<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
------------------- ---------------------
Commission File Number 1-4300
APACHE CORPORATION
-----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 41-0747868
------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Suite 100, One Post Oak Central
2000 Post Oak Boulevard, Houston, TX 77056-4400
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 296-6000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Registrant's common stock, outstanding as of
March 31, 1998...............................................98,597,542
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
------------------------------
1998 1997
------------ ------------
(In thousands, except per
common share data)
<S> <C> <C>
REVENUES:
Oil and gas production revenues $ 209,949 $ 262,395
Gathering, processing and marketing revenues 32,096 60,094
Equity in income (loss) of affiliates (873) 193
Other revenues 4,769 (854)
------------ ------------
245,941 321,828
------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization 98,372 89,318
Operating costs 56,551 59,972
Gathering, processing and marketing costs 31,203 59,354
Administrative, selling and other 9,966 9,142
Financing costs:
Interest expense 30,144 23,641
Amortization of deferred loan costs 1,262 1,327
Capitalized interest (10,850) (8,640)
Interest income (823) (368)
------------ ------------
215,825 233,746
------------ ------------
INCOME BEFORE INCOME TAXES 30,116 88,082
Provision for income taxes 12,760 35,205
------------ ------------
NET INCOME $ 17,356 $ 52,877
============ ============
NET INCOME PER COMMON SHARE:
Basic $ .18 $ .59
============ ============
Diluted $ .18 $ .56
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
1
<PAGE> 3
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
------------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,356 $ 52,877
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 98,372 89,318
Amortization of deferred loan costs 1,262 1,327
Provision for deferred income taxes 5,265 26,782
Cash distributions in excess of (less than) earnings of affiliates 852 (167)
Changes in operating assets and liabilities:
Decrease in receivables 43,431 35,341
Increase in advances to oil and gas ventures and other (692) (6,688)
Decrease in deferred charges and other (2,289) 1,301
Decrease in product inventory 37 55
Decrease in payables (41,653) (7,556)
Increase (decrease) in accrued expenses (9,895) 101
Decrease in advance from gas purchaser (4,507) (2,389)
Decrease in deferred credits and noncurrent liabilities (1,647) (3,504)
------------ ------------
Net cash provided by operating activities 105,892 186,798
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (192,565) (175,537)
Non-cash portion of net oil and gas property additions (3,255) (10,894)
Proceeds received from sales of property and equipment 107,549 750
Proceeds received from sale of assets held for resale 62,998 --
Other, net (6,583) (2,290)
------------ ------------
Net cash used in investing activities (31,856) (187,971)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 228,750 255,512
Payments on long-term debt (186,621) (244,532)
Dividends paid (6,531) (6,304)
Common stock activity, net 834 3,869
Treasury stock activity, net -- (363)
Cost of debt and equity transactions (281) (297)
------------ ------------
Net cash provided by financing activities 36,151 7,885
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 110,187 6,712
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,686 13,161
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 119,873 $ 19,873
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
<PAGE> 4
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 119,873 $ 9,686
Receivables 180,707 224,025
Inventories 37,895 36,041
Advances to oil and gas ventures and other 16,286 15,579
Assets held for resale -- 62,998
------------ ------------
354,761 348,329
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 5,529,865 5,530,991
Unproved properties and properties under
development, not being amortized 517,125 453,556
International concession rights, not being amortized 79,000 79,000
Gas gathering, transmission and processing facilities 278,790 246,049
Other 75,011 71,067
------------ ------------
6,479,791 6,380,663
Less: Accumulated depreciation, depletion and amortization (2,746,404) (2,647,478)
------------ ------------
3,733,387 3,733,185
------------ ------------
OTHER ASSETS:
Deferred charges and other 53,675 57,119
------------ ------------
$ 4,141,823 $ 4,138,633
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
<PAGE> 5
APACHE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 11,800 $ 17,200
Accounts payable 138,596 178,361
Accrued operating expense 17,546 20,153
Accrued exploration and development 79,200 82,392
Accrued compensation and benefits 7,440 17,600
Accrued interest 22,922 20,598
Other accrued expenses 8,027 7,479
------------ ------------
285,531 343,783
------------ ------------
LONG-TERM DEBT 1,393,330 1,501,380
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES:
Income taxes 360,235 355,619
