<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 June 30, 1999
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 77056-4400
2000 Post Oak Boulevard, Houston, TX (Zip Code)
(Address of Principal Executive Offices)
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 June 30, 1999 ....................113,870,783
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
APACHE CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
(In thousands, except per common share data)
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas production revenues $ 243,076 $ 197,856 $ 405,379 $ 407,805
Gathering, processing and marketing revenues 35,901 27,020 60,495 59,116
Other revenues 2,659 (4,744) 3,477 (848)
------------ ------------ ------------ ------------
281,636 220,132 469,351 466,073
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Depreciation, depletion and amortization 105,398 97,414 193,821 195,786
Operating costs 51,268 52,616 98,125 109,167
Gathering, processing and marketing costs 35,071 26,417 59,197 57,620
Administrative, selling and other 12,134 10,200 22,464 20,166
Financing costs:
Interest expense 32,659 30,187 64,107 60,331
Amortization of deferred loan costs 1,101 1,046 2,215 2,308
Capitalized interest (13,053) (12,538) (25,969) (23,388)
Interest income (403) (1,647) (824) (2,470)
------------ ------------ ------------ ------------
224,175 203,695 413,136 419,520
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 57,461 16,437 56,215 46,553
Provision for income taxes 24,693 7,201 25,615 19,961
------------ ------------ ------------ ------------
NET INCOME 32,768 9,236 30,600 26,592
Preferred stock dividends 3,136 -- 4,556 --
------------ ------------ ------------ ------------
INCOME ATTRIBUTABLE TO COMMON STOCK $ 29,632 $ 9,236 $ 26,044 $ 26,592
============ ============ ============ ============
NET INCOME PER COMMON SHARE:
Basic $ .28 $ .09 $ .26 $ .27
============ ============ ============ ============
Diluted $ .28 $ .09 $ .26 $ .27
============ ============ ============ ============
</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 SIX MONTHS ENDED
JUNE 30,
------------------------------
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,600 $ 26,592
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 193,821 195,786
Amortization of deferred loan costs 2,215 2,308
Provision for deferred income taxes 10,430 4,981
Cash distributions in excess of earnings of affiliates -- 1,523
Changes in operating assets and liabilities:
(Increase) decrease in receivables (64,504) 43,631
(Increase) decrease in advances to oil and gas ventures and other (9,094) 3,011
(Increase) decrease in deferred charges and other (2,074) 16,057
Increase in product inventory (356) (152)
Decrease in payables (5,600) (39,429)
Increase (decrease) in accrued expenses 7,727 (14,364)
Decrease in advance from gas purchaser (12,135) (9,203)
Increase in deferred credits and noncurrent liabilities 12,898 236
------------ ------------
Net cash provided by operating activities 163,928 230,977
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (278,551) (359,012)
Acquisition of Shell properties (686,539) --
Acquisition of British-Borneo, net of cash acquired (83,659) --
Non-cash portion of net oil and gas property additions (41,931) (21,182)
Proceeds from sales of oil and gas properties 103,172 105,216
Proceeds received from sale of assets held for resale -- 62,998
Other, net (7,057) (9,907)
------------ ------------
Net cash used in investing activities (994,565) (221,887)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 630,799 344,796
Payments on long-term debt (431,914) (261,821)
Dividends paid (16,532) (13,433)
Proceeds from issuance of preferred stock 210,490 --
Common stock activity, net 446,845 1,036
Cost of debt and equity transactions (1,161) (440)
------------ ------------
Net cash provided by financing activities 838,527 70,138
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,890 79,228
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 14,537 9,686
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22,427 $ 88,914
============ ============
</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>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(In thousands)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,427 $ 14,537
Receivables 228,145 159,806
Inventories 47,481 40,948
Advances to oil and gas ventures and other 21,008 11,679
------------ ------------
319,061 226,970
------------ ------------
PROPERTY AND EQUIPMENT:
Oil and gas, on the basis of full cost accounting:
Proved properties 6,676,564 5,901,863
Unproved properties and properties under
development, not being amortized 817,901 637,854
Gas gathering, transmission and processing facilities 403,807 354,506
Other 93,506 88,422
------------ ------------
7,991,778 6,982,645
Less: Accumulated depreciation, depletion and amortization (3,457,343) (3,255,104)
------------ ------------
4,534,435 3,727,541
------------ ------------
OTHER ASSETS:
Deferred charges and other 41,473 41,551
------------ ------------
$ 4,894,969 $ 3,996,062
============ ============
</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>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(In thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 18,378 $ 15,500
Accounts payable 113,044 115,111
Accrued operating expense 24,408 18,990
Accrued exploration and development 79,088 120,855
Accrued compensation and benefits 10,454 10,692
Accrued interest 21,413 19,054
Other accrued expenses 6,040 5,572
------------ ------------
272,825 305,774
------------ ------------
LONG-TERM DEBT 1,539,265 1,343,258
------------ ------------
DEFERRED CREDITS AND OTHER NONCURRENT
LIABILITIES:
Income taxes 300,501 270,493
Advances from gas purchaser 193,333 205,468
Other 81,542 69,236
------------ ------------
575,376 545,197
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, no par value, 5,000,000 shares authorized --
Series B, 5.68% Cumulative Preferred Stock,
100,000 shares issued and outstanding 98,387 98,387
Series C, 6.5% Conversion Preferred Stock,
140,000 shares issued and outstanding 210,490 --
Common stock, $1.25 par, 215,000,000 shares authorized,
115,884,232 and 99,790,337 shares issued, respectively 144,855 124,738
Paid-in capital 1,699,928 1,245,738
Retained earnings 414,324 403,098
Treasury stock, at cost, 2,013,449 and 2,021,215 shares,
respectively (36,782) (36,924)
Accumulated other comprehensive income (23,699) (33,204)
------------ ------------
2,507,503 1,801,833
------------ ------------
$ 4,894,969 $ 3,996,062
============ ============
</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>
PREFERRED PREFERRED
COMPREHENSIVE STOCK STOCK COMMON PAID-IN
(In thousands) INCOME SERIES B SERIES C STOCK CAPITAL
--------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ -- $ -- $ 118,098 $ 1,085,063
Comprehensive income:
