By: /s/ D.L. Schaeffer
---------------------------- -----------------------------------
Title: Vice President Human Resources
--------------------------------
31
<PAGE> 36
APPENDIX A
PARTICIPATING COMPANIES
The following Affiliated Entities were actively participating in the Plan as of
the following dates:
<TABLE>
<CAPTION>
Participation Participation
Business Began As Of Ended As Of
-------- ----------- -----------
<S> <C> <C>
Apache International, Inc. January 1, 1997 N/A
Apache Energy Limited (known as January 1, 1997 N/A
Hadson Energy Limited before
January 1, 1995)
Apache Canada Ltd. January 1, 1997 N/A
</TABLE>
-- END OF APPENDIX A --
A-1
<PAGE> 37
APPENDIX B
DEKALB ENERGY COMPANY / APACHE CANADA LTD.
Introduction
Through a merger effective as of May 17, 1995, Apache then held 100%
of the stock of DEKALB Energy Company (which has been renamed Apache Canada
Ltd.).
Capitalized terms in this Appendix have the same meanings as those
given to them in the Plan. The regular terms of the Plan shall apply to the
employees of Apache Canada Ltd., except as provided below.
Eligibility to Participate
Notwithstanding section 1.12, an employee of Apache Canada Ltd. shall
be a Covered Employee only if (1) he or she is either a U.S. citizen or a U.S.
resident, and (2) he or she was employed by Apache or another Company
immediately before becoming an employee of Apache Canada Ltd.
Vesting Service
For any individual who becomes an employee of Apache on or after May
17, 1995, his or her Period of Service shall include any periods of employment
before May 17, 1995, with DEKALB Energy Company or any business then treated as
a single employer with DEKALB Energy Company pursuant to Code section 414(b),
414(c), 414(m), or 414(o).
Compensation
If the payroll of the Apache Canada Ltd. employee is handled in the
United States, then the definitions of Compensation in section 1.11 shall
apply. To the extent that the payroll of the Apache Canada Ltd. employee is
handled outside of the United States, the following definitions of Compensation
shall apply in lieu of the definitions found in subsections 1.11(a) and
1.11(b):
(a) Code Section 415 Compensation.
(i) 1997. This paragraph applies for 1997 only. For
purposes of determining the limitation on Annual Additions under
section 3.4 and the minimum contribution under section 11.4 when the
Plan is top-heavy, Compensation shall mean foreign earned income
(within the meaning of Code section 911(b)) paid by the Company or an
Affiliated Entity, excluding any elective contributions that are not
includable in the Employee's income pursuant to Code sections 125,
402(e)(3), 402(h), or 403(b). For purposes of section 3.4,
Compensation shall be measured over a Limitation Year. For purposes
of section 11.4, Compensation shall be measured over a Plan Year.
(ii) 1998 and Thereafter. This paragraph applies after
1997. For purposes of determining the limitation on Annual Additions
under section 3.4 and the minimum contribution under section 11.4 when
the Plan is top-heavy, Compensation shall mean foreign earned income
(within the meaning of Code section 911(b)) paid by the Company or an
Affiliated Entity, and elective contributions that are not includable
in the Employee's income pursuant to Code sections 125, 402(e)(3),
402(h), 403(b), 408(p), or 457. For purposes of section 3.4,
Compensation shall be measured over a Limitation Year. For purposes
of section 11.4, Compensation shall be measured over a Plan Year.
B-1
<PAGE> 38
(b) Code Section 414(q) Compensation.
(i) 1997. This paragraph applies for 1997. For purposes
of identifying Highly Compensated Employees and Key Employees,
Compensation shall mean foreign earned income (within the meaning of
Code section 911(b)) paid by the Company or an Affiliated Entity,
including any elective contributions that are not includable in the
Employee's income pursuant to Code sections 125, 402(e)(3), 402(h), or
403(b). Compensation shall be measured over a Plan Year.
Compensation shall not include any amounts accrued by, but not paid
to, the Employee during the Plan Year.
(ii) 1998 and Thereafter. This paragraph applies after
1997. For purposes of identifying Highly Compensated Employees and
Key Employees, Compensation shall have the same meaning as in
paragraph (a)(ii), except that Compensation shall be measured over a
Plan Year and shall not include any amounts accrued by, but not paid
to, the Employee during the Plan Year.
-- END OF APPENDIX B --
B-2
<PAGE> 1
EXHIBIT 10.29
APACHE CORPORATION
NON-EMPLOYEE DIRECTORS' COMPENSATION PLAN
As Amended and Restated December 12, 1997
PURPOSE
The purpose of the Non-Employee Directors' Compensation Plan (the
"PLAN") is to set forth certain of the compensation arrangements for members of
the board of directors (the "BOARD") of Apache Corporation ("APACHE") who are
not also employees of Apache ("NON-EMPLOYEE DIRECTORS"). The Plan supersedes
the Directors' Deferred Compensation Plan; however, all elections previously
made thereunder shall remain in effect in respect of the Plan. The Plan does
not supersede or amend in any way any other arrangements relating to
Non-Employee Directors including specifically, without limitation, the Equity
Compensation Plan for Non-Employee Directors, the Outside Directors' Retirement
Plan, indemnification provisions of Apache's charter or bylaws, or policies
with respect to reimbursement of expenses.