Advances from gas purchaser 150,039 154,546
Other 52,516 54,128
------------ ------------
562,790 564,293
------------ ------------
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par, 215,000,000 shares authorized,
99,771,253 and 94,478,788 shares issued, respectively 124,714 118,098
Paid-in capital 1,237,943 1,085,063
Retained earnings 572,435 561,981
Treasury stock, at cost, 1,173,711 and 1,174,247 shares,
respectively (15,499) (15,506)
Accumulated other comprehensive income (19,421) (20,459)
------------ ------------
1,900,172 1,729,177
------------ ------------
$ 4,141,823 $ 4,138,633
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
<PAGE> 6
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMPREHENSIVE COMMON PAID-IN RETAINED
(In thousands) INCOME STOCK CAPITAL EARNINGS
--------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ 114,030 $ 1,002,540 $ 432,588
Comprehensive income
Net income $ 52,877 - - 52,877
Foreign currency translation adjustments, net of
applicable income tax benefit of $766 (1,277) - - -
--------------
Comprehensive income $ 51,600
==============
Dividends ($.07 per common share) - - (6,318)
Common shares issued 252 3,617 -
Treasury shares purchased - - -
---------- ------------- ----------
BALANCE AT MARCH 31, 1997 $ 114,282 $ 1,006,157 $ 479,147
========== ============= ==========
BALANCE AT DECEMBER 31, 1997 $ 118,098 $ 1,085,063 $ 561,981
Comprehensive income
Net income $ 17,356 - - 17,356
Foreign currency translation adjustments, net of
applicable income taxes of $623 1,038 - - -
--------------
Comprehensive income $ 18,394
==============
Dividends ($.07 per common share) - - (6,902)
Common shares issued 6,616 152,880 -
Treasury shares issued - - -
---------- ------------- ----------
BALANCE AT MARCH 31, 1998 $ 124,714 $ 1,237,943 $ 572,435
========== ============= ==========
<CAPTION>
ACCUMULATED
OTHER TOTAL
TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) STOCK INCOME EQUITY
------------ --------------- --------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 $ (15,152) $ (15,490) $ 1,518,516
Comprehensive income
Net income - - 52,877
Foreign currency translation adjustments, net of
applicable income tax benefit of $766 - (1,277) (1,277)
Comprehensive income
Dividends ($.07 per common share) - - (6,318)
Common shares issued - - 3,869
Treasury shares purchased (363) - (363)
---------- -------------- -------------
BALANCE AT MARCH 31, 1997 $ (15,515) $ (16,767) $ 1,567,304
========== ============== =============
BALANCE AT DECEMBER 31, 1997 $ (15,506) $ (20,459) $ 1,729,177
Comprehensive income
Net income - - 17,356
Foreign currency translation adjustments, net of
applicable income taxes of $623 - 1,038 1,038
Comprehensive income
Dividends ($.07 per common share) - - (6,902)
Common shares issued - - 159,496
Treasury shares issued 7 - 7
---------- -------------- -------------
BALANCE AT MARCH 31, 1998 $ (15,499) $ (19,421) $ 1,900,172
========== ============== =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
5
<PAGE> 7
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These financial statements have been prepared by Apache Corporation (Apache
or the Company) without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature. Certain
information, accounting policies, and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. These financial statements should be read in
conjunction with the financial statements and the summary of significant
accounting policies and notes thereto included in the Company's most recent
annual report on Form 10-K.
1. DIVESTITURES
During the first quarter of 1998 Apache sold 18.9 million barrels of
reserves from largely marginal North American properties, collecting proceeds of
$107.5 million. In addition, the Company completed the sale of a 10 percent
interest in the East Spar gas field and related production facilities in Western
Australia for a total sales price of $63 million in cash.
2. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing and financing activities is presented
below:
In March 1998, Apache acquired certain oil and gas property interests for
approximately 0.2 million shares of Apache common stock.
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 following table provides supplemental disclosure of cash flow
information:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
---------------------
1998 1997
-------- -------
(In thousands)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized) $16,969 $10,736
Income taxes (net of refunds) 7,495 8,418
</TABLE>
6
<PAGE> 8
3. 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 of the
6-percent debentures 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.
4. COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which
requires companies to report the components of comprehensive income in a
financial statement with the same prominence as other financial statements. The
Company has chosen to disclose comprehensive income, which is comprised of net
income and foreign currency translation adjustments, in the accompanying
statement of consolidated shareholders' equity. This information is shown for
all periods presented.