Net income $ 26,592 -- -- -- --
Currency translation adjustments (3,321) -- -- -- --
Unrealized gain on marketable securities,
net of applicable income taxes of $181 302 -- -- -- --
--------------
Comprehensive income $ 23,573
==============
Dividends ($.14 per common share) -- -- -- --
Common shares issued -- -- 6,625 153,077
Treasury shares issued, net -- -- -- --
---------- ---------- ---------- -------------
BALANCE AT JUNE 30, 1998 $ -- $ -- $ 124,723 $ 1,238,140
========== ========== ========== =============
BALANCE AT DECEMBER 31, 1998 $ 98,387 $ -- $ 124,738 $ 1,245,738
Comprehensive income:
Net income $ 30,600 -- -- -- --
Currency translation adjustments 9,505 -- -- -- --
--------------
Comprehensive income $ 40,105
==============
Dividends:
Preferred -- -- -- --
Common ($.14 per share) -- -- -- --
Preferred shares issued -- 210,490 -- --
Common shares issued -- -- 20,117 454,190
Treasury shares issued, net -- -- - --
---------- ---------- ---------- -------------
BALANCE AT JUNE 30, 1999 $ 98,387 $ 210,490 $ 144,855 $ 1,699,928
========== ========== ========== =============
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
RETAINED TREASURY COMPREHENSIVE SHAREHOLDERS'
(In thousands) EARNINGS STOCK INCOME EQUITY
------------ ------------ --------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 561,981 $ (15,506) $ (20,459) $ 1,729,177
Comprehensive income:
Net income 26,592 -- -- 26,592
Currency translation adjustments -- -- (3,321) (3,321)
Unrealized gain on marketable securities,
net of applicable income taxes of $181 -- -- 302 302
Comprehensive income
Dividends ($.14 per common share) (13,804) -- -- (13,804)
Common shares issued -- -- -- 159,702
Treasury shares issued, net -- 9 -- 9
---------- ---------- --------------- -------------
BALANCE AT JUNE 30, 1998 $ 574,769 $ (15,497) $ (23,478) $ 1,898,657
========== ========== ============== =============
BALANCE AT DECEMBER 31, 1998 $ 403,098 $ (36,924) $ (33,204) $ 1,801,833
Comprehensive income:
Net income 30,600 -- -- 30,600
Currency translation adjustments -- -- 9,505 9,505
Comprehensive income
Dividends:
Preferred (4,556) -- -- (4,556)
Common ($.14 per share) (14,818) -- -- (14,818)
Preferred shares issued -- -- -- 210,490
Common shares issued -- -- -- 474,307
Treasury shares issued, net -- 142 -- 142
---------- ---------- -------------- -------------
BALANCE AT JUNE 30, 1999 $ 414,324 $ (36,782) $ (23,699) $ 2,507,503
========== ========== ============== =============
</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. ACQUISITIONS AND DIVESTITURES
Acquisitions - On February 1, 1999, the Company acquired oil and gas
properties located in the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an
adjusted purchase price of approximately $66.7 million. The Petsec transaction
included estimated proved reserves of approximately 10.2 million barrels of oil
equivalent (MMboe) as of the effective date.
On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated
Shell entities (Shell) its interest in 22 producing fields and 16 undeveloped
blocks located in the Gulf of Mexico. The Shell transaction also included
certain production-related assets and proprietary 3D seismic data covering
approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to
post closing adjustments, was $686.5 million in cash and one million shares of
Apache common stock (valued at $28.125 per share). The Shell transaction
included estimated proved reserves of approximately 123.2 MMboe as of the
effective date.
The Shell transaction has been accounted for using the purchase method of
accounting and is included in the Company's financial statements from the date
the transaction was completed. The following unaudited pro forma information
shows the effect of the Shell transaction on the Company's consolidated results
of operations assuming the transaction occurred on January 1, 1999. The pro
forma information is based on numerous assumptions and is not necessarily
indicative of future results of operations.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
-----------------------------------------
AS REPORTED PRO FORMA
--------------- ----------------
(In thousands, except per common share data)
<S> <C> <C>
Revenues $ 469,351 $ 544,288
Net income 30,600 45,878
Preferred stock dividends 4,556 9,845
Income attributable to common stock 26,044 36,033
Net income per common share:
Basic $ .26 $ .32
Diluted .26 .32
Average common shares outstanding 101,698 113,771
</TABLE>
On June 18, 1999, the Company acquired a 10 percent interest in the East
Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture,
both located in the Carnarvon Basin (offshore Western Australia), from
British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $83.7 million
cash and working interests in 11 leases in
6
<PAGE> 8
the Gulf of Mexico. The British-Borneo transaction included estimated proved
reserves of approximately 15.9 MMboe as of the effective date.
The purchase price was allocated to the assets purchased and the
liabilities assumed based upon the fair values on the date of acquisition, as
follows (in thousands):
<TABLE>
<S> <C>
Value of properties acquired, including gathering and transportation facilities $ 98,582
Value of Gulf of Mexico leases (3,140)
Working capital acquired, net 4,123
Deferred income tax liability (15,906)
----------
Cash paid, net of cash acquired $ 83,659
==========
</TABLE>
Divestitures - During the six months ended June 30, 1999, Apache sold 27.8
million equivalent barrels of proved reserves from largely marginal North
American properties, collecting cash of $103.2 million.
2. NON-CASH INVESTING AND FINANCING ACTIVITIES
A summary of non-cash investing or financing activities is presented below:
In May 1999, the Company issued one million shares of Apache common stock
valued at $28.1 million to Shell in connection with the transaction discussed in
Note 1.
In June 1999, the Company acquired certain oil and gas interests from
British-Borneo for cash and the assumption of certain liabilities. The
accompanying financial statements include the amounts detailed in Note 1.
The following table provides supplemental disclosure of cash flow
information:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-----------------------------------------
1999 1998
--------------- ----------------
(In thousands)
<S> <C> <C>
Cash paid during the period for:
Interest (net of amounts capitalized) $ 35,779 $ 38,284
Income taxes (net of refunds) 15,185 14,980
</TABLE>
3. DEBT
In March 1999, Apache Finance Pty Ltd (Apache Finance) issued $100 million
principal amount, $99.3 million net of discount, of senior unsecured 7-percent
notes due March 15, 2009. The notes are irrevocably and unconditionally
guaranteed by Apache. Apache Finance has the right to redeem the notes prior to
maturity, under certain conditions related to changes in relevant tax laws.