PLAN PROVISIONS
1. BOARD RETAINER. Each Non-Employee Director shall be paid, as
soon as practicable following accrual, the Board retainer fees set forth below:
(a) $5,000.00 shall be paid to each Non-Employee Director
at the end of each calendar quarter during which such Non-Employee
Director served as a member of Apache's Board ("CASH RETAINER FEE");
(b) $2,500.00 in value of Apache common stock, par value
$1.25 per share ("STOCK"), shall be paid from Apache's treasury shares
to each Non-Employee Director at the end of each calendar quarter
during which such Non-Employee Director served as a member of Apache's
Board ("STOCK RETAINER FEE"). The number of shares of Stock shall be
determined by dividing $2,500.00 by the per share closing price of the
Stock as reported on the New York Stock Exchange, Inc. Composite
Transactions Reporting System (the "Composite Tape") as of the trading
day prior to the last trading day of the relevant calendar quarter,
with any fractional shares to be paid to the director in cash; and
(c) In the event that a Non-Employee Director serves as a
member of Apache's Board for less than an entire calendar quarter, the
fees payable pursuant to Sections 1 (a) and (b) hereof shall be
prorated on the basis of the number of weeks served during such
calendar quarter.
<PAGE> 2
2. COMMITTEE RETAINERS. Each Non-Employee Director serving on
any committee of Apache's Board shall be paid, as soon as practicable, the
committee retainer fee ("COMMITTEE RETAINER FEE") set forth below:
(a) $500.00 shall be paid to each Non-Employee Director
at the end of each calendar quarter in respect of each committee on
which such Non-Employee Director served during such quarter;
(b) $1,000.00 shall be paid to each Non-Employee Director
at the end of each calendar quarter in respect of each committee on
which such Non-Employee Director served as chairperson during such
quarter; and
(c) In the event that a Non-Employee Director serves on
any committee of Apache's Board and/or as chairperson of any committee
of Apache's board for less than an entire calendar quarter, the fees
payable pursuant to Sections 2 (a) and (b) hereof shall be prorated on
the basis of number of weeks served during such calendar quarter.
3. ATTENDANCE FEES. Each Non-Employee Director shall receive an
attendance fee ("ATTENDANCE FEE") of $1,000.00 for each meeting of the Board
and of any committee thereof attended, such fee to be paid at each such meeting
or as soon thereafter as practicable.
4. OPTIONAL DEFERRAL OF FEES.
(a) DEFERRABLE FEES. A Non-Employee Director may defer
all or any portion of any unpaid Cash Retainer Fee, Stock Retainer
Fee, Committee Retainer Fee, and Attendance Fee, all of which are paid
to Non-Employee Directors with respect to their services performed as
a director on the Board ("DEFERRABLE FEES"). No other payments to
Non-Employee Directors may be deferred including, without limitation,
any expense reimbursement, any award under Apache's Equity
Compensation Plan for Non-Employee Directors or benefits payable under
Outside Directors' Retirement Plan.
(b) FORM OF DEFERRAL. Any Cash Retainer Fees and
Committee Retainer Fees may be deferred in the form of cash or in the
form of Stock. Any Stock Retainer Fees may be deferred only in the
form of Stock. Any Attendance Fees may be deferred only in the form
of cash. Any Cash Retainer Fees, Stock Retainer Fees and/or Committee
Retainer Fees which are deferred in the form of Stock by a
Non-Employee Director shall not be issued until such deferral is
terminated; however, Apache shall at all times have reserved from its
treasury shares for issuance pursuant hereto to deferring Non-Employee
Directors a number of shares at least equal to the number of shares of
Stock issuable pursuant to the terms of the Plan.
(c) NUMBER OF SHARES. For any Cash Retainer Fees, Stock
Retainer Fees and/or Committee Retainer Fees deferred in the form of
Stock, the number of shares of Stock shall be determined by dividing
the amount of such fees by the per share closing price of the Stock as
reported on the Composite Tape as of the trading day prior to the last
trading day of the relevant calendar quarter, with any fractional
shares to be deferred in the form of cash.
-2-
<PAGE> 3
(d) ELECTION TO DEFER. A Non-Employee Director's
election to defer ("ELECTION") all or any portion of Deferrable Fees
shall be effected by execution of a Directors' Deferred Compensation
Agreement between the participating director and Apache ("AGREEMENT"),
a copy of the form of which is attached hereto as Exhibit A. An
Agreement must be executed by the deferring Non-Employee Director and
provided to Apache's Corporate Secretary on or before December 31 of
the year prior to the year for which deferral is elected. Once
executed, an Agreement shall be irrevocable with respect to the year
made, the form of deferral, and the Deferrable Fees designated for
deferral (the "DEFERRED COMPENSATION"), and shall remain in effect
with respect to all subsequent years until the Agreement is terminated
or amended. All elections to defer Deferrable Fees previously made in
respect of the Directors' Deferred Compensation Plan shall constitute
valid Elections in respect of the Plan. Upon full or partial
termination of deferral by a Non-Employee Director, the cash and/or
Stock shall be paid and/or issued to such Non-Employee Director
pursuant to the terms of such Non-Employee Director's Agreement.