5. NET INCOME PER COMMON SHARE
A reconciliation of the components of basic and diluted net income per
common share is presented in the table below:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
---------------------------------------------------------------------------
1998 1997
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
----------- ---------- ----------- ----------- ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Net income $ 17,356 97,581 $ .18 $ 52,877 90,143 $ .59
========= =========
EFFECT OF DILUTIVE SECURITIES:
Stock option plans - 391 - 489
3.93% convertible notes - - 520 2,778
6% convertible subordinated
debentures 460 937 1,698 5,623
DILUTED:
--------- ------ ---------- ------
Net income including assumed
conversions $ 17,816 98,909 $ .18 $ 55,095 99,033 $ .56
========= ====== ========= ========== ====== =========
</TABLE>
7
<PAGE> 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Apache's results of operations and financial position for the first quarter
of 1998 were significantly impacted by the following factors:
Commodity Prices - Apache's average realized price for natural gas
decreased $.61 per thousand cubic feet (Mcf) from $2.59 per Mcf in the first
quarter of 1997 to $1.98 per Mcf in 1998, negatively impacting revenues by $32.2
million. The average realized oil price decreased $7.40 per barrel from $21.47
per barrel in the first quarter of 1997 to $14.07 per barrel in 1998, reducing
revenues by $41.9 million.
Operations - Daily oil production increased 24 percent for the first
quarter of 1998 when compared to the same period last year. The increase
favorably impacted revenues by $19.3 million. Daily gas production rose four
percent for the first quarter of 1998 when compared to the same period last
year, increasing revenues by $4.5 million. In addition to increasing production,
first quarter earnings were positively impacted by a $3.4 million, or six
percent, decrease in operating costs from the first quarter of 1997.
RESULTS OF OPERATIONS
Apache reported 1998 first quarter net income of $17.4 million versus $52.9
million in the prior year. Basic net income per common share of $.18 for the
first quarter of 1998 was significantly lower than in 1997. Higher oil and gas
production and lower operating costs were offset by a sharp decline in oil and
gas prices, higher depreciation, depletion and amortization (DD&A) expense and
higher financing costs.
For the first quarter of 1998, revenues decreased 24 percent to $245.9
million as compared to $321.8 million in 1997, driven by a 20 percent decrease
in crude oil and natural gas production revenues. Crude oil, including natural
gas liquids, contributed 48 percent and natural gas contributed 52 percent of
total oil and gas production revenues.
8
<PAGE> 10
Volume and price information for the Company's first quarter 1998 and 1997
oil and gas production is summarized in the following table:
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED MARCH 31,
---------------------------------- INCREASE
1998 1997 (DECREASE)
------------- ------------- --------------
<S> <C> <C> <C>
Natural Gas Volume - Mcf per day:
United States 467,123 484,962 (4%)
Canada 96,520 78,852 22%
Egypt 450 471 (4%)
Australia 46,973 21,403 119%
------------ ------------
Total 611,066 585,688 4%
============ ============
Average Natural Gas price - Per Mcf:
United States $ 2.18 $ 2.77 (21%)
Canada 1.24 1.69 (27%)
Egypt 1.78 3.02 (41%)
Australia 1.60 1.87 (14%)
Total 1.98 2.59 (24%)
Oil Volume - Barrels per day:
United States 39,634 40,575 (2%)
Canada 2,075 1,983 5%
Egypt 29,252 17,254 70%
Australia 7,130 3,041 134%
------------ ------------
Total 78,091 62,853 24%
============ ============
Average Oil price - Per barrel:
United States $ 14.33 $ 21.78 (34%)
Canada 15.75 21.51 (27%)
Egypt 13.60 20.42 (33%)
Australia 14.06 23.22 (39%)
Total 14.07 21.47 (34%)
Natural Gas Liquids (NGL) Volume - Barrels per day:
United States 1,910 1,863 3%
Canada 604 642 (6%)
------------ ------------
Total 2,514 2,505 -
============ ============
Average NGL Price - Per barrel:
United States $ 9.14 $ 18.36 (50%)
Canada 7.26 19.30 (62%)
Total 8.68 18.60 (53%)
</TABLE>
Natural gas sales for the first quarter of 1998 totaled $109.1 million, 20
percent lower than those recorded in the first quarter of 1997. Natural gas
production increased 25.4 million cubic feet per day (MMcf/d), or four percent,
on a worldwide basis, favorably impacting revenue by $4.5 million. In Canada and
Australia, the increase in natural gas production was principally due to
development activities and the impact of tactical acquisitions during late 1997.