Also, upon certain changes in control, these notes are subject to mandatory
repurchase. The proceeds were used to reduce outstanding indebtedness under the
Australian portion of the global credit facility.
In June 1999, the Company issued $150 million principal amount, $149.1
million net of discount, of senior unsecured 7.625-percent notes due July 1,
2019. The Company does not have the right to redeem the notes prior to maturity.
Upon certain changes in control, these notes are subject to mandatory
repurchase. The proceeds were used to reduce the Company's outstanding amounts
of commercial paper.
7
<PAGE> 9
4. 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 JUNE 30,
---------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ---------- ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Income attributable to common stock $ 29,632 105,566 $ .28 $ 9,236 98,599 $ .09
========= =========
EFFECT OF DILUTIVE SECURITIES:
Stock option plans -- 317 -- 377
--------- --------- --------- ----------
DILUTED:
Income attributable to common
stock after assumed conversions $ 29,632 105,883 $ .28 $ 9,236 98,976 $ .09
========= ========= ========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
---------- ---------- ----------- ----------- ----------- ----------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
BASIC:
Income attributable to common stock $ 26,044 101,698 $ .26 $ 26,592 98,093 $ .27
========= =========
EFFECT OF DILUTIVE SECURITIES:
Stock option plans -- 242 -- 384
--------- --------- --------- ----------
DILUTED:
Income attributable to common
stock after assumed conversions $ 26,044 101,940 $ .26 $ 26,592 98,477 $ .27
========= ========= ========= ========= ========== =========
</TABLE>
The 6-percent convertible subordinated debentures were not included in the
computation of diluted net income per common share for the six months ended June
30, 1998, because to do so would have been antidilutive. Such debentures were
converted into shares of Apache common stock or redeemed in January 1998.
The Conversion Preferred Stock, Series C, was not included in the
computation of diluted net income per common share during 1999, because to do so
would have been antidilutive.
5. CAPITAL STOCK
In May 1999, Apache issued 14,950,000 shares ($463.5 million) of Apache
common stock and 140,000 shares ($217 million) of Automatically Convertible
Equity Securities, Conversion Preferred Stock, Series C (the Preferred Stock) in
the form of seven million depositary shares each representing 1/50th of a share
of Preferred Stock (Depositary Shares). The Preferred Stock is not subject to a
sinking fund or mandatory redemption. On May 15, 2002, each Depositary Share
will automatically convert, subject to adjustments, into not more than one share
and not less than 0.8197 of a share of Apache common stock, depending on the
market price of Apache common stock at that time.
At any time prior to May 15, 2002, holders of the Depositary Shares may
elect to convert each of their shares, subject to adjustments, into not less
than 0.8197 of a share of Apache Common Stock (5,737,900 common shares). Holders
of the shares are entitled to receive cumulative cash dividends at an annual
rate of $2.015 per Depositary Share when, and if, declared by Apache's board of
directors. The net proceeds from both offerings of
8
<PAGE> 10
approximately $654.8 million were used for general corporate purposes, including
funding of a portion of the purchase price for the Shell transaction.
6. BUSINESS SEGMENT INFORMATION
Apache has five reportable segments which are primarily in the business of
natural gas and crude oil exploration and production. The Company evaluates
performance based on profit or loss from oil and gas operations before income
and expense items incidental to oil and gas operations and income taxes.
Apache's reportable segments are managed separately because of their geographic
locations. Financial information by operating segment is presented below:
<TABLE>
<CAPTION>
UNITED OTHER
STATES CANADA EGYPT AUSTRALIA INTERNATIONAL TOTAL
-------------------------- ------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Oil and Gas Production Revenues......... $ 251,307 $ 34,293 $ 74,597 $ 43,875 $ 1,307 $ 405,379
=========== =========== =========== =========== =========== ==========
Operating Income (1).................... $ 58,219 $ 10,077 $ 29,629 $ 16,365 $ 441 $ 114,731
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues....................... 3,477
Administrative, selling and other.... (22,464)
Financing costs, net................. (39,529)
----------
Income Before Income Taxes.............. $ 56,215
==========
Total Assets............................ $ 2,731,207 $ 326,065 $ 894,033 $ 761,031 $ 182,633 $4,894,969
=========== =========== =========== =========== =========== ==========
FOR THE SIX MONTHS ENDED JUNE 30, 1998
Oil and Gas Production Revenues......... $ 274,895 $ 28,918 $ 71,068 $ 32,924 $ - $ 407,805
=========== =========== =========== =========== =========== ==========
Operating Income (1).................... $ 59,074 $ 5,883 $ 30,841 $ 8,550 $ - $ 104,348
=========== =========== =========== =========== ===========
Other Income (Expense):
Other revenues....................... (848)
Administrative, selling and other.... (20,166)
Financing costs, net................. (36,781)
----------
Income Before Income Taxes.............. $ 46,553
==========
Total Assets............................ $ 2,424,996 $ 298,440 $ 784,031 $ 553,046 $ 117,446 $4,177,959
=========== =========== =========== =========== =========== ==========
</TABLE>
(1) Operating income consists of oil and gas production revenues and net
gathering, processing and marketing activity, less depreciation, depletion
and amortization (DD&A) expense and operating costs.
9
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Early in 1998, when the cost of drilling for and acquiring oil and gas
reserves was rising rapidly, Apache implemented a two-phase strategy designed to
reduce debt and pursue larger acquisitions after the prices of oil and gas
properties had turned down. By the end of 1998, Apache had paid down
approximately $160 million in debt and added approximately $73 million to
shareholders' equity as compared to year-end 1997 levels. These results were
achieved in part by selling and trading non-strategic properties, curtailing
capital expenditures, and converting debentures into common stock.
Apache's strengthened balance sheet put the company in a better position to
endure the impact of low oil and gas prices in 1998 and in the first quarter of
1999, and to negotiate an agreement with Shell to acquire a large package of
properties located offshore in the Gulf of Mexico. That acquisition constituted
the largest transaction in the Company's history in terms of purchase price and
quantity of proved reserves acquired. Production from the acquired properties
was first recorded in the second quarter of 1999.
Apache's results of operations and financial position for the first half of
1999, were significantly impacted by the following factors:
Commodity Prices - Apache's average realized oil price increased $.38 per
barrel from $13.55 per barrel in the first six months of 1998 to $13.93 per
barrel in the comparable 1999 period, increasing revenues by $5.3 million. The
average realized price for natural gas decreased $.13 per thousand cubic feet
(Mcf) from $1.99 per Mcf in the first six months of 1998 to $1.86 per Mcf in
1999, negatively impacting revenues by $13.6 million.