(e) TERMINATION OR MODIFICATION OF ELECTION. Any
termination of an Election shall be made in writing and provided to
Apache's Corporate Secretary on or before December 31 of the year
prior to the year for which the termination is to be effective. Any
modification or amendment of an Election shall be made by executing a
new Agreement which shall supersede any previous Agreement. Such new
Agreement must be executed by the deferring Non-Employee Director and
provided to Apache's Corporate Secretary on or before December 31 of
the year prior to the year for which the amended Election is to be
effective. Upon termination or modification of an Election, all
Deferred Compensation payable to the Non-Employee Director terminating
or modifying the Election shall be paid in accordance with the
provisions of such Non-Employee Director's then effective Agreement,
as modified or amended.
(f) DIVIDENDS AND INTEREST; NO VOTING. All Deferrable
Fees deferred in the form of and payable in Stock which are deferred
by a Non-Employee Director shall accrue dividends denominated in the
cash value thereof as if such Stock were issued and outstanding as and
when dividends are payable in respect of such Stock. All Deferrable
Fees deferred in the form of and payable in cash which are deferred by
a Non-Employee Director, plus all previously accrued dividends and
interest, shall accrue interest at the end of each calendar quarter or
as of and through the date of payment of Deferred Compensation, as
appropriate. The rate of interest per diem shall equal (i) the annual
rate of interest earned by Apache's short-term marketable securities
portfolio, or (ii) an equivalent index or market rate for similar
investments in short-term marketable securities, divided by the number
of days elapsed in the relevant period. Non-Employee Directors shall
have no right to vote any Stock which constitutes Deferred
Compensation prior to the date on which share certificates
representing such Stock are issued.
(g) MEMORANDUM ACCOUNT. Apache will maintain a separate
Deferred Compensation memorandum account ("MEMORANDUM ACCOUNT") for
each deferring Non-Employee Director. All Deferred Compensation and
accrued dividends and interest accumulated in each Memorandum Account
will be classified in the same category as other unsecured creditors
and accounts payable of Apache, and neither the deferring Non-Employee
Director nor his or her beneficiary or estate shall have any property
interest whatsoever in any specific assets of Apache. All
distributions from a Memorandum Account of Deferred
-3-
<PAGE> 4
Compensation deferred in the form of cash, and of accrued interest and
dividends, shall be paid in cash, and all distributions from a
Memorandum Account of Deferred Compensation deferred in the form of
Stock shall be made by issuance of shares of Stock.
(h) TERMINATION OF DIRECTORSHIP. Upon retirement or
other termination of a Non-Employee Director's directorship with
Apache, or on a date specifically designated in a Non-Employee
Director's Agreement, any balance in such Non-Employee Director's
Memorandum Account shall be paid in cash and/or Stock, as applicable,
(a) in a lump sum, or (b) in annual installments over a ten-year
period (or over such shorter period as designated in the deferring
Non-Employee Director's Agreement) beginning with the first business
day of the calendar year immediately following retirement or other
termination of such Non-Employee Director's directorship.
(i) ASSIGNMENT AND TRANSFER. The right of the deferring
Non-Employee Director or any other person to receive payments under
the Plan shall not be assigned, transferred, pledged or encumbered,
except by will or by the laws of descent and distribution. Upon the
death of a deferring Non-Employee Director, any balance remaining in
such Non-Employee Director's Memorandum Account at the time of death
shall be paid in cash and/or Stock, as applicable, in a lump sum to
his or her designated beneficiary or, if there is no designated
beneficiary, to his or her estate as soon as practicable after such
Non-Employee Director's death.
(j) ADJUSTMENTS IN STOCK. In the event of any merger,
consolidation, liquidation, dissolution, recapitalization or
reorganization of Apache, split, subdivision or consolidation of
shares of Stock, the payment of a stock dividend, or any other
material change in Apache's capital structure, the number of shares of
Stock shown in each deferring Non-Employee Director's Memorandum
Account shall be adjusted to reflect that number of shares of Stock or
such cash, securities or other property to which such Non-Employee
Director would have been entitled if, immediately prior thereto, such
Non-Employee Director had been the holder of record of the number of
shares of Stock shown in the Memorandum Account. Notwithstanding the
foregoing, the issuance by Apache of Stock, rights, options or
warrants to acquire Stock, or securities convertible or exchangeable
into Stock in consideration of cash, property, labor or services,
whether or not for fair value, shall not result in an adjustment
pursuant to this paragraph.
5. AMENDMENT OF PLAN. The Plan may be amended from time to time
or terminated by vote of the Board. Upon such amendment or termination,
Non-Employee Directors shall not be entitled to receive pursuant to the Plan
any compensation or other rights or benefits not accrued hereunder prior to the
time of amendment or termination hereof; provided, however, that no such Plan
amendment or termination shall impair any rights of Non-Employee Directors to
amounts previously accrued pursuant to the Plan or accumulated in such
Non-Employee Director's Memorandum Account.
6. SUCCESSORS AND ASSIGNS. The Plan is binding upon Apache and
its successors and assigns. The Plan shall continue in effect from year to
year unless and until revoked by the Board. Any such revocation shall operate
only prospectively and shall not affect the rights and obligations under
elections previously made.
-4-
<PAGE> 5
7. DEFINED TERMS. Except when otherwise indicated by the
context, the definition of any term herein in the singular shall also include
the plural, and the masculine gender shall also include the feminine gender.