9
<PAGE> 11
Average realized natural gas prices decreased 24 percent, negatively
affecting revenue by $32.2 million. The majority of this decrease, and the
resulting impact on natural gas sales, was realized in the U.S. where the
Company sold 76 percent of its worldwide gas production at an average price of
$2.18 per Mcf, $.59 per Mcf lower than 1997. In addition, the Company's natural
gas sales were negatively impacted by lower spot prices in Canada where the
Company sold 16 percent of its worldwide gas production at an average price of
$1.24 per Mcf, compared to $1.69 per Mcf in 1997. The Company periodically
engages in hedging activities, including fixed price physical and financial
contracts. The net result of these activities increased the Company's realized
gas price by $.07 per Mcf during the first quarter of 1998 and decreased the
realized price by $.02 per Mcf in the first quarter of 1997.
The Company's crude oil sales for the first quarter of 1998 totaled $98.9
million, a 19 percent decrease from the first quarter of 1997, due to lower
average realized prices, which were partially offset by production increases.
First quarter 1998 oil production increased 24 percent compared to the
prior year primarily as a result of increases in Egyptian and Australian
production. Egyptian oil production accounted for 37 percent of the Company's
worldwide oil production, compared to 27 percent in the first quarter of 1997,
resulting in an increase in revenues of $14.7 million. The increase in Egyptian
production was primarily a result of drilling and development activity. In
addition, Australian oil production increased 134 percent in the first quarter
of 1998 due to the acquisition of all the capital stock of three companies
(subsidiaries of Mobil Exploration & Producing Australia Pty Ltd) owning
interests in certain oil and gas properties and production facilities offshore
Western Australia on November 20, 1997.
The Company's realized price for sales of crude oil in the first quarter of
1998 decreased $7.40 per barrel, or 34 percent, resulting in a decrease in
revenue of $41.9 million compared to the same period in 1997.
Revenue from the sale of natural gas liquids totaled $2.0 million for the
first quarter of 1998, as compared to $4.2 million for the same period in 1997.
A 53 percent decline in realized prices contributed to the decrease in revenues.
OTHER REVENUES AND OPERATING EXPENSES
During the first quarter of 1998, Apache's gas gathering, processing and
marketing revenues decreased 47 percent to $32.1 million, due primarily to lower
volumes compared to the prior year. Although revenues decreased with respect to
these activities, there was a decrease in gas gathering, processing and
marketing costs. Therefore, higher margins were realized for the first quarter
of 1998 compared to the same period in 1997.
Other revenues for the first quarter of 1998 included $4 million in
settlement proceeds from the resolution of issues with a gas purchaser. This
represents a significant increase over other revenues for the same period in the
prior year due to a 1997 loss associated with declines in Canadian and
Australian currency exchange rates.
The Company's DD&A expense for the first quarter of 1998 totaled $98.4
million, compared to $89.3 million for the comparable period in 1997. On an
equivalent barrel basis, full cost DD&A expense decreased $.15 per barrel of oil
equivalent (boe), from $5.73 per boe to $5.58 per boe, in the first quarter of
1998 compared to the same period in 1997. The decrease is a function of first
quarter reserve additions along with the favorable effects of North American
property sales and exchanges.
10
<PAGE> 12
Operating costs, including lease operating expense and severance taxes,
decreased six percent from $60.0 million in the first quarter of 1997 to $56.6
million for the same period in 1998. For the first quarter of 1998, lease
operating expense, excluding severance and other taxes, totaled $48.2 million,
compared to $49.3 million for the comparable period in 1997. On an equivalent
barrel basis, lease operating expense declined from $3.36 per boe in the first
quarter of 1997 to $2.94 per boe in the first quarter of 1998. Domestic per unit
costs were significantly reduced due to lower Gulf Coast region repairs,
maintenance, power and fuel costs and lower Offshore region repairs and
maintenance costs. In Egypt, there were significant reductions in oil trucking
expense which contributed to the decrease. Australian per unit costs were less
than 1997 due to incremental production with minimal lease operating expense
increases.
Administrative, selling and other costs (G&A) in the first quarter of 1998
increased $.8 million, or nine percent, from a year ago. On an equivalent barrel
basis, G&A expenses declined slightly to $.61 per boe, for the first three
months of 1998 as compared to $.62 per boe for the same period in 1997. G&A
continues to trend toward lower levels due to the Company's ongoing efforts to
control costs.