Operations - Oil production increased four percent during the first six
months of 1999 when compared to the same period last year. The increase was
primarily due to the acquisition from Shell in the U.S., included for half of
the second quarter, the acquisition of certain oil and gas interests in the
Carnarvon Basin, offshore Western Australia, from subsidiaries of Novus
Petroleum Limited (Novus) in November 1998 and the full-period impact of
production from Australia's Stag field which began in May 1998. The increase in
oil production positively impacted revenues by $7.0 million. Gas production
decreased one percent which negatively impacted revenues by $1.8 million.
RESULTS OF OPERATIONS
Apache reported 1999 second quarter income attributable to common stock of
$29.6 million versus income of $9.2 million in the prior year. Basic net income
per common share of $.28 for the second quarter of 1999 was significantly higher
than the $.09 reported in 1998. A significant increase in oil and gas production
revenues was partially offset by higher DD&A, net financing costs, preferred
stock dividends and administrative, selling and other (G&A) expense.
For the first half of 1999, net income of $26.0 million, or $.26 per share,
compared to $26.6 million, or $.27 per share, in the comparable 1998 period. The
decrease resulted primarily from slightly lower oil and gas production revenues
along with higher net financing costs, preferred stock dividends and G&A expense
partially offset by declines in DD&A expense and operating costs.
For the second quarter of 1999, revenues increased 28 percent to $281.6
million compared to $220.1 million in 1998, driven by a 23 percent increase in
oil and gas production revenues. The increase in oil and gas production revenues
was the result of a 23 percent increase in the average realized oil price, a 16
percent increase in oil production, a five percent increase in natural gas
production and a two percent increase in the average realized price for natural
gas. Crude oil, including natural gas liquids, contributed 53 percent and
natural gas contributed 47 percent of oil and gas production revenues.
For the first six months of 1999, total revenues increased one percent to
$469.4 million as compared to $466.1 million for the same period
10
<PAGE> 12
in 1998. Revenues from oil and gas production decreased one percent over the
same period in 1998, with crude oil, including natural gas liquids, contributing
50 percent and natural gas contributing 50 percent of total oil and gas
production revenues.
Volume and price information for the Company's oil and gas production is
summarized in the following table:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED JUNE 30, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------- --------------------------------------
INCREASE INCREASE
1999 1998 (DECREASE) 1999 1998 (DECREASE)
------------ ------------ --------- ------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Natural Gas Volume - Mcf per day:
United States 447,046 450,284 (1)% 422,502 458,657 (8)%
Canada 98,540 99,014 -- 103,790 97,774 6%
Egypt 4,261 446 855% 3,855 448 760%
Australia 69,411 47,387 46% 64,762 47,181 37%
Ivory Coast 6,314 -- -- 3,779 -- --
----------- ----------- ------------ ------------
Total 625,572 597,131 5% 598,688 604,060 (1)%
=========== =========== ============ ============
Average Natural Gas price - Per Mcf:
United States $ 2.18 $ 2.18 -- $ 2.00 $ 2.18 (8)%
Canada 1.62 1.36 19% 1.52 1.30 17%
Egypt 2.63 2.21 19% 2.32 2.00 16%
Australia 1.53 1.55 (1)% 1.51 1.57 (4)%
Ivory Coast 1.72 -- -- 1.72 -- --
Total 2.02 1.99 2% 1.86 1.99 (7)%
Oil Volume - Barrels per day:
United States 43,420 34,752 25% 37,842 37,181 2%
Canada 2,069 2,017 3% 2,124 2,046 4%
Egypt 31,302 29,275 7% 29,017 29,263 (1)%
Australia 9,526 8,201 16% 9,889 7,668 29%
Ivory Coast 87 -- -- 49 -- --
----------- ----------- ------------ ------------
Total 86,404 74,245 16% 78,921 76,158 4%
=========== =========== ============ ============
Average Oil price - Per barrel:
United States $ 15.80 $ 12.67 25% $ 13.84 $ 13.55 2%
Canada 14.80 11.93 24% 12.81 13.85 (8)%
Egypt 15.78 13.17 20% 13.89 13.39 4%
Australia 17.70 14.04 26% 14.63 14.05 4%
Ivory Coast 14.48 -- -- 14.43 -- --
Total 15.98 13.00 23% 13.93 13.55 3%
Natural Gas Liquids (NGL)
Volume - Barrels per day:
United States 2,676 2,097 28% 2,534 2,004 26%
Canada 598 658 (9)% 614 631 (3)%
----------- ----------- ------------ ------------
Total 3,274 2,755 19% 3,148 2,635 19%
=========== =========== ============ ============
Average NGL Price - Per barrel:
United States $ 8.73 $ 7.58 15% $ 8.11 $ 8.32 (3)%
Canada 7.80 6.23 25% 6.56 6.72 (2)%
Total 8.56 7.25 18% 7.81 7.93 (2)%
</TABLE>
SECOND QUARTER 1999 COMPARED TO SECOND QUARTER 1998
Natural gas sales for the second quarter of 1999 totaled $114.9 million,
six percent higher than the second quarter of 1998. Average realized natural gas
prices increased two percent, positively affecting revenue by $1.5 million. 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 $.01 per Mcf during the second quarter of
1999 and $.05 for the same period in 1998.
11
<PAGE> 13
Natural gas production increased 28 million cubic feet per day (MMcf/d), or
five percent, on a worldwide basis, favorably impacting revenue by $5.2 million.
Increases were driven by the Shell and Australian acquisition activity. To a
lesser extent, initial production in the Ivory Coast along with Qarun concession
gas sales contributed to the overall increase.
The Company's crude oil sales for the second quarter of 1999 totaled $125.6
million, a 43 percent increase from the second quarter of 1998, due to increased
average realized prices and production volumes.
Second quarter 1999 oil production increased 16 percent compared to the
prior year primarily the result of a 25 percent increase in the United States
attributable to production from the Shell properties acquired in the second
quarter of 1999. Australian oil production increased 16 percent in the second
quarter of 1999 primarily due to the acquisition of Novus interests and the
full-period impact of production from the Stag field.