8. GOVERNING LAW. The Plan and all Agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Texas.
December 12, 1997
ATTEST: APACHE CORPORATION
/s/ Cheri L. Peper /s/ Daniel L. Schaeffer
- ----------------------------- --------------------------------
Cheri L. Peper Daniel L. Schaeffer
Corporate Secretary Vice President, Human Resources
-5-
<PAGE> 6
EXHIBIT A
APACHE CORPORATION
DIRECTOR'S DEFERRED COMPENSATION AGREEMENT
THIS DIRECTOR'S DEFERRED COMPENSATION AGREEMENT is made this ___ day of
December, 1997 between Apache Corporation, a Delaware corporation ("Apache"),
and [NAME] (the "Non-Employee Director"), pursuant to the terms of the Apache
Corporation Non-Employee Directors' Compensation Plan (the "Plan"). All terms
used but not defined herein shall have the meanings ascribed thereto in the
Plan.
WITNESSETH, that the parties hereto hereby agree as follows:
1. DEFERRALS. The indicated percentages of the following fees payable to
the Non-Employee Director will be deferred in the succeeding calendar year, and
from year-to-year thereafter until this Agreement is terminated or amended, and
will be credited to the Non-Employee Director's Memorandum Account as of the
dates such fees, as appropriate, are regularly paid:
(a) Cash Retainer Fees
_____ percent of all accrued; deferred in the form of [ ] cash
or [ ] Stock.
(b) Stock Retainer Fees
_____ percent of all accrued; deferred in the form Stock.
(c) Committee Retainer Fees
_____ percent of all accrued; deferred in the form of [ ] cash
or [ ] Stock.
(d) Attendance Fees
_____ percent of all accrued; deferred in the form of cash.
2. MEMORANDUM ACCOUNT. All amounts deferred in the form of cash and/or
Stock pursuant to the Plan, together with dividends and interest provided for
in Section 4(f) of the Plan, will be accumulated in the Non-Employee Director's
Memorandum Account. The Non-Employee Director, his or her beneficiary, and all
amounts accumulated in the Non-Employee Director's Memorandum Account will be
classified in the same category as other unsecured creditors and accounts
payable of Apache.
3. TIME OF PAYMENT. Payments in cash and/or issuances of shares of Stock
from the Non-Employee Director's Memorandum Account are to be made (check one):
[ ] upon retirement or other termination as a director of Apache,
or
[ ] on ________________, ______. (indicate specific date)
<PAGE> 7
4. MANNER OF PAYMENT. Payments from the Non-Employee Director's
Memorandum Account are to be made (check one):
[ ] in cash and/or Stock, as applicable, in a lump sum, or
[ ] in cash and/or Stock, as applicable, in annual installments
over a ten-year period beginning with the first business day
of the calendar year immediately following retirement or other
termination as a director of Apache or, alternatively, the
date specified in Section 3 hereof, or
[ ] in cash and/or Stock, as applicable, in annual installments
over a ______-year period beginning with the first business
day of the calendar year immediately following retirement or
other termination as a director of Apache or, alternatively,
the date specified in Section 3 hereof.
5. DIVIDENDS/INTEREST DURING INSTALLMENT PERIODS. Dividends/interest
provided for in Section 4(f) of the Plan will continue to accrue on the
remaining balances in the Non-Employee Director's Memorandum Account during any
installment periods.
6. NON-ASSIGNABILITY. The right to receive payments under the Plan is
non-assignable (except as set forth in Section 7 hereof), may not be
transferred, and is not subject to attachment or levy for any debts of the
Non-Employee Director.
7. DESIGNATED BENEFICIARY. The Non-Employee Director hereby designates
-------------------------------------------------
(Please Print Name and Relationship or "N/A")
as beneficiary to receive any balance remaining in the Non-Employee Director's
Memorandum Account at the time of the Non-Employee Director's death. If the
Non-Employee Director is married as of the date of this Agreement and the
beneficiary designated above is not the Non-Employee Director's spouse, the
Non-Employee Director's spouse must consent to such designation by signing the
"Consent to Beneficiary Designation" set out below. At the time of the
Non-Employee Director's death, any balance remaining in the Non-Employee
Director's Memorandum Account will be paid in cash and/or Stock, as applicable,
in a lump sum to the Non-Employee Director's designated beneficiary or, if
there is no designated beneficiary, to the Non-Employee Director's estate.
8. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be given by first class registered or
certified mail, postage prepaid, or by personal delivery to the appropriate
party, addressed:
(a) If to Apache, to Apache Corporation at its principal place of
business at 2000 Post Oak Boulevard, Suite 100, Houston, Texas
77056-4400 (Attention: Office of the Secretary) or at such
other address as may have been furnished to the Non-Employee
Director in writing by Apache; or
(b) If to the Non-Employee Director, at the address indicated
below the Non-Employee Director's signature, or at such other
address as may have been furnished to Apache by the
Non-Employee Director.
Any such notice shall be deemed to have been given as of the second day after
deposit in the United States Postal Service, postage prepaid, properly
addressed as set forth above, in the case of mailed notice, or as of the date
delivered in the case of personal delivery.
9. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed by the laws of the State of Texas.