Net financing costs for the first quarter of 1998 increased $3.8 million,
or 24 percent, from the prior year due to higher gross interest expense,
mitigated by lower amortization of deferred loan costs and higher capitalized
interest. Gross interest expense increased $6.5 million due to a higher average
outstanding debt balance and a higher weighted average interest rate.
MARKET RISK
COMMODITY RISK
The Company's major market risk exposure continues to be 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. Price
volatility is expected to continue.
CASH FLOW, LIQUIDITY AND CAPITAL RESOURCES
CAPITAL COMMITMENTS
Apache's primary cash needs are for exploration, development and
acquisition of oil and gas properties, repayment of principal and interest on
outstanding debt, and payment of dividends. The Company generally funds its
exploration and development activities through internally generated cash flow.
Apache budgets capital expenditures based upon projected cash flow and routinely
adjusts its capital expenditures in response to changes in oil and natural gas
prices and corresponding changes in cash flow. The Company is not in a position
to predict future product prices.
11
<PAGE> 13
Capital Expenditures - A summary of oil and gas capital expenditures during
the first three months of 1998 and 1997 is presented below (in millions):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
MARCH 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Exploration and development:
United States $ 60.2 $ 92.2
Canada 24.1 15.5
Egypt 32.7 30.6
Australia 19.1 11.1
Other international 9.8 6.5
------------ ------------
Subtotal 145.9 155.9
Capitalized Interest 10.8 8.6
------------ ------------
Total $ 156.7 $ 164.5
============ ============
Acquisition of oil and gas properties $ 9.1 $ 6.8
============ ============
</TABLE>
In North America, Apache completed 47 producing wells out of 66 wells
drilled during the first three months of 1998, while internationally the Company
discovered four new producers out of 11 wells drilled. Worldwide, the Company
was drilling or completing an additional 105 wells as of March 31, 1998. In
addition, Apache completed 113 production enhancement projects, including 57
recompletions, during the first three months of 1998.
Property acquisitions totaled $9.1 million in the first three months of
1998, primarily representing tactical acquisitions of properties in the
Company's existing focus areas.
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided by
operating activities during the first quarter of 1998 totaled $105.9 million, a
decrease of 43 percent from $186.8 million in the first quarter of 1997. This
decrease was due primarily to lower product prices, partially offset by higher
production, as compared to last year.
Long-Term Borrowings - 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 of the 6-percent debentures 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.
Liquidity - The Company had $119.9 million in cash and cash equivalents on
hand at March 31, 1998, up from $9.7 million at December 31, 1997. Apache's
ratio of current assets to current liabilities at March 31, 1998 was 1.24:1
compared to 1.01:1 at December 31, 1997.
Apache 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 March 31, 1998, Apache's
available borrowing capacity under its global credit facility was $774 million.
12
<PAGE> 14
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 unremedied,
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 12 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, cash
flow and earnings 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 have negatively impacted Apache's first quarter
1998 earnings and cash from operations (see "Market Risk-Commodity Risk" above),
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 have been or may be 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.
3. Calling for redemption of $172.5 million of debentures of which 90 percent
or, $155.6 million, were converted to equity in January 1998.
The above steps help 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 will continue
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.
13
<PAGE> 15
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 in Poland. While international exploration is
recognized as higher risk than Apache's North 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.
Under the rules of the Securities and Exchange Commission, 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. The Company did not have a writedown due to ceiling test
limitations as of March 31, 1998.
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.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information set forth in Note 10 to the Consolidated Financial
Statements contained in the Company's Form 10-K for the year ended
December 31, 1997 (filed with the Securities and Exchange Commission
on March 20, 1998) is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 - Financial Data Schedules
(b) Reports filed on Form 8-K
The following current report on Form 8-K was filed during
the fiscal quarter ended March 31, 1998:
January 29, 1998 - Item 5. Other Events
Offering to the public of $150 million principal amount
of Apache's 7% Senior Notes due 2018, issuable under an
indenture dated February 15, 1996, and supplemented November
5, 1996, and registered pursuant to Apache's Registration
Statement on Form S-3 (File No. 333-44731).