The Company's realized price for sales of crude oil in the second quarter
of 1999 increased $2.98 per barrel, or 23 percent, resulting in an increase in
revenue of $20.1 million compared to the same period in 1998.
Revenue from the sale of natural gas liquids totaled $2.6 million for the
second quarter of 1999, compared to $1.8 million for the second quarter of 1998
in response to a 19 percent increase in natural gas liquids production and an 18
percent improvement in realized prices.
Apache initiated production offshore the Ivory Coast in the first quarter
of 1999. First sales of natural gas were delivered in March 1999.
YEAR-TO-DATE 1999 COMPARED TO YEAR-TO-DATE 1998
Natural gas sales for the first half of 1999 of $201.9 million decreased
$15.4 million, or seven percent, from those recorded in the same period of 1998
primarily as a result of lower natural gas prices. Average realized natural gas
prices decreased seven percent, negatively affecting revenue by $13.6 million.
U.S. natural gas production, which comprised 71 percent of the Company's
worldwide gas production, sold at an average price of $2.00 per Mcf, eight
percent lower than in 1998, negatively impacting natural gas sales by $14.8
million. Natural gas production decreased 5 MMcf/d, or one percent, on a
worldwide basis, unfavorably impacting revenue by $1.8 million. While U.S.
natural gas production declined 36 MMcf/d, development activities and the impact
of producing property acquisitions during late 1998 increased natural gas
production in Australia and Canada by 18 MMcf/d and 6 MMcf/d, respectively. The
weakening of the Australian currency relative to the U.S. dollar contributed to
the four percent decrease in the Australian average natural gas price. 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 $.04 per Mcf during the first half of 1999
and by $.06 per Mcf during the same period of 1998.
For the first half of 1999, oil revenues of $199.0 million increased $12.3
million, or seven percent, from the same period in 1998 due to improved
production and higher oil prices. On a worldwide basis, average oil prices
increased $.38 per barrel, or three percent, to $13.93 per barrel positively
impacting oil sales by $5.3 million. Oil production increased 2,763 barrels per
day, or four percent, for the first six months of 1999 primarily due to
increases in Australia. Australian oil production increased by 2,221 barrels per
day, or 29 percent, primarily due to the full-period impact of production from
the Stag field and acquisition of the Novus interests.
Natural gas liquid revenues for the first six months of 1999 of $4.5
million increased $.7 million, or 18 percent, from the same period in 1998.
Natural gas liquid production increased 513 barrels per day, or 19 percent,
while natural gas liquid prices declined by $.12 per barrel, or two percent.
12
<PAGE> 14
OTHER REVENUES AND OPERATING EXPENSES
During the second quarter and first six months of 1999, Apache's gas
gathering, processing and marketing revenues increased 33 percent and two
percent, respectively, to $35.9 million and $60.5 million, as a result of
increases in production and prices in both periods. While revenues increased
with respect to these activities, there was a greater increase in gas gathering,
processing and marketing costs for the first six months of 1999, thus lower
margins were realized for this period as compared to 1998.
Other revenues for the second quarter of 1999 were $2.7 million. This
amount includes $1.2 million in reported foreign currency gains on Australian
dollars due to the strengthening of the Australian currency relative to the U.S.
dollar and $1.0 million in insurance dividends. For the first six months of
1999, other revenues were $3.5 million. This amount included $1.4 million in
reported foreign currency gains on Australian dollars and $1.0 million in
insurance dividends.
The Company's DD&A expense for the second quarter and first six months of
1999 totaled $105.4 million and $193.8 million, respectively, compared to $97.4
million and $195.8 million for the comparable periods in 1998. On an equivalent
barrel basis, full cost DD&A expense decreased $.01 per barrel of oil equivalent
(boe), from $5.65 per boe to $5.64 per boe, in the second quarter of 1999
compared to the same period in 1998. For the six months ended June 30, 1999, the
full cost DD&A rate totaled $5.53 per boe compared to $5.61 per boe in 1998.
Production increases in Canada, Australia and Egypt, countries which have a
lower DD&A rate per boe than the U.S., accounted for the decrease in the overall
rate. The U.S. DD&A rate has stayed relatively constant at $6.06 per boe in the
first half of 1999 compared to $6.05 per boe in the first half of 1998. U.S.
production accounted for 61 percent of worldwide production in the first half of
1999 compared to 64 percent in the first half of 1998.
Operating costs, including lease operating expense and severance taxes,
decreased three percent from $52.6 million in the second quarter of 1998 to
$51.3 million for the same period in 1999. For the first half of 1999, operating
costs totaled $98.1 million, a decrease of $11.0 million, or 10 percent,
compared to the same period in 1998. For the second quarter and first six months
of 1999, lease operating expense, excluding severance taxes, totaled $44.4
million and $85.6 million, respectively, compared to $45.0 million and $93.2
million for the comparable periods in 1998. On an equivalent barrel basis, lease
operating expense declined from $2.80 per boe in the second quarter of 1998 to
$2.51 per boe in the second quarter of 1999. For the first six months of 1999,
lease operating expense averaged $2.60 per boe, a nine percent decrease from
$2.87 per boe, for the same period in 1998. Domestic per unit costs were
significantly reduced due to lower Gulf Coast region repairs, maintenance, power
and fuel costs resulting from the sale of marginal properties, and by lower
Western and Mid-Continent region repairs and maintenance costs.
G&A expense in the second quarter and first six months of 1999 increased
$1.9 million or 19 percent, and $2.3 million or 11 percent, respectively, from a
year ago. These increases were the result of planned spending increases. On an
equivalent barrel basis, G&A expenses increased to $.68 per boe, for the first
half of 1999 as compared to $.62 per boe for the same period in 1998.
Net financing costs for the second quarter of 1999 increased $3.3 million,
or 19 percent, from the prior year due to higher gross interest expense and
reduced interest income, mitigated by higher capitalized interest. Gross
interest expense increased $2.5 million due to a higher average outstanding debt
balance. Net financing costs increased seven percent from $36.8 million in the
first half of 1998 to $39.5 million in the comparable 1999 period due to higher
average debt outstanding and reduced interest income, partially offset by an
increase in capitalized interest. Additional capitalized interest associated
with Egyptian pipeline projects under construction contributed to the increase.
The decrease in interest income was due to a lower cash balance in the first
half of 1999.