-2-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
IN PRESENCE OF:
- ---------------------------- ----------------------------------------
Witness [NAME]
Non-Employee Director
----------------------------------------
Social Security Number
----------------------------------------
Address
----------------------------------------
City, State, Zip Code
ATTEST: APACHE CORPORATION
By:
- ---------------------------- --------------------------------
Cheri L. Peper Daniel L. Schaeffer
Corporate Secretary Vice President, Human Resources
CONSENT TO BENEFICIARY DESIGNATION IN SECTION 7 ABOVE
I understand that if the Non-Employee Director designates a
beneficiary other than his or her spouse, the spouse must consent to such
designation. I hereby consent to the beneficiary designated in Section 7 of
this Agreement.
- ---------------------------- ------------------------------------
Date Signature of Spouse
-3-
<PAGE> 1
EXHIBIT 10.31
APACHE CORPORATION
OUTSIDE DIRECTORS' RETIREMENT PLAN
(As Amended and Restated September 11, 1997)
APACHE CORPORATION (the "Company") established the Apache Corporation Outside
Directors' Retirement Plan (the "Plan"), effective as of December 15, 1992 (the
"Effective Date"), to provide eligible non-employee Directors of the Company
("Outside Directors") with certain retirement and death payments. The purpose
of the Plan is to advance the interests of the Company, its subsidiaries, and
its stockholders by continuing to attract and retain outstanding individuals as
Outside Directors and to stimulate the efforts of such individuals by giving
suitable recognition to services which will contribute materially to the
success of the Company.
ARTICLE I
ELIGIBILITY, PARTICIPATION AND CONTRIBUTIONS
1.1 Eligibility and Participation.
Each Outside Director on the Effective Date shall be eligible to
participate in the Plan on that date. Subsequently elected Outside Directors
shall be eligible to participate in the Plan as of the date their Service
begins. An eligible Outside Director shall become a participant
("Participant") upon receipt by the Company of a completed Participation
Agreement, the form of which is attached hereto as Exhibit A. At any time on or
prior to the effective date of a Participant's Retirement, but not thereafter,
the election and/or designation made on his or her Participation Agreement may
be changed by completion and delivery to the Company of a new Participation
Agreement.
1.2 Contributions.
All amounts payable under the Plan shall be paid from the general
assets of the Company. Nothing contained in the Plan shall be deemed to create
any fiduciary relationship between the Company and the Participant. Any rights
of the Participant under the Plan shall be no greater than the right of any
unsecured general creditor of the Company.
ARTICLE II
RETIREMENT PAYMENTS
2.1 Retirement Payments.
(a) A Participant who Retires with four or more Quarters of
Service shall be entitled to receive payments under the Plan for a term of
years equal to the number of Quarters of Service credited to the Participant at
Retirement divided by 4, with any fraction (a "Service Fraction") rounded up to
the next whole number. The annual amount of such payments shall equal 66-2/3%
of the Participant's Annual Director's Retainer, except that the amount payable
in the final year of the term shall be determined by multiplying the Service
Fraction, if any, times 66-2/3% of the Participant's Annual Director's
Retainer.
<PAGE> 2
(b) "Annual Directors' Retainer" shall mean the aggregate annual
amount of an Outside Director's board retainer fee payable pursuant to Section 1
of the Company's Non-Employee Directors' Compensation Plan (or comparable
section of any successor plan), whether or not all or a portion of such amount
is deferred or delayed. Such amount shall be determined as of the date a
Participant Retires or, in the case of payments pursuant to the provisions of
Article III, as of the date of the Participant's death.
(c) "Quarter of Service" shall mean the aggregate total full
months of Service as an Outside Director divided by 3 and rounded up to the
next whole number but in no event shall any Participant's Quarters of Service
exceed 40.
(d) "Retirement Retired or Retires" shall mean a Participant's
ceasing to hold office as an Outside Director, for any reason other than death,
on or after the attainment of age 60.
(e) "Service" shall mean: the aggregate total, not to exceed 120,
of (i) the number of full months beginning on or after July 1, 1992 (whether or
not consecutive) that a Participant held office as an Outside Director, whether
or not a Participant at the time, and (ii) 1/2 the number of full months prior
to July 1, 1992 (whether or not consecutive) that a Participant held office as
an Outside Director; provided, however, that a Participant who, as of the
Effective Date, has held office as an Outside Director for an aggregate total
of 15 years shall automatically be credited with 120 full months of Service.
2.2 Retirement Payments Following Change in Control.
In the event of a "change in control" of the Company, as defined in
Section 1(c) of the Company's Income Continuation Plan (as in effect on the
Effective Date without regard to whether such Income Continuation Plan remains
in effect or is subsequently amended), any Participant whose Service as an
Outside Director terminates on or after the date of such change in control
shall be deemed as of such date of termination, or if later, upon attainment
of age 60, to have Retired and shall be entitled to the payments provided
hereunder.
2.3 Method and Time of Payment.
Unless a Participant elects the optional form of payment pursuant to
Section 2.4, payments hereunder shall be paid quarterly as of the last day of
March, June, September and December for the period determined in accordance
with Section 2.l(a). Quarterly payments to a Participant shall be paid in cash
and shall begin as of the payment date next following the date the Participant
Retires. If a Participant dies before completion of the payments for the period
determined in accordance with Section 2.1(a), death payments shall be made to
the Participant's Spouse or Beneficiary to the extent provided in Article III.