15
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Dated: May 12, 1998 /s/ Roger B. Plank
------------------------------------------
Roger B. Plank
Vice President and Chief Financial Officer
Dated: May 12, 1998 /s/ Thomas L. Mitchell
------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 FINANCIAL DATA SCHEDULES
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 119,873
<SECURITIES> 0
<RECEIVABLES> 180,707
<ALLOWANCES> 0
<INVENTORY> 37,895
<CURRENT-ASSETS> 354,761
<PP&E> 6,479,791
<DEPRECIATION> 2,746,404
<TOTAL-ASSETS> 4,141,823
<CURRENT-LIABILITIES> 285,531
<BONDS> 1,393,330
0
0
<COMMON> 124,714
<OTHER-SE> 1,775,458
<TOTAL-LIABILITY-AND-EQUITY> 4,141,823
<SALES> 209,949
<TOTAL-REVENUES> 245,941
<CGS> 186,126
<TOTAL-COSTS> 186,126
<OTHER-EXPENSES> 9,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,733
<INCOME-PRETAX> 30,166
<INCOME-TAX> 12,760
<INCOME-CONTINUING> 17,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,356
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 13,633 19,591 16,151 13,235
<SECURITIES> 0 0 0 0
<RECEIVABLES> 175,949 179,323 191,579 182,810
<ALLOWANCES> 0 0 0 0
<INVENTORY> 9,764 11,853 13,648 15,687
<CURRENT-ASSETS> 208,336 221,877 236,190 234,498
<PP&E> 4,377,104 4,498,750 4,994,781 5,198,527
<DEPRECIATION> (1,975,543) 2,044,415 2,118,560 2,198,674
<TOTAL-ASSETS> 2,681,450 2,746,007 3,180,162 3,297,259
<CURRENT-LIABILITIES> 230,349 213,948 249,575 256,881
<BONDS> 1,072,076 1,137,697 1,156,781 1,225,794
<COMMON> 98,124 98,274 113,655 113,748
0 0 0 0
0 0 0 0
<OTHER-SE> 993,681 1,006,843 1,334,923 1,361,085
<TOTAL-LIABILITY-AND-EQUITY> 2,681,450 2,746,007 3,180,162 3,297,259
<SALES> 653,144 171,921 363,355 670,869
<TOTAL-REVENUES> 750,702 206,470 430,126 672,510
<CGS> 500,131 124,373 317,347 485,438
<TOTAL-COSTS> 600,470 156,783 317,347 485,438
<OTHER-EXPENSES> 0 8,858 17,129 26,049
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 88,057 16,102 31,780 44,994
<INCOME-PRETAX> 33,143 25,406 65,288 116,029
<INCOME-TAX> 12,936 9,751 25,196 45,800
<INCOME-CONTINUING> 20,207 15,655 40,092 70,229
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 20,207 15,655 40,092 70,229
<EPS-PRIMARY> .28 .20 .49 .83
<EPS-DILUTED> .28 .20 .48 .81
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 13,161 19,873 14,182 25,596
<SECURITIES> 0 0 0 0
<RECEIVABLES> 234,646 199,166 201,431 220,820
<ALLOWANCES> 0 0 0 0
<INVENTORY> 13,963 16,047 17,664 30,191
<CURRENT-ASSETS> 268,156 248,155 249,250 287,798
<PP&E> 5,381,313 5,551,657 5,750,873 5,937,101
<DEPRECIATION> 2,281,252 2,366,731 2,458,790 2,554,317
<TOTAL-ASSETS> 3,432,430 3,493,616 3,599,782 3,726,414
<CURRENT-LIABILITIES> 309,657 288,509 268,680 282,851
<BONDS> 1,235,706 1,248,686 1,349,099 1,312,595
<COMMON> 114,030 114,282 114,369 114,522
0 0 0 0
0 0 0 0
<OTHER-SE> 1,404,486 1,453,022 1,474,279 1,501,539
<TOTAL-LIABILITY-AND-EQUITY> 3,432,430 3,493,616 3,599,782 3,726,414
<SALES> 976,032 322,489 481,128 714,196
<TOTAL-REVENUES> 977,151 321,828 580,669 857,417
<CGS> 679,439 208,644 398,774 596,352
<TOTAL-COSTS> 679,439 208,644 398,774 596,352
<OTHER-EXPENSES> 35,911 9,142 18,083 26,790
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 61,606 15,960 32,101 51,048
<INCOME-PRETAX> 200,195 88,082 131,711 183,227
<INCOME-TAX> 78,768 35,205 53,088 73,819
<INCOME-CONTINUING> 121,427 52,877 78,623 109,408
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 121,427 52,877 78,623 109,408
<EPS-PRIMARY> 1.42 .59 .88 1.22
<EPS-DILUTED> 1.38 .56 .84 1.17
</TABLE>