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
13
<PAGE> 15
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. See "Results of Operations" above.
The information set forth under "Market Risk - Interest Rate Risk and -
Foreign Currency Risk" in Item 7 of the Company's annual report on Form 10-K for
the year ended December 31, 1998, is incorporated herein by reference.
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, payment of dividends and capital obligations for affiliated
ventures. Apache budgets capital expenditures based upon projected cash flow and
routinely adjusts its capital expenditures in response to changes in oil and
natural gas prices and corresponding changes in cash flow. The Company is not in
a position to predict future product prices. Capital expenditures, including
acquisitions, for 1999 are expected to exceed internally generated cash flow.
Capital Expenditures - A summary of oil and gas capital expenditures during
the first six months of 1999 and 1998 is presented below (in millions):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Exploration and development:
United States $ 54.6 $ 114.3
Canada 15.2 40.4
Egypt 29.3 59.2
Australia 21.3 39.0
Other international 11.8 20.9
----------- -----------
132.2 273.8
Capitalized Interest 26.0 23.4
----------- -----------
Total $ 158.2 $ 297.2
=========== ===========
Acquisition of oil and gas properties $ 880.5 $ 19.3
=========== ===========
</TABLE>
In North America, Apache completed 43 producing wells out of 54 wells
drilled during the first half of 1999, while internationally the Company
discovered 21 new producers out of 31 wells drilled. Worldwide, the Company was
drilling or completing an additional 51 wells as of June 30, 1999. In addition,
Apache completed 152 production enhancement projects, including 93
recompletions, during the first half of 1999.
Property acquisitions in the first half of 1999, primarily represented
acquisitions of producing properties in the Company's existing focus areas.
On February 1, 1999, the Company acquired oil and gas properties located in
the Gulf of Mexico from Petsec Energy Inc. (Petsec) for an adjusted purchase
price of approximately $66.7 million. The Petsec transaction included estimated
proved reserves of approximately 10.2 million barrels of oil equivalent (MMboe)
as of the effective date.
On May 18, 1999, Apache acquired from Shell Offshore Inc. and affiliated
Shell entities (Shell) its interest in 22 producing fields and 16 undeveloped
blocks located in the Gulf of Mexico. The Shell transaction also included
certain production-related assets and proprietary 3D seismic data covering
approximately 1,000 blocks in the Gulf of Mexico. The purchase price, subject to
post closing adjustments, was $686.5 million in cash and one million shares of
Apache common stock (valued at $28.125 per share). The Shell transaction
included estimated proved reserves of approximately 123.2 MMboe as of the
effective date.
14
<PAGE> 16
On June 18, 1999, the Company acquired a 10 percent interest in the East
Spar Joint Venture and an 8.4 percent interest in the Harriet Joint Venture,
both located in the Carnarvon Basin (offshore Western Australia), from
British-Borneo Oil and Gas Plc (British-Borneo) in exchange for $83.7 million
cash and working interests in 11 leases in the Gulf of Mexico. The
British-Borneo transaction included estimated proved reserves of approximately
15.9 MMboe as of the effective date.
CAPITAL RESOURCES AND LIQUIDITY
Net Cash Provided by Operating Activities - Apache's net cash provided by
operating activities during the first half of 1999 totaled $163.9 million, a
decrease of 29 percent from $231.0 million in the first half of 1998. This
decrease was primarily due to an increase in non-cash components of working
capital.
Stock Transactions - In May 1999, Apache issued 14,950,000 shares ($463.5
million) of Apache common stock and 140,000 shares ($217 million) of
Automatically Convertible Equity Securities, Conversion Preferred Stock, Series
C (the Preferred Stock) in the form of seven million depositary shares each
representing 1/50th of a share of Preferred Stock (Depositary Shares). The
Preferred Stock is not subject to a sinking fund or mandatory redemption. On May
15, 2002, each Depositary Share will automatically convert, subject to
adjustments, into not more than one share and not less than 0.8197 of a share of
Apache common stock, depending on the market price of Apache common stock at
that time.
Long-Term Borrowings - In March 1999, Apache Finance issued $100 million
principal amount, $99.3 million net of discount, of senior unsecured 7-percent
notes due March 15, 2009. The notes are irrevocably and unconditionally
guaranteed by Apache. Apache Finance has the right to redeem the notes prior to
maturity, under certain conditions related to changes in relevant tax laws.
Also, upon certain changes in control, these notes are subject to mandatory
repurchase. The proceeds were used to reduce outstanding indebtedness under the
Australian portion of the global credit facility.
In June 1999, the Company issued $150 million principal amount, $149.1
million net of discount, of senior unsecured 7.625-percent notes due July 1,
2019. The Company does not have the right to redeem the notes prior to maturity.
Upon certain changes in control, these notes are subject to mandatory
repurchase. The proceeds were used to reduce the Company's outstanding amounts
of commercial paper.
Liquidity - The Company had $22.4 million in cash and cash equivalents on
hand at June 30, 1999, up from $14.5 million at December 31, 1998. Apache's
ratio of current assets to current liabilities at June 30, 1999 was 1.17:1
compared to .74:1 at December 31, 1998.
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 June 30, 1999, Apache's
available borrowing capacity under its global credit facility was $836 million.
15
<PAGE> 17
IMPACT OF THE YEAR 2000 ISSUE
The inability of some computer programs and embedded computer chips to
distinguish between the year 1900 and the year 2000 (the Year 2000 issue) poses
a serious threat of business disruption to any organization that utilizes
computer technology and computer chip technology in their business systems or
equipment. Apache has formed a Year 2000 Task Force with representation from
major business units to inventory and assess the risk associated with hardware,
software, telecommunications systems, office equipment, embedded chip controls
and systems, process control systems, facility control systems and dependencies
on external trading partners. The project phases, expected completion dates and
percentage complete as of June 1999 are as follows:
<TABLE>
<CAPTION>
PERCENT
PHASE COMPLETION DATE COMPLETE
--------------------------------------- ------------------- ---------------
<S> <C> <C>
Organization July 1998 100%
Assessment November 1998 100%
Desktop Computers
Network Hardware
Software
Embedded Systems
External Trading Partners
Building/Infrastructure Systems
Telecommunications Systems
Implementation/Replacement September 1999 75%
Computer Hardware
Core Business Software
Desktop Software
Embedded Systems
Building Systems
Contact External Trading Partners March 1999 100%
Contingency Planning August 1999 90%
</TABLE>
To date, the Company is not aware of any significant Year 2000 issues that
would cause problems in the area of safety, environmental or business
interruption. The Company has assessed the risks associated with hardware,
software, infrastructure, embedded chips and external trading partners that are
not Year 2000 compliant. While Apache is confident that Year 2000 remediation
efforts will succeed in minimizing exposure to business disruption, plans are
being developed that will allow continuation of business in all but the worst
case scenarios. All remediation and replacement efforts and contingency planning
are expected to be complete by September 1999. All critical external trading
partners have been contacted to determine Year 2000 readiness. Such responses
indicate they will be compliant by year-end.