2.4 Optional Form of Payment.
In lieu of the quarterly payments to which a Participant would
otherwise be entitled hereunder, a Participant may elect, at the time of
signing a Participation Agreement for the Plan, to receive a cash lump sum
payment in an amount which the Committee calculates as the net present value of
the payments to which the Participant would otherwise be entitled under the
provisions of the Plan determined using a series of annual payments and an
annual interest rate
2
<PAGE> 3
equal to the rate on ten-year treasury bonds/notes as reported in The Wall
Street Journal published on or most recently prior to the effective date of the
Participant's Retirement. Any such lump sum payment shall be made within 90
days following the Participant's Retirement.
ARTICLE III.
DEATH PAYMENTS
3.1 Death Payments for Participants.
(a) If a Participant, who has not elected a lump sum payment under
Section 2.4, dies after Retirement but prior to receiving all of the annual
payments to which the Participant would otherwise be entitled hereunder, and is
survived by a Spouse or Beneficiary, the Spouse or Beneficiary shall be
entitled to receive the remaining payments which would otherwise have been
payable to the Participant until the earlier of (i) the death of the Spouse or
Beneficiary, or (ii) the completion of such payments in accordance with the
provisions of Article II.
(b) If a Participant dies while holding office as an Outside
Director and after attaining age 60 and after being credited with 40 Quarters
of Service pursuant to Article II, and is survived by a Spouse or Beneficiary,
the Spouse or Beneficiary shall be entitled to receive the payments which would
otherwise have been made to the Participant until the earlier of (i) the death
of the Spouse or Beneficiary, or (ii) the completion of such payments in
accordance with the provisions of Article II.
(c) Payments to a Spouse or Beneficiary hereunder shall be made at
the same time as payments would have been made to the Participant.
(d) "Spouse" shall mean the lawfully married spouse of a
Participant at the time of the Participant's death.
(e) "Beneficiary" shall mean the individual designated by the
Participant in his or her Participation Agreement in effect at the time of the
Participant's death.
3.2 Lump Sum Death Payments.
(a) If a Participant who has elected a lump sum payment dies
after the Participant's Retirement but before the receipt of such payment, the
lump sum shall be paid to the surviving Spouse or Beneficiary, or if none, to
the estate or the personal representative of the Participant.
(b) If an Outside Director, who has not completed a Participation
Agreement, dies while holding office as an Outside Director and after attaining
age 60 and after being credited with 40 Quarters of Service pursuant to Article
II, and is not survived by a Spouse, the payments which would otherwise have
been made to the Outside Director if he or she had been a Participant shall be
paid to the estate or the personal representative of the Outside Director in a
lump sum calculated pursuant to Section 2.4 hereof.
3
<PAGE> 4
ARTICLE IV
ADMINISTRATION, AMENDMENT AND TERMINATION
4.1 The Management Development and Compensation Committee.
The Plan shall be administered by the Management Development and
Compensation Committee (the "Committee") of the Company's Board of Directors.
All administrative duties, including but not limited to the power to interpret
the Plan and to decide any dispute, shall be carried out by the Committee,
which shall have full discretion and authority hereunder. All claims under the
Plan shall be filed with the Committee, and the decisions made by the Committee
shall be final and binding on all persons having or claiming to have rights
under the Plan.
4.2 Termination or Amendment of Plan.
The Plan may be terminated or amended at any time through action of
the Company's Board of Directors. No termination or amendment, however, shall
reduce the payments (a) to a Participant or a Participant's Spouse or
Beneficiary where a Participant has already reached Retirement or (b) to which
a current Participant is or may become entitled, based on such Participant's
Service and Annual Director's Retainer as determined on the effective date of
such termination or amendment.
ARTICLE V.
MISCELLANEOUS
5.1 Inalienability of Payments.
No Participant shall have the right to assign, transfer, hypothecate,
encumber or anticipate his or her interest in any payments under the Plan, nor
shall the payments under the Plan be subject to any legal process to levy upon
or attach such payments for any claim against the Participant or the
Participant's Spouse or Beneficiary.
5.2 Notices.
Any notice required or permitted to be given under the Plan shall be
in writing and shall be given by first class registered or certified mail,
postage prepaid, or by personal delivery to the appropriate party, addressed:
(a) If to the Company, to Apache Corporation at its principal
place of business at 2000 Post Oak Boulevard, Suite 100, Houston, Texas
77056-4400 (Attention: Office of the Secretary) or at such other address as may
have been furnished in writing by Apache to a Participant; or
(b) If to a Participant, at the address indicated below the
Participant's signature on his or her Participation Agreement, or at such other
address as may have been furnished in writing by a Participant to Apache.
4
<PAGE> 5
Any such notice shall be deemed to have been given as of the second
day after deposit in the United States Postal Service, postage prepaid,
properly addressed as set forth above, in the case of mailed notice, or as of
the date delivered in the case of personal delivery.
5.3 Disposition of Unclaimed Payments.
Any communication, statement or notice addressed to a Participant at
his or her last post office address, as provided to the Company under Section
5.2 hereof, will be binding on the Participant and the Participant's Spouse or
Beneficiary for all purposes of the Plan. If the Company cannot ascertain the
whereabouts of any person to whom a payment is due under the Plan within three
years from the date such payment is due, such payment shall be cancelled on the
records of the Plan and the amount thereof forfeited to the Company.
5.4 Governing Law.
The Plan shall be governed by the laws of the State of Texas.
Dated: September 11, 1997
<TABLE>
<S> <C> <C> <C>
ATTEST: APACHE CORPORATION
By: /s/ Cheri L. Peper By: /s/ Daniel L. Schaeffer
--------------------------- ---------------------------
Cheri L. Peper Daniel L. Schaeffer
Corporate Secretary Vice President, Human Resources
</TABLE>
5
<PAGE> 6
APACHE CORPORATION
OUTSIDE DIRECTORS' RETIREMENT PLAN
PARTICIPATION AGREEMENT
This Agreement is made and entered into by and between APACHE
CORPORATION (the "Company") and [DIRECTOR](the "Participant") pursuant
to the Apache Corporation Outside Directors' Retirement Plan (the
"Plan").
The purpose of this Agreement is to provide for the election by the
Participant of the form of benefit payable by the Company to the
Participant under the terms of the Plan, and to allow for designation
of a beneficiary by the Participant.
BENEFIT ELECTION
Pursuant to the terms of the Plan and the Participant's election, the
Company agrees to pay such benefits as are due to the Participant,
using the form the Participant has indicated below by marking an X in
the blank immediately preceding Option A or B:
______ A Participant's Retirement Benefits shall be paid
to the Participant in a SINGLE LUMP SUM PAYMENT
pursuant to Section 2.4 of the Plan.
______ B Participant's Retirement Benefits shall be paid
to the Participant in a SERIES OF QUARTERLY PAYMENTS
pursuant to Section 2.1 of the Plan.
BENEFICIARY DESIGNATION
The Participant hereby designates
----------------------------------------------------------------------
(Print Name and Relationship or, if no designation made, print "N/A")
as the Participant's beneficiary under the terms of the Plan. If the
Participant is married as of the date of this Agreement and the
beneficiary designated above is not the Participant's spouse, the
Participant's spouse must consent to such designation by signing the
"Consent to Beneficiary Designation" set out below.
Page 1 of 2
<PAGE> 7
It is understood and agreed by the Participant and the Company that at
any time on or prior to the effective date of the Participant's
retirement, BUT NOT THEREAFTER, the above election and/or beneficiary
designation may be changed by completion and delivery to the Company of
a new Agreement.
This Agreement is made as of this _____ day of _____________, 19_____.
<TABLE>
<CAPTION>
APACHE CORPORATION PARTICIPANT
<S> <C>
- ---------------------------------- -----------------------------------
BY: DANIEL L. SCHAEFFER [DIRECTOR]
ITS: VICE PRESIDENT, HUMAN RESOURCES
-----------------------------------
SOCIAL SECURITY NUMBER
-----------------------------------
ADDRESS
-----------------------------------
CITY, STATE, ZIP CODE
</TABLE>
CONSENT TO BENEFICIARY DESIGNATION
I understand that if the Participant designates a beneficiary other
than his or her spouse, the spouse must consent to such designation. I hereby
consent to the beneficiary designated on page 1 of this Agreement.
- --------------------------------- ---------------------------------
Date Signature of Spouse
Page 2 of 2
<PAGE> 1
EXHIBIT 21.1
PAGE 1 OF 2
APACHE CORPORATION - LISTING OF SUBSIDIARIES
AS OF FEBRUARY 28,1998
<TABLE>
<CAPTION>
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF
UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION
- ------------------------------------------ ------------------------------------
<S> <C>
Apache-Beals Corporation New York
Apache Corporation (New Jersey) New Jersey
Apache Foundation Minnesota
Apache Gathering Company Delaware
Apache Holdings, Inc. Delaware
Apache International, Inc. Delaware
Apache Cote d'Ivoire, Inc. Delaware
Apache Oil Australia Pty Limited New South Wales, Australia
Apache Oil Congo, Inc. Delaware
Apache Oil Java Sea, Inc. Delaware
Apache Oil Sumatra, Inc. Delaware
Apache Qarun Corporation LDC Cayman Islands
Apache Overseas, Inc. Delaware
Apache Abu Gharadig Corporation LDC Cayman Islands
Apache Asyout Corporation LDC Cayman Islands
Apache China Corporation LDC Cayman Islands
Apache Cote d'Ivoire Petroleum LDC Cayman Islands
Apache Darag Corporation LDC Cayman Islands
Apache East Bahariya Corporation LDC Cayman Islands
Apache Faiyum Corporation LDC Cayman Islands
Apache Korinci Baru LDC Cayman Islands