In 1997, the Company initiated a project to replace existing business
software as it relates to Apache's production, land, marketing, accounting and
financial systems to more effectively and efficiently meet its business needs.
Replacement computer systems selected by the Company from SAP America, Inc.,
PricewaterhouseCoopers LLP, Innovative Business Solutions and Landmark Graphics
will properly recognize dates beyond December 31, 1999. The implementation of
the business software project was completed and operational effective with
January 1999 production.
The Company expects the cost to achieve Year 2000 compliance will not
exceed $4 million, excluding the cost of implementing business replacement
systems.
The Company presently believes that with conversions to new software and
completion of efforts planned by the Year 2000 Task Force, the risk associated
with Year 2000 will be significantly reduced. However, the Company is
16
<PAGE> 18
unable to assure that the consequences of Year 2000 failures of systems
maintained by the Company or by third parties will not materially adversely
impact the Company's results of operations, liquidity or financial condition.
FUTURE TRENDS
Apache's strategy is to increase its oil and gas reserves, production, cash
flow and earnings through a balanced growth program that involves:
1. exploiting our existing asset base;
2. acquiring properties to which we can add incremental value; and
3. investing in high-potential exploration prospects.
EXPLOITING EXISTING ASSET BASE
We seek to maximize the value of our existing asset base by reducing
operating costs per unit and increasing the amount of recoverable reserves. In
order to achieve these objectives, we rigorously pursue operations to cut costs,
identify production enhancement initiatives such as workovers and recompletions,
and divest marginal and non-strategic properties.
ACQUIRING PROPERTIES TO WHICH WE CAN ADD INCREMENTAL VALUE
We seek to purchase reserves at appropriate prices by generally avoiding
auction processes where we are competing against other buyers. Our aim is to
follow each acquisition with a cycle of reserve enhancement, property
consolidation and cash flow acceleration, facilitating asset growth and debt
reduction.
INVESTING IN HIGH-POTENTIAL EXPLORATION PROSPECTS
We seek to concentrate our exploratory investments in a select number of
international areas and to become the dominant operator in those regions. We
believe that these investments, although higher-risk, offer the potential for
significant reserve additions. Our international investments and exploration
activities are a significant component of our long-term growth strategy. They
complement our North American operations, which are more development oriented.
A critical component in implementing our three-pronged growth strategy is
maintenance of significant financial flexibility. We are committed to preserving
a strong balance sheet and credit position that gives us the foundation required
to pursue our growth initiatives.
CHANGES IN ACCOUNTING PRINCIPLES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value, and
requires that changes in a derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the statement of consolidated operations, and
requires that a company formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment.
SFAS No. 133 is required to be adopted on January 1, 2001, although earlier
adoption is permitted. The Company is analyzing the effects of SFAS No. 133, but
has not yet quantified the potential financial statement impact, if any, or
determined the timing or method of adoption. Management does not believe that
the adoption of SFAS No. 133 will have a material impact on the Company's
financial condition or results of operations.
17
<PAGE> 19
CHINA
On May 28, 1999, Apache China (an indirectly, wholly owned subsidiary of
the Company) sent a notice of default to XCL-China, a participant with Apache
China in the Zhao Dong Block offshore the People's Republic of China, and its
parent company, XCL, Ltd., pursuant to the agreements governing the project.
Prior to the expiration of the cure period, XCL-China and XCL, Ltd. filed
petitions initiating arbitration proceedings against Apache China. The actions
seek to disallow approximately $17 million in costs expended by Apache China to
develop the Zhao Dong Block, including $10 million in costs billed by Apache
China to XCL-China that have not been paid. In addition, XCL-China has advised
Apache China of XCL-China's intent to seek the removal of Apache China as
operator of the Block. Apache China has denied all of the allegations made by
XCL-China in its petition and will vigorously contest them. On June 25, 1999,
Apache China filed a petition in U.S. Bankruptcy Court in Opelousas, Louisiana,
to place XCL-China into involuntary bankruptcy on account of XCL-China's failure
to pay its share of costs related to development of the Zhao Dong Block.
XCL-China has denied the allegations contained in Apache China's petition and
has filed a motion to dismiss the petition.
FORWARD-LOOKING STATEMENTS AND RISK
Certain statements in this report are forward-looking statements. All
statements other than statements of historical facts, including, among others,
statements regarding our future financial position, business strategy, budgets,
reserve information, projected levels of production, projected costs and plans
and objectives of management for future operations, are forward-looking
statements.
We typically use words such as "expect", "anticipate", "estimate",
"intend", "plan" and "believe" to identify our forward-looking statements.
Although we believe our expectations reflected in forward-looking
statements are based on reasonable assumptions, no assurance can be given that
these expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the expectations reflected in the
forward-looking statements include, among others:
1. the market prices of oil and gas;
2. economic and competitive conditions;
3. inflation rates;
4. legislative and regulatory changes;
5. financial market conditions;
6. political and economic uncertainties of foreign governments; and
7. future business decisions.
In light of these risks, uncertainties and assumptions, the events
anticipated by our forward-looking statements might not occur. We undertake no
obligation to update or revise our forward-looking statements, whether as a
result of new information, future events or otherwise.
18
<PAGE> 20
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 annual report on Form 10-K for
the year ended December 31, 1998 (filed with the SEC on March 25,
1999) is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of stockholders was held in Houston,
Texas at 10:00 a.m. local time, on Thursday, May 6, 1999. Proxies for
the meeting were solicited pursuant to Regulation 14 under the
Securities Exchange Act of 1934, as amended. There was no
solicitation in opposition to the nominees for election as directors
as listed in the proxy statement, and all nominees were elected.