Apache Matruh Corporation LDC Cayman Islands
Apache Mediterranean Corporation LDC Cayman Islands
Apache Poland Holding Company Delaware
Apache Eastern Europe B.V. Netherlands
Apache Poland Sp. z o.o. Poland
MW Petroleum Corporation Colorado
MWJR Petroleum Corporation Delaware
Nagasco, Inc. Delaware
Apache NGC, Inc. Delaware
Apache Marketing, Inc. Delaware
Apache Transmission Corporation - Texas Texas
Apache Crude Oil Marketing, Inc. Delaware
Nagasco Marketing, Inc. Delaware
Apache Oil Corporation Texas
Burns Manufacturing Company Minnesota
Apache Bentu Limited Oklahoma
Apache Energy Bentu LDC Cayman Islands
</TABLE>
<PAGE> 2
Exhibit 21.1
Page 2 of 2
APACHE CORPORATION - LISTING OF SUBSIDIARIES
AS OF FEBRUARY 28, 1998
<TABLE>
<CAPTION>
EXACT NAME OF SUBSIDIARY AND NAME JURISDICTION OF
UNDER WHICH SUBSIDIARY DOES BUSINESS INCORPORATION OR ORGANIZATION
- ------------------------------------ ------------------------------
<S> <C>
Apache Energy Limited Western Australia
Apache Northwest Pty Ltd. Western Australia
Apache Carnarvon Pty Ltd. Western Australia
Apache Dampier Pty Ltd. Western Australia
Apache East Spar Pty Limited Western Australia
Apache Finance Pty Ltd Australian Capital Territory
Apache Harriet Pty Limited Victoria, Australia
Apache Varanus Pty Limited Queensland, Australia
Mid Equipment, Incorporated Delaware
DEK Energy Company Delaware
DEK Energy Texas, Inc. Delaware
DEK Exploration Inc. Delaware
DEK Petroleum Corporation Illinois
Apache Canada Ltd. Alberta, Canada
DEPCO, Inc. Texas
Heinold Holdings, Inc. Delaware
Apache PHN Company, Inc. Delaware
Phoenix Exploration Resources, Ltd. Delaware
TEI Arctic Petroleum (1984) Ltd. Alberta, Canada
Texas International Company Delaware
Apache Khalda Corporation LDC Cayman Islands
Apache Khalda, Inc. Delaware
Apache Qarun Exploration Company LDC Cayman Islands
Phoenix Resources Company of Qarun Delaware
Apache North America, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accounts, we hereby consent to the incorporation by
reference of our report included in this Form 10-K into Apache Corporation's
previously filed Registration Statements on Form S-3 (Nos. 33-53129, 333-39973
and 333-44731), Form S-4 (No. 33-61669), and Form S-8 (Nos. 33-31407, 33-37402,
33-53442, 33-59721, 33-59723, 33-63817, 333-04059, 333-25201, 333-26255,
333-32557 and 333-36131).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
March 20, 1998
<PAGE> 1
EXHIBIT 23.2
[LETTERHEAD OF RYDER SCOTT COMPANY]
As independent petroleum engineers, we hereby consent to the incorporation by
reference in this Form 10-K of Apache Corporation to our Firm's name and our
Firm's review of the proved oil and gas reserve quantities of Apache Corporation
as of January 1, 1998, and to the incorporation by reference of our Firm's name
and review into Apache Corporation's previously filed Registration Statements on
Form S-3 (Nos. 33-53129, 333-39973 and 333-44731), on Form S-4 (No. 33-61669),
and on Form S-8 (Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723,
33-63817, 333-04059, 333-25201, 333-26255, 333-32557 and 333-36131).
/s/ Ryder Scott Company
/s/ Petroleum Engineers
Ryder Scott Company
Petroleum Engineers
Houston, Texas
March 16, 1998
<PAGE> 1
EXHIBIT 23.3
[LETTERHEAD OF NETHERLAND, SEWELL & ASSOCIATES, INC.]
As independent petroleum engineers, we hereby consent to the reference in this
Form 10-K of Apache Corporation to our Firm's name and our Firm's review of the
proved oil and gas reserve quantities as of January 1, 1997 for certain of
Apache Corporation's interests located in The Arab Republic of Egypt, and to the
incorporation by reference of our Firm's name and review into Apache
Corporation's previously filed Registration Statements on Form S-3 (Nos.
33-53129, 333-39973 and 333-44731), on Form S-4 (No. 33-61669), and on Form S-8
(Nos. 33-31407, 33-37402, 33-53442, 33-59721, 33-59723, 33-63817, 333-04059,
333-25201, 333-26255, 333-32557 and 333-36131).
NETHERLAND, SEWELL & ASSOCIATES, INC.
By: /s/ Clarence M. Netherland
------------------------------------
Clarence M. Netherland
Chairman
Houston, Texas
March 16, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 9,686
<SECURITIES> 0
<RECEIVABLES> 224,025
<ALLOWANCES> 0
<INVENTORY> 36,041
<CURRENT-ASSETS> 348,329
<PP&E> 6,380,663
<DEPRECIATION> 2,647,478
<TOTAL-ASSETS> 4,138,633
<CURRENT-LIABILITIES> 343,783
<BONDS> 1,501,380
0
0
<COMMON> 118,098
<OTHER-SE> 1,611,079
<TOTAL-LIABILITY-AND-EQUITY> 4,138,633
<SALES> 983,773
<TOTAL-REVENUES> 1,176,273
<CGS> 807,065
<TOTAL-COSTS> 807,065
<OTHER-EXPENSES> 38,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72,325
<INCOME-PRETAX> 258,640
<INCOME-TAX> 103,744
<INCOME-CONTINUING> 154,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 154,896
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.65
</TABLE>