Out of a total of 97,812,383 shares of the Company's common stock
outstanding and entitled to vote, 86,791,406 shares were present at
the meeting in person or by proxy, representing approximately 88.7
percent. Matters voted upon at the meeting were as follows:
Election of four directors to serve on the Company's board of
directors. Mr. Farris, Mr. Ferlic, Mr. Frazier and Mr. Kocur were
elected to serve until the annual meeting in 2002. The vote
tabulation with respect to each nominee was as follows:
<TABLE>
<CAPTION>
AUTHORITY
NOMINEE FOR WITHHELD
------------------------ ------------- --------------
<S> <C> <C>
G. Steven Farris 86,043,700 747,706
Randolph M. Ferlic 86,167,993 623,413
A. D. Frazier, Jr. 77,087,448 9,703,958
John A. Kocur 86,010,059 781,347
</TABLE>
ITEM 5. OTHER INFORMATION
None
19
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12.1 - Statement of computation of ratios of earnings to
fixed charges and combined fixed charges and preferred stock dividends.
27.1 - Financial Data Table
(b) Reports filed on Form 8-K
The following current reports on Form 8-K were filed during
the fiscal quarter ended June 30, 1999:
April 29, 1999 - Item 5. Other Events
Offering to the public of (i) 14,950,000 shares of Apache
common stock, par value $1.25 per share, and (ii) 7,000,000
depositary shares, representing Automatically Convertible
Equity Securities, Conversion Preferred Stock, Series C, no
par value. The shares of common stock and the depositary
shares were registered pursuant to a registration statement on
Form S-3 (Registration No. 333-75633).
May 18, 1999 - Item 2. Acquisition or Disposition of
Assets
Apache closed the purchase from Shell Offshore Inc. and
affiliates ("Shell") of (i) Shell's interest in 22 producing
fields and 16 undeveloped blocks located in the Gulf of
Mexico, (ii) certain production-related assets, and (iii)
proprietary 3-D seismic data covering over 1,000 blocks in the
Gulf of Mexico.
June 22, 1999 - Item 5. Other Events
Offering to the public of $150 million principal amount of
7.625% Senior Notes due 2019, issued under an indenture dated
February 15, 1996 and supplemented November 5, 1996, and
registered pursuant to a registration statement on Form S-3
(Registration No. 333-44731.)
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
APACHE CORPORATION
Dated: August 12, 1999 /s/ Roger B. Plank
-------------------------------------------
Roger B. Plank
Vice President and Chief Financial Officer
Dated: August 12, 1999 /s/ Thomas L. Mitchell
-------------------------------------------
Thomas L. Mitchell
Vice President and Controller
(Chief Accounting Officer)
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C> <C>
12.1 - Statement of computation of ratios of earnings to fixed
charges and combined fixed charges and preferred stock
dividends.
27.1 - Financial Data Table
</TABLE>
<PAGE> 1
EXHIBIT 12.1
APACHE CORPORATION
STATEMENT OF COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES AND
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS
Pretax income (loss) from continuing
operations (1) $ 56,215 $ 46,553 $(187,563) $258,640 $200,195 $ 33,143 $ 66,234
Add: Fixed charges excluding capitalized
interest 43,131 41,026 78,728 78,531 68,091 77,220 39,008
-------- -------- --------- -------- -------- -------- --------
Adjusted Earnings $ 99,346 $ 87,579 $(108,835) $337,171 $268,286 $110,363 $105,242
======== ======== ========= ======== ======== ======== ========
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
Interest expense including capitalized
interest (2) $ 64,107 $ 60,331 $ 119,703 $105,148 $ 89,829 $ 88,057 $ 37,838
Amortization of debt expense 2,215 2,308 4,496 6,438 5,118 4,665 3,987
Interest component of lease rental
expenditures (3) 2,778 1,775 3,808 3,438 3,856 3,539 3,217
-------- -------- --------- -------- -------- -------- --------
Fixed charges 69,100 64,414 128,007 115,024 98,803 96,261 45,042
-------- -------- --------- -------- -------- -------- --------
Preferred stock requirements (4) 8,370 - 2,905 - - - -
-------- -------- --------- -------- -------- -------- --------
Combined fixed charges and preferred
stock dividends $ 77,470 $ 64,414 $ 130,912 $115,024 $ 98,803 $ 96,261 $ 45,042
======== ======== ========= ======== ======== ======== ========
Ratio of earnings to fixed charges 1.44 1.36 - (5) 2.93 2.72 1.15 2.34
======== ======== ========= ======== ======== ======== ========
Ratio of earnings to combined fixed charges
and preferred stock dividends 1.28 1.36 - (5) 2.93 2.72 1.15 2.34
======== ======== ========= ======== ======== ======== ========
</TABLE>
- -------------
(1) Undistributed income of less-than-50%-owned affiliates is excluded.
(2) Apache has guaranteed and is contingently liable for certain debt. Fixed
charges, relating to the debt for which Apache is contingently liable, have
not been included in the fixed charges for any of the periods shown above.
(3) Represents the portion of rental expense assumed to be attributable to
interest factors of related rental obligations determined at interest rates
appropriate for the period during which the rental obligations were
incurred. Approximately 32% to 34% applies for all periods presented.
(4) Represents the amount of pre-tax earnings that would be required to cover
preferred stock dividends.
(5) Earnings were inadequate to cover fixed charges and combined fixed charges
and preferred stock dividends by $236.8 million and $239.7 million,
respectively, due to the $243.2 million write-down of the carrying value of
United States oil and gas properties.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,427
<SECURITIES> 0
<RECEIVABLES> 228,145
<ALLOWANCES> 0
<INVENTORY> 47,481
<CURRENT-ASSETS> 319,061
<PP&E> 7,991,778
<DEPRECIATION> (3,457,343)
<TOTAL-ASSETS> 4,894,969
<CURRENT-LIABILITIES> 272,825
<BONDS> 1,539,265
210,490
98,387
<COMMON> 144,855
<OTHER-SE> 2,053,771
<TOTAL-LIABILITY-AND-EQUITY> 4,894,969
<SALES> 465,874
<TOTAL-REVENUES> 469,351
<CGS> 351,143
<TOTAL-COSTS> 351,143
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,529
<INCOME-PRETAX> 56,215
<INCOME-TAX> 25,615
<INCOME-CONTINUING> 30,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,600
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.26
</TABLE>
